-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mm5kyZzt+MT17Y6VmVOYP615V1GB26eBhFhx3Ct8P++v6AnLR9AX9uLh6jQEj8so mpA+yfPfPUS/OEhEQVr5ZA== 0000809801-98-000001.txt : 19980327 0000809801-98-000001.hdr.sgml : 19980327 ACCESSION NUMBER: 0000809801-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 27 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERIDIAN INSURANCE GROUP INC CENTRAL INDEX KEY: 0000809801 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 351689161 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15852 FILM NUMBER: 98573942 BUSINESS ADDRESS: STREET 1: 2955 N MERIDIAN ST STREET 2: PO BOX 1980 CITY: INDIANAPOLIS STATE: IN ZIP: 46206-1980 BUSINESS PHONE: 3179278100 MAIL ADDRESS: STREET 1: P.O. BOX 1980 CITY: INDIANAPOLIS STATE: IN ZIP: 46206-1980 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) ( X )Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1997. ( )Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . Commission File Number: 0-11413 MERIDIAN INSURANCE GROUP, INC. (Exact name of registrant as specified in its charter) Indiana 35-1689161 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2955 North Meridian Street P.O. Box 1980 Indianapolis, IN 46206-1980 (Address of principal executive offices) Registrant's telephone number, including area code: (317) 931-7000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Shares Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of voting stock owned by non-affiliates at March 13, 1998, based on the closing sales price, was $62,563,363. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: 6,637,853 Common Shares at March 13, 1998. The Index of Exhibits is located at page 48 in the sequential numbering system. Total number of pages, including cover page: 380. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document have been incorporated by reference into this Annual Report on Form 10-K: Parts of Form 10-K into Which Identity of Document Document is Incorporated Definitive Proxy Statement Part III with respect to the 1998 Annual Meeting of Shareholders of Registrant MERIDIAN INSURANCE GROUP, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 1997 PART I PAGE ITEM 1. BUSINESS 4 ITEM 2. PROPERTIES 16 ITEM 3. LEGAL PROCEEDINGS 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 17 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 45 ITEM 11. EXECUTIVE COMPENSATION 45 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 45 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 46 PART I ITEM 1: BUSINESS General: Meridian Insurance Group, Inc. ("the Company"), is a regional holding company principally engaged in the business of underwriting property and casualty insurance through its wholly-owned subsidiaries, Meridian Security Insurance Company ("Meridian Security"), Citizens Fund Insurance Company ("Citizens Fund") and Insurance Company of Ohio ("ICO"). Citizens Fund and ICO, along with their holding company, Citizens Security Group, Inc. ("CSGI"), were purchased by Meridian Security on July 31, 1996. During the first quarter of 1997, the Company dissolved CSGI. The assets and liabilities of CSGI were merged into Meridian Security. The Company also owns a small service support company, Meridian Service Corporation, whose results of operations are insignificant to the total operations of the Company. Approximately 47.5 percent of the Company's outstanding common shares are owned by Meridian Mutual Insurance Company ("Meridian Mutual"), a mutual property and casualty insurance company headquartered in Indianapolis, Indiana. Since August 1, 1996, Meridian Security, Citizens Fund, ICO, Meridian Mutual and Citizens Security Mutual Insurance Company ("Citizens Security Mutual"), the former majority shareholder of CSGI, have been parties to a reinsurance pooling agreement ("pooling agreement") under which all business written, except those Meridian Mutual policies that are solicited through direct response marketing, is shared by the companies on the basis of their percentage participation defined in the pooling agreement. Prior to August 1, 1996, Meridian Security and Meridian Mutual were the only participants in this pooling arrangement. Meridian Mutual writes a broad line of property and casualty insurance, including personal and commercial automobile; homeowners, farmowners and commercial multi-peril; and workers' compensation. Business is written through approximately 1,075 independent insurance agencies in the states of Illinois, Indiana, Iowa, Kentucky, Michigan, Ohio, Pennsylvania, Tennessee, and Wisconsin. During the fourth quarter of 1997, Meridian Mutual began offering business through direct response marketing in the state of Washington. Meridian Security writes personal, farm and workers' compensation lines through approximately 625 independent insurance agencies, many of which are cross-licensed with Meridian Mutual. Meridian Security writes business primarily in rural areas of the states in which Meridian Mutual is licensed. Citizens Security Mutual offers a variety of personal and commercial insurance products in the states of Iowa, Minnesota, Missouri, North Dakota, Ohio, South Dakota, Tennessee, and Wisconsin through a network of approximately 400 independent insurance agencies. Citizens Security Mutual has also been recently granted licenses to write business in the states of Illinois and Indiana, however, no direct premiums were written in 1997. Citizens Fund writes pimarily personal lines through approximately 80 independent agencies in the states of Iowa, Minnesota, North Dakota, Ohio, South Dakota, and Wisconsin. ICO formerly offered personal and commercial products in the state of Ohio, but discontinued directly writing business during 1997. The in-force business previously written by ICO is currently being renewed through Meridian Security. Relationships with Meridian Mutual and Citizens Security Mutual: All of the Company's corporate officers are officers of Meridian Mutual and six of the ten members that constitute the Company's Board of Directors are also directors of Meridian Mutual. Of the directors and officers of Citizens Security Mutual, five of the six individuals are corporate officers of the Company. Effective January 1, 1997, the Company became the employer for all of the employees of Meridian Mutual and Citizens Security Mutual and the related employee benefit plans were merged into the Company's plans. Prior to January 1, the Company had no employees and was dependent upon Meridian Mutual and Citizens Security Mutual for the sale and underwriting of insurance, the servicing of policyholder claims and all other aspects of the Company's operations. Underwriting expenses are shared under the pooling agreement between each entity in accordance with the participation percentages of the parties. Other expenses which can be directly identified with Meridian Mutual, Citizens Security Mutual or the Company are paid by the company to which the expense is attributable. All other operating expenses relating to the business of each company (which have not been and are not expected to be significant in amount) are allocated in accordance with policies established in good faith by their Boards of Directors. Pooling Agreement: The pooling agreement covers all of the property and casualty insurance written by Meridian Mutual, Citizens Security Mutual, Meridian Security, Citizens Fund, and ICO, with the exception of non- standard automobile insurance and business written via direct response marketing, which Meridian Mutual began to offer in January, 1998 and November 1997, respectively. Under the pooling agreement, essentially all premiums, losses, loss adjustment expenses and other underwriting and administrative expenses of each company are shared in accordance with the participation percentages established under the pooling agreement. Since August 1, 1996, the participation percentages of the Company's insurance subsidiaries totaled 74 percent. The participation rates were fixed with reference to the relative historical net written premiums of the companies. Therefore, each company's relative share of underwriting revenues, losses, and expenses was not significantly altered as an immediate result of the acquisition. Prior to August 1, Meridian Mutual and Meridian Security were the only participants in the pooling agreement, under which Meridian Security had assumed 74 percent of the combined underwriting income and expenses since May 1, 1993. The Boards of Directors of the Company, Meridian Mutual and Citizens Security Mutual have delegated to their respective Audit Committees the responsibility of monitoring the relationships between each of the participants under the pooling agreement pursuant to such procedures as those Committees may deem necessary and appropriate to allocate the pool participation percentages to each participant of the agreement. The Audit Committees have established guidelines for reviewing the participation percentages at least annually and for referring to the Pooling Committees of each company any decision to change the participation percentages. Future events that could affect the participation percentages among the parties include the receipt by Meridian Mutual of dividends on the common shares of the Company held by it, changes in the capital structure or asset values of Meridian Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund, or ICO, different effective rates of income taxation, or other factors which disproportionately affect the surplus of any of the participants. The Company, Meridian Mutual and Citizens Security Mutual have conflicting interests with respect to the establishment of the respective ratios of each company under the pooling agreement, and conflicts may arise between the Company, Meridian Mutual and Citizens Security Mutual relating to the allocation of expenses not related to insurance underwriting, business and investment philosophies, profit objectives, cash management, dividend policy and other matters. The business and operations of the Company are integrated with and largely dependent upon the business and operations of Meridian Mutual and Citizens Security Mutual. Management of Meridian Mutual determines which expenses are associated with underwriting operations (and therefore shared by each of the entities under the pooling agreement), and also selects and values the assets and liabilities transferred between the companies pursuant to the pooling agreement. The pooling agreement contains no specific provisions regarding the procedures to be followed in making these decisions. In arriving at decisions involving matters in which Meridian Mutual and/or Citizens Security Mutual has an interest, the directors of the Company will be governed by their fiduciary duties to the Company and its shareholders, but those directors who also are directors of Meridian Mutual and Citizens Security Mutual also owe fiduciary duties to the policyholders of Meridian Mutual and Citizens Security Mutual and no procedures have been established under which those decisions would be made by disinterested directors. The terms of the pooling agreement preclude conflicts which could arise in deciding which risks are to be insured by each of the participants by making the results of the operations of all participants dependent on the results of the total business covered by the pooling agreement. The pooling agreement has no fixed term and provides that it is to remain in force until canceled by the mutual consent of Meridian Security, Citizens Fund, ICO or Citizens Security Mutual and Meridian Mutual. The pooling agreement may be amended or terminated without the necessity of a vote by the shareholders of the Company or the policyholders of any of the parties. In the event of a termination of the pooling agreement, the terminating party or parties would transfer back to Meridian Mutual the liabilities ceded to it by Meridian Mutual and Meridian Mutual would transfer back to the terminating party the liabilities ceded to it by the terminating party, and each party would receive from the other assets in an amount equal to the amount of the policy liabilities received. If the pooling agreement had been terminated at December 31, 1997, approximately 12 percent of the assets and liabilities subject to the pooling agreement would have been transferred to the Company's insurance subsidiaries. The Company would continue to own all of the outstanding common shares of Meridian Security, Citizens Fund and ICO. The Company would maintain the employee force but would have limited sales operations through a much smaller independent agency force. Regulatory approvals of the states of domicile are required to change the participation percentages of the parties to the pooling agreement or to terminate the pooling agreement; however, the requirement for such approvals is for the protection of the policyholders of the participating companies and not for the protection of the Company's shareholders. The Company intends that its insurance subsidiaries will continue their participation in the pooling agreement, absent some unforeseen change in circumstances. A. M. Best Company, Inc., Ratings: Since 1993, Meridian Mutual and Meridian Security have maintained a group rating of "A" (excellent) by A. M. Best Company, Inc. ("Best"). Subsequent to the July 31, 1996 acquisition, the Meridian group rating of "A" was also given to Citizens Fund, ICO and Citizens Security Mutual. Best is an independent company which rates insurance companies on the basis of their opinion as to the financial position and operating performance. Best's ratings are based upon factors related to the capacity of the insurer to make payment of its obligations to policyholders and do not relate to the protection of investors or indicate expected investment results. Operations: In the following discussion of operations, the term "Meridian" refers to the operations of the property and casualty insurance business of Meridian Mutual and Meridian Security and the term "Citizens Security Group" refers to the operations of Citizens Security Mutual, Citizens Fund and ICO covered by the pooling agreement. The operations of Citizens Fund and ICO have been included in the Company's results of operations since August 1, 1996. As a result of the Citizens Security Group acquisition, the Company's operating territory expanded into four additional states (Minnesota, Missouri, South Dakota, and North Dakota) and enlarged the premium base in Iowa, Ohio and Wisconsin. This geographic expansion has enabled the Company to spread its risk across a larger region. Also, certain economies of scale and expense efficiencies have resulted from this acquisition with the anticipation that more will result over time. Underwriting-Meridian: The underwriting of Meridian is separated into personal, commercial and farm lines of business. The underwriting personnel are responsible for establishing risk-selection guidelines for Meridian's agents and underwrite and monitor policy issuance to insure adherence to the established guidelines. The underwriting departments also determine the pricing of Meridian's products and are responsible for the development of new products and enhancements. The underwriting personnel work closely with Meridian's sales representatives and consult regularly with Meridian's agents to assess current market conditions. In establishing prices, Meridian's underwriting personnel analyze studies of statistical and actuarial data concerning the impact of price changes in the markets served by Meridian and consider data compiled by industry organizations. This allows Meridian to more accurately assess the anticipated costs of risks underwritten. Over the past several years, Meridian has emphasized efforts to improve underwriting in order to reduce its loss ratio. Processes such as re-underwriting the existing book of business, monitoring unprofitable agents, improving rate adequacy and consolidating four district offices into the home office facility have all contributed to reducing the Company's statutory combined ratio. The Company's 1997 combined ratio of 107.1 percent was lower than 1996's 108.0 percent, however, both years ratios were unfavorably affected by catastrophe and other weather-related non-catastrophic claims. The Company has also focused considerable resources on reducing per-unit costs and other expenses in order to improve its loss adjustment and underwriting expense ratios. Beginning in 1994, Meridian began to re- engineer and re-design certain core processes. In 1996 and 1997, Meridian installed an automated personal lines underwriting system that enables policies meeting certain criteria to be issued without manual review. This allows the Company to process a larger volume of business without proportionally expanding the size of the underwriting staff, thereby reducing per-unit costs. The Company currently issues certain new private passenger automobile and homeowners lines of business via the automated underwriting system. Underwriting-Citizens Security Group: Citizens Security Group has its own underwriting personnel. The underwriters for Citizens Security Group underwrite only standard lines of property and casualty insurance for persons and businesses in the "preferred risk" category rather than those lines which are considered higher risk, such as aviation, pollution and liquor liability. The underwriting personnel of Citizens Security Group perform basically the same functions as those of Meridian, but operate within their own set of established guidelines and procedures. Products and Marketing-Meridian: Meridian Mutual writes a broad line of property and casualty insurance including personal and commercial automobile; homeowners, farmowners and commercial multi-peril; and workers' compensation. During the fourth quarter of 1997, Meridian Mutual began offering business through direct response marketing in the state of Washington. Meridian Security writes private passenger automobile, homeowners, farmowners, and other personal lines coverages primarily in rural areas of its operating territory. In 1997, Meridian Security also began offering workers' compensation business within selected states. Meridian markets primarily all of its insurance through independent insurance agents, and development and maintenance of a strong agency system is essential. Meridian seeks to provide its agents and policyholders a level of service that surpasses industry standards. Meridian Mutual's agency network numbers approximately 1,075 independent insurance agencies spread throughout nine states. Meridian Security maintains its own agency network of approximately 625 independent insurance agencies in ten states, many of which are cross-licensed with Meridian Mutual. Meridian's independent agencies are primarily small to medium-sized firms with no agency producing more than 2 percent of the total written premium. Meridian continuously monitors its agencies, giving special attention to the volume and profitability of business written by each agency. Agencies which consistently write unprofitable business may be terminated by Meridian, subject to compliance with applicable state laws. Each agency enters into a standard agency agreement, under which the agency is authorized to sell and bind insurance coverage in accordance with procedures specified in the agreement and in accordance with Meridian's underwriting guidelines, as well as to collect and remit premiums. The agency receives as a commission a percentage of the premium for each policy written. Meridian offers a direct billing service to its agents, under which premium statements are provided to the insured and the insured pays the premiums directly to Meridian. Meridian pays the same commission rates on company-billed and agency- billed policies, thereby allowing agencies to reduce administrative costs without a reduction in commission income. Approximately 80 percent of Meridian's net written premium is derived from company- billed business. Meridian also offers an agency profit-sharing agreement in which agencies attaining prescribed premium volume and meeting prescribed profitability requirements receive a bonus. Meridian has developed separate growth strategies with respect to the personal, commercial and farm lines of business. With respect to personal lines, Meridian believes that continued improvements in service to agents and policyholders and the development of additional product enhancements will increase penetration of existing markets. By emphasizing strict adherence to underwriting guidelines and targeting selected lines of business, Meridian believes moderate growth in personal lines business is achievable without significantly increasing risk exposure. Meridian has identified several segments of its commercial lines markets in which management believes Meridian can compete effectively. Meridian has and will continue to focus on the mid-sized accounts in the $15,000 to $100,000 range of annual premium volume in addition to its traditional business with smaller accounts. The strategy with respect to farm lines emphasizes increased penetration of existing markets by targeting farms which meet Meridian's underwriting guidelines. Management believes Meridian enjoys a competitive advantage in the farmowners market because of its years of experience, regional focus and the fact that some national insurers have vacated this market. Products and Marketing-Citizens Security Group: The Citizens Security Group offers a variety of personal and commercial products including homeowners, personal and commercial automobile, commercial multi-peril, workers' compensation, tenant, inland marine, general liability and umbrella lines of business. The commercial products are oriented toward retail stores, restaurants, trade contractors and members of various trade associations, including funeral directors, newspaper publishers and veterinarians. Citizens Security Mutual markets its products through a network of approximately 400 independent insurance agencies throughout eight states and Citizens Fund solicits business through a network of approximately 80 independent agencies in six states. ICO offered business only in the state of Ohio through an agency force of approximately 80. During 1997, any new business related to ICO's products was written through its parent, Meridian Security and the inforce business previously written by ICO was renewed through Meridian Secuity on the anniversary date. Citizens Security Group's independent agencies are primarily small to medium-sized firms with no one agency or group of related agencies accounting for more than 3.5 percent of premiums written. The process by which the Citizens Security Group selects and retains its insurance agencies is basically the same as that of Meridian. The insurance agencies retained by Citizens Security Group receive a commission on the direct business written by each agency and participate in an agency profit sharing program that is based on profitability, retention and growth of business, with additional compensation being provided to agencies that exceed certain productivity levels. Citizens Security Group strives to offer excellent service to its agents and policyholders by providing rapid claim settlement and turnaround of rate quotations, policy issuance and policy endorsements. As an incentive to agents to sell its products, the Citizens Security Group emphasizes policyholder service, multi-line insurance coverage packages and a policyholder-oriented premium payment plan. The premium payment plan is a direct billing service known as the "Citizens Account Plan", or "CAP", and is designed to offer policyholders a convenient and flexible method in paying premiums. Under the plan, policyholders are billed directly for premiums on a monthly basis and have the option of making a minimum monthly payment or prepaying all or a portion of the premium. A single, easy-to-read bill covering the aggregate amount of premiums for all policies written by the Citizens Security Group is sent to the policyholders. Approximately 94 percent of direct premiums received in 1997 were billed directly to the policyholders. The Citizens Security Group markets their insurance products so that the products of one company are distinguishable from those of the other companies. The personal insurance products are designed to be marketed in a comprehensive package that includes personal automobile, homeowners, inland marine and umbrella insurance. Citizens Security Group's commercial products are marketed through various state trade associations, such as funeral directors, newspaper publishers and veterinarians, in which the company is the endorsed property and casualty insurance provider. The broad line of retail store, restaurant and trade contractor coverages are designed to be tailored to the customers' needs into one convenient package. The following table sets forth for the periods indicated the net premiums written, the net underwriting gain (loss), loss and loss adjustment expense ("LAE") ratios, expense ratios and combined ratios for the Company's insurance operations, prepared in accordance with statutory accounting principles. The combined ratio does not reflect investment income, federal income taxes, or other non-underwriting income or expense, all of which are included in determining net income. Year Ended December 31, 1997 1996 1995 1994 1993 (Dollars in thousands) Net Premiums Written Personal lines: Automobile $ 78,270 $ 68,219 $ 59,444 $ 54,205 $ 55,291 Homeowners 28,051 21,964 19,526 16,667 17,407 Other 5,995 5,678 5,190 4,035 3,894 Total personal lines 112,316 95,861 84,160 74,907 76,592 Farmowners 8,731 8,441 8,166 7,099 7,544 Commercial lines: Automobile 19,702 16,227 13,107 11,972 11,556 Workers' compensation 23,901 23,380 22,438 21,894 19,264 Commercial multi-peril 27,766 23,453 19,548 19,414 18,842 Other 2,103 1,833 1,323 859 995 Total commercial lines 73,472 64,893 56,416 54,139 50,657 Total premium written $194,519 $169,195 $148,742 $136,145 $134,793 Net Underwriting Loss $(13,726) $(13,868) $ (1,610) $ (2,751) $ (5,536) Loss and Loss Adjustment Expense Ratio Personal lines: Automobile 78.7% 75.0% 75.0% 69.2% 65.8% Homeowners 104.2 110.7 81.2 82.9 77.8 Other 52.5 55.1 43.7 53.9 64.7 Total personal lines 83.4% 81.8% 74.6% 71.5% 68.4% Farmowners 61.6% 98.4% 69.6% 64.4% 68.5% Commercial lines: Automobile 84.1% 79.6% 89.1% 80.0% 65.3% Workers' compensation 52.8 54.2 58.6 62.7 79.9 Commercial multi-peril 75.0 85.5 45.8 70.3 67.4 Other 43.6 14.3 47.4 (14.0) 35.1 Total commercial lines 68.8% 70.0% 61.0% 68.1% 71.0% Total loss & LAE ratio 76.8% 78.0% 69.2% 69.8% 69.4% Expense Ratio 30.3% 30.0% 31.0% 32.0% 32.4% Combined Ratio 107.1% 108.0% 100.2% 101.8% 101.8% Claims-Meridian and Citizens Security Group: Meridian's claim division is responsible for developing and implementing policies and procedures for the payment and disposition of claims and for establishing claim reserves on policies written by Meridian and Citizens Security Group. In connection therewith, it resolves questions concerning policy coverage and manages reinsurance recoveries and salvage and subrogation matters. Claims litigation is managed in conjunction with Meridian's legal division. All claim services for Meridian are handled through claim service centers in Indianapolis, Indiana; Louisville, Kentucky; and East Lansing, Michigan. Insurance claims on policies underwritten by Meridian are normally investigated and settled by Meridian claim adjusters. For policies underwritten by Citizens Security Group, certain independent insurance agents are given authority to settle small property claims on behalf of the companies. Other claims were initially investigated and settled through an outside claim adjustment firm, VIS'N, Inc. Beginning in January, 1998, the investigation and settlement of claims is being done by claim adjusters who are employees of the Company. Independent adjusters are employed as needed to handle the occasional overload of claims and in territories in which the volume of claims is not sufficient to justify having company claim adjusters. The Company's claim adjusters have authority to settle claims within policy limits, subject to direction and control by a claim manager or supervisor. All claims estimated to have a potential value of $50,000 or more are supervised by examiners at the home office, and all claims in excess of $100,000 must be approved by the claim division director and, if litigation is involved, the legal division director. A claim review committee provides for the periodic evaluation of larger claims to enhance the investigation and decision-making process. The committee reviews claims reserved in excess of $100,000, and any other claims involving special circumstances in order to make decisions as to investigations and/or settlement values. Reserves-Meridian and Citizens Security Group: Loss reserves are estimates at a given time, based on facts then known, of what an insurer predicts its exposure to be in connection with incurred losses. Loss adjustment expense reserves are estimates of the ultimate liability of the expenses in settling all claims, including investigation and litigation costs resulting from such claims. The ultimate liability of the insurer for all losses and loss adjustment expenses reserved at any point in time may be greater or less than these estimates. Meridian and Citizens Security Group maintain reserves for the eventual payment of losses and loss adjustment expenses with respect to both reported and unreported claims. Two principal methods are followed in establishing reserves. For coverages which involve a large volume of claims of relatively small amounts such as automobile property damage, comprehensive and collision insurance, reserves are maintained on an average basis by reference to the number and amount of paid claims. Adjustments to average reserves are made quarterly, based on the claims experience for the prior quarter. Reserves for other claims are established on a case-by-case basis pursuant to which a reserve amount is assigned to each claim when reported, based primarily upon an investigation of the circumstances surrounding each claim, consideration of the liability and the damages, and the insurance policy provisions relating to the claim. During the claim settlement process, it may become necessary to adjust estimates of future liability as additional facts regarding individual claims become known. Meridian and Citizens Security Group also establish reserves for claims which have been incurred but which have not been reported, utilizing statistical models based on historical experience. Reserves established pursuant to the statistical models also are designed to correct historical deficiencies or redundancies in the reserves established on an average or a case-by-case basis. Meridian and Citizens Security Group consult with an independent actuarial firm on a quarterly basis concerning the adequacy of reserves. Management believes that reserves for losses and loss adjustment expenses are adequate to cover the ultimate cost of settling reported and unreported claims, net of reinsurance, anticipated salvage and subrogation receipts, and other recoveries. Loss reserves are not discounted to present value. Inflation is implicitly provided for in calculating reserves through analysis of cost trends and review of historical reserve estimates. The following table sets forth a three-year reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the Company. The net reserves acquired through acquisition represent the loss and loss adjustment expense reserves, net of reinsurance, for Citizens Fund and ICO at the date of acquisition. Year Ended December 31, 1997 1996 1995 (In thousands) Balance at beginning of period $161,309 $123,577 $123,755 Less reinsurance recoverables 41,819 31,204 31,815 Net balance at beginning of period 119,490 92,373 91,940 Net reserves acquired through acquisition --- 20,685 --- Incurred related to: Current year 165,577 137,817 104,585 Prior years (16,358) (7,716) (5,461) Total incurred 149,219 130,101 99,124 Paid related to: Current year 97,448 93,199 61,792 Prior years 50,332 30,470 36,899 Total paid 147,780 123,669 98,691 Net balance at end of period 120,929 119,490 92,373 Plus reinsurance recoverables 48,872 41,819 31,204 Balance at end of period $169,801 $161,309 $123,577 The reconciliation for 1997 shows an approximately $16.4 million reduction in previously established loss reserves. Favorable loss developments resulting from decreases in the frequency and severity of claims in 1996 and prior accident years for the Company's commercial automobile liability, workers' compensation lines and commercial multiple-peril lines of business were the primary factors in the most recent period reduction. The Company also experienced favorable underwriting trends from its involvement in the involuntary National Workers' Compensation Pool. The following table shows the calendar-year development of the unpaid losses and loss adjustment expenses of the Company's pooled business for each of the last ten years. The top line of the table shows the estimated reserves for losses and loss adjustment expenses, net of reinsurance recoveries, as recorded by the Company for each of the indicated years. These reserves represent the estimated amount of net unpaid losses and loss adjustment expenses for claims arising on or before December 31 of each year, including claims that had not yet been reported. The data in the upper portion of the table reflect the cumulative payments made as they have developed through time. The payments are expressed as a percentage of the year-end reserves shown in the top line. The data in the lower portion show the change in the reserve estimate over time. A redundancy in reserves means that reserves established in prior years exceeded actual losses and loss adjustment expenses or were re- evaluated to less than the originally reserved amount. A deficiency in reserves means that the reserves established in prior years were less than actual losses and loss adjustment expenses or were re- evaluated at more than the originally reserved amount. In evaluating the following information for the Company, it should be noted that each amount includes the effects of all changes in amounts for prior periods. For example, the amount of redundancy related to losses settled in 1997 but incurred in 1991 is included in the cumulative redundancy amount for each of the years from 1991 through 1996. The table does not present accident or policy-year development data. Reserves increased significantly from 1987 to 1989 principally as a result of an increase in private passenger automobile as a percentage of the total business written by the Company, and related increases in the frequency and severity of claims. Additionally, reserves in 1988 were increased by approximately $5.0 million to adjust for the adverse loss development trends experienced in 1985 through 1987. Increases in the Company's share of the pooled loss and loss adjustment expense reserves also contributed significantly to the increase in reserves. The Company's participation increased from 44 percent in 1986, to 62 percent on April 1, 1987, and to the current level of 74 percent on May 1, 1993. In 1996, the Company acquired approximately $20.7 million in loss and loss adjustment expense reserves from the acquisition of Citizens Fund and ICO. Additionally, payments received on the acquired reserves since the acquisition were spread out over the ten years based on the accident year in which the original acquired reserve was set up. The participation percentage from the pooling agreement for the combined insurance operations of the Company totaled 74 percent. Conditions and trends that have affected development of the reserves in the past may not necessarily occur in the future. Accordingly, the data in the table may not be indicative of future redundancies or deficiencies.
Year Ended December 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 (Dollars in thousands) Net reserves for losses & loss adjustment expenses $120,929 $119,490 $92,373 $91,940 $89,630 $72,006 $68,102 $64,742 $62,281 $53,569 $43,899 Cumulative paid as a percent of year- end reserves: One year later 42.1% 40.7% 39.0% 40.7% 29.0% 42.4% 46.6% 46.1% 47.2% 57.4% Two years later 65.4% 59.0% 59.0% 51.7% 55.0% 68.5% 68.9% 68.1% 79.7% Three years later 70.9% 68.9% 62.6% 67.5% 74.7% 81.3% 81.3% 90.3% Four years later 74.6% 67.8% 74.9% 81.6% 84.1% 87.4% 97.0% Five years later 71.3% 77.4% 85.7% 88.0% 88.6% 99.9% Six years later 79.9% 87.5% 90.1% 90.7% 100.1% Seven years later 88.9% 91.8% 92.3% 101.4% Eight years later 93.0% 93.5% 102.7% Nine years later 94.7% 103.7% Ten years later 104.4% Reserves re-estimated as a percent of year-end reserves: One year later 91.1% 96.6% 92.9% 92.3% 93.6% 97.5% 103.2% 99.7% 102.3% 112.8% Two years later 103.4% 94.9% 89.0% 84.6% 93.0% 99.0% 100.7% 100.6% 112.7% Three years later 93.1% 89.2% 83.3% 89.0% 97.9% 99.2% 100.4% 109.5% Four years later 89.2% 83.6% 89.3% 95.3% 99.3% 99.7% 110.0% Five years later 83.8% 89.2% 96.3% 97.9% 100.3% 109.2% Six years later 89.7% 95.4% 98.4% 99.5% 110.6% Seven years later 96.5% 97.9% 100.0% 109.9% Eight years later 99.5% 100.2% 110.6% Nine years later 101.9% 110.9% Ten years later 112.4% Redundancy (deficiency) 8.9% -3.4% 6.9% 10.8% 16.2% 10.3% 3.5% 0.5% -1.9% -12.4%
Reinsurance-Meridian and Citizens Security Group: Meridian and Citizens Security Group follow the customary industry practice of limiting exposure by ceding to reinsurers a portion of the premiums received and risks assumed under the policies reinsured. Reinsurance is purchased to reduce a net liability on individual risks to predetermined limits and to protect against multiple losses from a single catastrophe or a series of catastrophes. Although reinsurance does not discharge an insurer from its primary liability for claims up to the full limits of the policies, it makes the assuming reinsurer liable to the insurer to the extent of the reinsurance ceded. Employers Reinsurance Corporation, rated "A++" by Best, is the Company's main reinsurer providing property and liability excess of loss coverage. Meridian and Citizens Security Group use a large number of reinsurers for property catastrophe and facultative coverages to reduce the effect of a default by any one reinsurer. Most of these companies are rated "A-" or better by Best, or an equivalent rating by other recognized independent rating agencies. Reinsurers not rated by Best or another independent agency are analyzed and approved by Meridian and Citizens Security Group's reinsurance broker, E. W. Blanch, and by Company personnel. The reinsurance purchased includes contracts under which certain types of policies are automatically reinsured up to the contract limits ("treaty reinsurance") and contracts which provide reinsurance on an individual risk basis which require specific agreement of the reinsurer as to limits of coverage provided ("facultative reinsurance"). Meridian Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund, and ICO were each named as insured parties under the treaty reinsurance contracts, and the coverages under those contracts applied to all risks written by each of the companies. Treaty reinsurance coverage was purchased to cover property and liability exposures in excess of $200,000 and $250,000, respectively, up to the limits set forth in the individual treaty. For 1998, the liability retention will be increased to $350,000. In 1996, the retention was $200,000 per loss occurrence for both property and liability exposures. Facultative reinsurance was purchased to cover exposures on both property and liability coverages from losses over and above the limits provided by the treaty reinsurance. Catastrophe reinsurance provided coverage for multiple losses caused by a single catastrophic event such as a windstorm or earthquake. The combined retention under this contract was $6,000,000 plus five percent of losses up to contractual limits for windstorms of $65,000,000 and for earthquakes of $115,000,000. The 1996 limit for both windstorms and earthquakes was $65,000,000. Two other catastrophe reinsurance treaties provided coverage when losses sustained from multiple catastrophic events aggregate beyond a specified retention. Under these two treaties, the combined retention was 2.5 percent of subject earned premiums, plus five percent of losses up to the $22,000,000 contractual limit. The combined retention will be increased to 3.0 percent for 1998. As of December 31, 1997, the Company had approximately $48.9 million of reinsurance recoverable on unpaid losses. Of this amount, approximately $29.4 million was recoverable from Employers Reinsurance Corporation and approximately $13.1 million was recoverable from the Michigan Catastrophic Claims Association, a mandatory state- administered personal injury protection reinsurance pool in which all insurers writing automobile business in that state must participate. The cost of the reinsurance contracts are renegotiated annually. If the relationships were to be terminated with the current reinsurers, management believes that, under current circumstances, relationships with other reinsurers could be established without a material adverse effect on its business. Meridian and Citizens Security Group assume a limited amount of reinsurance from third parties. This business accounted for less than one percent of net premiums written in 1997. Investments: Investments of the Company are principally held by Meridian Security, Citizens Fund and ICO, which are subject to regulation by their respective departments of insurance. The investment decisions are made pursuant to guidelines established by the Company's Finance and Investment Committee. This committee is made up of five directors of the Company, three of whom are also directors of Meridian Mutual. All investment transactions are reviewed by this committee. The investment guidelines established by the Finance and Investment Committee are intended to reflect a prudent approach to managing invested assets. Investments are required to be diversified by type of issuer, type of security and type of industry. Specific restrictions prohibit investments in real estate mortgages unless the related credit instruments are collateralized by federal or government agencies, and also limit the amount which may be invested in common stocks, based upon the premium-to-surplus ratio of the Company. The Company's fixed maturity portfolio, which is made up of bonds and sinking fund preferred stocks, consists almost entirely of investment grade securities, the average quality of which is rated Aa/AA. The fixed maturity securities at December 31, 1997 and 1996 were made up entirely of securities classified as available for sale, which are carried on the Company's balance sheet at fair market value. The Company invests in both taxable and tax-exempt securities as part of its strategy to maximize after-tax income. This strategy considers, among other factors, the impact of the alternative minimum tax. Tax- exempt bonds, on a carrying value basis, made up approximately 29.5 percent and 31.6 percent of the total fixed maturity portfolio at December 31, 1997 and 1996, respectively. On a carrying value basis, sinking fund preferred stocks made up approximately 14.2 percent of the total fixed maturity portfolio of the Company at December 31, 1997 and 1996. The Company also holds investments in mortgage-backed pass-through securities and collateralized mortgage obligations ("CMO") which had a carrying value of $43.4 million and $54.7 million at December 31, 1997 and 1996, respectively. The Company has attempted to reduce the prepayment risks associated with mortgage-backed securities by investing a majority of the Company's CMO holdings in planned amortization and very accurately defined tranches. These investments are designed to alleviate the risk of prepayment by providing predictable principal prepayment schedules within a designated range of prepayments. If principal is prepaid earlier than originally anticipated, investment yields may decrease due to reinvestment of these funds at lower current interest rates and capital gains or losses may be realized since the book value of securities purchased at premiums or discounts may be different than the prepayment amount. As a result of the number of early calls and prepayments, the estimated weighted average duration of the fixed maturity portfolio is approximately 4.3 years. The Company, as approved by the investment committee, has increased its equity security holdings over the past four years. Equity securities primarily consist of common stocks and had a fair market value of $54.4 million and $40.6 million at December 31, 1997 and 1996, respectively. Equity securities accounted for 17.6 percent and 14.4 percent of the total investment portfolio at December 31, 1997 and 1996, respectively. Regulation: Numerous aspects of the business and operations of the Company's insurance subsidiaries and affiliates are subject to supervision and regulation in each state in which they transact business. The primary purpose of state supervision and regulation is the protection of policyholders. The extent of such regulation varies among states but generally derives from state statutes which delegate regulatory, supervisory, and administrative authority to state insurance departments. The authority of state insurance departments generally extends to the establishment of solvency standards which must be met and maintained by insurers, the licensing of insurers and agents, the nature of and limitations on investments and premium rates, the provisions which insurers must make for current losses and future liabilities, the deposit of securities for the benefit of policyholders, the approval of policy forms, the payment of dividends, the establishment of premium rates and the settlement of claims. State insurance departments also conduct periodic examinations of insurance companies and require the filing of annual and other reports relating to the financial condition of insurance companies. The regulatory agencies of each state have statutory authority to enforce their laws and regulations through various administrative orders, civil and criminal enforcement proceedings, and the suspension or revocation of certificates of authority. In extreme cases, including insolvency, impending insolvency and other matters, a regulatory authority may take over the management and operation of an insurer's business and assets. Meridian Mutual and Meridian Security are admitted as insurers in the states of Illinois, Indiana, Iowa, Michigan, Minnesota, Kentucky, Ohio, Pennsylvania, Tennessee, and Wisconsin. Meridian Mutual also has a licence to transact business in the state of Washington. Citizens Fund and Citizens Security Mutual hold licenses to write in Iowa, Minnesota, North Dakota, Ohio, South Dakota, and Wisconsin. Citizens Security Mutual is also licensed to write insurance in Illinois, Indiana, Missouri, and Tennessee. ICO is admitted as an insurer in the state of Ohio. Under insolvency or guaranty laws in the states in which the above companies operate, insurers doing business in those states can be assessed up to prescribed limits for losses incurred by policyholders of insolvent insurance companies. The maximum amounts that can be assessed against an insurer in any one year under the insolvency or guaranty laws of the states named above are limited to a specified percentage of the annual direct premiums written by the company in the state in question with respect to the affected lines of business. Additionally, the companies are required to participate in various mandatory pools or underwriting associations. The Company is subject to statutes governing insurance holding companies. Typically, such statutes require the Company to file information periodically concerning its capital structure, ownership, financial condition, and material transactions between the Company and its insurance subsidiaries not in the ordinary course of business. The Company's insurance subsidiaries are subject to periodic examination by the insurance departments of the states in which they do business, and the payment of dividends by the insurance subsidiaries to the Company is subject to certain limitations. (See Note 12 of Notes to Consolidated Financial Statements.) Certain transactions between the Company and its insurance subsidiaries including changes in the terms of the pooling agreement and certain loan transactions, if any, may be effected only upon prior approval thereof by state regulatory authorities in the insurance company's state of domicile. Certain transactions deemed to constitute a "change in control" of the Company, including a party's purchase of 10 percent or more of the outstanding common shares, are all subject to approval by state regulatory authorities. Changes in the laws or regulations to which the Company is subject could adversely affect the operations of the Company. Specific regulatory developments which could materially adversely affect the operations of the Company include, but are not limited to, the potential repeal of the McCarran-Ferguson Act (which exempts insurance companies from a variety of federal regulatory requirements) and rate rollback legislation. The Company will continue to monitor current developments closely. Competition: The property and casualty insurance industry is highly competitive. Price competition has been particularly intense during recent years and is expected to continue for the foreseeable future. Meridian Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund, and ICO all compete with other property and casualty insurers, both in the recruitment and retention of qualified agents and in the sale of insurance products to consumers. The Company believes the principal competitive factors in its markets to be service to agents and policyholders and price. Success in recruiting and retaining agents is dependent upon the administrative support provided to agents, commission rates, and the ability of the insurer to provide products that meet the needs of the agent and the agent's customers. In selling its insurance products, Meridian Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund, and ICO compete with other insurers writing through independent agents (including insurers represented by the independent agents who represent Meridian and Citizens Security Group), with insurers having their own agency organizations and with direct sellers of insurance products. There are numerous companies competing for business in the geographic areas in which the Company, Meridian Mutual and Citizens Security Mutual operate. No single company dominates the marketplace, but many of Meridian's and Citizens Security Group's competitors have more established national reputations and substantially greater financial resources and market share. Employees: On January 1, 1997, the Company became the employer of all employees that were formerly employed by Meridian Mutual and Citizens Security Mutual. This transfer allows for more freedom in compensation planning, such as flexibility in the use of the Company's common stock as compensation, and improves internal efficiencies by combining employee benefit plans. Prior to the change, the Company had no employees and relied upon Meridian Mutual and Citizens Security Mutual to provide all management and administrative services required by the Company. The Company employs approximately 600 people and believes that its relationship with its employees is satisfactory. Audit Practices: The Board of Directors has an Audit Committee composed of three directors who are not employees of the Company or its affiliates. Usually meeting in conjunction with the Meridian Mutual Audit Committee, the committee monitors the Company's financial reporting and internal control systems and reviews the work of the Company's internal audit function. The Company retains the firm of Coopers & Lybrand L.L.P. as independent accountants to perform an independent audit of the financial statements of the Company and its affiliates. The audit is conducted in accordance with generally accepted auditing standards. The independent accountants have unlimited access to, and meet regularly with, the Audit Committees. ITEM 2: PROPERTIES The headquarters building of the Company and Meridian Mutual is owned by Meridian Mutual and is located near downtown Indianapolis, Indiana. The building is a multi-level structure containing approximately 205,000 square feet of office space. During 1995, construction was completed on a 75,000-square-foot addition to the home office facility. This expansion allowed the Company and Meridian Mutual to enhance and enlarge its operational work areas and create a brighter, more open environment. The expansion also allowed Meridian to consolidate the two Indianapolis satellite offices, which were being leased, into the home office facility. Meridian Mutual also lease a district service office facility in Columbus Ohio and claim service centers in Lansing, Michigan and Louisville, Kentucky. The principal office space for the operations of Citizens Security Group is located in Red Wing, Minnesota and is being leased by Citizens Security Mutual. The space consists of approximately 30,000 square feet with the lease expiring on December 31, 2002. In August, 1996, Citizens Security Mutual subleased approximately 8,200 square feet of this office space to VIS'N, Inc. Citizens Security Mutual also leases an additional office in Red Wing, Minnesota, consisting of approximately 3,300 square feet under a lease that expires on June 30, 1998. In September, 1996, approximately 2,900 square feet of this office space was subleased to Design Ink Plus, Ltd. ITEM 3: LEGAL PROCEEDINGS The Company's insurance subsidiaries are parties to litigation arising in the ordinary course of their business. The Company believes that the resolution of these lawsuits will not have a material adverse effect on its financial condition. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders in the fourth quarter of the fiscal year covered by this report. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market Information: The Company's common stock has traded on the NASDAQ Stock Market under the symbol "MIGI" since completing an initial public offering of 1,700,000 shares in March 1987 at a price of $12 per share. On May 5, 1993, the Company completed a second public offering of 1,725,000 common shares at $12 per share. As of March 13, 1998, approximately 47.5 percent of the common stock was owned by Meridian Mutual and the balance was spread among approximately 240 common shareholders of record, including many brokers holding shares for their individual clients. The number of individual shareholders on the same date was approximately 1,300. The number of Common Shares outstanding on March 13, 1998, totaled 6,637,853. Information relating to the common stock is available through the NASDAQ Stock Market System and the following table sets forth the high, low and closing sale prices of the common stock for each quarter of 1997 and 1996. 1997 1996 Quarter Ended High Low Close High Low Close March 31 $16.13 $13.50 $14.00 $15.25 $13.50 $14.75 June 30 $15.63 $13.25 $15.25 $15.25 $13.25 $13.69 September 30 $19.25 $14.88 $18.13 $14.50 $13.25 $14.25 December 31 $18.75 $15.63 $16.75 $15.13 $13.13 $14.75 Dividend Policy: Since the first quarter of 1996, the Company has paid quarterly cash dividends of $0.08 per common share. In 1995 and 1994, the Company paid quarterly dividends of $0.07 and $0.06 per share, respectively. The continued payment of dividends is reviewed quarterly by the Board of Directors in relation to changes in the financial condition and results of operations of the Company. The ability of the Company to pay dividends is dependent upon the receipt of dividends from its insurance company subsidiaries, which are subject to state laws and regulations which restrict their ability to pay dividends. (See Note 12 of the Notes to Consolidated Financial Statements.) ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data is derived from the consolidated financial statements of the Company. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included elsewhere in this document. Year Ended December 31, 1997 1996 1995 1994 1993 (In thousands, except per share data and ratios) Operating data: Premiums earned $194,587 $167,304 $143,866 $135,002 $125,902 Net investment income 16,372 14,908 14,564 13,996 13,569 Realized investment gains 4,477 3,794 1,538 286 890 Other income (expense) 1,042 563 (146) 54 (115) Total revenues 216,478 186,569 159,822 149,338 140,246 Losses and loss adjustment expenses 149,219 130,101 99,124 93,971 86,622 General operating expenses 16,505 13,767 14,156 14,527 14,935 Interest expense 732 308 --- --- --- Amortization expenses 42,894 36,443 30,820 29,304 27,039 Total expenses 209,350 180,619 144,100 137,802 128,596 Income before taxes and change in accounting method 7,128 5,950 15,722 11,536 11,650 Income taxes 207 150 4,105 2,415 2,765 Income before change in accounting method 6,921 5,800 11,617 9,121 8,885 Changes in accounting method: Accounting for income taxes --- --- --- --- 526 Net income $ 6,921 $ 5,800 $ 11,617 $ 9,121 $ 9,411 Weighted average shares outstanding 6,684 6,779 6,770 6,740 6,139 Basic earnings per share $ 1.04 $ 0.86 $ 1.72 $ 1.35 $ 1.53 Diluted earnings per share $ 1.03 $ 0.85 $ 1.71 $ 1.35 $ 1.53 Dividends declared per share $ 0.32 $ 0.32 $ 0.28 $ 0.24 $ 0.24 Underwriting ratios (statutory basis): Loss and loss adjustment expense ratio 76.8% 78.0% 69.2% 69.8% 69.4% Expense ratio 30.3 30.0 31.0 32.0 32.4 Combined ratio 107.1% 108.0% 100.2% 101.8% 101.8% Balance sheet data at end of period: Total investments $308,427 $281,689 $254,694 $219,461 $221,197 Total assets 413,586 397,798 322,588 291,406 285,936 Total liabilities 281,692 275,624 204,346 197,154 191,490 Shareholders' equity 131,894 122,174 118,243 94,252 94,447 Shareholders' equity per share $ 19.90 $ 18.02 $ 17.45 $ 13.98 $ 14.02 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview: The 1997 year has been a period of positioning for Meridian Insurance Group, Inc. New product enhancements, systems automation, and underwriting programs implemented during 1997 enable the Company to move forward into 1998 with renewed momentum. Rate action taken in 1997 for several lines of business should help to improve loss ratio results for 1998. The Company continually evaluates rate adequacy for all lines of business. The Company recently began to integrate the Citizens Security claims operations with the home office claims division. This integration is expected to reduce overall claims- related expenses while providing high quality service. The Company is also focused on reducing its expense ratio with a stringent review of all underwriting expenses. Automation continues to play an integral part in positioning the Company for future success. During 1997 the Company completed development of an automated Personal Lines Underwriting System for the homeowners and auto lines of business. This allows risks that meet specific underwriting parameters to be processed by the system with little or no manual intervention. The system will "kick out" policies that fail the underwriting criteria. By allowing those policies with good experience to "pass through" the system, the Company's underwriters can concentrate their review on those policies that have loss experience or exposure beyond the specified parameters, thereby allocating more of their time to those risks that need additional analysis. It is anticipated that such underwriting and workflow enhancements will enable the Company to expand its business without increasing the employee base. The Company continues to examine new ways for automation to enhance the workflow processes and increase overall efficiency. The Year 2000 Automation Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations. By early 1996, the Company's Year 2000 project plan was developed and change efforts were underway. Both internal and external resources are utilized in reprogramming, replacing, and/or testing the software for Year 2000 modifications. Much progress has been made and the Company expects its core business processing system to be completely Year 2000 compliant before the end of 1998. The Company estimates it has incurred incremental costs to address the Year 2000 Issue of approximately $350,000 and $150,000 in 1997 and 1996, respectively. Estimates of incremental costs to complete the project in 1998 are $350,000. The Company has initiated communications with its agents to determine the extent to which the Company is vulnerable to those parties' potential failure to remediate their own Year 2000 issues. There can be no guarantee that the systems of agents or other third parties will be timely converted, or that a widespread failure to convert by others would not adversely affect the Company. The Company does not issue insurance policies covering risks related to the Year 2000 Issue. However, there can be no certainty regarding future judicial or legislative interpretations of coverage. During 1997, Meridian Mutual became licensed in the state of Washington and launched a new direct response marketing effort for private passenger automobile products. This direct response program represents Meridian's initial efforts to supplement its distribution channels. Historically, Meridian has sold insurance only through its strong independent agency force. During the start-up phase, the direct response business will be conducted only in Meridian Mutual and will be excluded from the reinsurance pooling agreement with its affiliates. Affinity marketing relationships with banking or other financial institutions are expected to evolve, creating additional distribution vehicles. During the 1990's, premium writings for non-standard automobile insurers generally enjoyed greater growth and profitability than the standard automobile marketplace. Effective January 1998, Meridian Mutual began offering a non-standard automobile product in the state of Indiana. Initial response from the Company's independent agency force was positive, as many of these agents have been writing non- standard automobile products through other insurers. The non-standard product is expected to be offered in as many as eight states over the course of 1998. Similar to the direct response business, non-standard automobile writings will be retained by Meridian Mutual outside of the reinsurance pooling agreement during the start-up phase. The Company continues to focus on its core business, while remaining competitive in the dynamic marketplace. The 1996 Citizens Security Group acquisition allowed for the opportunity to spread underwriting risk over more states. In 1998, the Company will focus efforts on policy rating, agency profitability management, and enhanced underwriting efforts to improve the operating results. State expansion will complement other efforts underway to grow the Company's business competitively while continuing to manage risk exposure. Expansion into the state of Virginia is anticipated in 1998. Results of Operations: 1997 Compared to 1996 For the year ended December 31, 1997, the Company recorded net income of $6.9 million, or $1.04 basic earnings per common share ($1.03 diluted earnings per share). This compares to 1996 net income of $5.8 million, or $0.86 basic earnings per share ($0.85 diluted earnings per share). Included in the 1997 results was an entire year of operations from the 1996 acquisition of the Citizens Security companies, compared to five months of Citizens Security operations for the prior period. Earnings for both periods were negatively impacted by a large volume of property damage claims associated with severe weather that occurred throughout the Company's operating territory. Weather-related catastrophe losses were estimated to be approximately $7.2 million, or $0.72 per share, in 1997 and $10.6 million, or $1.03 per share, in 1996. The Company's 1997 statutory combined ratio was 107.1 percent versus 108.0 percent for 1996. The Company's total revenues for 1997 increased 16.0 percent to $216.5 million from $186.6 million for 1996. Premiums earned increased 16.3 percent to $194.6 million for 1997 in comparison to $167.3 million for the previous year. The acquisition of the Citizens Security companies accounted for approximately $25.0 million of the increase. Aside from the acquisition, net premiums earned from the Meridian book of business increased approximately 3.3 percent, excluding its participation in the National Workers' Compensation Pool ("NWCP"). Personal and farm lines of business were the primary contributors to the increase with 6.1 percent growth, offset partially by a 1.7 percent decline in commercial lines. Commercial lines of business continue to be affected by highly competitive market conditions in the Company's operating territory. The earned premium volume in the Company's workers' compensation line was reduced by an approximately $2.6 million decline in assumed earned premiums from its involuntary participation in the NWCP. This was principally due to reduced participation in the assigned risk pools for the states of Kentucky and Tennessee. Partially offsetting the NWCP reduction was a refund of premiums previously ceded to the Minnesota Workers' Compensation Reinsurance Association of approximately $863,000. Direct written premiums for the Meridian and Citizens Security insurance companies during 1997 experienced growth of 3.1 percent and 1.8 percent, respectively, when compared to 1996 volume. Net investment income for 1997 increased 9.8 percent to $16.4 million in comparison to $14.9 million for 1996. This was attributed to a larger asset base resulting primarily from the acquisition of Citizens Security Group. The Company's pre-tax net investment yield for 1997 improved slightly to 6.0 percent from 5.9 percent one year ago. The average yield of the Company's fixed maturity portfolio at December 31, 1997 was 6.7 percent compared to 6.8 percent at year end 1996. During 1997, the Company realized net gains on the sale of investments of $4.5 million, or approximately $0.44 per common share, versus $3.8 million, or $0.37 per share in 1996. Nearly all of the realized gains recognized over the last two years were generated from the sale of equity securities and have an insignificant effect on future investment yields. Losses and loss adjustment expenses incurred of $149.2 million for 1997 were 14.7 percent higher than the previous year's $130.1 million. Approximately $33.8 million of the 1997 incurred amount relates to the operations of Citizens Security Group, versus approximately $9.1 million for the five months of operations in the 1996 total. The statutory loss and loss adjustment expense ratio of the Citizens Security companies for the 1997 period was 85.1 percent compared to 70.9 percent for the five months of operations in 1996. Deteriorations in the Citizens Security homeowners, private passenger automobile and commercial multi-peril lines of business were the primary factors in the loss and loss adjustment expense increase. Partially offsetting these increases were improved experience in the commercial automobile and workers' compensation lines. Exclusive of Citizens Security's operations, incurred losses and loss adjustment expenses for the Meridian book of business reflected a 4.6 percent reduction from approximately $121.0 million in 1996 to $115.4 million in 1997. The Meridian lines of business for 1997 produced a statutory loss and loss adjustment expense ratio of 74.7 percent, a 4.0 percentage point improvement from 78.7 percent for 1996. Meridian's farmowners, homeowners and commercial multi-peril lines of business were the major contributors to the reduced loss and loss adjustment expense ratio, due largely to a reduction in weather-related catastrophe losses. The impact of such catastrophes on the Company's loss ratio in 1997 and 1996 was estimated to be 3.7 and 6.4 percentage points, respectively. General operating and amortization expenses of $59.4 million for the year ended December 31, 1997 increased 18.3 percent over the comparable 1996 total of $50.2 million. Substantially contributing to the increase was an additional seven months of operating expenses in 1997 related to the Citizens Security companies. Also contributing to the increased expenses were higher costs related to the Company's employee medical plan, and programming and other system costs associated with Year 2000 compliance. Relative to net earned premiums, the Company's expense ratio for 1997 was approximately 30.5 percent compared to 30.0 percent for 1996. The Company also incurred approximately $732,000 of interest expense in 1997 on the bank loan used to finance the Citizens Security Group acquisition. For the year ended December 31, 1997, the Company recorded income tax expense of $207,000 compared to $150,000 for 1996. The low effective tax rate resulted primarily from the amount of tax-exempt investment income in relation to pre-tax income. 1996 Compared to 1995 In 1996, the Company reported net income of $5.8 million, or $0.86 basic earnings per common share ($0.85 diluted earnings per share). This compares to 1995 net income of $11.6 million, or $1.72 basic earnings per share ($1.71 diluted earnings per share). The 1996 results were negatively impacted by a series of severe storms that produced an unusually large volume of property damage claims throughout the Company's operating territory. The after-tax impact of weather-related catastrophe claims was estimated to be approximately $1.03 per share in 1996, compared to approximately $0.42 per share in 1995. The 1996 catastrophe losses represent the largest catastrophe loss total in the Company's history. The Company's statutory combined ratio for 1996 was 108.0 percent versus 100.2 percent for the comparable 1995 period. The Company's total revenues in 1996 were a record high of $186.6 million, a 16.7 percent increase over 1995's $159.8 million. The 1996 total includes five months of premiums and investment income from the Citizens Security Group companies which were acquired on July 31, 1996. The effect of the Citizens Security Group acquisition on total revenues was approximately $15.8 million, including approximately $14.7 million of net earned premiums and $1.1 million of net investment income. Incremental net income from the Citizens Security Group operation for the five month period ended December 31, 1996 was approximately $0.25 million, or $0.04 per share, net of goodwill amortization and interest expense. The Company's largest source of revenue, net earned premiums, increased 16.3 percent in 1996 to $167.3 million compared to $143.9 million for 1995. Aside from the 10.2 percent increase in premium volume that resulted from the Citizens Security Group acquisition, premiums earned by the Meridian operation increased approximately 6.1 percent, or $8.8 million, over the 1995 total. The Meridian growth was attributed to nearly all lines of business, with personal lines production increasing 6.8 percent, commercial lines 5.6 percent and farmowners achieving growth of 2.8 percent in earned premium volume. Commercial and personal automobile and homeowners were the primary lines of business contributing to the increased premium volume. Depressing the commercial lines growth was a reduction of approximately $1.2 million in assumed earned premiums from the National Workers' Compensation Pool. Net investment income of $14.9 million in 1996 increased 2.4 percent over 1995's total of $14.6 million. The pre-tax net investment yield declined slightly to 5.9 percent from 6.1 percent in 1995. The reduced portfolio yield resulted primarily from a greater proportion of assets being invested in equity securities and tax-exempt bonds. The average yield of the fixed maturity portfolio is 6.8 percent. The investment income generated from the acquired Citizens Security Group investment portfolio was partially offset by a reduction in the Meridian portfolio to help fund the purchase. In 1996, the Company realized net gains of $3.8 million on the disposition of invested assets, or $0.37 per share net of tax, compared to $1.5 million, or $0.15 per share after tax, for the 1995 period. Nearly all of the realized gains recognized in 1996 were generated from the sale of equity securities which are expected to have little impact on future investment yields. Heavily impacted by catastrophe losses in 1996, the Company's incurred losses and loss adjustment expenses of $130.1 million were 31.3 percent higher than the $99.1 million reported for the comparable 1995 period. Approximately $12.2 million of the current year losses resulted from catastrophe and other weather-related non-catastrophic claims. This compares to approximately $4.4 million for the 1995 period. The acquisition of the Citizens Security Group business contributed approximately $9.1 million to the current year loss and loss adjustment expense total, accounting for over 9 percent of the increase. Also contributing to the high volume of losses was an increase in claim severity for Meridian's private passenger automobile and commercial multiple-peril lines of business. Partially offsetting these losses were improved results in the Company's workers' compensation and personal and commercial automobile liability lines of business. The Company's statutory loss ratio for 1996 deteriorated to 68.9 percent from 1995's 60.2 percent. The statutory loss adjustment expense ratio of 9.1 percent remained virtually unchanged from 1995 ratio. The Company's general operating and amortization expenses of $50.2 million for the year ended December 31, 1996 were 11.6 percent higher than the $45.0 million reported for 1995. Relative to earned premium volume, the Company's expense ratio for 1996 improved to 30.0 percent from 31.3 percent for the prior year. Factors leading to the reduced expense ratio include certain economies of scale and decreases in employee incentive compensation, agent profit-sharing and assessments from certain boards and bureaus. As a result of the Citizens Security Group acquisition, the Company incurred approximately $252,000 of additional expense in 1996 for goodwill amortization and incurred interest expense of approximately $308,000 on the related bank loan. For the most recent year, the Company recorded income tax expense of $150,000. The low effective tax rate results primarily from the amount of tax-exempt investment income in relation to pre-tax income. Liquidity and Capital Resources: The Company's primary need for liquidity is to pay shareholder dividends, and its main source of liquidity is the receipt of dividends from its subsidiaries. The Company's subsidiaries are subject to state laws and regulations which restrict their ability to pay dividends. During 1997, Meridian Security declared and paid dividends to the Company of $5.0 million. In 1996 and 1995, dividends paid to the Company were $3.9 million and $2.4 million, respectively. The principal need of the Company's insurance subsidiaries for liquid funds is the payment of claims and general operating expenses in the ordinary course of business. The funds of the Company's insurance subsidiaries are generally invested in securities with maturities intended to provide adequate cash to pay such claims and expenses without forced sales of investments. The average duration of the fixed maturity portfolio is approximately 4.3 years. Over the next year, a relatively small portion of the Company's bond portfolio is scheduled to mature. Given the current interest rate environment, reinvestment of the matured proceeds is likely to be at somewhat lower yields. Approximately 81 percent of the Company's investment assets are held in fixed maturities, substantially all of which are believed to be readily marketable. Within the fixed maturity portfolio, the Company holds approximately 17 percent in mortgage-backed pass-through securities and collateralized mortgage obligations. The Company has attempted to reduce the prepayment risks associated with mortgage- backed securities by investing a majority of the collateralized mortgage obligations in planned amortization and very accurately defined tranches. These investments are designed to alleviate the risk of prepayment by providing predictable principal prepayment schedules within a designated range of prepayments. The Company has no exposure to high risk derivatives in its portfolio. The Company's fixed income investment portfolio consists almost entirely of investment grade securities, the average quality of which is rated Aa / AA. The Company currently holds all of its fixed maturity investments in the "available-for-sale" category carried at market value. The Company at December 31, 1997 recorded unrealized gains in the bond portfolio of approximately $5.7 million, net of deferred income taxes. At year-end 1996, the Company recorded unrealized gains on the bond portfolio of approximately $2.7 million, net of deferred income taxes. The Company's equity security portfolio, which accounts for approximately 17.6 percent of invested assets, produced unrealized gains, net of deferred income taxes, of approximately $8.4 million in 1997, compared to approximately $4.5 million in 1996. Net unrealized appreciation of investments added $2.17 to the Company's $19.90 book value per share at December 31, 1997. Net unrealized appreciation added $1.05 per share to the $18.02 book value at December 31, 1996. On May 6, 1997, the Company announced that its Board of Directors had authorized the repurchase of up to 350,000 common shares, or approximately five percent of the Company's outstanding common stock. As of December 31, 1997, the Company had repurchased 154,500 shares, or approximately 44 percent of the authorized total, at a cost of $2.3 million. In July 1996, the Company completed the acquisition of Citizens Security Group Inc. of Red Wing, Minnesota. The Company purchased all of the outstanding shares of Citizens Security Group Inc. and its wholly-owned property and casualty insurance subsidiaries, Citizens Fund Insurance Company and Insurance Company of Ohio, for approximately $30.3 million in cash, including capitalized acquisition costs, and became affiliated with Citizens Security Mutual Insurance Company. Approximately 60 percent of the purchase price was generated from the sale of a portion of the Company's investment portfolio. The remaining $12 million was financed through bank debt and is being amortized over seven years with a variable interest rate of LIBOR plus 50 basis points. The acquisition was accounted for as a purchase with the assets acquired and liabilities assumed being recorded at their estimated fair value at the date of acquisition. The excess cost over the fair value of the net assets of approximately $14.5 million was recorded as goodwill, which is being amortized on a straight-line basis over a 25 year period. Beginning in 1994, state insurance regulators required companies to calculate Risk Based Capital ("RBC"). RBC is the capital required to cover the varying degrees of risk inherent in a company's assets, loss reserves, underwriting, and reinsurance. The "company action level" RBC is the minimum amount of capital required in order to avoid regulatory action. In 1997, the adjusted capital of the Company's insurance subsidiaries was well above the required minimum. Impact of Inflation: Inflation can have a significant impact on property and casualty insurers because premium rates are established before the amount of losses and loss adjustment expenses is known. The Company attempts to anticipate increases from inflation in establishing rates, subject to limitations imposed for competitive pricing. The Company considers inflation when estimating liabilities for losses and loss adjustment expenses, particularly for claims having a long period between occurrence and settlement. The liabilities for losses and loss adjustment expenses are management's estimates of the ultimate net cost of underlying claims and expenses and are not discounted for the time value of money. In times of inflation, the normally higher investment yields available may partially offset potentially higher claims and expenses. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Page Report of Independent Accountants 25 Financial Statements: Consolidated Statement of Income 26 Consolidated Balance Sheet 27 Consolidated Statement of Shareholders' Equity 28 Consolidated Statement of Cash Flows 29 Notes to Consolidated Financial Statements 30 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Meridian Insurance Group, Inc. We have audited the accompanying consolidated balance sheet of Meridian Insurance Group, Inc., and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Meridian Insurance Group, Inc., and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Indianapolis, Indiana February 25, 1998 MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME for the Years Ended December 31, 1997, 1996 and 1995 December 31, 1997 1996 1995 Premiums earned $194,586,632 $167,304,414 $143,865,821 Net investment income 16,371,711 14,908,285 14,563,820 Net realized investment gains 4,477,580 3,793,778 1,538,281 Other income (expense) 1,042,350 562,198 (146,345) Total revenues 216,478,273 186,568,675 159,821,577 Losses and loss adjustment expenses 149,218,731 130,101,192 99,123,849 General operating expenses 16,505,515 13,766,868 14,155,631 Interest expense 732,047 307,887 --- Amortization expenses 42,893,857 36,442,635 30,820,058 Total expenses 209,350,150 180,618,582 144,099,538 Income before taxes 7,128,123 5,950,093 15,722,039 Income taxes (benefit) Current 1,067,000 702,141 3,554,000 Deferred (860,000) (552,000) 551,000 Total income taxes 207,000 150,141 4,105,000 Net income $ 6,921,123 $ 5,799,952 $ 11,617,039 Weighted average shares outstanding 6,683,536 6,779,284 6,770,081 Per share data: Basic earnings per share $ 1.04 $ 0.86 $ 1.72 Diluted earnings per share $ 1.03 $ 0.85 $ 1.71 The accompanying notes are an integral part of the consolidated financial statements. MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET as of December 31, 1997 and 1996 December 31, 1997 1996 ASSETS Investments: Fixed maturities--available for sale, at market value (cost $239,662,000 and $234,356,000) $248,404,304 $238,343,040 Equity securities, at market (cost $41,430,000 and $33,779,000) 54,378,947 40,629,633 Short-term investments, at cost, which approximates market 3,996,232 1,326,634 Other invested assets 1,647,102 1,390,176 Total investments 308,426,585 281,689,483 Cash 1,188,423 3,128,154 Premium receivable, net of allowance for bad debts 4,343,157 4,674,984 Accrued investment income 3,130,712 3,241,125 Deferred policy acquisition costs 17,651,544 16,690,275 Goodwill 15,479,456 16,848,829 Reinsurance receivables 48,850,066 45,850,830 Prepaid reinsurance premiums 3,861,507 5,020,605 Due from Meridian Mutual Insurance Company 7,723,277 8,973,672 Other assets 2,931,077 11,679,744 Total assets $413,585,804 $397,797,701 LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses $169,801,326 $161,309,239 Unearned premiums 82,839,333 84,065,751 Other post-employment benefits 1,933,181 1,417,814 Bank loan payable 11,375,000 11,875,000 Reinsurance payables 9,078,076 8,664,358 Other liabilities 6,664,653 8,291,558 Total liabilities 281,691,569 275,623,720 Shareholders' equity: Common shares, no par value, Authorized-20,000,000 Issued-6,781,364 and 6,779,375, Outstanding- 6,626,864 and 6,779,375 at December 31, 1997 and 1996, respectively 44,110,416 44,077,846 Treasury shares, at cost; 154,500 shares (2,308,188) --- Contributed capital 15,058,327 15,058,327 Unrealized appreciation of investments, net of deferred income taxes 14,349,232 7,141,846 Retained earnings 60,684,448 55,895,962 Total shareholders' equity 131,894,235 122,173,981 Total liabilities and shareholders' equity $413,585,804 $397,797,701 The accompanying notes are an integral part of the consolidated financial statements. MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY for the Years Ended December 31, 1997, 1996 and 1995
Unrealized Appreciation Common Treasury Contributed (Depreciation) Retained Shares Shares Capital of Investments Earnings Balance at January 1, 1995 $43,930,722 $ --- $15,058,327 $(7,281,724) $42,545,114 Net income --- --- --- --- 11,617,039 Unrealized appreciation of investment securities, net of deferred income taxes --- --- --- 14,123,969 --- Dividends ($0.28 per share) --- --- --- --- (1,896,743) Repurchase and retirement of 6,479 common shares (77,033) --- --- --- --- Exercise of stock options for 40,521 common shares 222,996 --- --- --- --- Balance at December 31, 1995 44,076,685 --- 15,058,327 6,842,245 52,265,410 Net income --- --- --- --- 5,799,952 Unrealized appreciation of investment securities, net of deferred income taxes --- --- --- 299,601 --- Dividends ($0.32 per share) --- --- --- --- (2,169,400) Repurchase and retirement of 1,472 common shares (22,080) --- --- --- --- Exercise of stock options for 4,042 common shares 23,241 --- --- --- --- Balance at December 31, 1996 44,077,846 --- 15,058,327 7,141,846 55,895,962 Net income --- --- --- --- 6,921,123 Unrealized appreciation of investment securities, net of deferred income taxes --- --- --- 7,207,386 --- Dividends ($0.32 per share) --- --- --- --- (2,132,637) Issuance of 1,989 common shares 32,570 --- --- --- --- Repurchase of 154,500 common shares --- (2,308,188) --- --- --- Balance at December 31, 1997 $44,110,416 $(2,308,188) $15,058,327 $14,349,232 $60,684,448 The accompanying notes are an integral part of the consolidated financial statements.
MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS for the Years Ended December 31, 1997, 1996 and 1995 December 31, 1997 1996 1995 Cash flows from operating activities: Net income $ 6,921,123 $ 5,799,952 $ 11,617,039 Reconciliation of net income to net cash provided by operating activities: Realized investment gains (4,477,580) (3,793,778) (1,538,281) Amortization 42,893,857 36,442,635 30,820,058 Deferred policy acquisition costs (43,475,066) (39,321,446) (32,068,780) Increase (decrease) in unearned premiums (1,226,418) 2,034,199 4,895,409 Increase (decrease) in loss and loss adjustment expenses 8,492,087 11,054,147 (177,410) Decrease (increase) in amount due from Meridian Mutual 1,250,395 385,131 (2,548,320) Decrease (increase) in reinsurance receivables (2,999,236) (7,352,448) 234,172 Decrease (increase) in prepaid reinsurance premiums 1,159,098 (349,547) 2,654 Decrease in other assets 5,549,960 2,064,651 66,763 Increase in other post-employment benefits 515,367 119,436 197,223 Increase in reinsurance payables 413,718 1,800,732 972,951 Increase (decrease) in other liabilities (1,839,705) (1,866,664) 116,619 Other, net 769,010 (61,732) 1,193,850 Net cash provided by operating activities 13,946,610 6,955,268 13,783,947 Cash flows from investing activities: Purchase of fixed maturities (54,141,776) (47,518,736) (39,897,557) Proceeds from sale of fixed maturities 26,135,592 38,131,207 17,111,272 Proceeds from calls, prepayments and maturity of fixed maturities 22,393,353 24,843,739 14,404,070 Purchase of equity securities (33,956,533) (19,794,358) (15,735,622) Proceeds from sale of equity securities 31,160,867 18,633,656 9,556,180 Net (increase) decrease in short-term investments (2,669,598) 3,300,088 1,641,491 Decrease (increase) in other invested assets (256,926) (336,271) 31,366 Acquisition of subsidiary --- (30,262,442) --- Increase (decrease) in securities payable 401,707 (1,533,830) 1,117,355 Net cash used in investing activities (10,933,314) (14,536,947) (11,771,445) Cash flows from financing activities: Repurchase of common stock (2,308,188) (22,080) (77,033) Exercise of stock options --- 23,241 222,996 Proceeds from bank loan --- 12,000,000 --- Repayment of bank loan (500,000) (125,000) --- Dividends paid (2,144,839) (2,101,426) (1,826,933) Net cash provided by (used in) financing activities (4,953,027) 9,774,735 (1,680,970) Increase (decrease) in cash (1,939,731) 2,193,056 331,532 Cash at beginning of year 3,128,154 935,098 603,566 Cash at end of year $ 1,188,423 $ 3,128,154 $ 935,098 The accompanying notes are an integral part of the consolidated financial statements. MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies: Nature of Operations: Meridian Insurance Group, Inc. ("the Company"), was organized in 1986 as a subsidiary of Meridian Mutual Insurance Company ("Meridian Mutual"), an Indiana mutual insurance company that currently owns 47.5 percent of the outstanding common shares of the Company. The Company is a regional holding company principally engaged in the business of underwriting property and casualty insurance through its wholly-owned subsidiaries, Meridian Security Insurance Company ("Meridian Security"), Citizens Fund Insurance Company ("Citizens Fund") and Insurance Company of Ohio ("ICO"). Both Citizens Fund and ICO, along with their holding company, Citizens Security Group Inc. ("CSGI"), were acquired by the Company on July 31, 1996. CSGI was subsequently dissolved on February 7, 1997. Effective August 1, 1996, Citizens Fund, ICO and Citizens Security Mutual Insurance Company ("Citizens Security Mutual"), the former majority shareholder of CSGI, became participants in a reinsurance pooling arrangement with Meridian Mutual and Meridian Security, in which the underwriting income and expenses of each entity are shared. The participation percentages of the Company's insurance subsidiaries total 74 percent. Prior to the change, Meridian Security and Meridian Mutual were the only participants in the reinsurance pooling arrangement, of which Meridian Security assumed 74 percent of the combined underwriting income and expenses of the two companies. (See Note 5-Related Party Transactions.) Meridian Mutual writes a broad line of property and casualty insurance, including personal and commercial automobile; homeowners, farmowners and commercial multi-peril; and workers' compensation. Business is written through approximately 1,075 independent insurance agencies in the states of Illinois, Indiana, Iowa, Kentucky, Michigan, Ohio, Pennsylvania, Tennessee, and Wisconsin. Meridian Security writes primarily personal and farm lines through approximately 625 independent insurance agencies, many of which are cross-licensed with Meridian Mutual. Meridian Security is licensed to write business in all states in which Meridian Mutual is licensed, except for the state of Washington. Citizens Security Mutual offers a variety of personal and commercial insurance products in the states of Illinois, Indiana, Iowa, Minnesota, Missouri, North Dakota, Ohio, South Dakota, Tennessee, and Wisconsin through a network of approximately 400 independent insurance agencies. Citizens Fund writes primarily personal lines through approximately 80 independent insurance agencies in the states of Iowa, Minnesota, North Dakota, Ohio, South Dakota, and Wisconsin. In 1997, ICO discontinued writing business in the state of Ohio. The in-force business previously written by ICO is currently being renewed in Meridian Security. Basis of Presentation: The consolidated financial statements have been prepared on the basis of generally accepted accounting principles which differ in some respects from those followed in reports to insurance regulatory authorities. Certain prior year amounts have been reclassified to conform to the current-year presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation: The consolidated financial statements include the accounts of Meridian Insurance Group, Inc., and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Investments: Fixed maturity investments include bonds, notes, mortgage backed pass-through securities, collateralized mortgage obligations, other asset backed securities and sinking fund preferred stocks. The fixed maturity portfolio is invested entirely in securities classified as available for sale and is carried at quoted market values. Equity securities, consisting of unaffiliated common and perpetual preferred stocks, are reported at quoted market values. Short-term investments are recorded at cost, approximating market value. Other investments include limited partnerships recorded on the equity method and a mortgage loan stated at the aggregate unpaid balance. Realized gains or losses on disposition of investments are determined on a specific identification basis. Unrealized gains and losses resulting from changes in the valuation of both equity securities and fixed maturities available for sale are recorded as a component of shareholders' equity, net of applicable deferred income taxes. The Company regularly evaluates its investments based on current economic conditions, past credit loss experience and other circumstances of the Company. A decline in a security's net market value that is not a temporary fluctuation is recognized as a realized loss, and the cost basis of that security is reduced. Premium Revenue: Premiums are recognized as revenue on a monthly pro rata basis over the coverage terms of the respective policies. Any premiums applicable to the future terms of the policies are included in liabilities as unearned premiums. Deferred Policy Acquisition Costs: Policy acquisition costs, principally commissions, premium taxes, and variable underwriting and policy issue expenses, have been deferred. Such costs are amortized as premium revenue is earned. The method used in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, and also considers the effects of anticipated investment income, losses and loss adjustment expenses, and certain other costs anticipated to be incurred as the premium is earned. In connection with the acquisition of Citizens Fund and ICO, the Company allocated a portion of its cost to an asset representing the estimated equity in the unearned premium reserve of the acquired book of business. The asset was amortized in 1996 and 1997 as the related premium revenue was recognized. Goodwill: The Company's goodwill represents the excess of cost over the fair value of identifiable net assets acquired from business acquisitions and is being amortized on a straight-line basis over a 25-year period. The Company continually monitors the value of its goodwill based on estimates of future earnings of the subsidiaries that were acquired. If it is determined that changes in such projected earnings no longer supports the recoverability of goodwill over the remaining amortization period, the carrying value would be reduced with a corresponding charge to expense or the amortization period would be shortened. As of December 31, 1997, no material changes have occurred. Losses and Loss Adjustment Expenses: Reserves for unpaid losses and loss adjustment expenses are based on both estimates of the ultimate costs of individual claims and on other non-discounted estimates, such as claims incurred but not reported and salvage and subrogation. The methods of making such estimates are continually reviewed and updated, and any reserve adjustments are reflected in current operating results. Income Taxes: Deferred income taxes are provided to reflect the estimated future tax effects of temporary differences between the tax basis of an asset or liability and the basis recorded in financial statements. The deferred tax asset or liability is measured by using enacted tax rates expected to apply to future taxable income in the periods in which the temporary differences are expected to be recovered or settled. Accordingly, changes in future tax rates cause immediate adjustments to deferred taxes. Earnings Per Share: The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which requires changes in the computation, presentation, and disclosure of earnings per share. This Statement requires dual presentation of basic and diluted earnings per share on the face of the income statement for all companies with complex capital structures. SFAS No. 128 also replaces the presentation of primary earnings per share with a basic earnings per share computation and eliminates the modified treasury stock method and the three percent materiality provision as was required under the Accounting Principles Board Opinion No. 15. This Statement became effective for financial statements with fiscal years ending after December 15, 1997. All prior period information presented has been restated. Impact of New Accounting Pronouncements: In June 1997 the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Statements are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and displaying of comprehensive income and its components. All items that are required to be recognized under accounting standards as components of comprehensive income must be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131 establishes standards for the way that business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company did not elect early adoption of either pronouncement but will adopt both Statements as of January 1, 1998, as required. If the Company had adopted SFAS No. 130 as of December 31, 1997, other comprehensive income would have consisted of unrealized appreciation of investment securities, net of deferred income taxes of approximately $7,200,000. The effect of adopting SFAS No. 131 as not yet been determined in regards to the impact on the Company's consolidated financial statement disclosures. 2. Investments: The Company's net investment income for the periods ended December 31, 1997, 1996 and 1995 are summarized as follows: 1997 1996 1995 Interest on fixed maturities: Tax-exempt securities $ 3,909,985 $ 3,875,822 $ 3,578,156 Taxable securities 9,905,146 8,686,144 8,727,315 Dividends on redeemable preferred stock 2,078,536 2,489,104 2,402,974 Dividends on equity securities 879,579 773,238 560,390 Interest on short-term investments 156,128 243,837 247,272 Other investment income 187,159 93,861 84,873 Total investment income 17,116,533 16,162,006 15,600,980 Investment expenses 744,822 1,253,721 1,037,160 Net investment income $16,371,711 $14,908,285 $14,563,820 Net realized and unrealized gains on investments are summarized as follows: 1997 1996 1995 Realized gains (losses): Fixed maturities $ 14,108 $ (456,602) $ 87,370 Equity securities 5,052,295 4,559,380 1,458,589 Other invested assets --- --- (7,678) Total realized investment gains 5,066,403 4,102,778 1,538,281 Investment expenses 588,823 309,000 --- Net realized investment gains $ 4,477,580 $ 3,793,778 $ 1,538,281 Net change in unrealized appreciation (depreciation): Fixed maturities, available for sale $ 4,755,339 $(2,234,493) $16,313,966 Equity securities 6,098,280 2,692,197 5,104,315 Limited partnerships 235,767 83,897 59,688 Deferred income tax expense (3,882,000) (242,000) (7,354,000) Net change in unrealized appreciation $ 7,207,386 $ 299,601 $14,123,969 Net change in unrealized depreciation of fixed maturities, held to maturity $ --- $ --- $ (367,533) The amortized cost and estimated market values of investments in fixed maturity securities at December 31, 1997 and 1996, are as follows: Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value December 31, 1997 Available for sale: Government and agency domestic bonds $ 9,992,300 $ 494,746 $ 13,916 $ 10,473,130 Municipal bonds 71,000,487 3,345,436 118,097 74,227,826 Corporate bonds 82,661,920 2,381,660 7,448 85,036,132 Mortgage-backed securities 42,479,390 972,915 99,833 43,352,472 Sinking fund preferred stocks 33,528,199 1,822,517 35,972 35,314,744 Total fixed maturity securities $239,662,296 $9,017,274 $ 275,266 $248,404,304 December 31, 1996 Available for sale: Government and agency domestic bonds $ 11,441,004 $ 317,830 $ 50,708 $ 11,708,126 Municipal bonds 73,550,278 1,954,019 302,450 75,201,847 Corporate bonds 61,810,087 1,141,551 152,224 62,799,414 Mortgage-backed securities 54,090,640 714,993 155,481 54,650,152 Sinking fund preferred stocks 33,464,362 1,080,656 561,517 33,983,501 Total fixed maturity securities $234,356,371 $5,209,049 $1,222,380 $238,343,040 The amortized cost and estimated market value of fixed maturity securities available for sale at December 31, 1997, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Amortized Market Cost Value Available for sale: Due in one year or less $ 6,614,936 $ 6,659,349 Due after one year through five years 32,648,148 33,426,698 Due after five years through ten years 61,985,776 64,758,746 Due after ten years through fifteen years 29,646,907 31,089,477 Due after fifteen years through twenty years 8,094,972 8,464,107 Due after twenty years 58,192,167 60,653,455 Subtotal 197,182,906 205,051,832 Mortgage-backed securities 42,479,390 43,352,472 Total fixed maturity securities $239,662,296 $248,404,304 Proceeds from sales of investments in fixed maturity securities during 1997, 1996 and 1995, respectively, were $26,135,592, $38,131,207 and $17,111,272. During 1997, 1996 and 1995, respectively, gross gains of $338,920, $197,320 and $445,260 and gross losses of $324,812, $653,922 and $357,890 were realized on those sales. Unrealized appreciation of equity securities at December 31, 1997 totaled $12,948,869 representing $14,400,487 of gains on certain securities and $1,451,618 of losses on other securities. 3. Acquisition: On July 31, 1996, the Company acquired Citizens Security Group Inc. and its property and casualty insurance subsidiaries, Citizens Fund Insurance Company and Insurance Company of Ohio, for a cash purchase price of $30,262,442, including capitalized acquisition costs. Approximately 60 percent of the purchase price was generated from the sale of a portion of the Company's investment portfolio and the remainder was financed through bank debt. The acquisition was accounted for as a purchase with the assets acquired and liabilities assumed being recorded at their estimated fair value at the date of acquisition. The excess cost over the fair value of the net assets resulted in goodwill of approximately $14,501,000, which is being amortized over a 25 year period on the straight-line basis. The consolidated financial statements include the results of operations of the acquired entities from the date of acquisition. Unaudited pro-forma condensed consolidated results of operations presented below assumed the acquisition and financing of the transaction had occurred at the beginning of each period presented: 1996 1995 Premiums earned $185,808,000 $174,501,000 Total revenues $206,201,000 $192,416,000 Net income $ 4,138,000 $ 11,310,000 Basic and diluted earnings per share $ 0.61 $ 1.67 These unaudited pro-forma results are not necessarily indicative of the results of operations that would have occurred had the acquisition taken place at the beginning of each period, or of future operations of the combined companies. Supplemental cash flow information for the acquisition is as follows: 1996 Fair value of assets acquired $ 77,440,427 Cash paid 30,262,442 Liabilities assumed $ 47,177,985 4. Bank Loan Payable: The Citizens Security Group acquisition was funded in part through a $12,000,000 bank loan. The debt has a variable interest rate of LIBOR plus 50 basis points, which was 6.375 percent and 6.09375 percent at December 31, 1997 and 1996, respectively. The bank loan will mature on August 1, 2003. The Company is required to make principal payments in accordance with the following schedule: 1998 $ 1,250,000 1999 1,625,000 2000 2,000,000 2001 2,125,000 Thereafter 4,375,000 Total payments outstanding $11,375,000 The principal balance of the bank loan as of December 31, 1997 approximates its market value. Interest paid on the loan during 1997 and 1996 amounted to $732,047 and $187,887, respectively. The bank debt includes certain financial covenants, the most significant of which concern the amounts of risk based capital, statutory policyholders' surplus, total debt, debt to capitalization and debt service coverage (the relationship of dividends available from the Company's insurance subsidiaries to required principal and interest payments). 5. Related Party Transactions: Meridian Security, Citizens Fund, ICO, Meridian Mutual and Citizens Security Mutual are parties to a reinsurance pooling agreement ("pooling agreement") under which essentially all premiums, losses and loss adjustment expenses as well as other underwriting expenses are shared by the companies on the basis of their percentage participation defined in the pooling agreement. Other expenses are allocated on the basis of specific identification or estimated costs. Amounts either due to or due from Meridian Mutual and Citizens Security Mutual result from these transactions, and are normally reimbursed on a monthly basis. Management believes that such expenses would not be materially different if incurred directly by each company. Since the acquisition of Citizens Security Group on August 1, 1996, the reinsurance pool participation percentages of the Company's insurance subsidiaries totaled 74 percent. Prior to August 1, Meridian Security and Meridian Mutual were the only participants in the aforementioned pooling arrangement, of which Meridian Security assumed 74 percent of the combined underwriting income and expenses of the two companies. For the year ended December 31, 1997, approximately 88 percent of the Company's total premium volume was derived from its participation in the pooling agreement. In 1996 and 1995, approximately 88 percent and 90 percent, respectively, was derived from the pooling arrangement. Effective January 1, 1997, the Company became the employer of all employees that were formerly employed by Meridian Mutual and Citizens Security Mutual. This transfer of employees allowed for the integration of benefit plans, thus increasing management efficiencies and allowing for enhanced benefit options, such as the use of the Company's common stock as compensation. Also as a result of the employee transfer, the Company assumed the operations of the previously established benefit plans of Meridian Mutual. Included in these benefit plans was a non-contributory pension plan that covers substantially all employees, a non-tax qualified supplemental retirement plan for certain key employees, and a multi-employer plan for other post-retirement benefits. (See Note 9-Pension and Other Post-Retirement Benefit Plans) The Company also assumed a 401(k) plan whereby employees can contribute up to 16 percent of their compensation, with the Company contributing 50 percent of the employee contribution on the first 6 percent. Costs related to these benefit plans are allocated to each company in accordance with their percentage participation under the pooling agreement. The Company's non-insurance subsidiaries are provided office space and various services by Meridian Mutual and Meridian Security. Expenses are allocated to such subsidiaries on the basis of specifically identified or estimated costs. 6. Liability for Losses and Loss Adjustment Expenses: Activity in the liability for losses and loss adjustment expenses is summarized as follows: 1997 1996 1995 Balance at beginning of period $161,309,239 $123,577,240 $123,754,650 Less reinsurance recoverables 41,819,308 31,204,462 31,815,440 Net balance at beginning of period 119,489,931 92,372,778 91,939,210 Net reserves acquired --- 20,685,369 --- Incurred related to: Current year 165,576,734 137,817,367 104,584,909 Prior years (16,358,003) (7,716,175) (5,461,060) Total incurred 149,218,731 130,101,192 99,123,849 Paid related to: Current year 97,447,542 93,199,000 61,791,602 Prior years 50,332,258 30,470,408 36,898,679 Total paid 147,779,800 123,669,408 98,690,281 Net balance at end of period 120,928,862 119,489,931 92,372,778 Plus reinsurance recoverables 48,872,464 41,819,308 31,204,462 Balance at end of period $169,801,326 $161,309,239 $123,577,240 The reconciliation for 1997 shows an approximately $16.4 million reduction in previously established loss reserves. Favorable loss developments resulting from decreases in the frequency and severity of claims in 1996 and prior accident years for the Company's commercial automobile liability, workers' compensation lines and commercial multiple-peril lines of business were the primary factors in the most recent period reduction. The Company also experienced favorable underwriting trends from its involvement in the involuntary National Workers' Compensation Pool. 7. Reinsurance: The companies that participate in the reinsurance pooling agreement reduce the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring their insurance business with unrelated third party insurers. In accordance with industry practice, the Company in its consolidated financial statements treats risks, to the extent reinsured, as though they were risks for which the Company is not liable. Reinsurance recoverables are estimated in a manner consistent with the claim liability associated with the reinsured policy. Insurance ceded by the Company's insurance subsidiaries does not relieve the subsidiaries' primary liability as the originating insurers. The reinsurance purchased includes contracts under which certain types of policies are automatically reinsured up to the contract limits ("treaty reinsurance") and contracts which provide reinsurance on an individual risk basis which require a specific agreement of the reinsurer as to limits of coverage provided ("facultative reinsurance"). Meridian Mutual, Meridian Security, Citizens Security Mutual, Citizens Fund, and ICO were each named as insured parties under the treaty reinsurance contracts, and the coverage under those contracts applied to all risks written by each of the companies. Treaty coverage was purchased to cover property and liability exposures in excess of $200,000 and $250,000, respectively, up to the limits set forth in the individual treaty. (In 1996, the retention was $200,000 for both property and liability.) Facultative reinsurance was purchased to cover exposures on both property and liability coverages from losses over and above the limits provided by the treaty reinsurance. Catastrophe reinsurance provided coverage for multiple losses caused by a single catastrophic event such as a windstorm or earthquake. The combined retention under this contract was $6,000,000 plus five percent of losses up to contractual limits for windstorms of $65,000,000 and for earthquakes of $115,000,000. (The 1996 limit for both windstorms and earthquakes was $65,000,000.) Two other catastrophe reinsurance treaties provided coverage when losses sustained from multiple catastrophic events aggregate beyond a specified retention. Under these two treaties, the combined retention was 2.5 percent of subject earned premiums, plus five percent of losses up to the $22,000,000 contractual limit. Approximately 92 percent of the Company's ceded reserves for losses and loss adjustment expenses were with Employers Reinsurance Corporation, Michigan Catastrophic Claims Association and Swiss Reinsurance America Corporation. The effect of reinsurance on premiums written, premiums earned and losses and loss adjustment expenses for the years ended December 31, 1997, 1996 and 1995 were as follows: 1997 1996 1995 Premiums written: Direct $210,393,552 $181,680,624 $152,596,128 Assumed 718,004 3,730,504 7,269,782 Ceded (16,592,247) (16,216,479) (11,102,025) Net $194,519,309 $169,194,649 $148,763,885 Premiums earned: Direct $211,105,812 $176,718,644 $149,748,331 Assumed 1,232,165 6,425,316 5,222,170 Ceded (17,751,345) (15,839,546) (11,104,680) Net $194,586,632 $167,304,414 $143,865,821 Losses and loss adjustment expenses incurred: Direct $168,173,120 $154,237,419 $100,670,392 Assumed 1,355,214 2,857,470 5,127,784 Ceded (20,309,603) (26,993,697) (6,674,327) Net $149,218,731 $130,101,192 $ 99,123,849 On December 29, 1995, Meridian Mutual entered into an indemnity reinsurance agreement with Celina Mutual Insurance Company regarding commercial line business in the state of Pennsylvania. This transaction was recorded as assumed written premium, which was earned over the succeeding twelve months. Renewals of these policies are now being recorded as direct business on Meridian Mutual. Through the pooling agreement, Meridian Security assumed premiums written of approximately $2,100,000 and ceding commissions of approximately $409,000. 8. Deferred Policy Acquisition Costs: Changes in deferred policy acquisition costs are summarized as follows: 1997 1996 1995 Deferred, beginning of period $16,690,275 $13,354,600 $11,977,429 Additions: Commissions 32,391,959 30,593,227 25,797,651 Equity in acquired unearned premium reserve --- 2,312,841 --- Ceding commission --- --- 409,350 Premium taxes 2,375,996 2,458,670 1,625,370 Other 8,707,111 3,956,708 4,236,409 Total additions 43,475,066 39,321,446 32,068,780 Amortization expense 42,513,797 35,985,771 30,691,609 Deferred, end of period $17,651,544 $16,690,275 $13,354,600 9. Pension Plans and Other Post-Retirement Benefit Plans: Effective January 1, 1997, the Company became the employer of all employees who were formerly employed by Meridian Mutual and Citizens Security Mutual. As a result of this transfer, all employee benefit plans that were previously under Meridian Mutual and Citizens Security Mutual were merged into the Company plans. The Company maintains a defined benefit pension plan for the benefit of eligible employees. Under the plan, all employees of the Company completing more than 1,000 hours of employment in a 12- month period become eligible to participate. The plan provides for a pension annuity beginning at age 65 based on the employee's average monthly base pay during the five highest consecutive salary years out of the last ten. Provisions for delayed retirement benefits, early retirements benefits after age 55, disability and death benefits, optional methods for benefit payment, payments to an employee who leaves after a certain number of years of service, and payments to an employee's surviving spouse are also covered under the plan. The Company also maintains a non-tax qualified supplemental retirement income plan for certain key employees who participate in the defined benefit pension plan. The plan provides additional benefits in excess of the limitations imposed by Section 401(a)(17) and Section 415 of the Internal Revenue Code on plans to which those sections apply. The benefit is in the form of a straight life annuity over the lifetime of the participant, and commences on the participant's normal retirement date. The following table presents a reconciliation of the funded status for the Company's defined benefit pension plan and supplemental retirement income plan and the amounts recognized in the Company's consolidated balance sheet as of December 31, 1997: Defined Supplemental Pension Retirement Actuarial present value of benefit obligations: Vested benefit obligation $17,360,209 $ 342,411 Non-vested benefit obligation 343,764 10,220 Accumulated benefit obligation 17,703,973 352,631 Additional amounts related to projected pay increases 5,728,743 407,471 Projected benefit obligation 23,432,716 760,102 Plan assets at fair value 31,582,957 --- Funded Status 8,150,241 (760,102) Unrecognized transition obligation (7,548,032) --- Unrecognized prior service costs --- 239,676 Unrecognized net (gain) loss (208,920) 74,012 Prepaid asset/(accrued liability) at December 31, 1997 $ 393,289 $ (446,414) A 7.0 percent weighted average discount rate was assumed in determining the accumulated benefit obligation and a 5.0 percent average salary increase was used to project the additional pay increase on both plans. The expected return on assets for the defined pension plan was assumed to be 8.25 percent. Net periodic pension costs for the defined benefit pension plan and the supplemental retirement income plan for the year ended December 31, 1997 included the following components: Defined Supplemental Pension Retirement Service costs $ 705,872 $ 21,400 Interest costs 1,098,786 34,016 Actual return on assets (3,176,536) --- Net amortization and deferral 1,080,844 17,077 Net periodic pension cost/(income) $ (291,034) $ 72,493 In addition to pension benefits, the Company provides certain health care and life insurance benefits ("post-retirement benefits") for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while working for the Company. The Company also provides medical benefits for early retirees (eligible upon attainment of age 55 and five years service up to age 65) and group term life insurance that phases out over a five year period from the retirement date. The following table presents the components of the plan's accumulated post-retirement benefit obligation as of December 31, 1997 reconciled with the plan's funded status and the amount recognized in the Company's consolidated balance sheet at December 31, 1997: 1997 Accumulated post-retirement benefit obligation: Retired employees $ 310,545 Active employees: Not yet eligible 1,308,235 Fully eligible 333,694 Obligation at December 31, 1997 1,952,474 Plan assets at fair value --- Funded status 1,952,474 Unrecognized net loss (72,418) Accrued liability at December 31, 1997 $ 1,880,056 A 7.0 percent weighted average discount rate was used to determine the accumulated post-retirement benefit obligation at December 31, 1997. Net periodic post-retirement pension costs for the year ended December 31, 1997 included the following: 1997 Service costs $ 107,313 Interest costs 75,838 Amortization of prior unrecognized gain (29,704) Total net periodic costs $ 153,447 The assumed rate of future increases in per capita cost of health care benefits was 8.0 percent for the first year and 6.0 percent for all years thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point would increase the accumulated post-retirement benefit obligation by approximately $213,000 and the aggregate of the service and interest cost components of net periodic post- retirement benefit cost by approximately $34,000. Prior to January 1, 1997, Meridian Security, Citizens Fund and ICO had no employees and were dependent on the business and operations of Meridian Mutual and Citizens Security Mutual. Meridian Mutual had a defined pension plan covering substantially all employees and a non-tax qualified retirement plan for certain key employees. Related pension costs allocated to the Company were immaterial to the results of operations for the periods ended December 31, 1996 and 1995. The Company also participated in the multi-employer plan for other post-retirement benefits offered by Meridian Mutual to employees, including medical benefits for early retirees (eligible upon attainment of age 55 and five years of service up to age 65) and group term life insurance that phases out over a five year period from the retirement date. Related costs allocated to the Company were approximately $53,000 and $98,000 for 1996 and 1995, respectively. 10. Income Taxes: Current tax expense for the following periods differed from the tax expected solely on pre-tax income by applying the applicable statutory corporate tax rate to the various differences identified as follows: 1997 1996 1995 Tax at statutory rate $ 2,381,000 $ 2,023,000 $ 5,403,000 Tax-exempt interest (1,131,000) (1,134,000) (1,005,000) Dividends received deduction (613,000) (619,000) (598,000) Loss, LAE and salvage and subrogation fresh start (137,000) (17,000) (7,000) Nondeductible expenses 277,000 168,000 109,000 Other (570,000) (270,859) 203,000 Total income taxes $ 207,000 $ 150,141 $ 4,105,000 The Revenue Reconciliation Act of 1990 required insurance companies to accrue future recoveries of salvage and subrogation on a discounted basis. A fresh start of 87 percent of the beginning 1990 discounted balance was provided for by that act, which was to be amortized over the life of the reserves. The impact of this provision resulted in an aggregate tax benefit of approximately $923,000. During 1997, the remaining unamortized fresh start was fully recognized, resulting in a tax reduction of approximately $3,000. No amortization was recognized in 1996 and $7,000 was recognized in 1995. The Tax Reform Act of 1986 allowed for a fresh start deduction for reserve discounting requirements, which was to be amortized over the life of the reserve. This produced an aggregate tax benefit of approximately $900,000. The remainder of the unamortized fresh start was fully recognized in 1997, resulting in a tax reduction of approximately $134,000. In 1996, the tax effect on the recognized amortization amounted to approximately $17,000 and no amortization was recognized in 1995. Under SFAS No. 109, "Accounting For Income Taxes", the Company recorded a net deferred tax liability in 1997 and a deferred tax asset in 1996 and 1995. The net deferred tax asset/liability at December 31, 1997, 1996 and 1995, is comprised of the following: 1997 1996 1995 Deferred tax assets: Unearned premium reserves $ 5,528,000 $ 5,533,000 $ 4,336,000 Loss and loss adjustment expense reserves and salvage and subrogation 6,248,000 6,336,000 4,980,000 Other post-employment benefits 677,000 496,000 454,000 Other 1,431,000 875,000 --- Total deferred tax assets 13,884,000 13,240,000 9,770,000 Deferred tax liabilities: Deferred policy acquisition costs 6,178,000 5,842,000 4,674,000 Investments 144,000 327,000 178,000 Unrealized appreciation on investment securities 7,731,000 3,849,000 3,607,000 Other 56,000 425,000 34,000 Total deferred tax liabilities 14,109,000 10,443,000 8,493,000 Net deferred tax asset (liability) $ (225,000) $ 2,797,000 $ 1,277,000 The Company has paid income taxes during the last three preceding years of $1,110,000 in 1997, $1,678,000 in 1996 and $3,248,000 in 1995. 11. Earnings Per Share: The following table reflects the reconciliation of the numerators and denominators of the Company's basic earnings per share and diluted earnings per share computations reported on the Consolidated Statement of Income for the years ended December 31, 1997, 1996 and 1995. Income Shares Per Share (Numerator) (Denominator) Amount December 31, 1997 Basic earnings per share Income available to common stockholders $ 6,921,123 6,683,536 $ 1.04 Effect of dilutive securities Stock options --- 45,923 Diluted earnings per share Income available to common stockholders $ 6,921,123 6,729,459 $ 1.03 December 31, 1996 Basic earnings per share Income available to common stockholders $ 5,799,952 6,779,284 $ 0.86 Effect of dilutive securities Stock options --- 28,165 Diluted earnings per share Income available to common stockholders $ 5,799,952 6,807,449 $ 0.85 December 31, 1995 Basic earnings per share Income available to common stockholders $11,617,039 6,770,081 $ 1.72 Effect of dilutive securities Stock options --- 18,813 Diluted earnings per share Income available to common stockholders $11,617,039 6,788,894 $ 1.71 12. Statutory Information: Subsidiary retained earnings available for distribution as dividends to the Company are limited by law to the statutory unassigned surplus of the subsidiaries on the previous December 31, as determined in accordance with the accounting practices prescribed or permitted by insurance regulatory authorities of the state of Indiana. Subject to this limitation, the maximum dividend that may be paid during a 12-month period, without prior approval of the insurance regulatory authorities is the greater of ten percent of statutory capital and surplus as of the preceding December 31 or net income for the preceding calendar year determined on a statutory basis. Meridian Security declared and paid dividends to the Company of $5,000,000 in 1997, $3,900,000 in 1996 and $2,400,000 in 1995. As of December 31, 1997, approximately $10,200,000 was available for distribution to the Company without prior approval of insurance regulatory authorities. The following is selected information for the Company's insurance subsidiaries, as determined in accordance with accounting practices prescribed or permitted by the Department of Insurance of their state of domicile: 1997 1996 1995 Statutory capital and surplus $115,280,000 $105,506,000 $ 90,952,000 Statutory net investment income $ 15,212,000 $ 15,809,000 $ 14,733,000 Statutory net income $ 6,140,000 $ 3,307,000 $ 11,625,000 13. Shareholders' Equity: In May 1997, the Shareholders of Meridian Insurance Group, Inc. approved an amendment to the Company's Articles of Incorporation to increase the number of authorized shares from 20,000,000 to 20,500,000, with the additional shares being preferred stock. The amendment provides that the preferred shares may be issued from time to time in one or more series. The Board of Directors, without further approval of the holders of common shares, would be authorized to fix the dividend rights and terms, liquidation preferences, sinking funds and any other rights, preferences, privileges, and restrictions applicable to each such series of preferred shares. As of December 31, 1997, no preferred shares have been granted or issued. In 1987, the Company's Board of Directors and Shareholders approved an Incentive Stock Plan ("Plan") for the purpose of attracting and retaining key employees. The maximum number of common shares to be authorized for issuance was limited to 750,000 shares over a 10 year term. Awards under the Plan may include non- qualified and incentive stock options, stock appreciation rights, and restricted stock. Options to purchase common shares granted under the Plan are to have an exercise price of not less than the fair market value of the Company's common shares on the date of grant. Options are to be exercisable beginning one year from the date of grant and are to expire over various periods not to exceed ten years from the date of grant. Restricted stock awards may be granted subject to terms and conditions as prescribed by the committee which administers the Plan. Under the 1987 Plan, which expired on January 21, 1997, total options with respect to 477,144 shares were granted and 272,856 options had expired. In early 1996, the Board of Directors and Shareholders approved the 1996 Employee Incentive Stock Plan, which would eventually replace the 1987 Plan. Under the 1996 Plan, which became effective on May 8, 1996, the maximum number of shares authorized for issuance is 750,000 shares over the next ten years. During 1997, options with respect to 247,267 were granted under the 1996 Plan. The Company also has a Director's Stock Plan that provides for an aggregate maximum of up to 150,000 common shares to be issued upon the exercise of stock options granted to outside directors, who are defined as non-employee directors of the Company or Meridian Mutual. Each outside director will automatically be granted an option to purchase 1,000 common shares on the date of each annual meeting of shareholders up until termination of the plan. The exercise price per share for each option will be equal to the fair market value of a common share on the date of grant. Each option will be exercisable commencing one year after the date of the grant and will expire no later than 10 years after the date of the grant. As of December 31, 1997, total options with respect to 64,000 shares have been granted. In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". This statement encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on the fair value method of accounting. The Company continues to account for stock options in accordance with Accounting Principles Board Opinion No. 25. Had compensation cost been determined using the fair value of the options at the grant dates in accordance with SFAS No. 123, the Company's net income and earnings per share for the periods ended December 31, 1997, 1996 and 1995 would have been reduced by the following pro-forma amounts: $640,000, $143,000 and $53,000 and $0.10, $0.02 and $0.01, respectively. The weighted average grant date fair value of options granted during the year was estimated to be $20.89, $18.24 and $18.22 using the Black-Scholes model with the following assumptions for 1997, 1996 and 1995, respectively: risk free interest rates of 6.29 percent, 6.55 percent and 6.70 percent; dividend yield of 2.29 percent, 2.15 percent and 2.35 percent; and volatility of 26.38 percent, 31.38 percent and 35.77 percent. As of December 31, 1997, options outstanding under these plans had an exercise price that ranged from $11.88 to $18.75 and a remaining weighted average contractual life of 6 years. Stock options granted by the Company for the periods ended December 31, 1997, 1996 and 1995 are summarized in the following table: 1997 1996 1995 Weighted Weighted Weighted Price Shares Price Shares Price Shares Outstanding at January 1 $12.28 303,324 $11.69 313,781 $10.88 328,401 Granted 16.05 259,267 14.04 31,000 14.27 37,000 Exercised during the year --- --- 5.75 (4,042) 5.75 (30,521) Canceled during the year 14.08 (58,789) 9.51 (37,415) 12.20 (21,099) Outstanding at December 31 14.01 503,802 12.28 303,324 11.69 313,781 Portion thereof exercisable at December 31 $13.68 461,802 $12.30 272,324 $11.52 278,781 Available for future grants 588,733 1,120,856 401,856 14. Unaudited Selected Quarterly Financial Data: (Amounts in thousands except per-share data) Quarter Ended March 31 June 30 September 30 December 31 1997 Revenues $ 52,908 $ 54,527 $ 54,592 $ 54,451 Net income $ 310 $ 1,802 $ 3,019 $ 1,790 Basic earnings per share $ 0.05 $ 0.27 $ 0.46 $ 0.27 Diluted earnings per share $ 0.05 $ 0.27 $ 0.45 $ 0.27 1996 Revenues $ 41,400 $ 43,262 $ 48,990 $ 52,917 Net income $ 595 $ 702 $ 1,806 $ 2,697 Basic earnings per share $ 0.09 $ 0.10 $ 0.27 $ 0.40 Diluted earnings per share $ 0.09 $ 0.10 $ 0.26 $ 0.39 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated herein by reference to the information contained under the captions "Election of Directors" and "Executive Compensation" in the Company's definitive proxy statement to be sent to shareholders in connection with the annual meeting of shareholders to be held May 13, 1998. ITEM 11: EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the information contained under the caption "Executive Compensation" in the Company's definitive proxy statement to be sent to shareholders in connection with the annual meeting of shareholders to be held on May 13, 1998. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the information contained under the caption "Beneficial Ownership of Common Shares" in the Company's definitive proxy statement to be sent to shareholders in connection with the annual meeting of shareholders to be held on May 13, 1998. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the information contained under the caption "Certain Relationships and Transactions" in the Company's definitive proxy statement to be sent to shareholders in connection with the annual meeting of shareholders to be held on May 13, 1998. PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as a part of this report. (1) Financial Statements: Report of Independent Accountants Financial Statements: Consolidated Statement of Income for the years ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheet as of December 31, 1997 and 1996 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Report of Independent Accountants on Financial Statement Schedules Financial Statement Schedules: Schedule I -- Summary of Investments Other Than Investments in Related Parties Schedule II -- Condensed Financial Information of Registrant Schedule IV -- Reinsurance Schedule VI -- Supplemental Information Concerning Property-Casualty Insurance Operations Schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto or because such schedules are not required or applicable. (3) Exhibits: See Index to Exhibits (b) Reports on Form 8-K: No reports on Form 8-K were filed during the year ended December 31, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Meridian Insurance Group, Inc. By: /s/ Steven R. Hazelbaker Steven R. Hazelbaker Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on March 18, 1998, on behalf of the registrant in the capacities indicated: /s/ Ramon L. Humke /s/ John T. Hackett Ramon L. Humke John T. Hackett Chairman of the Board Director /s/ Norma J. Oman /s/ David M. Kirr Norma J. Oman David M. Kirr President, Chief Executive Director Officer and Director /s/ Timothy J. Hanrahan /s/ Sarah W. Rowland Timothy J. Hanrahan Sarah W. Rowland Senior Vice President Director /s/ Carl W. Buedel /s/ Van P. Smith Carl W. Buedel Van P. Smith Senior Vice President Director /s/ J. Mark McKinzie /s/ Thomas H. Sams J. Mark McKinzie Thomas H. Sams Senior Vice President, Secretary Director and General Counsel /s/ Harold C. McCarthy /s/ Scott S. Broughton Harold C. McCarthy Scott S. Broughton Director Director /s/ Joseph D. Barnette, Jr. Joseph D. Barnette, Jr. Director MERIDIAN INSURANCE GROUP, INC. FORM 10-K for the fiscal year ended December 31, 1997 Index to Exhibits Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit (2) 2.01 Acquisition and Affiliation Agreement by and among Citizens Security Group, Inc., Citizens Security Mutual Insurance Company and Meridian Insurance Group, Inc. (Incorporated by reference to Exhibit 2.01 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) (3) 3.01 Restated Articles of Incorporation of Meridian Insurance Group, Inc. (Incorporated by reference to Exhibit 3.01 to the registrant's Form S-1 Registration Statement No. 33-11413.) 3.02 Amendment to Restate Articles of Incorporation of Meridian Insutance Group, Inc. effective May 14, 1997 *Page 63 3.03 Bylaws of Meridian Insurance Group, Inc. as amended through December 4, 1996. (Incorporated by reference to Exhibit 3.02 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) (4) 4.01 Text of Certificate for Common Shares of Meridian Insurance Group, Inc. (Incorporated by reference to Exhibit 4.01 to the registrant's Form S-1 Registration Statement No. 33-11413.) (9) No exhibit. (10) 10.01 Form of Supplemental Pension Agreement between Meridian Mutual Insurance Company and Harold C. McCarthy. (Incorporated by reference to Exhibit 10.06 to the registrant's Form S-1 Registration Statement No. 33-11413.) ** 10.02 Form of Addendum to Supplemental Pension Agreement between Meridian Mutual Insurance Company and Harold C. McCarthy. (Incorporated by reference to Exhibit 19.07 to the registrant's Form 10-K for the fiscal year ended December 31, 1991; Commission File No. 0-11413.) ** 10.03 Form of Supplemental Retirement Income Plan for Employees of Meridian Mutual Insurance Company. (Incorporated by reference to Exhibit 19.02 of the registrant's Form 10-K for the fiscal year ended December 31, 1994; Commission File No. 0-11413.) ** 10.04 Meridian Insurance Group, Inc., Incentive Stock Plan. (Incorporated by reference to Exhibit 10.07 to Amendment No. 1 to the registrant's Form S-1 Registration Statement No. 33-11413.) ** Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit 10.05 Form of 1994 Incentive Stock Option Agreement under 1987 Meridian Insurance Group, Inc., Incentive Stock Plan. (Incorporated by reference to Exhibit 19.03 to the registrant's Form 10-K for the fiscal year ended December 31, 1994; Commission File No. 0-11413.) ** 10.06 Form of 1994 Non-qualified Stock Option Agreement under 1987 Meridian Insurance Group, Inc., Incentive Stock Plan. (Incorporated by reference to Exhibit 19.04 to the registrant's Form 10-K for the fiscal year ended December 31, 1994; Commission File No. 0-11413.) ** 10.07 Form of 1995 Non-qualified Stock Option Agreement under 1987 Meridian Insurance Group, Inc., Employee Incentive Stock Plan. (Incorporated by reference to Exhibit 10.38 to the registrant's Form 10-K for the fiscal year ended December 31, 1995; Commission File No. 0-11413.) ** 10.08 Meridian Insurance Group, Inc., 1996 Employee Incentive Stock Plan. (Incorporated by reference to Exhibit 10.39 to the registrant's Form 10-K for the fiscal year ended December 31, 1995; Commission File No. 0-11413.) ** 10.09 First and Second Amendments to Meridian Insurance Group, Inc. 1996 Employee Incentive Stock Plan.** *Page 65 10.10 Form of March 3, 1997 Non-Qualified Stock Option Agree- ment under Meridian Insurance Group, Inc., 1996 Employee Incentive Stock Plan. (Incorporated by reference to Exhibit 10.50 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) ** 10.11 Form of Amendment No. 1 to the March 3, 1997 Non-Qualified Stock Option Agreement under Meridian Insurance Group, Inc., 1996 Employee Incentive Stock Plan.** *Page 67 10.12 Form of March 3, 1997 Incentive Stock Option Agreement under Meridian Insurance Group, Inc., 1996 Employee Incentive Stock Plan. (Incorporated by reference to Exhibit 10.51 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) ** 10.13 Form of Amendment No. 1 to the March 3, 1997 Incentive Stock Option Agreement under Meridian Insurance Group, Inc., 1996 Employee Incentive Stock Plan.** *Page 68 10.14 Form of December 1, 1997 Non-Qualified Stock Option Agreement under Meridian Insurance Group, Inc., 1996 Employee Incentive Stock Plan.** *Page 69 10.15 Written Description of 1997 Meridian Insurance Group, Inc., Executive Incentive Plan. (Incorporated by reference to Exhibit 10.52 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) ** 10.16 Written Description of 1998 Meridian Insurance Group, Inc., Executive Incentive Plan.** *Page 73 Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit 10.17 The Meridian Mutual Insurance Company Non-employee Director's Pension Plan. (Incorporated by reference to Exhibit 10.11 to the registrant's Form 10-K for the fiscal year ended December 31, 1988; Commission File No. 0-11413.) ** 10.18 Meridian Insurance Group, Inc., 1994 Outside Director Stock Option Plan. (Incorporated by reference to Exhibit 19.05 to the registrant's Form 10-K for the fiscal year ended December 31, 1993; Commission File No. 0-11413.) ** 10.19 Stock Option Agreement between Meridian Insurance Group, Inc., and Scott S. Broughton. (Incorporated by reference to Exhibit 10.34 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) ** 10.20 Form of Directors' Non-Qualified Stock Option Agreement. (Incorporated by reference to Exhibit 10.53 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) ** 10.21 Meridian Insurance Group, Inc. 401(k) Plan effective January 1, 1997.** *Page 75 10.22 Form of Change in Control Agreement between Meridian Mutual Insurance Company and Norma J. Oman, J. Mark McKinzie, Brent Hartman, and Steven R. Hazelbaker. (Incorporated by reference to Exhibit 19.08 to the registrant's Form 10-K for the fiscal year ended December 31, 1991; Commission File No. 0-11413.) ** 10.23 Form of Termination Benefits Agreement executed between Meridian Insurance Group, Inc. and Norma J. Oman, Steven R. Hazelbaker, J. Mark McKinzie, Timothy J. Hanrahan, and Carl W. Buedel.** *Page 153 10.24 Form of Termination Benefits Agreement executed between Meridian Insurance Group, Inc. and all other Executive Officers of Meridian Mutual Insurance Company not mentioned in Exhibit 10.23 above.** *Page 161 10.25 Meridian Insurance Statement of Policy on Inter-Company Expense Allocation. (Incorporated by reference to Exhibit 19.06 to the registrant's Form 10-K for the fiscal year ended December 31, 1992; Commission File No. 0-11413.) 10.26 Reinsurance Pooling Agreement Amended and Restated as of August 1, 1996, by and among Meridian Mutual Insurance Company, Meridian Security Insurance Company, Citizens Security Mutual Insurance Company, Citizens Fund Insurance Company, and Insurance Company of Ohio. (Incorporated by reference to Exhibit 10.30 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.27 Reinsurance Pooling Agreement Amended and Restated as of October 1, 1997, by and among Meridian Mutual Insurance Company, Meridian Security Insurance Company, Citizens Security Mutual Insurance Company, Citizens Fund Insurance Company, and Insurance Company of Ohio. *Page 169 Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit 10.28 Management Services Agreement among Meridian Insurance Group, Inc., Meridian Mutual Insurance Company and their Affiliates effective January 1, 1997. (Incorporated by reference to Exhibit 10.32 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.29 Consulting Services Agreement between Meridian Insurance Group, Inc., and Scott S. Broughton. (Incorporated by reference to Exhibit 10.33 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) ** 10.30 Term Loan Agreement and Business Credit Note between NBD Bank, N.A., and Meridian Insurance Group, Inc., dated July 29, 1996. (Incorporated by reference to Exhibit 10.49 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.31 Form of Modification of Term Loan Agreement between NBD Bank, N.A., and Meridian Insurance Group, Inc., effective December 31, 1997. *Page 175 10.32 Form of Meridian Insurance Agency Profit-Sharing Agreement. (Incorporated by reference to Exhibit 10.37 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.33 Form of Meridian Insurance Agency Profit-Sharing Agreement. *Page 177 10.34 Form of Meridian Insurance Agency Agreement. (Incorporated by reference to Exhibit 19.12 to the registrant's Form 10-K for the fiscal year ended December 31, 1994; Commission File No. 0-11413.) 10.35 Form of Meridian Insurance New Agent's Incentive Compensation Agreement. (Incorporated by reference to Exhibit 10.38 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.36 Property Per Risk Excess of Loss Reinsurance Agreement between Employers Reinsurance Corporation, Meridian Mutual Insurance Company and Meridian Security Insurance Company effective January 1, 1992. (Incorporated by reference to Exhibit 10.26 to the registrant's Form S-2 Registration Statement, File No. 33-58406.) 10.37 Form of Amendment No. 2 to Property Per Risk Excess of Loss Reinsurance Agreement between Employers Reinsurance Corporation, Meridian Mutual Insurance Company, Meridian Security Insurance Company and Vernon Fire & Casualty Insurance Company effective January 1, 1997. *Page 181 10.38 Form of Amendment No. 3 to Property Per Risk Excess of Loss Reinsurance Agreement between Employers Reinsurance Corporation, Meridian Mutual Insurance Company, Meridian Security Insurance Company, Vernon Fire & Casualty Insurance Company, and the Citizens Security Group effective January 1, 1998. *Page 183 Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit 10.39 Multiple Layer Reinsurance Agreement between Employers Reinsurance Corporation, Meridian Mutual Insurance Company and Meridian Security Insurance Company effective January 1, 1991. (Incorporated by reference to Exhibit 10.28 to the registrant's Form S-2 Registration Statement, File No. 33-58406.) Amendment No. 5 to the Multiple Layer Reinsurance Agreement effective January 1, 1997. (Incorporated by reference to Exhibit 10.40 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.40 Commercial and Personal Umbrella Reinsurance Agreement between Employers Reinsurance Corporation and Meridian Mutual Insurance Company. (Incorporated by reference to Exhibit 19.09 to the registrant's Form 10-K for the fiscal year ended December 31, 1993; Commission File No. 0-11413.) Amendment No. 9 to the Commercial and Personal Umbrella Reinsurance Agreement effective January 1, 1997. (Incorporated by reference to Exhibit 10.41 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.41 Personal Excess Liability Reinsurance Agreement between Employers Reinsurance Corporation and Meridian Mutual Insurance Company. (Incorporated by reference to Exhibit 19.10 to the registrant's Form 10-K for the fiscal year ended December 31, 1993; Commission File No. 0-11413.) Amendment No. 7 to the Personal Excess Liability Reinsurance Agreement effective January 1, 1997. (Incorporated by reference to Exhibit 10.39 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.42 Basket Reinsurance Agreement effective January 1, 1997, among Employers Reinsurance Corporation, Meridian Mutual Insurance Company, Meridian Security Insurance Company and Citizens Security Group. (Incorporated by reference to Exhibit 10.42 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.43 Excess Catastrophe Reinsurance Contract effective January 1, 1997, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. (Incorporated by reference to Exhibit 10.44 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.44 Form of Addendum No. 1 to the Excess Catastrophe Reinsurance Contract effective January 1, 1997, issued to Meridian Mutual Group. *Page 185 10.45 Excess Catastrophe Reinsurance Contract effective January 1, 1998, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. *Page 187 10.46 Sixth Excess Catastrophe Reinsurance Program effective January 1, 1997, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. (Incorporated by reference to Exhibit 10.47 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit 10.47 Form of Addendum No. 1 to the Sixth Excess Catastrophe Reinsurance Contract effective January 1, 1997, issued to the Meridian Mutual Group. *Page 245 10.48 Seventh Excess Catastrophe Reinsurance Program effective January 1, 1997, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. (Incorporated by reference to Exhibit 10.48 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.49 Seventh Excess Catastrophe Reinsurance Program effective January 1, 1998, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. *Page 249 10.50 Underlying Aggregate Excess Catastrophe Reinsurance Contract effective January 1, 1997, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. (Incorporated by reference to Exhibit 10.45 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.51 Underlying Aggregate Excess Catastrophe Reinsurance Contract effective January 1, 1998, issued to Meridian Mutual Group by the Subscribing Reinsurers Executing the Interests and Liabilities Agreements identified therein. *Page 280 10.52 Second Underlying Aggregate Excess Catastrophe Reinsurance Contract issued to Meridian Mutual Group effective May, 1996, and Addendum No. 1 effective January 1,1997. (Incorporated by reference to Exhibit 10.46 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.53 Form of Addendum No. 2 to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract effective May 10, 1996 *Page 304 10.54 Property Excess of Loss Reinsurance Binding Agreement between Meridian Mutual Group and NAC Reinsurance Corporation effective June 15, 1995 and Endorsement No.1 effective January 1, 1996. (Incorporated by reference to Exhibit 10.44 to the registrant's Form 10-K for the fiscal year ended December 31, 1995; Commission File No. 0-11413.) 10.55 Form of Endorsement No. 2, which became effective January 1, 1997, and Form of Endorsement No. 3, which became effective June 15, 1996, to the Property Excess of Loss Reinsurance Binding Agreement. *Page 315 10.56 Claims Administration Agreement by and among Citizens Security Mutual Insurance Company, Citizens Fund Insurance Company, Insurance Company of Ohio, and VIS'N, Inc. (Incorporated by reference to Exhibit 10.35 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit 10.57 Software and Hardware Support Agreement by and among Citizens Security Mutual Insurance Company, Citizens Fund Insurance Company, Insurance Company of Ohio, and VIS'N, Inc. (Incorporated by reference to Exhibit 10.36 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.58 Form of Agreement for the Transfer of Claim Processing Services effective December 1, 1997 between the Citizens Security Companies and VIS'N, Inc. *Page 317 10.59 Form of Citizens Security Group Agency Agreement. (Incorporated by reference to Exhibit 10.55 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.60 Form of Citizens Security Mutual Insurance Company Agency Agreement. (Incorporated by reference to Exhibit 10.56 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.61 Form of Insurance Company of Ohio Agency Agreement. (Incorporated by reference to Exhibit 10.57 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.62 Form of Citizens Security Group Limited Agency Agreement. (Incorporated by reference to Exhibit 10.58 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.63 Form of Citizens Security Mutual Insurance Company Personal Partner Agency Agreement. (Incorporated by reference to Exhibit 10.59 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.64 Form of Citizens Security Group Personal Partner Contingency Plan. (Incorporated by reference to Exhibit 10.60 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.65 Form of Citizens Security Group Network Agencies Profit Sharing Plan. (Incorporated by reference to Exhibit 10.61 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) 10.66 Form of Citizens Security Group Individual Agency Profit Sharing Plan. (Incorporated by reference to Exhibit 10.62 to the registrant's Form 10-K for the fiscal year ended December 31, 1996; Commission File No. 0-11413.) (11) No exhibit. (12) No exhibit. (13) No exhibit. (16) No exhibit. (18) No exhibit. Exhibit Number Assigned in Regulation S-K Item 601 Description of Exhibit (21) 21.01 Revised list of Subsidiaries of Meridian Insurance Group, Inc. *Page 321 (22) No exhibit. (23) 23.01 Consent of Independent Accountants dated March 23, 1998 *Page 322 (24) No exhibit. (27) 27.01 Financial Data Schedule for Meridian Insurance Group, Inc., for the year ended December 31, 1997. 27.02 Restated Financial Data Schedule for Meridian Insurance Group, Inc., for the year ended December 31, 1996. 27.03 Restated Financial Data Schedule for Meridian Insurance Group, Inc., for the year ended December 31, 1995. 27.04 Restated Financial Data Schedule for Meridian Insurance Group, Inc., for the period ended September 30, 1997. (28) 28.01 Combined Statutory Schedule P Loss and Loss Adjustment Expense Reserves for the Consolidated Insurance Subsidiaries of Meridian Insurance Group, Inc., as of December 31, 1997 *Page 323 * Exhibits filed as a part of this document. ** These exhibits represent management contracts, compensatory plans or arrangements that are required to be filed by Item 601 of Regulation S-K. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Shareholders and Board of Directors Meridian Insurance Group, Inc. Our report on the consolidated financial statements of Meridian Insurance Group, Inc., and Subsidiaries is included on page 25 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 57 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Indianapolis, Indiana February 25, 1998 MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES FORM 10-K INDEX TO FINANCIAL STATEMENT SCHEDULES PAGE Schedule I Summary of Investments Other than Investments in Related Parties 58 Schedule II Condensed Financial Information of Registrant 59 Schedule IV Reinsurance 61 Schedule VI Supplemental Information Concerning Property-Casualty Insurance Operations 62 MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES SCHEDULE I--SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 1997 Amount at Which Shown Market in the Cost Value Balance Sheet Fixed maturities Available-for-sale: Bonds United States Government and government agencies and authorities $ 18,454,575 $ 18,987,767 $ 18,987,767 States, municipalities, and political subdivisions 100,688,055 104,646,261 104,646,261 Public utilities 4,534,868 4,655,526 4,655,526 All other corporate bonds 82,456,599 84,800,006 84,800,006 Redeemable preferred stocks 33,528,199 35,314,744 35,314,744 Total fixed maturities 239,662,296 248,404,304 248,404,304 Equity securities Common stocks Public utilities 2,543,607 3,647,291 3,647,291 Banks, trust, and insurance companies 5,108,988 7,724,875 7,724,875 Industrial, miscellaneous, and all other 33,777,482 43,006,781 43,006,781 Total equity securities 41,430,077 54,378,947 54,378,947 Mortgage loan 700,135 700,135 700,135 Other long-term investments 525,000 946,967 946,967 Short-term investments 3,996,232 3,996,232 3,996,232 Total other investments 5,221,367 5,643,334 5,643,334 Total investments $286,313,740 $308,426,585 $308,426,585 MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) BALANCE SHEET as of December 31, 1997 and 1996 ASSETS 1997 1996 Cash and short-term investments $ 2,247,120 $ 2,227,195 Investment in subsidiaries (eliminated in consolidation) 144,339,653 133,923,863 Other assets 85,749 18,890 Total assets $146,672,522 $136,169,948 LIABILITIES AND SHAREHOLDERS' EQUITY Due to Meridian Mutual Insurance Company $ 807,194 $ 27,517 Post-employment benefits 1,933,181 1,417,814 Bank loan payable 11,375,000 11,875,000 Dividends payable 530,149 542,350 Other liabilities 132,763 133,286 Total liabilities 14,778,287 13,995,967 Shareholders' equity: Common shares 44,110,416 44,077,846 Treasury Shares, at cost; 154,500 shares (2,308,188) --- Contributed capital 15,058,327 15,058,327 Unrealized appreciation of investments, net of deferred income tax 14,349,232 7,141,846 Retained earnings 60,684,448 55,895,962 Total shareholders' equity 131,894,235 122,173,981 Total liabilities and shareholders' equity $146,672,522 $136,169,948 STATEMENT OF INCOME For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Dividend income from subsidiaries $ 5,000,000 $ 3,900,000 $ 2,400,000 Other income 24,537 24,656 1,928 Less: General operating expenses 773,888 727,648 730,704 Interest expense 732,047 307,887 --- Current federal income tax benefit (191,110) (265,508) (379,345) Income before equity in net income of subsidiaries 3,709,712 3,154,629 2,050,569 Equity in undistributed net income of subsidiaries 3,211,411 2,645,323 9,566,470 Net income $ 6,921,123 $ 5,799,952 $11,617,039 SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Continued STATEMENT OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Cash flows from operation: Net income $ 6,921,123 $ 5,799,952 $11,617,039 Reconciliation of net income to net cash provided by operations: Equity in undistributed net income of subsidiaries (3,211,411) (2,645,323) (9,566,470) (Increase) decrease in other assets (66,859) 5,521 (5,465) Increase (decrease) in due to Meridian Mutual Insurance Company 779,677 20,966 (54,966) Increase in post-employment benefits 515,367 119,436 197,223 Increase (decrease) in other liabilities (524) 132,425 861 Other, net 35,579 (21,848) 243 Net cash provided by operations 4,972,952 3,411,129 2,188,465 Cash flows from investing activities: Capital contribution to subsidiary --- (12,000,000) --- Net cash used by investing activities --- (12,000,000) --- Cash flows from financing activities: Proceeds from stock options --- 23,241 222,996 Repurchase of common stock (2,308,188) (22,080) (77,033) Proceeds from bank loan --- 12,000,000 --- Repayment of bank loan (500,000) (125,000) --- Dividends paid (2,144,839) (2,101,426) (1,826,933) Net cash provided (used) by financing activities (4,953,027) 9,774,735 (1,680,970) Net increase in cash 19,925 1,185,864 507,495 Cash at beginning of year 2,227,195 1,041,331 533,836 Cash at end of year $ 2,247,120 $ 2,227,195 $ 1,041,331 MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES SCHEDULE IV--REINSURANCE For the Years Ended December 31, 1997, 1996 and 1995 Percentage Ceded Assumed of Amount Gross to Other from Other Net Assumed Amount Companies(1) Companies(1) Amount to Net Property and liability insurance premiums: Year ended December 31, 1997 $211,105,812 $17,751,345 $ 1,232,165 $194,586,632 0.6% Year ended December 31, 1996 $176,718,644 $15,839,546 $ 6,425,316 $167,304,414 3.8% Year ended December 31, 1995 $149,748,331 $11,104,680 $ 5,222,170 $143,865,821 3.6% _____________ (1) The amounts for the years ended December 31, 1997, 1996 and 1995 represents the Company's insurance subsidiaries share of third party reinsurance transactions pursuant to the pooling agreement. MERIDIAN INSURANCE GROUP, INC., AND SUBSIDIARIES SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Deferred policy acquisition costs $ 17,651,544 $ 16,690,275 $ 13,354,600 Reserves for losses and loss adjustment expenses $169,801,326 $161,309,239 $123,577,240 Unearned premiums $ 82,839,333 $ 84,065,751 $ 64,558,695 Earned premiums $194,586,632 $167,304,414 $143,865,821 Investment income $ 16,371,711 $ 14,908,285 $ 14,563,820 Losses and loss adjustment expenses incurred related to: Current years $165,576,734 $137,817,367 $104,584,909 Prior years $(16,358,003) $ (7,716,175) $ (5,461,060) Amortization of deferred policy acquisition costs $ 42,513,797 $ 35,985,771 $ 30,691,609 Paid losses and loss adjustment expenses $147,779,800 $123,669,408 $ 98,690,281 Premiums written $194,519,309 $169,194,649 $148,763,885 EX-3 2 EXHIBIT 3.02 AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF MERIDIAN INSURANCE GROUP, INC. Effective May 14, 1997, Article IV, Sections 4.01 through 4.04 of the Restated Articles of Incorporation of Meridian Insurance Group, Inc. shall read as follows: Section 4.01. Number. The total number of shares which the Corporation has authority to issue shall be twenty million five hundred thousand (20,500,000) shares. Section 4.02. Classes. There shall be two (2) classes of shares of the Corporation, consisting of twenty million (20,000,000) shares of common stock (the "Common Shares"), and five hundred thousand (500,000) shares of preferred stock (the "Preferred Shares"). Section 4.03. Voting Rights, Preferences, Limitations and Other Rights of Common Shares. Each holder of Common Shares shall be entitled one (1) vote for each share owned of record on the books of the Corporation on each matter submitted to a vote of the holders of Common Shares. All Common Shares shall have the same rights, preferences, limitations and other rights. Section 4.04. Voting Rights, Preferences, Limitations and Other Relative Rights of Preferred Shares. (a) The Preferred Shares may be issued from time to time in one or more series. The Board of Directors shall have the authority to determine and state the designation and the relative preferences, limitations, voting rights, if any, and other rights of each series of Preferred Shares by specifying such matters in an amendment to these Articles of Incorporation, which amendment may be adopted and become effective without further shareholder approval as provided by the Act. All Preferred Shares of the same series shall have the same relative preferences, limitations, voting rights, if any, and other rights. (b) Without limiting the generality of the foregoing, the Board of Directors shall have the authority to determine the following for each series of Preferred Shares: (i) The designation of such series, the number of shares which shall initially constitute such series and the stated value thereof; (ii) Whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be special, conditional or limited or no voting rights except as required by law; (iii) The rate or rates and the time or times at which dividends and other distributions on the shares of such series shall be paid, the relationship or priority of such dividends or other distribution to those payable on Common Shares or to other series of Preferred Shares, and whether or not any such dividends shall be cumulative; (iv) The amount payable on the shares of such series in the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and the relative priorities, if any, to be accorded such payments in liquidation; (v) The terms and conditions upon which either the Corporation may exercise a right to redeem shares of such series or upon which the holder of such shares may exercise a right to require redemption of such shareholder's Preferred Shares, including any premiums or penalties applicable to exercise of such rights; (vi) Whether or not a sinking fund shall be created for the redemption of the shares of such series, and the terms and conditions of any such fund; (vii) Rights, if any, to convert any shares of such series, either into Common Shares or into other series of Preferred Shares and the prices, premiums or penalties, ratios and other terms applicable to any such conversion; (viii) Restrictions on acquisition, rights of first refusal or other limitations on transfer as may be applicable to such series, including any series intended to be offered to a special class or group; and (ix) Any other relative rights, preferences, limitations, qualifications or restrictions on such series of Preferred Shares, including rights and remedies in the event of default in connection with dividends, other distributions or redemptions. EX-10 3 EXHIBIT 10.09 FIRST AMENDMENT TO MERIDIAN INSURANCE GROUP, INC. 1996 EMPLOYEE INCENTIVE STOCK PLAN As of December 3, 1997, the 1996 Employee Incentive Stock Plan is hereby amended to add the following sentence as the last sentence of Section 4.1: The number of shares of Meridian Stock which may be granted under the Plan to any one Key Employee during any calendar year under all forms of Awards shall not exceed 500,000. SECOND AMENDMENT TO MERIDIAN INSURANCE GROUP, INC. 1996 EMPLOYEE INCENTIVE STOCK PLAN As of March 18, 1998, the 1996 Employee Incentive Stock Plan is hereby amended as follows: 1. Section 5.6(a) and 5.6(b) are deleted and replaced by the following new Section 5.6(a): (a) If a Participant shall cease to be employed by a Company in the Meridian Group for any reason other than death, any Options of such Participant shall expire and any right thereunder shall terminate immediately unless the Participant obtains the written consent of the President of the Company (or the President's delegate) to retain such Options. Subject to the President's consent to retain the Option, the Participant may exercise an Option at any time within three years after such termination, to the extent of the number of shares covered by such Option which were purchasable at the date of such termination; provided, however, that an Option shall be so exercisable only until the earlier of the expiration of such three-year period, the expiration date of such Option, or the termination date contained in the terms and conditions of any Stock Option Agreement. 2. Section 5.6(c) is hereby relabeled as Section 5.6(b). EX-10 4 EXHIBIT 10.11 NON-QUALIFIED STOCK OPTION AGREEMENT AMENDMENT No. 1 THIS AMENDMENT, made this ____ day of _________, 199___, by and between Meridian Insurance Group, Inc. (hereinafter called the "Corporation") and ________________ (hereinafter called the "Employee"), amends and becomes a part of the Non- Qualified Stock Option Agreement entered into by the parties on __________, 199___. WHEREAS, the Corporation believes that the Employee has made valuable contributions to the productivity and profitability of the Corporation; and WHEREAS, the Corporation desires to encourage the Employee to continue to make such contributions and not to seek or accept employment elsewhere; and WHEREAS, the Corporation desires to assure the Employee of certain benefits in case of any termination of his employment with the Corporation subsequent to any Change in Control of the Corporation (as that term is hereinafter defined); NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants herein contained and the mutual benefits herein provided, the Corporation and the Employee hereby agree as follows: 1. Full vesting of the Option granted by this Agreement shall occur as of the date first written above. 2. Except as modified by this Amendment, all terms and conditions of the Non-Qualified Stock Option Agreement signed by both the Employee and the Corporation shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered as of the day and year first above written. MERIDIAN INSURANCE GROUP, INC. ("Corporation") By ____________________________ _______________________________ ("Employee") EX-10 5 EXHIBIT 10.13 INCENTIVE STOCK OPTION AGREEMENT AMENDMENT No. 1 THIS AMENDMENT, made this _____ day of __________, 199___, by and between Meridian Insurance Group, Inc. (hereinafter called the "Corporation") ________________ (hereinafter called the "Employee"), amends and becomes a part of the Incentive Stock Option Agreement entered into by the parties on __________, 199___. WHEREAS, the Corporation believes that the Employee has made valuable contributions to the productivity and profitability of the Corporation; and WHEREAS, the Corporation desires to encourage the Employee to continue to make such contributions and not to seek or accept employment elsewhere; and WHEREAS, the Corporation desires to assure the Employee of certain benefits in case of any termination of his employment with the Corporation subsequent to any Change in Control of the Corporation (as that term is hereinafter defined); NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants herein contained and the mutual benefits herein provided, the Corporation and the Employee hereby agree as follows: 1. Full vesting of the Option granted by this Agreement shall occur as of the date first written above. 2. In Section 9(a) and 9(c) of the Agreement each reference to "three months" is changed to "three years." 3. The Option granted by this Agreement shall no longer be classified as an Incentive Stock Option as defined in the Plan and henceforth shall be classified as a Non- Qualified Stock Option. 4. Except as modified by this Amendment, all terms and conditions of the Incentive Stock Option Agreement signed by both the Employee and the Corporation shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered as of the day and year first above written. MERIDIAN INSURANCE GROUP, INC. ("Corporation") By ______________________________ _________________________________ ("Employee") EX-10 6 EXHIBIT 10.14 NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made this 1st day of December, 1997, between Meridian Insurance Group, Inc., with its principal office at Indianapolis, Indiana, (hereinafter called the "Corporation") and _______________, residing at __________________________, (hereinafter called the "Employee"). WITNESSETH THAT: WHEREAS, the directors of the Corporation adopted the 1996 Employee Incentive Stock Plan (the "Plan") on December 6, 1995, and the shareholders of the Corporation approved the Plan at their meeting held on May 8, 1996; and WHEREAS, the Employee has been designated, in accordance with the terms of the Plan, as a key employee to whom an Option to purchase shares of the Corporation is to be granted; NOW, THEREFORE, it is mutually agreed as follows: 1. The Corporation hereby grants to the Employee, on the terms and conditions hereinafter set forth, an Option to purchase all or any part of 1,000 shares of the Corporation's common shares at a price of $18.75 per share. This Option is for all purposes pursuant and subject to the provisions of the Plan, and the Employee agrees to be bound by the rules and regulations for the administration of the Plan as presently prescribed or hereafter amended, and by any amendment, construction or interpretation of the Plan adopted by the Board of Directors of the Corporation. 2. The right to purchase the shares subject to this Option shall accrue on the following dates provided the Employee is employed by the Corporation, its parent, subsidiaries or affiliates on such dates: 50 percent on December 1, 1998, and 50 percent on December 1, 1999. No part of the Option shall lapse by reason of any omission to exercise the Option or any part thereof prior to December 1, 2007. 3. This Option may be exercised only by written notice to the Corporation specifying the number of shares in respect of which the Option is being exercised and by payment to the Corporation in cash of the full purchase price for the shares so specified, or, at the option of the Employee, the purchase price may be paid in whole or in part through the transfer to the Corporation of shares of Meridian Stock previously acquired by the Employee. 4. The Corporation shall take any action required by law and applicable regulations, including the Indiana Securities Act and the rules and regulations of the Indiana Securities Division, to authorize the issuance and delivery of any shares covered by this Option. Upon completion of such action and the receipt of payment for the shares in respect of which this Option is exercised, the Corporation shall deliver to the Employee or his duly authorized representatives, certificates for such shares, which shares shall be fully paid and non-assessable. 5. (a) If prior to the delivery by the Corporation of all of the shares covered by this Option, there shall be any increase or decrease in the number of issued shares of the Corporation resulting from a subdivision or consolidation of shares or any other capital adjustment, the payment of a share dividend, or other increase or decrease in the shares of the Corporation effected without receipt of consideration, there shall be a proportionate and equitable adjustment of the terms of this Option with respect to the amount and class of shares remaining subject to the Option and the purchase price to be paid therefor, as determined by the Board of Directors or their designated Committee. (b) In the event that, prior to the delivery by the Corporation of all of the shares covered by this Option, there shall be a capital reorganization or reclassification of the Corporation resulting in a substitution of other shares for common shares, there shall be substituted for the shares of the Corporation the number of substitute shares which would have been issued in exchange for the common shares then remaining under the Option if such common shares had been then issued and outstanding. (c) If the Corporation shall enter into any agreement providing for the merger or consolidation of the Corporation with or into any other person, regardless of whether or not the Corporation shall be the surviving or resulting Corporation as a consequence of such merger or consolidation, the Corporation shall have the right to terminate this Agreement and to thereby terminate all rights thereunder on thirty (30) days' written notice to the Employee; provided, however, that if such merger or consolidation is not consummated within 180 days from the date of the notice, the Agreement so terminated shall be deemed to have been continuously in effect since the date of execution thereof. In the event of a dissolution or liquidation of the Corporation, the Corporation shall give thirty (30) days' written notice thereof to the Employee, and all rights of the Employee under this Agreement shall be deemed to be terminated upon such dissolution or liquidation. 6. The Employee shall have no rights or privileges as a shareholder of the Corporation with respect to the common shares issuable under this Option until certificates representing such shares have been delivered to him. 7. The Employee agrees, for himself and his personal representatives, that any and all shares purchased by him or them, upon the exercise of any portion of this Option, may be "restricted securities" within the meaning of Rule 144 promulgated by the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (the "1933 Act"), or may otherwise be subject to the provisions of Rule 144. The Employee may be required to agree in writing, at any time deemed appropriate by the Corporation, that there will be no sale or other disposition of the shares (i) unless a registration statement is in effect with respect to the resale of such shares, (ii) unless the Employee has received an opinion from counsel for the Corporation to the effect that the shares may be sold without compliance with the registration provisions of the 1933 Act, or (iii) unless a "no-action" letter to that effect has been obtained from the staff of the SEC. In this connection, all certificates representing the shares purchased upon exercise of this Option may have set forth thereon a legend evidencing the foregoing restrictions in such form as the Corporation may determine, and appropriate stop transfer instructions may be issued to the Corporation's transfer agent in connection therewith. In addition, the Employee may be required to agree to any other limitation upon resale deemed appropriate by the Corporation for the purpose of complying with the then current rules and regulations of the SEC. 8. This Option shall not be assignable or transferable by the Employee otherwise than by will or the laws of descent and distribution and shall be exercisable during his lifetime only by him. 9. (a) If the Employee shall cease to be employed by a Company in the Meridian Group (as defined in the 1987 Employee Incentive Stock Plan) for reasons other than (i) death, (ii) discharge for cause, or (iii) voluntary action of the Participant without the written consent of the President of the Company (or the President's delegate), the Employee may exercise this Option at any time within three years after such termination, to the extent of the number of shares covered by this Option which were purchasable at the date of such termination; provided, however, that this Option shall be so exercisable only until the earlier of the expiration of such three-year period or the expiration date of such Option. (b) If the Employee shall cease to be employed by a Company in the Meridian Group either (i) for cause or (ii) by voluntary action of the Employee without the written consent of the President of the Company (or the President's delegate), this Option shall expire and any rights hereunder shall terminate immediately. (c) Should the Employee die either while in the employ of a Company in the Meridian Group or after termination of such employment (other than discharge for cause, by voluntary action of the Employee without the written consent of the President of the Company, or the President's delegate), the Option rights of the deceased Employee may be exercised by his or her Personal Representative until the earlier of one year after the Employee's death or three years after his or her termination of employment to the extent of the number of shares covered by this Option which were purchasable at the date of such death except that this Option shall not be exercisable on any date beyond the expiration date of this Option. If the Employee granted an Option should die within thirty days prior to the expiration date of such Option, if on the date of death the Employee was then entitled to exercise such Option, and if the Option expires without being exercised, the Personal Representative of the Employee shall receive in settlement a cash payment from the Company of a sum equal to the amount, if any, by which the Fair Market Value (determined on the expiration date of the Option) of Meridian Stock subject to the Option exceeds the Option Price. 10. A leave of absence for the Employee during the term of this Option which is authorized by the Corporation shall not be deemed a termination of employment; however, the Employee may not exercise any Options hereunder during such leave of absence. 11. Nothing in this Agreement shall be deemed to create any limitation or restriction upon such rights as the Corporation would otherwise have to terminate the employment of the Employee at any time for any reason. 12. Any notice to be given or served under the terms of this Agreement shall be delivered to the Secretary of the Corporation and to the Employee at the address shown above, or such other address or addresses as either party may designate in writing to the other. Any such notice shall be deemed to have been duly given or delivered if it is sent by registered or certified mail, return receipt requested. 13. This Agreement shall be construed in accordance with the laws of Indiana and shall be binding on and inure to the benefit of any successor or successors of the Corporation and the personal representatives of the Employee. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. MERIDIAN INSURANCE GROUP, INC. By:______________________________ Norma J. Oman, President EMPLOYEE: _________________________________ EX-10 7 EXHIBIT 10.16 MERIDIAN INSURANCE PARTICIPANT DESCRIPTION FISCAL YEAR 1998 ANNUAL INCENTIVE PLAN Participant Name: Title: PURPOSE Meridian's 1998 Annual Incentive Plan is designed to provide you with a very competitive opportunity to increase your cash compensation and your ownership of MIGI stock for the attainment of the annual financial objectives. You have been selected to participate in this plan because you are in a position to substantially influence the accomplishment of the corporate objectives. 1998 ANNUAL PLAN CONCEPTS The Plan is structured to pay a cash award based on meeting or exceeding the 1998 consolidated combined pre-tax income goals of the property-casualty operations. Each plan participant's total award is based on how well the companies do overall. The size of your cash award may vary from (ThresholdPercent) percent to (MaximumPercent) percent of your annual base salary as of December 31, 1998, and is based on meeting at least the threshold pre-tax income goal. PLAN DETAILS The target cash award amount is calculated as a percent of your 1998 year-end salary. For example, your target cash bonus is (TargetPercent) percent. Using your salary as of December 1, 1997, your target award would be $(TargetAward). No incentive plan payment shall be made to any plan participant in years when the pre-tax income result fails to meet a minimum acceptable level. For fiscal year 1998, no incentives shall be paid if the combined pre-tax income is less than $XXXXXXXX. The corporate goals are established each year as part of the budgeting process. Applicable company goals and your accompanying awards are as follows: CORPORATE FINANCIAL PERFORMANCE Award Payout Schedule as a % of Base Salary Pre-Tax Income Your Award Potential Maximum (XXX% of goal) $XXXXXXX X%of base salary Target (XXX% of goal) $XXXXXXX X%of base salary Threshold (XX% of goal) $XXXXXXX X% of base salary Pre-tax income results must fully reach the threshold level to result in an award payout. The award will be pro-rated for results between threshold and maximum pre-tax income levels. For example, if pre-tax income is $XXXXXXXX (halfway between target and maximum), then your bonus would be (ExamplePercent) percent (or halfway between the target and maximum award). The Company has been motivated to adopt this plan, in part, to encourage and allow participants to increase their equity holdings in MIGI. As always, the timing of stock purchases(s) should be consistent with the safe harbor periods permitted by insider trading requirements. The Legal Department or Human Resources should be contacted in advance of any MIGI stock transaction to verify permissible timeframes. AWARD PAYMENT Barring unforeseen circumstances, individual cash awards will be finalized after the close of the fiscal year for payment in March. Normally, the award will be paid in cash at that time. All appropriate taxes will be deducted from the award payment. TERMINATION OF EMPLOYMENT No bonuses are payable in the event of a participant's termination during the Plan year other than by death, permanent disability or normal retirement, in which event a discretionary payment may be made. Generally, in order to be eligible for a bonus payout, the participant must be a full-time active employee of the Company at the time of the cash bonus payment. An employee for whom a formal leave of absence has been granted by the Company may be construed to be a full-time active employee of the Company at the time of cash bonus payment with the approval of the President. The Joint Compensation Committee reserves the right to modify or terminate this incentive plan as necessary. EX-10 8 EXHIBIT 10.21 THE MERIDIAN INSURANCE GROUP, INC. 401(k) PLAN TABLE OF CONTENTS PAGE INTRODUCTION 1 ARTICLE I - DEFINITIONS 2 ARTICLE II - ELIGIBILITY AND PARTICIPATION 11 Section 2.1 Eligibility Requirements. 11 Section 2.2 Participation. 12 ARTICLE III - CONTRIBUTIONS 13 Section 3.1 Employer Contributions. 13 Section 3.2 Employee Elective Deferrals. 13 Section 3.3 After-Tax Employee Contributions. 14 Section 3.4 Rollover Contributions. 14 Section 3.5 Trustee-to-Trustee Transfers. 15 Section 3.6 Deduction Limitation. 15 ARTICLE IV - 401(k) and 401(m) 16 Section 4.1 Distribution of Excess Employee Elective Deferrals. 16 Section 4.2 Actual Deferral Percentage Test. 17 Section 4.3 Distribution of Excess Contributions. 19 Section 4.4 Actual Contribution Percentage Test. 20 Section 4.5 Distribution of Excess Aggregate Contributions. 23 Section 4.6 Recharacterization. 24 ARTICLE V - ALLOCATIONS, VALUATION AND VESTING 25 Section 5.1 Allocation of Contributions. 25 Section 5.2 Participants Who Will Receive an Allocation. 25 Section 5.3 Allocation of Forfeitures. 25 Section 5.4 Allocation Limitations. 25 Section 5.5 Valuation. 33 Section 5.6 Vesting and Accrual. 33 ARTICLE VI - DISTRIBUTIONS 34 Section 6.1 Distributions of Small Account Balances. 34 Section 6.2 Distributions While In-Service. 34 Section 6.3 Distributions Upon Separation From Service. 36 Section 6.4 Distributions Upon Retirement. 37 Section 6.5 Distributions Upon Death. 37 Section 6.6 Distributions Upon Disability. 38 Section 6.7 Special Beneficiary Provisions. 38 Section 6.8 Consent of the Participant Required for Distributions if Account Balances Greater Than $3,500. 39 Section 6.9 Commencement of Benefits. 40 Section 6.10 Required Distributions. 40 Section 6.11 Joint & Survivor Annuity Requirements 46 Section 6.12 Annuity Contract 52 Section 6.13 Special Distribution Rules for 401(k) Contributions, Qualified Matching Contributions and Qualified Non- Elective Contributions. 52 Section 6.14 Form of Distribution. 53 Section 6.15 Trustee-to-Trustee Transfers. 53 Section 6.16 Normal Form of Benefit. 53 Section 6.17 Rollovers to Other Plans or IRAs. 53 Section 6.18 Installment Payments 54 ARTICLE VII - LOANS 55 Section 7.1 Availability of Loans. 55 Section 7.2 Amount of Loans. 55 Section 7.3 Terms of Loans. 55 ARTICLE VIII - PLAN ADMINISTRATION 58 Section 8.1 Duties of the Employer. 58 Section 8.2 The Committee. 58 Section 8.3 Appointment of Advisor. 59 Section 8.4 Powers and Duties of the Committee. 59 Section 8.5 Organization and Operation. 60 Section 8.6 Claims Procedure. 60 Section 8.7 Records and Reports. 61 Section 8.8 Liability. 62 Section 8.9 Reliance and Statements. 62 Section 8.10 Remuneration and Bonding. 62 Section 8.11 Committee Decisions Final. 63 Section 8.12 Participant-Directed Investments. 63 ARTICLE IX - TRUST AGREEMENT 64 Section 9.1 Establishment of Trust. 64 ARTICLE X - AMENDMENT, TERMINATION AND MERGER 65 Section 10.1 Amendment. 65 Section 10.2 Termination. 65 Section 10.3 Merger, Consolidation or Transfer. 66 ARTICLE XI - TOP-HEAVY PROVISIONS 67 Section 11.1 Applicability. 67 Section 11.2 Definitions. 67 Section 11.3 Minimum Allocation. 70 Section 11.4 Nonforfeitability of Minimum Allocation. 70 Section 11.5 Allocation Limitations. 71 Section 11.6 Minimum Vesting Schedules. 71 ARTICLE XII - GENERAL PROVISIONS 72 Section 12.1 Governing Law. 72 Section 12.2 Power to Enforce. 72 Section 12.3 Alienation of Benefits. 72 Section 12.4 Not an Employment Contract. 72 Section 12.5 Discretionary Acts. 73 Section 12.6 Interpretation. 73 ARTICLE XIII - SIGNATURE PAGE 74 INTRODUCTION Purpose. The primary purpose of the Meridian Insurance Group, Inc. 401(k) Plan (the "Plan") is to provide the Employees of Meridian Insurance Group, Inc. with retirement benefits in recognition of the contribution of the Employees to the successful operation of the Employer. The Plan is intended to be a profit sharing plan, qualified under section 401(a) of the Internal Revenue Code (the "Code"), which permits salary deferral contributions as provided by section 401(k) of the Code; and its affiliated Trust is intended to be exempt from tax under section 501(a) of the Code. In addition, it is intended that the Plan meet the applicable requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Effective Date. The Plan was originally established effective July 1, 1987. Pursuant to the terms of the Plan which permit its amendment by the Employer, this document is a restatement, in its entirety, of the Plan, generally effective January 1, 1997. The terms of this document now set forth the controlling provisions of the Plan for all persons who are Employees on or after the Effective Date; provided, however, that to the extent required under section 411(d)(6) of the Code (and related Treasury Regulations), the applicable provisions of the preceding Plan documents are incorporated herein by reference. ARTICLE I - DEFINITIONS The following words and phrases, wherever capitalized, shall have the meanings set forth below, unless the context in which they appear within the Plan clearly indicates otherwise: Account(s) means the aggregate (or as otherwise specified) interest of a Participant in the assets of the Trust. Each Participant's interest will be segregated into one or more of the following Accounts, which will reflect, in addition to contributions allocated thereto, appropriate allocations of earnings, gains, losses and expenses of the Trust: After-Tax Employee Contribution Account. The separate Account maintained for each Participant reflecting any After-Tax Employee Contributions previously made by him under the Plan. Employee Deferral Account. The separate Account maintained for each Participant to which are credited his Employee Elective Deferrals. Employer Regular Contribution Account. The separate Account maintained for each Participant to which are credited any Employer Regular Contributions allocated to him and made in accordance with Section 3.1. Employer Matching Contribution Account. The separate Account maintained for each Participant to which are credited any Employer Matching Contributions allocated to him and made in accordance with Section 3.1. Qualified Matching Contribution Account. The separate Account maintained for each Participant to which are credited any Qualified Matching Contributions allocated to him and made on his behalf in accordance with Section 3.1. Qualified Non-Elective Contribution Account. The separate Account maintained for each Participant to which are credited any Qualified Non-Elective Contributions allocated to him and made on his behalf in accordance with Section 3.1. Rollover Account. The separate Account maintained for each applicable Participant to which contributions are made under Section 3.4. Transfer Account. The separate Account maintained for each applicable Participant to which amounts have been transferred under Section 3.5. The Administrator may, in its discretion, establish subaccounts within each separate Account. Administrative Delegate means one or more persons or institutions to whom the Committee has delegated certain administrative functions pursuant to a written agreement. Administrator means the Committee designated by the Employer to administer the Plan. Affiliate means a member of a controlled group of corporations, within the meaning of section 414(b) of the Code, which includes the Employer; a trade or business (whether or not incorporated) which is in common control with the Employer as determined in accordance with section 414(c) of the Code; or any organization which is a member of an affiliated service group, within the meaning of section 414(m) of the Code, which includes the Employer; and any other organization required to be aggregated with the Employer pursuant to section 414(o) of the Code. After-Tax Employee Contributions means contributions to the Plan, if any, made by an Employee on an after-tax, nondeductible basis. Beneficiary means the person or persons or a trust affirmatively designated by a Participant to receive all or a portion of such Participant's benefits in the event the Participant dies leaving benefits payable to such a Beneficiary in accordance with the provisions of Article VI. Code means the Internal Revenue Code of 1986, as amended from time to time. Committee means the person or persons described in Section 8.2. Compensation means all of each Participant's wages as defined in section 3401(a) of the Code together with all other compensatory payments to an Employee by the Employer with respect to which the Employer must furnish to the Employee a written statement pursuant to sections 6041(d) and 6051(a)(3) of the Code, but determined without regard to any rules (such as the exception for agricultural labor in section 3401(a)(2) of the Code) which limit the remuneration included in wages based on the nature or location of the employment or services performed. Notwithstanding the above, Compensation shall include any amount which is contributed by the Employer pursuant to a salary reduction agreement and which is not includible in the gross income of the Employee under sections 125, 402(e)(3), 402(h) or 403(b) of the Code. Notwithstanding the above, for Employee Deferral purposes and for purposes other than allocations pursuant to provision(s) providing for permitted disparity and/or Top-Heavy allocations, Compensation shall be determined by excluding the following: Overtime pay Bonuses Commissions Car allowances Taxable relocation earnings Taxable fringe benefits Taxable expense reimbursements Taxable group term life insurance premiums Miscellaneous income Compensation shall include only that Compensation which is actually paid to the Participant during the determination period. Except as provided elsewhere in this Plan, the determination period shall be the Plan Year. Effective for Plan Years beginning after December 31, 1988, the annual Compensation of each Participant taken into account for purposes of determining all benefits provided under the Plan for any determination period shall not exceed $200,000 as adjusted by the Secretary at the same time and in the same manner as under section 415(d) of the Code ("Compensation Limit"), except that the dollar increase in effect on January 1 of any calendar year shall be effective for years beginning in such calendar year. The Compensation Limit for a determination period shall be the Compensation Limit in effect on the January 1 coinciding with or preceding such determination period. If Compensation is determined on the basis of a 12-consecutive-month period ending within the Plan Year, then the applicable Compensation Limit is the Compensation Limit in effect for the calendar year in which such 12-month period begins. If Compensation is determined on the basis of a period of less than 12 calendar months, the Compensation Limit shall be the annual Compensation Limit which would otherwise be applicable multiplied by the ratio obtained by dividing by 12 the number of full months in the short period. In determining the Compensation of a Participant for purposes of the $200,000 limitation, the rules of section 414(q)(6) of the Code shall apply except that, in applying such rules, the term "family" shall include only the Spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then (except for purposes of determining the portion of Compensation up to the integration level, as defined in Section 5.1, if applicable) the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined prior to the application of this limitation. Notwithstanding the above, effective for Plan Years beginning after December 31, 1993, the annual Compensation Limit shall not exceed $150,000, adjusted for calendar years beginning after 1994 at the same time and in the same manner as under section 415(d) of the Code, but only if and when the aggregate of such potential adjustments totals at least $10,000, and then only in amounts of $10,000, in the manner described in section 401(a)(17) of the Code. If Compensation for any prior determination period is taken into account in determining an Employee's allocations or benefits for the current determination period, the Compensation for such prior period is subject to the applicable annual Compensation Limit in effect for that prior period. For this purpose, for years beginning before January 1, 1990, the applicable annual Compensation Limit is $200,000. Defined Benefit Plan means a pension plan maintained by the Employer which is qualified under section 401(a) of the Code and which is not a Defined Contribution Plan, except to the extent that it maintains separate accounts with respect to which it is treated as a Defined Contribution Plan. Defined Contribution Plan means a plan qualified under section 401(a) of the Code and maintained by the Employer which provides for an account for each individual who participates in the plan, from which account all benefits attributable to amounts allocated to each such Participant's account (and any income and expenses or gains or losses attributable to such accounts, both realized and unrealized) are paid. Disability means any medically determinable physical or mental impairment which results in an inability to engage in any substantial gainful activity by reason thereof and which may be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment must be supported by medical evidence. Disability will be determined to exist if the Participant is receiving disability benefits under the Social Security Act or Railroad Retirement Act. Effective Date The provisions of this amendment and restatement are generally effective January 1, 1997, except for the retroactive effective dates required by the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, the Omnibus Budget Reconciliation Act of 1989, or any final Regulations published and effective since the most recent effective date of this Plan. Further, to the extent the Plan was operated in accordance with the provisions of this amendment and restatement as of an effective date earlier than that required by law, such date shall be the Effective Date. Employee means any common law employee of the Employer or any Affiliate. The term Employee shall also include any Leased Employee deemed to be an Employee of the Employer or any Affiliate as provided in section 414(n) or (o) of the Code. Employee Elective Deferrals means contributions to the Plan from an Employee's salary, which the Employee could have received currently in Compensation. Employer means Meridian Insurance Group, Inc., any successor through merger, consolidation or purchase of substantially all of the assets or business of the entity which is the Employer immediately prior to such succession, which successor, within 90 days after such succession, agrees to continue this Plan; and any Affiliate which adopts the Plan. Employer Matching Contributions means those contributions made by the Employer as described under Section 3.1 which are allocated to Participants' Employer Matching Contribution Accounts, and does not include Qualified Matching Contributions or Qualified Non-Elective Contributions (if any). Employer Regular Contributions means those contributions made by the Employer as described under Section 3.1 which are allocated to Participants' Employer Regular Contribution Accounts, and does not include Qualified Matching Contributions or Qualified Non- Elective Contributions (if any). ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. Forfeitures means the nonvested portion, if any, of a Participant's Account created as a result of termination of employment by the Participant prior to the time he becomes 100 percent Vested in his Account. A Forfeiture occurs immediately after the distribution of the entire Vested portion of a Participant's Account. Highly Compensated Employee means and includes active highly compensated Employees and former highly compensated Employees. An active highly compensated Employee includes any Employee who performed service for the Employer during the determination year and who, during the look-back year: (1) received Compensation from the Employer in excess of $75,000 (as adjusted pursuant to section 415(d) of the Code, $100,000 for 1996); (2) received Compensation from the Employer in excess of $50,000 (as adjusted pursuant to section 415(d) of the Code, $66,000 for 1996) and was a member of the top-paid group for such year; or (3) was an officer of the Employer and received Compensation during such year in an amount greater than 50 percent of the dollar limitation in effect under section 415(b)(1)(A) of the Code ($60,000 for 1996). The term Highly Compensated Employee also includes: (1) Each Employee who is (i) described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and (ii) who is one of the 100 Employees who received the most Compensation from the Employer during the determination year; and (2) Employees who are owners of more than 5 percent of the Employer at any time during the look-back year or determination year. If no officer has satisfied the Compensation requirement of (3) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee. For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year. A former highly compensated Employee includes any Employee who separated (or was deemed to have separated) from service prior to the determination year, who has performed no service for the Employer during the determination year, and who was a highly compensated active Employee for either the year of his separation from service or any determination year ending on or after the Employee's 55th birthday. If any Employee is, during a determination year or look-back year, a member of the family of either (i) an owner of more than 5 percent of the Employer who is an active or former Employee or (ii) a Highly Compensated Employee who is one of the 10 most Highly Compensated Employees ranked on the basis of Compensation paid by the Employer during such year, then the family member and such owner or Highly Compensated Employee shall be aggregated. In such case, the family member and owner or Highly Compensated Employee shall be treated as a single Employee receiving Compensation and Plan contributions or benefits equal to the sum of such Compensation and contributions or benefits of the family member and owner or Highly Compensated Employee. For purposes of this Section, family members include the Spouse, lineal ascendants and descendants of the Employee or former Employee and the Spouses of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee (including the determination of the number and identity of Employees in the top-paid group; the top 100 Employees, the number of Employees treated as officers, and the Compensation that is considered) will be made in accordance with section 414(q) of the Code and the Regulations promulgated thereunder. For purposes of this definition, the Employer shall include any Affiliate. Hour of Service means: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or leave of absence. No more than 501 hours of service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to section 2530.200b-2 of the Department of Labor regulations, which section is incorporated herein by this reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same hours of service will not be credited both under paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. For purposes of this definition, Employer includes any Affiliate. Hours of Service will be credited for employment with other members of any affiliated service group (under section 414(m) of the Code), controlled group of corporations (under section 414(b) of the Code), or group of trades or businesses under common control (under section 414(c) of the Code) of which the adopting Employer is a member, and any other entity required to be aggregated with the Employer pursuant to section 414(o) of the Code and the Regulations promulgated thereunder. Hours of Service will also be credited with respect to any individual considered an Employee for purposes of this Plan under section 414(n) of the Code and the Regulations promulgated thereunder. Hours of Service will be credited for all employment with the Employer regardless of whether the Employee was at the time an eligible Employee. Service will be determined on the basis of the actual hours for which an Employee is paid or entitled to payment. Late Retirement Date means the date, occurring after Normal Retirement Age, on which an Employee actually retires from employment with the Employer. Leased Employee means any person (other than an Employee of the Employer) who, pursuant to an agreement between the Employer and any other person (the "leasing organization"), has performed services for the Employer (or for the Employer and related persons determined in accordance with section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by Employees in the business field of the Employer. Contributions or benefits provided to a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. A Leased Employee shall not be considered an Employee of the Employer if (i) such Employee is covered by a money purchase pension plan maintained by the leasing organization providing: (a) a non-integrated employer contribution rate of at least 10 percent of Compensation, as defined in section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee's gross income under section 125, section 402(e)(3), section 402(h) or section 403(b) of the Code, (b) immediate participation, and (c) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20 percent of the Employer's non-highly compensated workforce. Non-Highly Compensated Employee means an Employee who is not a Highly Compensated Employee. Normal Retirement Age means age 65. One-Year Break in Service means a 12-consecutive-month period during which the Participant does not complete more than 500 Hours of Service. Solely for purposes of determining whether a One-Year Break in Service has occurred for participation and vesting purposes, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence, to a maximum of 501 Hours of Service for any one child-related absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence: (1) by reason of the pregnancy of the individual; (2) by reason of a birth of a child of the individual; (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual; or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited in the computation period in which the absence begins if necessary to prevent a One-Year Break in Service in that period or, in all other cases, in the next following computation period. Participant means an Employee of the Employer who participates in the Plan pursuant to Article II; a former Employee who participated in the Plan under Article II and who continues to be entitled to a Vested benefit under the Plan; or a former Employee who participated in the Plan under Article II, and who has not yet incurred a One-Year Break in Service. For purposes of Section 6.17, "Participant" shall include a former Participant, as well as a former Participant's Surviving Spouse and Participant's or former Participant's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order as defined in section 414(p) of the Code (who shall be deemed Participants with respect to such Spouse's interest under the Plan). Plan means the Meridian Insurance Group, Inc. 401(k) Plan, as set forth herein. Plan Year means the 12-consecutive-month period which begins on January 1 and on each anniversary thereof. Qualified Preretirement Survivor Annuity and Qualified Joint and Survivor Annuity shall have the meanings described in Section 6.11 of the Plan. Regulations means the Treasury regulations pertaining to the Internal Revenue Code of 1986, as amended from time to time. Required Distributions shall be as described in Section 6.10 of the Plan. Spouse means the Spouse or Surviving Spouse of the Participant, provided that a former Spouse shall be treated as the Spouse or Surviving Spouse to the extent provided under a "qualified domestic relations order" as defined in section 414(p) of the Code. Top-Heavy shall have the meaning and effect described in Article XI of the Plan. Trust means the Trust as established under Article IX and maintained for purposes of the Plan which is administered by the Trustee in accordance with the provisions of the agreement of Trust between the Employer and the Trustee. If the Trust is governed by a separate agreement entered into between the Employer and the Trustee (which shall be incorporated by reference herein and become part of the Plan) to the extent the terms of such Trust agreement conflict with the Plan, the terms of such Trust agreement will control except to the extent that it is necessary to follow the terms of the Plan in order to maintain the qualified status of the Plan under section 401(a) of the Code. Trustee means the party or parties named under the Trust who shall have exclusive authority and discretion to manage and control the assets of the Plan. Notwithstanding the above, to the extent the Plan expressly provides, the Trustee shall be subject to the direction of the Committee and/or Investment Manager. Trust Fund means all money and other property received or held by the Trustee under the Trust, plus all income and gains and minus all losses, expenses, and distributions chargeable to the Trust assets. Valuation Date means any day on which the New York Stock Exchange is open for business. Vested means nonforfeitable. Year of Service means a 12-consecutive-month period during which an Employee is credited with at least 1,000 Hours of Service. If a fractional Year of Service is used in the Plan, there will be no Hours of Service requirement. ARTICLE II - ELIGIBILITY AND PARTICIPATION Section 2.1 Eligibility Requirements. (a) Only Employees of the Employer will be eligible to participate in the Plan. (b) (i) Employees become eligible to participate in the Plan for purposes of Employer Contributions, upon the completion of one Year of Service. (ii) Employees become eligible to make Employee Elective Deferrals under the Plan regardless of attained age or completed service. (c) Notwithstanding any other provision of this Article II, all Employees and former Employees who are Participants in the Plan as of the date immediately preceding the Effective Date of this amendment and restatement and who then have an Account balance (whether or not nonforfeitable) shall continue their participation in the Plan as restated. A former Employee who was a Participant in the Plan and who received a distribution of his entire nonforfeitable Account balance on account of termination of employment may become eligible to participate in the Plan upon reemployment either as a newly hired Employee or by satisfaction of the eligibility provisions. (d) Notwithstanding any other provision of this Plan, Employees included within the following described classifications are excluded from participation in this Plan: (1) Employees in a unit of employees covered by a collective bargaining agreement between the Employer and employee representatives, if retirement benefits were the subject of good faith bargaining and if two percent or less of the Employees of the Employer who are covered pursuant to that agreement are professionals as defined in section 1.410(b)-9(g) of the Regulations. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer. (2) Seasonal Employees. For this purpose the term "Seasonal Employees" shall mean Employees who are scheduled to work less than 1,000 Hours of Service per year; provided, however, that Employees who are scheduled to work less than 1,000 Hours of Service per year shall nevertheless become eligible to participate in the Plan and make Employee Elective Deferrals as provided in Section (b) of this Section 2.1. Section 2.2 Participation. An Employee will begin participation in the Plan on the first day of the first Plan quarter coincident with or the next following completion of the eligibility requirements set forth in Section 2.1 above. In the case of any Participant whose employment with the Employer terminates and who subsequently is reemployed by the Employer, such Employee will participate immediately upon returning to employment. ARTICLE III - CONTRIBUTIONS Section 3.1 Employer Contributions. Employer Matching Contributions: For each Plan Year, the Employer may make an Employer Matching Contribution to the Trust based on Employee Elective Deferrals. The amount of the Employer Matching Contributions shall be determined for each Plan Year by the Employer. Employer Regular Contributions: For each Plan Year, the Employer may make an Employer Regular Contribution to the Trust based on the total Compensation of all Participants eligible to receive an allocation. The amount of the Employer Regular Contribution shall be determined for each Plan Year by the Employer. Qualified Matching and Qualified Non-Elective Contributions: At the discretion of the Employer, Qualified Matching Contributions or Qualified Non-Elective Contributions may be made which may be used for purposes of ensuring that the Plan complies with the nondiscrimination tests of sections 401(k) or 401(m) of the Code and the Regulations promulgated thereunder. Qualified Matching Contributions may be made with respect to all Participants in an amount deemed necessary by the Employer to pass the applicable nondiscrimination test(s), determined as a percentage of such Participants' Employee Elective Deferrals. Qualified Non-Elective Contributions may be made on behalf of all Participants in the same percentage of Compensation for each until the nondiscrimination tests of sections 401(k) and/or 401(m) of the Code are met. Section 3.2 Employee Elective Deferrals. Each Plan Year, each Participant may elect to defer up to 16 percent of Compensation (Employee Elective Deferrals) which will be contributed by the Employer to the Plan. New Participants may commence deferrals as specified in Section 2.2. A Participant may change his election or make a new election as of any business day. Reasonable advance notification must be given to the Plan Administrator or its designee by a Participant prior to the first pay period affected by a modification. In addition, a Participant may cease to have Employee Elective Deferrals made as of any payroll period if reasonable advance notice is given to the Plan Administrator or its designee prior to such date. The Plan Administrator may reduce or completely prohibit Employee Elective Deferrals at any time if the Administrator determines such action is necessary to ensure compliance with section 401(k), 402(g), or 415 of the Code. Employee Elective Deferrals under this and all other qualified plans maintained by the Employer may not be made on behalf of any Participant during any taxable year to the extent such would exceed the dollar limitation of section 402(g) of the Code in effect at the beginning of the taxable year ($7,000 as adjusted for cost of living). Section 3.3 After-Tax Employee Contributions. After-Tax Employee Contributions are not permitted, but were permitted previously under the Plan. Section 3.4 Rollover Contributions. (a) An Employee, who is eligible to participate in the Plan under Section 2.1, regardless of whether he has satisfied the Participation requirements of Section 2.2, may roll over into the Plan an eligible rollover distribution (as defined in section 402(c) of the Code) from another qualified plan, or from an individual retirement account in the manner described in section 408(d)(3)(A)(ii) of the Code. If such rollover is not a direct transfer as described in section 401(a)(31) of the Code, it must be received by the Plan within 60 days of the date it was received by the Participant from the distributing qualified plan or individual retirement account. (b) The Plan Administrator shall develop such procedures, and may require such information from an Employee desiring to make such a rollover, as he deems necessary or desirable to determine that the proposed rollover will meet the requirements of this Section. Upon approval by the Plan Administrator, the amount rolled over shall be deposited in the Trust and shall be credited to the Employee's Rollover Account. Such Account shall share in allocations of earnings, losses and expenses of the Trust Fund, but shall not share in allocations of Employer contributions. The Employee's Rollover Account shall be distributed in accordance with Article VI. (c) In the event of a rollover contribution on behalf of an Employee who is otherwise eligible to participate in the Plan but who has not yet satisfied the participation requirements of Section 2.2, such Employee's Rollover Account shall represent his sole interest in the Plan until he becomes a Participant. Section 3.5 Trustee-to-Trustee Transfers. (a) Subject to Plan Administrator approval, an Employee, not excluded from participation in the Plan, regardless of whether he has satisfied any age and service requirements for participation, may cause assets from the qualified plan of a prior employer to be transferred directly by the trustee of such plan to the Trustee of this Plan. (b) A direct rollover as described in Section 6.17 shall not constitute a trustee-to-trustee transfer for purposes of the Plan. Section 3.6 Deduction Limitation. Employer contributions made with respect to any Plan Year under this Article III are conditioned upon such contributions being deductible by the Employer for such Plan Year under section 404 of the Code. ARTICLE IV - 401(k) and 401(m) Section 4.1 Distribution of Excess Employee Elective Deferrals. (a) Excess Employee Elective Deferrals shall be distributed in accordance with the provisions of this Section 4.1. Excess Employee Elective Deferrals are those elective deferrals that are includible in a Participant's gross income because they exceed the dollar limitation ($7,000 as adjusted for cost of living) imposed under Code section 402(g). Excess Employee Elective Deferrals shall be treated as Annual Additions under the Plan, except to the extent they are distributed on or before the April 15 first following the close of a Participant's tax year. (b) A Participant may attribute to this Plan any excess Employee Elective Deferrals made during a taxable year of the Participant by notifying the Plan Administrator, through actual or deemed notification, on or before March 1 following the calendar year when the excess Employee Elective Deferrals are made of the amount of the excess Employee Elective Deferrals to be attributed to the Plan. A Participant will be deemed to have notified the Plan Administrator of any excess Employee Elective Deferrals which exist when only those elective deferrals made to this Plan and any other plan(s) maintained by the Employer are taken into account. (c) Notwithstanding any other provision of the Plan, excess Employee Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account excess Employee Elective Deferrals were attributed for the preceding year and who claims excess Employee Elective Deferrals for such taxable year. With respect to any taxable year, a Participant's Employee Elective Deferrals are the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in section 401(k) of the Code, any simplified employee pension cash or deferred arrangement as described in section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under section 457 of the Code, any plan described under section 501(c)(18) of the Code, and any Employer contributions made on the behalf of a Participant for the purchase of an annuity contract under section 403(b) of the Code pursuant to a salary reduction agreement, but shall not include amounts distributed pursuant to the provisions of Section 5.4(a)(3) of this Plan. (d) Excess Employee Elective Deferrals shall be adjusted for any income or loss during the Plan Year. The income or loss allocable to excess Employee Elective Deferrals is the income or loss allocable to the Participant's Employee Deferral Account for the taxable year multiplied by a fraction, the numerator of which is such Participant's excess Employee Elective Deferrals for the year and the denominator is the Participant's Account balance attributable to Employee Elective Deferrals without regard to any income or loss occurring during such taxable year. Section 4.2 Actual Deferral Percentage Test. (a) For each Plan Year, the Actual Deferral Percentage (ADP) for Participants who are Highly Compensated Employees must bear a relationship to the ADP for Participants who are Non- Highly Compensated Employees which satisfies either of the following tests for nondiscrimination: (1) The ADP for Participants who are Highly Compensated Employees is not more than the ADP for Participants who are Non-Highly Compensated Employees multiplied by 1.25; or (2) The ADP for Participants who are Highly Compensated Employees is not more than the ADP for Participants who are Non-Highly Compensated Employees multiplied by two, and the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for Participants who are Non-Highly Compensated Employees by more than two percentage points. Actual Deferral Percentage means, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group) of (i) the amount of Employer contributions actually paid over to the Trust on behalf of such Participant for the Plan Year to (ii) the Participant's Compensation for such Plan Year. Employer contributions on behalf of any Participant shall include: (i) any Employee Elective Deferrals made pursuant to the Participant's deferral election, including excess Employee Elective Deferrals of Highly Compensated Employees, but excluding (A) Excess Employee Elective Deferrals by Non-Highly Compensated Employees which are attributable solely to Employee Elective Deferrals made under the Plan or any other plan(s) of the Employer and (B) Employee Elective Deferrals that are taken into account in the Contribution Percentage test (provided the ADP test is satisfied both with and without exclusion of these Employee Elective Deferrals); and (ii) at the election of the Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions made either to the Plan or another plan of the Employer qualified under section 401(a) of the Code. For purposes of computing Actual Deferral Percentages, any Employee who would be a Participant but for the failure to make Employee Elective Deferrals shall be treated as a Participant on whose behalf no Employee Elective Deferrals are made. For Plan Years beginning before the later of January 1, 1992, or 60 days after the publication of final Regulations, Compensation may be limited to that which is received for the period the Employee is a Participant. (b) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year shall be determined by aggregating his employee elective deferrals in all plans maintained by the Employer. If a Highly Compensated Employee participates in two or more cash or deferred arrangements having different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the above, any plans required to be mandatorily segregated pursuant to Regulations promulgated under section 401(k) of the Code shall not be aggregated for purposes of this Section 4.2. (c) In the event that this Plan satisfies the requirements of sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other Plans satisfy the requirements of such sections of the Code only if aggregated with this Plan, then this Section shall be applied by determining the ADP of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy section 401(k) of the Code only if they have the same Plan Year. (d) For purposes of determining the ADP of a Participant who is a 5-percent owner or one of the ten most highly paid Highly Compensated Employees, the Employee Elective Deferrals (and Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Employee Elective Deferrals for purposes of the ADP test) and Compensation of such Participant shall include, respectively, the Employee Elective Deferrals (and, if applicable, Qualified Non- Elective Contributions and Qualified Matching Contributions, or both) and Compensation for the Plan Year of family members (as defined in section 414(q)(6) of the Code). Such family members shall be disregarded as separate Employees in determining the ADP both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (e) In order to be considered for purposes of performing the ADP test(s), Employee Elective Deferrals, Qualified Non-Elective Contributions and Qualified Matching Contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which such contributions relate. (f) The Employer shall maintain annual records sufficient to demonstrate satisfaction of the ADP test and identify the amount of Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, used in such test. (g) The determination and treatment of the amounts considered in determining the ADP with respect to each Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. Section 4.3 Distribution of Excess Contributions. (a) Discriminatory Employee Elective Deferrals (Excess Contributions) are, with respect to any Plan Year, the excess of: (1) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over (2) The maximum amount of such contributions permitted pursuant to the ADP test described under Section 4.2(a) (determined by reducing contributions made on behalf of Highly Compensated Employees in order, beginning with the contributions made on behalf of the Employee with the highest ADP). (b) Notwithstanding any other provision of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Contributions were allocated for the preceding Plan Year. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such Employees, calculated as described above. Excess Contributions shall be allocated to Participants who are subject to the family member aggregation rules of section 414(q)(6) of the Code in proportion to the Employee Elective Deferrals (and amounts treated as Employee Elective Deferrals) of each family member whose Employee Elective Deferrals are included in the combined ADP. Excess Contributions (including any amounts recharacterized as After-Tax Employee Contributions as permitted under Section 4.6) shall be treated as Annual Additions under the Plan. (c) Excess Contributions shall be adjusted for any income or loss during the Plan Year. The income or loss allocable to Excess Contributions is the income or loss allocable to the Participant's Employee Deferral Account (and, if applicable, his Qualified Non-Elective Contribution Account or Qualified Matching Contributions Account, or both) for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Contributions for the year and the denominator of which is the Participant's Account balance attributable to Employee Elective Deferrals (and Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if any of such contributions are included in the ADP test) without regard to any income or loss occurring during such Plan Year. (d) Excess Contributions shall be distributed from the Participant's Employee Deferral Account and Qualified Matching Contributions Account (if applicable) in proportion to the Participant's Employee Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Non-Elective Contribution Account only to the extent that such Excess Contributions exceed the balance of the Participant's Employee Deferral Account and Qualified Matching Contributions Account. Section 4.4 Actual Contribution Percentage Test. (a) For each Plan Year, the Actual Contribution Percentage (ACP) of Highly Compensated Employees must bear a relationship to the ACP for Non-Highly Compensated Employees which satisfies either of the following tests for nondiscrimination: (1) The ACP for Participants who are Highly Compensated Employees is not more than the ACP for Participants who are Non-Highly Compensated Employees multiplied by 1.25; or (2) The ACP for Participants who are Highly Compensated Employees is not more than the ACP for Participants who are Non-Highly Compensated Employees multiplied by two, and the ACP for participants who are Highly Compensated Employees does not exceed the ACP for Participants who are Non-Highly Compensated Employees by more than two percentage points. (b) If any Highly Compensated Employees have both Employee Elective Deferrals and Matching Contributions and/or After- Tax Employee Contributions made on their behalf to plans maintained by the Employer, and the sum of the ADP and ACP of such Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ACP of each such Highly Compensated Employee will be reduced (beginning with that of the Highly Compensated Employee whose ACP is the highest) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amount is reduced shall be treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. Multiple use does not occur if either the ADP or ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Compensated Employees. (c) For purposes of this Section, the Actual Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his or her Account under two or more plans described in section 401(a) of the Code, or arrangements described in section 401(k) of the Code that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the above, to the extent mandatorily disaggregated pursuant to Treasury Regulations promulgated under section 401(m) of the Code, applicable plans shall continue to be treated as separate. (d) In the event that this Plan satisfies the requirements of sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. For plan years beginning after December 31, 1989, plans may be aggregated in order to satisfy section 401(m) of the Code only if they have the same plan year. (e) For purposes of determining the Actual Contribution Percentage of a Participant who is a five-percent owner or one of the ten most highly paid Highly Compensated Employees, the Contribution Percentage Amounts and Compensation of such Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of family members as defined in section 414(q)(6) of the Code. Family members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the Contribution Percentage both for Participants who are Non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. (f) For purposes of determining the ACP test, Employee Contributions are considered to have been made in the Plan Year in which contributions were made to the Trust. Matching Contributions and Qualified Non-Elective Contributions will be considered made for a Plan Year if made no later than the end of the twelve-month period beginning on the day after the close of the Plan Year. (g) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and identify the amount of Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, used in such test. (h) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (i) Definitions: "Average Contribution Percentage" means, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group) of the Participant's Contribution Percentage Amounts to the Participant's Compensation for the Plan Year (whether or not the Employee was a Participant for the entire Plan Year). "Aggregate Limit" -- In general, for purposes of this Section, the Aggregate Limit is the greater of: (1) The sum of: (A) 1.25 times the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage, and (B) Two percentage points plus the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. In no event, however, shall this amount exceed twice the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage; or (2) The sum of: (A) 1.25 times the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage, and (B) Two percentage points plus the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. In no event, however, shall this amount exceed twice the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. "Relevant Actual Deferral Percentage" means the Actual Deferral Percentage of the group of Non-Highly Compensated Employees eligible under the arrangement subject to section 401(k) of the Code for the Plan Year, and the term "Relevant Actual Contribution Percentage" means the Actual Contribution Percentage of the group of Non-Highly Compensated Employees eligible under the Plan subject to section 401(m) of the Code for the Plan Year beginning with or within the Plan Year of the arrangement subject to section 401(k) of the Code. "Contribution Percentage" means the ratio (expressed as a percentage) of the Participant's Contribution Percentage Amounts to the Participant's Compensation for the Plan Year (whether or not the Employee was a Participant for the entire Plan Year). "Contribution Percentage Amounts" means the sum of the Employee Contributions, Matching Contributions, and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching Contributions which are forfeited either in order to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Employee Deferrals, Excess Contributions, or Excess Aggregate Contributions. The Employer may include Qualified Non-Elective Contributions in the Contribution Percentage Amounts. The Employer also may elect to use Employee Elective Deferrals in the Contribution Percentage Amounts so long as the ADP test is met before the Employee Elective Deferrals are used in the ACP test and continues to be met following the exclusion of those Employee Elective Deferrals that are used to meet the ACP test. "Eligible Participant" means any Employee who is eligible to make an After-Tax Employee Contribution, or an Employee Elective Deferral (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or to receive a Matching Contribution or a Qualified Matching Contribution. "After-Tax Employee Contribution" means any contribution made to the Plan by or on behalf of a Participant that is included in the Participant's gross income in the year in which made and that is maintained under a separate Account to which earnings and losses are allocated. "Matching Contribution" means an Employer contribution made to this or any other Defined Contribution Plan on behalf of a Participant on account of an Employee Contribution made by such Participant, or on account of a Participant's Employee Elective Deferral, under a plan maintained by the Employer. Section 4.5 Distribution of Excess Aggregate Contributions. (a) "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of: (1) The Actual Contribution Percentage (ACP) amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over (2) The maximum contribution percentage amounts permitted by the ACP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of such Employees' Actual Contribution Percentages beginning with the highest of such percentages). (b) Notwithstanding any other provision of this Plan, Excess Aggregate Contributions, plus any income and minus any loss thereto, shall be forfeited if forfeitable or, if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions of Participants who are subject to the family member aggregation rules of section 414(q)(6) of the Code shall be allocated among applicable family members in proportion to the After-Tax Employee and Employer Matching Contributions (or amounts treated as Matching Contributions) of each family member whose contributions are included in the combined ACP. Excess Aggregate Contributions shall be treated as Annual Additions under the Plan. (c) Excess Aggregate Contributions shall be adjusted for any income or loss during the Plan Year. The income or loss allocable to Excess Aggregate Contributions shall be the Matching Contribution Account (if any, and if all amounts therein are not used in the ADP test) and, if applicable, Qualified Non-Elective Contribution Account and Employee Deferral Account for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Aggregate Contributions for the year and the denominator is the Participant's Account balance(s) attributable to contribution percentage amounts without regard to any income or loss occurring during such Plan Year. (d) Forfeitures of Excess Aggregate Contributions may either be reallocated to the Accounts of Non-Highly Compensated Employees or applied to reduce Employer contributions. (e) Excess Aggregate Contributions shall be forfeited, if forfeitable, or distributed on a pro rata basis from the Participant's After-Tax Employee Contribution Account, Matching Contribution Account, and Qualified Matching Contribution Account (and, if applicable, the Participant's Qualified Non-Elective Contribution Account or Employee Deferral Account, or both). Section 4.6 Recharacterization. Recharacterization is inapplicable to this Plan because there are no After-Tax Employee Contributions. ARTICLE V - ALLOCATIONS, VALUATION AND VESTING Section 5.1 Allocation of Contributions. As of the Valuation Date, Employee Elective Deferrals, Employer Matching Contributions, Qualified Non-Elective Contributions and Qualified Matching Contributions will be allocated to Participants' Accounts in the amounts in which they were contributed to the Plan by the Employer with respect to each Participant pursuant to Article III. As of the Valuation Date, Employer Regular Contributions made under Section 3.1, if any, shall be allocated to the Account of each Participant described in Section 5.2 according to either the ratio that such Participant's Compensation for the Plan Year bears to the Compensation of all Participants for such Plan Year. Section 5.2 Participants Who Will Receive an Allocation. (a) An allocation of Employer Regular Contributions made under Section 3.1 shall only be made with respect to those Participants who have performed at least 1 Hour of Service during the Plan Year. (b) An allocation of Employer Matching Contributions made under Section 3.1 shall only be made with respect to those Participants who have performed at least 1 Hour of Service during the Plan Year. Section 5.3 Allocation of Forfeitures. There are no Forfeitures under the Plan since all Plan contributions are 100 percent Vested. Section 5.4 Allocation Limitations. (a) If the Participant does not participate in, and has never participated in another qualified plan maintained by the Employer, or a welfare benefit fund, as defined in section 419(e) of the Code maintained by the Employer, or an individual medical account, as defined in section 415(l)(2) of the Code, maintained by the Employer, which provides an Annual Addition as defined in subsection (d)(1), the following provisions shall apply: (1) The amount of Annual Additions which may be credited to the Participant's Account for any Limitation Year shall not exceed the lesser of the Maximum Permissible Amount, as defined in subsection (d)(9), or any other limitation contained in this Plan. If contributions that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced (Employee Elective Deferrals first) so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. (2) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Section 415 Compensation for the Limitation Year. (3) If there is an excess Annual Addition due to a reasonable error in estimating a Participant's Compensation or in determining permissible Employee Elective Deferrals, or any other facts and circumstances as determined by the Committee and which are found by the Commissioner of Internal Revenue to justify the availability of the procedures for correcting the excess as set forth in this subsection, the excess will be corrected as follows: (A) Any After-Tax Employee Contributions, to the extent their return would reduce the excess, will be returned to the Participant; (B) Any portion of the excess directly attributable to and arising from Employee Elective Deferrals, to the extent its return would reduce the excess, will be returned to the Participant; (C) If after the application of paragraphs (A) and (B) an excess still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the excess in the Participant's Account will be used to reduce Employer contributions beginning with Employee Elective Deferrals, if any, for the next Limitation Year, and each succeeding Limitation Year if necessary; (D) If after the application of paragraphs (A) and (B) an excess still exists, and the Participant is not covered by the Plan at the end of a Limitation Year, the excess will be held unallocated in a suspense account. The suspense account will be applied to reduce future contributions beginning with Employee Elective Deferrals, if any, for all remaining Participants for the next Limitation Year, and each succeeding Limitation Year if necessary; (E) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section, it will not receive any allocation of the investment gains and losses of the Trust. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts before any Employer or any After-Tax Employee Contributions may be made to the Plan for that Limitation Year. The excess amount may not be distributed to Participants or former Participants. (b) If, in addition to this Plan, a Participant is covered under another qualified Defined Contribution Plan maintained by the Employer, a welfare benefit fund (as defined in section 419(e) of the Code) maintained by the Employer, or an individual medical account (as defined in section 415(l)(2) of the Code) maintained by the Employer, which provides an Annual Addition as defined in subsection (d)(1), during any Limitation Year, the following provisions shall apply: (1) The Annual Additions which may be credited to a Participant's Account under this Plan for any such Limitation Year may not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to such Participant's account under such other plans and/or welfare benefit funds for the same Limitation Year. If the Annual Additions with respect to the Participant under other Defined Contribution Plans and welfare benefit funds maintained by the Employer are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant's Account under this Plan would cause such Participant's Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other Defined Contribution Plans and welfare benefit funds in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's Account under this Plan for the Limitation Year. (2) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Section 415 Compensation for the Limitation Year. (3) If, as a result of a reasonable error in estimating compensation, Employee contributions or other facts and circumstances as determined by the Committee, a Participant's Annual Additions under this Plan and such other plans would include an amount in excess of the Maximum Permissible Amount for a Limitation Year, the excess will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a welfare benefit fund or individual medical account will be deemed to have been allocated first regardless of the actual allocation date. (4) If an amount in excess of the Maximum Permissible Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the excess attributed to this Plan will be the product of (A) the total excess allocated as of such date and (B) the ratio of (i) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan to (ii) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all other qualified Defined Contribution Plans maintained by the Employer. (5) Any excess Annual Addition attributed to this Plan will be disposed of in the manner described in subsection (a)(3). (c) If the Employer maintains, or at any time maintained, a qualified Defined Benefit Plan covering any Participant in this Plan, the sum of a Participant's Defined Benefit Fraction and Defined Contribution Fraction shall not exceed 1.0 in any Limitation Year. If the sum of the fractions exceeds 1.0, the annual benefit provided under the Defined Benefit Plan will be reduced until the sum of the fractions equals 1.0. (d) Definitions: (1) Annual Additions: The sum of the following amounts which are credited to a Participant's Account for the Limitation Year: (A) Employer contributions, (B) After-Tax Employee Contributions (if any), and (C) Amounts allocated, after March 31, 1984, to an individual medical account, as defined in section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by the Employer, as well as amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, attributable to post- retirement medical benefits and allocated to the separate account of a Key Employee, as defined in section 419(d)(3) of the Code, under a welfare benefit fund, as defined in section 419(e) of the Code, maintained by the Employer. For this purpose, any excess applied under Sections (a)(3) or (b)(5) in the Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year. (2) Section 415 Compensation: For purposes of this Section, a Participant's Earned Income (if any), wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the Plan (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or expense allowances under a nonaccountable plan as described in Treasury Regulation Section 1.62-2(c)), and excluding the following: (A) Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; (B) Amounts realized from the exercise of a non- qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (C) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (D) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) toward the purchase of an annuity contract described in section 403(b) of the Code (whether or not the contributions are actually excludable from the gross income of the Employee). For Limitation Years beginning after December 31, 1991, for purposes of applying the limitations of this Article, Section 415 Compensation for a Limitation Year is the compensation actually paid or made available during such Limitation Year. Section 415 Compensation does not include accrued compensation unless it is uniform and consistent and paid within two weeks. Notwithstanding the preceding sentence, Section 415 Compensation for a Participant in a Defined Contribution Plan who is permanently and totally disabled (as defined in section 22(e)(3) of the Code) is the compensation such Participant would have received for the Limitation Year if the Participant had been paid at the rate of compensation at which he was paid immediately before becoming permanently and totally disabled; such imputed compensation for the disabled Participant may be taken into account only if the Participant is not a Highly Compensated Employee (as defined in section 414(q) of the Code) and contributions made on behalf of such Participant are nonforfeitable when made. (3) Defined Benefit Fraction: A fraction, the numerator of which is the sum of the Participant's Projected Annual Benefit under all Defined Benefit Plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the Limitation Year under sections 415(b) and (d) of the Code or 140 percent of the highest average Section 415 Compensation, including any adjustments under section 415(b) of the Code. Notwithstanding the above, if the Participant was a Participant, as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more Defined Benefit Plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan(s) after May 5, 1986. The preceding sentence applies only if the Defined Benefit Plans individually and in the aggregate satisfied the requirements of section 415 of the Code for all Limitation Years beginning before January 1, 1987. (4) Defined Contribution Dollar Limitation: $30,000 or, if greater, one-fourth of the defined benefit dollar limitation set forth in section 415(b)(1) of the Code, as indexed, as in effect for the applicable Limitation Year. (5) Defined Contribution Fraction: A fraction, the numerator of which is the sum of the Annual Additions to the Participant's Account under this and all other Defined Contribution Plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years (including the annual additions attributable to the Participant's nondeductible Employee contributions to all Defined Benefit Plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in section 419(e) of the Code, and individual medical accounts, as defined in section 415(1)(2) of the Code, maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years which also constituted Years of Service with the Employer (regardless of whether a Defined Contribution Plan was maintained by the Employer). The maximum aggregate amount for any Limitation Year is the lesser of (A) 125 percent of the dollar limitation determined under sections 415(b) and (d) of the Code in effect under section 415(c)(1)(A) of the Code or (B) 35 percent of the Participant's Section 415 Compensation for such year. If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986 in one or more Defined Contribution Plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0, multiplied by (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all Employee contributions as Annual Additions. In determining the Defined Contribution Fraction under section 415(e)(3)(B) of the Code and pursuant to this Section of the Plan, "100 percent" shall be substituted for "125 percent" unless the minimum allocation percentage under section 416(c)(2)(A) of the Code and Section 11.3(a) of the Plan is increased from "three percent" to "four percent" and the Plan would not be a Top-Heavy Plan if the phrase "90 percent" were substituted for each reference to the phrase "60 percent" in Section 11.2(b) of the Plan. (6) Employer: For purposes of this Article, any entity that adopts this Plan, and all members of a controlled group of corporations (as defined in section 414(b) of the Code as modified by section 415(h) of the Code), all commonly controlled trades or businesses (as defined in section 414(c) of the Code as modified by section 415(h) of the Code) or affiliated service groups (as defined in section 414(m) of the Code) of which the adopting Employer is part, and any other entity required to be aggregated with the Employer pursuant to Regulations under section 414(o) of the Code. (7) Highest Average Compensation: The average Section 415 Compensation for the three consecutive Years of Service with the Employer which produces the highest average. (8) Limitation Year: The Limitation Year is the Plan Year. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive-month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. (9) Maximum Permissible Amount: The maximum Annual Addition that may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year shall not exceed the lesser of: (A) the Defined Contribution Dollar Limitation, or (B) 25 percent of the Participant's Section 415 Compensation for the Limitation Year. The Section 415 Compensation limitation referred to in (B) shall not apply to any contribution for medical benefits (within the meaning of section 401(h) or section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition under sections 415(1)(1) or 419A(d)(2) of the Code. If a short Limitation Year is created because an amendment changes the Limitation Year to a different 12-consecutive-month period, the Maximum Permissible Amount shall not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction: Number of months in the short Limitation Year 12 (10) Projected Annual Benefit: The annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the Participant would be entitled under the terms of the Plan assuming: (A) The Participant will continue employment until Normal Retirement Age under the Plan (or current age, if later), and (B) The Participant's Section 415 Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. Section 5.5 Valuation. The assets of the Trust will be valued on each Valuation Date at fair market value. On such date, the earnings and losses of the Trust will be allocated to each Participant's Account according to the ratio of such Account balance to all Account balances, or by utilizing any other formula as is appropriate under the circumstances. Section 5.6 Vesting and Accrual All Plan contributions are 100 percent Vested. ARTICLE VI - DISTRIBUTIONS Section 6.1 Distributions of Small Account Balances. If a Participant terminates service, and the value of the Participant's Vested Account balance derived from Employer and Employee contributions is not greater than $3,500, the Participant will receive a distribution of the value of the entire Vested portion of such Account balance. If the value of a Participant's Vested Account balance is zero, the Participant shall be deemed to have received a distribution of such Vested Account balance. Section 6.2 Distributions While In-Service. Subject to the provisions of Section 6.13, in-service distributions shall be made, at the election of a Participant, in the following circumstance(s): (a) The Committee, at the election of the Participant and with the consent of the Spouse of the Participant, shall direct the Trustee to distribute to any Participant his Vested Account balance after he has attained age 59 1/2. (1) Age 59 1/2 withdrawals are available from the following accounts and will be withdrawn from the Participant's accounts in the following hierarchy: (A) After-Tax Employee Contribution Account (B) Employee Deferral Account (C) Employer Matching Contribution Account (D) Rollover Account (E) Qualified Matching Contribution or Qualified Non-Elective Contribution Accounts (2) Withdrawals will be taken from the investment funds on a pro rata basis. (b) In-service distributions shall be permitted upon a showing of hardship to the Committee which is permitted under Code section 401(k) and related regulations. A hardship withdrawal shall be authorized only upon a showing of an immediate and heavy financial need. The amount of an immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. (1) The following are the only financial needs considered, for purposes of the Plan, to be immediate and heavy: (A) Expenses incurred or necessary for medical care described in Code section 213(d) for the Participant, Spouse, or any of his dependents (as defined in Code section 152); (B) Purchase (excluding mortgage payments) of a principal residence for the Participant; (C) Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary education for the Participant, his Spouse, children, or dependents (as defined in section 152 of the Code); or (D) The need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (2) A distribution will be considered necessary to satisfy an immediate and heavy financial need of the Employee only if: (A) The Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all Plans maintained by the Employer; (B) All Plans maintained by the Employer provide that the Employee's Elective Deferrals (and Employee Contributions) will be suspended for twelve months after the receipt of the hardship distribution; (C) The distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); and (D) All Plans maintained by the Employer provide that the Employee may not make Employee Elective Deferrals for the Employee's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under section 402(g) of the Code for such taxable year less the amount of such Employee's Elective Deferrals for the taxable year of the hardship distribution. (3) Hardship withdrawals are available from the following accounts and will be withdrawn from the Participant's accounts in the following hierarchy: (A) After-Tax Employee Contribution Account (B) Employee Deferral Account (C) Rollover Account (D) Qualified Matching Contribution or Qualified Non-Elective Contribution Accounts (E) Employer Matching Contribution Account (4) Withdrawals will be taken from the investment funds on a pro rata basis. (5) Hardship withdrawals are subject to the consent of the Participant's Spouse. (c) Notwithstanding anything herein to the contrary, a former participant of Citizens Security Mutual Insurance Company 401(k) Plan ("Citizens Plan") may withdraw from their After-Tax Employee Contributions Account amounts transferred to this Plan from such Citizens Plan at any time for any reason; provided, however, such withdrawals are subject to the consent of the Participant's Spouse. Section 6.3 Distributions Upon Separation From Service. Subject to the provisions of Sections 6.8, 6.9 and 6.11, following the request of the Participant and after approval of the Plan Administrator, the Trustee shall distribute the value of the Participant's Vested Account balance in one lump sum or in installment payments (as set forth below in Section 6.18) as elected by the Participant. Such distribution shall begin as soon as administratively feasible, following the Participant's separation from service. Section 6.4 Distributions Upon Retirement. In the event that an applicable retirement date has been reached, and subject to the terms of Sections 6.8, 6.9 and 6.11, all Vested amounts credited to the Participant's Account balance shall become distributable. The distribution will be made in one lump sum or in installment payments (as set forth below in Section 6.18) as elected by the Participant. The distribution will be made, as soon as administratively feasible, following the applicable retirement date which will include the attainment of Normal Retirement Age and after the Plan Administrator has approved the request of the Participant. Section 6.5 Distributions Upon Death. (a) Subject to the provisions of Sections 6.8, 6.9 and 6.11, upon the death of a Participant, the Committee shall instruct the Trustee, in accordance with this Article, to distribute the Account of a deceased Participant to that Participant's Beneficiary. The Participant shall not name as his Beneficiary someone other than his Spouse unless and until the Participant and Spouse designate, in writing on a valid waiver form provided by the Committee for such purpose, an alternate Beneficiary, which designation shall be witnessed by a notary public. In addition, the Participant may designate a Beneficiary other than his Spouse if: (1) the Participant is legally separated or has been abandoned and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in section 414(p) of the Code), or (2) the Participant has no Spouse, or (3) the Spouse cannot be located. Where the Participant makes no designation, the Beneficiary shall be the Spouse, and if there is no Spouse, the Beneficiary shall be the Participant's estate. The Committee may require such proof of death and such evidence of the right of other persons to be Beneficiaries as it shall deem proper under the circumstances. The Committee's determination of death and of the right of any Beneficiary to receive payments shall be conclusive. (b) The designation of a Beneficiary shall be made on a form approved by the Committee. A Participant may revoke or change his designation with the Committee by filing a new designation form with the Committee. In the event that no valid designation exists at the time of the Participant's death, and the Participant has no Spouse, the death benefit shall be payable to the Participant's estate. (c) If the Participant dies after distribution of his interest has begun, where the Participant has reached age 70 1/2, the Trustee shall distribute the remaining portion of such interest as a lump sum within one year of the Participant's death. If the Participant dies before distribution of his interest has begun or before age 70 1/2, his Account must be distributed as a lump sum within five years of the December 31st following the death of the Participant for all non- Spouse Beneficiaries. Notwithstanding the above, if the Spouse is the Beneficiary, the distribution may be delayed at the election of the Beneficiary until the date on which the Participant would have attained age 70 1/2. Section 6.6 Distributions Upon Disability. In the event of a Participant's total and permanent Disability, the Trustee, as directed by the Plan Administrator, shall distribute, subject to the provisions of Sections 6.8, 6.9 and 6.11, the value of the Participant's Vested Account balance. The distribution will be made, after the request of the Participant and the approval of the Plan Administrator, in one lump sum or in installment payments (as set forth below in Section 6.18) as elected by the Participant. The distribution will be made as soon as administratively feasible following the determination of Disability. Section 6.7 Special Beneficiary Provisions. (a) Lost Beneficiary. If, after five years have expired following reasonable efforts of the Committee to locate a Participant or his Beneficiary, including sending a registered letter, return receipt requested to the last known address, the Committee is unable to locate the Participant or Beneficiary, then the amounts distributable to such Participant or Beneficiary shall, pursuant to applicable state and Federal laws, be treated as a Forfeiture under the Plan. Where a Participant or Beneficiary is located subsequent to a Forfeiture, such benefits shall be reinstated by the Committee, and shall not count as an Annual Addition under section 415 of the Code. (b) Minor Beneficiary. The Committee may instruct the Trustee to distribute a sum payable to a minor instead to his or her legal guardian, or if there is no guardian, to a parent or other responsible adult who maintains the residence of the minor. In the alternative such distribution could be made to the appropriate custodian under the Uniform Gifts to Minors Act or Gift to Minors Act if applicable under the state laws of the state in which the minor resides. Any payment in this format shall discharge all fiduciaries involved in the distribution including the Trustee, Employer, and Plan from liability in regard to the transaction. (c) Alternate Payee. A Participant's rights and benefits shall be subject to the rights afforded to an alternate payee under a qualified domestic relations order. In connection with a proper qualified domestic relations order under section 414(p) of the Code, a distribution shall be permitted if such distribution is authorized by the qualified domestic relations order even if the Participant has not achieved a distributable event under the Plan. Section 6.8 Consent of the Participant Required for Distributions if Account Balances Greater Than $3,500. If the value of a Participant's Vested Account balance derived from Employer and Employee contributions exceeds (or at the time of any prior distribution exceeded) $3,500, and the Account balance is immediately distributable, the Participant (or where the Participant has died and the Surviving Spouse is the beneficiary, the Surviving Spouse) must consent to any distribution of such Account balance. An Account balance is immediately distributable if any part of the Account balance could be distributed to the Participant (or Surviving Spouse) before the Participant attains, or would have attained if not deceased, the later of Normal Retirement Age or age 62. The consent of the Participant and the Participant's Spouse shall be obtained in writing within the 90-day period ending on the annuity starting date. The annuity starting date is the first day of the first period for which an amount is paid as an annuity or any other form. The Plan Administrator shall notify the Participant and the Participant's Spouse of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of section 417(a)(3) of the Code, and shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date. Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the Account balance is immediately distributable. (Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant by the Plan, only the participant need consent to the distribution of an Account balance that is immediately distributable.) Neither the consent of the Participant nor the Participant's Spouse shall be required to the extent that a distribution is required to satisfy section 401(a)(9) or section 415 of the Code. In addition, upon termination of this Plan, if the Plan does not offer an annuity option (purchased from a commercial provider) and if the Employer or any entity within the same controlled group as the Employer does not maintain another Defined Contribution Plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code), the Participant's Account balance may, without the Participant's consent, be distributed to the Participant. However, if any entity within the same controlled group as the Employer maintains another Defined Contribution Plan (other than an employee stock ownership plan as defined as in section 4975(e)(7) of the Code, then the Participant's Account balance will be transferred, without the Participant's consent, to the plan if the Participant does not consent to an immediate distribution. If a distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (a) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution either in writing or by other permitted electronic medium. Section 6.9 Commencement of Benefits. Unless the Participant elects otherwise, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which: (a) the Participant attains age 65 (or Normal Retirement Age, if earlier); (b) occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the Participant terminates service with the Employer. Notwithstanding the foregoing, the failure of a Participant, Spouse or Beneficiary to consent to a distribution while a benefit is immediately distributable, within the meaning of Section 6.8 of the Plan, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section. Section 6.10 Required Distributions. (a) The requirements of this Article shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions of this Article apply to calendar years beginning after December 31, 1984. All distributions shall be determined and made in accordance with the proposed Regulations promulgated under section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of section 1.401(a)(9)-2 of the proposed Regulations. (b) The entire interest of a Participant must be distributed or must begin to be distributed no later than the Participant's Required Beginning Date (defined below) which is generally the April 1st following his attainment of age 70 1/2. Distributions may not be made over a period which exceeds each of the following (or a combination thereof): (1) the life of the Participant, (2) the life of the Participant and a Designated Beneficiary, (3) a period certain not extending beyond the Life Expectancy of the Participant, or (4) a period certain not extending beyond the joint life and last survivor expectancy of the Participant and a Designated Beneficiary. (c) If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the Required Beginning Date: (1) Distributions During the Participant's Life: If a Participant's benefit is to be distributed over (1) a period not extending beyond the Life Expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's Designated Beneficiary or (2) a period not extending beyond the Life Expectancy of the Designated Beneficiary, then the amount required to be distributed for each calendar year, beginning with distributions for the first Distribution Calendar Year, must at least equal the quotient obtained by dividing the Participant's benefit by the Applicable Life Expectancy. For calendar years beginning before January 1, 1989, if the Participant's Spouse is not the Designated Beneficiary, the method of distribution selected must assure that at least 50 percent of the present value of the amount available for distribution is paid within the Life Expectancy of the Participant. For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first Distribution Calendar Year shall not be less than the quotient obtained by dividing the Participant's benefit by the lesser of (1) the Applicable Life Expectancy or (2) if the Participant's Spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the proposed Regulations. Distributions after the death of the Participant shall be made using the Applicable Life Expectancy above as the relevant divisor without regard to proposed Regulations section 1.401(a)(9)-2. The minimum distribution required for the Participant's first Distribution Calendar Year must be made on or before the Participant's Required Beginning Date. The minimum distribution for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Employee's Required Beginning Date occurs, must be made on or before December 31 of that Distribution Calendar Year. (2) Distributions After the Participant's Death: If the Participant dies after distribution of his interest has begun and after attaining age 70 1/2, the remaining portion of such interest, if any, will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. If the Participant dies before distribution of his interest began or prior to attaining age 70 1/2, distribution of the Participant's entire interest shall be completed by the later of December 31 of the calendar year containing the fifth anniversary of the Participant's death or, if any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made over the life or over a period certain not greater than the Life Expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died notwithstanding the above, however, but if the Designated Beneficiary is the Participant's Surviving Spouse, distributions are required to begin not earlier than the later of (a) December 31 of the calendar year in which the Participant died, or (b) December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Participant has not made an election pursuant to this Section by the time of his or her death, the Participant's Designated Beneficiary must elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Section, or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. For purposes of the above paragraphs, if the Surviving Spouse dies after the Participant, but before payments to such Spouse begin, the provisions above, except for the spousal exception rule, shall be applied as if the Surviving Spouse were the Participant. Any amount paid to a child of the Participant will be treated as if it has been paid to the Surviving Spouse if the amount becomes payable to the Surviving Spouse when the child reaches the age of majority. Distribution of a Participant's interest is considered to begin on the Participant's Required Beginning Date (or, if applicable, the date distribution is required to begin to the Surviving Spouse pursuant to the above). If distribution in the form of an annuity irrevocably commences to the Participant before the Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. (3) Definitions: (A) Applicable Life Expectancy: The Life Expectancy (or joint life and last survivor expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the applicable calendar year reduced by one (1) for each calendar year which has elapsed since the date the Life Expectancy was first calculated. If Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy as so recalculated. The applicable calendar year shall be the first Distribution Calendar Year and if Life Expectancy is being recalculated, such succeeding calendar year. (B) Designated Beneficiary: An individual affirmatively elected by the Participant or the Participant's Surviving Spouse. If no Beneficiary is elected, the Designated Beneficiary shall be the Spouse of the Beneficiary under the Plan in accordance with section 401(a)(9) of the Code and the proposed Regulations thereunder. (C) Distribution Calendar Year: A calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to the above. (D) Life Expectancy: Life Expectancy and joint life and last survivor expectancy are computed by use of the expected return multiples in Tables V and VI of section 1.72-9 of the Regulations. Unless the Participant or the Surviving Spouse elects otherwise by the time distributions are required to begin, life expectancies shall be recalculated annually. An election shall be irrevocable as to the Participant or Surviving Spouse and shall apply to all subsequent years. The Life Expectancy of a non-Spouse Beneficiary may not be recalculated. (E) Participant's Benefits: (i) The Account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions allocated to the Account balance as of dates in the valuation calendar year after the Valuation Date and decreased by distributions made in the valuation calendar year after the Valuation Date. (ii) For purposes of paragraph (a) above, if any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. (F) Required Beginning Date: (i) General Rule. The Required Beginning Date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2 subject to the transitional rules below. (ii) Transitional rules. The Required Beginning Date of a Participant who attains age 70 1/2 before January 1, 1988, shall be determined in accordance with (a) or (b) below: (a) Non-5-percent owners. The Required Beginning Date of a Participant who is not a 5-percent owner is the first day of April of the calendar year following the calendar year in which the later of retirement or attainment of age 70 1/2 occurs. (b) 5-percent owners. The Required Beginning Date of a Participant who is a 5-percent owner during any year beginning after December 31, 1979, is the first day of April following the later of: (I) the calendar year in which the Participant attains age 70 1/2, or (II) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5-percent owner, or the calendar year in which the Participant retires. (III)The Required Beginning Date of a Participant who is not a 5- percent owner who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990. (iii)5-percent owner. A Participant is treated as a 5-percent owner for purposes of this Section if such Participant is a 5- percent owner as defined in section 416(i) of the Code (determined in accordance with section 416 of the Code but without regard to whether the Plan is Top-Heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 66 1/2 or any subsequent Plan Year. (iv) Once distributions have begun to a 5-percent owner under this Section, they must continue to be distributed even if the Participant ceases to be a 5-percent owner in a subsequent year. (d) Transitional Rules for TEFRA Elections: Notwithstanding the other requirements of this Section and subject to the joint and survivor annuity requirements, distribution on behalf of any Employee, including a 5-percent owner, may be made if all of the following requirements are satisfied (regardless of when such distribution commences): (1) The distribution by the Trust is one which would not have disqualified the Trust under section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984. (2) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Trust is being distributed or, if the Employee is deceased, by a Beneficiary of such Employee. (3) Such designation was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984. (4) The Employee had accrued a benefit under the Plan as of December 31, 1983. (5) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee or the Beneficiary to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfied the requirements of (1) and (5) above. If a designation is revoked, any subsequent distribution must satisfy the requirements of section 401(a)(9) of the Code and the proposed Regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy section 401(a)(9) of the Code and the proposed Regulations thereunder, but for the section 242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distributions incidental benefit requirements in section 1.401(a)(9)-2 of the proposed Regulations. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from the Plan to another plan, the rules in Q&A J-2 and Q&A J-3 of the proposed Regulations shall apply. Section 6.11 Joint & Survivor Annuity Requirements. The provisions of subsections (b) through (e) of this Section 6.11 shall apply to any Participant who is credited with at least one Hour of Service with the Employer on or after August 23, 1984 to the extent such Participant does not come within the safe harbor described in Section 6.11(a) below: (a) Safe Harbor: This safe harbor shall apply to a Participant if the following conditions are satisfied: (1) the Participant does not or cannot elect payments under this Plan in the form of a life annuity, and (2) on the death of a Participant, the Participant's Vested Account Balance will be paid to the Participant's Surviving Spouse, but if there is no Surviving Spouse, or if the Surviving Spouse has consented in a manner conforming to a Qualified Election (as discussed in paragraph (d)(4) in this Section, other than the notice requirements) then to the Participant's designated Beneficiary. The Surviving Spouse must be able to elect the commencement of distribution of the Vested Account Balance within the 90- day period following the date of the Participant's death. The Account balance shall be adjusted for gains or losses occurring after the Participant's death in accordance with the provisions of the Plan governing the adjustment of account balances for other types of distributions. This Section shall not be operative with respect to a Participant if and to the extent that the Plan is a direct or indirect transferee with respect to such Participant of a Defined Benefit Plan, money purchase pension plan, a target benefit plan, stock bonus or profit sharing plan which is subject to the survivor annuity requirements of section 401(a)(11) and section 417 of the Code. (b) If this safe harbor is applicable, then the remaining provisions of this Section 6.11, other than the transitional rule of subsection (f), shall be inoperative. (c) Qualified Joint and Survivor Annuity (QJSA): Unless an optional form of benefit is selected pursuant to a Qualified Election within the 90-day period ending on the Annuity Starting Date, a married Participant's Vested Account Balance will be paid in the form of a QJSA and an unmarried Participant's Vested Account Balance will be paid in the form of a life annuity. The Participant may elect to have such annuity distributed upon attainment of the Earliest Retirement Age under the Plan. (d) Qualified Preretirement Survivor Annuity (QPSA): Unless an optional form of benefit has been selected pursuant to a Qualified Election within the Election Period, if a Participant dies before the Annuity Starting Date then 50 percent of the Participant's Account balance derived from Employer Contributions and Employee Elective Deferrals shall be used to purchase an annuity for the Surviving Spouse and the remaining portion shall be paid to other Beneficiaries of the Participant. To the extent that less than 100 percent of such Account balance is paid to the Surviving Spouse, the amount of the Participant's Account balance attributable to Employee Contributions which is allocated to the Surviving Spouse shall be in the same proportion as the Account balance derived from Employer Contributions and Employee Elective Deferrals bears to the total Account balance of the Participant. (e) Definitions: (1) Election Period: The period which begins on the first day of the Plan Year in which the Participant attains age 35 and ends on the date of the Participant's death. If a Participant separates from service prior to the first day of the Plan Year in which he attains age 35, the Election Period shall begin on the date of separation with respect to the Account balance as of such date. (2) Pre-Age 35 Waiver: A Participant who will not have reached age 35 as of the end of any current Plan Year may make a special Qualified Election to waive the Qualified Preretirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age 35. Such election shall not be valid unless the Participant receives a written explanation of the Qualified Preretirement Survivor Annuity in such terms as are comparable to the explanation required under subsection (f). Qualified Preretirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after such date shall be subject to the full requirements of this Section. (3) Earliest Retirement Age: The earliest date on which, under the Plan, the Participant could elect to receive retirement benefits. (4) Qualified Election: An effective waiver of a QJSA or a QPSA. Any waiver of a QJSA or a QPSA shall not be effective unless: (a) the Participant's Spouse consents in writing to the election; (b) the election designates a specific Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, which may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent); (c) the Spouse's consent acknowledges the effect of the election; and (d) the Spouse's consent is witnessed by a Plan representative or notary public. Additionally, a Participant's waiver of the QJSA shall not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of a Plan representative that there is no Spouse or that the Spouse cannot be located, a waiver will be deemed a Qualified Election. Any consent by a Spouse obtained under this provision (or establishment that the consent of a Spouse may not be obtained) shall be effective only with respect to such Spouse. A consent that permits designations by the Participant without any requirement of further consent by such Spouse must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary and/or to a specific form of benefit, where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior waiver may be made by a Participant without the consent of the Spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in subsection (e) below. (5) QJSA: An immediate annuity for the life of the Participant with a survivor annuity for the life of the Spouse which is 50 percent of the amount of the annuity which is payable during the joint lives of the Participant and the Spouse and which is the amount of benefit which can be purchased with the Participant's Vested Account Balance. (6) QPSA. An immediate annuity for the life of the Spouse of a Participant who dies before the annuity starting date and which is the amount of benefit which can be purchased with the Participant's Vested Account Balance. (7) Spouse (Surviving Spouse): The Spouse or Surviving Spouse of the Participant, provided that a former Spouse will be treated as the Spouse or Surviving Spouse and a current Spouse will not be treated as the Spouse or Surviving Spouse to the extent provided under a qualified domestic relations order as described in section 414(p) of the Code. (8) Annuity Starting Date: The first day of the first period for which an amount is paid as an annuity or any other form. (9) Vested Account Balance: The aggregate value of the Participant's Vested Account Balances derived from Employer and Employee contributions (including rollovers), whether Vested before or upon death, including the proceeds of insurance contracts, if any, on the Participant's life. The provisions of this Article shall apply to a Participant who has a Vested Account balance attributable to Employer contributions, Employee contributions, or both at the time of death or distribution. (f) Notice Requirements. (1) In the case of a QJSA, the Plan Administrator shall, within the period which ends no less than 30 days and begins no more than 90 days prior to the Annuity Starting Date, provide each Participant with a written explanation of: (1) the terms and conditions of a QJSA; (2) the Participant's right to make, and the effect of, an election to waive the QJSA form of benefit; (3) the rights of a Participant's Spouse; and (4) the right to make, and the effect of, a revocation of a previous election to waive the QJSA. A Participant may waive the requirement that the written explanation, described above, be provided no less than 30 days prior to the Annuity Starting Date if the distribution commences more than 7 days after such written explanation is provided. (2) In the case of a QPSA, the Plan Administrator shall provide each Participant within the applicable period for such Participant with a written explanation of the QPSA in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements applicable to a QJSA. The applicable period for a Participant is whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period ending after the individual becomes a Participant; (iii) a reasonable period ending after the Plan no longer fully subsidizes the cost of a QPSA or QJSA and no longer prohibits the waiver of such requirements; or (iv) a reasonable period ending after this Article first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from service in the case of a Participant who separates from service before attaining age 35. For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (ii), (iii) and (iv) consists of the two- year period beginning one year prior to the date the applicable event occurs and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which he attains age 35, notice shall be provided within the two-year period beginning one year prior to separation from service and ending one year after such separation. If the Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined. (3) Notwithstanding the other requirements of this Section, the respective notices prescribed by this Section need not be given to a Participant if (i) the Plan fully subsidizes the costs of a QJSA or QPSA, and (ii) the Plan does not allow the Participant to waive the QJSA or QPSA and does not allow a married Participant to designate a non-Spouse Beneficiary. For purposes of this Section, a Plan fully subsidizes the costs of a benefit if no increase in cost, or decrease in benefits to the Participant may result from the Participant's failure to elect another benefit. (g) Transitional Rules. (1) Any living Participant not receiving benefits on August 23, 1984 who would otherwise not receive the benefits prescribed must be given the opportunity to elect to have the prior provisions of this Section apply if such Participant is credited with at least one Hour of Service under this Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and such Participant had at least 10 years of Vested service when he or she separated from service. (2) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under this Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his or her benefits paid in accordance with this Section. (3) The respective opportunities to elect (as described in subsections (e)(1) and (e)(2) above) must be afforded to the appropriate Participants during the period commencing on August 23, 1984, and ending on the date benefits would otherwise commence to said Participants. (4) Any Participant who has elected pursuant to subsection (f)(2) of this Section and any Participant who does not elect under subsection (f)(1) or who meets the requirements of subsection (f)(1) except that such Participant does not have at least 10 years of vesting service when he or she separates from service, shall have his or her benefits distributed in accordance with all of the following requirements if benefits would have been payable in the form of a life annuity: (A) Automatic joint and survivor annuity. If benefits in the form of a life annuity become payable to a married Participant who: (i) begins to receive payments under the Plan on or after his Normal Retirement Age; or (ii) dies on or after his Normal Retirement Age while still working for the Employer; or (iii)begins to receive payments on or after his Qualified Early Retirement Age; or (iv) separates from service on or after reaching his Normal Retirement Age (or the Qualified Early Retirement Age) and after satisfying the eligibility requirements for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits; then such benefits will be received under this Plan in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the Election Period. The Election Period must begin at least 6 months before the Participant attains Qualified Early Retirement Age and end not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the Participant at any time. (B) Election of early survivor annuity. A Participant who is employed after attaining the Qualified Early Retirement Age will be given the opportunity to elect, during the Election Period, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the Spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. The Election Period begins on the later of (1) the 90th day before the Participant attains the Qualified Early Retirement Age, or (2) the date on which participation begins, and ends on the date the Participant terminated employment. (C) For purposes of this subsection: (i) Qualified Early Retirement Age is the latest of: (a) the earliest date, under the Plan, on which the Participant may elect to receive retirement benefits, (b) the first day of the 120th month beginning before the Participant reaches the Normal Retirement Age, or (c) the date the Participant begins participation. (d) Qualified Joint and Survivor Annuity is an annuity for the life of the Participant with a survivor annuity for the life of the Spouse as described in subsection (c)(4) of this Section. Section 6.12 Annuity Contract. (a) Nontransferability of annuities. Any annuity contract distributed from the Plan must be nontransferable. (b) Conflicts with annuity contracts. The terms of any annuity contract purchased and distributed by the Plan to a Participant or Spouse shall comply with the requirements of this Plan. Section 6.13 Special Distribution Rules for 401(k) Contributions, Qualified Matching Contributions and Qualified Non-Elective Contributions. Employee Elective Deferrals, Qualified Matching Contributions and Qualified Non-Elective Contributions, and income allocable to each are not distributable to a Participant or his or her Beneficiary or Beneficiaries, in accordance with such Participant's or Beneficiary's or Beneficiaries' election, earlier than upon separation from service, death, or Disability other than upon the occurrence of one or more of the following events: (a) Termination of the Plan without the establishment of another Defined Contribution Plan other than an employee stock ownership plan (as defined in section 4975(e) or 409 of the Code), or a simplified employee pension plan (as defined in section 408(k) of the Code). (b) The transfer by the Employer, if a corporation, to an unrelated corporation of substantially all of the assets (within the meaning of section 409(d)(2) of the Code) used in a trade or business of such corporation if the Employer continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets. (c) The transfer by the Employer, if a corporation, to an unrelated entity of such corporation's interest in a subsidiary (within the meaning of section 409(d)(3) of the Code) if the Employer continues to maintain this Plan, but only with respect to Employees who continue employment with such subsidiary. (d) A distribution made pursuant to an event described in subsection (a), (b), or (c) above shall be made in the form of a lump sum. (e) The attainment of age 59 1/2. (f) Distribution of Employee Elective Deferrals (and earnings thereon accrued as of the end of the last Plan Year ending before July 1, 1989) may be made to a Participant in the event of hardship pursuant to a showing of immediate and heavy financial need, as described in Section 6.2 of the Plan. Notwithstanding any provision herein to the contrary, any distribution made under this Section shall be subject to the provisions of Section 6.11. Section 6.14 Form of Distribution. Distributions shall be made in cash only, except for the distribution of an annuity contract. Section 6.15 Trustee-to-Trustee Transfers. Subject to Plan Administrator approval, at the direction of a Participant, the Trustee of this Plan will make a transfer of such Participant's applicable Account balance to the trustee of another plan designated by the Participant, and qualified under section 401(a) of the Code. Section 6.16 Normal Form of Benefit The Participant will receive a distribution in the form of lump sum, as specified in Section 6.3, unless the Participant elects otherwise as permitted in this Article. Section 6.17 Rollovers to Other Plans or IRAs. Effective with respect to any distribution made on or after January 1, 1993 and notwithstanding any provision of the Plan to the contrary that would otherwise limit a Participant's election under this Section, a Participant may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution paid, in a direct rollover, to an eligible retirement plan specified by the Participant. Definitions: (a) Eligible rollover distribution. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the Participant, except: (1) any distribution that is one of a series of substantially equal periodic payments (made not less frequently than annually) made over the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the Participant and the Participant's designated Beneficiary, or over a specified period of ten years or more; (2) any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and (3) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) Eligible retirement plan. An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the Surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) Direct rollover. A direct rollover is a payment by the Plan to the eligible retirement plan specified by the Participant. Section 6.18 Installment Payments. The frequency of the installment payments shall be payable over a term not exceeding the life expectancy of the Participant, at the Participant's election as follows: (a) monthly, (b) quarterly, (c) annually. ARTICLE VII - LOANS Section 7.1 Availability of Loans. Loans shall be permitted under this Plan as established by the policy of the Plan Administrator. Any such loan shall be subject to such conditions and limitations as the Plan Administrator deems necessary for administrative convenience and to preserve the tax-qualified status of the Plan. Section 7.2 Amount of Loans. No loan to any Participant or Beneficiary may be made to the extent that such loan, when added to the outstanding balance of all other loans to the Participant or Beneficiary, would exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one-year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (b) one-half the present value of the nonforfeitable accrued benefit of the Participant. For the purpose of the above limitation, all loans from all plans of the Employer and other members of a group of employers described in sections 414(b), 414(c), 414(m), and 414(o) of the Code are aggregated. Furthermore, any loan shall by its terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan. An assignment or pledge of any portion of the Participant's interest in the Plan and a loan, pledge, or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this paragraph. Section 7.3 Terms of Loans. (a) Loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis. (b) Loans shall not be made available to Highly Compensated Employees (as defined in section 414(q) of the Code) in an amount greater than the amount made available to other Employees. (c) Loans must be adequately secured using not more than 50 percent of the Participant's Vested Account balance, and bear a reasonable interest rate. (d) No Participant loan shall exceed the present value of the Participant's Vested accrued benefit. A Participant loan for less than $1,000 dollars is not permitted. (e) In the event of default, foreclosure on the note and attachment of security will not occur until a distributable event occurs in the Plan. (f) No loans will be made to any shareholder-employee. For purposes of this requirement, a shareholder-employee means an Employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of section 318(a)(1) of the Code) on any day during the taxable year of such corporation, more than 5 percent of the outstanding stock of the corporation. (g) A Participant must obtain the consent of his or her Spouse, if any, to the use of his Account balance as security for the loan. Spousal consent shall be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan, and must be witnessed by a Plan representative or notary public. Such consent shall thereafter be binding with respect to the consenting Spouse or any subsequent Spouse with respect to that loan. A new consent shall be required if the Account balance is used for renegotiating, extension, renewal, or other revision of the loan. If valid spousal consent has been obtained, then, notwithstanding any other provision of this Plan, the portion of the Participant's Vested Account balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the Account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100 percent of the Participant's Vested Account balance (determined without regard to the preceding sentence) is payable to the Surviving Spouse, then the Account balance shall be adjusted by first reducing the Vested Account balance by the amount of the security used as repayment of the loan, and then determining the benefit payable to the Surviving Spouse. (h) Loans granted or renewed on or after the last day of the first Plan Year beginning after December 31, 1988 shall be made pursuant to a written Participant loan program incorporated herein by reference which will include the following: (1) the basis on which loans will be approved or denied; (2) procedures for applying for the loans; (3) person or positions authorized to administer the Participant loan program; (4) limitations, if any, on the types and amounts of loans offered; (5) procedures under the program for determining the rates of interest; (6) the types of collateral which may secure a Participant loan; and (7) the events constituting default and the steps that will be taken to preserve Plan assets. (i) Loans are available from the following accounts and will be withdrawn from the Participant's accounts in the following hierarchy: (A) After-Tax Employee Contribution Account (B) Employee Deferral Account (C) Employer Matching Contribution Account (D) Rollover Account (E) Qualified Matching Contribution or Qualified Non- Elective Contribution Accounts (j) Loans will be taken from the investment funds on a pro rata basis. ARTICLE VIII - PLAN ADMINISTRATION Section 8.1 Duties of the Employer. The Employer shall have overall responsibility for selecting and appointing the Trustee, and for the establishment, amendment, termination, administration, and operation of the Plan. The Employer shall discharge this responsibility by appointing a Committee, to which shall be delegated overall responsibility for administering and operating the Plan. Upon written notice to the Trustee and the Committee, the Employer may appoint one or more investment managers as described in ERISA section 3(38), which shall have the power to manage, acquire, or dispose of all or part of the Trust assets in accordance with the provisions of the Plan and Trust agreement. The Committee and investment manager shall execute a written agreement specifying the Trust assets to be managed and the investment manager's duties and responsibilities with respect to such assets, and in such agreement the investment manager shall acknowledge that it is a fiduciary with respect to the Plan and Trust. The Committee may authorize the investment manager to give written instructions to the Trustee with respect to acquiring, managing, and disposing of assets managed by the investment manager, and the Trustee shall follow such instructions and shall be under no duty to make an independent determination regarding whether the instruction is proper. The fees and expenses of an investment manager shall be paid by the Trust except to the extent paid by the Employer. Section 8.2 The Committee. (a) The Committee shall be the "named fiduciary" (as defined in section 402(a)(2) of ERISA), the "Administrator" (as defined in section 3(16) of ERISA and section 414(g) of the Code), and an agent for service of process of the Plan. (b) The Committee shall consist of officers or other Employees of the Employer, or any other person(s) who shall be appointed by the Employer. The members of the Committee shall serve at the direction of the Employer. In the absence of such appointment, the Employer shall serve as the Committee. Any member of the Committee may resign by delivering his written resignation to the Employer and to the Committee, which shall become effective upon the date specified therein. In the event of a vacancy on the Committee, the remaining members shall constitute the Committee with full power to act until the Employer appoints a new Committee member. The Employer may from time to time remove any Committee member with or without cause and appoint a successor thereto. Section 8.3 Appointment of Advisor. The Committee may employ any such person or entity as it deems necessary to assist in the Administration of the Plan and provide services including but not limited to tax advice, amendment, termination and operation of the Plan, and advice concerning reports filed with the Internal Revenue Service. Any such advisor shall not be the Administrator of the Plan (as defined in section 3(16) of ERISA and section 414(g) of the Code). The Committee shall have the authority and discretion to engage an Administrative Delegate who shall perform, without discretionary authority or control, administrative functions within the framework of policies, interpretations, rules, practices and procedures made by the Committee or other Plan fiduciary. Any action made or taken by the Administrative Delegate may be appealed by an affected Participant to the Committee in accordance with the claims review procedures provided in Section 8.6. Any decisions which call for interpretations of Plan provisions not previously made by the Committee shall be made only by the Committee. The Administrative Delegate shall not be considered a fiduciary with respect to the services it provides. Section 8.4 Powers and Duties of the Committee. (a) The Committee, on behalf of the Participants and Beneficiaries of the Plan, shall enforce the Plan and Trust in accordance with the terms thereof, and shall have all powers necessary to carry out such provisions. The Committee shall interpret the Plan and Trust and shall determine all questions arising in the administration and application of the Plan and Trust. Any such interpretation or determination by the Committee shall be conclusive and binding on all persons. The Committee shall establish rules and regulations necessary for the proper conduct and administration of the Plan, and from time to time may change or amend these rules and regulations. The Committee shall also have the power to authorize all disbursements from the Trust by the Trustee in accordance with the Plan's terms. (b) At the direction of the Committee, distributions to minors or persons declared incompetent may be made by the Trustee directly to such persons or to the legal guardians or conservators of such persons. The Employer, the Committee, and the Trustee shall not be required to see to the proper application of such distributions made to any of such persons, but his or their receipt thereof shall be a full discharge of the Employer, the Committee, and the Trustee of any obligation under the Plan or the Trust. Section 8.5 Organization and Operation. (a) The Committee shall act by a majority of its members then in office, and such action may be taken either by a vote at a meeting or by written consent without a meeting. The Committee may authorize any one or more of its members to execute any document or documents on behalf of the Committee, in which event the Committee shall notify the Employer, in writing, of such authorization and the name or names of its member or members so designated. The Employer thereafter shall accept and rely on any documents executed by said member of the Committee or members as representing action by the Committee until the Committee shall file with the Employer a written revocation of such designation. (b) The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs and may employ and appropriately compensate such accountants, counsel, specialists, actuaries, and other persons as it deems necessary or desirable in connection with the administration and maintenance of the Plan. The Committee shall have the authority to control and manage the operation and administration of the Plan. Section 8.6 Claims Procedure. (a) A claim for benefits under the Trust shall be filed on an application form supplied by the Committee. Written notice of the disposition of the claim shall be furnished to the claimant within 90 days after an application form is received by the Committee, unless special circumstances (as determined by the Committee) require an extension for processing the claim. If such an extension is required, the Committee shall render a decision as soon as possible subsequent to the 90-day period, but such decision shall not be rendered later than 180 days after the application form is received by the Committee. Written notice of such extension shall be furnished to the claimant prior to the commencement of the extension indicating the special circumstances requiring such extension and the date by which the Committee expects to render the decision on the claim. In the event the claim is denied, the Committee shall set forth in writing the reasons for the denial and shall cite pertinent provisions of the Plan and Trust upon which the decision is based. In addition, the Committee shall provide a description of any additional material or information necessary for the claimant to perfect the claim, an explanation of why such information is necessary, and appropriate information as to the steps to be taken if the Participant or Beneficiary wish to submit such claim for review as provided in (b) below. (b) A Participant or Beneficiary whose claim described in (a) above has been denied in whole or in part shall be entitled to the following rights if exercised within 60 days after written denial of a claim is received: (1) to request a review of the claim upon written application to the Committee; (2) to review documents associated with the claim; and (3) to submit issues and comments in writing to the Committee. (c) If a Participant or a Beneficiary requests a review of the claim under (b) above, the Committee shall conduct a full review (including a formal hearing if desired) of such request, and a decision on such request shall be made within 60 days after the Committee has received the written request for review from the Participant or the Beneficiary. Special circumstances (such as a need for full hearing on request) can allow the Committee to extend the decision on such request, but the decision shall be rendered no later than 120 days after receipt of the request for review. Written notice of such an extension shall be furnished to the Participant or the Beneficiary prior to the commencement of the extension. The decision of the Committee on review shall be set forth in writing and shall include specific reasons for the decision as well as specific references to the pertinent provisions of the Plan or Trust on which the decision is based. Section 8.7 Records and Reports. (a) The Committee shall be entitled to rely upon certificates, reports, and opinions provided by an accountant, tax or pension advisor, actuary or legal counsel employed by the Employer or Committee. The Committee shall keep a record of all its proceedings and acts, and shall keep all such books of account, records, and other data as may be necessary for the proper administration of the Plan. The regularly kept records of the Committee, the Employer, and the Trustee shall be conclusive evidence of a Participant's service, his Compensation, his age, his marital status, his status as an Employee, and all other matters contained therein and relevant to this Plan; provided, however, that a Participant may request a correction in the record of his age at any time prior to his retirement and such correction shall be made if within 90 days after such request he furnishes a birth certificate, baptismal certificate, or other documentary proof of age satisfactory to the Committee in support of this correction. (1) Each Participant and each Participant's designated Beneficiary must notify the Committee in writing of his mailing address and each change thereof. Any communication, statement or notice addressed to a Participant or Beneficiary at the last mailing address filed with the Committee, or if no address is filed with the Committee, the last mailing address as shown on the Employer's records, will be binding on the Participant and his Beneficiary for all purposes of the Plan. Neither the Committee nor the Trustee shall be required to search for or locate a Participant or a Beneficiary. Section 8.8 Liability. (a) A member of the Committee shall not be liable for any act, or failure to act, of any other member of the Committee, except to the extent that such member: (1) Knowingly participates in, or undertakes to conceal, an act or omission of another Committee member, knowing that such act or omission is a breach of fiduciary duty to the Plan; (2) Fails to comply with the specific responsibilities given him as a member of the Committee, and such failure enables another member of the Committee to commit a breach of fiduciary duty to the Plan; or (3) Has knowledge of a breach of fiduciary duty to the Plan by another member of the Committee, unless such member makes reasonable effort under the circumstances to remedy such breach. (b) Each member of the Committee shall be liable with respect to his own acts of willful misconduct or gross negligence concerning the Plan. The Employer may indemnify the Committee or each of its members for part or all expenses, costs, or liabilities arising out of the performance of duties required by the terms of the Plan or Trust, except for those expenses, costs, or liabilities arising out of a member's willful misconduct or gross negligence. Section 8.9 Reliance and Statements. The Committee, in any of its dealings with Participants hereunder, may conclusively rely on any written statement, representation, or documents made or provided by such Participants. Section 8.10 Remuneration and Bonding. (a) Unless otherwise determined by the Committee, the members of the Committee shall serve without remuneration for services to the Plan and Trust. However, all expenses of the Committee shall be paid by the Trust except to the extent paid by the Employer. Such expenses shall include any expenses incidental to the functioning of the Committee, including but not limited to fees of accountants, legal counsel, and other specialists, or any other costs entailed in administering the Plan. (b) Title I of ERISA requires certain persons with discretion over Plan assets to be bonded. Except as required by ERISA or other federal law, the members of the Committee shall serve without bond. Section 8.11 Committee Decisions Final. Any decision of the Committee with respect to matters within its jurisdiction shall be final, binding, and conclusive upon the Employer and the Trustee and upon each Employee, Participant, former Participant, Beneficiary, and every other person or party interested or concerned. Section 8.12 Participant-Directed Investments. The Committee authorizes the Trustee to accept investment direction from Participants. The Trustee shall invest in the Investment Funds in accordance with investment directions given by the Participants and Beneficiaries for whose accounts such assets are held, to the extent authorized. All such directions by the Participants or Beneficiaries to the Trustee will be made by electronic media or in such other manner as is acceptable to the Trustee. Participants and Beneficiaries will be deemed responsible for purposes of such investment selection and allocation. Where the Committee, a Participant, a Beneficiary or an Investment Manager other than the Trustee has the power and authority to direct the investment of assets of the Trust Fund, the Trustee does not have any duty to question any direction, to review any securities or other property, or to make any suggestions in connection therewith. The Trustee will promptly comply with any direction given by the Committee, a Participant, a Beneficiary or Investment Manager. The Trustee will neither be liable for failing to invest any assets of the Trust Fund under the management and control of the Committee, a Participant, a Beneficiary or an Investment Manager in the absence of investment directions regarding such assets. The Trustee and the Committee shall be indemnified by the Participant from and against any personal liability to which the Trust and the Committee may be subject due to carrying out an elective investment directed by the Participant or for failure to act in absence of restrictions from the Participant. ARTICLE IX - TRUST AGREEMENT Section 9.1 Establishment of Trust. The Employer and the Trustee have entered into a trust agreement which is set forth in a separate document and is incorporated herein. The trust agreement establishes a Trust consisting of such sums of money and other property as may from time to time be contributed or transferred to the Trustee under the terms of the Plan, along with any property to which the Trust Fund may from time to time be converted, and which provides for the investment of Plan assets and the operation of the Trust. The trust agreement, as amended from time to time, shall be deemed part of the Plan, and all rights and benefits provided to persons under the Plan shall be subject to the terms of the trust agreement. ARTICLE X - AMENDMENT, TERMINATION AND MERGER Section 10.1 Amendment. (a) The Employer shall have the right to amend the Plan and Trust at any time to the extent permitted under the Code and ERISA. (b) No amendment affecting the rights or duties of the Trustee shall be effective without the written consent of the Trustee. (c) No amendment to the Plan shall be effective to the extent that it has the effect of decreasing a Participant's accrued benefit. Notwithstanding the preceding sentence, a Participant's Account balance may be reduced to the extent permitted under section 412(c)(8) of the Code. For purposes of this paragraph, a Plan amendment which has the effect of decreasing a Participant's Account balance or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment, shall be treated as reducing an accrued benefit. Section 10.2 Termination. (a) The Employer intends to continue the Plan indefinitely and to fund the Plan as required by law and its terms. However, the Employer shall have the right to terminate the Plan at any time. (b) If the Plan is totally or partially terminated, or in the event of a complete discontinuation of contributions under the Plan, a Participant whose participation in the Plan is terminated as a result of such total or partial termination or who is affected by the complete discontinuation of contributions to the Plan shall be 100 percent Vested with respect to his Accounts, determined as of the date of such total or partial termination. (c) Upon termination of the Plan, the Employer shall allocate the assets of the Plan, after the payment of or set aside for the payment of all expenses, among the Participants and their Beneficiaries in accordance with the Code and ERISA. (d) Upon termination of the Plan, and after all liabilities of the Plan to Participants and Beneficiaries have been satisfied, any residual assets of the Plan which are attributable to a contribution in excess of Code section 415 limits shall be distributed to the Employer, provided such distribution does not contravene any provision of the law or the Plan. (e) The allocation of benefits under this Article shall be accomplished either through the continuance of the Trust, the creation of a new Trust, the payment of the benefits to be provided to the Participants or Beneficiaries, or the purchase of annuity contracts, as determined by the Employer. Section 10.3 Merger, Consolidation or Transfer. The Employer shall have the right at any time to merge or consolidate the Plan with any other plan, or transfer the assets or liabilities of the Trust to any other plan provided each Participant would (if the Plan were then terminated) receive a benefit immediately after such merger, consolidation or transfer which would equal or exceed the benefit the Participant would have been entitled to immediately before such merger, consolidation or transfer (if the Plan were then terminated). ARTICLE XI - TOP-HEAVY PROVISIONS Section 11.1 Applicability. The provisions of this Article shall not apply to the Plan with respect to any Plan Year in which the Plan is not Top-Heavy. If the Plan is or becomes Top-Heavy in any Plan Year, the provisions of this Article will supersede any conflicting provisions in the Plan. Section 11.2 Definitions. (a) Key Employee: Any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the "Determination Period" was (1) an officer of the Employer if such individual's Annual Compensation exceeds 50 percent of the dollar limitation under section 415(b)(1)(A) of the Code, (2) an owner (or considered an owner under section 318 of the Code) of one of the ten largest interests in the Employer if such individual's Annual Compensation exceeds 100 percent of the dollar limitation under section 415(c)(1)(A) of the Code, (3) a more-than-5-percent owner of the Employer, or (4) a more-than-1-percent owner of the Employer who has annual Compensation of more than $150,000. Annual Compensation means compensation as defined in section 415(c)(3) of the Code, but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the Employee's gross income under section 125, section 402(e)(3), section 402(h) or section 403(b) of the Code. The "Determination Period" is the Plan Year containing the Determination Date and the four (4) preceding Plan Years. The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and the Regulations thereunder. (b) Top-Heavy Plan: For any Plan Year beginning after December 31, 1983, this Plan is Top-Heavy if any of the following conditions exists: (1) If the Top-Heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (2) If this Plan is a part of a Required Aggregation Group of plans, but not part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60 percent. (3) If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60 percent. (c) Super-Top-Heavy Plan: A plan is Super-Top-Heavy if such a plan would be Top-Heavy if "90 percent" were substituted for "60 percent" each place it appears in (b) above. (d) Top-Heavy Ratio: (1) If the Employer maintains one or more Defined Contribution Plans (including any simplified employee pension plan) and the Employer has not maintained any Defined Benefit Plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone or for the required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the Account balances of all Key Employees as of Determination Date(s) (including any part of any Account balance distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all Account balances (including any part of any Account balance distributed in the 5-year period ending on the Determination Date(s)), both computed in accordance with section 416 of the Code and the Regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under section 416 of the Code and the Regulations thereunder. (2) If the Employer maintains one or more Defined Contribution Plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more Defined Benefit Plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top- Heavy Ratio for any required or Permissive Aggregation Group as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregated Defined Contribution Plan or Plans for all Key Employees, determined in accordance with (1) above, and the Present Value of accrued benefits under the aggregated Defined Benefit Plan or Plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated Defined Contribution Plan or Plans for all Participants, determined in accordance with (1) above, and the Present Value of accrued benefits under the Defined Benefit Plan or Plans for all Participants as of the Determination Date(s), are determined in accordance with section 416 of the Code and the Regulations thereunder. The accrued benefits under a Defined Benefit Plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the five- year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in section 416 of the Code and the Regulations thereunder for the first and second plan years of a Defined Benefit Plan. The account balances and accrued benefits of a Participant (a) who is not a Key Employee but who was a Key Employee in a prior year, or (b) who has not been credited with at least one Hour of Service with any Employer maintaining the Plan at any time during the 5- year period ending on the Determination Date will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with section 416 of the Code and the Regulations thereunder. Employee contributions previously deductible under section 219 of the Code will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under either (a) the method, if any, that uniformly applies for accrual purposes under all Defined Benefit Plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of section 411(b)(1)(C) of the Code. (e) Permissive Aggregation Group: The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code. (f) Required Aggregation Group: (1) Each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the Determination Period (regardless of whether the plan has terminated), and (2) any other qualified plan of the Employer which enables a plan described in (1) to meet the requirements of sections 401(a)(4) or 410 of the Code. (g) Determination Date: For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (h) Valuation Date: The date as defined in Article I of the Plan as of which Account balances or accrued benefits are valued for purposes of calculating the Top-Heavy Ratio. (i) Present Value: Present Value shall be determined using the interest and mortality rates specified in the applicable plans. Notwithstanding the foregoing, all determinations shall be made in accordance with section 416 of the Code and the Regulations promulgated thereunder. Section 11.3 Minimum Allocation. (a) Except as otherwise provided in (c) and (d) below, Employer contributions, not including Employee Elective Deferrals, allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of three percent (four percent if the Plan is super-Top-Heavy) of such Participant's Compensation or, in the case where the Employer has no Defined Benefit Plan which designates this Plan to satisfy section 401 of the Code, the largest percentage of Employer contributions, as a percentage of the first $200,000 of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under the Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (1) the Participant's failure to complete 1,000 hours of service (or any equivalent provided in the Plan), or (2) the Participant's failure to make mandatory Employee contributions to the Plan or (3) Compensation less than a stated amount. (b) For purposes of computing the minimum allocation, Compensation means Compensation as defined in Article I of the Plan. (c) The provision in (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (d) The provision in (a) above shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer and the minimum allocation or benefit requirement applicable to Top-Heavy Plans will be met in the other plan or plans. Section 11.4 Nonforfeitability of Minimum Allocation. The minimum allocation required (to the extent required to be nonforfeitable under section 416(b) of the Code) may not be forfeited under section 411(a)(3)(D) of the Code. Section 11.5 Allocation Limitations. In determining the Defined Contribution Fraction under section 415(e)(3)(B) of the Code and pursuant to Section 5.4 of the Plan "100 percent" shall be substituted for "125 percent" unless the minimum allocation percentage under section 416(c)(2)(A) of the Code and Section 11.3(a) of the Plan is increased from "three percent" to "four percent" and the Plan would not be a Top-Heavy Plan if "90 percent" were substituted for "60 percent" each place it appears in Section 11.2(b) of the Plan. Section 11.6 Minimum Vesting Schedules. For any Plan Year during which the Plan is Top-Heavy, the vesting schedule(s) set forth in Article V of the Plan will be followed, as such schedule(s) already satisfy the requirements of section 416 of the Code. ARTICLE XII - GENERAL PROVISIONS Section 12.1 Governing Law. (a) The Plan is established under, and its validity, construction and effect shall be governed by, the laws of the State of Indiana. (b) The parties to the Trust intend that the Trust be exempt from taxation under section 501(a) of the Code, and any ambiguities in its construction shall be resolved in favor of an interpretation which will effect such intention. Section 12.2 Power to Enforce. The Committee shall have authority to enforce the Plan on behalf of any and all persons having or claiming any interest in the Trust or Plan. Section 12.3 Alienation of Benefits. Benefits under the Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void, nor shall any such benefits be in any way liable for or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to such benefits. This Section shall also apply to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a qualified domestic relations order as defined in section 414(p) of the Code, or any domestic relations order entered before January 1, 1985. Section 12.4 Not an Employment Contract. The Plan is not and shall not be deemed to constitute a contract between the Employer and any Employee, or to be a consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in the Plan shall give or be deemed to give an Employee the right to remain in the employment of the Employer or to interfere with the right to be retained in the employ of the Employer, any legal or equitable right against the Employer, or to interfere with the right of the Employer to discharge or retire any Employee at any time. Section 12.5 Discretionary Acts. Any discretionary acts to be undertaken under the Plan with respect to the classification of Employees, contributions, or benefits shall be nondiscriminatory and uniform in nature and applicable to all persons similarly situated. Section 12.6 Interpretation. (a) Savings Clause. If any provision or provisions of the Plan shall for any reason be invalid or unenforceable, the remaining provisions of the Plan shall be carried into effect, unless the effect thereof would be to materially alter or defeat the purposes of the Plan. (b) Gender. Wherever appropriate, pronouns of either gender shall be deemed synonymous as shall singular and plural pronouns. (c) Headings. Headings and titles of sections and subsections within the Plan document are inserted solely for convenience of reference. They constitute no part of the Plan itself and shall not be considered in the construction of the Plan. ARTICLE XIII - SIGNATURE PAGE IN WITNESS WHEREOF, this Plan has been restated the day and year written below. Signed, sealed, and delivered on this ____ day of ______________, 1997, in the presence of: Meridian Insurance Group, Inc. By Norma J. Oman Title (SEAL) ATTEST: J. Mark McKinzie Title EX-10 9 EXHIBIT 10.23 TERMINATION BENEFITS AGREEMENT This TERMINATION BENEFITS AGREEMENT (this "Agreement") is made and entered into as of _______________, 199___, by and between MERIDIAN INSURANCE GROUP, INC., an Indiana corporation (hereinafter referred to as the "Corporation") and ______________, a resident of the State of Indiana (hereinafter referred to as "Employee"). RECITALS A. Employee is now serving as a member of the executive staff of the Corporation. B. The Corporation believes that Employee has made valuable contributions to the productivity and profitability of the Corporation. C. The Board of Directors of the Corporation has determined that it is in the best interests of the Corporation and its shareholders to assure that the Corporation will have the continued undivided time, attention, loyalty, and dedication of Employee, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Section 2 hereof) of the Corporation. D. The Board believes it is imperative to diminish the inevitable distraction of Employee by virtue of the personal uncertainties and risks created by pending or threatened Change in Control and to encourage Employee's full undivided time, attention, loyalty, and dedication to the Corporation currently and in the event of any threatened or pending Change in Control. E. By this Agreement, the Board intends upon a Change in Control to assure Employee with compensation and benefits arrangements if his or her employment terminates as a result of a Change in Control which are competitive with those of other corporations similarly situated to the Corporation. Therefore, in order to accomplish these objectives, the Board has caused the Corporation to enter into this Agreement. F. In reliance on this Agreement, Employee is willing to continue his or her employment with the Corporation on the terms agreed to by the Employee and Corporation from time to time. AGREEMENT In consideration of the foregoing and of the mutual covenants herein contained and the mutual benefits herein provided, the Corporation and Employee hereby agree as follows: Section 1. Term. The initial term of this Agreement shall be from the date hereof through December 31, 199__. The term of this Agreement shall be automatically extended for an additional year on December 31, 199__ (that is, to a term extending through December 31, 199__) and on December 31 of each year thereafter unless either party hereto gives written notice to the other party not to so extend prior to November 30 of the year for which notice is given, in which case no further automatic extension shall occur. In addition, if a Change in Control of the Corporation (as defined in Section 2 below) shall occur during the term of this Agreement, then the term of this Agreement shall automatically be extended to a date one year following the consummation of the Change in Control. Section 2. Change in Control Defined. As used in this Agreement, "Change in Control" of the Corporation means: (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act as in effect from time to time) of fifty percent (50%) or more of either (i) the then outstanding shares of common stock of the Corporation or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Corporation, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by or under common control with the Corporation, or (iii) any acquisition by Meridian Mutual Insurance Company ("Meridian Mutual"); or (B) Individuals who, as of the date hereof, constitute the Board of Directors of the Corporation (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Corporation (the "Board"); provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (C) So long as Meridian Mutual owns twenty-five percent (25%) or more of either (i) the then outstanding shares of common stock of the Corporation or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors: individuals who, as of the date hereof, constitute the Board of Directors of Meridian Mutual (the "Incumbent Mutual Board") cease for any reason to constitute a majority of the Board of Directors of Meridian Mutual (the "Mutual Board"); provided, however, that any individual becoming a Director of the Mutual Board subsequent to the date hereof whose election, or nomination for election by Meridian Mutual's policyholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Mutual Board shall be considered as though such individual were a member of the Incumbent Mutual Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Mutual Board; or (D) Approval by the shareholders of the Corporation of (i) a reorganization, merger, consolidation or share exchange, in each case, unless, following such transaction the conditions specified in clauses (a), (b) and (c) of this Section 2(D) are satisfied, or (ii) a complete liquidation or dissolution of the Corporation or the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation with respect to which following such transaction the conditions specified in clauses (a), (b) or (c) of this Section 2(D) are satisfied. Such conditions are: (a) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such transaction and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Corporation common stock and outstanding Corporation voting securities immediately prior to such transaction in substantially the same proportions as their ownership, immediately prior to such transaction, of the outstanding Corporation stock and outstanding Corporation voting securities, as the case may be, (b) no Person (excluding the Corporation, any employee benefit plan or related trust of the Corporation or such corporation resulting from such transaction and any Person beneficially owning, immediately prior to such transaction, directly or indirectly, twenty-five percent (25%) or more of the outstanding Corporation common stock or outstanding voting securities, as the case may be) beneficially owns, directly or indirectly, twenty-five percent (25%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such transaction or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (c) at least a majority of the members of the board of directors of the corporation resulting from such transaction were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such transaction. Section 3. Termination of Employment. The Corporation shall provide Employee with the payment and benefits set forth in Section 4 of this Agreement upon any termination of Employee's employment with the Corporation (whether such termination of employment is initiated by the Corporation or by Employee) that occurs within the one-year period following a Change in Control, unless such termination of employment occurs for any of the following reasons: (A) Termination by reason of Employee's death. (B) Termination by reason of Employee's "disability". For purposes hereof, "disability" shall be deemed to conform to the definition thereof contained in the Corporation's benefit plan applicable immediately prior to the Change in Control as defined in Section 2 of this Agreement. (C) Termination upon Employee reaching normal retirement date, which for purposes of this Agreement shall be deemed to conform to the definition thereof contained in the Corporation's benefit plan applicable immediately prior to the Change in Control as defined in Section 2 of this Agreement. (D) Termination for "cause". As used in this Agreement, the term "cause" means Employee's conviction for fraud or a felony involving the Corporation or for theft of corporate assets. Section 4. Payments and Benefits. Except for a termination of employment for a reason specified in subsections (A), (B), (C) or (D) of Section 3 hereof, the following payments and benefits, less any amounts required to be withheld therefrom under any applicable federal, state or local income tax, other tax, or social security laws or similar statutes, shall be paid to Employee upon any termination of Employee's employment with the Corporation that occurs during the term of this Agreement and within the one-year period following a Change in Control: (A) Within thirty (30) days following such a termination, Employee shall be paid: (i) at his or her then-effective salary, for services performed through the date of termination, and (ii) any earned and unpaid amount of any bonus or incentive payment (for example, any bonus earned but not yet paid under the Corporation's executive bonus compensation plan with respect to the calendar year preceding the year in which the termination of employment occurs). (B) Within thirty (30) days following such a termination, Employee shall be paid a lump sum payment of an amount equal to two and ninety-nine hundredths (2.99) times Employee's "Base Amount." For purposes hereof, Base Amount is defined as Employee's average includable compensation paid by the Corporation for the five (5) most recent taxable years ending before the date on which the Change in Control occurs. The definition, interpretation and calculation of the dollar amount of Base Amount shall be in a manner consistent with and as required by the provisions of Section 280G of the Internal Revenue Code of 1986, as amended ("Code"), and the regulations and rulings of the Internal Revenue Service promulgated thereunder. Employee acknowledges that payment in accordance with this Section 4 shall be deemed to constitute a full settlement and discharge of any and all obligations of the Corporation or Meridian Mutual to Employee arising out of his or her employment with the Corporation and the termination thereof, except for any vested rights Employee may then have under any insurance, pension, supplemental pension, thrift, employee stock ownership, stock option plans or other benefit plans sponsored or made available by the Corporation or Meridian Mutual. Section 5. Legal Expenses. The Corporation is aware that upon the occurrence of a Change in Control the Board of Directors or a shareholder of the Corporation may then cause or attempt to cause the Corporation to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Corporation to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take or attempt to take other action to deny Employee the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the Corporation that Employee not be required to incur the expenses associated with the enforcement of his or her rights under this Agreement by litigation or other legal action, nor be bound to negotiate any settlement of his or her rights hereunder, because the cost and expense of such legal action or settlement would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if following a Change in Control it should appear to Employee that the Corporation has failed to comply with any of its obligations under this Agreement or in the event that the Corporation or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits entitled to be provided to the Employee hereunder, and that Employee has complied with all of his or her obligations under this Agreement, the Corporation irrevocably authorizes Employee from time to time to retain counsel of his or her choice, at the expense of the Corporation as provided in this Section 5, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether such action is by or against the Corporation or any director, officer, shareholder, or other person affiliated with the Corporation, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Corporation and such counsel, the Corporation irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection the Corporation and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by the Corporation on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of Two Hundred Thousand Dollars ($200,000). Any legal expenses incurred by the Corporation by reason of any dispute between the parties as to enforceability of or the terms contained in this Agreement as provided by this Section 5, notwithstanding the outcome of any such dispute, shall be the sole responsibility of the Corporation, and the Corporation shall not take any action to seek reimbursement from Employee for such expenses. Notwithstanding any limitation contained in this Section 5 to the contrary, Employee shall be entitled to payment or reimbursement of legal expenses in excess of Two Hundred Thousand Dollars ($200,000) if the expenses were incurred as a result of a dispute under this Agreement in which Employee obtains a final judgment in his or her favor from a court of competent jurisdiction or his or her claim is settled by the Corporation prior to the rendering of a judgment by such a court. Section 6. No Mitigation. Employee is not required to mitigate the amount of benefit payments to be made by the Corporation pursuant to this Agreement by seeking other employment or otherwise, nor shall the amount of any benefit payments provided for in this Agreement be reduced by any compensation earned by Employee as a result of employment by another employer or which might have been earned by Employee had Employee sought such employment, after the date of termination of his or her employment with the Corporation or otherwise. Section 7. Employee's Covenants. In order to induce the Corporation to enter into this Agreement, Employee hereby agrees as follows: (A) Employee shall keep confidential and not improperly divulge for the benefit of any other party any of the Corporation's confidential information or business secrets including, but not limited to, confidential information and business secrets relating to such matters as the Corporation's finances, operations and customer lists. All of the Corporation's confidential information and business secrets shall be the sole and exclusive property of the Corporation. (B) Employee hereby consents to the termination of the existing "Change in Control Agreement" with Meridian Mutual dated June 29, 1994. In the event of a breach or threatened breach by Employee of the provisions of this Section 7, the Corporation shall be entitled to an injunction restraining Employee from committing or continuing such breach. Nothing herein contained shall be construed as prohibiting the Corporation from pursuing any other remedies available to it for such breach or threatened breach including the recovery of damages from Employee. The covenants of this Section 7 shall run not only in favor of the Corporation and its successors and assigns, but also in favor of its subsidiaries and their respective successors and assigns and shall survive the termination of this Agreement. Section 8. Successors to Corporation. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Corporation in the same amount and on the same terms as Employee would be entitled hereunder if he or she were to terminate his or her employment pursuant to Section 3 hereof, except that for purposes of implementing the foregoing, the date on which succession becomes effective shall be deemed the date of termination of Employee's employment with the Corporation. As used in this Agreement, "Corporation" shall mean corporation as hereinbefore defined and any successor to the business or assets of it as aforesaid which executes and delivers the agreement provided for in this Section 8 or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law. Section 9. Effect of Employees Death. Should Employee die while any amounts are payable to him or her hereunder, this Agreement shall inure to the benefit of and be enforceable by Employee's executors, administrators, heirs, distributees, devisees and legatees and all amounts payable hereunder shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or if there be no such designee, to Employee's estate. Section 10. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employee: If to Corporation: Meridian Insurance Group, Inc. 2955 North Meridian Street Indianapolis, Indiana 46208 Attention: Corporate Secretary or to such other address as any party may have furnished to the other party in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. Section 11. Governing Law. The validity, interpretation, and performance of this Agreement shall be governed by the laws of the State of Indiana. The parties agree that all legal disputes regarding this Agreement will be resolved in Indianapolis, Indiana, and irrevocably consent to service of process in such City for such purpose. Section 12. Waivers. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Employee and the Corporation. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not set forth expressly in this Agreement. Section 13. Partial Invalidity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Section 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same Agreement. Section 15. Assignment. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 8 and Section 9 above. Without limiting the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his or her Will or by the laws of descent and distribution as set forth in Section 8 hereof, and in the event of any attempted assignment or transfer contrary to this Section 15, the Corporation shall have no liability to pay any amount so attempted to be assigned or transferred. Any benefits payable under this Agreement shall be paid solely from the general assets of the Corporation. Neither Employee nor Employee's beneficiary shall have interest in any specific assets of the Corporation under the terms of this Agreement. This Agreement shall not be considered to create an escrow account, trust fund or other funding arrangement of any kind or a fiduciary relationship between Employee and the Corporation. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first written above. MERIDIAN INSURANCE GROUP, INC. ("Corporation") By:________________________________ EMPLOYEE ___________________________________ EX-10 10 EXHIBIT 10.24 TERMINATION BENEFITS AGREEMENT This TERMINATION BENEFITS AGREEMENT (this "Agreement") is made and entered into as of _______________, 199___, by and between MERIDIAN INSURANCE GROUP, INC., an Indiana corporation (hereinafter referred to as the "Corporation") and ______________, a resident of the State of Indiana (hereinafter referred to as "Employee"). RECITALS A. Employee is now serving as a member of the executive staff of the Corporation. B. The Corporation believes that Employee has made valuable contributions to the productivity and profitability of the Corporation. C. The Board of Directors of the Corporation has determined that it is in the best interests of the Corporation and its shareholders to assure that the Corporation will have the continued undivided time, attention, loyalty, and dedication of Employee, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Section 2 hereof) of the Corporation. D. The Board believes it is imperative to diminish the inevitable distraction of Employee by virtue of the personal uncertainties and risks created by pending or threatened Change in Control and to encourage Employee's full undivided time, attention, loyalty, and dedication to the Corporation currently and in the event of any threatened or pending Change in Control. E. By this Agreement, the Board intends upon a Change in Control to assure Employee with compensation and benefits arrangements if his or her employment terminates as a result of a Change in Control which are competitive with those of other corporations similarly situated to the Corporation. Therefore, in order to accomplish these objectives, the Board has caused the Corporation to enter into this Agreement. F. In reliance on this Agreement, Employee is willing to continue his or her employment with the Corporation on the terms agreed to by the Employee and Corporation from time to time. AGREEMENT In consideration of the foregoing and of the mutual covenants herein contained and the mutual benefits herein provided, the Corporation and Employee hereby agree as follows: Section 1. Term. The initial term of this Agreement shall be from the date hereof through December 31, 199__. The term of this Agreement shall be automatically extended for an additional year on December 31, 199__ (that is, to a term extending through December 31, 199__) and on December 31 of each year thereafter unless either party hereto gives written notice to the other party not to so extend prior to November 30 of the year for which notice is given, in which case no further automatic extension shall occur. In addition, if a Change in Control of the Corporation (as defined in Section 2 below) shall occur during the term of this Agreement, then the term of this Agreement shall automatically be extended to a date one year following the consummation of the Change in Control. Section 2. Change in Control Defined. As used in this Agreement, "Change in Control" of the Corporation means: (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act as in effect from time to time) of fifty percent (50%) or more of either (i) the then outstanding shares of common stock of the Corporation or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Corporation, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by or under common control with the Corporation, or (iii) any acquisition by Meridian Mutual Insurance Company ("Meridian Mutual"); or (B) Individuals who, as of the date hereof, constitute the Board of Directors of the Corporation (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Corporation (the "Board"); provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (C) So long as Meridian Mutual owns twenty-five percent (25%) or more of either (i) the then outstanding shares of common stock of the Corporation or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors: individuals who, as of the date hereof, constitute the Board of Directors of Meridian Mutual (the "Incumbent Mutual Board") cease for any reason to constitute a majority of the Board of Directors of Meridian Mutual(the "Mutual Board"); provided, however, that any individual becoming a Director of the Mutual Board subsequent to the date hereof whose election, or nomination for election by Meridian Mutual's policyholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Mutual Board shall be considered as though such individual were a member of the Incumbent Mutual Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Mutual Board; or (D) Approval by the shareholders of the Corporation of (i) a reorganization, merger, consolidation or share exchange, in each case, unless, following such transaction the conditions specified in clauses (a), (b) and (c) of this Section 2(D) are satisfied, or (ii) a complete liquidation or dissolution of the Corporation or the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation with respect to which following such transaction the conditions specified in clauses (a), (b) or (c) of this Section 2(D) are satisfied. Such conditions are: (a) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such transaction and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Corporation common stock and outstanding Corporation voting securities immediately prior to such transaction in substantially the same proportions as their ownership, immediately prior to such transaction, of the outstanding Corporation stock and outstanding Corporation voting securities, as the case may be, (b) no Person (excluding the Corporation, any employee benefit plan or related trust of the Corporation or such corporation resulting from such transaction and any Person beneficially owning, immediately prior to such transaction, directly or indirectly, twenty-five percent (25%) or more of the outstanding Corporation common stock or outstanding voting securities, as the case may be) beneficially owns, directly or indirectly, twenty-five percent (25%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such transaction or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (c) at least a majority of the members of the board of directors of the corporation resulting from such transaction were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such transaction. Section 3. Termination of Employment. The Corporation shall provide Employee with the payment and benefits set forth in Section 4 of this Agreement upon any termination of Employee's employment with the Corporation (whether such termination of employment is initiated by the Corporation or by Employee) that occurs within the one-year period following a Change in Control, unless such termination of employment occurs for any of the following reasons: (A) Termination by reason of Employee's death. (B) Termination by reason of Employee's "disability". For purposes hereof, "disability" shall be deemed to conform to the definition thereof contained in the Corporation's benefit plan applicable immediately prior to the Change in Control as defined in Section 2 of this Agreement. (C) Termination upon Employee reaching normal retirement date, which for purposes of this Agreement shall be deemed to conform to the definition thereof contained in the Corporation's benefit plan applicable immediately prior to the Change in Control as defined in Section 2 of this Agreement. (D) Termination for "cause". As used in this Agreement, the term "cause" means Employee's conviction for fraud or a felony involving the Corporation or for theft of corporate assets. Section 4. Payments and Benefits. Except for a termination of employment for a reason specified in subsections (A), (B), (C) or (D) of Section 3 hereof, the following payments and benefits, less any amounts required to be withheld therefrom under any applicable federal, state or local income tax, other tax, or social security laws or similar statutes, shall be paid to Employee upon any termination of Employee's employment with the Corporation that occurs during the term of this Agreement and within the one-year period following a Change in Control: (A) Within thirty (30) days following such a termination, Employee shall be paid: (i) at his or her then-effective salary, for services performed through the date of termination, and (ii) any earned and unpaid amount of any bonus or incentive payment (for example, any bonus earned but not yet paid under the Corporation's executive bonus compensation plan with respect to the calendar year preceding the year in which the termination of employment occurs). (B) Within thirty (30) days following such a termination, Employee shall be paid a lump sum payment of an amount equal to two (2) times Employee's "Base Amount." For purposes hereof, Base Amount is defined as Employee's average includable compensation paid by the Corporation for the five (5) most recent taxable years ending before the date on which the Change in Control occurs. The definition, interpretation and calculation of the dollar amount of Base Amount shall be in a manner consistent with and as required by the provisions of Section 280G of the Internal Revenue Code of 1986, as amended ("Code"), and the regulations and rulings of the Internal Revenue Service promulgated thereunder. Employee acknowledges that payment in accordance with this Section 4 shall be deemed to constitute a full settlement and discharge of any and all obligations of the Corporation or Meridian Mutual to Employee arising out of his or her employment with the Corporation and the termination thereof, except for any vested rights Employee may then have under any insurance, pension, supplemental pension, thrift, employee stock ownership, stock option plans or other benefit plans sponsored or made available by the Corporation or Meridian Mutual. Section 5. Legal Expenses. The Corporation is aware that upon the occurrence of a Change in Control the Board of Directors or a shareholder of the Corporation may then cause or attempt to cause the Corporation to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Corporation to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take or attempt to take other action to deny Employee the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the Corporation that Employee not be required to incur the expenses associated with the enforcement of his or her rights under this Agreement by litigation or other legal action, nor be bound to negotiate any settlement of his or her rights hereunder, because the cost and expense of such legal action or settlement would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if following a Change in Control it should appear to Employee that the Corporation has failed to comply with any of its obligations under this Agreement or in the event that the Corporation or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits entitled to be provided to the Employee hereunder, and that Employee has complied with all of his or her obligations under this Agreement, the Corporation irrevocably authorizes Employee from time to time to retain counsel of his or her choice, at the expense of the Corporation as provided in this Section 5, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether such action is by or against the Corporation or any director, officer, shareholder, or other person affiliated with the Corporation, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Corporation and such counsel, the Corporation irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection the Corporation and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by the Corporation on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of Two Hundred Thousand Dollars ($200,000). Any legal expenses incurred by the Corporation by reason of any dispute between the parties as to enforceability of or the terms contained in this Agreement as provided by this Section 5, notwithstanding the outcome of any such dispute, shall be the sole responsibility of the Corporation, and the Corporation shall not take any action to seek reimbursement from Employee for such expenses. Notwithstanding any limitation contained in this Section 5 to the contrary, Employee shall be entitled to payment or reimbursement of legal expenses in excess of Two Hundred Thousand Dollars ($200,000) if the expenses were incurred as a result of a dispute under this Agreement in which Employee obtains a final judgment in his or her favor from a court of competent jurisdiction or his or her claim is settled by the Corporation prior to the rendering of a judgment by such a court. Section 6. No Mitigation. Employee is not required to mitigate the amount of benefit payments to be made by the Corporation pursuant to this Agreement by seeking other employment or otherwise, nor shall the amount of any benefit payments provided for in this Agreement be reduced by any compensation earned by Employee as a result of employment by another employer or which might have been earned by Employee had Employee sought such employment, after the date of termination of his or her employment with the Corporation or otherwise. Section 7. Employee's Covenants. In order to induce the Corporation to enter into this Agreement, Employee hereby agrees as follows: (A) Employee shall keep confidential and not improperly divulge for the benefit of any other party any of the Corporation's confidential information or business secrets including, but not limited to, confidential information and business secrets relating to such matters as the Corporation's finances, operations and customer lists. All of the Corporation's confidential information and business secrets shall be the sole and exclusive property of the Corporation. In the event of a breach or threatened breach by Employee of the provisions of this Section 7, the Corporation shall be entitled to an injunction restraining Employee from committing or continuing such breach. Nothing herein contained shall be construed as prohibiting the Corporation from pursuing any other remedies available to it for such breach or threatened breach including the recovery of damages from Employee. The covenants of this Section 7 shall run not only in favor of the Corporation and its successors and assigns, but also in favor of its subsidiaries and their respective successors and assigns and shall survive the termination of this Agreement. Section 8. Successors to Corporation. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Corporation in the same amount and on the same terms as Employee would be entitled hereunder if he or she were to terminate his or her employment pursuant to Section 3 hereof, except that for purposes of implementing the foregoing, the date on which succession becomes effective shall be deemed the date of termination of Employee's employment with the Corporation. As used in this Agreement, "Corporation" shall mean corporation as hereinbefore defined and any successor to the business or assets of it as aforesaid which executes and delivers the agreement provided for in this Section 8 or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law. Section 9. Effect of Employees Death. Should Employee die while any amounts are payable to him or her hereunder, this Agreement shall inure to the benefit of and be enforceable by Employee's executors, administrators, heirs, distributees, devisees and legatees and all amounts payable hereunder shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee or other designee or if there be no such designee, to Employee's estate. Section 10. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employee: If to Corporation: Meridian Insurance Group, Inc. 2955 North Meridian Street Indianapolis, Indiana 46208 Attention: Corporate Secretary or to such other address as any party may have furnished to the other party in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. Section 11. Governing Law. The validity, interpretation, and performance of this Agreement shall be governed by the laws of the State of Indiana. The parties agree that all legal disputes regarding this Agreement will be resolved in Indianapolis, Indiana, and irrevocably consent to service of process in such City for such purpose. Section 12. Waivers. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Employee and the Corporation. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not set forth expressly in this Agreement. Section 13. Partial Invalidity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Section 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same Agreement. Section 15. Assignment. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 8 and Section 9 above. Without limiting the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his or her Will or by the laws of descent and distribution as set forth in Section 8 hereof, and in the event of any attempted assignment or transfer contrary to this Section 15, the Corporation shall have no liability to pay any amount so attempted to be assigned or transferred. Any benefits payable under this Agreement shall be paid solely from the general assets of the Corporation. Neither Employee nor Employee's beneficiary shall have interest in any specific assets of the Corporation under the terms of this Agreement. This Agreement shall not be considered to create an escrow account, trust fund or other funding arrangement of any kind or a fiduciary relationship between Employee and the Corporation. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first written above. MERIDIAN INSURANCE GROUP, INC. ("Corporation") By:________________________________ EMPLOYEE ___________________________________ EX-10 11 EXHIBIT 10.27 REINSURANCE POOLING AGREEMENT AMENDED AND RESTATED AS OF OCTOBER 1, 1997 THIS REINSURANCE POOLING AGREEMENT (the "Agreement") made by and among Meridian Mutual Insurance Company ("Mutual"), Meridian Security Insurance Company ("Security"), Citizens Security Mutual Insurance Company ("Citizens"), Citizens Fund Insurance Company ("Fund"), and Insurance Company of Ohio ("ICO")is amended and restated entered into effective 12:01 a.m. on the first day of October, 1997, (the "Effective Time") and shall remain in force continuously thereafter until cancelled at any time by mutual consent. WHEREAS Mutual and Security have been parties to this Agreement since January 1, 1981; and WHEREAS Citizens, Fund, and ICO became parties to this Agreement effective August 1, 1996, when Meridian Insurance Group, Inc., acquired Fund and ICO and became affiliated with Citizens; and WHEREAS the parties to this Agreement desire to exclude certain types of insurance business from this Agreement; NOW, THEREFORE, do Mutual, Security, Citizens, Fund, and ICO agree to amend and restate this Agreement as follows as witnessed by their signatures affixed to this Agreement. ARTICLE I The Companies are engaged in the insurance business and maintain a mutual relationship having certain incidents of common management, and desire to bring about for each other added economies of operation, uniform underwriting results, diversification as respects the classes of insurance business written, and maximization of capacity. To accomplish the aforesaid, the Companies do by means of this Agreement, pool all of their insurance business in force as of the Effective Time of this Agreement or thereafter, except as excluded under ARTICLE XI of this Agreement, and agree to share in the fortunes of their pooled insurance business. ARTICLE II Mutual hereby reinsures and Security, Citizens, Fund, and ICO hereby cede and transfer to Mutual all liabilities incurred under or in connection with all contracts and policies of insurance issued by Security, Citizens, Fund, and ICO outstanding and in force as of the Effective Time of this Agreement, or thereafter issued by them, except as excluded under ARTICLE XI of this Agreement. Such liabilities shall include Security's, Citizens', Fund's, and ICO's reserves for unearned premiums, outstanding losses and loss expenses (including unreported losses), all other underwriting and administrative expenses which shall include service fee income and premium balances charged off as uncollected receivables, and policyholder dividends as evidenced by their books and records, but shall not include inter-company balances, service fee income, liabilities for Federal Income Taxes, or liabilities incurred in connection with Security's, Citizens', Fund's, and ICO's investment transactions. ARTICLE III Security, Citizens, Fund, and ICO hereby assign and transfer to Mutual all right, title and interest in and to reinsurance ceded to reinsurers, other than the parties hereto, outstanding and in force with respect to the liabilities reinsured by Mutual under Article II hereof. ARTICLE IV Each of Security, Citizens, Fund, and ICO agrees to pay to Mutual amounts equal to the aggregate of all of its liabilities reinsured by Mutual under Article II hereof. ARTICLE V Security, Citizens, Fund, and ICO hereby reinsure, and Mutual hereby cedes and transfers to each of them the following percentage of Mutual's net liabilities under all contracts and policies of insurance (including those reinsured by Mutual under Article II hereof) on which Mutual is subject to liability and which are outstanding and in force as of the Effective Time of this Agreement, or which are issued thereafter, except as excluded under ARTICLE XI of this Agreement: 61 percent ceded to Security; 4 percent ceded to Citizens; 9 percent ceded to Fund; 4 percent ceded to ICO. Such liabilities shall include Mutual's reserves for unearned premiums, outstanding losses and loss expense (including unreported losses), all other underwriting and administrative expenses which shall include service fee income and premium balances charged off as uncollected receivables, and policyholder dividends but shall not include inter-company balances, service fee income, liabilities for Federal Income Taxes or liabilities incurred in connection with Mutual's investment transactions. ARTICLE VI Mutual hereby assigns and transfers to each of Security, Citizens, Fund, and ICO assets in the amount equal to the aggregate of all liabilities of Mutual reinsured by that specific company under Article V hereof. ARTICLE VII Mutual agrees to pay to Security, Citizens, Fund, and ICO their specified participation, as listed in Article V, of all premiums written by the companies after first deducting premiums on all reinsurance ceded to reinsurers (other than the parties hereto). Similarly, it is further agreed that all losses, loss expenses and other underwriting and administrative expenses which shall include service fee income and premium balances charged off as uncollected receivables, (with the exceptions noted in Article II and V hereof) of the companies, less all losses and expenses recovered and recoverable under reinsurance ceded to reinsurers (other than the parties hereto), shall be pro-rated among all five parties on the basis of their respective participations. ARTICLE VIII The obligation of the companies under this Agreement to exchange reinsurance between themselves may be offset by the reciprocal obligations so that the net amount only shall be required to be transferred. An accounting on all transactions shall be rendered quarterly, or more often as may be mutually agreed, and shall be settled within a reasonable time thereafter. Except as otherwise required by the context of this Agreement, the amount of all payments between the companies under this Agreement shall be determined on the basis of the convention form of annual statements of the companies. Notwithstanding anything herein contained, this Agreement shall not apply to the investment operations of the companies, but this provision shall not prohibit other agreements pertaining to the intercompany allocation or sharing of investment expense. ARTICLE IX The conditions of reinsurance hereunder shall in all cases be identical with the conditions of the original insurance or as changed during the term of such insurance. ARTICLE X Each of the companies hereto, as the assuming insurer, hereby agrees that all reinsurance made, ceded, renewed or otherwise becoming effective under this Agreement shall be payable by the assuming insurer on the basis of the liability of the ceding insurer under the policy or contract reinsured without diminution because of the insolvency of the ceding insurer; provided that such reinsurance shall be payable directly to the ceding insurer or to its liquidator, receiver or other statutory successor, except(a) where the contract specifically provided another payee for such reinsurance in the event of the insolvency of the ceding insurer and (b) where the assuming insurer, with the consent of the direct insured or insureds and with the approval of the appropriate insurance department if such approval is required by state law, has assumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under such policies and in substitution for the obligations of the ceding insurer to such payee; and further provided that the liquidator, receiver or statutory successor of the ceding insurer shall give written notice of the pendency of any claim against the insolvent ceding insurer on the policy or contract reinsured within a reasonable time after such claim; and the assuming insurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to the ceding insurer or its liquidator, receiver or statutory successor, the expense thus incurred by the assuming insurer to be chargeable, subject to court approval, against the insolvent ceding insurer as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer. ARTICLE XI This Agreement does not cover or include contracts or policies of insurance that any of the parties to this Agreement (a) have written and designated as substandard automobile insurance or may hereafter write and designate as substandard automobile insurance or (b) have written or may hereafter write by direct-response marketing. ARTICLE XII This Agreement has no fixed term and is terminable with respect to any one of Security, Citizens, Fund, or ICO (herein the "terminating party") by the mutual consent of Mutual and the terminating party or parties. This Agreement may be amended or terminated without the necessity of a vote by the shareholders or the policyholders of any of the parties. In the event of termination of this Agreement, the terminating party shall transfer back to Mutual the liabilities ceded to it by Mutual, and Mutual shall transfer back to the terminating party the liabilities ceded to it by the terminating party, and each party shall receive from the other assets in an amount equal to the amount of the policy liabilities received by it. IN WITNESS WHEREOF, this Agreement is entered into as of the date written above. MERIDIAN MUTUAL INSURANCE COMPANY By Norma J. Oman, President Attest: J. Mark McKinzie, Secretary MERIDIAN SECURITY INSURANCE COMPANY By Norma J. Oman, President Attest: J. Mark McKinzie, Secretary CITIZENS SECURITY MUTUAL INSURANCE COMPANY By__________________________________ Norma J. Oman, President Attest:___________________________ J. Mark McKinzie, Secretary CITIZENS FUND INSURANCE COMPANY By______________________________________ Norma J. Oman, President Attest:____________________________ J. Mark McKinzie, Secretary INSURANCE COMPANY OF OHIO By_____________________________________ Norma J. Oman, President Attest:___________________________ J. Mark McKinzie, Secretary EX-10 12 EXHIBIT 10.31 MODIFICATION OF TERM LOAN AGREEMENT THIS MODIFICATION OF TERM LOAN AGREEMENT, made and entered into as of ______________ ___, 1997 by and between MERIDIAN INSURANCE GROUP, INC. (the "Borrower"), and NBD BANK, N.A. (the "Bank"); WITNESSETH: WHEREAS, the Borrower and the Bank have entered into a certain Term Loan Agreement dated July 29, 1996 (the "Agreement"); and WHEREAS, pursuant to the terms of the Agreement, the Borrower has executed and delivered to the Bank a certain Business Credit Note in the amount of $12,000,000.00 and dated July 29, 1996; and WHEREAS, the Borrower has requested and the Bank has agreed to a modification of the Negative Covenants set out in Subsection 6.2 of the Agreement; NOW THEREFORE, in consideration of the mutual covenants, conditions, provisions and agreements contained herein, the parties hereto agree as follows: 1. Subsections A, C and D of section 6.2 are replaced as follows: A. Risk Based Capital. Permit the ratio of the combined total adjusted capital of Meridian Mutual Insurance Company and its Affiliates, to its company action level to be less than 175.0%, as calculated at the end of each fiscal year. C. Total Debt Ratio. Permit the ratio of (I) the total liabilities for borrowed money and capitalized leases of Meridian Mutual Insurance Company and its Affiliates plus Meridian Insurance Group, to (ii) the sum of combined policy holders' surplus and liabilities for borrowed money and capitalized leases of Meridian Mutual Insurance Company and its Affiliates, other than Citizens Security Mutual, to be greater than .20 to 1.00. D. Policyholders' Surplus. Permit the policyholders' surplus of Meridian Mutual Insurance Company and its Affiliates to be less than $105,000,000, which minimum amount will increase at each fiscal year end beginning December 31, 1997 by 25.0% of the combined statutory net income of Meridian Mutual Insurance Company and its Affiliates. 2. All other terms, conditions, provisions, representations and warranties set forth in the Agreement and any documents related thereto (the "Loan Documents"), not specifically relating to those items explicitly modified by or otherwise disclosed in the modification shall remain unchanged and shall continue in full force and effect. This Modification shall, whenever possible, be construed in a manner consistent with Loan Documents; provided; however, in the event of any irreconcilable inconsistency between the terms of this Modification and the terms of the Loan Documents, the terms of this modification shall control. [this space intentionally left blank] IN WITNESS WHEREOF, Borrower and Bank have executed this Modification of Term Loan Agreement effective as of __________________, 1997. MERIDIAN INSURANCE GROUP INC. By: ___________________________________ ___________________________________ Printed Name - Title NBD BANK, N.A. By: ___________________________________ ___________________________________ Printed Name - Title EX-10 13 EXHIBIT 10.33 AGENCY PROFIT SHARING AGREEMENT The Company and the Agent agree that: I. In addition to the commissions otherwise paid by the Company to the Agent and subject to requirements imposed by law and conditions set forth in this agreement, the Company shall pay to the Agent a Profit-Sharing Commission based on underwriting profits realized by the Company on all Qualified Business. II. Annual Written Premium must equal or exceed $250,000 in order to be eligible for Profit-Sharing. III. Definitions: A. "Income" means the total of all earned premiums on Qualified Business less any dividends paid to policyholders. B. "Outgo" means the sum of the following items relating to the Qualified Business. 1. Incurred losses (losses paid less salvage received and subrogations recovered, plus reserves for losses at the end of the year, less reserves for losses at the beginning of the year) shall not be less than zero. a) Incurred losses shall be limited to the first $100,000 for any one loss or occurrence on a policy per calendar year. 2. Loss-adjustment expenses (loss- adjustment expenses paid, plus reserves for loss adjustment expenses at the end of the year, less reserves for loss- adjustment expenses at the beginning of the year). Such expenses may be based on the Company ratio of loss expense to earned premium. 3. Commissions paid or credited by Company to Agent, excluding Profit- Sharing Commissions paid under this Agreement. 4. Company Underwriting expense, as determined from the consolidated Annual Statement of the Company, applied as a ratio of Underwriting expense to earned premium. 5. Uncollected premiums developed by audit or under reporting form policies for which the Agent is not responsible under the Agency Agreement. If the premiums due are collected, such premiums less expense shall be credited to Agent. 6. Profit and Surplus allowance, equal to five percent of Income. C. "Qualified Business" means all business placed with the Company through the Agent except "Excluded Business." D. "Annual Written Premium" means the total of all written premiums for the year on Qualified Business less return premiums. E. "Earned Premiums" shall be computed by the Company from its records on the business referred to in Section I. F. "Agent Profit" means the excess of Income over Outgo. G. "Agent Loss" means the excess of Outgo over Income. H. "Percentage of Profit" means Agent Profit divided by Earned Premium. I. "Excluded Business" means business excluded from profit sharing by law, business administered by underwriting associations, non-standard automobile, syndicates or pools or assigned-risk plans, special reinsurance placed by or at the request of the Agent, health insurance, premiums produced through safety or commercial group methods, retrospective rating premium developed as additional premium through operation of the retrospective rating plan, and any other premium or line of business determined to be Excluded Business by mutual agreement between the agent and the Company. Business written by the Agent in the State of Michigan under what is presently referred to as the Essential Insurance Plan shall not constitute Excluded Business. J. "Annual Growth Rate" means the rate of growth or decline in Annual Written Premium compared to prior year Annual Written Premium. Annual Growth Rate is calculated by dividing current year Annual Written Premium by prior year Annual Written Premium. The excess over 100 (or deficit below 100) is the Annual Growth Rate percentage shown in the IV. D. Table. K. "Initial Profit-Sharing Figure" means the result from performing all calculations in Steps 1 through 4 of Section IV. D. Table. IV. Profit-Sharing Commission: A. Following the close of the year, the Company shall compute Agent Profit or Loss for that year and report to the Agent. If there is an Agent Profit, the Profit-Sharing Commission is determined by applying (as a percentage) the Profit-Sharing Factor from the Table in Section D to the Agent Profit. The Profit- Sharing Factor is determined from three elements: (1) The Agent Annual Written Premium; (2) the Agent Annual Growth Rate; and (3) the Agent Percentage of Profit. The Profit-Sharing Factor is the percentage shown in the appropriate column of the Table corresponding to the Agent Percentage of Profit on the line corresponding to the Agent Annual Growth Rate as shown in the appropriate column for the Agent Annual Written Premium. If an Agent Loss existed in the prior year and (1) such Agent Loss is less than 50% for the Initial Profit-Sharing Figure, the prior year Agent Loss shall be subtracted from the Initial Profit-Sharing Figure and the resulting amount is the Profit-Sharing Commission, or (2) such Agent Loss is 50% or more of the Initial Profit-Sharing Figure, the Profit-Sharing Commission shall be 50% of the Initial Profit- Sharing Figure. B. The Company agrees that the Profit-Sharing Commission Report shall be in writing and delivered to the Agent within ninety (90) days of the close of the year. C. Any Profit-Sharing Commission payment shall be made by the Company within ninety (90) days after the close of the year, provided the Agent has paid all premiums outstanding for the year. No charge or deduction for Profit-Sharing Commission shall be made or claimed by the Agent in his accounts. D. Table. Steps in computing the Profit-Sharing Commissions are as follows: 1. Select column corresponding to Agent Annual Written Premium. 2. Determine Agent Annual Growth Rate and locate in column corresponding to Agent Annual Written Premium. 3. Determine Agent Percentage of Profit and select appropriate column in right- hand portion of Table. 4. By going horizontally to the right from the Agent Annual Growth Rate (as located in Step 2) to the column containing the Agent Percentage of Profit (as located in Step 3), the intersecting figure is the Profit-Sharing Factor. PROFIT-SHARING TABLE
(STEP 1) IF ANNUAL WRITTEN PREMIUM IS: (STEP 3) THE PERCENTAGE OF PROFIT IS: OVER $4,000,001 $2,000,001 $1,000,001 $500,001 $250,000-- 5%or 5.1%to 10.1%to 15.1%to 20.1%to 25%or $6,000,000 $6,000,000 $4,000,000 $2,000,000 $1,000,000 $500,000 less 10% 15% 20% 25% more (STEP 2) AND ANNUAL GROWTH RATE IS: (STEP 4) THE PROFIT-SHARING FACTOR IS: -15.0 -8.1 5 7 9 11 13 17 -15.0 -8.1 -8.0 0 6 8 10 12 14 18 -15.0 -8.1 -8.0 0 .1 4 7 9 11 13 15 19 -15.0 -12.1 -8.0 0 .1 4 4.1 8 8 10 12 14 16 20 -15.0 -12.1 -12 -8.1 .1 4 4.1 8 8.1 12 9 11 13 15 17 21 - -15.0 -12.1 -12 -8.1 -8.0 -4.1 4.1 8 8.1 12 12.1 16 10 12 14 16 18 22 - -12 -8.1 -8.0 -4.1 -4.0 0 8.1 12 12.1 16 16.1 20 11 13 15 17 19 23 -8.0 -4.1 -4.0 0 .1 2 12.1 16 16.1 20 20.1 24 12 14 16 18 20 24 -4.0 0 .1 2 2.1 4 16.1 20 20.1 24 24.1 28 13 15 17 19 21 25 .1 2 2.1 4 4.1 7 20.1 24 24.1 28 28.1 32 14 16 18 20 22 26 2.1 4 4.1 6 7.1 10 24.1 28 28.1 32 32.1 36 15 17 19 21 23 27 4.1 6 6.1 9 10.1 13 28.1 32 32.1 36 36.1 40 16 18 20 22 24 28 6.1 8 9.1 12 13.1 16 32.1 36 36.1 40 40.1 44 17 19 21 23 25 29 8.1 11 12.1 15 16.1 19 36.1 40 40.1 44 44.1 48 18 20 22 24 26 30 11.1 14 15.1 18 19.1 22 40.1 44 44.1 48 48.1 52 19 21 23 25 27 31 14.1 17 18.1 21 22.1 25 Over 44 Over 48 Over 52 20 22 24 26 28 32 17.1 20 21.1 24 25.1 28 21 23 25 27 29 33 Over 20 Over 24 Over 28 22 24 26 28 30 34
V. Other Provisions. A. The Agreement supersedes all additional commission, bonus commission, growth opportunity bonus, contingent or profit-sharing agreements of any kind and any such previous agreements are terminated. B. The failure of the Company to enforce or apply at any time, any of the provisions of this Agreement, shall in no way be construed to be a waiver of such provisions, nor in any way to affect the right of the Company thereafter to enforce or apply each and every such provision. C. No Profit-Sharing Commission shall be payable for any calendar year in which the Agent's monthly account with the Company is delinquent in accordance with the Agency Agreement and the Agent is suspended as a result of such delinquency. D. The Agent and the Company recognize that the Company must record its transactions and activities in accordance with rules and regulations of insurance regulatory agencies. In addition, the parties recognize that their records may vary as regards the timing and accounting treatment of transaction entries. It is agreed that all definitions and computations under this Agreement shall reflect the records of the Company which are conclusively presumed to be correct. The Company will make a good faith effort to correct any errors in its records disclosed by computations under the Agreement, to the extent and in the manner permitted by insurance accounting regulations. E. This agreement may be terminated by either party following ninety (90) days prior written notice, or shall terminate automatically concurrent with the effective date of termination of the Agency Agreement or Agent's contract with the Company. Upon termination, only Profit-Sharing Commission accrued and unpaid at the end of the year prior to the year of termination shall be payable to Agent. In witness whereof, Agent and Company have executed this Agreement on ________________________, 19 ___, to be effective ________________, 19_______, and thereafter until terminated as provided herein. __________________________________________ herein referred to as "Agent" by________________________________________ Title ______________________________________ Meridian Mutual Insurance Company Meridian Security Insurance Company Meridian Mutual Insurance Company and Meridian Security Insurance Company Jointly Herein referred to as "Company" by _______________________________________ Title ______________________________________ EX-10 14 EXHIBIT 10.37 AMENDMENT NO. 2 The Property Per Risk Excess of Loss Reinsurance Agreement of January 1, 1992, between EMPLOYERS REINSURANCE CORPORATION of Overland Park, Kansas and MERIDIAN MUTUAL INSURANCE COMPANY, VERNON FIRE AND CASUALTY INSURANCE COMPANY and MERIDIAN SECURITY INSURANCE COMPANY, all of Indianapolis, Indiana, is hereby amended as follows: I. As respects occurrences under policies in force and those becoming effective on or after January 1, 1997, the designation of the REINSURED under this agreement is hereby amended to include the following. CITIZENS SECURITY MUTUAL INSURANCE COMPANY of Red Wing, Minnesota CITIZENS FUND INSURANCE COMPANY of Red Wing, Minnesota INSURANCE COMPANY OF OHIO of Mansfield, Ohio In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in duplicate. MERIDIAN MUTUAL INSURANCE COMPANY VERNON FIRE AND CASUALTY INSURANCE COMPANY MERIDIAN SECURITY INSURANCE EMPLOYERS REINSURANCE COMPANY CORPORATION ______________________________ ______________________________ Title: Title: ______________________________ ______________________________ Title: Title: (Continued) CITIZENS SECURITY MUTUAL CITIZENS FUND INSURANCE INSURANCE COMPANY COMPANY ______________________________ ______________________________ Title: Title: ______________________________ ______________________________ Title: Title: Date:_________________________ Date:_________________________ INSURANCE COMPANY OF OHIO ______________________________ Title: ______________________________ Title: Date:_________________________ EX-10 15 EXHIBIT 10.38 AMENDMENT NO. 3 The Property Per Risk Excess of Loss Reinsurance Agreement of January 1, 1992, between EMPLOYERS REINSURANCE CORPORATION of Overland Park, Kansas and MERIDIAN MUTUAL INSURANCE COMPANY, VERNON FIRE AND CASUALTY INSURANCE COMPANY and MERIDIAN SECURITY INSURANCE COMPANY, all of Indianapolis, Indiana, and CITIZENS SECURITY MUTUAL INSURANCE COMPANY and CITIZENS FUND INSURANCE COMPANY, both of Red Wing, Minnesota, and INSURANCE COMPANY OF OHIO of Mansfield, Ohio, is hereby amended as follows: A. As respects the annual period commencing on January 1, 1998 and each annual period thereafter, the reinsurance premium rate applicable to Layer 2 as set out in Article VIII and as amended by Amendment No. 1, is hereby reduced from 1.0% to 0.5%. B. As resepects the accounting period commencing January 1, 1998, Article IX is hereby deleted in its entirety and the designation of Article IX is reserved for future use. In all other respects not inconsistent herewith, said agreement shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in duplicate. MERIDIAN MUTUAL INSURANCE COMPANY VERNON FIRE AND CASUALTY INSURANCE COMPANY MERIDIAN SECURITY INSURANCE EMPLOYERS REINSURANCE COMPANY CORPORATION ______________________________ ______________________________ Title: Title: ______________________________ ______________________________ Title: Title: Date:_________________________ Date:_________________________ (Continued) CITIZENS SECURITY MUTUAL CITIZENS FUND INSURANCE INSURANCE COMPANY COMPANY ______________________________ ______________________________ Title: Title: ______________________________ ______________________________ Title: Title: Date:_________________________ Date:_________________________ INSURANCE COMPANY OF OHIO ______________________________ Title: ______________________________ Title: Date:_________________________ EX-10 16 EXHIBIT 10.44 Addendum No. 1 to the Interests and Liabilities Agreement of Great Lakes American Reinsurance Company New York, New York with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1997 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") It Is Hereby Agreed, effective September 30, 1997, that all rights, interests, liabilities and obligations of the "Subscibing Reinsurer" under this Agreement shall be transferred from Great Lakes American Reinsurance Company, New York, New York (hereinafter referred to as the "Assignor") to Folksamerica Reinsurance Company, New York, New York (hereinafter referred to as the "Assignee"). In accordance therewith, the Assignor shall assign, and the Assignee shall assume, all of the rights, interests, liabilities and obligations of the "Subscribing Reinsurer" under this Agreement. The Assinee shall then be subject to all of the terms and conditions hereof, and the term "Subscribing Reinsurer," wherever it is used herein, shall refer to Folksamerica Reinsurance Company, New York, New York. It Is Understood and Agreed that the Company consents to the foregoing transfer of rights, interests, liabilities and obligations from the Assignor to the Assignee, and further releases the Assignor from all unfulfilled liabilities and obligations which have arisen under this Agreement and all liabilities and obligations which may arise in the future under this agreement. It Is Further Agreed that the "Notice and Certificate of Assumption by Folksamerica Reinsurance Company," a copy of which is attached to and forms part of this Addendum, shall be recognized as part of this Agreement, effective September 30, 1997. In Witness Whereof, the parties hereto by their respective duly authorized representative have executed this Addendum as of the dates undermentioned at: Indianapolis, Indiana,this _______ day of _________________199___. __________________________________________________ Meridian Mutual Group New York, New York, this _______ day of ___________________199___. __________________________________________________ Great Lakes American Reinsurance Company New York, New York, this _______ day of ___________________199___. __________________________________________________ Folksamerica Reinsurance Company EX-10 17 EXHIBIT 10.45 Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively collectively as the "Company"as the "Company") by The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Preamble The "Meridian Mutual Group" for purposes of this Contract shall consist of Meridian Mutual Insurance Company, Indianapolis, Indiana, Meridian Security Insurance Company and, Indianapolis, Indiana, Citizens Security Mutual Insurance Company, Red Wing, all of Indianapolis, Indiana. It is understood thatMinnesota, Citizens Fund Insurance Company, Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield, Ohio. The application of this Contract shall be to the parties comprising the Meridian Mutual Group as a group and not separately to each. Article I - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies, contracts and binders of insurance or reinsurance (hereinafter called "policies") in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Fire and Allied Lines, Homeowners (property perils only), Mobile Homeowners (property perils only), Farmowners (property perils only), Commercial Multiple Peril (property perils only), Businessowners (property perils only), Earthquake, Inland Marine and Automobile Physical Damage (comprehensive coverage only) business, subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract. Article II - Term A. This Contract shall become effective on January 1, 1998, with respect to losses arising out of loss occurrences commencing on or after that date, and shall remain in force until December 31, 1998, both days inclusive. B. If this Contract expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. Article III - Territory The liability of the Reinsurer shall be limited to losses under policies covering property located within the territorial limits of the United States of America, its territories or possessions, Puerto Rico, the District of Columbia and Canada; but this limitation shall not apply to moveable property if the Company''s policies provide coverage when said moveable property is outside the aforesaid territorial limits. Article IV - Exclusions This Contract shall not apply to: 1. Reinsurance accepted by the Company other than: a. Facultative reinsurance on a share basis of risks accepted individually and not forming part of any agreement; or b. Local agency reinsurance on a share basis accepted in the normal course of business. 2. Nuclear incident per the following clauses attached hereto: a. "Nuclear Incident Exclusion Clause - Physical Damage Reinsurance - U.S.A." (NMA 1119); b. "Nuclear Incident Exclusion Clause - Physical Damage Reinsurance - Canada" (NMA 1980); c. "Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. & Canada)" (NMA 1975(a)). 3. Pool, association, or syndicate business as excluded by the provisions of the "Pools, Associations and Syndicates Exclusion Clause" attached to and forming part of this Contract. 4. Any liability of the Company arising from its participation or membership in any insolvency fund. 5. Credit, financial guarantee and insolvency business. 6. War risks as excluded in any standard policy. 7. Policies written to apply in excess of underlying insurance or policies written with a deductible or franchise of more than $10,000; however, this exclusion shall not apply to policies which provide a percentage deductible or franchise in connection with earthquake or windstorm. 8. Insurance on growing crops. 9. Insurance against flood, surface water, waves, tidal water or tidal wave, overflow of streams or other bodies of water or spray from any of the foregoing, all whether driven by wind or not, when written as such; however, this exclusion shall not apply as respects the foregoing perils included in Commercial Multiple Peril, Homeowners Multiple Peril, Farmowners Multiple Peril, Inland Marine, Businessowners, Mobile Homeowners, and Automobile Physical Damage policies, and in endorsements to Fire and Extended Coverage policies. 10. Mortgage impairment insurance and similar kinds of insurance, howsoever styled, providing coverage to an insured with respect to its mortgagee interest in property or its owner interest in foreclosed property. 11. Difference in conditions insurance and similar kinds of insurance, howsoever styled. 12. Risks which have a total insurable value of more than $250,000,000. 13. Any collection of fine arts with an insurable value of $5,000,000 or more. 14. Inland Marine business with respect to the following: a. All bridges and tunnels; b. Cargo insurance when written as such with respect to ocean, lake, or inland waterways vessels; c. Commercial negative film insurance and cast insurance; d. Drilling rigs, except water well drilling rigs; e. Furriers' customers policies; f. Garment contractors policies; g. Insurance on livestock under so-called "mortality policies," when written as such; h. Jewelers' block policies and furriers' block policies; i. Mining equipment while underground; j. Radio and television broadcasting towers; k. Registered mail insurance when the limit of any one addressee on any one day is more than $50,000; l. Watercraft other than watercraft insured under personal property floaters, yacht and/or outboard policies, homeowners, farmowners, or recreational vehicle policies. 15. Automobile physical damage business with respect to the following: a. Insurance against collision; b. Insurance against theft or larceny; c. Manufacturers' stocks at factories or warehouses. 16. This Contract excludes loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Company's property loss under the applicable original policy. 17. Losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within 150 meters (or 500 feet) of the insured premises. It is understood and agreed that public utilities extension and/or suppliers extension and/or contingent business interruption coverages are not subject to this exclusion provided that these are not part of a transmitters' or distributors' policy. Article V - Retention and Limit A. As respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of ultimate net loss, shown as "Company's Retention" for that excess layer in Schedule A attached hereto, arising out of each loss occurrence. The Reinsurer shall then be liable, as respects each excess layer, for 95.0% of the amount by which such ultimate net loss exceeds the Company's applicable retention, but the liability of the Reinsurer under each excess layer shall not exceed 95.0% of the amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects any one loss occurrence. B. As respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain, (net and unreinsured elsewhere, as respects the Fourth and Fifth Excess Layers), in addition to its initial retention for each loss occurrence, 5.0% of the excess ultimate net loss to which the excess layer applies. As respects the Second and Third Excess Layers of reinsurance coverage, the Company's initial retention and such additional retention shall be subject to the reinsurance set forth in paragraph B of Article VIII. C. No claim shall be made under any excess layer of reinsurance coverage provided by this Contract in any one loss occurrence unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes of this Article, the Company shall be the sole judge of what constitutes one risk. Article VI - Reinstatement A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon. For each amount so reinstated the Company agrees to pay additional premium equal to the product of the following: 1. The percentage of the occurrence limit for the excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times 2. The earned reinsurance premium for the excess layer reinstated for the term of this Contract (exclusive of reinstatement premium). B. Whenever the Company requests payment by the Reinsurer of any loss under any excess layer hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer. If the earned reinsurance premium for any excess layer for the term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the annual deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer for any excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss for that excess layer. Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company''s statement. C. Notwithstanding anything stated herein, the liability of the Reinsurer under any excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following: 1. 95.0% of an amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule 95.0% of the amount, shown as "Reinsurer's Per Occurrence Limit" for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one loss occurrence; or 2. 95.0% of an amount, shown as "Reinsurer's Annual Limit" for that excess layer in Schedule 95.0% of the amount, shown as "Reinsurer's Annual Limit" for that excess layer in Schedule A attached hereto, in all during the term of this Contract. Article VII - Definitions A. "Ultimate net loss" as used herein is defined as the sum or sums (including interest on judgments, litigation expenseextra contractual obligations and any loss adjustment expenses, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company''s ultimate net loss has been ascertained. B. "Extra contractual obligations" as used herein shall mean 80% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company as a result of an action against it by its insured or its insured's assignee, which action alleges negligence or bad faith on the part of the Company in handling a claim under a policy subject to this Contract. However, for the purposes of this Contract, extra contractual obligations arising out of any one loss occurrence shall not exceed 25% of the contractual loss under all policies involved in the loss occurrence. An extra contractual obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the policy. Notwithstanding anything stated herein, this Contract shall not apply to any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. C. "Loss adjustment expense" as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to, interest on judgments and expenses of outside adjusters, but shall not include office expenses or salaries of the Company's regular employees. Article VIII - Other Reinsurance A. The Company shall maintain in force excess per risk reinsurance reinsurance, recoveries under which shall inure to the benefit of this Contract. B. The Company shall be permitted to carry underlying aggregate excess catastrophe reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. Article IX - Loss Occurrence (NMA 2244/BRMA 27A) A. The term "loss occurrence""loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one "loss occurrence""loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence""loss occurrence" shall be further defined as follows: 1. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 72 consecutive consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto. 2. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 72 consecutive consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 72 consecutive consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive consecutive hours during the continued occupation of an assured''s premises by strikers, provided such occupation commenced during the aforesaid period. 3. As regards earthquake (the epicentre of which need not necessarily be within the territorial confines referred to in paragraph A of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive consecutive hours may be included in the Company`s "loss occurrence." 4. As regards "freeze," only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company`s "loss occurrence." B. Except for those "loss occurrences" referred to in subparagraphs 1 and 2 of paragraph A above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive consecutive hours shall apply with respect to one event. C. However, as respects those "loss occurrences" referred to in subparagraphs 1 and 2 of paragraph A above, if the disaster, accident or loss occasioned by the event is of greater duration than 72 consecutive hours, then the Company may divide that disaster, accident or loss into two or more "loss occurrences," provided that no two periods overlap and no individual loss is included in more than one such period, and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. D. No individual losses occasioned by an event that would be covered by 72 hours clauses may be included in any "loss occurrence" claimed under the 168 hours provision. Article X - Loss Notices and Settlements A. Whenever losses sustained by the Company appear likely to result in a claim hereunder, the Company shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. B. All loss settlements made by the Company, provided they are within the terms of the original policies (or within the terms of extra contractual obligations coverage, if any, provided under this Contract) and within the terms of this Contract, shall be binding upon the Reinsurer. The Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company. The Company shall be the sole judge of what is covered by an original policy. Article XI - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights. Article XII - Premium A. As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer the greater of the following: 1. The amount, shown as "Annual Minimum Premium" for that excess layer in Schedule A attached hereto; or 2. The percentage, shown as "Premium Rate" for that excess layer in Schedule A attached hereto, of the Company's net earned premium for the term of this Contract. B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of an amount, shown as "Annual Deposit Premium" for that excess layer in Schedule A attached hereto, in four equal installments of an amount, shown as "Quarterly Deposit Premium" for that excess layer in Schedule A attached hereto, on January 1, April 1, July 1 and October 1 of 1998. C. Within 60 days after the expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer, computed in accordance with paragraph A, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly. D. "Net earned premium" as used herein is defined as gross earned premium of the Company for the classes of business reinsured hereunder, less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract. For purposes of calculating net earned premium, 90% of the total basic policy premium as respects Homeowners, Mobile Homeowners and Farmowners business, 70% of the total basic policy premium as respects Businessowners and Commercial Multiple Peril business and 100% of the Comprehensive portion of the premium for Automobile Physical Damage business shall be considered subject premium. Article XIII - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in Article XXVI (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the 12-month United States Treasury Bill Rate, as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 business days after the proof of loss or demand for payment is transmitted to the Reinsurer or received by the Reinsurer, whichever is soonest. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment, in accordance with the provisions of Article X, was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of paragraph C above, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 business days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a subscribing reinsurer from contesting the validity of any claim, or from participating in the defense or control of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest penalties arising out of the application of this Article that are $100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article XIV - Offset (BRMA 36C) The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise. Article XV - Access to Records (BRMA 1D) The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance. Article XVI - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article XVII - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article XVIII - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article XIX - Taxes (BRMA 50C) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America, the District of Columbia or Canada. Article XX - Federal Excise Tax (BRMA 17A) (Applicable to those reinsurers, excepting Underwriters at Lloyd's London and other reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article XXI - Unauthorized Reinsurers A. If the Reinsurer is unauthorized in any state of the United States of America or the District of Columbia, the Reinsurer agrees to fund its share of the Company's ceded United States outstanding loss and loss adjustment expense reserves by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. If the Reinsurer is unauthorized in any province or jurisdiction of Canada, the Reinsurer agrees to fund 115% of its share of the Company''s ceded Canadian outstanding loss and loss adjustment expense reserves by: 1. A clean, irrevocable and unconditional letter of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a Canadian bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities, for no more than 15/115ths of the total funding required; and/or 2. Cash advances for the remaining balance of the funding required; if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved. C. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expensess paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 3. To fund a cash account in an amount equal to the Reinsurer's share of any ceded outstanding loss and loss adjustment expense reserves funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 4. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of the Company's ceded outstanding loss and loss adjustment expense reserves, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for C(1) or C(3), or in the case of C(2), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article XXII - Insolvency A. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor immediately upon demand, with reasonable provision for verification, on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company. C. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees. Article XXIII - Arbitration (BRMA 6J) A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article XXIV - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article XXV - Agency Agreement Meridian Mutual Insurance Company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party. Article XXVI - Intermediary (BRMA 23A) E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co., Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company. In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date undermentioned at: Indianapolis, Indiana,this _______ day of __________________199___. __________________________________________________ Meridian Mutual Group Schedule A Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Meridian Mutual Group Indianapolis, Indiana Second Third Fourth Fifth Excess Excess Excess Excess Company's Retention $6,000,000 $10,000,000 $18,000,000 $30,000,000 Reinsurer's Per $4,000,000 $8,000,000 $12,000,000 $35,000,000 Occurrence Limit (95.0% of) Reinsurer's Annual $8,000,000 $16,000,000 $24,000,000 $70,000,000 Limit (95.0% of) Annual Minimum Premium $616,000 $410,400 $364,800 $664,800 Premium Rate 0.780% 0.520% 0.462% 0.843% Annual Deposit Premium $770,000 $513,000 $456,000 $831,000 Quarterly Deposit $192,500 $128,250 $114,000 $207,750 Premium The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto. Table of Contents Article Page Preamble 1 I Classes of Business Reinsured 1 II Term 2 III Territory 2 IV Exclusions 2 V Retention and Limit 4 VI Reinstatement 5 VII Definitions 6 VIII Other Reinsurance 6 IX Loss Occurrence (NMA 2244/BRMA 27A) 7 X Loss Notices and Settlements 8 XI Salvage and Subrogation 8 XII Premium 8 XIII Late Payments 9 XIV Offset (BRMA 36C) 11 XV Access to Records (BRMA 1D) 11 XVI Net Retained Lines (BRMA 32E) 11 XVII Errors and Omissions (BRMA 14F) 11 XVIII Currency (BRMA 12A) 11 XIX Taxes (BRMA 50C) 12 XX Federal Excise Tax (BRMA 17A) 12 XXI Unauthorized Reinsurers 12 XXII Insolvency 13 XXIII Arbitration (BRMA 6J) 14 XXIV Service of Suit (BRMA 49C) 15 XXV Agency Agreement 16 XXVI Intermediary (BRMA 23A) 16 Schedule A Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Meridian Mutual Group Indianapolis, Indiana Second Excess Catastrophe Reinsurance Reinsurers Participations Dorinco Reinsurance Company 10.00% Erie Insurance Exchange 2.00 Insurance Corporation of Hannover, An Illinois Corporation 3.50 International Property Catastrophe Reinsurance Company, Ltd. 3.75 Nationwide Mutual Insurance Company 3.50 Odyssey Reinsurance Corporation 4.00 Renaissance Reinsurance Ltd. 10.00 Shelter Reinsurance Company 1.00 Sumitomo Marine Re Management, Ltd. (for The Sumitomo Marine & Fire Insurance Co., Ltd., U.S. Branch) 1.75 Tokio Re Corporation (for The Tokio Marine and Fire Insurance Co. Ltd., U. S. Branch) 1.00 USF RE Insurance Company 3.00 Vesta Fire Insurance Corporation 5.00 Through Swire Blanch - Australia GIO Insurance Ltd. (trading as GIO Reinsurance) 7.50 Reinsurance Australia Corporation Limited 3.00 Through Swire Blanch Europe Bayerische Ruckversicherung A.G. 5.00 La Mutuelle Du Mans Assurances I.A.R.D. 1.50 Mapfre Re Compania de Reaseguros, S.A. 1.00 Walbaum International for SOREMA North America Reinsurance Company (as the fronting company for P.R.A.M. subscriptions) 7.00 Second Excess Catastrophe Reinsurance (Continued) Reinsurers Participations Through Swire Blanch Ltd. Lloyd's Underwriters Per Signing Schedule 26.50% Total 100.00% Third Excess Catastrophe Reinsurance Reinsurers Participations AXA Reinsurance Company 5.00% Employers Mutual Casualty Company 2.00 Erie Insurance Exchange 2.00 Farmers Mutual Hail Insurance Company of Iowa 1.50 Gerling Global Reinsurance Corporation of America 4.00 Insurance Corporation of Hannover, An Illinois Corporation 2.50 LaSalle Re Limited 17.50 Nationwide Mutual Insurance Company 4.00 Odyssey Reinsurance Corporation 4.00 Republic Western Insurance Company 1.00 St. Paul Re, Inc. (for St. Paul Fire and Marine Insurance Company) 3.00 Shelter Reinsurance Company 1.00 United States Fidelity and Guaranty Company 5.25 USF RE Insurance Company 2.00 Vesta Fire Insurance Corporation 6.50 Through Swire Blanch - Australia GIO Insurance Ltd. (trading as GIO Reinsurance) 7.50 Through Swire Blanch Europe Helvetia Swiss Insurance Company, Ltd. 1.00 La Mutuelle Du Mans Assurances I.A.R.D. 3.00 Mapfre Re Compania de Reaseguros, S.A. 3.00 Munchener Ruckversicherungs-Gesellschaft 5.00 SPS Reassurance 1.50 Walbaum International for SOREMA North America Reinsurance Company (as the fronting company for P.R.A.M. subscriptions) 7.00 Third Excess Catastrophe Reinsurance (Continued) Reinsurers Participations Through Swire Blanch Ltd. Lloyd's Underwriters Per Signing Schedule 10.75% Total 100.00% Fourth Excess Catastrophe Reinsurance Reinsurers Participations AXA Reinsurance Company 3.00% Constitution Reinsurance Corporation 4.00 Dorinco Reinsurance Company 6.00 Employers Mutual Casualty Company 0.60 Erie Insurance Exchange 1.50 Gerling Global Reinsurance Corporation of America 1.00 LaSalle Re Limited 11.00 Nationwide Mutual Insurance Company 3.00 Odyssey Reinsurance Corporation 3.00 St. Paul Re, Inc. (for St. Paul Fire and Marine Insurance Company) 3.00 Shelter Reinsurance Company 1.00 SOREMA North America Reinsurance Company 16.00 Sumitomo Marine Re Management, Ltd. (for The Sumitomo Marine & Fire Insurance Co., Ltd., U.S. Branch) 1.00 Tokio Re Corporation (for The Tokio Marine and Fire Insurance Co. Ltd., U. S. Branch) 1.00 United Fire & Casualty Company 0.75 Vesta Fire Insurance Corporation 5.70 Through Swire Blanch - Australia GIO Insurance Ltd. (trading as GIO Reinsurance) 4.25 Reinsurance Australia Corporation Limited 5.00 Fourth Excess Catastrophe Reinsurance (Continued) Reinsurers Participations Through Swire Blanch Europe La Mutuelle Du Mans Assurances I.A.R.D. 2.00% Mapfre Re Compania de Reaseguros, S.A. 2.00 Munchener Ruckversicherungs-Gesellschaft 5.00 SPS Reassurance 1.50 Walbaum International for SOREMA North America Reinsurance Company (as the fronting company for P.R.A.M. subscriptions) 4.50 Through Swire Blanch Ltd. Lloyd's Underwriters Per Signing Schedule 14.20 Total 100.00% Fifth Excess Catastrophe Reinsurance Reinsurers Participations AXA Reinsurance Company 3.00% Employers Mutual Casualty Company 1.00 Erie Insurance Exchange 2.00 Farmers Mutual Hail Insurance Company of Iowa 0.35 Gerling Global Reinsurance Corporation of America 2.50 International Property Catastrophe Reinsurance Company, Ltd. 2.50 LaSalle Re Limited 4.50 Nationwide Mutual Insurance Company 3.50 Odyssey Reinsurance Corporation 3.15 Renaissance Reinsurance Ltd. 10.00 St. Paul Re, Inc. (for St. Paul Fire and Marine Insurance Company) 1.50 Shelter Reinsurance Company 1.00 SOREMA North America Reinsurance Company 7.50 United Fire & Casualty Company 0.50 United States Fidelity and Guaranty Company 4.25 Vesta Fire Insurance Corporation 7.50 Fifth Excess Catastrophe Reinsurance (Continued) Reinsurers Participations Through Swire Blanch Europe Albingia Versicherungs AG 1.50% La Mutuelle Du Mans Assurances I.A.R.D. 4.75 Mapfre Re Compania de Reaseguros, S.A. 3.00 Munchener Ruckversicherungs-Gesellschaft 1.75 Sirius International Insurance Corporation 0.50 Walbaum International for SOREMA North America Reinsurance Company (as the fronting company for P.R.A.M. subscriptions) 3.50 Through Swire Blanch Ltd. Lloyd's Underwriters Per Signing Schedule 30.25 Total 100.00% Interests and Liabilities Agreement of AXA Reinsurance Company Wilmington, Delaware (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 5.00% of the Third Excess Catastrophe Reinsurance 3.00% of the Fourth Excess Catastrophe Reinsurance 3.00% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ AXA Reinsurance Company Interests and Liabilities Agreement of Constitution Reinsurance Corporation New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 4.00% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ Constitution Reinsurance Corporation Interests and Liabilities Agreement of Dorinco Reinsurance Company Midland, Michigan (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 10.00% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 6.00% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Midland, Michigan,this _______ day of _____________________199___. __________________________________________________ Dorinco Reinsurance Company Interests and Liabilities Agreement of Employers Mutual Casualty Company Des Moines, Iowa (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 2.00% of the Third Excess Catastrophe Reinsurance 0.60% of the Fourth Excess Catastrophe Reinsurance 1.00% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Des Moines, Iowa,this _______ day of ______________________199___. __________________________________________________ Employers Mutual Casualty Company Interests and Liabilities Agreement of Erie Insurance Exchange Erie, Pennsylvania (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 2.00% of the Second Excess Catastrophe Reinsurance 2.00% of the Third Excess Catastrophe Reinsurance 1.50% of the Fourth Excess Catastrophe Reinsurance 2.00% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Erie, Pennsylvania,this _______ day of ____________________199___. __________________________________________________ Erie Insurance Exchange By: Erie Indemnity Company (Attorney-In-Fact) Interests and Liabilities Agreement of Farmers Mutual Hail Insurance Company of Iowa Des Moines, Iowa (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 1.50% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0.35% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Des Moines, Iowa,this _______ day of _____________________ 199___. __________________________________________________ Farmers Mutual Hail Insurance Company of Iowa Interests and Liabilities Agreement of Gerling Global Reinsurance Corporation of America New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 4.00% of the Third Excess Catastrophe Reinsurance 1.00% of the Fourth Excess Catastrophe Reinsurance 2.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ Gerling Global Reinsurance Corporation of America Interests and Liabilities Agreement of Insurance Corporation of Hannover An Illinois Corporation (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 3.50% of the Second Excess Catastrophe Reinsurance 2.50% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Los Angeles, California,this _______ day of _______________199___. __________________________________________________ Insurance Corporation of Hannover, An Illinois Corporation Interests and Liabilities Agreement of International Property Catastrophe Reinsurance Company, Ltd. Hamilton, Bermuda (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 3.75% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 2.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Hamilton, Bermuda,this _______ day of _____________________199___. __________________________________________________ International Property Catastrophe Reinsurance Company, Ltd. Interests and Liabilities Agreement of LaSalle Re Limited Hamilton, Bermuda (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 17.50% of the Third Excess Catastrophe Reinsurance 11.00% of the Fourth Excess Catastrophe Reinsurance 4.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Hamilton, Bermuda,this _______ day of _____________________199___. __________________________________________________ LaSalle Re Limited Interests and Liabilities Agreement of Nationwide Mutual Insurance Company Columbus, Ohio (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 3.50% of the Second Excess Catastrophe Reinsurance 4.00% of the Third Excess Catastrophe Reinsurance 3.00% of the Fourth Excess Catastrophe Reinsurance 3.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Columbus, Ohio,this _______ day of ________________________199___. __________________________________________________ Nationwide Mutual Insurance Company Interests and Liabilities Agreement of Odyssey Reinsurance Corporation Wilmington, Delaware (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 4.00% of the Second Excess Catastrophe Reinsurance 4.00% of the Third Excess Catastrophe Reinsurance 3.00% of the Fourth Excess Catastrophe Reinsurance 3.15% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ Odyssey Reinsurance Corporation Interests and Liabilities Agreement of Renaissance Reinsurance Ltd. Hamilton, Bermuda (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 10.00% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 10.00% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Hamilton, Bermuda,this _______ day of _____________________199___. __________________________________________________ Renaissance Reinsurance Ltd. Interests and Liabilities Agreement of Republic Western Insurance Company Phoenix, Arizona (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 1.00% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Phoenix, Arizona,this _______ day of _____________________ 199___. __________________________________________________ Republic Western Insurance Company Interests and Liabilities Agreement of St. Paul Fire and Marine Insurance Company St. Paul, Minnesota (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 3.00% of the Third Excess Catastrophe Reinsurance 3.00% of the Fourth Excess Catastrophe Reinsurance 1.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ St. Paul Fire and Marine Insurance Company by St. Paul Re, Inc. Interests and Liabilities Agreement of Shelter Reinsurance Company Columbia, Missouri (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 1.00% of the Second Excess Catastrophe Reinsurance 1.00% of the Third Excess Catastrophe Reinsurance 1.00% of the Fourth Excess Catastrophe Reinsurance 1.00% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Columbia, Missouri,this _______ day of ____________________199___. __________________________________________________ Shelter Reinsurance Company Interests and Liabilities Agreement of SOREMA North America Reinsurance Company New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 16.00% of the Fourth Excess Catastrophe Reinsurance 7.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ SOREMA North America Reinsurance Company Interests and Liabilities Agreement of The Sumitomo Marine & Fire Insurance Co., Ltd. (U.S. Branch) New York, New York through Sumitomo Marine Re Management, Inc. New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 1.75% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 1.00% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ The Sumitomo Marine & Fire Insurance Co., Ltd. (U.S. Branch) By: Sumitomo Marine Re Management, Inc. Interests and Liabilities Agreement of The Tokio Marine and Fire Insurance Co. Ltd., U.S. Branch through Tokio Re Corporation New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 1.00% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 1.00% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ Tokio Re Corporation (for and on behalf of the Tokio Marine and Fire Insurance Co. Ltd., U.S. Branch) Interests and Liabilities Agreement of United Fire & Casualty Company Cedar Rapids, Iowa (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 0.75% of the Fourth Excess Catastrophe Reinsurance 0.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Cedar Rapids, Iowa,this _______ day of ____________________199___. __________________________________________________ United Fire & Casualty Company Interests and Liabilities Agreement of United States Fidelity and Guaranty Company Baltimore, Maryland (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 5.25% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 4.25% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Morristown, New Jersey,this _______ day of ______________ 199___. United States Fidelity and Guaranty Company By:______________________________________________ Attorney-In-Fact Interests and Liabilities Agreement of USF RE Insurance Company Boston, Massachusetts (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 3.00% of the Second Excess Catastrophe Reinsurance 2.00% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Florham Park, New Jersey,this _______ day of ______________199___. __________________________________________________ USF RE Insurance Company Interests and Liabilities Agreement of Vesta Fire Insurance Corporation Birmingham, Alabama (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 5.00% of the Second Excess Catastrophe Reinsurance 6.50% of the Third Excess Catastrophe Reinsurance 5.70% of the Fourth Excess Catastrophe Reinsurance 7.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Birmingham, Alabama,this _______ day of ___________________199___. __________________________________________________ Vesta Fire Insurance Corporation Interests and Liabilities Agreement of GIO Insurance Ltd. trading as GIO Reinsurance Sydney, Australia (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 7.50% of the Second Excess Catastrophe Reinsurance 7.50% of the Third Excess Catastrophe Reinsurance 4.25% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Sydney, Australia,this _______ day of ____________________ 199___. __________________________________________________ GIO Insurance Ltd. trading as GIO Reinsurance Interests and Liabilities Agreement of Reinsurance Australia Corporation Limited Sydney, Australia (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 3.00% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 5.00% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Sydney, Australia,this _______ day of ____________________ 199___. __________________________________________________ Reinsurance Australia Corporation Limited Interests and Liabilities Agreement of Albingia Versicherungs AG Hamburg, Germany (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 1.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Hamburg, Germany,this _______ day of _____________________ 199___. __________________________________________________ Albingia Versicherungs AG Interests and Liabilities Agreement of Bayerische Ruckversicherung A.G. Munich, Germany (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 5.00% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Munich, Germany,this _______ day of ______________________ 199___. __________________________________________________ Bayerische Ruckversicherung A.G. Interests and Liabilities Agreement of Helvetia Swiss Insurance Company, Ltd. St. Gallen, Switzerland (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 1.00% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: St. Gallen, Switzerland,this _______ day of _______________199___. __________________________________________________ Helvetia Swiss Insurance Company, Ltd. Interests and Liabilities Agreement of La Mutuelle Du Mans Assurances I.A.R.D. LeMans, France (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 1.50% of the Second Excess Catastrophe Reinsurance 3.00% of the Third Excess Catastrophe Reinsurance 2.00% of the Fourth Excess Catastrophe Reinsurance 4.75% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: LeMans, France,this _______ day of ________________________199___. __________________________________________________ La Mutuelle Du Mans Assurances I.A.R.D. Interests and Liabilities Agreement of Mapfre Re Compania de Reaseguros, S.A Madrid, Spain (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 1.00% of the Second Excess Catastrophe Reinsurance 3.00% of the Third Excess Catastrophe Reinsurance 2.00% of the Fourth Excess Catastrophe Reinsurance 3.00% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Madrid, Spain,this _______ day of ________________________ 199___. __________________________________________________ Mapfre Re Compania de Reaseguros, S.A. Interests and Liabilities Agreement of Munchener Ruckversicherungs-Gesellschaft Munich, Germany (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 5.00% of the Third Excess Catastrophe Reinsurance 5.00% of the Fourth Excess Catastrophe Reinsurance 1.75% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Munich, Germany,this ________day of _______________________199___. __________________________________________________ Munchener Ruckversicherungs-Gesellschaft Interests and Liabilities Agreement of Sirius International Insurance Corporation Stockholm, Sweden (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 0% of the Third Excess Catastrophe Reinsurance 0% of the Fourth Excess Catastrophe Reinsurance 0.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Stockholm, Sweden,this _______ day of _____________________199___. __________________________________________________ Sirius International Insurance Corporation Interests and Liabilities Agreement of SPS Reassurance Paris, France (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 0% of the Second Excess Catastrophe Reinsurance 1.50% of the Third Excess Catastrophe Reinsurance 1.50% of the Fourth Excess Catastrophe Reinsurance 0% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Paris, France,this _______ day of ________________________ 199___. __________________________________________________ SPS Reassurance Interests and Liabilities Agreement of SOREMA North America Reinsurance Company New York, New York as the fronting company for P.R.A.M. subscriptions (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 7.00% of the Second Excess Catastrophe Reinsurance 7.00% of the Third Excess Catastrophe Reinsurance 4.50% of the Fourth Excess Catastrophe Reinsurance 3.50% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ SOREMA North America Reinsurance Company for and on behalf of P.R.A.M. ____________________________________ Interests and Liabilities Agreement of Certain Underwriting Members of Lloyd's shown in the Signing Schedule attached hereto (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts the following percentage shares in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above: 26.50% of the Second Excess Catastrophe Reinsurance 10.75% of the Third Excess Catastrophe Reinsurance 14.20% of the Fourth Excess Catastrophe Reinsurance 30.25% of the Fifth Excess Catastrophe Reinsurance This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York 10019. Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule attached hereto. EX-10 18 EXHIBIT 10.47 Addendum No. 1 to the Sixth Excess Catastrophe Reinsurance Contract Effective: January 1, 1997 issued to Meridian Mutual Group Indianapolis, Indiana It Is Hereby Agreed, effective January 1, 1998, with respect to losses arising out of loss occurrences commencing on or after that date, that this Contract shall be amended as follows: 1. Paragraph A of Article VIII - Definitions - shall be deleted and the following substituted therefor: "A. `Ultimate net loss' as used herein is defined as the sum or sums (including extra contractual obligations and any loss adjustment expense, as hereinafter defined) paid or payable by the Company in in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained." 2. The following paragraph shall be added to and made part of Article VIII - Definitions: "C. `Loss adjustment expense' as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to, interest on judgments and expenses of outside adjusters, but shall not include office expenses or salaries of the Company's regular employees." It Is Further Agreed, effective January 1, 1998, that this Contract shall be amended as follows: 1. Paragraphs A and B of Article XIII - Premium - shall be deleted and the following substituted therefor: "A. As premium for the reinsurance provided hereunder for each contract year, the Company shall pay the Reinsurer .00782% of its Insurance In Force calculated on June 30 of each respective contract year, subject to an annual minimum premium of $399,200. B. The Company shall pay the Reinsurer a deposit premium of $499,000 for each contract year, payable in four equal installments of $124,750 on January 1, April 1, July 1 and October 1, of each contract year." 2. The following Article shall be added to and made part of this Contract: "Article XXVII - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in Article XXVI (hereinafter referred to as the ` Intermediary') by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the 12-month United States Treasury Bill Rate, as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 business days after the proof of loss or demand for payment is transmitted to the Reinsurer or is received by the Reinsurer, whichever is soonest. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment, in accordance with the provisions of Article X, was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of paragraph C above, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 business days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a subscribing reinsurer from contesting the validity of any claim, or from participating in the defense or control of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest penalties arising out of the application of this Article that are $100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period." The provisions of this Contract shall remain otherwise unchanged. In Witness Whereof, the Company by its duly authorized representative has executed this Addendum as of the date undermentioned at: Indianapolis, Indiana,this _______ day of _________________199___. __________________________________________________ Meridian Mutual Group Addendum No. 1 to the Interests and Liabilities Agreement of Munchener Ruckversicherungs-Gesellschaft Munich, Germany (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Sixth Excess Catastrophe Reinsurance Contract Effective: January 1, 1997 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 1, as duly executed by the Company, as part of the Contract, effective January 1, 1998. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: Munich, Germany,this ________ day of ______________________199___. __________________________________________________ Munchener Ruckversicherungs-Gesellschaft EX-10 19 EXHIBIT 10.49 Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") by The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") Preamble The "Meridian Mutual Group" for purposes of this Contract shall consist of Meridian Mutual Insurance Company, Indianapolis, Indiana, Meridian Security Insurance Company, Indianapolis, Indiana, Citizens Security Mutual Insurance Company, Red Wing, Minnesota, Citizens Fund Insurance Company, Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield, Ohio. The application of this Contract shall be to the parties comprising the Meridian Mutual Group as a group and not separately to each. Article I - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company arising from the peril of Earthquake and related losses under its policies, contracts and binders of insurance or reinsurance (hereinafter called "policies") in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Fire and Allied Lines, Homeowners (property perils only), Mobile Homeowners (property perils only), Farmowners (property perils only), Commercial Multiple Peril (property perils only), Businessowners (property perils only), Earthquake, Inland Marine and Automobile Physical Damage (comprehensive coverage only) business, subject to the terms, conditions and limitations hereinafter set forth. Article II - Term A. This Contract shall become effective on January 1, 1998, with respect to losses arising out of loss occurrences commencing on or after that date, and shall remain in force until December 31, 1998, both days inclusive. B. If this Contract expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. Article III - Territory The liability of the Reinsurer shall be limited to losses under policies covering property located within the territorial limits of the States of Iowa, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee and Wisconsin, but this limitation shall not apply to moveable property if the Company's policies provide coverage when said moveable property is outside the aforesaid territorial limits. Article IV - Exclusions This Contract does not apply to and specifically excludes the following: 1. Reinsurance accepted by the Company other than: a. Facultative reinsurance on a share basis of risks accepted individually and not forming part of any agreement; or b. Local agency reinsurance on a share basis accepted in the normal course of business. 2. Nuclear incident per the following clauses attached hereto: a. "Nuclear Incident Exclusion Clause - Physical Damage Reinsurance - U.S.A." (NMA 1119); b. "Nuclear Incident Exclusion Clause - Physical Damage Reinsurance - Canada" (NMA 1980); c. "Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. & Canada)" (NMA 1975(a)). 3. Pool, association, or syndicate business as excluded by the provisions of the "Pools, Associations and Syndicates Exclusion Clause" attached to and forming part of this Contract. 4. Any liability of the Company arising from its participation or membership in any insolvency fund. 5. Credit, financial guarantee and insolvency business. 6. War risks as excluded in any standard policy. 7. Policies written to apply in excess of underlying insurance or policies written with a deductible or franchise of more than $10,000; however, this exclusion shall not apply to policies which provide a percentage deductible or franchise in connection with earthquake or windstorm. 8. Insurance on growing crops. 9. Insurance against flood, surface water, waves, tidal water or tidal wave, overflow of streams or other bodies of water or spray from any of the foregoing, all whether driven by wind or not, when written as such; however, this exclusion shall not apply as respects the foregoing perils included in Commercial Multiple Peril, Homeowners Multiple Peril, Farmowners Multiple Peril, Inland Marine, Businessowners, Mobile Homeowners, and Automobile Physical Damage policies, and in endorsements to Fire and Extended Coverage policies. 10. Mortgage impairment insurance and similar kinds of insurance, howsoever styled, providing coverage to an insured with respect to its mortgagee interest in property or its owner interest in foreclosed property. 11. Difference in conditions insurance and similar kinds of insurance, howsoever styled. 12. Risks which have a total insurable value of more than $250,000,000. 13. Any collection of fine arts with an insurable value of $5,000,000 or more. 14. Inland Marine business with respect to the following: a. All bridges and tunnels; b. Cargo insurance when written as such with respect to ocean, lake, or inland waterways vessels; c. Commercial negative film insurance and cast insurance; d. Drilling rigs, except water well drilling rigs; e. Furriers' customers policies; f. Garment contractors policies; g. Insurance on livestock under so-called "mortality policies," when written as such; h. Jewelers' block policies and furriers' block policies; i. Mining equipment while underground; j. Radio and television broadcasting towers; k. Registered mail insurance when the limit of any one addressee on any one day is more than $50,000; l. Watercraft other than watercraft insured under personal property floaters, yacht and/or outboard policies, homeowners, farmowners, or recreational vehicle policies. 15. Automobile physical damage business with respect to the following: a. Insurance against collision; b. Insurance against theft or larceny; c. Manufacturers' stocks at factories or warehouses. 16. This Contract excludes loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Company's property loss under the applicable original policy. 17. Losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within 150 meters (or 500 feet) of the insured premises. It is understood and agreed that public utilities extension and/or suppliers extension and/or contingent business interruption coverages are not subject to this exclusion provided that these are not part of a transmitters' or distributors' policy. Article V - Retention and Limit A. The Company shall retain and be liable for the first $90,000,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable for 95% of the amount by which such ultimate net loss exceeds the Company's retention, but the liability of the Reinsurer shall not exceed 95% of $25,000,000 as respects any one loss occurrence. B. In addition to its initial retention each loss occurrence, the Company shall retain 5% of the excess ultimate net loss to which this Contract applies. C. No claim shall be made under this Contract in any one loss occurrence unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes of this Article, the Company shall be the sole judge of what constitutes one risk. Article VI - Reinstatement A. In the event all or any portion of the reinsurance hereunder is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon. For each amount so reinstated the Company agrees to pay additional premium equal to the product of the following: 1. The percentage of the occurrence limit reinstated (based on the loss paid by the Reinsurer); times 2. The earned reinsurance premium for the term of this Contract (exclusive of reinstatement premium). B. Whenever the Company requests payment by the Reinsurer of any loss hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer. If the earned reinsurance premium for the term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due shall be based on the annual deposit premium and shall be readjusted when the earned reinsurance premium for the term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer as reflected by any such statement (less prior payments, if any) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss. Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company's statement. C. Notwithstanding anything stated herein, the liability of the Reinsurer hereunder shall not exceed 95% of $25,000,000 as respects loss or losses arising out of any one loss occurrence, nor shall it exceed 95% of $50,000,000 in all during the term of this Contract. Article VII - Definitions A. "Ultimate net loss" as used herein is defined as the sum or sums (including extra contractual obligations and any loss adjustment expenses, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. B. "Extra contractual obligations" as used herein shall mean 80% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company as a result of an action against it by its insured or its insured's assignee, which action alleges negligence or bad faith on the part of the Company in handling a claim under a policy subject to this Contract. However, for the purposes of this Contract, extra contractual obligations arising out of any one loss occurrence shall not exceed 25% of the contractual loss under all policies involved in the loss occurrence. An extra contractual obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the policy. Notwithstanding anything stated herein, this Contract shall not apply to any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. C. "Loss adjustment expense" as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to, interest on judgments and expenses of outside adjusters, but shall not include office expenses or salaries of the Company's regular employees. Article VIII - Other Reinsurance A. The Company shall maintain in force excess per risk reinsurance, recoveries under which shall inure to the benefit of this Contract. B. The Company shall be permitted to carry underlying aggregate excess catastrophe reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract. Article IX - Loss Occurrence A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that as regards earthquake (the epicentre of which need not necessarily be within the territorial confines referred to in paragraph A of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's "loss occurrence." B. The Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event. Article X - Loss Notices and Settlements A. Whenever losses sustained by the Company appear likely to result in a claim hereunder, the Company shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. B. All loss settlements made by the Company, provided they are within the terms of the original policies (or within the terms of extra contractual obligations coverage, if any, provided under this Contract) and within the terms of this Contract, shall be binding upon the Reinsurer. The Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company. The Company shall be the sole judge of what is covered by an original policy. Article XI - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights. Article XII - Premium A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurer .433% of its net earned premium for the term of this Contract, subject to a minimum premium of $342,000. B. The Company shall pay the Reinsurer a deposit premium of $427,500 in four equal installments of $106,875 on January 1, April 1, July 1 and October 1 of 1998. C. Within 60 days after the expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph A, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly. D. "Net earned premium" as used herein is defined as gross earned premium of the Company for the classes of business reinsured hereunder, less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract. For purposes of calculating net earned premium, 90% of the total basic policy premium as respects Homeowners, Farmowners and Mobile Homeowners business, 70% of the total basic policy premium as respects Businessowners and Commercial Multiple Peril business and 100% of the Comprehensive portion of the premium for Automobile Physical Damage business shall be considered subject premium. Article XIII - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in Article XXVI (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the 12-month United States Treasury Bill Rate, as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 business days after the proof of loss or demand for payment is transmitted to the Reinsurer or received by the Reinsurer, whichever is soonest. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment, in accordance with the provisions of Article X, was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of paragraph C above, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 business days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a subscribing reinsurer from contesting the validity of any claim, or from participating in the defense or control of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest penalties arising out of the application of this Article that are $100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article XIV - Offset (BRMA 36C) The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise. Article XV - Access to Records (BRMA 1D) The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance. Article XVI - Net Retained Lines (BRMA 32E) A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article XVII - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article XVIII - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article XIX - Taxes (BRMA 50C) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America, the District of Columbia or Canada. Article XX - Federal Excise Tax (BRMA 17A) (Applicable to those reinsurers, excepting Underwriters at Lloyd's London and other reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article XXI - Unauthorized Reinsurers A. If the Reinsurer is unauthorized in any state of the United States of America or the District of Columbia, the Reinsurer agrees to fund its share of the Company's ceded outstanding loss and loss adjustment expense reserves by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 3. To fund a cash account in an amount equal to the Reinsurer's share of any ceded outstanding loss and loss adjustment expense reserves funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 4. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of the Company's ceded outstanding loss and loss adjustment expense reserves, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1) or B(3), or in the case of B(2), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article XXII - Insolvency A. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor immediately upon demand, with reasonable provision for verification, on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company. C. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees. Article XXIII - Arbitration (BRMA 6J) A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article XXIV - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article XXV - Agency Agreement Meridian Mutual Insurance Company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party. Article XXVI - Intermediary (BRMA 23A) E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co., Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company. In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date undermentioned at: Indianapolis, Indiana,this _______ day of _________________199___. __________________________________________________ Meridian Mutual Group Table of Contents Article Page Preamble 1 I Classes of Business Reinsured 1 II Term 2 III Territory 2 IV Exclusions 2 V Retention and Limit 4 VI Reinstatement 5 VII Definitions 5 VIII Other Reinsurance 6 IX Loss Occurrence 6 X Loss Notices and Settlements 7 XI Salvage and Subrogation 7 XII Premium 7 XIII Late Payments 8 XIV Offset (BRMA 36C) 9 XV Access to Records (BRMA 1D) 10 XVI Net Retained Lines (BRMA 32E) 10 XVII Errors and Omissions (BRMA 14F) 10 XVIII Currency (BRMA 12A) 10 XIX Taxes (BRMA 50C) 10 XX Federal Excise Tax (BRMA 17A) 11 XXI Unauthorized Reinsurers 11 XXII Insolvency 12 XXIII Arbitration (BRMA 6J) 13 XXIV Service of Suit (BRMA 49C) 14 XXV Agency Agreement 14 XXVI Intermediary (BRMA 23A) 14 Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Reinsurers Participations Employers Mutual Casualty Company 0.640% Nationwide Mutual Insurance Company 3.400 Partner Reinsurance Company 10.000 United Fire & Casualty Company 1.100 United States Fidelity and Guaranty Company 5.250 USF RE Insurance Company 1.300 Vesta Fire Insurance Corporation 9.050 Through Swire Blanch - Australia GIO Insurance Ltd. (trading as GIO Reinsurance) 6.800 Reinsurance Australia Corporation Limited 3.570 Through Swire Blanch Europe Albingia Versicherungs AG 1.250 Bayerische Ruckversicherung A.G. 7.650 La Mutuelle Du Mans Assurances I.A.R.D. 2.125 Mapfre Re Compania de Reaseguros, S.A. 2.125 Sirius International Insurance Corporation 0.640 Through Swire Blanch Ltd. Lloyd's Underwriters Per Signing Schedule 45.100 Total 100.000% E. W. Blanch Co. Reinsurance Services 3500 West 80th Street Minneapolis, Minnesota 55431 Interests and Liabilities Agreement of Employers Mutual Casualty Company Des Moines, Iowa (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 0.640% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Des Moines, Iowa,this _______ day of _____________________ 199___. __________________________________________________ Employers Mutual Casualty Company Interests and Liabilities Agreement of Nationwide Mutual Insurance Company Columbus, Ohio (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 3.400% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Columbus, Ohio,this _______ day of ________________________199___. __________________________________________________ Nationwide Mutual Insurance Company Interests and Liabilities Agreement of Partner Reinsurance Company Pembroke Parish, Bermuda (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 10.000% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Pembroke Parish, Bermuda,this _______ day of ______________199___. __________________________________________________ Partner Reinsurance Company Interests and Liabilities Agreement of United Fire & Casualty Company Cedar Rapids, Iowa (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 1.100% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Cedar Rapids, Iowa,this _______ day of ____________________199___. __________________________________________________ United Fire & Casualty Company Interests and Liabilities Agreement of United States Fidelity and Guaranty Company Baltimore, Maryland (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 5.250% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Morristown, New Jersey,this _______ day of _______________ 199___. United States Fidelity and Guaranty Company By:______________________________________________ Attorney-In-Fact Interests and Liabilities Agreement of USF RE Insurance Company Boston, Massachusetts (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 1.300% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Florham Park, New Jersey,this _______ day of ______________199___. __________________________________________________ USF RE Insurance Company Interests and Liabilities Agreement of Vesta Fire Insurance Corporation Birmingham, Alabama (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 9.050% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Birmingham, Alabama,this _______ day of ___________________199___. __________________________________________________ Vesta Fire Insurance Corporation Interests and Liabilities Agreement of GIO Insurance Ltd. trading as GIO Reinsurance Sydney, Australia (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 6.800% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Sydney, Australia,this _______ day of ____________________ 199___. __________________________________________________ GIO Insurance Ltd. trading as GIO Reinsurance Interests and Liabilities Agreement of Reinsurance Australia Corporation Limited Sydney, Australia (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 3.570% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Sydney, Australia,this _______ day of ____________________ 199___. __________________________________________________ Reinsurance Australia Corporation Limited Interests and Liabilities Agreement of Albingia Versicherungs AG Hamburg, Germany (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 1.250% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Hamburg, Germany,this _______ day of _____________________ 199___. __________________________________________________ Albingia Versicherungs AG Interests and Liabilities Agreement of Bayerische Ruckversicherung A.G. Munich, Germany (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 7.650% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Munich, Germany,this _______ day of ______________________ 199___. __________________________________________________ Bayerische Ruckversicherung A.G. Interests and Liabilities Agreement of La Mutuelle Du Mans Assurances I.A.R.D. LeMans, France (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 2.125% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: LeMans, France,this _______ day of ________________________199___. __________________________________________________ La Mutuelle Du Mans Assurances I.A.R.D. Interests and Liabilities Agreement of Mapfre Re Compania de Reaseguros, S.A Madrid, Spain (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 2.125% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Madrid, Spain,this _______ day of _______________________ 199___. __________________________________________________ Mapfre Re Compania de Reaseguros, S.A. Interests and Liabilities Agreement of Sirius International Insurance Corporation Stockholm, Sweden (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 0.640% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Stockholm, Sweden,this _______ day of ____________________199___. __________________________________________________ Sirius International Insurance Corporation Interests and Liabilities Agreement of Certain Underwriting Members of Lloyd's shown in the Signing Schedule attached hereto (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Seventh Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 45.100% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York 10019. Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule attached hereto. EX-10 20 EXHIBIT 10.51 Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") by The Subscribing Reinsurer(s) Executing the Interests and Liabilities Agreement(s) Attached Hereto (hereinafter referred to as the "Reinsurer") "Reinsurer") Preamble The "Meridian Mutual Group" for purposes of this Contract shall consist of Meridian Mutual Insurance Company, Indianapolis, Indiana, Meridian Security Insurance Company, Indianapolis, Indiana, Citizens Security Mutual Insurance Company, Red Wing, Minnesota, Citizens Fund Insurance Company, Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield, Ohio. The application of this Contract shall be to the parties comprising the Meridian Mutual Group as a group and not separately to each. Article I - Classes of Business Reinsured By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies, contracts and binders of insurance or reinsurance (hereinafter called "policies") in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Fire and Allied Lines, Homeowners (property perils only), Mobile Homeowners (property perils only), Farmowners (property perils only), Commercial Multiple Peril (property perils only), Businessowners (property perils only), Earthquake, Inland Marine and Automobile Physical Damage (comprehensive coverage only) business, subject to the terms, conditions and limitations hereinafter set forth. Article II - Term A. This Contract shall become effective on January 1, 1998, with respect to losses arising out of loss occurrences commencing on or after that date, and shall remain in force until December 31, 1998, both days inclusive. B. If this Contract expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract. Article III - Territory The liability of the Reinsurer shall be limited to losses under policies covering property located within the territorial limits of the United States of America, its territories or possessions, Puerto Rico, the District of Columbia and Canada; but this limitation shall not apply to moveable property if the Company's policies provide coverage when said moveable property is outside the aforesaid territorial limits. Article IV - Exclusions This Contract shall not apply to: 1. Reinsurance accepted by the Company other than: a. Facultative reinsurance on a share basis of risks accepted individually and not forming part of any agreement; or b. Local agency reinsurance on a share basis accepted in the normal course of business. 2. Nuclear incident per the following clauses attached hereto: a. "Nuclear Incident Exclusion Clause - Physical Damage Reinsurance - U.S.A." (NMA 1119); b. "Nuclear Incident Exclusion Clause - Physical Damage Reinsurance - Canada" (NMA 1980); c. "Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) Worldwide Excluding U.S.A. & Canada" (NMA 1975(a)). 3. Pool, association, or syndicate business as excluded by the provisions of the "Pools, Associations and Syndicates Exclusion Clause" attached to and forming part of this Contract. 4. Any liability of the Company arising from its participation or membership in any insolvency fund. 5. Credit, financial guarantee and insolvency business. 6. War risks as excluded in any standard policy. 7. Policies written to apply in excess of underlying insurance or policies written with a deductible or franchise of more than $10,000; however, this exclusion shall not apply to policies which provide a percentage deductible or franchise in connection with earthquake or windstorm. 8. Insurance on growing crops. 9. Insurance against flood, surface water, waves, tidal water or tidal wave, overflow of streams or other bodies of water or spray from any of the foregoing, all whether driven by wind or not, when written as such; however, this exclusion shall not apply as respects the foregoing perils included in Commercial Multiple Peril, Homeowners Multiple Peril, Farmowners Multiple Peril, Inland Marine, Boatowners, Mobile Homeowners, and Automobile Physical Damage policies, and in endorsements to Fire and Extended Coverage policies. 10. Mortgage impairment insurance and similar kinds of insurance, howsoever styled, providing coverage to an insured with respect to its mortgagee interest in property or its owner interest in foreclosed property. 11. Difference in conditions insurance and similar kinds of insurance, howsoever styled. 12. Risks which have a total insurable value of more than $250,000,000. 13. Any collection of fine arts with an insurable value of $5,000,000 or more. 14. Inland Marine business with respect to the following: a. All bridges and tunnels; b. Cargo insurance when written as such with respect to ocean, lake, or inland waterways vessels; c. Commercial negative film insurance and cast insurance; d. Drilling rigs, except water well drilling rigs; e. Furriers' customers policies; f. Garment contractors policies; g. Insurance on livestock under so-called "mortality policies," when written as such; h. Jewelers' block policies and furriers' block policies; i. Mining equipment while underground; j. Radio and television broadcasting towers; k. Registered mail insurance when the limit of any one addressee on any one day is more than $50,000; l. Watercraft other than watercraft insured under personal property floaters, yacht and/or outboard policies, homeowners, farmowners, or recreational vehicle policies. 15. Automobile physical damage business with respect to the following: a. Insurance against collision; b. Insurance against theft or larceny; c. Manufacturers' stocks at factories or warehouses. 16. This Contract excludes loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Company's property loss under the applicable original policy. 17. Losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within 150 meters (or 500 feet) of the insured premises. It is understood and agreed that public utilities extension and/or suppliers extension and/or contingent business interruption coverages are not subject to this exclusion provided that these are not part of a transmitters' or distributors' policy. 18. Extra Contractual Obligations and Loss in Excess of Policy Limits. Article V - Retention and Limit A. No claim shall be made hereunder until the Company's subject ultimate net loss arising out of loss occurrences commencing during the term of this Contract exceeds 3.0% of net earned premium for the term of this Contract, subject to a minimum retention of $7,800,000. The Reinsurer shall then be liable for 95.0% of the amount by which the Company's subject ultimate net loss for the term of this Contract exceeds the Company's retention, but the liability of the Reinsurer shall not exceed 95.0% of $10,000,000 during the term of this Contract. B. "Subject ultimate net loss" as used herein shall mean: 1. The Company's ultimate net loss in excess of $550,000 arising out of any one loss occurrence, not to exceed $5,450,000 in any one loss occurrence; plus, 2. The Company's 5.0% co-participation under their per occurrence catastrophe coverage of $12,000,000 excess of $6,000,000 per loss occurrence. No loss occurrence shall be included in subject ultimate net loss unless said loss occurrence involves at least two risks. C. The Company shall maintain in force excess per risk reinsurance, recoveries under which shall inure to the benefit of this Contract. Article VI - Definitions A. "Ultimate net loss" as used herein is defined as the sum or sums (including any loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. B. "Loss adjustment expense" as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to, interest on judgments and expenses of outside adjusters, but shall not include office expenses or salaries of the Company's regular employees. Article VII - Loss Occurrence (NMA 2244/BRMA 27A) A. The term "loss occurrence" shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one "loss occurrence" shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term "loss occurrence" shall be further defined as follows: 1. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 72 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto. 2. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured's premises by strikers, provided such occupation commenced during the aforesaid period. 3. As regards earthquake (the epicentre of which need not necessarily be within the territorial confines referred to in paragraph A of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company's "loss occurrence." 4. As regards "freeze," only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting frozen pipes and tanks) may be included in the Company's "loss occurrence." B. Except for those "loss occurrences" referred to in subparagraphs 1 and 2 of paragraph A above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event. C. However, as respects those "loss occurrences" referred to in subparagraphs 1 and 2 of paragraph A above, if the disaster, accident or loss occasioned by the event is of greater duration than 72 consecutive hours, then the Company may divide that disaster, accident or loss into two or more "loss occurrences," provided that no two periods overlap and no individual loss is included in more than one such period, and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss. D. No individual losses occasioned by an event that would be covered by 72 hours clauses may be included in any "loss occurrence" claimed under the 168 hours provision. Article VIII - Loss Notices and Settlements A. Whenever losses sustained by the Company appear likely to result in a claim hereunder, the Company shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. B. All loss settlements made by the Company, provided they are within the terms of the original policies (or within the terms of extra contractual obligations coverage, if any, provided under this Contract) and within the terms of this Contract, shall be binding upon the Reinsurer. The Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company. The Company shall be the sole judge of what is covered by an original policy. C. If the aggregate subject excess ultimate net paid losses occurring during the term of this Contract exceed the provisional retention, the Reinsurer shall make preliminary payment of the Reinsurer's portion of such subject ultimate net losses. The provisional retention shall be calculated based upon 3.0% of the estimated net earned premium for the term of this Contract, as estimated at the inception hereof. Any such preliminary payment shall be adjusted to actual as soon as the Company's net earned premium is known. Article IX - Salvage and Subrogation The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights. Article X - Premium A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurer 0.96% of its net earned premium for the term of this Contract, subject to a minimum premium of $2,160,000. B. The Company shall pay the Reinsurer a deposit premium of $2,700,000 in four equal installments of $675,000 on January 1, April 1, July 1 and October 1 of 1998. C. Within 60 days after the expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph A, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly. D. "Net earned premium" as used herein is defined as gross earned premium of the Company for all classes of business issued by the Company, less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract. Article XI - Profit Sharing A. If the premiums paid for the Underlying Aggregate Excess Catastrophe Reinsurance Contracts effective January 1, 1996 and January 1, 1997 and this Contract exceed the claims incurred under said contracts, then the Company will be entitled to a "Return Premium." The "Return Premium" shall be equal to the greater of zero or 25% of the "Profit Balance" under said contracts in the aggregate. The "Profit Balance" shall be equal to 80% of the total premiums, including reinstatement premiums paid (if any) during the terms of said contracts, less losses incurred under said contracts. B. At the date that such a "Return Premium" is mutually determined by the Company and the Reinsurer and the payment is made by the Reinsurer to the Company, such contracts shall be considered commuted, and such payment, once effected, shall be regarded as a full and final release of the Reinsurer from all liability under such contracts. Article XII - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in Article XXV (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the 12-month United States Treasury Bill Rate, as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 business days after the proof of loss or demand for payment is transmitted to the Reinsurer or received by the Reinsurer, whichever is soonest. If such loss or claim payment is not received with the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment, in accordance with the provisions of Article VIII, was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of paragraph C above, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 business days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a subscribing reinsurer from contesting the validity of any claim, or from participating in the defense or control of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest penalties arising out of the application of this Article that are $100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period. Article XIII - Offset (BRMA 36C) The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise. Article XIV - Access to Records (BRMA 1D) The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance. Article XV - Net Retained Lines (BRMA 32B) A. This Contract applies only to that portion of any policy which the Company retains net for its own account, and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. B. The amount of the Reinsurer's liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise. Article XVI - Errors and Omissions (BRMA 14F) Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery. Article XVII - Currency (BRMA 12A) A. Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company. Article XVIII - Taxes (BRMA 50C) In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America, the District of Columbia or Canada. Article XIX - Federal Excise Tax (BRMA 17A) (Applicable to those reinsurers, excepting Underwriters at Lloyd's London and other reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.) A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax. B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government. Article XX - Unauthorized Reinsurers A. If the Reinsurer is unauthorized in any state of the United States of America or the District of Columbia, the Reinsurer agrees to fund its share of the Company's ceded United States outstanding loss and loss adjustment expense reserves by: 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or 2. Escrow accounts for the benefit of the Company; and/or 3. Cash advances; if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved. B. If the Reinsurer is unauthorized in any province or jurisdiction of Canada, the Reinsurer agrees to fund 115% of its share of the Company's ceded Canadian outstanding loss and loss adjustment expense reserves by: 1. A clean, irrevocable and unconditional letter of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a Canadian bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities, for no more than 15/115ths of the total funding required; and/or 2. Cash advances for the remaining balance of the funding required; if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved. C. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes: 1. To reimburse itself for the Reinsurer's share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer; 2. To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer; 3. To fund a cash account in an amount equal to the Reinsurer's share of any ceded outstanding loss and loss adjustment expense reserves funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date; 4. To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of the Company's ceded outstanding loss and loss adjustment expense reserves, if so requested by the Reinsurer. In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for C(1) or C(3), or in the case of C(2), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. Article XXI - Insolvency A. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor immediately upon demand, with reasonable provision for verification, on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer. B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company. C. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees. Article XXII - Arbitration (BRMA 6J) A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction. C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint. D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties. E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office. Article XXIII - Service of Suit (BRMA 49C) (Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities) A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract. Article XXIV - Agency Agreement Meridian Mutual Insurance Company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party. Article XXV - Intermediary (BRMA 23A) E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co., Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company. In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date undermentioned at: Indianapolis, Indiana,this _______ day of _________________199___. __________________________________________________ Meridian Mutual Group Table of Contents Article Page Preamble 1 I Classes of Business Reinsured 1 II Term 2 III Territory 2 IV Exclusions 2 V Retention and Limit 4 VI Definitions 5 VII Loss Occurrence (NMA 2244/BRMA 27A) 5 VIII Loss Notices and Settlements 7 IX Salvage and Subrogation 7 X Premium 7 XI Profit Sharing 8 XII Late Payments 8 XIII Offset (BRMA 36C) 10 XIV Access to Records (BRMA 1D) 10 XV Net Retained Lines (BRMA 32B) 10 XVI Errors and Omissions (BRMA 14F) 10 XVII Currency (BRMA 12A) 10 XVIII Taxes (BRMA 50C) 11 XIX Federal Excise Tax (BRMA 17A) 11 XX Unauthorized Reinsurers 11 XXI Insolvency 12 XXII Arbitration (BRMA 6J) 13 XXIII Service of Suit (BRMA 49C) 14 XXIV Agency Agreement 15 XXV Intermediary (BRMA 23A) 15 Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to Meridian Mutual Group Indianapolis, Indiana Reinsurers Participations Dorinco Reinsurance Company 19.0% Erie Insurance Exchange 2.0 Gerling Global Reinsurance Corporation of America 3.5 The Nissan Fire & Marine Insurance Co., Ltd. 2.0 Odyssey Reinsurance Corporation 4.0 Renaissance Reinsurance Ltd. 67.5 USF RE Insurance Company 2.0 Total 100.0 E. W. Blanch Co. Reinsurance Services 3500 West 80th Street Minneapolis, Minnesota 55431 Interests and Liabilities Agreement of Dorinco Reinsurance Company Midland, Michigan (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 19.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Midland, Michigan,this _______ day of _____________________199___. __________________________________________________ Dorinco Reinsurance Company Interests and Liabilities Agreement of Erie Insurance Exchange Erie, Pennsylvania (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 2.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Erie, Pennsylvania,this _______ day of ___________________ 199___. __________________________________________________ Erie Insurance Exchange By: Erie Indemnity Company (Attorney-In-Fact) Interests and Liabilities Agreement of Gerling Global Reinsurance Corporation of America New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 3.5% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ Gerling Global Reinsurance Corporation of America Interests and Liabilities Agreement of The Nissan Fire & Marine Insurance Co., Ltd. Tokyo, Japan (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 2.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Tokyo, Japan,this _______ day of ________________________ 199___. __________________________________________________ The Nissan Fire & Marine Insurance Co., Ltd. Interests and Liabilities Agreement of Odyssey Reinsurance Corporation Wilmington, Delaware (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts a 4.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. Any rights, interests, liabilities and obligations of Cie Transcontinentale de Reassurance, Paris, France, under its Interests and Liabilities Agreements with respect to the Company's Underlying Aggregate Excess Catastrophe Reinsurance Contract, effective January 1, 1996, and the Company's Underlying Aggregate Excess Catastrophe Reinsurance Contract, effective January 1, 1997, shall be assumed by the Subscribing Reinsurer, for purposes of calculating "Return Premium" in accordance with the provisions of Article XI - Profit Sharing - of the attached Contract. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the parties hereto by their respective duly authorized representatives have executed this Agreement as of the dates undermentioned at: Indianapolis, Indiana,this _______ day of ________________199___. __________________________________________________ Meridian Mutual Group New York, New York,this _______ day of __________________ 199___. __________________________________________________ Odyssey Reinsurance Corporation Interests and Liabilities Agreement of Renaissance Reinsurance Ltd. Hamilton, Bermuda (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 67.5% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Hamilton, Bermuda,this _______ day of _____________________199___. __________________________________________________ Renaissance Reinsurance Ltd. Interests and Liabilities Agreement of USF RE Insurance Company Boston, Massachusetts (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: January 1, 1998 issued to and duly executed by Meridian Mutual Group Indianapolis, Indiana The Subscribing Reinsurer hereby accepts a 2.0% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above. This Agreement shall become effective on January 1, 1998, and shall continue in force until December 31, 1998, both days inclusive. The Subscribing Reinsurer's share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at: Florham Park, New Jersey,this _______ day of _____________199___. __________________________________________________ USF RE Insurance Company EX-10 21 EXHIBIT 10.53 Addendum No. 2 to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") It Is Hereby Agreed, effective January 1, 1997, with respect to business issued or renewed on or after that date, that the Preamble (as amended by Addendum No. 1) to this Contract shall be deleted and the following substituted therefor: "Preamble The `Meridian Mutual Group' for purposes of this Contract shall consist of Meridian Mutual Insurance Company, Indianapolis, Indiana, Meridian Security Insurance Company, Indianapolis, Indiana, Citizens Security Mutual Insurance Company, Red Wing, Minnesota, Citizens Fund Insurance Company, Red Wing, Minnesota, and Insurance Company of Ohio, Mansfield, Ohio. The application of this Contract shall be to the parties comprising the Meridian Mutual Group as a group and not separately to each." It Is Further Agreed, effective January 1, 1998, with respect to losses arising out of loss occurrences commencing on or after that date, that Article VI - Definition of Ultimate Net Loss - shall be deleted and the following substituted therefor: "Article VI - Definition of Ultimate Net Loss A. `Ultimate net loss' as used herein is defined as the sum or sums (including any loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company's ultimate net loss has been ascertained. B. `Loss adjustment expense' as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to, interest on judgments and expenses of outside adjusters, but shall not include office expenses or salaries of the Company's regular employees." It Is Also Agreed, effective January 1, 1998, that the following Article shall be added to and made part of this Contract: "Article XXV - Late Payments A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract. B. In the event any premium, loss or other payment due either party is not received by the intermediary named in Article XXIV (hereinafter referred to as the `Intermediary') by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows: 1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times 2. 1/365ths of the 12-month United States Treasury Bill Rate, as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times 3. The amount past due, including accrued interest. It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary. C. The establishment of the due date shall, for purposes of this Article, be determined as follows: 1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment. 2. Any claim or loss payment due the Company hereunder shall be deemed due 10 business days after the proof of loss or demand for payment is transmitted to the Reinsurer or received by the Reinsurer, whichever is soonest. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment, in accordance with the provisions of Article VIII, was transmitted to the Reinsurer. 3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of paragraph C above, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 business days following transmittal of written notification that the provisions of this Article have been invoked. For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary. D. Nothing herein shall be construed as limiting or prohibiting a subscribing reinsurer from contesting the validity of any claim, or from participating in the defense or control of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article. E. Interest penalties arising out of the application of this Article that are $100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period." The provisions of this Contract shall remain otherwise unchanged. In Witness Whereof, the Company by its duly authorized representative has executed this Addendum as of the date undermentioned at: Indianapolis, Indiana,this _____ day of ___________________199___. __________________________________________________ Meridian Mutual Group Addendum No. 2 to the Interests and Liabilities Agreement of Dorinco Reinsurance Company Midland, Michigan (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 2, as duly executed by the Company, as part of the Contract, effective January 1, 1997. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: Midland, Michigan,this _______ day of _____________________199___. __________________________________________________ Dorinco Reinsurance Company Addendum No. 2 to the Interests and Liabilities Agreement of Erie Insurance Exchange Erie, Pennsylvania (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 2, as duly executed by the Company, as part of the Contract, effective January 1, 1997. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: Erie, Pennsylvania,this _______ day of ___________________ 199___. __________________________________________________ Erie Insurance Exchange By: Erie Indemnity Company (Attorney-In-Fact) Addendum No. 2 to the Interests and Liabilities Agreement of Renaissance Reinsurance Ltd. Hamilton, Bermuda (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 2, as duly executed by the Company, as part of the Contract, effective January 1, 1997. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: Hamilton, Bermuda,this _______ day of _____________________199___. __________________________________________________ Renaissance Reinsurance Ltd. Addendum No. 2 to the Interests and Liabilities Agreement of Shelter Reinsurance Company Columbia, Missouri (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 2, as duly executed by the Company, as part of the Contract, effective January 1, 1997. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: Columbia, Missouri,this _______ day of ____________________199___. __________________________________________________ Shelter Reinsurance Company Addendum No. 2 to the Interests and Liabilities Agreement of SOREMA North America Reinsurance Company New York, New York (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 2, as duly executed by the Company, as part of the Contract, effective January 1, 1997. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: New York, New York,this _______ day of ___________________ 199___. __________________________________________________ SOREMA North America Reinsurance Company Addendum No. 2 to the Interests and Liabilities Agreement of The Nissan Fire & Marine Insurance Co., Ltd. Tokyo, Japan (hereinafter referred to as the "Subscribing Reinsurer") with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") The Subscribing Reinsurer hereby accepts Addendum No. 2, as duly executed by the Company, as part of the Contract, effective January 1, 1997. In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Addendum as of the date undermentioned at: Tokyo, Japan,this _______ day of ________________________ 199___. __________________________________________________ The Nissan Fire & Marine Insurance Co., Ltd. Addendum No. 2 to the Interests and Liabilities Agreement of Cie Transcontinentale de Reassurance Paris, France with respect to the Second Underlying Aggregate Excess Catastrophe Reinsurance Contract Effective: May 10, 1996 issued to Meridian Mutual Group Indianapolis, Indiana (hereinafter referred to collectively as the "Company") It Is Hereby Agreed that Addendum No. 2 to the Contract shall form part of the Contract, effective January 1, 1997. It Is Further Agreed, effective January 1, 1998, that all rights, interests, liabilities and obligations of the "Subscribing Reinsurer" under this Agreement shall be transferred from Cie Transcontinentale de Reassurance, Paris, France, (hereinafter referred to as the "Assignor") to Odyssey Reinsurance Corporation, Wilmington, Delaware (hereinafter referred to as the "Assignee"). In accordance therewith, the Assignor shall assign, and the Assignee shall assume, all of the rights, interests, liabilities and obligations of the "Subscribing Reinsurer" under this Agreement. The Assignee shall then be subject to all of the terms and conditions hereof, and the term "Subscribing Reinsurer," wherever it is used herein, shall refer to Odyssey Reinsurance Corporation, Wilmington, Delaware. It Is Understood and Agreed that the Company consents to the foregoing transfer of rights, interests, liabilities and obligations from the Assignor to the Assignee, and further releases the Assignor from all unfulfilled liabilities and obligations which have arisen under this Agreement and all liabilities and obligations which may arise in the future under this Agreement. In Witness Whereof, the parties hereto by their respective duly authorized representatives have executed this Addendum as of the dates undermentioned at: Indianapolis, Indiana,this _____ day of ___________________199___. __________________________________________________ Meridian Mutual Group Paris, France,this _____ day of __________________________ 199___. __________________________________________________ Cie Transcontinentale de Reassurance New York, New York,this _____ day of _____________________ 199___. __________________________________________________ Odyssey Reinsurance Corporation EX-10 22 EXHIBIT 10.55 ENDORSEMENT NO. 2 to the PROPERTY EXCESS OF LOSS REINSURANCE BINDING AGREEMENT between MERIDIAN INSURANCE COMPANY of Indianapolis, Indiana CITIZENS SECURITY GROUP (hereinafter called "Company") and the NAC REINSURANCE CORPORATION New York, NY (hereinafter called "Reinsurer") It is hereby understood and agreed that effective January 1, 1997, the following amendment is made: Meridian Insurance Company is expanded to also include Citizens Security Group Accepted by: ____________________________ Meridian Insurance Company Date:_______________________ ____________________________ NAC Resinsurance Corporation Date:________________________ ENDORSEMENT NO. 3 to the PROPERTY EXCESS OF LOSS REINSURANCE BINDING AGREEMENT between MERIDIAN INSURANCE COMPANY of Indianapolis, Indiana CITIZENS SECURITY GROUP (hereinafter called "Company") and the NAC REINSURANCE CORPORATION New York, NY (hereinafter called "Reinsurer") Effective June 15, 1996, the following amendment is made: Article 6 - Limit of Liability of the Reinsurer is deleted in it's entirety and replaced with the following: Reinsurance Accepted for Protected Risks defined as Meridian CLUG Classifications 1,2,3 and 4, in ISO Protection Classes 1 through 8 shall be limits up to two times the Company's maximum net and treaty retention as outlined in the Commercial Lines Divisional Authority Level section of the CLUG. Reinsurance limits shall be subject to maximum limit of $8,000,000 any one risk. Reinsurance Accepted for Unprotected Risks defined as Meridian CLUG Classifications 1,2,3 and 4 located in ISO Protection Classes 9 and 10 shall be limits up to three times the Company's maximum net and treaty retention as outlined in the Commercial Lines Divisional Authority Level section of the CLUG. Reinsurance limits shall be subject to a maximum limit of $3,750,000 for any one risk. The reinsurance limits are subject to a $12,000,000 limitation in any one occurrence. Garage Keepers Legal Liability is included with a maximum sublimit of $500,000 to be written by Meridian. Accepted by: _____________________________ ___________________ Meridian Insurance Company Date _____________________________ ___________________ NAC Reinsurance Corportation Date EX-10 23 EXHIBIT 10.58 AGREEMENT FOR THE TRANSFER OF CLAIM PROCESSING SERVICES THIS AGREEMENT FOR THE TRANSFER OF CLAIM PROCESSING SERVICES ("Agreement") is effective the 1st day of December, 1997, between Citizens Security Mutual Insurance Company, Citizens Fund Insurance Company, Insurance Company of Ohio (collectively, "Citizens Security Companies") and Virtual Insurance Solutions Network, Inc. ("Visn"). WHEREAS, on or about July 31, 1996 Citizens Security Companies and Visn entered into a Claims Administration Agreement ("Claims Agreement"), which agreement had a term of three years from its Commencement Date as defined therein; and WHEREAS, the parties to the Claims Agreement have agreed to terminate said agreement effective December 1, 1997; and WHEREAS, the parties wish to provide for the orderly transfer of claim processing services from Visn to Citizens Security Companies and resolve matters between them relating to the Claims Agreement. NOW, THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1. Termination of Claims Agreement. The claims Agreement between the parties is terminated as of the effective date of this Agreement. Notwithstanding, the indemnification provisions of sections 8.1 and 8.2 of the Claims Agreement shall remain in effect. 2. Term of Agreement. This Agreement shall be for a term of five months, beginning December 1, 1997 and ending April 30, 1998. 3. Services to be Performed by Visn. 3.1 From the effective date of this Agreement through February 28, 1998, Visn shall assist with the orderly and professional transfer to Citizens Security Companies of the claim processing services provided pursuant to the Claims Agreement. The assistance to be rendered by Visn shall include fair and reasonable systems support from the same general group of individuals who provided claim processing services pursuant to the Claims Agreement. 3.2 Visn agrees to obtain the approval of Citzens Security Companies before (a) setting reserves; (b) changing reserves; or (c) making any indemnity payment, if such action involves funds in the amount of Fifteen Thousand and no/100ths Dollars ($15,000) or more. Visn shall forward to Citizens Security Companies all correspondence, mail and other information that relate to matters to be handled by Citizens Security Companies after the term of this Agreement. 3.3 The services referenced in paragraphs 3.1 and 3.2 above shall be provided at the locations and during the times that such services were routinely rendered pursuant to the Claims Agreement. 3.4 The parties recognize and acknowledge that Visn has assigned certain rights and obligations pursuant to the Claims Agreement to Claim Solutions, Inc., and that the employees of Claims Solutions, Inc. will provide the services referenced in this section 3. 3.5 The obligations of Visn pursuant to this section 3 shall cease as of February 28, 1998. 4. Services to be Performed by Citizens Security Companies. 4.1 Citizens Security Companies shall timely respond to any request made by Visn pursuant to paragraph 3.2 above. 4.2 Citizens Security Companies shall participate in the transfer contemplated hereunder by providing on- site assistance in Red Wing, Minnesota. Citizen Security Companies may have at least one individual, and up to two individuals if it so desires, on-site two days each week during the term of this Agreement. It is contemplated that the following individuals will be providing the assistance referenced: Mr. Bill Irk, Mr. Gary Abel, Mr. Dick Yockey, and Mr. Stan Knauff. Citizens Security Companies will provide a schedule that details (a) the dates on which it will provide on- site assistance and (b) its anticipated schedule for the transfer of claim processing services. 5. Compensation. 5.1 During the term of this Agreement, Citizens Security Companies shall pay to Visn a monthly fee of Two Hundred Thirty Thousand Dollars and no/100ths ($230,000). Said fee shall be paid on the first day of each month, with the fee for the first month being paid in full by December 19, 1997. The last monthly payment owed to Visn under this contract shall be paid by April 1, 1998. 5.2 Compensation for salvage and subrogation services shall remain a monthly fee of fifteen percent (15%) of Net Recoverables. "Net Recoverables" shall mean funds obtained in the preceeding month as a result of the salvage and subrogation efforts of Visn (or its assignee), less collection expenses and administrative fees incurred by Visn (or its assignee), less any deductible recoveries made and issued to policyholders. 6. Notice; Off-Site Services; Travel. Citizens Security Companies shall provide Visn with twenty-four (24) hours notice of any site visit. In the event Citizens Security Companies desires that the services agreed to herein be provided at a location other than the locations at which such services were routinely rendered pursuant to the Claims Agreement, Citizens Security Companies shall pay a fee of One Thousand Dollars and no/100ths ($1,000) per day for each person providing services off-site. Citizens Security Companies shall pay all travel and out-of-pocket expenses incurred in providing the services off-site. Visn shall be available, upon three (3) calendar days notice, to provide off-site services. 7. Termination of Sublease. With regard to the office space that Visn has subleased from Citizens Security Companies, Visn has given notice of its intent to terminate the parties' Sublease Agreement effective December 1, 1998. The parties agree that the rent and all other payments owed pursuant to the Sublease Agreement, including utilities, will be proportionately abated commencing March 1, 1998, through December 1, 1998. Said abatement shall be the pro rata square footage of the lease vacated by Visn's removal of personnel and functions related to the performance of services provided under the Claims Agreement. During the transfer of services contemplated hereunder, all file cabinets and other equipment owned by Citizens Security Companies and used by Visn in providing claim processing services will be returned to Citizens Security Companies. 8. Cooperation; Futher Assurances. 8.1 The parties agree to be at all times positive and mutually supportive of each other. The parties agree to use their best efforts to complete the transfer of the claim processing services within ninety (90) days from the effective date of this Agreement. Each party, in its sole discretion, shall decide the timing, method, and nature of the communication of the decision by the parties to transfer the claim processing services. 8.2 The parties acknowledge that during the term of this Agreement, and thereafter, additional matters will arise that will require the mutual cooperation of the parties. Both parties agree to take the action reasonably required to deal with such anticipated but unknown matters, including, but not limited to, inquiries from third parties and government agencies that may arise from the claim files handled under the Claims Agreement. 9. Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, notwithstanding any state's choice of law rules to the contrary. 10. Effect of Agreement. Except as modified herein, this Agreement shall not effect the terms of the Sublease Agreement, the computer support agreements or any other contract or agreement between or among the parties. Virtual Insurance Solutions Network, Inc. Date: __________________ _________________________________________ Scott S. Broughton Chief Executive Officer Citizens Security Mutual Insurance Company Citizens Fund Insurance Company Insurance Company of Ohio Date: __________________ _________________________________________ Norma J. Oman President and Chief Executive Officer EX-21 24 EXHIBIT 21.01 MERIDIAN INSURANCE GROUP, INC. Listing of Subsidiaries As of December 31, 1997 State of Incorporation Name of Subsidiary or Organization Meridian Security Insurance Company Indiana Citizens Fund Insurance Company Minnesota Insurance Company of Ohio Ohio Meridian Service Corporation Indiana EX-23 25 EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Registration No. 33-10943 on Form S-8 effective August 28, 1996; in Registration Statement No. 33-31003 on Form S-8 as amended by Post-Effective Amendment No. 1 effective July 31, 1997; in Registration Statement No. 33-42771 on Form S-8 effective December 18, 1997; in Registration No. 33-11413 on Form S-1 as amended by Post-Effective Amendment No. 1 effective March 19, 1987; and in Registration Statement No. 33-58406 on Form S-2 effective April 27, 1993 of Meridian Insurance Group, Inc. of our report, dated February 25, 1998, on our audits of the consolidated financial statements and financial statement schedules of Meridian Insurance Group, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Indianapolis, Indiana March 23, 1998 EX-27 26
7 1,000 YEAR DEC-31-1997 DEC-31-1997 248,404 0 3,996 54,379 700 0 308,427 1,188 48,850 17,652 413,586 169,801 82,839 0 0 11,375 0 0 41,802 90,092 413,586 194,587 16,372 4,478 1,042 149,219 42,894 17,238 7,128 207 6,921 0 0 0 6,921 1.04 1.03 161,309 165,577 (16,358) 97,448 50,332 169,801 (16,358)
EX-27 27
7 1,000 YEAR YEAR 9-MOS DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 SEP-30-1997 238,343 220,037 247,723 0 0 0 1,327 2,483 3,296 40,630 31,120 54,986 704 727 701 0 0 0 281,689 254,694 307,666 3,128 935 61 45,850 1,265 44,477 16,690 13,355 18,338 397,798 322,588 409,674 161,309 123,577 162,439 84,066 64,559 87,836 0 0 0 0 0 0 11,875 0 11,500 0 0 0 0 0 0 44,078 44,077 41,802 78,096 74,166 89,202 397,798 322,588 409,674 167,304 143,866 146,130 14,908 14,564 12,170 3,794 1,538 2,760 562 (146) 967 130,101 99,124 111,522 36,443 30,820 31,828 13,767 14,156 13,281 5,950 15,722 5,396 150 4,105 265 5,800 11,617 5,131 0 0 0 0 0 0 0 0 0 5,800 11,617 5,131 0.86 1.72 0.77 0.85 1.71 0.76 123,577 123,755 161,309 137,817 104,585 121,535 (7,716) (5,461) (10,013) 93,199 61,792 68,121 30,470 36,899 43,305 161,309 123,577 162,439 (7,716) (3,938) (10,013)
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