INTER-CREDITOR AGREEMENT
THIS INTER-CREDITOR AGREEMENT (the "Agreement") dated September 22, 1997 is
by and among MEEMIC Insurance Services Corporation, a Michigan corporation
("XXXX XX"), Michigan Educational Employees Mutual Insurance Company, a Michigan
mutual insurance company ("MEEMIC") and Professionals Insurance Company
Management Group, a Michigan corporation ("Professionals").
RECITALS
XXXX XX, MEEMIC and Professionals have entered into an Asset Purchase
Agreement with Michigan Educators Insurance Agency, Inc., a Michigan corporation
("MEIA I") and Michigan Educators Life Insurance Agency, Inc., a Michigan
corporation ("MELA", and collectively with MEIA I, the "Agency") dated September
22, 1997 (the "Asset Purchase Agreement"). Capitalized terms not otherwise
defined in this Agreement shall have the meanings ascribed to them in the Asset
Purchase Agreement.
Pursuant to the terms of the Asset Purchase Agreement, (i) the Agency
agrees to sell certain assets of the Agency to XXXX XX, and XXXX XX agrees to
purchase such assets for consideration to be paid in the years 1997 through
2004, inclusive and (ii) MEEMIC and Professionals agree to guarantee certain
payments to the Agency, as more specifically set forth in the Agreement of
Guaranty between MEIA I, MELA and MEEMIC dated the date hereof (the "MEEMIC
Guaranty") and the Agreement of Guaranty between MEIA I, MELA and Professionals
dated the date hereof (the "Professionals Guaranty" and collectively with the
MEEMIC Guaranty, the "Guaranties"). Under the MEEMIC Guaranty and the
Professionals Guaranty, respectively, MEEMIC and Professionals have the option
to make their respective guaranteed payments directly to the Agency (a "Direct
Guaranteed Payment"), or to provide XXXX XX with sufficient funds to make these
guarantee payments on behalf of MEEMIC or Professionals, respectively (an
"Indirect Guaranteed Payment").
XXXX XX, MEEMIC and Professionals desire to (i) establish a mechanism for
making guaranteed payments under the Guaranties, (ii) establish a mechanism for
the reimbursement by XXXX XX of guaranteed payments made under the Guaranties
under certain conditions, (iii) establish a mechanism for resolving any disputes
about the amount of any payments to be made under the Guaranties, and (iv)
memorialize the understanding of the parties to this Agreement as to the
respective obligations of the parties to this Agreement regarding guarantee
payments under the Guaranties.
Therefore, the parties to this Agreement agree as follows:
ARTICLE I
GUARANTY PAYMENT MECHANISMS
1.1 UTILIZATION OF INDIRECT GUARANTEED PAYMENT MECHANISM. The parties to
this Agreement understand and agree that unless prior written notice is given to
XXXX XX (at least five business days in advance unless circumstances exist that
reasonably make such advance notice unreasonable), both MEEMIC and Professionals
intend to use the Indirect Guaranteed Payment mechanism to make any guaranteed
payments under their respective Guaranties. XXXX XX agrees to utilize any such
funds received to make the necessary payment to the Agency pursuant to the terms
of the Asset Purchase Agreement. MEEMIC and Professionals understand and
acknowledge that payment of funds to XXXX XX pursuant to the Indirect Guaranteed
Payment mechanism may not relieve them of their respective obligations under the
Guaranties in the event that for whatever reason, the necessary payment to the
Agency pursuant to the terms of the Asset Purchase Agreement is not made by XXXX
XX.
ARTICLE II
GUARANTEED PAYMENT OBLIGATIONS AND REIMBURSEMENT
2.1 CALCULATION. On or before August 15 of the years 1998 to 2004,
inclusive (or the first business day thereafter which is not a bank holiday if
September 1 is either not a business day or is a bank holiday) XXXX XX shall
make the payment calculations required under Section 2.11(a) of the Asset
Purchase Agreement (as adjusted by Section 2.12(c) of the Asset Purchase
Agreement if applicable) to determine the amount that is due and owing to the
Agency. In addition, on each such date, XXXX XX shall compare (a) 3.75% of
Cumulative Written Premiums PLUS ANY PRIOR AND UNREIMBURSED GUARANTEED PAYMENTS
(AS DEFINED BELOW) to (b) the Aggregate Payment paid and payable to the Agency
through that year pursuant to Section 2.2(b) of the Asset Purchase Agreement.
2.2 MEEMIC GUARANTY AND XXXX XX REIMBURSEMENT OBLIGATIONS.
(a) In the years 1998 through 2000, inclusive, if the amount under
Section 2.1(a) of this Agreement is less than the amount under
Section 2.1(b) of this Agreement, MEEMIC shall be obligated to XXXX XX
and the Agency in the amount of the difference, (a "MEEMIC Guaranteed
Payment"), which shall be remitted to the Agency in accordance with
the payment mechanism selected by the parties pursuant to Article I of
this Agreement.
(b) In the years 1998 through 2004, inclusive, if the amount under Section
2.1(a) of this Agreement is greater than the amount under Section
2.1(b) of this Agreement, XXXX XX shall promptly remit the amount of
the difference to MEEMIC in a mutually acceptable fashion, but only
to the extent of the aggregate balance of all prior and unreimbursed
MEEMIC Guaranteed Payments. This reimbursed portion shall no longer
be considered a prior and unreimbursed Guaranteed Payment for
purposes of the formula set forth in Section 2.1 of this Agreement.
2.3 PROFESSIONALS GUARANTY, ADDITIONAL OBLIGATIONS OF PROFESSIONALS, AND
XXXX XX REIMBURSEMENT OBLIGATIONS.
(a) In the years 2001 through 2004, inclusive, if the amount under
Section 2.1(a) is less than the amount under Section 2.1(b),
Professionals shall be obligated to XXXX XX and the Agency in the
amount of the difference, (a "Professionals Guaranteed Payment"),
which shall be remitted to the Agency in accordance with the payment
mechanism selected by the parties pursuant to Article I of this
Agreement.
(b) In addition, if XXXX XX is obligated to make payments to the Agency or
its shareholders pursuant to Section 2.4, 2.5, 2.6 or 2.7 of the Asset
Purchase Agreement, Professionals shall be obligated to XXXX XX in the
amount of such payment (an "Additional Professionals Payment
Obligation"), which shall be remitted to the Agency or its
shareholders in accordance with the payment mechanism selected by the
parties pursuant to Article I of this Agreement. From and after the
date of any such payment by Professionals, Professionals shall be
entitled to reimbursement for such payment by an assumption of the
Agency's rights (or in the event of a partial shareholder cash-out,
the Pro-Rata share of the Agency's rights applicable to such
shareholder) to receive 3.75% of Cumulative Written Premium as
provided in the Asset Purchase Agreement.
(c) In the years 2001 through 2004, inclusive, if the amount under Section
2.1(a) of this Agreement is greater than the amount under Section
2.1(b) of this Agreement, and if all prior MEEMIC Guaranteed Payments
shall have been reimbursed in accordance with Section 2.2(b) of this
Agreement, XXXX XX shall promptly remit the amount of the difference,
after reimbursement of all prior MEEMIC Guaranteed Payments, to
Professionals in a mutually acceptable fashion. This reimbursed
portion shall no longer be considered a prior and unreimbursed
Guaranteed Payment for purposes of the formula set forth in Section
2.1.
(d) In the event a Demutualization of XXXX XX occurs in which XXXX XX is
not demutualized into Professionals, MEEMIC will remit the amount of
all Professionals Guaranteed Payments and Additional Professionals
Payment Obligations within thirty days of payment thereof. This
reimbursed portion shall no longer be considered a prior and
unreimbursed Guaranteed Payment for purposes of the formula set forth
in Section 2.1.
ARTICLE III
DISPUTES REGARDING AMOUNT OF GUARANTEED PAYMENTS
3.1 CALCULATION OF CUMULATIVE WRITTEN PREMIUMS. XXXX XX shall provide
MEEMIC and Professionals with a written copy of MEIA II's calculation of
Cumulative Written Premiums, made pursuant to Section 2.11 of the Asset Purchase
Agreement.
3.2 DISPUTE NOTICE. MEEMIC (in the years 1998 to 2000, inclusive) and
Professionals (in the years 2001 to 2004, inclusive) shall each have until
October 14 of each year (or the first business day thereafter if October 14 is
not a business day) to notify XXXX XX in writing of any objections thereto,
reasonably and sufficiently describing the basis for any such objections (a
"Dispute Notice").
3.3 GUARANTEED PAYMENT OBLIGATION. MEEMIC and Professionals understand
and agree that (i) even if MEEMIC and/or Professionals have filed a dispute
Notice pursuant to Section 3.2, their obligations to make any Guaranteed
Payments pursuant to MEIA II's calculation of Cumulative Written Premiums is not
affected by such Dispute Notice and that (ii) their obligations to make any
Guaranteed Payments pursuant to XXXX XX"s calculation are only affected in the
event MEIA II's calculation is disputed by the Agency pursuant to Section 2.11
of the Asset Purchase Agreement, and then only as provided in Section 2.11(b) of
the Asset Purchase Agreement.
3.4 DISPUTE RESOLUTION. XXXX XX, MEEMIC and Professionals shall each use
reasonable efforts to resolve any objections set forth in a Dispute Notice filed
under this Agreement. If the parties are unable to resolve any objections set
forth in a Dispute Notice filed under this Agreement, they agree to have an
independent auditing firm to resolve any such objections pursuant to the
procedures established in Section 2.11 of the Asset Purchase Agreement. In the
event that it is determined, as between MEEMIC, Professionals and XXXX XX, that
either MEEMIC or Professionals has made a larger Guaranteed Payment than
appropriate, XXXX XX agrees to promptly reimburse MEEMIC or Professionals as
applicable, in a mutually acceptable fashion. Any such reimbursed amount shall
continue to be considered a prior and unreimbursed Guaranteed Payment for
purposes of the formula set forth in Section 2.1 of this Agreement, since
resolution of the dispute did not modify the amount of Guaranteed Payment paid
or payable to the Agency pursuant to the terms of the Asset Purchase Agreement.
3.5 EARLY PAYMENT. In the event either XXXX XX or Professionals wishes to
exercise the option of early payment of purchase price pursuant to Section 2.5
of the Asset Purchase Agreement, such party will notify the other in writing no
later than 10 business days prior to the proposed date of prepayment. Prior to
any prepayment of the purchase price by either XXXX XX or Professionals, both
XXXX XX and Professionals must consent in writing to such action.
ARTICLE IV
RESPECTIVE OBLIGATIONS OF THE PARTIES
4.1 LIMITED RECOURSE. MEEMIC and Professionals shall each have recourse
against XXXX XX with respect to any payments made by them pursuant to their
respective Guaranties only to the extent such recourse is established by Article
II of this Agreement. The Guaranties are otherwise non-recourse against XXXX
XX.
4.2 SET OFF RIGHTS. In the event that Professionals is obligated to make
a Professionals Guaranteed Payment or an Additional Professionals Payment
Obligation but fails to timely do so, XXXX XX shall have the right, but not the
obligation, to seek payment thereof from MEEMIC, which shall have the right, but
not the obligation, after provision of written notice of default and the
expiration of a fifteen calendar day cure period, to set off such amounts
against amounts owed by MEEMIC to PICOM Insurance Company under a certain
Surplus Note dated April 7, 1997. Professionals agrees that any such set-off
would entitle PICOM Insurance Company to seek payment from Professionals for
such set-off amounts, PICOM Insurance Company being explicitly designated hereby
as a third party beneficiary of this Agreement for the sole purpose of providing
it with such rights. The parties understand and agree that any such set off
will require the consent of the Michigan Insurance Bureau under applicable law.
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. All notices, demands, requests, consents, approvals or other
communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and shall be personally served or deposited in the United States mail, first
class, registered or certified, return receipt requested, postage prepaid,
addressed as set forth below, or such other address or to such other person as
any party hereto shall have specified most recently by written notice in
accordance with this Section 5.1. Notice shall be deemed given on the date of
service if personally served. Notice mailed as provided herein shall be deemed
given on the third Business Day following the date so mailed.
Notice given by telex, telecopy or other means of telecommunications shall be
deemed to have been given at the time of receipt thereof by the party to whom
such notice is addressed; provided, however, that any Notice given by telex,
telecopy or other means of telecommunications and received after the receiving
party's normal business hours shall be deemed received by such party on the
immediately succeeding business day.
To XXXX XX:
MEEMIC Insurance Services Corporation
000 Xxxxx Xxxxxxxx Xxxx, Xxxxx 000
X.X. Xxx 00000
Xxxxxx Xxxxx, XX 00000-0000
Attn.: R. Xxxxx Xxxxxxx, President
Telecopy No.: 248/000-0000
Telephone No.: 248/000-0000
To MEEMIC:
Michigan Educational Employees Mutual Insurance Company
000 Xxxxx Xxxxxxxx Xxxx, Xxxxx 000
X.X. Xxx 00000
Xxxxxx Xxxxx, XX 00000-0000
Attn.: R. Xxxxx Xxxxxxx, President
Telecopy No.: 248/000-0000
Telephone No.: 248/000-0000
To Professionals:
Professionals Insurance Company Management Group
0000 Xxxxxx Xxxx
Xxx 0000
Attn.: Xxxxxx X. Xxxxx
Telecopy No.: 517/000-0000
Telephone No.: 517/000-0000
5.2 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns; provided that
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned, by operation of law or otherwise, by any party hereto without
the prior written consent of the other party(ies) hereto. If any party is so
permitted to assign any of its rights or obligations under this Agreement, such
assignment (unless otherwise agreed to by the other party(ies)) shall not in any
manner affect or impair such assigning party's obligations under this Agreement.
5.3 HEADINGS; REFERENCES; INTERPRETATION. The Article and Section
headings in this Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
5.4 GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Michigan,
and applicable controlling United States federal law.
5.5 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
adverse manner to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement to effect the original
intent of the parties as closely as possible in an acceptable manner so that the
transactions contemplated hereby are fulfilled to the extent possible.
5.6 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or
implied, is intended to or shall (i) confer on any person or entity other than
the parties hereto and their respective successors or permitted assigns any
rights (including third party beneficiary rights), remedies, obligations or
liabilities of any nature whatsoever under or by reason of this Agreement,
except as set forth in Section 5.2 of this Agreement, or (ii) constitute the
parties hereto as partners or as participants in a joint venture. This
Agreement shall not provide third parties with any remedy, claim, liability,
reimbursement, cause of action or other right in excess of those existing
without reference to the terms of this Agreement, except as set forth in Section
5.2 of this Agreement.
5.7 ACKNOWLEDGMENT. The parties each acknowledge that all the terms and
conditions in this Agreement have been the subject of active and complete
negotiation between the parties and represent the parties' agreement based upon
all relevant considerations. The parties agree that the terms and conditions of
this Agreement shall not be construed in favor of or against any party by reason
of the extent to which any party or its professional advisors participated in
the preparation hereof or thereof.
IN WITNESS WHEREOF, the undersigned execute and deliver this Agreement as
of the date first written above.
MEEMIC INSURANCE SERVICES
CORPORATION
By: /s/ R. Xxxxx Xxxxxxx
-----------------------------------
R. Xxxxx Xxxxxxx, President
MICHIGAN EDUCATIONAL
EMPLOYEES MUTUAL
INSURANCE COMPANY
By: /s/ R. Xxxxx Xxxxxxx
-----------------------------------
R. Xxxxx Xxxxxxx, President
PROFESSIONALS INSURANCE
COMPANY MANAGEMENT GROUP
By: /s/ Xxxxxx X. Xxxxx
-----------------------------------
Xxxxxx X. Xxxxx, President
