Merger Agreement
On February 14, 2021, Protective Insurance Corporation (the “Company”) entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with The Progressive Corporation, an Ohio corporation (“Parent”), and Carnation Merger Sub Inc., an Indiana corporation and wholly-owned indirect subsidiary of Parent (“Merger
Sub”). The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Merger Sub with and into the Company (the “Merger”), whereupon the separate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation and as a wholly-owned indirect subsidiary of Parent. Capitalized terms not otherwise defined having the meaning set forth in the Merger Agreement.
The board of directors of the Company (the “Board of Directors”), at the unanimous recommendation of the special committee of the Board of Directors,
unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its shareholders, and approved, adopted and declared
advisable the Merger Agreement and the transactions contemplated thereby. The Merger is expected to occur prior to the end of the third quarter of 2021.
At the effective time of the Merger, each issued and outstanding share of common stock, without par value, of the Company (“Company Common Share”)
will be automatically canceled and converted into the right to receive $23.30 in cash, without interest (the “Merger Consideration”) (other than each share of Company common stock that is owned by the Company as treasury stock or by any
subsidiary of the Company and each share of Company common stock owned by Parent, Merger Sub or any other subsidiary of Parent immediately prior to the effective time of the Merger, which will be canceled and cease to exist and no payment will
be made with respect thereto).
At the Effective Time, except as otherwise mutually agreed between Parent and a holder of a restricted Company Common Share (“Company RSA”), the
restrictions on each outstanding restricted Company RSA will lapse and each such Company RSA will be canceled and converted into the right to receive an amount in cash, without interest, equal to the product of (i) the total number of Company
Common Shares subject to the Company RSA, multiplied by (ii) the Merger Consideration, plus any cash dividends or cash dividend equivalents accrued on such Company RSA.
The Merger Agreement contains various customary representations and warranties from each of the Company, Parent and Merger Sub. The Company has also
agreed to various customary covenants, including but not limited to conducting its business in the ordinary course and not engaging in certain types of transactions during the period between the execution of the Merger Agreement and the closing
of the Merger. However, the Merger Agreement permits the Company to continue to pay regular quarterly dividends not to exceed $0.10 per share of Company common stock.
The Merger Agreement contains a “no-shop” provision pursuant to which the Company is prohibited from soliciting, discussing or negotiating alternative
acquisition proposals from third parties, subject to certain customary exceptions to permit the Board of Directors to comply with its fiduciary duties under Indiana Law. If the Board of Directors determines that the failure to do so would be
inconsistent with its fiduciary duties under Indiana law, the Board of Directors has the ability to change its recommendation to the shareholders of the Company to vote in favor of the Merger (i) in respect of an alternative acquisition
proposal that constitutes a Superior Proposal or (ii) in the event that there are material developments with respect to the Company not known to or not reasonably foreseeable by the Board of Directors prior to the execution of the Merger
Agreement (“Change in Circumstance”). In addition, prior to the meeting of the holders of the Company’s Class A shares to consider resolutions to approve the Merger Agreement and the Merger (the “Company Shareholders Meeting”), the Board of
Directors may terminate the Merger Agreement in order to enter into a definitive written agreement to effect an alternative acquisition proposal that constitutes a Superior Proposal if the Board of Directors determines that the failure to do so
would be inconsistent with its fiduciary duties under Indiana law and complies with certain requirements that provide notice to Parent of such determination and provide Parent with the opportunity to revise the terms of the Merger Agreement so
that such alternative acquisition proposal is no longer a Superior Proposal.
The Merger Agreement also contains certain other termination rights. Prior to the Company Shareholders Meeting, Parent may terminate the Merger
Agreement in the event of a change in the recommendation of the Board of Directors or the Company’s willful breach of its “no-shop” obligations. Either party may terminate the Merger Agreement if (i) the Merger is not consummated by November
14, 2021 (the “Outside Termination Date”), (ii) if the approval by a majority of the Company’s outstanding Class A shares (the “Company Required Vote”) is not obtained at the Company Shareholders Meeting, (iii) if the other party breaches
(subject to a 45-day cure period) its representations, warranties or covenants and such breach would result in the failure to satisfy the conditions to closing related to representations, warranties or covenants or (iv) if a governmental
authority issues a final and non-appealable order, or a law is in effect, that permanently prevents or prohibits the Merger. The Outside Termination Date may be extended to February 14, 2022 if the conditions related to regulatory filings are
the only conditions not satisfied or waived.
Under limited circumstances, the Company would be required to pay a termination fee of $13,335,000 (the “Termination Fee”) to Parent. The Company has
agreed to pay the Termination Fee if (i) the Company terminates the Merger Agreement to enter into an alternative acquisition agreement with respect to a Superior Proposal, (ii) Parent terminates the Merger Agreement in the event of a change in
the recommendation of the Board of Directors to Company shareholders to vote in favor of the Merger, (iii) Parent terminates the Merger Agreement due to a breach by the Company of any representation, warranty, covenant or agreement that would
cause a failure of a condition to closing, prior to such breach there was a pending alternative acquisition proposal from a third party, and within twelve months of termination such alternative acquisition proposal is consummated or the Company
enters into a definitive written agreement to effect such alternative acquisition proposal that is ultimately consummated, (iv) Parent or the Company terminates the Merger Agreement in the event the Company Required Vote is not obtained at the
Company Shareholders Meeting, prior to the Company Shareholders Meeting there was a pending public alternative acquisition proposal from a third party, and within twelve months of termination the Company enters into a definitive written
agreement to effect such alternative acquisition proposal that is ultimately consummated or (v) Parent or the Company terminated the Merger Agreement in the event the Merger is not consummated prior to the Outside Termination Date, prior to the
Outside Termination Date there was a pending public alternative acquisition proposal from a third party, and within twelve months of termination the Company enters into a definitive written agreement to effect such alternative acquisition
proposal that is ultimately consummated. In no event will the Company be required to pay the Termination Fee described above on more than one occasion.
Consummation of the Merger is subject to certain conditions, including approval by the Company’s Class A shareholders of the Merger. Certain further
conditions include (i) the receipt of required regulatory approvals, including from the Indiana Department of Insurance and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, (ii) the absence of any law, injunction or order preventing or prohibiting the consummation of the Merger, (iii) the accuracy of representations and warranties subject to applicable materiality standards, (iv) compliance with all
covenants under the Merger Agreement and (v) the absence of a Material Adverse Effect. The Company and Parent make customary covenants to use their respective reasonable best efforts (subject to certain limitations) to take all actions
necessary to cause the conditions to closing to be satisfied as promptly as practicable, including using their respective reasonable best efforts to obtain all necessary governmental and regulatory approvals, without the imposition of a
burdensome condition.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to and
qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. The representations, warranties and covenants
of the Company, Parent and Merger Sub contained in the Merger Agreement have been made solely for the benefit of the parties thereto. In addition, such representations, warranties and covenants (a) have been made only for purposes of the
Merger Agreement, (b) have been qualified by (i) matters specifically disclosed in the Company’s filings with the Securities and Exchange Commission (“SEC”) and (ii) confidential disclosures made in the disclosure schedules delivered in
connection with the Merger Agreement, (c) are subject to materiality qualifications contained in the Merger Agreement which may differ from what may be viewed as material by investors, (d) were made only as of the date of the Merger Agreement
or such other date as is specified in the Merger Agreement and (e) have been included in the Merger Agreement for the purpose of allocating risk between the contracting parties rather than establishing matters as fact. Accordingly, the Merger
Agreement is included with this filing only to provide investors with information regarding the terms of the Merger Agreement, and not to provide investors with any other factual information regarding the Company, Parent, Merger Sub or their
respective businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s
public disclosures.
Voting and Support Agreement
On February 14, 2021, the Company entered into a Voting and Support Agreement (the “Voting Agreement”) with Parent and certain Company shareholders. The
Voting Agreement requires that the Company shareholders party thereto (i) appear at the Company Shareholders Meeting or otherwise cause their Company Shares to be counted as present thereat for purposes of calculating a quorum, (ii) vote their
shares in favor of the adoption of the Merger Agreement, the Merger and the other transactions contemplated thereby and any action reasonably requested by Parent or the Board of Directors in furtherance of the foregoing (provided, that if the
Board of Directors changes its recommendation with respect to the Merger, any Class A Shares owned by such shareholders in excess of approximately 35% of the outstanding Class A Shares will be voted in the same proportion as those Class A
Shares voted by the holders of the Company’s Class A Shares that are not party to the Voting Agreement), (iii) against any action or agreement that would result in a material breach of any covenant, representation or warranty or other
obligation or agreement of the Company contained in the Merger Agreement and (iii) against any takeover proposal or superior proposal.
The foregoing description of the Voting Agreement and the transactions contemplated thereby does not purport to be complete and is subject to and
qualified in its entirety by reference to the full text of the Voting Agreement, a
copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.