UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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FPIC INSURANCE GROUP, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction
applies: Common Stock of FPIC Insurance Group, Inc., par
value $0.10 per share.
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(2)
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Aggregate number of securities to which transaction applies:
8,800,305 shares of Common Stock, including 297,877 options
to purchase Common Stock with a per share exercise price
less than the per share merger consideration of $42.00 per
share, 4,265 shares of Common Stock issuable under the FPIC
Insurance Group, Inc. Employee Stock Purchase Plan (the
ESPP), 64,440 shares of restricted stock and 100,228
shares of Common Stock issuable under performance units.
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(3)
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Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined): The maximum aggregate value was
determined based upon the sum of (A) 8,397,934 shares of
Common Stock (including 64,440 shares of restricted stock)
multiplied by the merger consideration of $42.00 per share,
(B) stock options to purchase 297,877 shares of Common Stock
multiplied by $20.74 (which is the difference between $42.00
and the weighted average exercise price of $21.26 per share
for the options having an exercise price less than the
$42.00 per share merger consideration), (C) the product of
$42.00 multiplied by (i) the total amount of participants
2011 payroll deductions under the ESPP prior to the
effective time of the Merger, divided by (ii) $30.71, and
(D) 100,228 shares of Common Stock issuable under
performance units multiplied by the merger consideration of
$42.00 per share. In accordance with Section 14(g) of the
Securities Exchange Act of 1934, as amended, the filing fee
was determined by multiplying 0.00011610 by the sum of the
preceding sentence.
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(4)
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Proposed maximum aggregate value of transaction: $363,279,952
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(5)
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Total fee paid: $42,177
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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FPIC
INSURANCE GROUP, INC.
1000 Riverside Avenue,
Suite 800
Jacksonville, Florida 32204
July 14,
2011
Dear Shareholder:
You are cordially invited to attend a special meeting of
shareholders of FPIC Insurance Group, Inc. (referred to herein
as the Company), to be held at the Companys
principal office, located at 1000 Riverside Avenue,
Suite 800, Jacksonville, Florida 32204, on August 12,
2011, at 10:00 a.m., Eastern Time.
At this important meeting, you will be asked to consider and
vote upon, among other things, a proposal to approve and adopt
the Agreement and Plan of Merger (referred to herein as the
Merger Agreement), dated as of May 23, 2011 (as
it may be amended from time to time), by and among the Company,
The Doctors Company, a California domiciled reciprocal
inter-insurance exchange, and Fountain Acquisition Corp., a
Florida corporation and a wholly owned subsidiary of The Doctors
Company. If the Merger Agreement is approved and adopted and the
merger contemplated by the Merger Agreement is completed, we
will become a wholly owned subsidiary of The Doctors Company and
you will receive $42.00 in cash for each share of our common
stock that you hold as of the date of the merger (without
interest and less applicable withholding taxes). The particulars
of the structure of the merger and other important facts, such
as tax consequences, are described in detail in the accompanying
proxy statement, which we encourage you to read in its entirety.
The Companys Board of Directors has carefully reviewed
and considered the terms and conditions of the Merger Agreement
and based on its review has determined, by unanimous vote, that
the Merger Agreement and the transactions contemplated thereby
(including the merger) are advisable and fair to and in the best
interests of the shareholders of the Company. Therefore, the
Companys Board of Directors unanimously recommends that
shareholders vote FOR approval and adoption of the
Merger Agreement at the special meeting.
In reaching its
determination, the Companys Board of Directors considered
a number of factors described more fully in the accompanying
proxy statement.
Your vote is important.
Approval and adoption of the
Merger Agreement requires the affirmative vote of the holders of
a majority of all outstanding shares of common stock entitled to
vote on the proposal.
AS A RESULT, YOUR FAILURE TO SUBMIT A
PROXY OR VOTE IN PERSON WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
Regardless of the number of shares you own, I encourage you to
take action in time for your vote to be counted.
Whether or
not you plan to attend the meeting, please complete, date, sign
and promptly return the enclosed proxy card in the enclosed
postage-paid envelope, or vote by telephone or via the Internet
using the instructions on the proxy before the meeting.
Returning the enclosed proxy or submitting a proxy by
telephone or Internet will not prevent you from voting in person
but will assure that your vote is counted if you are unable to
attend the meeting. If you receive more than one proxy card
because you own shares that are registered differently, please
vote all of your shares shown on all of your proxy cards.
The accompanying proxy statement provides you with detailed
information about the proposed merger and the special meeting.
Please give the material careful attention. A copy of the Merger
Agreement is attached as
Annex A
to the accompanying
proxy statement. You also may obtain more information about the
Company from documents we have filed with the Securities and
Exchange Commission.
If you have any questions about the merger or about how to vote
your shares, please call the Companys proxy solicitor,
Morrow & Co., LLC, toll free at
(888) 813-7651
or contact the Companys investor relations department at
FPIC Insurance Group, Inc., 1000 Riverside Avenue,
Suite 800, Jacksonville, Florida 32204, or by telephone at
(904) 354-2482.
On behalf of the Companys Board of Directors, thank you
for your continued support of FPIC Insurance Group, Inc.
Very truly yours,
Kenneth M. Kirschner
Chairman of the Board of Directors
FPIC
INSURANCE GROUP, INC.
1000 Riverside Avenue,
Suite 800
Jacksonville, Florida 32204
Notice of Special Meeting of
Shareholders
to be held on August 12,
2011
July 14,
2011
Dear Shareholder:
You are invited to join us at a special meeting of shareholders
of FPIC Insurance Group, Inc. (referred to herein as the
Company), to be held at the Companys principal
office, located at 1000 Riverside Avenue, Suite 800,
Jacksonville, Florida 32204, on August 12, 2011, at
10:00 a.m., Eastern Time.
The special meeting will be held to consider and vote upon the
following matters:
1. a proposal to approve and adopt the Agreement and Plan
of Merger, dated as of May 23, 2011 (referred to herein as
the Merger Agreement), by and among The Doctors
Company, a California domiciled reciprocal inter-insurance
exchange (referred to herein as TDC), Fountain
Acquisition Corp., a Florida corporation and a wholly owned
subsidiary of TDC (referred to herein as Merger Sub)
and the Company;
2. a proposal to grant authority to the named proxies to
adjourn or postpone the special meeting, if necessary or
appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve
and adopt the Merger Agreement (referred to herein as the
Adjournment Proposal); and
3. a proposal to approve, on a non-binding advisory basis,
the compensation that may be received by the Companys
named executive officers in connection with the merger
contemplated by the Merger Agreement.
We expect to transact no other business at the special meeting.
The Companys Board of Directors (the Board)
has carefully reviewed and considered the terms and conditions
of the Merger Agreement and based on its review has determined,
by unanimous vote, that the Merger Agreement and the
transactions contemplated thereby (including the merger) are
advisable and fair to and in the best interests of the
shareholders of the Company.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT, FOR THE ADJOURNMENT
PROPOSAL AND FOR THE PROPOSAL TO APPROVE,
ON A NON-BINDING ADVISORY BASIS, THE COMPENSATION THAT MAY BE
RECEIVED BY THE COMPANYS NAMED EXECUTIVE OFFICERS IN
CONNECTION WITH THE MERGER.
Only shareholders of record at the close of business on
July 12, 2011, the record date for the special meeting, are
entitled to receive notice of and to vote at the special meeting
or at any adjournments or postponements thereof. All
shareholders, whether or not they expect to attend the special
meeting in person, are requested to complete, date, sign and
return the enclosed proxy card in the accompanying postage-paid
envelope or to submit a proxy by telephone or via the Internet
by following the instructions on the proxy card. The proxy may
be revoked prior to the time at which it is voted at the meeting
by the person who executed it by filing with the Companys
Secretary an instrument of revocation or a duly executed proxy
bearing a later date, or by voting in person at the special
meeting.
A list of shareholders entitled to vote at the special meeting
will be available for inspection by shareholders of record
during business hours at the Companys executive offices at
1000 Riverside Avenue, Suite 800, Jacksonville, Florida
32204 for ten days prior to the date of the special meeting and
will also be available at the special meeting.
Your vote is very important, regardless of the number of shares
of the Companys common stock that you own. The approval
and adoption of the Merger Agreement requires the affirmative
vote (in person or by proxy) of holders of a majority of all
outstanding shares of the Companys common stock entitled
to vote at the special meeting. The Adjournment Proposal, as
well as the proposal to approve, on a non-binding advisory
basis, the compensation that may be received by the
Companys named executive officers in connection with the
merger, requires the affirmative vote of the majority of votes
cast on such proposals at the special meeting.
If you fail to return your proxy card or fail to submit your
proxy by phone or via the Internet, your shares will not be
counted for purposes of determining whether a quorum is present
at the special meeting. ANY FAILURE BY YOU TO RETURN YOUR PROXY
CARD OR SUBMIT YOUR PROXY BY PHONE OR VIA THE INTERNET OR VOTE
IN PERSON AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE PROPOSAL TO APPROVE AND ADOPT
THE MERGER AGREEMENT. Such failure, however, will not affect the
outcome of the vote regarding the Adjournment Proposal or the
non-binding advisory vote regarding compensation that may be
received by the Companys named executive officers in
connection with the merger. If you sign and return your proxy
card without indicating how you wish to vote, your proxy will be
voted FOR the approval and adoption of the Merger
Agreement, FOR the Adjournment Proposal and
FOR the proposal to approve, on a non-binding
advisory basis, the compensation that may be received by the
Companys named executive officers in connection with the
merger.
Any shareholder attending the special meeting may vote in person
even if he or she has already voted by proxy card, telephone or
via the Internet; such vote by ballot will revoke any proxy
previously submitted. If you hold your shares in street
name through a bank, broker or other nominee, you must
provide a legal proxy issued from such bank, broker or other
nominee in order to vote your shares in person at the special
meeting.
If you receive more than one proxy card because you own shares
that are registered differently, please submit proxies covering
all of your shares shown on all of your proxy cards through one
of the methods described above.
The Companys shareholders who do not vote in favor of the
approval and adoption of the Merger Agreement will NOT have the
right to seek appraisal of the fair value of their shares of the
Companys common stock if the merger contemplated by the
Merger Agreement is completed.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF
THE MERGER IS COMPLETED, YOU WILL BE SENT
INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
If you have any questions or need assistance in voting your
shares, please call Morrow & Co., LLC, our proxy
solicitation agent, toll free at
(888) 813-7651
or contact the Companys investor relations department at
FPIC Insurance Group, Inc., 1000 Riverside Avenue,
Suite 800, Jacksonville, Florida 32204, or by telephone
at (904) 354-2482.
The Merger Agreement and the merger are described in the
accompanying proxy statement. A copy of the Merger Agreement is
included as
Annex A
to the accompanying proxy
statement. We urge you to read the entire proxy statement and
the Merger Agreement carefully.
The accompanying proxy statement is first being mailed to
shareholders of the Company on or about July 15, 2011.
By order of the Board of Directors,
T. Malcolm Graham
Secretary
TABLE OF
CONTENTS
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FPIC
INSURANCE GROUP, INC.
1000 Riverside Avenue,
Suite 800
Jacksonville, Florida 32204
(904) 354-2482
July 14,
2011
PROXY
STATEMENT
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors (the
Board) of FPIC Insurance Group, Inc., a Florida
corporation, for use at the special meeting of shareholders to
be held on August 12, 2011, and at any and all adjournments
and postponements thereof, for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders. We
intend to begin mailing this proxy statement, the attached
Notice of Special Meeting of Shareholders and the accompanying
proxy card to shareholders on or about July 15, 2011.
SUMMARY
TERM SHEET
The following summary highlights selected information in this
proxy statement and may not contain all the information that may
be important to you. Accordingly, we encourage you to read
carefully this entire proxy statement, its annexes and the
documents referred to or incorporated by reference in this proxy
statement. Each item in this summary includes a page reference
directing you to a more complete description of that topic. See
the section of this proxy statement entitled Where You Can
Find More Information beginning on page 83.
Unless otherwise indicated or unless the context requires
otherwise, all references in this proxy statement to the
Company, FPIC, we,
our and us refer to FPIC Insurance
Group, Inc. and its subsidiaries; all references to the
Merger Agreement refer to the Agreement and Plan of
Merger, dated as of May 23, 2011, by and among the Company,
The Doctors Company and Fountain Acquisition Corp., as it may be
amended from time to time, a copy of which is attached as
Annex A
to this proxy statement; all references to
the Merger refer to the merger contemplated by the
Merger Agreement; and all references to the SEC
refer to the Securities and Exchange Commission.
Overview
of the Merger (page 25)
On May 23, 2011, we entered into the Merger Agreement by
and among the Company, The Doctors Company (referred to herein
as TDC) and Fountain Acquisition Corp., a wholly
owned subsidiary of TDC (referred to herein as Merger
Sub). Upon the terms and subject to the conditions of the
Merger Agreement, Merger Sub will merge with and into the
Company, and the Company will continue as the surviving
corporation and a wholly owned subsidiary of TDC. Upon
consummation of the Merger, holders of our common stock will be
entitled to receive the per share merger consideration of $42.00
in cash, without interest and less applicable withholding taxes,
for each share of common stock issued and outstanding
immediately prior to the effective time of the Merger (referred
to herein as the effective time). The Merger
Agreement, which is the principal document governing the Merger,
is attached as
Annex A
to this proxy statement, and
we encourage you to read the Merger Agreement in its entirety.
The
Parties to the Merger (page 20)
FPIC
Insurance Group, Inc.
FPIC Insurance Group, Inc., through its subsidiary companies, is
a leading provider of medical professional liability insurance
for physicians, dentists and other healthcare providers. The
Companys principal executive offices are located at 1000
Riverside Avenue, Suite 800, Jacksonville, Florida 32204,
and its telephone number is
(904) 354-2482.
Our website is located at
www.fpic.com
. Our website
address is included in this proxy statement as a textual
reference only, and the information on the website is not
1
incorporated by reference into this proxy statement. The
Companys common stock is quoted on the NASDAQ Global
Select Market under the trading symbol FPIC.
Additional information regarding the Company is contained in our
filings with the SEC. See the section of this proxy statement
entitled
Where You Can Find More Information
beginning on page 83.
The
Doctors Company
Founded by doctors for doctors in 1976 as a California-domiciled
reciprocal interinsurance exchange, The Doctors Company is the
nations largest insurer of physician and surgeon medical
professional liability with nearly 55,000 member physicians,
$4 billion in assets, and an A rating by Fitch Ratings and
A.M. Best Company. The Doctors Companys principal
executive offices are located at 185 Greenwood Road, Napa,
California, 94558 and its telephone number is
(800) 421-2368.
Merger
Sub
Fountain Acquisition Corp., a Florida corporation, is a wholly
owned subsidiary of TDC. Merger Sub was organized solely for the
purpose of entering into the Merger Agreement and consummating
the transactions contemplated by the Merger Agreement. It has
not conducted any activities to date other than activities
incidental to its organization and in connection with the
transactions contemplated by the Merger Agreement. Merger
Subs principal executive offices are located at 185
Greenwood Road, Napa, California, 94558 and its telephone number
is
(800) 421-2368.
The
Merger and the Closing (page 25)
You are being asked to vote to approve and adopt the Merger
Agreement, pursuant to which Merger Sub will merge with and into
the Company, with the Company continuing as the surviving
corporation. The surviving corporation following the Merger
initially will be a wholly owned subsidiary of TDC. As a result
of the Merger, the Company will cease to be an independent,
publicly traded company and you will not own any shares in the
surviving corporation.
If the Merger is completed, you will be entitled to receive
$42.00 in cash, without interest and less any applicable
withholding taxes, for each share of the Companys common
stock that you own. See
The Merger
Agreement Merger Consideration
beginning
on page 60.
The
Special Meeting (page 21)
Date,
Time and Place (page 21)
The special meeting of our shareholders will be held at the
Companys principal office, located at 1000 Riverside
Avenue, Suite 800, Jacksonville, Florida 32204, on
August 12, 2011 at 10:00 a.m., Eastern Time.
Purpose
of the Special Meeting (page 21)
At the special meeting, you will be asked to consider and vote
upon proposals to: (1) approve and adopt the Merger
Agreement, pursuant to which Merger Sub will merge with and into
the Company, with the Company continuing as the surviving
corporation and a wholly owned subsidiary of TDC; (2) grant
authority to the named proxies to adjourn or postpone the
special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time
of the special meeting to approve and adopt the Merger Agreement
(referred to herein as the Adjournment Proposal);
and (3) approve, on a non-binding advisory basis, the
compensation that may be received by the Companys named
executive officers in connection with the Merger.
Record
Date and Quorum (page 21)
You are entitled to vote at the special meeting if you own
shares of the Companys common stock at the close of
business on July 12, 2011, the record date for the special
meeting. Each outstanding share of the
2
Companys common stock on the record date entitles the
holder to one vote on each matter submitted to the
Companys shareholders for approval at the special meeting
and any adjournment or postponement thereof. As of July 12,
2011, there were 8,397,934 shares of the Companys common
stock outstanding and entitled to vote at the special meeting.
The presence at the special meeting in person or by proxy of the
holders of a majority of the issued and outstanding shares of
our common stock entitled to vote at the special meeting as of
the close of business on the record date will constitute a
quorum for purposes of considering the proposals at the special
meeting.
Vote
Required for Approval (page 22)
You are being asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement. For us to complete the
Merger, shareholders holding a majority of the shares of the
Companys common stock outstanding at the close of business
on the record date and entitled to vote on the proposal must
vote FOR the proposal to approve and adopt the
Merger Agreement. Failure to vote your shares of the
Companys common stock, abstentions and broker non-votes
will have the effect of a vote AGAINST the proposal
to approve and adopt the Merger Agreement. A broker non-vote
occurs on an item when a broker is not permitted to vote on that
item without instructions from the beneficial owner of the
shares and no instructions are given.
You also are being asked to consider and vote upon the
Adjournment Proposal. The Adjournment Proposal requires the
affirmative vote of a majority of the votes cast on such
proposal at the special meeting. As a result, abstentions and
broker non-votes will not impact the vote on the Adjournment
Proposal. Abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present at the
special meeting.
You also are being asked to consider and vote upon a proposal to
approve, on a non-binding advisory basis, the compensation that
may be received by the Companys named executive officers
in connection with the Merger, which will be approved if a
majority of the votes cast on such proposal at the special
meeting vote in favor of such proposal. The vote of the
Companys shareholders on the compensation that may be
received by the Companys named executive officers in
connection with the Merger is advisory in nature and will not be
binding on the Company or the Board and will not affect whether
or not the compensation is paid. Such compensation will be
substantially determined in accordance with contracts currently
in effect between the Company and such executives.
Voting
and Proxies (page 23)
Before voting your shares of the Companys common stock, we
encourage you to read this proxy statement in its entirety,
including its annexes, and carefully consider how the Merger
will affect you. Any shareholder of record entitled to vote at
the special meeting may submit a proxy by (i) returning the
enclosed proxy card by mail, (ii) using the telephone
number printed on your proxy card, (iii) using the Internet
voting instructions printed on your proxy card or
(iv) appearing at the special meeting and voting in person.
If no instructions are indicated on your signed proxy card, your
shares will be voted FOR the approval and adoption
of the Merger Agreement, FOR the Adjournment
Proposal and FOR the proposal to approve, on a
non-binding advisory basis, the compensation that may be
received by the Companys named executive officers in
connection with the Merger.
If your shares of common stock are held in street
name by your broker, bank or other nominee, you should
instruct your broker, bank or other nominee on how to vote your
shares of common stock using the instructions provided by your
broker, bank or other nominee. If your shares of common stock
are held in street name and you do not provide your
broker, bank or other nominee with instructions, your shares of
common stock will not be voted and that will have the same
effect as voting AGAINST the approval and adoption
of the Merger Agreement but will have no effect on the
Adjournment Proposal or the proposal to approve, on a
non-binding advisory basis, the compensation that may be
received by the Companys named executive officers in
connection with the Merger.
3
Revocability
of Proxy (page 23)
If you hold your shares in your name as a shareholder of record,
you have the right to change or revoke your proxy at any time
before the vote taken at the special meeting by:
(i) delivering to our Secretary, at 1000 Riverside
Avenue, Suite 800, Jacksonville, Florida 32204, a signed
written notice of revocation, bearing a date later than the date
of the proxy, stating that the proxy is revoked;
(ii) attending the special meeting and voting in person
(your attendance at the meeting will not, by itself, change or
revoke your proxy you must vote in person at the
special meeting in order to change or revoke a prior proxy);
(iii) completing, executing and delivering a later dated
proxy card; or (iv) voting again at a later time by
telephone or via the Internet prior to the time at which the
telephone and Internet voting facilities close by following the
procedures applicable to those methods of voting. Simply
attending the special meeting will not revoke your proxy.
If you hold your shares through a broker, bank or other nominee,
you have the right to change or revoke your proxy at any time
before the vote taken at the special meeting by following the
directions received from your broker, bank or other nominee to
change or revoke those instructions.
Ownership
of Common Stock by Directors and Executive Officers
(page 80)
As of July 12, 2011, the directors and executive officers
of the Company beneficially owned and were entitled to vote at
the special meeting, in the aggregate, 645,039 shares of
the Companys common stock, representing approximately 7.7%
of the outstanding shares of the Companys common stock as
of such date. Each of our current directors and executive
officers has informed us that he or she intends to vote all of
his or her shares of the Companys common stock
FOR the proposal to approve and adopt the Merger
Agreement, FOR the proposal to approve, on a
non-binding advisory basis, the compensation that may be
received by the Companys named executive officers in
connection with the Merger, and FOR the Adjournment
Proposal.
Treatment
of Stock Options and Other Equity-Based Awards
(page 60)
Stock
Options (page 60)
At the effective time of the Merger, each outstanding,
unexercised option to acquire the Companys common stock
under our Omnibus Incentive Plan or our Director Stock Plan (all
of which are currently fully vested) will be cancelled and
exchanged for the right to receive a cash payment equal to the
number of shares of the Companys common stock underlying
such option, multiplied by the excess of $42.00 over the
exercise price per share for such option, without interest and
less any applicable withholding taxes. The surviving corporation
may make such cash payments on our behalf.
Employee
Stock Purchase Plan (page 60)
At the effective time of the Merger, the account of each
participant in our Employee Stock Purchase Plan (referred to
herein as the ESPP) for the 2011 plan year will be
cancelled and exchanged for the right to receive a cash payment
equal to (x) $42.00, multiplied by (y) the total
amount of such participants 2011 payroll deductions prior
to the effective time under the ESPP, and divided by
(z) $30.71 (85% of the fair market value (determined in
accordance with the terms of the ESPP) of the Companys
common stock on January 14, 2011), without interest and
less any applicable withholding taxes. The surviving corporation
may make such cash payments on our behalf.
Restricted
Stock (page 60)
Immediately prior to the effective time of the Merger, each
share of restricted stock granted under our Omnibus Incentive
Plan or Director Stock Plan that is outstanding will become
fully vested and will be converted into the right to receive the
merger consideration of $42.00, without interest and less any
applicable withholding taxes.
4
Performance
Units (page 60)
Immediately prior to the effective time of the Merger, each
unpaid performance unit awarded under our Omnibus Incentive Plan
will become fully vested and payable and, effective as of the
effective time, each such performance unit will be cancelled in
exchange for a cash payment equal to (x) the Payout
Percentage (as defined in the related award agreements and
determined as set forth below) applicable to such performance
unit, multiplied by (y) $42.00, without interest and less
any applicable withholding taxes. The Payout Percentage will be
143% for performance units granted on January 4, 2010 and
100% for performance units granted on December 10, 2010, as
required by the Merger Agreement. The surviving corporation may
make such cash payments on our behalf.
Reasons
for the Merger; Recommendation of Our Board of Directors
(page 35)
After careful consideration, the Board, by unanimous vote,
approved and declared advisable the execution, delivery and
performance of the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Merger, and
determined that the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Merger, are
advisable, fair to and in the best interests of the
Companys shareholders.
The Board unanimously recommends
that you vote FOR the proposal to approve and adopt
the Merger Agreement, FOR the Adjournment Proposal
and FOR the proposal to approve, on a non-binding
advisory basis, the compensation that may be received by the
Companys named executive officers in connection with the
Merger
.
For a discussion of the material factors considered by the Board
in reaching its conclusions, see the section of this proxy
statement entitled
The Merger Reasons for
the Merger; Recommendation of Our Board of Directors.
Interests
of Certain Persons in the Merger (page 50)
In considering the recommendation of the Board to approve and
adopt the Merger Agreement, you should be aware that certain
directors and officers of the Company have employment and other
compensation agreements or plans that give them interests in the
Merger that may be different from, or in addition to, their
interests as shareholders of the Company. These interests
include the payment of stock options and the accelerated vesting
and payment of other equity-based awards and entitlement to
severance payments in connection with a termination of
employment without cause or for good reason following a change
in control.
See
The Merger Interests of Certain Persons
in the Merger
beginning on page 50.
Opinion
of Sandler ONeill + Partners, L.P.
(page 40)
Sandler ONeill + Partners, L.P. (referred to herein as
Sandler ONeill) delivered its opinion to the
Board on May 23, 2011 that, as of such date and based upon
and subject to the limitations and assumptions set forth
therein, the $42.00 per share in cash to be paid to the holders
of the outstanding shares of common stock of the Company
pursuant to the Merger Agreement was fair from a financial point
of view to such holders.
The full text of the written opinion of Sandler ONeill,
dated as of May 23, 2011, which sets forth the assumptions
made, procedures followed, matters considered and limitations on
the review undertaken in connection with the opinion, is
attached as
Annex B
to this proxy statement. Sandler
ONeill provided its opinion for the information and
assistance of the Board in connection with the Boards
consideration of the Merger. The opinion is not a recommendation
as to how any holder of the Companys common stock should
vote with respect to the Merger or any other matter
.
Pursuant to the engagement letter between Sandler ONeill
and the Company, the Company has agreed to pay Sandler
ONeill a fee of 1.2% of the aggregate equity value of the
transaction (approximately $363 million), of which $25,000
became payable upon execution of the engagement letter, $20,000
became payable for each quarter thereafter until completion of
the Merger or the earlier termination of the engagement,
$250,000 became payable upon the delivery of Sandler
ONeills fairness opinion to the Board and the
balance
5
of which is contingent upon consummation of the Merger. In
addition, the Company has agreed to reimburse Sandler
ONeill for certain expenses and to indemnify Sandler
ONeill against certain liabilities arising out of Sandler
ONeills engagement.
For a more complete description, see the section of this proxy
statement entitled
The Merger Opinion of
Sandler ONeill + Partners, L.P.
beginning on
page 40.
Financing
of the Merger (page 49)
The Merger Agreement does not contain any condition to the
Merger relating to the receipt of financing by TDC or Merger
Sub. TDC intends to fund the aggregate amount of the merger
consideration, performance unit consideration and option
consideration of approximately $363 million with available
cash.
Governmental
and Regulatory Approvals (page 57)
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
related thereto (referred to herein as the HSR Act),
the Merger may not be completed until notification and report
forms have been filed with the Federal Trade Commission
(referred to herein as the FTC) and the Antitrust
Division of the U.S. Department of Justice (referred to
herein as the DOJ) and the applicable waiting period
has expired or been terminated. The Company, TDC and Merger Sub
filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division of the DOJ on June 8, 2011.
On June 17, 2011, the FTC and the DOJ granted early
termination of the HSR Act waiting period.
In addition, the Merger requires the approval of the Florida
Office of Insurance Regulation, the Texas Insurance
Commissioner, and the Missouri Insurance Director. TDC filed
applications for these approvals on June 14, 2011. The
Florida Office of Insurance Regulation has scheduled a hearing
on TDCs application to be held at 10:00 a.m., Eastern
Time, on July 21, 2011 in Room 116 of the Larson
Building, 200 East Gaines Street, Tallahassee, Florida. A
transcript of this hearing will be posted on the Companys
website, www.fpic.com, as soon as it is available. Also, under
the insurance laws of the States of Arkansas and Georgia, the
Merger may not be completed until pre-acquisition notification
and report forms have been filed with the Georgia and Arkansas
Insurance Commissioners and the applicable waiting periods have
expired or been terminated. TDC filed a pre-acquisition notice
with each of the Georgia and Arkansas Insurance Commissioners on
June 14, 2011, and these waiting periods expired on
July 14, 2011.
See
The Merger Governmental and Regulatory
Approvals
beginning on page 57.
Material
U.S. Federal Income Tax Consequences (page 49)
The exchange of shares of the Companys common stock for
cash in the Merger will generally be a taxable transaction to
U.S. holders for U.S. federal income tax purposes. In
general, a U.S. holder whose shares of the Companys
common stock are converted into the right to receive cash in the
Merger will recognize gain or loss for U.S. federal income
tax purposes in an amount equal to the difference, if any,
between the amount of cash received with respect to such shares
(determined before the deduction of any applicable withholding
taxes) and its adjusted tax basis in such shares. Backup
withholding may also apply to the cash payments made pursuant to
the Merger unless the U.S. holder or other payee provides a
taxpayer identification number, certifies that such number is
correct and otherwise complies with the backup withholding
rules. You should read
The Merger Material
U.S. Federal Income Tax Consequences
beginning on
page 49 for a definition of U.S. holder
and a more detailed discussion of the U.S. federal income
tax consequences of the Merger. You should also consult your tax
advisor for a complete analysis of the effect of the Merger on
your federal, state and local
and/or
foreign taxes.
6
Restrictions
on Solicitations of Other Offers (page 68); Change of
Recommendation (page 69)
From the date of the Merger Agreement until the effective time
of the Merger, neither the Company, nor any of its subsidiaries
or representatives may directly or indirectly:
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solicit, initiate or knowingly facilitate any Acquisition
Proposal (as defined in the section of this proxy statement
entitled
The Merger Agreement Restrictions
on Solicitations of Other Offers
) or any proposal that
is reasonably likely to lead to an Acquisition Proposal;
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participate in any way in discussions or negotiations with, or
furnish any non-public information to, any person that has made
an Acquisition Proposal; or
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enter into any agreement, term sheet or letter of intent with
respect to any Acquisition Proposal.
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Notwithstanding the foregoing restrictions, under certain
circumstances, the Company will be permitted to participate in
discussions or negotiations with, or provide non-public
information to, any person making an unsolicited Acquisition
Proposal if the Board has determined in good faith (after
consultation with its independent financial advisor and outside
counsel) that there is a reasonable likelihood that the
Acquisition Proposal will lead to a Superior Proposal (as
defined in the section of this proxy statement entitled
The Merger Agreement Restrictions on
Solicitations of Other Offers
). Further, the Company
may enter into a binding agreement with respect to an
Acquisition Proposal in certain circumstances if the Board
determines in good faith that such proposal constitutes a
Superior Proposal. Under the Merger Agreement, TDC is entitled
to three business days notice prior to the Companys
entry into any agreement providing for a Superior Proposal. For
a more detailed description, see the section of this proxy
statement entitled
The Merger Agreement
Restrictions on Solicitations of Other Offers.
The Merger Agreement also contains restrictions on the ability
of the Board to withdraw, modify or amend its recommendation
that our shareholders approve and adopt the Merger Agreement and
on the ability of the Board to recommend, adopt or approve any
alternative Acquisition Proposal, in each case, subject to
certain exceptions. See the section of this proxy statement
entitled
The Merger Agreement Change of
Recommendation
for a description of these restrictions
and exceptions.
Conditions
to the Completion of the Merger (page 74)
Conditions
to Each Partys Obligations (page 74)
The obligations of the Company, TDC and Merger Sub to consummate
the Merger are subject to the satisfaction (or waiver) of the
following conditions:
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Shareholder Approval.
The Merger Agreement
must have been adopted by the Companys shareholders at the
special meeting.
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No Order.
The consummation of the Merger must
not have been restrained, enjoined or prohibited by a court or
other governmental authority.
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Insurance Consents.
TDC shall have obtained
certain written approvals of the Merger from certain insurance
regulatory authorities.
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HSR Act Waiting Period.
Any applicable waiting
period, together with any extensions thereof, under the HSR Act
shall have expired or terminated (early termination of the HSR
Act waiting period was granted on June 17, 2011).
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Conditions
to the Obligations of TDC and Merger Sub
(page 75)
The obligations of TDC and Merger Sub to consummate the Merger
are subject to the satisfaction (or waiver) of the following
additional conditions:
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Accuracy of Representations.
The
representations and warranties of the Company contained in the
Merger Agreement must be true and correct as of the effective
time of the Merger, subject to certain materiality thresholds.
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Performance of Covenants.
The Company must
have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be
performed or complied with at or prior to the effective time of
the Merger.
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No Company Material Adverse Effect.
Since the
date of the Merger Agreement, the absence of any Company
Material Adverse Effect (as defined in the section of this proxy
statement entitled
The Merger Agreement
Company Material Adverse Effect Definition
beginning
on page 65).
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Officers Certificates.
TDC shall have
received from the Company an officers certificate with
respect to each of the foregoing conditions.
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Minimum Funding Standard.
The Company shall
have satisfied the minimum funding standards required by
applicable law with respect to the FPIC Insurance Group, Inc.
Defined Benefit Plan, as amended.
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Conditions
to the Obligations of the Company (page 75)
The obligations of the Company to consummate the Merger are
subject to the satisfaction (or waiver) of the following
additional conditions:
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Accuracy of Representations.
The
representations and warranties of TDC and Merger Sub contained
in the Merger Agreement must be true and correct as of the
effective time of the Merger, subject to certain materiality
thresholds.
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Performance of Covenants.
TDC and Merger Sub
must have performed or complied in all material respects with
all agreements and covenants required by the Merger Agreement to
be performed or complied with at or prior to the effective time
of the Merger.
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Officers Certificates.
The Company shall
have received from TDC an officers certificate with
respect to each of the foregoing conditions.
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Closing Payments.
TDCs payment of the
amounts required under the Merger Agreement.
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Termination
of the Merger Agreement (page 75)
The Company and TDC may agree to terminate the Merger Agreement
without completing the Merger at any time, even after our
shareholders have approved the Merger Agreement. The Merger
Agreement may also be terminated in certain other circumstances,
including:
By either TDC or the Company if:
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the Merger has not been consummated by December 31, 2011,
subject to the extension of such date to March 31, 2012
(referred to herein as the outside date), if all
closing conditions have been or are capable of being satisfied
at the time of such extension, other than those relating to
certain governmental consents and approvals;
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a court of competent jurisdiction or other governmental
authority issues a final order permanently restraining,
enjoining or otherwise prohibiting the Merger; or
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the Merger Agreement is not approved and adopted by the
Companys shareholders at the special meeting (or at any
adjournment thereof).
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By the Company if:
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the Board determines to accept a Superior Proposal;
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TDC breaches any of its representations, warranties or covenants
set forth in the Merger Agreement and such breach (i) is
not capable of being cured prior to the outside date and
(ii) causes the Companys related closing conditions
not to be satisfied; or
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TDC does not have sufficient funds to consummate the Merger or
otherwise fails to pay the merger consideration.
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By TDC if:
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the Board has withdrawn or adversely modified its recommendation
that the Companys shareholders approve and adopt the
Merger Agreement;
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the Board has recommended to the Companys shareholders
that they approve or accept an Acquisition Proposal other than
the Merger;
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the Company has entered into or announced publicly its intention
to enter into any agreement with respect to an Acquisition
Proposal other than the Merger; or
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the Company breaches any of its representations, warranties or
covenants set forth in the Merger Agreement and such breach
(i) is not capable of being cured prior to the outside date
and (ii) causes TDCs related closing conditions not
to be satisfied.
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See the section of this proxy statement entitled
The
Merger Agreement Termination of the Merger
Agreement
for a detailed description of the
termination rights under the Merger Agreement.
Termination
Fees (page 77)
The Company has agreed to pay TDC a termination fee in the
amount of 3% of the aggregate Merger consideration
(approximately $10.6 million, referred to herein as the
Termination Fee) if the Merger Agreement is
terminated under certain circumstances, including if:
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the Company terminates the Merger Agreement in order to accept a
Superior Proposal; or
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TDC terminates the Merger Agreement because:
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the Board has withdrawn or adversely modified its recommendation
that the Companys shareholders approve and adopt the
Merger Agreement;
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the Board has recommended to the Companys shareholders
that they approve or adopt an Acquisition Proposal other than
the Merger; or
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the Company has entered into or announced publicly its intention
to enter into any agreement with respect to an Acquisition
Proposal other than the Merger.
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TDC has agreed to pay the Company the Termination Fee if the
Merger Agreement is terminated under certain circumstances,
including if:
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the Merger Agreement is terminated because the Merger has not
been consummated prior to the outside date as a result of the
failure to obtain required antitrust and insurance regulatory
approvals and on the termination date (i) the vote of the
Companys shareholders to adopt the Merger Agreement has
been obtained, (ii) no Company Material Adverse Effect has
occurred and is continuing and (iii) certain of TDCs
closing conditions are still capable of being satisfied; or
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the Company terminates the Merger Agreement because TDC lacks
sufficient funds to consummate the Merger or otherwise fails to
pay the merger consideration and on the date of such termination
(i) the vote of the Companys shareholders to adopt
the Merger Agreement has been obtained, (ii) no Company
Material Adverse Effect has occurred and is continuing and
(iii) certain of TDCs closing conditions are still
capable of being satisfied.
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Except to the extent that the Termination Fee is the sole and
exclusive remedy of the party receiving the Termination Fee,
each party will have the right to recover to the fullest extent
permitted by applicable law any liabilities or damages incurred
or suffered by it as a result of the material breach by the
other party of any of its representations, warranties, covenants
or other agreements set forth in the Merger Agreement. This
includes, if the Company is the recovering party, a material
breach by TDC of its obligations to pay the merger consideration
at closing. See the sections of this proxy statement entitled
The Merger Agreement
9
Termination Fees
beginning on page 77 and
The Merger Agreement Limitation on
Liability
beginning on page 78.
Procedure
for Receiving the Merger Consideration (page 60)
Prior to the effective time of the Merger, TDC will designate a
bank or trust company reasonably satisfactory to the Company to
act as TDCs paying agent for purposes of, among other
things, distributing the merger consideration to the
Companys shareholders. At or prior to the effective time
of the Merger, TDC will deposit with the paying agent, for the
benefit of holders of shares of the Companys common stock,
cash in an amount sufficient to pay the merger consideration.
No later than three business days after the effective time of
the Merger, the paying agent will mail to each holder of record
of the Companys common stock a letter of transmittal
containing instructions for surrendering certificates or
book-entry shares in exchange for the merger consideration. The
paying agent will pay you the merger consideration to which you
are entitled after you have (i) properly surrendered your
share certificates or book-entry shares, as applicable, to the
paying agent and (ii) provided to the paying agent your
completed and signed letter of transmittal and any other item
specified in the letter of transmittal or instructions thereto.
See
The Merger Agreement Payment
Procedures
beginning on page 60.
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING
AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN
YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
No
Shareholder Appraisal Rights (page 24)
Under Florida law, because our common stock is traded on the
NASDAQ Global Select Market and the merger consideration is all
cash, holders of shares of the Companys common stock are
not entitled to exercise dissenters rights in connection
with the Merger and, if the Merger is consummated, will only be
entitled to receive $42.00 in cash, without interest, for each
share of common stock owned by such holder. See
The
Special Meeting of Shareholders No Shareholder
Appraisal Rights
beginning on page 24.
Litigation
Related to the Merger (page 58)
On June 29, 2011, the Company, the Board, TDC and Merger
Sub were named in a putative stockholder class action complaint
filed in the Circuit Court of the Fourth Judicial Circuit, Duval
County, Florida, by a purported stockholder of the Company. The
complaint generally alleges that the directors of the Company
breached their fiduciary duties by approving the Merger for an
allegedly unfair price and as the result of an allegedly unfair
sale process. The complaint also alleges that the Company, TDC
and Merger Sub aided and abetted the directors alleged
breaches of their fiduciary duties and that the Company failed
to provide material information to shareholders with respect to
the Merger. See
The Merger Litigation
Related to the Merger
beginning on page 58.
Market
Price of the Companys Common Stock
(page 81)
Our common stock is listed on the NASDAQ Global Select Market
under the trading symbol FPIC. The closing price of
the Companys common stock on the NASDAQ Global Select
Market on May 23, 2011, the last trading day prior to
announcement of the execution of the Merger Agreement, was
$32.10 per share. The $42.00 per share merger consideration to
be paid for each share of the Companys common stock
represents a premium of approximately 31% to the closing price
of the Companys common stock on May 23, 2011. On
July 12, 2011, which is the most recent practicable date
prior to the date of this proxy statement, the closing price of
our common stock was $41.73 per share.
10
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers address briefly some
questions you may have regarding the Merger, the Merger
Agreement and the special meeting. These questions and answers
may not address all questions that may be important to you as a
shareholder of the Company. Please refer to the more detailed
information contained elsewhere in this proxy statement and the
annexes to this proxy statement.
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Q:
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What is the proposed transaction?
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A:
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The proposed transaction is the acquisition of the Company by
TDC pursuant to the Merger Agreement. If the Merger Agreement is
approved and adopted by the Companys shareholders and the
other closing conditions in the Merger Agreement have been
satisfied or waived, Merger Sub, a wholly owned subsidiary of
TDC, will merge with and into the Company. Upon consummation of
the Merger, the Company will be the surviving corporation and a
wholly owned subsidiary of TDC. After the Merger, shares of the
Companys common stock will not be publicly traded.
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Q:
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Why am I receiving this proxy statement?
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A:
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The Company is holding the special meeting in order to obtain
shareholder approval of, among other things, a proposal to
approve and adopt the Merger Agreement, as described in greater
detail in this proxy statement. We cannot complete the Merger
unless holders of a majority of the outstanding shares of the
Companys common stock as of the record date approve this
proposal at the special meeting. We have included in this proxy
statement important information about the Merger, the Merger
Agreement and the special meeting. You should read this
information carefully and in its entirety. We have attached a
copy of the Merger Agreement as
Annex A
to this
proxy statement. The enclosed voting materials allow you to
submit a proxy by mail, telephone or via the Internet to ensure
that your shares of the Companys common stock are
represented and voted at the special meeting, even if you are
unable to attend the special meeting in person. Your vote is
very important and we encourage you to submit your proxy as soon
as possible, regardless of whether or not you plan to attend the
special meeting.
YOUR FAILURE TO SUBMIT A PROXY OR VOTE IN
PERSON WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
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Q:
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What will I receive for my shares of the Companys
common stock in the Merger?
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A:
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If the Merger is completed, you will be entitled to receive
$42.00 in cash, without interest and less any applicable
withholding taxes, for each share of the Companys common
stock that you own at the effective time of the Merger. Upon
consummation of the Merger, you will no longer own shares in the
Company, nor will you be entitled to receive any shares in TDC
or the surviving corporation.
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See the sections of this proxy statement entitled
The
Merger Agreement Merger Consideration
and
The Merger Agreement Treatment of Stock
Options and Other Equity-Based Awards
for a more
detailed description of the merger consideration. See the
section of this proxy statement entitled
The
Merger Material U.S. Federal Income Tax
Consequences
for a description of the tax consequences
of the Merger. You should consult your own tax advisor for a
full understanding of how the Merger will affect your federal,
state, local and foreign taxes.
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Q:
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How does the merger consideration compare to the market price
of the Companys common stock prior to announcement of the
Merger?
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A:
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The per share merger consideration of $42.00 in cash, without
interest and less applicable withholding taxes, contemplated to
be received by the holders of the Companys common stock
pursuant to the Merger Agreement, represents a premium to
historic trading prices, including a premium of approximately
31% over the closing price of $32.10 on NASDAQ on May 23,
2011, the trading day prior to the announcement of the Merger
Agreement.
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Q:
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How will the Companys stock options, other equity-based
awards and long-term cash awards be treated in the Merger?
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A:
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As of the effective time of the Merger, each outstanding option
not exercised prior to the effective time of the Merger will be
cancelled and exchanged for the right to receive a cash payment
equal to the number of shares of the Companys common stock
underlying the option, multiplied by the excess, if any, of
$42.00 over the exercise price per share, without interest and
less any applicable withholding taxes. All outstanding options
are currently vested.
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As of the effective time of the Merger, the account of each
participant in the ESPP for the 2011 plan year will be cancelled
and exchanged for the right to receive a cash payment equal to
(x) $42.00 multiplied by (y) the total amount of each
such participants 2011 payroll deductions prior to the
effective time of the Merger under the ESPP, divided by
(z) $30.71 (85% of the fair market value (determined in
accordance with the terms of the ESPP) of the Companys
common stock on January 14, 2011), without interest and
less any applicable withholding taxes.
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Each share of restricted stock granted under our Omnibus
Incentive Plan or Director Stock Plan that is outstanding and
unvested immediately prior to the effective time of the Merger
will become fully vested and will be converted into the right to
receive the merger consideration of $42.00 in cash, without
interest and less any applicable withholding taxes.
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Immediately prior to the effective time of the Merger, each
unpaid performance unit awarded under our Omnibus Incentive Plan
will become fully vested and payable and, as of the effective
time of the Merger, each such performance unit will be cancelled
in exchange for the right to receive a cash payment equal to
(x) the Payout Percentage (as defined in the related award
agreements and determined as set forth below) applicable to such
performance unit, multiplied by (y) $42.00, without
interest and less any applicable withholding taxes. The Payout
Percentage will be 143% for performance units granted on
January 4, 2010 and 100% for performance units granted on
December 10, 2010.
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See the sections of this proxy statement entitled
The
Merger Agreement Merger Consideration
and
The Merger Agreement Treatment of Stock
Options and Other Equity-Based Awards
for a more
detailed description of the treatment of the Companys
stock options and other equity-based awards.
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Q:
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Where and when is the special meeting?
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A:
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The special meeting will be held at the Companys principal
office, located at 1000 Riverside Avenue, Suite 800,
Jacksonville, Florida 32204, on August 12, 2011, at
10:00 a.m., Eastern Time.
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Q:
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Are all shareholders of the Company as of the record date
entitled to vote at the special meeting?
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A:
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Yes. All shareholders who own shares of the Companys
common stock at the close of business on July 12, 2011, the
record date for the special meeting, will be entitled to receive
notice of the special meeting and to vote (in person or by
proxy) the shares of the Companys common stock they hold
on that date at the special meeting, or at any adjournment or
postponement thereof. Each outstanding share of the
Companys common stock on the record date entitles the
holder to one vote on each matter submitted to shareholders for
approval at the special meeting. As of July 12, 2011, there
were 8,397,934 shares of the Companys common stock
outstanding held by 1,408 record holders.
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See the section of this proxy statement entitled
The
Special Meeting of Shareholders Vote Required for
Approval
for a more detailed discussion of voting upon
the proposals to be considered at the special meeting.
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Q:
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On what matters am I being asked to vote at the special
meeting?
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A:
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You will be asked to consider and vote on the following
proposals:
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the approval and adoption of the Merger Agreement;
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the Adjournment Proposal; and
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12
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the approval, on a non-binding advisory basis, of
the compensation that may be received by the Companys
named executive officers in connection with the Merger.
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Q:
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What is a quorum?
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A:
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A quorum of the holders of the outstanding shares of the
Companys common stock must be present for the special
meeting to be held. A quorum is present if the holders of a
majority of the outstanding shares of the Companys common
stock entitled to vote at the special meeting are present at the
special meeting, either in person or represented by proxy. Votes
for and against the proposals, as well as abstentions and broker
non-votes, are counted as present for purposes of determining
whether a quorum is present.
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Q:
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What vote of the Companys shareholders is required to
approve and adopt the Merger Agreement and to approve the
Adjournment Proposal?
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A:
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For us to complete the Merger, holders of a majority of the
shares of the Companys common stock outstanding at the
close of business on the record date entitled to vote on the
proposal must vote
FOR
approval and adoption
of the Merger Agreement. A broker non-vote, failure to vote or
an abstention will have the same effect as a vote
AGAINST
the proposal to approve and adopt the
Merger Agreement.
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Approval of the Adjournment Proposal requires the affirmative
vote of a majority of the votes cast on such proposal at the
special meeting. Abstentions and broker non-votes will therefore
have no effect on the Adjournment Proposal but will count for
purposes of determining whether a quorum is present. A failure
to vote will have no effect on the Adjournment Proposal.
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Approval, on a non-binding advisory basis, of the compensation
that may be received by the Companys named executive
officers in connection with the Merger requires the affirmative
vote of a majority of the votes cast on such proposal at the
special meeting. A broker non-vote, failure to vote or an
abstention will have no effect on this proposal. The vote of the
Companys shareholders on the compensation that may be
received by the Companys named executive officers in
connection with the Merger is advisory in nature and will not be
binding on the Company or the Board and will not affect whether
or not the compensation is paid. Such compensation will be
substantially determined in accordance with contracts currently
in effect between the Company and such executives.
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Q:
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What is a broker non-vote?
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A:
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A broker non-vote occurs when a broker, bank or other nominee
holding shares on your behalf does not vote on a proposal
because the nominee has not received your voting instructions
and, accordingly, lacks discretionary power to vote the shares.
Broker non-votes will not count as votes cast on a proposal but
will count for purposes of determining whether a quorum is
present. As a result, broker non-votes will have the same effect
as a vote AGAINST the proposal to approve and adopt
the Merger Agreement but will have no effect on the Adjournment
Proposal or the proposal to approve, on a non-binding advisory
basis, the compensation that may be received by the
Companys named executive officers in connection with the
Merger.
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Q:
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Does the Board recommend that the Companys shareholders
vote FOR the proposals to be considered at the
special meeting?
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A:
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Yes. After careful consideration, the Board unanimously
recommends that you vote:
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FOR the proposal to approve and adopt
the Merger Agreement;
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FOR the Adjournment Proposal; and
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FOR the proposal to approve, on a
non-binding advisory basis, the compensation that may be
received by the Companys named executive officers in
connection with the Merger.
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Q:
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How do the Companys current directors and executive
officers intend to vote?
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A:
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Each of our current directors and executive officers has
informed us that he or she intends to vote all of his or her
shares of the Companys common stock FOR the
proposal to approve and adopt the Merger
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13
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Agreement, FOR the Adjournment Proposal and
FOR the proposal to approve, on a non-binding
advisory basis, the compensation that may be received by the
Companys named executive officers in connection with the
Merger.
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Q:
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Do any of the Companys directors or executive officers
have interests in the Merger that may differ from or be in
addition to my interests as a shareholder of the Company?
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A:
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Yes. In considering the recommendation of the Board with respect
to the Merger, you should be aware that our directors and
executive officers may have interests in the Merger that may be
different from, or in addition to, the interests of our
shareholders generally. These interests include (i) the
payment of Company options and the accelerated vesting and
payment of other equity-based awards and (ii) severance and
change in control payments and benefits.
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The Board was aware of these differing interests and considered
them, among other matters, in reaching its decision to approve
the Merger Agreement and the Merger and to recommend that you
vote in favor of adopting the Merger Agreement and approving the
Merger.
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See the section of this proxy statement entitled
The
Merger Interests of Certain Persons in the
Merger
for a more detailed description of the
interests of the Companys directors and executive officers
in the Merger.
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Q:
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Why am I being asked to consider and approve, on a
non-binding advisory basis, compensation that may be received by
the Companys named executive officers in connection with
the Merger?
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A:
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The SEC recently has adopted new rules that require us to seek a
non-binding, advisory vote with respect to certain payments that
may be received by our named executive officers in connection
with the Merger (also known and referred to herein as
golden parachute compensation).
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Q:
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What will happen if shareholders do not approve the
compensation that may be received by the Companys named
executive officers in connection with the Merger at the special
meeting?
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A:
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Approval of the compensation that may be received by the
Companys named executive officers in connection with the
Merger is not a condition to completion of the Merger. The vote
with respect to the compensation that may be received by the
named executive officers in connection with the Merger is an
advisory vote and will not be binding on the Company. Therefore,
if the Merger is approved by the shareholders and completed, the
golden parachute compensation will still be payable,
if triggered, to the named executive officers, whether or not
the advisory vote on compensation is approved by the
Companys shareholders.
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Q:
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What effects will the Merger, if completed, have on the
Company?
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A:
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Upon consummation of the Merger, the Company will cease to be a
publicly traded company and will become a wholly owned
subsidiary of TDC. You will no longer have an equity interest in
the Company and will not participate in any future earnings or
growth, if any, of the Company. Following consummation of the
Merger, the registration of the Companys common stock and
the Companys reporting obligations with respect to the
Companys common stock under the Securities Exchange Act of
1934, as amended (the Exchange Act) will be
terminated upon application to the SEC. In addition, upon
completion of the Merger, shares of the Companys common
stock will no longer be listed on NASDAQ or any other stock
exchange or quotation system.
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Q:
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What happens if the Merger is not consummated?
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A:
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If the Merger Agreement is not approved and adopted by the
shareholders of the Company or if the Merger is not completed
for any other reason, shareholders will not receive any payment
for their shares in connection with the Merger. Instead, the
Company will remain an independent public company and the
Companys common stock will continue to be listed and
traded on NASDAQ. If the Merger Agreement is terminated under
specified circumstances, the Company may be required to pay to
TDC the Termination Fee. Similarly, TDC may be required to pay
to the Company the Termination Fee under certain circumstances.
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14
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See the section of this proxy statement entitled
The
Merger Agreement Termination Fees
for a
more detailed description of the Termination Fee and the
circumstances under which payment thereof is required pursuant
to the Merger Agreement.
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Q:
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How do I vote my shares without attending the special
meeting?
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A:
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You may vote without attending the special meeting by:
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completing, signing and dating each proxy card you
receive and returning it in the enclosed postage-paid envelope;
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using the telephone number printed on your proxy
card;
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using the Internet voting instructions printed on
your proxy card; or
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if you hold your shares in street name,
following the procedures provided by your broker, bank or other
nominee.
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|
Q:
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How do I vote my shares in person at the special meeting?
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A:
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If you hold shares in your name as a shareholder of record, you
may attend the special meeting and vote those shares in person
at the special meeting by giving us a signed proxy card or
ballot before voting is closed. If you decide to vote in person,
please bring proof of identification with you to the special
meeting. Even if you plan to attend the special meeting, we
recommend that you vote your shares in advance, as described
above, so your vote will be counted if you later decide not to
attend the special meeting.
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If you hold shares in street name through a broker,
bank or other nominee, you may vote those shares in person at
the special meeting only if you obtain and bring with you a
signed proxy from the necessary nominees giving you the right to
vote the shares. To do this, you should contact your broker,
bank or other nominee.
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Q:
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If my shares are held in street name by my
broker, bank or other nominee, will my broker, bank or other
nominee vote my shares for me?
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A:
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Your broker, bank or nominee will vote your shares on the
proposals only if you provide instructions to your broker, bank
or nominee on how to vote your shares. You should follow the
directions provided by your broker, bank or other nominee
regarding how to instruct your broker, bank or other nominee to
vote your shares.
Without those instructions, your shares
will not be voted, which will have the same effect as voting
AGAINST the proposal to approve and adopt the Merger
Agreement, but will have no effect with respect to the
Adjournment Proposal or the proposal to approve, on a
non-binding advisory basis, the compensation that may be
received by the Companys named executive officers in
connection with the Merger.
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Q:
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What if my shares are uncertificated and held in street
name?
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A:
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If your shares are uncertificated and held in street
name by your broker, bank or other nominee, you will
receive instructions from your broker, bank or other nominee
shortly after the Merger is completed as to how to effect the
surrender of your street name shares in exchange for
the merger consideration to which you are entitled.
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See the section of this proxy statement entitled
The
Merger Agreement Payment Procedures
for
more information.
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Q:
|
|
How do I vote shares held in the FPIC Insurance Group, Inc.
Defined Contribution Plan?
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A:
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If you own shares of our common stock through our Defined
Contribution Plan (401(k) Plan), we will send you a
voting instruction form for these shares. If you do not provide
voting instructions for these shares, these shares will be voted
by the trustee in the same proportion as the shares for which
other participants have timely provided voting instructions.
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15
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Q:
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Can I revoke or change my vote?
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A:
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Yes. If you hold your shares in your name as a shareholder of
record, you have the right to change or revoke your proxy at any
time before the vote taken at the special meeting by:
(i) delivering to our Secretary, at 1000 Riverside Avenue,
Suite 800, Jacksonville, Florida 32204, a signed written
notice of revocation, bearing a date later than the date of the
proxy, stating that the proxy is revoked; (ii) attending
the special meeting and voting in person (your attendance at the
meeting will not, by itself, change or revoke your
proxy you must vote in person at the special meeting
in order to change or revoke a prior proxy);
(iii) completing, executing and delivering a later dated
proxy card; or (iv) voting again at a later time by
telephone or via the Internet prior to the time at which the
telephone and Internet voting facilities close by following the
procedures applicable to those methods of voting. Simply
attending the special meeting will not revoke your proxy.
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If you hold your shares in street name through a
broker, bank, or other nominee, the options described above for
changing or revoking your vote do not apply; instead, follow the
directions received from your broker, bank or other nominee to
change or revoke your instructions.
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Q:
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|
What does it mean if I get more than one proxy card or vote
instruction form?
|
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A:
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If your shares are registered differently and are in more than
one account, you will receive more than one proxy card. Please
complete, sign, date and return all of the proxy cards you
receive (or submit your proxy for all shares by telephone or via
the Internet) to ensure that all of your shares are voted.
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Q:
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When should I send my proxy card?
|
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A:
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You should send your proxy card as soon as possible so that your
shares will be voted at the special meeting.
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|
Q:
|
|
What do I need to do now?
|
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A:
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Even if you plan to attend the special meeting, after carefully
reading and considering the information contained in this proxy
statement, if you hold your shares in your own name as the
shareholder of record, please vote your shares by:
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completing, signing, dating and returning the
enclosed proxy card;
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using the telephone number printed on your proxy
card; or
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using the Internet voting instructions printed on
your proxy card.
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You can also attend the special meeting and vote, or change your
voting instructions as provided on a previously submitted proxy,
in person.
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If you hold your shares in street name through a
broker, bank or other nominee, you should instruct your broker,
bank or other nominee on how to vote your shares of the
Companys common stock using the instructions provided by
your broker, bank or other nominee. If your shares of the
Companys common stock are held in street name
and you do not provide your broker, bank or other nominee with
instructions, your shares will not be voted, which will have the
same effect as voting AGAINST the approval and
adoption of the Merger Agreement, but will have no effect on the
outcome of any vote on the Adjournment Proposal or the proposal
to approve, on a non-binding advisory basis, the compensation
that may be received by the Companys named executive
officers in connection with the Merger.
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|
Q:
|
|
Are appraisal rights available?
|
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A:
|
|
No, under Florida law, holders of shares of the Companys
common stock are not entitled to exercise appraisal or
dissenters rights in connection with the Merger.
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See the section of this proxy statement entitled
The
Special Meeting of Shareholders No Shareholder
Appraisal Rights
for further information.
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16
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|
Q:
|
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What is required to complete the Merger?
|
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A:
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We and TDC are not required to complete the Merger unless a
number of conditions are satisfied or waived. These conditions
include, among others, (i) receipt of the approval of our
shareholders at the special meeting of the proposal to approve
and adopt the Merger Agreement and (ii) receipt of all
required approvals of the Florida Office of Insurance
Regulation, the Texas Insurance Commissioner and the Missouri
Insurance Director and expiration or early termination of the
applicable waiting period under the HSR Act (early termination
of the applicable waiting period under the HSR Act was granted
on June 17, 2011).
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See the section of this proxy statement entitled
The
Merger Agreement Conditions to the Completion of the
Merger
for a more detailed summary of the conditions
that must be satisfied or waived prior to completion of the
Merger.
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|
Q:
|
|
When do you expect the Merger to be completed?
|
|
A:
|
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We are working to complete the Merger as soon as practicable and
we anticipate that it will be completed by the fourth quarter of
2011, assuming satisfaction or waiver of all of the conditions
to the Merger, including shareholder approval at the special
meeting and obtaining the requisite regulatory approvals.
However, it is possible that factors outside the control of the
Company and TDC could result in the Merger being completed at a
later time, an earlier time or not at all. In addition, there
may be a substantial amount of time between the date of the
special meeting and completion of the Merger.
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Q:
|
|
If the Merger is completed, when can I expect to receive the
merger consideration for my shares of the Companys common
stock?
|
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A:
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Promptly after the completion of the Merger, you will be sent a
letter of transmittal describing how you may exchange your
shares of the Companys common stock for the merger
consideration. You should not send your stock certificates to us
or anyone else until you receive these instructions.
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See the section of this proxy statement entitled
The
Merger Payment Procedures
for more
information.
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Q:
|
|
Who will bear the cost of this proxy solicitation?
|
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A:
|
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The expenses of preparing, printing and mailing this proxy
statement and the proxies solicited hereby will be borne by the
Company.
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|
Q:
|
|
Will a proxy solicitor be used?
|
|
A:
|
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Yes. We have engaged Morrow & Co., LLC to assist in
the solicitation of proxies for the special meeting. We estimate
that we will pay Morrow & Co., LLC approximately
$7,500 plus
out-of-pocket
expenses for its assistance. Our directors, officers, employees,
advisors and other representatives may also solicit proxies by
personal interview, mail,
e-mail,
telephone, facsimile or by other means of communication. These
persons will not be paid additional remuneration for their
solicitation efforts. We will also request brokers and other
fiduciaries to forward proxy solicitation material to the
beneficial owners of shares of the Companys common stock
held of record by others. We will, upon request, reimburse such
brokers and other fiduciaries for their reasonable
out-of-pocket
expenses incurred in connection with forwarding such materials.
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Q:
|
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Should I send in my stock certificates now?
|
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|
A:
|
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No. Shortly after the completion of the Merger, if you hold
certificated shares, you will receive a letter of transmittal
with instructions informing you how to send in your stock
certificates to our paying agent in order to receive the merger
consideration. You should use the letter of transmittal to
exchange stock certificates for the merger consideration to
which you are entitled as a result of the Merger.
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YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING
AGENT WITHOUT A LETTER OF TRANSMITTAL AND YOU SHOULD NOT RETURN
YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
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17
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|
Q:
|
|
Is the Merger expected to be taxable to me?
|
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A:
|
|
Yes. The exchange of shares of the Companys common stock
for cash pursuant to the Merger will generally be a taxable
transaction to U.S. holders for U.S. federal income tax
purposes. If you are a U.S. holder and your shares of Company
common stock are converted into the right to receive cash in the
Merger, you will generally recognize gain or loss for U.S.
federal income tax purposes in an amount equal to the
difference, if any, between the amount of cash received with
respect to such shares (determined before deduction of any
applicable withholding taxes) and your adjusted tax basis in
such shares. Backup withholding may also apply to the cash
payments made pursuant to the Merger unless the U.S. holder or
other payee provides a taxpayer identification number, certifies
that such number is correct and otherwise complies with the
backup withholding rules. You should read
The
Merger Material U.S. Federal Income Tax
Consequences
for a definition of U.S.
holder and a more detailed discussion of the U.S. federal
income tax consequences of the Merger. You should also consult
your tax advisor for a complete analysis of the effect of the
Merger on your federal, state and local and/or foreign taxes.
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Q:
|
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What happens if I sell my shares before the special
meeting?
|
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A:
|
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The record date is earlier than the special meeting and the date
that the Merger is expected to be completed. If you transfer
your shares of the Companys common stock after the record
date but before the special meeting, you will retain your right
to vote at the special meeting, but will have transferred the
right to receive the merger consideration. In order to receive
the merger consideration, you must hold your shares through
completion of the Merger.
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Q:
|
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How can I obtain additional information about the Company?
|
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A:
|
|
We will provide a copy of our Annual Report on
Form 10-K
for the year ended December 31, 2010, excluding its
exhibits, and other filings with the SEC without charge to any
shareholder who delivers a written request to the Companys
investor relations department at FPIC Insurance Group, Inc.,
1000 Riverside Avenue, Suite 800, Jacksonville,
Florida 32204. Our Annual Report on
Form 10-K
and other SEC filings may also be accessed on the Internet at
www.sec.gov
or on the investor relations page of the
Companys website at
www.fpic.com
. Our website
address is provided as an inactive textual reference only. The
information provided on our website is not part of this proxy
statement and therefore is not incorporated herein by reference.
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See the section of this proxy statement entitled
Where
You Can Find More Information
for a more detailed
description of the information available.
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Q:
|
|
Who can help answer my other questions?
|
|
A:
|
|
If you have more questions about the Merger, need assistance in
submitting your proxy or voting your shares, or need additional
copies of the proxy statement or the enclosed proxy card, you
should contact our proxy solicitor at:
|
Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Banks and Brokers Call:
(203) 658-9400
Stockholders Call Toll Free:
(888) 813-7651
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You may also wish to consult your own legal, tax and/or other
financial advisors with respect to the Merger Agreement, the
Merger or other matters described in this proxy statement.
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18
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement, and the documents to which we refer you in
this proxy statement, contain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (referred to herein as the
PSLRA). Forward-looking statements include, among
others, information concerning the possible or assumed future
results of operations of the Company, the expected completion
and timing of the Merger and other information relating to the
Merger. We claim the protection of the PSLRAs safe harbor
provisions for forward-looking statements with respect to all of
the forward-looking statements made throughout this proxy
statement and the documents to which we refer you in this proxy
statement. There are forward-looking statements throughout this
proxy statement, including, without limitation, under the
headings
Summary Term Sheet, Questions and
Answers About the Special Meeting and the Merger,
The Merger, The Merger
Governmental and Regulatory Approvals
and
The
Merger Opinion of Sandler ONeill + Partners,
L.P.
When we discuss, among other things, our future
financial performance (including future revenues, earnings, cash
flows or growth rates), ongoing business strategies or
prospects, the expected closing date of the Merger and possible
future Company actions or use words such as will,
should, likely, believe,
expect, anticipate, estimate
or similar expressions, we are making forward-looking
statements. These forward-looking statements represent our
outlook only as of the date of this proxy statement. While we
believe that our forward-looking statements are reasonable, you
should not place undue reliance on any such forward-looking
statements. Because these forward-looking statements are based
on estimates and assumptions that are subject to significant
business, economic and competitive uncertainties, many of which
are beyond our control or are subject to change, actual results
could be materially different. Factors that might cause such a
difference include, without limitation, the risks and
uncertainties discussed from time to time in this proxy
statement and our other documents filed publicly with the SEC,
including those listed under Item 1A Risk
Factors in our most recent Quarterly Report on
Form 10-Q,
filed on May 4, 2011, and in our most recent Annual Report
on
Form 10-K,
filed on March 9, 2011, and the following:
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the occurrence of any event, change or other circumstance that
could give rise to the termination of the Merger Agreement;
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the outcome of any legal proceedings that may be instituted
against the Company, members of the Board and others relating to
the Merger Agreement;
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the inability to complete the Merger due to the failure to
obtain the necessary shareholder approval or the failure to
satisfy other conditions to consummation of the Merger;
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the failure of the Merger to close for any other reason;
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risks that the Merger disrupts current business plans and
operations and the potential difficulties in employee retention
as a result of the Merger;
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a significant delay in the expected completion of the Merger;
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business uncertainty and contractual restrictions during the
pendency of the Merger;
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the diversion of managements attention from ongoing
business concerns;
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the risk of loss of senior management;
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the effect of the announcement of the Merger on our agent,
broker and customer relationships, operating results,
A.M. Best rating and business generally;
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general economic and market conditions;
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the timing of the completion of the Merger and the impact of the
Merger on our capital resources, cash requirements,
profitability, management resources and liquidity;
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risks and uncertainties relating to our business (including our
ability to achieve strategic goals, objectives and targets over
applicable periods), industry performance and the regulatory
environment;
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the effects of a recession in the United States or other parts
of the world and a general downturn in the economy; and
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the amount of the costs, fees, expenses and charges related to
the Merger.
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The forward-looking statements contained in this proxy statement
speak only as of the date on which such statements were made and
we undertake no obligation, other than as may be required under
federal securities laws, to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. We do not assume
responsibility for the accuracy and completeness of
forward-looking statements. Any or all of the forward-looking
statements contained in this proxy statement and in any other
public statements that are made may prove to be incorrect. This
may occur as a result of inaccurate assumptions or as a
consequence of known or unknown risks and uncertainties. All of
the forward-looking statements are qualified in their entirety
by reference to the factors discussed above and in our most
recent filings on
Forms 10-Q
and
10-K
described above. We caution that these risk factors may not be
exhaustive. We operate in a continually changing business
environment and new risk factors emerge from time to time. We
cannot predict these new risk factors, nor can we assess the
impact, if any, of the new risk factors on our business or the
extent to which any factor or combination of factors may cause
actual results or outcomes to differ materially from those
expressed or implied by any forward-looking statement. In light
of these risks, uncertainties and assumptions, the
forward-looking events discussed in this proxy statement might
not occur.
See the section of this proxy statement entitled
Where
You Can Find More Information
for additional
information about the Company.
THE
PARTIES TO THE MERGER
FPIC
Insurance Group, Inc.
1000 Riverside Avenue, Suite 800
Jacksonville, Florida 32204
(904) 354-2482
We are a leading provider of medical professional liability
insurance for physicians, dentists and other healthcare
providers. Our business is focused primarily in the southern
U.S. through our subsidiaries, First Professionals
Insurance Company, Inc., Anesthesiologists Professional
Assurance Company, Advocate, MD Insurance of the Southwest Inc.,
and Intermed Insurance Company. We are headquartered in
Jacksonville, Florida. We are licensed in 32 states and our
insurance subsidiaries have policyholders in a total of
14 states.
We will provide a copy of our most recent Annual Report on
Form 10-K
for the year ended December 31, 2010 (excluding exhibits),
filed with the SEC on March 9, 2011, and other documents
filed publicly with the SEC without charge to any shareholder
who delivers a written request to our investor relations
department at FPIC Insurance Group, Inc., 1000 Riverside Avenue,
Suite 800, Jacksonville, Florida 32204. Our Annual Report
on
Form 10-K
and other SEC filings also may be accessed on the Internet at
www.sec.gov
or on the investor relations page of the
Companys website at
www.fpic.com
. Our website
address is provided as an inactive textual reference only. The
information provided on our website is not part of this proxy
statement, and therefore is not incorporated by reference
herein. Our common stock is publicly traded on NASDAQ under the
trading symbol FPIC.
The
Doctors Company
185 Greenwood Road
Napa, California
94558-7540
(800) 421-2368
Founded by doctors for doctors in 1976 as a California-domiciled
reciprocal interinsurance exchange, The Doctors Company is the
nations largest insurer of physician and surgeon medical
professional liability with nearly 55,000 member physicians,
$4 billion in assets, and an A rating by Fitch Ratings and
A.M. Best Company. The Doctors Companys principal
executive offices are located in Napa, California.
20
Fountain
Acquisition Corp.
185 Greenwood Road
Napa, California
94558-7540
(800) 421-2368
Fountain Acquisition Corp., a Florida corporation, is a wholly
owned subsidiary of The Doctors Company. It was organized solely
for the purpose of entering into the Merger Agreement and
consummating the transactions contemplated by the Merger
Agreement. It has not conducted any activities to date other
than activities incidental to its organization and in connection
with the transactions contemplated by the Merger Agreement.
THE
SPECIAL MEETING OF SHAREHOLDERS
Date,
Time, Place and Purpose of the Special Meeting
This proxy statement is being furnished to our shareholders as
part of the solicitation of proxies by the Board for use at the
special meeting to be held at the Companys principal
office, located at 1000 Riverside Avenue, Suite 800,
Jacksonville, Florida 32204, on August 12, 2011 at
10:00 a.m., Eastern Time, or at any postponement or
adjournment thereof. The purpose of the special meeting is for
our shareholders to consider and vote upon the following
proposals:
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to approve and adopt the Merger Agreement;
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to approve the Adjournment Proposal; and
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to approve, on a non-binding advisory basis, the compensation
that may be received by the Companys named executive
officers in connection with the Merger.
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Shareholders holding a majority of the issued and outstanding
shares of the Companys common stock at the close of
business on the record date must vote to approve and adopt the
Merger Agreement in order for the Merger to occur. A copy of the
Merger Agreement is attached as
Annex A
to this
proxy statement.
Board of
Directors Recommendation
After careful consideration, our Board, by unanimous vote,
approved and declared advisable the execution, delivery and
performance of the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Merger, and
has determined that the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Merger, are
advisable and in the best interests of the Companys
shareholders.
The Board unanimously recommends that you vote
FOR the proposal to approve and adopt the Merger
Agreement, FOR the Adjournment Proposal and
FOR the proposal to approve, on a non-binding
advisory basis, the compensation that may be received by the
Companys named executive officers in connection with the
Merger.
See the section of this proxy statement entitled
The
Merger Reasons for the Merger; Recommendation of Our
Board of Directors
for a discussion of the material
factors considered by the Board in reaching its conclusions.
Record
Date and Quorum
We have fixed the close of business on July 12, 2011 as the
record date for the special meeting. Only holders of record of
shares of the Companys common stock on the record date are
entitled to vote (in person or by proxy) at the special meeting.
As of July 12, 2011, there were 8,397,934 shares of the
Companys common stock outstanding. Each share of the
Companys common stock outstanding on the record date
entitles its holder to one vote on all matters properly coming
before the special meeting.
The presence at the special meeting, in person or by proxy, of
the holders of a majority of the issued and outstanding shares
of the Companys common stock entitled to vote at the
special meeting as of the close of
21
business on the record date will constitute a quorum for the
purpose of considering the proposals at the special meeting.
Shares of the Companys common stock represented at the
special meeting but not voted, including broker non-votes and
shares of the Companys common stock for which proxies have
been received but indicating that the submitting shareholders
have abstained, will be treated as present at the special
meeting for purposes of determining the presence or absence of a
quorum for the transaction of all business at the special
meeting. A broker non-vote occurs on an item when a broker is
not permitted to vote on that item without instructions from the
beneficial owner of the shares and no instructions are given. In
the event that a quorum is not present at the special meeting,
it is expected that the meeting will be adjourned or postponed
to solicit additional proxies.
Vote
Required for Approval
The approval and adoption of the Merger Agreement requires the
affirmative vote (in person or by proxy) of the holders of a
majority of the shares of the Companys common stock
outstanding at the close of business on the record date. For the
proposal to approve and adopt the Merger Agreement, you may vote
FOR, AGAINST or ABSTAIN.
Abstentions will not be counted as votes cast or shares voting
on the proposal to approve and adopt the Merger Agreement, but
will count for the purpose of determining whether a quorum is
present.
If you abstain, it will have the same effect as a
vote AGAINST the approval and adoption of the Merger
Agreement.
If your shares are held in street name by a broker,
bank or other nominee, your broker, bank or other nominee will
not be entitled to vote your shares in the absence of specific
instructions from you.
These non-voted shares (or
broker non-votes) will have the same effect as a
vote AGAINST the proposal to approve and adopt the
Merger Agreement.
Your broker, bank or nominee will vote
your shares on the proposals only if you provide instructions on
how to vote by following the instructions provided to you by
your broker, bank or other nominee.
Approval, on a non-binding advisory basis, of the compensation
that may be received by the Companys named executive
officers in connection with the Merger requires the affirmative
vote of a majority of the votes cast on such proposal at the
special meeting. As a result, abstentions and broker non-votes
will not affect the vote on such proposal. This vote is advisory
in nature and will not be binding on the Company or the Board
and will not affect whether or not the compensation is paid.
Such compensation will be substantially determined in accordance
with existing agreements between the Company and such executives.
The Adjournment Proposal requires the affirmative vote of a
majority of the votes cast on such proposal at the special
meeting. As a result, abstentions and broker non-votes will not
affect the vote on the Adjournment Proposal.
As of July 12, 2011, the record date for the special
meeting, the directors and executive officers of the Company
beneficially owned, and had the right to vote, in the aggregate,
645,039 shares of the Companys common stock (which
excludes shares that may be acquired by such persons pursuant to
stock option grants), which represents approximately 7.7% of the
outstanding shares of the Companys common stock as of such
date. Our current executive officers and directors have informed
us that they intend to vote all of their shares of the
Companys common stock
FOR
the proposal
to approve and adopt the Merger Agreement,
FOR
the proposal to approve, on a non-binding advisory basis,
the compensation that may be received by the Companys
named executive officers in connection with the Merger and
FOR
the Adjournment Proposal. If our
executive officers and directors vote all of their respective
shares in favor of the proposal to approve and adopt the Merger
Agreement, approximately 7.7% of the outstanding shares of the
Companys common stock will have voted for such proposal.
This means that additional holders of approximately 42.3% of the
outstanding shares of the Companys common stock entitled
to vote at the special meeting would need to vote for the
proposal to approve and adopt the Merger Agreement in order for
it to be approved.
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Proxies
and Revocation
In order for your shares of the Companys common stock to
be included in the vote, if you are a shareholder of record, you
may vote or cause your shares of the Companys common stock
to be voted by proxy using one of the following methods:
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completing, signing and dating each proxy card you receive and
returning it in the enclosed postage-paid envelope;
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using the telephone number printed on your proxy card;
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using the Internet voting instructions printed on your proxy
card; or
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appearing and voting in person by ballot at the special meeting.
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If you hold your shares in street name, you may vote
or cause your shares of the Companys common stock to be
voted by proxy by following the instructions and procedures
provided by your broker, bank or other nominee.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID REPLY
ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR VIA THE INTERNET.
SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR
PROXIES AND VOTE IN PERSON.
Proxies received at any time before the special meeting that are
not revoked or superseded before being voted, will be voted at
the special meeting. Where a specification is indicated by the
proxy, it will be voted in accordance with the specification. If
you sign your proxy card without indicating your vote, your
shares will be voted
FOR
the proposal to
approve and adopt the Merger Agreement,
FOR
the Adjournment Proposal and
FOR
the
proposal to approve, on a non-binding advisory basis, the
compensation that may be received by the Companys named
executive officers in connection with the Merger.
If you abstain, your shares of the Companys common stock
will be treated as present at the special meeting for purposes
of determining the presence or absence of a quorum for the
transaction of business; however, your shares will not be
counted as votes cast or shares voting on the proposals. If you
abstain, it will have the same effect as a vote
AGAINST the proposal to approve and adopt the Merger
Agreement but will have no effect on the Adjournment Proposal or
the proposal to approve, on a non-binding advisory basis, the
compensation that may be received by the Companys named
executive officers in connection with the Merger.
If your shares of the Companys common stock are held in
street name, you will receive instructions from your
broker, bank or other nominee that you must follow in order to
have your shares voted. If you do not instruct your broker, bank
or other nominee to vote your shares, it has the same effect as
a vote AGAINST the proposal to approve and adopt the
Merger Agreement but will have no effect on the Adjournment
Proposal or the proposal to approve, on a non-binding advisory
basis, the compensation that may be received by the
Companys named executive officers in connection with the
Merger.
If you hold your shares in your name as a shareholder of record,
you have the right to change or revoke your proxy at any time
before the vote taken at the special meeting by:
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delivering to the Companys Secretary, T. Malcolm Graham,
at 1000 Riverside Avenue, Suite 800, Jacksonville, Florida
32204, a signed written notice of revocation, bearing a date
later than the date of the proxy, stating that the proxy is
revoked;
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attending the special meeting and voting in person (your
attendance at the meeting will not, by itself, change or revoke
your proxy you must vote in person at the meeting to
change or revoke a prior proxy);
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completing, executing and delivering a later dated proxy
card; or
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voting again at a later time by telephone or via the Internet
prior to the time at which the telephone and Internet voting
facilities close by following the procedures applicable to those
methods of voting.
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If you hold your shares in street name through a
broker, bank, or other nominee, you have the right to change or
revoke your proxy at any time before the vote taken at the
special meeting by following the directions received from your
broker, bank or other nominee to change or revoke those
instructions.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY
CARD. IF THE MERGER IS COMPLETED, A SEPARATE LETTER OF
TRANSMITTAL WILL BE MAILED TO YOU THAT WILL ENABLE YOU TO
RECEIVE THE MERGER CONSIDERATION IN EXCHANGE FOR YOUR STOCK
CERTIFICATES.
Attendance
at the Special Meeting
You do not need to make a reservation to attend the special
meeting. In order to be admitted to the special meeting, you
will need to demonstrate that you are the Company shareholder
entitled to vote at the special meeting or the holder of a valid
proxy granted by the Company shareholder entitled to vote at the
special meeting. If your shares are held in street
name, you will need to bring evidence of your ownership of
the shares (such as your most recent account statement). If you
do not have an admission card or proof that you own the
Companys common stock or hold a valid proxy, you may not
be admitted to the special meeting.
Adjournments
and Postponements
Although it is not currently expected, the special meeting may
be adjourned or postponed for the purpose of soliciting
additional proxies. Any adjournment may be made without notice,
other than by an announcement made at the special meeting of the
time, date and place of the adjourned meeting, provided that if
after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting in accordance
with the bylaws of the Company will be given to each shareholder
of record entitled to notice of and to vote at the meeting.
Whether or not a quorum exists, holders of a majority of the
Companys common stock present in person or represented by
proxy at the special meeting and entitled to vote may adjourn or
postpone the special meeting at any time. Any signed proxies
received by us in which no voting instructions are provided on
the matter will be voted
FOR
the Adjournment
Proposal. Any adjournment or postponement of the special meeting
for the purpose of soliciting additional proxies will allow our
shareholders who have already sent in their proxies to revoke
them at any time prior to their use at the special meeting as
adjourned or postponed.
No
Shareholder Appraisal Rights
Under Florida law, because the Companys common stock is
traded on the NASDAQ Global Select Market and the merger
consideration is all cash, holders of the Companys common
stock are not entitled to exercise appraisal or dissenters
rights in connection with the Merger. If the Merger is
consummated, each holder of the Companys common stock will
only be entitled to receive $42.00 in cash, without interest,
for each share of Companys common stock owned by such
holder.
Solicitation
of Proxies
This proxy solicitation is being made by the Board and paid for
by the Company. In addition, we have retained Morrow &
Co., LLC to assist in the solicitation. We estimate that we will
pay Morrow & Co., LLC $7,500 plus
out-of-pocket
expenses for its assistance in the solicitation of proxies for
the special meeting. Our directors, officers, employees,
advisors and other representatives may also solicit proxies by
personal interview, mail,
e-mail,
telephone, facsimile or other means of communication. These
persons will not be paid additional remuneration for their
solicitation efforts. We will also request brokers and other
fiduciaries to forward proxy solicitation materials to the
beneficial owners of shares of the Companys common stock
that
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the brokers and fiduciaries hold of record. We will, upon
request, reimburse them for their reasonable
out-of-pocket
expenses incurred in forwarding such materials.
Other
Business
We are not currently aware of any business to be acted upon at
the special meeting other than the matters discussed in this
proxy statement. Under the Florida Business Corporation Act
(referred to herein as the FBCA), business
transacted at the special meeting is limited to the purposes
described in the notice of the special meeting, which
accompanies this proxy statement. If other matters properly come
before the special meeting or at any adjournment or postponement
thereof, we intend that shares of the Companys common
stock represented by properly submitted proxies will be voted in
accordance with the recommendations of the Board.
Questions
and Additional Information
If you have more questions about the Merger or how to submit
your proxy, or if you need additional copies of this proxy
statement or the enclosed proxy card or voting instructions,
please call Morrow & Co., LLC, our proxy solicitor,
toll free at
(888) 813-7651,
or contact our investor relations department at FPIC Insurance
Group, Inc., 1000 Riverside Avenue, Jacksonville, Florida 32204.
Our telephone number is
(904) 354-2482.
Availability
of Documents
The information referenced in this proxy statement and filed by
the Company concurrently with this proxy statement will be made
available for inspection and copying at the principal executive
offices of the Company during its regular business hours by any
interested holder of the Companys common stock.
THE
MERGER
The following is a description of the material aspects of the
Merger. While the Company believes that the following
description covers the material terms of the Merger, the
description may not contain all of the information that is
important to the Companys shareholders. The Company
encourages you to carefully read this entire proxy statement,
including the annexes, for a more complete understanding of the
Merger.
Background
of the Merger
As part of its ongoing evaluation of business and strategic
planning, the Board, from time to time, has discussed and
reviewed strategic goals and alternatives. These reviews have
included a full range of strategic alternatives, including
consideration of potential acquisitions and business
combinations, as well as the Companys stand-alone business
plans and prospects.
During the spring of 2008, in connection with an assessment of
the Companys strategic position and opportunities, the
Board authorized the Companys management to assess with
investment bankers and financial advisors familiar with the
Companys industry the possibility of engaging in a
business combination transaction, including the possible sale of
the Company. Partially as a result of the deterioration in
financial markets later in 2008, the Board determined not to
actively pursue any such business combination at that time.
On July 30, 2009, the Company entered into a definitive
agreement to acquire Advocate, MD Financial Group Inc. for
approximately $33.6 million (plus any applicable earn-out
payments pursuant to the terms of the transaction). This
acquisition was completed in November 2009. Sandler ONeill
acted as financial advisor to the Company in connection with
this acquisition.
In August 2009, at the regular meeting of the Strategic Planning
Committee of the Board, that committee reviewed and expressed
support for the Companys 2009 Long Range Strategic Plan.
Among other things, the 2009 Long Range Strategic Plan addressed
a range of strategic alternatives, including the possible sale
of the Company, and factors that might affect the desirability
and risks of a possible sale of the Company. The Strategic
Planning Committee determined that the Company would remain open
to consideration of possible sale transactions.
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Beginning in September 2009, the Company held discussions with a
potential strategic buyer (referred to herein as
Bidder A) concerning the possible acquisition
of the Company by Bidder A. Bidder A initially
conveyed to Mr. Byers, President and Chief Executive
Officer of the Company, a preliminary proposal to acquire the
Company for $30 per share in cash (as adjusted to reflect the
Companys
three-for-two
stock split, which became effective on March 8, 2010).
Mr. Byers responded that he would need to convey the
substance of that conversation to the Board before providing a
response.
On September 30, 2009, a special telephonic meeting of the
Board was held. At this meeting, Mr. Byers described the
preliminary proposal conveyed to Mr. Byers by
Bidder A. Also at this meeting, the Board requested that
Sandler ONeill and outside counsel assist the Board in
determining whether the Company should consider a sale at that
time and how to respond to the preliminary proposal from
Bidder A.
On October 19, 2009, at a special meeting of the Board,
after receiving a presentation from Sandler ONeill and
after discussions with Sandler ONeill, outside counsel and
the Companys management, the Board authorized the
Companys management to explore Bidder As
preliminary proposal.
On October 23, 2009, representatives of the Company,
Sandler ONeill and Bidder A met to discuss the
preliminary proposal and the Company entered into a
confidentiality agreement with Bidder A. Subsequently, the
Company provided Bidder A with financial and other
information concerning the Company, and representatives of the
Company and Sandler ONeill held various discussions with
representatives of Bidder A regarding the preliminary
proposal. On November 3, 2009, Bidder A informed
Mr. Byers that any definitive proposal Bidder A
might be willing to make would not be at a purchase price in
excess of $30 per share (as adjusted to reflect the
Companys
three-for-two
stock split, which became effective on March 8, 2010).
On November 24, 2009, the Board held a special meeting with
Sandler ONeill, outside counsel and the Companys
management in attendance. At this meeting, it was determined
that a price of $30 per share was inadequate and the Company
should not devote further efforts to exploring a transaction
with Bidder A, provided that the possibility of reviving
discussions with Bidder A at a future time would not be
foreclosed.
In February 2010, Bidder A contacted Mr. Byers and
indicated that it might be willing to acquire the Company at an
increased price of $31.33 per share (as adjusted to reflect the
Companys
three-for-two
stock split, which became effective on March 8, 2010). At a
telephonic meeting held on March 2, 2010, the Board created
a special committee (referred to herein as the Special
Committee) of the Board, comprised of
Messrs. Kirschner, Anderson and Byers, Dr. Baratta and
Ms. Ruffier, to consider and make a recommendation to the
Board on how to proceed in light of this communication.
Following meetings held on March 8 and March 18, 2010, the
Special Committee recommended, and at a meeting held on
March 19, 2010, the Board authorized, the engagement of
Sandler ONeill to assist the Board in evaluating strategic
alternatives for the Company, including but not limited to the
possible acquisition of the Company by Bidder A.
Subsequent to March 19, 2010, representatives of Sandler
ONeill and the Company contacted Bidder A and
indicated that the Company was not prepared to proceed with
discussions at the indicated price but would be willing to
consider a higher offer price. Subsequent to this communication,
Bidder A declined to increase its indicated offering price
of $31.33 per share. Based on this refusal by Bidder A, the
Board determined not to pursue further discussions with
Bidder A at that time.
In March 2010, Mr. Byers contacted the President of another
medical professional liability insurer (referred to herein as
Company B) that had previously expressed to
Mr. Divita, the Companys Chief Financial Officer, an
interest in considering a business combination with the Company,
to discuss the possibility of such a transaction. In
follow-up
to
that conversation, on May 20, 2010, Messrs. Byers and
Divita and Mr. White, the leader of the Companys
insurance business segment, met with representatives of Company
B to further discuss the possibility of a
stock-for-stock
merger between the Company and Company B. On May 26, 2010,
the Company and Company B entered into a mutual confidentiality
agreement and began to exchange financial and other information.
The possibility of a transaction with Company B was discussed at
a meeting of the Strategic Planning Committee of the Board held
on June 4, 2010, and Messrs. Byers and Divita met with
the President and the Chief Financial Officer of Company B
during an investor conference on
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June 8, 2010. From June through August, 2010, the Company
continued to obtain and review information concerning Company B
and held in-depth discussions with management of Company B
concerning the possible terms of a merger between the Company
and Company B. Shortly thereafter, Company B decided to pursue
other strategic plans instead of a potential business
combination with the Company.
During April 2010, Mr. Byers was contacted by another
potential strategic buyer (referred to herein as
Bidder C), which indicated a preliminary
interest in exploring a transaction with the Company.
On May 12, 2010, a representative of Sandler ONeill
met with a member of senior management of another potential
strategic buyer (referred to herein as
Bidder D). At this meeting, Bidder D
expressed an interest in meeting Mr. Byers.
On July 15, 2010, Mr. Byers and representatives of
Sandler ONeill met in Jacksonville with a senior executive
of Bidder D to discuss Bidder Ds potential
interest in a transaction with the Company.
On July 20, 2010, Messrs. Byers and Divita met with
senior management of Bidder C to further discuss a possible
business combination between the Company and Bidder C.
At its regular meeting on August 27, 2010, the
Companys Strategic Planning Committee received a
presentation of the 2010 Long Range Strategic Plan developed by
the Company. The objectives of the presentation were to ensure a
common understanding of the Companys strategy and business
priorities, to provide an understanding of and to assess
critical strategic imperatives, and to validate near-term and
long-term strategies. Among the topics presented were: the
Companys current position (including an industry update,
the Companys position and outlook, and an analysis of the
Companys strengths, weaknesses, opportunities and
threats); strategic imperatives (including a discussion of
business development, both organic and through mergers and
acquisitions, the claims and regulatory environment, legislative
and regulatory matters, organizational capabilities and
financial markets); financial projections through 2013; and an
executive summary and conclusion. During the presentation,
emphasis was placed on the continuing competitive market
conditions; the potential impact of healthcare reforms; the
Companys decreasing target market as a result of
consolidation in the medical community; challenges inherent in
the claims, regulatory and operating environment; the continuing
pressure on operating earnings; the importance of the
Companys capital management initiatives; the possible
future decline in the level of the Companys favorable
reserve development; and the challenges of developing a
successful program to market insurance to physicians operating
in a hospital setting or employed by hospitals. An important
part of the presentation was an analysis of the universe of
potential acquisition targets and a discussion of the challenges
in achieving growth through acquisition.
At the August 27 meeting, the Strategic Planning Committee also
received the presentation of Sandler ONeill concerning
recent communications with Bidder D and Bidder C.
Sandler ONeill also provided information concerning each
of Bidder D and Bidder C and discussed their ability
to complete a transaction and their presumed rationales for
acquiring the Company. Sandler ONeill also provided a list
of other parties that could potentially be interested in
acquiring the Company. At the recommendation of Sandler
ONeill, the Strategic Planning Committee authorized
Sandler ONeill and the Companys management to
continue discussions with Bidder D and Bidder C and to
approach other parties that might reasonably be interested in
acquiring the Company. Prior to and after the August 27 meeting,
Sandler ONeill contacted approximately 20 additional
parties to assess their general interest in mergers and
acquisitions, interest in the medical professional liability
insurance sector and, in certain instances, their possible
interest in the Company.
On August 31, 2010, Mr. Byers and a representative of
Sandler ONeill met with senior officers of Bidder D
to provide Bidder D with additional information concerning
the Company. Discussions also continued between Sandler
ONeill and representatives of Bidder C, during which
Bidder C indicated it would not be able to begin to
evaluate the transaction until after its third quarter financial
results were released.
On September 7, 2010, Mr. Byers and Mr. Divita
met with a member of Bidder Cs senior management as
part of the continuing discussions between the Company and
Bidder C. During the September 7 discussion, Bidder C
continued to indicate that it would not be able to consider a
transaction with the Company until after the release of its
third quarter financial results.
27
On October 1, 2010, representatives of Bidder D
informed Sandler ONeill that Bidder Ds
preliminary valuation of the Company was in line with the then
current trading value of the Companys shares, or
approximately $35 per share.
On November 3, 2010, a member of the senior management of
another potential strategic buyer (referred to herein as
Bidder E), met with Mr. Byers and a
representative of Sandler ONeill and indicated a
preliminary interest in exploring a transaction with the Company.
The Special Committee met on November 12, 2010, to receive
a presentation from Sandler ONeill concerning its
activities on the Companys behalf. Two other members of
the Board attended this meeting by telephone. At this meeting,
Sandler ONeill reported on updated market and financial
data, including the Companys
year-to-date
stock price performance, a comparison of that performance to
other property casualty insurers, historical price/book value
and other multiples of the Company and its peers, and summary
financial and operating statistics of the Company and its peers.
Sandler ONeill also reported on and analyzed recent merger
and acquisition activity involving property casualty insurers,
including the announced acquisitions of American Physicians
Capital, Inc. (referred to herein as ACAP) by TDC
and American Physicians Services Group, Inc. by ProAssurance
Corporation. Also, Sandler ONeill discussed the financial
projections for the Company provided by the Companys
management and the indicated ranges of trading values for the
Companys common stock under various methodologies.
Finally, Sandler ONeill discussed the preliminary
discussions held by Sandler ONeill and the Companys
management with potential acquirors, including Bidder C,
Bidder D and Bidder E, and the anticipated future
discussions with these parties. Sandler ONeill also
reviewed an extensive list of other contacts made by Sandler
ONeill with various parties, including multi-line property
casualty insurers and medical professional liability insurers,
and reported that these parties had indicated little or no
interest in the medical professional liability insurance sector
or acquiring the Company. The Board authorized management and
Sandler ONeill to continue discussions with Bidders C, D
and E, including by providing them with confidential, non-public
information following their execution of confidentiality
agreements with the Company.
On November 19, 2010, the Company and Bidder D entered
into a confidentiality agreement, after which the Companys
management provided Bidder D with additional financial and
other information concerning the Company.
On December 6, 2010, the Company and Bidder E entered
into a confidentiality agreement, after which the Companys
management provided Bidder E with financial and other
information concerning the Company.
Bidder C declined to enter into a confidentiality agreement
with the Company.
At its regular meeting held on December 10, 2010, the Board
received an update from the Companys management on the
status of discussions with Bidder D, Bidder C and
Bidder E and the lack of apparent interest by other parties
in a possible transaction with the Company.
On December 21, 2010, Messrs. Byers, Divita and White
and a representative of Sandler ONeill attended a meeting
with the senior management of Bidder E at
Bidder Es offices. During this meeting, the
historical and future performance of the Company was discussed
as well as the implications of a potential business combination
between the Company and Bidder E.
At a dinner held in Jacksonville on December 22, 2010,
Messrs. Byers, White and Divita and a representative of
Sandler ONeill met with a senior executive of
Bidder D, who indicated that Bidder Ds view of
the Companys value had not changed from that communicated
to the Company on October 1, 2010.
On January 13, 2011, Messrs. Byers, White and Divita
and representatives of Sandler ONeill met at
Bidder Ds offices with senior executives of
Bidder D to discuss the Companys recent business
performance and financial projections and the potential
synergies that could be generated through an acquisition of the
Company by Bidder D.
On January 17, 2011, Bidder D provided to Sandler
ONeill a transaction analysis that, among other things,
quantified the synergies to be expected by Bidder D from
acquiring the Company and Bidder Ds estimated return
on investment, assuming a $40 per share purchase price.
28
On a conference call held on January 21, 2011, Sandler
ONeill provided Bidder D with feedback on the
transaction analysis delivered by Bidder D on
January 17. Discussions thereafter continued on this and
related subjects between representatives of Sandler ONeill
and Bidder D.
On February 3, 2011, the Company received a written
non-binding proposal from Bidder D to purchase all of the
Companys outstanding shares for $40 per share in cash.
This was communicated to the Board by telephone on
February 4, 2011 and a special meeting of the Board was set
for February 22, 2011 to discuss this proposal and related
matters with Sandler ONeill and outside counsel. The key
elements of Bidder Ds proposal included
(i) consideration in a form to be negotiated (all cash, all
stock or a combination of the two), (ii) a due diligence
period of approximately 30 days, (iii) an
expectation (or possibly a condition) that the
Companys senior management would remain in positions with
the Company or Bidder D post-closing, and (iv) a
30-day
exclusivity period.
Promptly after this February 4 telephonic Board session, Sandler
ONeill contacted the investment bankers representing
Bidder E, who had previously requested that Sandler
ONeill inform them of the need for Bidder E to
accelerate its consideration of a possible transaction with the
Company, and informed them that, to the extent Bidder E had
a continuing interest in the Company, the Company would like to
receive by February 18, 2011 a written preliminary proposal
from Bidder E. During the week of February 14, 2011,
Sandler ONeill was informed by Bidder E that although
potentially still interested, Bidder E was not currently in
a position to consider the possible submission of a proposal.
By unanimous written consent, on February 10, 2011, the
Special Committee approved the retention of Weil,
Gotshal & Manges LLP (referred to herein as
Weil) to represent the Company and the Board in
connection with its consideration of strategic alternatives.
On February 10, 2011, Sandler ONeill had a meeting
with management of TDC during which they discussed TDCs
potential interest in pursuing a transaction with the Company.
On February 18, 2011, TDC indicated to Sandler ONeill
that it had been doing its internal analysis with respect to a
potential transaction with the Company and that it would
determine whether it would participate in the process by the end
of the week of February 21, 2011. TDC also indicated to
Sandler ONeill that it would only participate in pursuing
a transaction with the Company if a process was already ongoing.
The Board met on February 22, 2011 at a special meeting in
Jacksonville to receive and discuss a report from Sandler
ONeill regarding the evaluation of strategic alternatives
to date and to determine how to respond to Bidder Ds
proposal. Representatives of Sandler ONeill and Weil, and
Messrs. Divita and White and T. Malcolm Graham, our General
Counsel and Secretary, also attended this meeting. Sandler
ONeill presented a detailed update on its activities since
mid-2010 and, in particular, since the November 12, 2010
meeting of the Special Committee. Sandler ONeill also
discussed in detail the terms of Bidder Ds February 3
proposal letter. Sandler ONeill reported that
Bidder C had decided not to pursue a transaction with the
Company and that Bidder E had indicated that it was not
currently in a position to consider the possible submission of a
proposal. Sandler ONeills conclusion was that
Bidder D was likely the only viable potential acquiror of
the Company in the foreseeable future, although Sandler
ONeill stated that TDC had indicated that it might be
interested in pursuing a transaction with the Company. Sandler
ONeill next reported on (with particular reference to the
attractiveness of Bidder Ds proposal) updated market
and financial data, updated financial projections for the
Company provided by the Companys management and some of
the synergies that would be provided to Bidder D by
acquiring the Company. After deliberations and advice from Weil,
the Board authorized the Companys management and its
advisors to (i) inform Bidder D that the Board was
willing to permit Bidder D to begin detailed due diligence
and to begin working towards a definitive agreement,
(ii) inform Bidder D that the Board was not willing to
grant exclusivity to Bidder D at this time,
(iii) pursue further discussions with TDC, and (iv) to
take actions consistent with the discussions at the meeting.
On February 23, 2011, representatives of Sandler
ONeill contacted Bidder D and communicated the
determinations made by the Board at the February 22, 2011
meeting. Sandler ONeill also communicated its view that
the Board would respond positively to an offer of $44 to $45 per
share but that it was uncertain whether the Board could support
an offer of $40 per share. Bidder D responded that it would
not be willing to
29
offer $44 per share and requested that the Company indicate the
price at which it would enter into exclusive due diligence and
transaction negotiations. Bidder D also insisted that it be
granted exclusivity as a pre-condition to its commencement of
detailed due diligence and negotiations toward a definitive
agreement.
Also on February 23, 2011, another potential strategic
buyer (referred to herein as Bidder F),
contacted Sandler ONeill and inquired as to whether the
Company was involved in a process to evaluate a potential sale
of the Company.
After the February 23 discussions with Bidder D, Sandler
ONeill reported to Mr. Kirschner, in his capacity as
Chairman of the Board and Chairman of the Special Committee,
Mr. Anderson, in his capacity as Vice Chairman of the Board
and a member of the Special Committee, and Mr. Byers. Based
on this report and on discussions among themselves and with
Sandler ONeill, it was determined by
Messrs. Kirschner and Anderson that Sandler ONeill
should contact Bidder D and indicate that
Messrs. Kirschner and Anderson felt confident that the
Board would support an offer from Bidder D at an offering
price slightly in excess of $42 per share.
After several conversations between Sandler ONeill,
Company representatives and representatives of Bidder D, on
February 24, 2011, Bidder D indicated that it would
not be willing to meet the $42 price. Bidder D further
confirmed that it did not wish to proceed with due diligence and
transaction negotiations without the
30-day
exclusivity period.
On a telephone conference held on the morning of
February 28, 2011, representatives of Sandler ONeill
and Messrs. Kirschner and Byers determined to communicate
to TDC and Bidder F that the Company was willing to make
financial and actuarial information available to them, under the
protection of confidentiality agreements, and to give them
approximately two weeks to submit written non-binding
indications of their interest in acquiring the Company.
Mr. Kirschner communicated these developments to the Board
later that day.
On March 1, 2011, Sandler ONeill communicated the
above message to representatives of TDC and Bidder F. Both
TDC and Bidder F confirmed that they were interested in
submitting a proposal to acquire the Company and would be able
to do so within approximately two weeks. Sandler ONeill
then provided TDC and Bidder F with draft confidentiality
agreements.
On March 2, 2011, the Company entered into confidentiality
agreements with TDC and Bidder F.
On March 3, 2011, Sandler ONeill delivered to TDC and
Bidder F letters requesting, by March 16, 2011,
preliminary indications of interest in pursuing an acquisition
of the Company, including an indication of value and form of
proposed consideration. In addition, Sandler ONeill
provided TDC and Bidder F with certain nonpublic
information, including a draft of the Companys fourth
quarter 2010 earnings release, summary claims and actuarial
information and drafts of year-end external actuarial studies.
From March 3 through March 16, 2011, representatives of
Sandler ONeill continued to provide TDC and Bidder F
with additional due diligence materials requested by them.
During a telephone call between Sandler ONeill and
Bidder D on March 14, 2011, Bidder D expressed
its continued interest, but only on an exclusive basis and not
at a price in excess of $40 per share. Sandler ONeill
offered to provide Bidder D with access to additional due
diligence materials and Company information, but Bidder D
declined. Sandler ONeill and Bidder D agreed to
continue to discuss Bidder Ds interest.
On March 15, 2011, Macquarie Capital (referred to herein as
Macquarie), financial advisor to TDC, requested
additional time for TDC to submit a proposal letter to Sandler
ONeill. TDC was granted an extension of its deadline to
March 18, 2011.
On March 16, 2011, Bidder F delivered a letter to
Sandler ONeill conveying Bidder Fs non-binding
indication of interest in pursuing discussions related to the
acquisition of all of the Companys outstanding shares for
$38 per share in cash. Bidder Fs letter requested a
60-day
period to complete its due diligence and to negotiate a
definitive agreement.
On March 16, 2011, Mr. White met with a senior
executive of TDC at an industry conference and discussed
operational aspects of the possible acquisition of the Company
by TDC.
30
On March 18, 2011, TDC delivered to Sandler ONeill a
non-binding preliminary indication of interest in acquiring all
of the Companys outstanding shares for cash in a range of
$39 to $42 per share. This letter also outlined the operational
and financial due diligence contemplated by TDC and stated that
its review of the most critical due diligence area, review of
actuarial information, had already begun based on information
provided to TDC. TDC also stated that it believed that four
weeks would be adequate for TDC to complete its due diligence
investigation and that TDC anticipated another two weeks to
negotiate and enter into definitive agreements.
On March 18, 2011 and March 21, 2011, representatives
of Sandler ONeill and members of the Special Committee
discussed how to proceed in light of the three indications of
interest received from Bidder F, TDC and Bidder D.
Members of the Special Committee also conferred separately by
telephone. During the period after February 3 through
March 21, 2011, the Board was given weekly updates of the
progress of discussions with Bidder D, TDC and
Bidder F (as applicable) and was provided with copies of
the Bidder D, TDC and Bidder F proposal letters
promptly upon receipt.
During the March 18 and March 21, 2011 discussions, the
Special Committee expressed its reluctance to provide extensive
access to sensitive Company information to any prospective
acquiror, unless it appeared that the prospective acquiror was
reasonably anticipated to make a competitive offer for the
Company and to complete a transaction. As a result of these
discussions, on March 21, 2011, the Special Committee
instructed Sandler ONeill to contact each of TDC and
Bidder F and to inform (i) TDC that the Company was
willing, only if TDC believed it would be able to refine its
indicated offering price at the high end of its indicated range,
to allow TDC to commence a detailed due diligence investigation,
and (ii) Bidder F that the Company was not willing to
allow Bidder F to commence a detailed due diligence
investigation unless Bidder F increased its offering price
to a level competitive with that of the other prospective
acquirors and gave assurances of its intention to complete a
transaction. Sandler ONeill communicated the
Companys responses to TDC and Bidder F on
March 22, 2011.
During a telephone call with Bidder F on March 22,
2011, Sandler ONeill offered Bidder F access to the
Companys management and additional information to help it
revise its indicated offering price. Bidder F indicated
that it was uncertain whether it would be willing to increase
its offering price but would discuss the matter internally and
respond to Sandler ONeill after a few days. During the
next few weeks, Sandler ONeill communicated frequently
with Bidder F. Sandler ONeill informed Bidder F
that Bidder Fs offer was not competitive, but that
the difference was not dramatic. Sandler ONeill also
informed Bidder F that Bidder F would not be given
access to detailed due diligence information without it
indicating a willingness to increase its indicated offering
price. Sandler ONeill also encouraged Bidder F to
continue its analysis in order to increase its indicated
offering price to a competitive level.
On March 22, 2011, the Companys management and
representatives of Sandler ONeill held a conference call
to receive an update from Sandler ONeill on its
discussions with Bidder F and TDC and to discuss the
mechanics of setting up an on-line data site that would enable
TDC and possibly Bidder F to conduct documentary due
diligence. After this call, the Company and Sandler ONeill
set up and began posting documents on the on-line data site.
On March 29, 2011, a senior executive of Bidder D
telephoned Mr. Byers and communicated Bidder Ds
continuing interest in pursuing a transaction with the Company
but that Bidder D did not foresee that it would be able to
increase its offering price. Conversations between Sandler
ONeill and Bidder D continued after that time. During
these discussions, Sandler ONeill informed Bidder D
that the Company was involved in discussions with other parties.
Also, on March 29, 2011, Bidder F indicated to Sandler
ONeill that it would not be able to increase its proposal
from $38 per share. Sandler ONeill informed Bidder F
that it would not be able to continue to participate in the
process at the price it proposed.
On March 31, 2011, Sandler ONeill delivered a letter
to TDC on behalf of the Company requesting a revised proposal
from TDC by April 20, 2011, indicating, among other things,
the value and form of consideration proposed to be offered,
further due diligence required, plans with respect to the
Companys operations, management and employees, and
required approvals and timing. This letter also informed TDC
that the Company would
31
establish and provide TDC with access to an on-line data site
and would make the Companys senior management team (and,
via conference call, its consulting actuaries) available to TDC
for a meeting in Jacksonville. This letter also informed TDC
that following receipt of TDCs revised proposal, the
Company would determine whether to grant TDC permission to
conduct additional due diligence, including a review of the
Companys underwriting and claims files, and further
meetings with key members of the Companys senior
management. The letter stated that the Company expected to
provide TDC with a draft merger agreement, and to ask TDC to
submit its comments on the draft merger agreement along with its
definitive proposal by early May, 2011.
On April 1, 2011, after conversations with Sandler
ONeill confirming that TDC believed its refined indicated
offering price would be in the high end of its indicated $39 to
$42 range, TDC was given access to the on-line data site.
During the weeks of April 4 and April 11, 2011,
representatives of Sandler ONeill held several
conversations with representatives of Macquarie concerning
information that TDC would like to be able to review in the
on-line data site and concerning the timing and location of a
meeting in Jacksonville with the Companys management team.
As a result of these conversations, the time, place, attendees
and agenda for a meeting in Jacksonville between representatives
of TDC, Macquarie, the Company and Sandler ONeill were
determined. During this time, Sandler ONeill and the
Companys management also prepared written materials to be
provided to TDC and Macquarie at the scheduled meeting. In a
conversation on April 13, 2011, Macquarie informed Sandler
ONeill that TDC intended to submit a written proposal on
April 20, 2011.
On April 14, 2011, Sandler ONeill indicated to
Bidder D that the Company was in non-exclusive discussions
with one other party and invited Bidder D to participate in
due diligence.
On April 15, 2011, Sandler ONeill contacted
Messrs. Kirschner and Anderson and informed them of Sandler
ONeills conversations with Bidder F,
Bidder D and TDC. In a telephone message to the Board later
that day, Mr. Kirschner summarized the information provided
by Sandler ONeill and informed the members of the Board
that there would be an informal information session by telephone
on April 18, 2011, at which time Sandler ONeill would
provide an update directly to the members of the Board.
Mr. Kirschner also informed the members of the Board that
he contemplated that a formal meeting of the Board would be held
on April 21, 2011 to review and consider TDCs revised
indication of interest and to determine how to proceed. On the
afternoon of April 18, 2011, the informal information
session was held. Representatives of Sandler ONeill and
Weil participated in the session and Sandler ONeills
discussions with Bidder F, Bidder D and TDC were
discussed. As a result of Sandler ONeills report, it
was tentatively determined that the Board would convene formally
on April 21, 2011, one day after the anticipated receipt of
TDCs revised indication of interest, to discuss next steps.
On April 19, 2011, representatives of TDC, Macquarie, the
Company and Sandler ONeill met in Jacksonville. In
attendance were certain senior executives of TDC,
representatives from Macquarie and Sandler ONeill, and
Messrs. Byers, Divita, White and Graham and Louis V.
Sicilian, Senior Vice President and Treasurer of the
Companys principal insurance subsidiary. At this meeting,
the TDC representatives were provided with written materials
prepared by the Company, and Messrs. Byers, White and
Divita made oral presentations on the Company generally; the
medical professional liability insurance marketplace; the
Companys business strategy, financial performance, claims
results, reserve position, reinsurance programs, investment
portfolio, and financial projections; and potential synergies
available to an acquiror of the Company. The TDC representatives
were given the opportunity to ask questions of the
Companys management, and a list of
follow-up
information desired by TDC was generated. During the time when
this meeting was being held, representatives of TDC, the Company
and the Companys consulting actuaries met by telephone to
discuss the Companys reserves and related actuarial
matters. At the conclusion of the April 19 meetings, recognizing
that TDC would need additional time to consider the information
provided to TDC and its actuaries, the Company gave TDC a
one-day
extension (to April 21, 2011) to submit its revised
indication of interest.
On April 19, 2011, following up on its conversation with
Sandler ONeill, Bidder D declined to enter the
on-line data site.
32
As a result of the extension given to TDC, notice was given of a
meeting of the Board to be held on April 25, 2011, instead
of April 21 as previously contemplated.
On April 21, 2011, TDC delivered to Sandler ONeill a
revised non-binding indication of interest in acquiring all of
the Companys outstanding shares for $40.50 in cash per
share. This letter also outlined TDCs tentative plans for
the future operation of the Companys business and
described the additional confirmatory due diligence that it
would need to complete. As a condition to moving forward with
its proposal, TDC requested a
21-day
exclusivity period, which it stated it believed would be
adequate to complete due diligence and to negotiate and enter
into a definitive agreement.
On April 22, 2011, representatives of the Company, Weil and
Sandler ONeill conferred by telephone with respect to the
revised TDC proposal and the upcoming meeting of the Board.
On April 25, 2011, the Board met in Jacksonville.
Representatives of Sandler ONeill and Weil also attended
by teleconference. At this meeting, Sandler ONeill
reported that it had contacted representatives of Bidder D
that morning and had informed Bidder D that the Company had
received a proposal from a qualified purchaser that was close
but superior in price to the proposal made by Bidder D in
its February 3 proposal letter. Sandler ONeill also
informed Bidder D that Bidder D needed promptly to
commence a serious due diligence effort if it wished to continue
to be considered a viable potential acquiror of the Company.
Later that morning, Bidder D contacted Sandler ONeill
and confirmed that it desired access to the on-line data site.
After providing this update with respect to Bidder D to the
Board, Sandler ONeill reviewed the terms of TDCs
revised proposal and gave a presentation, which included updated
valuation, market and financial data, projected financial
information for the Company on a stand-alone basis and a net
present value analysis of the revised TDC proposal. At the
conclusion of this meeting, the Board authorized Sandler
ONeill to continue discussions with both Bidder D and
TDC in an effort to obtain the highest and best offer for the
Company and to negotiate the terms of a definitive acquisition
agreement as expeditiously as possible.
Later on April 25, 2011, Sandler ONeill contacted
Bidder D, made arrangements for Bidder Ds
representatives to have access to the on-line data site, and
reiterated the need for Bidder D to perform and complete
its due diligence and to increase its indicated offering price.
Sandler ONeill also contacted TDC and informed TDC that
the Company was evaluating one other offer, which was close in
terms of price to that of TDC. Sandler ONeill also
informed TDC that as a result of the existence of a viable
competing offer, the Company was not able to grant TDC the
exclusivity it had requested but would work with it
expeditiously through final due diligence and negotiation of a
definitive merger agreement, a draft of which would be promptly
supplied to TDC.
On April 26, 2011, Macquarie communicated an inquiry to
Sandler ONeill about the price at which the Company would
enter into exclusive negotiations. As instructed by the Company
based upon the Boards prior deliberations, Sandler
ONeill responded that a preemptive price would be $42 per
share. Macquarie agreed to discuss this with TDC.
On April 27, 2011, Macquarie informed Sandler ONeill
that TDC was willing to continue without an exclusivity
arrangement at its current offer of $40.50 per share. On that
date, Sandler ONeill sent an email to Bidder D and
TDC enclosing a form of definitive merger agreement prepared by
the Companys counsel and requested TDC and Bidder D
to provide by May 13, 2011 the final terms of their
respective offers for the Company, as indicated by their markups
of the form of definitive merger agreement.
During the period from April 27 through May 13, 2011,
representatives of the Company and Sandler ONeill held
numerous telephone conversations with representatives of TDC and
Bidder D concerning due diligence questions and requests,
and the Company prepared and posted in the on-line data site
additional information requested by TDC and Bidder D.
On May 2 and 3, 2011, members of TDCs management and
representatives of Macquarie met with members of the
Companys management and a representative of Sandler
ONeill and reviewed additional information requested by
TDC at the Companys offices in Jacksonville. On May 4 and
5, 2011, members of
33
Bidder Ds management met with members of the
Companys management and representatives of Sandler
ONeill and reviewed additional information requested by
Bidder D at the Companys offices in Jacksonville.
On May 6, 2011, a member of Bidder Fs senior
management called Sandler ONeill to inquire about the
status of the Companys sale process. Sandler ONeill
informed Bidder F that the process was ongoing, and asked
Bidder F whether its indicated offer price remained at $38
per share.
From May 9, 2011 through May 10, 2011, TDC conducted
additional
on-site
due
diligence. During the same time period, Bidder F
reconfirmed to Sandler ONeill its interest in the Company
at $38 per share but indicated no interest at a higher price.
On May 13, 2011, each of TDC and Bidder D delivered to
Sandler ONeill letters containing revised indications of
interest in acquiring the Company and markups of the
Companys form of merger agreement. Bidder Ds
letter indicated that after conducting more extensive due
diligence, Bidder D had concluded that the best price it
could offer would be $38 per share in cash, subject to certain
conditions. TDCs letter contained TDCs final
proposal to acquire all of the Companys outstanding shares
of common stock for $42 in cash, subject to its being
granted a
seven-day
exclusivity period and subject to limited confirmatory due
diligence. After receipt of these letters, Sandler ONeill
contacted Bidder D and TDC and informed them that the Board
had scheduled a meeting for May 16, 2011 to consider the
revised proposals, and that Sandler ONeill would contact
Bidder D and TDC promptly after the conclusion of the
meeting to convey the determinations of the Board.
On May 16, 2011, the Board met in Jacksonville.
Representatives of Sandler ONeill and Weil, as well as
certain members of the Companys senior management, also
attended. A written presentation by Sandler ONeill to the
Board had been previously provided to the Board. At this
meeting, Sandler ONeill reported that on May 13,
2011, it had received letters containing revised non-binding
indications of interest from Bidder D and TDC and described
in detail the proposals contained in those letters. Sandler
ONeill gave a presentation, which included updated
valuation, market and financial data, including a comparison of
implied transaction multiples, the Companys relative stock
price performance, the Companys preliminary first quarter
financial results, analyst estimates of the Companys
future performance, historical price/book value and other
multiples of the Company and its peers, data concerning recent
public company acquisitions in the U.S. property and
casualty insurance sector, transaction statistics for selected
recent medical professional liability insurance company
acquisitions, projected financial information for the Company on
a stand-alone basis, and a net present value analysis of the
revised Bidder D and TDC proposals. At the conclusion of
this meeting, the Board authorized the Companys execution
and delivery of TDCs proposal letter, solely for purposes
of agreeing to the
seven-day
exclusivity period and confidentiality obligations contained
therein, and authorized Messrs. Kirschner and Byers, in
consultation with members of the Companys management and
the Companys advisors, to negotiate the terms of a merger
agreement reflecting TDCs proposal, subject to review by
and the approval of the Board. The Board also authorized
individual members of the Companys management, to the
extent required by TDC, to discuss with TDC employment and
related matters in connection with the TDC proposal, provided
that such member or members of the Companys management
kept the Chairman of the Board and the Chairman of the
Compensation Committee apprised of the content of all such
discussions.
On May 17, 2011, Weil sent a revised draft of the merger
agreement to TDCs legal advisors, Farella
Braun & Martel LLP (referred to herein as
Farella). During the ensuing period, Weil and
representatives of the Company negotiated the terms of the
merger agreement with representatives of TDC and Farella.
Revised drafts of the merger agreement were circulated early in
the morning on May 20, 2011 and late in the evening on
May 20, 2011, by Farella and Weil respectively. Farella
provided a list of the remaining outstanding issues in the
merger agreement on May 21, 2011. Weil provided written
responses to the issues raised by Farella on May 22, 2011,
and Weil, representatives of the Company and Farella discussed
the remaining issues on a teleconference held on May 22,
2011. Farella circulated a revised draft of the merger agreement
in the evening of May 22, 2011, reflecting these
discussions.
On May 18, 2011, TDC conducted final
on-site
due
diligence.
34
On May 23, 2011, the Board met to consider and review the
terms of the proposed merger agreement between TDC, Merger Sub
and the Company. Representatives of Sandler ONeill, Weil
and the Companys management were also in attendance. At
the meeting, representatives of Sandler ONeill made a
presentation as to their financial analyses with respect to
TDCs proposed merger consideration of $42 per share in
cash. Sandler ONeill then delivered to the Board its oral
opinion, which was subsequently confirmed in writing, dated
May 23, 2011, that as of such date, and based on and
subject to the various limitations and assumptions described in
the opinion, the $42 per share in cash to be paid to the holders
of the outstanding shares of the Companys common stock
pursuant to the Merger Agreement was fair from a financial point
of view to such holders (a copy of the written opinion of
Sandler ONeill is attached to this proxy statement as
Annex B
). The Board then discussed with Company
management and representatives of Sandler ONeill and Weil
the proposed transaction with TDC, and Weils
representative reviewed the terms of the proposed merger
agreement. In addition, Weils representative reviewed with
the Board its fiduciary duties in connection with the review
and, if applicable, approval of the proposed transaction with
TDC.
After careful consideration and discussion, the Board
unanimously voted to adopt resolutions approving and declaring
advisable the execution, delivery and performance of the Merger
Agreement and the transactions contemplated thereby, and
determined that the Merger Agreement and the transactions
contemplated thereby (including the Merger) were advisable and
in the best interests of the Companys shareholders.
Following the Board meeting on May 23, 2011, the parties
finalized the terms of the Merger Agreement in accordance with
the terms discussed with the Board, and TDC, Merger Sub, and the
Company executed the Merger Agreement. On the morning of
May 24, 2011, TDC and the Company issued a joint press
release announcing the Merger.
Reasons
for the Merger; Recommendation of Our Board of
Directors
The Board, with the advice and assistance of the Companys
management and its legal and financial advisors, at a meeting on
May 23, 2011, carefully evaluated the proposed Merger,
including the terms and conditions of the Merger Agreement.
Following such evaluation, the Board unanimously
(i) determined that the Merger Agreement and the Merger are
advisable and in the best interests of the Company and its
shareholders, (ii) approved the Merger Agreement and
(iii) resolved to recommend the approval and adoption of
the Merger Agreement to the Companys shareholders.
In the course of reaching its determination, the Board consulted
with the Companys management and its legal and financial
advisors and considered a number of substantive factors and
potential benefits of the Merger. The Board believed that, taken
as a whole, the following factors, among others, supported its
decision to approve and recommend the proposed Merger and the
Merger Agreement:
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the Boards familiarity with the Companys business,
operations, assets, business strategy and competitive position,
as well as the nature of the medical professional liability
insurance industry, industry trends, and economic and market
conditions, both on a historical and on a prospective basis;
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the current and historical financial condition and results of
operations of the Company;
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the financial projections of the Company and the risks
associated with the Companys ability to meet such
projections;
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the current and historic market prices of the Companys
common stock, including the fact that the cash merger price of
$42.00 per share represents a premium of approximately 31% over
the closing price of $32.10 on NASDAQ on May 23, 2011, the
trading day prior to the announcement of the Merger Agreement;
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the extensive analysis and sale process conducted by the
Company, with the assistance of Sandler ONeill, which
involved engaging in discussions with approximately 20 parties
to assess their general interest in mergers and acquisitions,
interest in the medical professional liability insurance sector
and, in certain instances, to determine their potential interest
in a business combination transaction with the Company, entering
into non-disclosure agreements with five parties and the receipt
of preliminary indications of interest to acquire the Company
from four parties;
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35
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the price offered by TDC represents the highest bid that the
Company received for the acquisition of the Company;
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the fact that the merger consideration is all cash, which will
provide certainty of value and immediate liquidity to the
Companys shareholders;
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the Boards belief that, after consideration of potential
alternatives, the Merger is expected to provide greater benefits
to the Companys shareholders than the range of possible
alternatives to the sale of the Company, including continuing to
operate the Company on a stand-alone basis;
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the Boards assessment, after consultation with the
Companys management and legal and financial advisors, of
the risks of remaining an independent company and the prospects
of going forward as an independent entity;
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TDCs track record in successfully acquiring and
integrating companies;
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the Boards review, with the Companys legal and
financial advisors, of the structure of the Merger and the terms
and conditions of the Merger Agreement, including:
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the limited number and nature of the conditions to the
obligation of TDC and Merger Sub to consummate the Merger,
including the absence of a financing condition, and the
relatively limited risk of non-satisfaction of such conditions;
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the provisions of the Merger Agreement that allow the Board to
change or withdraw its recommendation that the Companys
shareholders vote in favor of the Merger if it determines in
good faith that failure to do so would be inconsistent with its
fiduciary duties to the Companys shareholders;
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the ability of the Board to withdraw or modify its
recommendation of the Merger or recommend, adopt or approve an
alternative Acquisition Proposal, upon receipt of a Superior
Proposal (as such terms are defined in the Merger Agreement and
described in the section of this proxy statement entitled
The Merger Agreement Change of
Recommendation
);
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the provisions of the Merger Agreement that allow the Board,
under certain circumstances, to participate in discussions or
negotiations with, or provide non-public information to, any
person making an unsolicited Acquisition Proposal if the Board
has determined in good faith that there is a reasonable
likelihood that the Acquisition Proposal will lead to a Superior
Proposal (as such terms are defined in the Merger Agreement and
described in the section of this proxy statement entitled
The Merger Agreement Restrictions on
Solicitation of Other Offers
);
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the Companys ability to terminate the Merger Agreement to
enter into an agreement providing for a Superior Proposal
(provided that such proposal was unsolicited and subject to
providing TDC with three business days notice, negotiating
with TDC in good faith and paying TDC the Termination Fee);
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the circumstances under which the Termination Fee is payable by
the Company to TDC and the size of such Termination Fee, which
the Board views as reasonable in light of the size and expected
benefits of the Merger and not preclusive of a Superior
Proposal, were one to emerge;
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the circumstances under which the Termination Fee is payable by
TDC to the Company and the size of such Termination Fee (see the
section of this proxy statement entitled
The Merger
Agreement Termination Fees
for more
information on the Termination Fee); and
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the requirement that the Company obtain shareholder approval as
a condition to consummation of the Merger;
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the financial analysis presented by Sandler ONeill to the
Board, including the written opinion of Sandler ONeill
dated May 23, 2011, to the effect that, as of the date
thereof and based upon and subject to the factors and
assumptions set forth therein, the $42.00 per share in cash to
be paid to the holders of the outstanding shares of the
Companys common stock pursuant to the Merger Agreement was
fair from a financial point of view to such holders (as
described in the section of this proxy
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36
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statement entitled
The Merger Opinion of
Sandler ONeill + Partners, L.P.
). The full text
of the opinion of Sandler ONeill is attached to this proxy
statement as
Annex B
;
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increasing uncertainty in the healthcare industry arising from
recent changes in federal laws and the potential negative impact
this might have on the Companys future prospects resulting
from changes by healthcare professionals in insurance purchasing
habits, pressures on the profitability of providing healthcare
services, increasing claims resulting from changes in healthcare
delivery and other factors;
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continuing competitive pricing pressures on the Companys
insurance products and the potential negative impact this might
have on the Companys future prospects;
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decreased yields on the Companys investment portfolio
resulting from effects of the ongoing national economic crisis
and the potential that low investment yields might continue for
several years; and
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continuing exposure to significant claims costs with respect to
extracontractual damages and settlements in excess of policy
limits, especially in Florida.
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In addition, the Board was aware of and considered the interests
that the Companys directors and executive officers may
have with respect to the Merger that may differ from, or may be
in addition to, their interests as shareholders of the Company,
as described in the section of this proxy statement entitled
The Merger Interests of Certain Persons in
the Merger.
The Board also considered and balanced against the expected
benefits of the Merger a number of potential risks or adverse
factors concerning the Merger, including but not limited to the
following:
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the risks and contingences relating to the announcement and
pendency of the Merger and the risks to the Company if the
Merger does not close or the closing is not timely, including
the effect of an announcement of termination of the Merger
Agreement on the trading price of the Companys common
stock;
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the Companys potential inability to attract and retain key
personnel and the risk of disrupting the Companys business
and of diverting management focus and resources from other
strategic opportunities and from operational matters while
working towards implementation of the Merger;
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the risk that the announcement of the Merger or the consummation
thereof could adversely affect the Companys relationships
with its vendors, customers and other parties;
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the risks associated with various provisions of the Merger
Agreement, including:
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the restrictions on the conduct of the Companys business
prior to completion of the Merger, which require the Company to
conduct its business in the ordinary course and prohibit the
Company from taking certain specified actions without TDCs
consent, and the fact that these restrictions might delay or
prevent the Company from undertaking business opportunities that
may arise pending completion of the Merger;
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the risk that the required regulatory approvals from various
governmental authorities may not be obtained;
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the restrictions on the Companys ability to solicit or
engage in discussions or negotiations with third parties
regarding specified transactions involving the Company and the
requirement that the Company pay TDC the Termination Fee in
order to accept a Superior Proposal;
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the fact that if the Merger is consummated, the Company will no
longer exist as an independent company and the Companys
shareholders will not participate in any future earnings or
growth of the Company and will not benefit from any future
appreciation in value of the Company;
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the fact that the all cash merger consideration will be taxable
to the Companys shareholders that are U.S. holders
for U.S. federal income tax purposes; and
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the fact that the Companys shareholders do not have the
right under Florida law to demand appraisal of the fair value of
their shares.
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37
The Board also considered a number of factors relating to the
procedures involved in the negotiation of the Merger Agreement,
including that the Board:
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consists entirely of directors who, with the exception of
Mr. Byers, are not officers of the Company or affiliated
with TDC;
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will not personally benefit from the consummation of the Merger
in a manner different from the unaffiliated shareholders of the
Company except as described in the section of this proxy
statement entitled
The Merger Interests of
Certain Persons in the Merger
; and
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among other things, (i) oversaw the negotiation process
with respect to the proposed Merger, (ii) communicated as
frequently as necessary with the Companys management and
the Companys legal and financial advisors with respect to
the negotiation and relevant terms of the Merger Agreement, and
(iii) considered alternative transaction opportunities to
determine whether the proposed Merger was fair to and in the
best interests of the Company and its shareholders.
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The foregoing discussion of the information and factors
considered by the Board is not intended to be exhaustive but, we
believe, includes all material factors considered by the Board
in considering the Merger. In view of the wide variety of
factors and the amount of information considered, as well as the
complexity of these matters, the Board did not find it
practicable to, and did not attempt to, quantify or assign
relative weights to the above factors or the other factors
considered by it. In addition, the Board did not reach any
specific conclusion on each factor considered, but conducted an
overall analysis of these factors. Individual members of the
Board may have given different weights to different factors.
The Board unanimously recommends that the Companys
shareholders vote FOR the approval and adoption of
the Merger Agreement, FOR the Adjournment Proposal
and FOR the proposal to approve, on a non-binding
advisory basis, the compensation that may be received by the
Companys named executive officers in connection with the
Merger.
Unaudited
Financial Forecasts
The Company is including in this proxy statement certain
non-public financial forecasts for the years ending
December 31, 2011, 2012 and 2013, respectively (referred to
herein as the Company projections) that the
Companys management prepared for the Board in connection
with its consideration of the Merger. The Company projections
also were provided to the Companys financial advisor. See
The Merger Opinion of Sandler ONeill
+ Partners, L.P.,
beginning on page 40. The
Company projections were not prepared with a view toward public
disclosure or compliance with published guidelines of the SEC or
the American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information or generally accepted accounting principles but, in
the view of the Companys management, were prepared on a
reasonable basis and reflected the best then-currently available
estimates and judgments of the Companys management
relevant to strategic planning and budgeting. The inclusion of
the Company projections in this document should not be regarded
as an indication that the Company or any other recipient of this
information considered, or now considers, this information to be
necessarily predictive of actual future results. The inclusion
of the Company projections in this document does not constitute
an admission or representation by the Company that such
information is material.
The Company projections were prepared by, and are the
responsibility of, the Companys management and are
unaudited. Neither the Companys independent registered
public accounting firm, nor any other independent auditor, has
compiled, examined or performed any procedures with respect to
the prospective financial information contained in the Company
projections, nor have they expressed any opinion or given any
form of assurance on the Company projections or their
achievability. They assume no responsibility for, and disclaim
any association with, the prospective financial information
contained therein. Furthermore, the Company projections:
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were based upon numerous assumptions, including the key
assumptions identified in the table below, many of which are
beyond the control of the Company and may not prove to be
accurate;
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38
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were originally prepared in April 2011;
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do not necessarily reflect current estimates or assumptions the
Companys management may have about prospects for the
Companys businesses, changes in general business or
economic conditions, or any other transaction or event that has
occurred or that may occur and that was not anticipated at the
time the Company projections were prepared;
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are not necessarily indicative of current values or future
performance, which may be significantly more favorable or less
favorable than as set forth below; and
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are not, and should not be regarded as, a representation that
the Company projections will be achieved.
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The Company projections were prepared by the Companys
management based on information management had at the time of
preparation and are not a guarantee of future performance. The
Company projections were, in general, prepared solely for use by
the Board and the Companys financial advisor and are
subjective in many respects and thus subject to interpretation.
The Company cannot assure you that the Company projections will
be realized or that its future financial results will not
materially vary from such projections. The Company projections
cover multiple years and such information by its nature becomes
less predictive with each succeeding year.
The Company projections do not necessarily take into account any
circumstances or events occurring after the date they were
prepared. The Company has not updated or revised, and does not
intend to update or otherwise revise, the Company projections to
reflect changes in circumstances since the preparation of the
Company projections, including changes in general economic or
industry conditions, or to reflect the occurrence of
unanticipated events or changes in assumptions underlying the
Company projections, even in the event that any or all of the
underlying assumptions are shown to be in error. The Company
projections are forward-looking statements. For additional
information on factors that may cause the Companys future
financial results to materially vary from the Company
projections, see the section of this proxy statement entitled
Cautionary Statement Concerning Forward-Looking
Information
beginning on page 19.
Company
Projections (Including Key Assumptions)
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As of and for the Years Ending December 31,
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2011E
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2012E
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2013E
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$ in millions, except per share data
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Assumptions
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Growth in Net Premiums Written
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2.7%
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3.3%
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3.3%
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Growth in Net Premiums Earned
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(1.0)%
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2.9%
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3.1%
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Loss Ratio (Calendar Year)
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60.5%
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60.8%
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61.1%
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Expense Ratio
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29.2%
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28.8%
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28.4%
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Combined Ratio (Calendar Year)
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89.8%
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89.6%
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89.5%
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Share Repurchases
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$
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40.0
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$
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40.0
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$
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30.0
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% Repurchase of Beginning Shares Outstanding
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12.0%
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12.9%
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10.0%
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Income Statement Data
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Net Premiums Written
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$
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168.3
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$
|
173.9
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$
|
179.7
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Net Premiums Earned
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166.3
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171.2
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176.5
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Net Investment Income
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23.7
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23.6
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23.7
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Total Revenue
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190.7
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195.4
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200.9
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Net Operating Income
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25.3
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25.7
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26.1
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Operating EPS Diluted
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$
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2.92
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$
|
3.34
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$
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3.79
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Shareholders Equity
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Shareholders Equity
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$
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260.7
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$
|
247.1
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$
|
244.0
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Shareholders Equity Per Share
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$
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32.84
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$
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35.38
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$
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38.34
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39
The Company also provided certain financial projections (for the
years ending December 31, 2011, 2012 and 2013) to TDC
in connection with TDCs evaluation of the proposed Merger.
The financial projections provided to TDC were prepared using
the same assumptions, and contained substantially the same
projections, as the Company projections, except that the
projections provided to TDC assumed that the Companys
share repurchases pursuant to its
Rule 10b5-1
plan would cease after the results of the first quarter of 2011
were reported. This specific assumption was modified to reflect
the Companys financial prospects going forward as a wholly
owned subsidiary of TDC (rather than on a stand-alone basis).
This modified assumption with respect to the Companys
share repurchase plan impacted the Companys projections
with respect to net investment income (as a result of the
increase in Company assets available for investment). The impact
on net investment income, as well as the decrease in total share
repurchases, affected the projections for certain items,
including total revenues, operating earnings and book value per
share, that were provided to TDC, as reflected in the table
below:
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As of and for the Years Ending December 31,
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2011E
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2012E
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2013E
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$ in millions, except per share data
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Total Revenues
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$
|
191.0
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|
$
|
196.7
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$
|
203.5
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Operating Earnings
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$
|
25.5
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$
|
26.6
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$
|
28.0
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Book Value Per Share
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$
|
33.16
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$
|
36.11
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$
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39.17
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Opinion
of Sandler ONeill + Partners, L.P.
By letter dated March 31, 2010, the Company retained
Sandler ONeill to act as its financial advisor in
connection with the Companys consideration of potential
strategic alternatives, including a possible sale of the
Company. Sandler ONeill is a nationally recognized
investment banking firm whose principal business specialty is
financial institutions. In the ordinary course of its investment
banking business, Sandler ONeill is regularly engaged in
the valuation of insurance companies and their securities in
connection with mergers and acquisitions and other corporate
transactions.
Sandler ONeill acted as financial advisor to the Company
in connection with the proposed transaction and participated in
certain of the negotiations leading to the execution of the
Merger Agreement. At the May 23, 2011 meeting at which the
Board considered and approved the Merger Agreement, Sandler
ONeill delivered to the Board its oral opinion that, as of
such date, the merger consideration was fair to the holders of
the Companys common stock from a financial point of view.
The full text of Sandler ONeills opinion is
attached hereto as
Annex B
. The opinion outlines the
procedures followed, assumptions made, matters considered and
qualifications and limitations on the review undertaken by
Sandler ONeill in rendering its opinion. The description
of the opinion set forth below is qualified in its entirety by
reference to the opinion. The Companys shareholders are
urged to read the entire opinion carefully in connection with
their consideration of the Merger.
Sandler ONeills opinion speaks only as of the date
thereof. The opinion is directed to the Board and is directed
only to the fairness of the merger consideration to the
Companys shareholders from a financial point of view. It
does not address the underlying business decision of the Company
to engage in the Merger or any other aspect of the Merger and is
not a recommendation to any Company shareholder as to how such
shareholder should vote at the special meeting with respect to
the Merger or any other matter.
In connection with rendering its May 23, 2011 opinion,
Sandler ONeill reviewed and considered, among other things:
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the Merger Agreement;
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certain publicly available financial statements and other
historical financial information of the Company that Sandler
ONeill deemed relevant;
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40
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internal financial projections for the Company for the years
ending December 31, 2011 through 2013 as prepared by senior
management of the Company, including the Company projections
(see the section of this proxy statement entitled
The
Merger Unaudited Financial Forecasts
beginning on page 38);
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the publicly reported historical stock price and trading
activity for the Companys common stock, including a
comparison of certain financial and stock market information for
the Company with similar publicly available information for
certain other companies the securities of which are publicly
traded;
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to the extent publicly available, the financial terms of certain
recent business combinations in the medical professional
liability insurance sector and property and casualty insurance
industry;
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|
|
|
the market premiums paid in certain recent business combinations
involving property and casualty insurance companies;
|
|
|
|
the current property and casualty insurance environment
generally and the medical professional liability insurance
environment in particular; and
|
|
|
|
such other information, financial studies, analyses and
investigations and financial, economic and market criteria as
Sandler ONeill deemed relevant.
|
Sandler ONeill also discussed with certain members of the
Companys senior management the business, financial
condition, results of operations and prospects of the Company.
In performing its review, Sandler ONeill relied upon the
accuracy and completeness of all of the financial and other
information that was available to it from public sources, that
was provided to Sandler ONeill by the Company or its
representatives or that was otherwise reviewed by Sandler
ONeill and assumed such accuracy and completeness for
purposes of rendering its opinion. Sandler ONeill further
relied on the assurances of the Companys management that
the Companys management was not aware of any facts or
circumstances that would make any of such information inaccurate
or misleading. Sandler ONeill was not asked to and did not
undertake an independent verification of any of such
information, and it does not assume any responsibility or
liability for the accuracy or completeness thereof. Sandler
ONeill did not make an independent evaluation or appraisal
of the specific assets, the collateral securing assets or the
liabilities (contingent or otherwise) of the Company or any of
its subsidiaries, or the collectability of any such assets, nor
was Sandler ONeill furnished with any such evaluations or
appraisals. Sandler ONeill is not an expert in the
evaluation of reserves for property and casualty insurance
losses and loss adjustment expenses, and it did not make an
independent evaluation of the adequacy of the loss and loss
adjustment expense reserves of the Company. In that regard,
Sandler ONeill made no analysis of, and expressed no
opinion as to, the adequacy of the loss and loss adjustment
expense reserves of the Company.
With respect to the internal financial projections as prepared
by the Companys senior management and used by Sandler
ONeill in its analyses, the Companys management
confirmed to Sandler ONeill that they reflected the best
currently available estimates and judgments of management of the
future financial performance of the Company, and Sandler
ONeill assumed that such financial results would be
achieved. Sandler ONeill expressed no opinion as to such
financial projections or the assumptions on which they are
based. Sandler ONeill also assumed that there had been no
material change in the Companys assets, financial
condition, results of operations, business or prospects since
the date of the most recent financial statements made available
to it. Sandler ONeill assumed in all respects material to
its analysis that the Company would remain a going concern for
all periods relevant to its analyses, that all of the
representations and warranties contained in the Merger Agreement
and all related agreements are true and correct, that each party
to the agreements will perform all of the covenants required to
be performed by such party under the agreements, and that the
conditions precedent in the agreements would not be waived.
Finally, with the Companys consent, Sandler ONeill
relied upon the advice the Company received from its legal,
accounting and tax advisors as to all legal, accounting and tax
matters relating to the Merger and the other transactions
contemplated by the Merger Agreement.
Sandler ONeills opinion is necessarily based on
financial, economic, market and other conditions as in effect
on, and the information made available to it as of, the date of
its opinion. Events occurring after the
41
date of its opinion could materially affect its opinion. Sandler
ONeill did not undertake to update, revise, reaffirm or
withdraw its opinion or otherwise comment upon events occurring
after the date thereof.
Sandler ONeills opinion is directed to the Board
in connection with the Boards consideration of the Merger
and does not constitute a recommendation to any shareholder of
the Company as to how such shareholder should vote at any
meeting of shareholders called to consider and vote upon the
Merger
. Sandler ONeills opinion is directed only
to the fairness, from a financial point of view, of the merger
consideration to holders of the Companys common stock and
does not address the underlying business decision of the Company
to engage in the Merger, the relative merits of the Merger as
compared to any other alternative business strategies that might
exist for the Company or the effect of any other transaction in
which the Company might engage.
Summary
of Proposal
Sandler ONeill reviewed the financial terms of the
proposed transaction. Based on the merger consideration of
$42.00 per share in cash and using common shares, unvested
restricted shares, and options outstanding as of March 31,
2011, Sandler ONeill calculated an aggregate transaction
value(1) of $364.5 million, which was comprised of
consideration related to common shares outstanding of
$350.7 million, unvested restricted shares of
$4.2 million and outstanding stock options of
$9.6 million. Sandler ONeill calculated the following
transaction ratios:
|
|
|
|
|
Transaction Value per Share
|
|
$42.00
|
|
3/31/11 Book Value Multiples:
|
|
|
|
|
Book Value
|
|
|
1.41
|
x
|
Book Value per Share
|
|
|
1.36
|
x
|
Book Value (ex-FAS 115)(2)
|
|
|
1.50
|
x
|
Tangible Book Value
|
|
|
1.57
|
x
|
Earnings Multiples:
|
|
|
|
|
LTM 3/31/11 Net Operating Income(3)
|
|
|
12.9
|
x
|
2011E Net Operating Income (Management Stand-Alone Case)
|
|
|
14.4
|
x
|
2012E Net Operating Income (Management Stand-Alone Case)
|
|
|
14.2
|
x
|
2011E First Call EPS Estimate
|
|
|
15.6
|
x
|
2012E First Call EPS Estimate
|
|
|
15.6
|
x
|
Transaction Value per Share as Premium to:
|
|
|
|
|
Last Sale Price
|
|
|
27.2
|
%
|
Trailing 5-Trading Day Average
|
|
|
26.1
|
%
|
Trailing
1-Month
Average
|
|
|
20.3
|
%
|
Stock Price Prior to ACAP Announcement (7/7/10)
|
|
|
60.3
|
%
|
|
|
|
(1)
|
|
Reflects 8.350 million common shares outstanding,
0.100 million unvested restricted shares that will vest in
connection with the transaction and 0.410 million options
(all were previously fully-vested) with a weighted average
exercise price of $18.62 as of March 31, 2011. Does not
include estimated
change-in-control
payments under employment and severance agreements of
$12.6 million.
|
|
(2)
|
|
Excludes $14.9 million of net unrealized gains, after-tax.
|
|
(3)
|
|
Excludes additional contingent consideration of
$2.4 million related to the Advocate, MD acquisition.
|
Historical
Stock Price Performance Analysis
Sandler ONeill reviewed the stock price performance of the
Companys common stock, the Standard &
Poors 500 Index, the Standard & Poors
Property & Casualty Index and the stock price
performance of ProAssurance Corporation (referred to herein as
ProAssurance) for the one and three year periods
ended May 20, 2011.
42
The results of these analyses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
One
|
|
Three
|
|
|
Year(1)
|
|
Year(1)
|
|
FPIC Stock Price and Volume Data:
|
|
|
|
|
|
|
|
|
High
|
|
$
|
39.40
|
|
|
$
|
40.13
|
|
Low
|
|
$
|
25.17
|
|
|
$
|
18.61
|
|
Average
|
|
$
|
33.85
|
|
|
$
|
28.77
|
|
Average Daily Volume
|
|
|
37,631
|
|
|
|
51,224
|
|
Relative Stock Price Performance:
|
|
|
|
|
|
|
|
|
FPIC
|
|
|
22.4%
|
|
|
|
8.1%
|
|
ProAssurance
|
|
|
19.3%
|
|
|
|
37.0%
|
|
S&P 500
|
|
|
24.4%
|
|
|
|
(5.7)%
|
|
S&P P&C
|
|
|
15.5%
|
|
|
|
(9.7)%
|
|
|
|
|
(1)
|
|
Market data is as of May 20, 2011.
|
Source: SNL Financial
Sandler ONeill reviewed the historical Price/Book Value
Per Share multiples of the Companys common stock,
ProAssurance and a peer group, which Sandler ONeill
determined, for the period between July 9, 2007 and
May 20, 2011.
The results of these analyses were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3-Year Average
|
|
1-Year Average
|
|
|
|
|
|
|
Price/Book Value
|
|
Price/Book Value
|
|
|
|
|
|
|
per Share Prior to
|
|
per Share Prior to
|
|
Post-ACAP
|
|
|
|
|
ACAP Announcement
|
|
ACAP Announcement
|
|
Period
|
|
Current
|
|
FPIC
|
|
|
1.18
|
x
|
|
|
0.93
|
x
|
|
|
1.14
|
x
|
|
|
1.07
|
x
|
ProAssurance
|
|
|
1.24
|
x
|
|
|
1.08
|
x
|
|
|
1.03
|
x
|
|
|
1.12
|
x
|
Peer Group(1)
|
|
|
1.07
|
x
|
|
|
0.89
|
x
|
|
|
0.88
|
x
|
|
|
0.87
|
x
|
Premium to ProAssurance
|
|
|
(5.0
|
)%
|
|
|
(14.0
|
)%
|
|
|
10.8
|
%
|
|
|
(5.0
|
)%
|
Premium to Peer Group
|
|
|
10.1
|
%
|
|
|
4.7
|
%
|
|
|
29.6
|
%
|
|
|
22.0
|
%
|
|
|
|
(1)
|
|
Peer group consists of companies included in the Selected
Commercial P&C Companies Between $100 Million and $1
Billion described in Comparable Company Analysis.
|
|
(2)
|
|
Market data is as of May 20, 2011.
|
Note: Announcement of ACAPs sale to The Doctors
Company was on July 8, 2010.
Source: SNL Financial
Comparable
Company Analysis
Sandler ONeill used publicly available information to
perform a comparison of selected financial and market trading
information for the Company.
Sandler ONeill also used publicly available information to
compare selected financial and market trading information for
medical professional liability insurance companies consisting of
the Company and ProAssurance and a group of commercial property
and casualty (referred to herein as P&C)
insurance companies between $100 million and
$1 billion selected by Sandler ONeill. The selected
commercial P&C
43
companies between $100 million and $1 billion
consisted of the following publicly traded insurance companies
or holding companies thereof:
|
|
|
American Safety Insurance Holdings, Ltd.
|
|
Harleysville Group Inc.
|
AMERISAFE, Inc.
|
|
Meadowbrook Insurance Group, Inc.
|
Baldwin & Lyons, Inc.
|
|
Navigators Group, Inc.
|
Eastern Insurance Holdings, Inc.
|
|
SeaBright Holdings, Inc.
|
EMC Insurance Group Inc.
|
|
Selective Insurance Group, Inc.
|
Employers Holdings, Inc.(1)
|
|
United Fire & Casualty Company
|
Hallmark Financial Services, Inc.
|
|
|
|
|
|
(1)
|
|
Shareholders equity includes deferred reinsurance gain of
$375 million. Net income measures are taken prior to loss
portfolio transfer adjustments.
|
The analysis compared publicly available financial information
for the Company and the mean market data for the medical
professional liability insurers and the mean and median market
data for the selected commercial P&C companies between
$100 million and $1 billion and for all companies
included in the analysis as of or for the twelve-month period
ended March 31, 2011. The table below sets forth the data
based on market data as of May 20, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
|
|
|
Last
|
|
|
|
|
|
|
|
|
|
|
|
|
Last
|
|
|
|
Price/
|
|
Twelve
|
|
|
|
|
|
|
|
|
|
|
One
|
|
Twelve
|
|
Price/2011
|
|
2012
|
|
Months
|
|
|
|
Price/
|
|
|
|
|
|
|
Year
|
|
Months
|
|
Estimated
|
|
Estimated
|
|
Return on
|
|
Price/
|
|
Tangible
|
|
Debt/
|
|
|
|
|
Price
|
|
Earnings
|
|
Earnings
|
|
Earnings
|
|
Average
|
|
Book Value
|
|
Book Value
|
|
Total
|
|
Dividend.
|
|
|
Change
|
|
per Share
|
|
per Share(1)
|
|
per Share(1)
|
|
Equity(2)
|
|
per Share
|
|
per Share
|
|
Capital(3)
|
|
Yield
|
|
FPIC
|
|
|
22.4
|
%
|
|
|
11.0
|
x
|
|
|
12.3
|
x
|
|
|
12.3
|
x
|
|
|
11.0
|
%
|
|
|
1.07
|
x
|
|
|
1.19
|
x
|
|
|
15.1
|
%
|
|
|
0.0
|
%
|
Medical Professional Liability Insurers
|
Mean
|
|
|
20.8
|
%
|
|
|
10.4
|
x
|
|
|
12.1
|
x
|
|
|
12.4
|
x
|
|
|
11.9
|
%
|
|
|
1.09
|
x
|
|
|
1.23
|
x
|
|
|
8.9
|
%
|
|
|
0.0
|
%
|
Selected Commercial P&C Companies Between $100 Million
and $1 Billion
|
Mean
|
|
|
5.4
|
%
|
|
|
13.9
|
x
|
|
|
18.7
|
x
|
|
|
14.5
|
x
|
|
|
4.1
|
%
|
|
|
0.83
|
x
|
|
|
0.90
|
x
|
|
|
11.1
|
%
|
|
|
2.0
|
%
|
Median
|
|
|
6.1
|
%
|
|
|
13.3
|
x
|
|
|
17.0
|
x
|
|
|
14.6
|
x
|
|
|
4.5
|
%
|
|
|
0.84
|
x
|
|
|
0.88
|
x
|
|
|
12.1
|
%
|
|
|
2.0
|
%
|
All Companies
|
Mean
|
|
|
7.5
|
%
|
|
|
13.2
|
x
|
|
|
17.5
|
x
|
|
|
14.2
|
x
|
|
|
5.1
|
%
|
|
|
0.87
|
x
|
|
|
0.95
|
x
|
|
|
10.8
|
%
|
|
|
1.8
|
%
|
Median
|
|
|
10.1
|
%
|
|
|
12.0
|
x
|
|
|
14.5
|
x
|
|
|
12.6
|
x
|
|
|
5.6
|
%
|
|
|
0.86
|
x
|
|
|
0.91
|
x
|
|
|
12.1
|
%
|
|
|
1.6
|
%
|
|
|
|
(1)
|
|
Source: Earnings per share estimates for 2011 and 2012 are from
First Call as of May 20, 2011.
|
|
(2)
|
|
Calculated as last twelve months net operating earnings divided
by average equity excluding Accumulated Other Comprehensive
Income as of the most recent reporting period and the same
reporting period one year prior.
|
|
(3)
|
|
Equals sum of total debt and preferred equity divided by the sum
of total debt, common equity and preferred equity.
|
Analysis
of Selected Merger Transactions
Sandler ONeill reviewed nine merger transactions announced
from January 1, 2010 through May 20, 2011 involving
publicly traded U.S. P&C insurers. In each of the
comparable transactions, Sandler ONeill reviewed the
following multiples: (i) transaction equity value to the
last twelve months of net operating income, (ii) purchase
price per share to estimated earnings per share,
(iii) transaction equity value to book value and
(iv) transaction equity value to tangible book value, and
computed the high, mean, median and low
44
multiples for these transactions. The transactions reviewed and
the high, mean, median and low multiples for the transactions
are set forth in the following two tables:
|
|
|
Buyer
|
|
Target
|
|
CNA Financial Corp.
|
|
CNA Surety Corporation(1)
|
Auto Club Insurance
|
|
Fremont Michigan InsuraCorp
|
United Fire & Casualty Company
|
|
Mercer Insurance Group
|
Fairfax Financial Holdings, Ltd.
|
|
First Mercury Financial Corporation(2)
|
ProAssurance Corporation
|
|
American Physicians Service Group, Inc.
|
ProSight Specialty Insurance Group, Inc.
|
|
NYMAGIC, Inc.(3)(4)
|
The Doctors Company
|
|
American Physicians Capital, Inc.
|
Old Republic International Corporation
|
|
PMA Capital Corporation
|
Fairfax Financial Holdings, Ltd.
|
|
Zenith National Insurance Corp.
|
|
|
|
(1)
|
|
Transaction represented acquisition of the public minority stake
CNA Financial did not already own, approximately 39% of shares
outstanding.
|
|
(2)
|
|
Purchase price per share to estimated earnings per share
multiple calculated using First Call mean estimate as of
November 1, 2010.
|
|
(3)
|
|
Transaction equity value to the last twelve months of net
operating income multiple calculated using last twelve months of
net operating income as of June 30, 2010.
|
|
(4)
|
|
Purchase price per share to estimated earnings per share
multiple based on 2011 estimated net operating income disclosed
in definitive merger proxy.
|
Sources: SNL Financial; SEC Filings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
|
|
|
|
|
|
|
Equity
|
|
Purchase Price
|
|
|
|
|
|
|
Value/Last
|
|
per Share/
|
|
Transaction
|
|
Transaction
|
|
|
Twelve Months
|
|
Estimated
|
|
Equity
|
|
Equity
|
|
|
Net Operating
|
|
Earnings
|
|
Value/Book
|
|
Value/Tangible
|
|
|
Income(1)
|
|
per Share(2)
|
|
Value(3)
|
|
Book Value
|
|
The Doctors Co./FPIC
|
|
|
12.9
|
x
|
|
|
15.6
|
x
|
|
|
1.41
|
x
|
|
|
1.57
|
x
|
High
|
|
|
24.3
|
x
|
|
|
23.6
|
x
|
|
|
1.69
|
x
|
|
|
1.69
|
x
|
Mean
|
|
|
12.5
|
x
|
|
|
14.0
|
x
|
|
|
1.18
|
x
|
|
|
1.24
|
x
|
Median
|
|
|
10.0
|
x
|
|
|
12.5
|
x
|
|
|
1.12
|
x
|
|
|
1.29
|
x
|
Low
|
|
|
5.7
|
x
|
|
|
8.5
|
x
|
|
|
0.55
|
x
|
|
|
0.59
|
x
|
|
|
|
(1)
|
|
Last twelve months net operating income is calculated using the
twelve months ending on the quarter preceding the announcement
date.
|
|
(2)
|
|
First Call mean consensus estimates for the full calendar year
following the announcement, as reported on the day prior to
announcement.
|
|
(3)
|
|
GAAP book value multiples are based on aggregate book value, not
book value per share.
|
Sandler ONeill also reviewed nine merger transactions
announced from January 1, 2005 through May 20, 2011
involving medical professional liability insurers with total
equity values greater than $35 million. In each of the
comparable transactions involving medical professional liability
insurers, Sandler ONeill reviewed the following multiples:
(i) transaction equity value to the last twelve months of
net operating income, (ii) purchase price per share to
estimated earnings per share, (iii) transaction equity
value to book value and (iv) transaction equity value to
tangible book value, and computed the high, mean, median and low
multiples
45
for these transactions. The transactions reviewed and the high,
mean, median and low multiples for the transactions are set
forth in the following two tables:
|
|
|
Buyer
|
|
Target
|
|
ProAssurance Corporation
|
|
American Physicians Service Group
|
The Doctors Company
|
|
American Physicians Capital
|
FPIC Insurance Group
|
|
Advocate, MD Financial Group(1)
|
ProAssurance Corporation
|
|
PICA Group(2)
|
The Doctors Company
|
|
SCPIE Holdings Inc.(3)
|
American Physicians Service Group
|
|
American Physicians Insurance Exchange(4)
|
ProAssurance Corporation
|
|
Physicians Insurance Company of Wisconsin(5)
|
Berkshire Hathaway
|
|
Medical Protective (General Electric)
|
ProAssurance Corporation
|
|
NCRIC Group, Inc.
|
|
|
|
(1)
|
|
Total equity value consideration includes an earn-out of up to
$12 million based on meeting certain performance targets
during the two year period following the completion of the
transaction.
|
|
(2)
|
|
Total equity value consideration includes $15 million in
premium credits to be paid over three years.
|
|
(3)
|
|
Total equity value includes 500,000 shares owned by a
subsidiary of SCPIE Holdings, Inc.
|
|
(4)
|
|
Multiples are calculated using 6/30/06 financial data.
|
|
(5)
|
|
GAAP multiples are estimated for the year ending
December 31, 2005 as disclosed in the proxy dated 12/8/05.
|
Sources: SNL Financial; Company Filings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction Equity
|
|
Purchase Price
|
|
|
|
|
|
|
Value/Last
|
|
per Share/
|
|
Transaction
|
|
Transaction
|
|
|
Twelve Months
|
|
Estimated
|
|
Equity
|
|
Equity
|
|
|
Net Operating
|
|
Earnings
|
|
Value/Book
|
|
Value/Tangible
|
|
|
Income(1)
|
|
per Share(2)
|
|
Value(3)
|
|
Book Value
|
|
The Doctors Co./FPIC
|
|
|
12.9
|
x
|
|
|
15.6
|
x
|
|
|
1.41
|
x
|
|
|
1.57
|
x
|
High
|
|
|
32.3
|
x
|
|
|
12.5
|
x
|
|
|
1.72
|
x
|
|
|
1.72
|
x
|
Mean
|
|
|
13.2
|
x
|
|
|
11.8
|
x
|
|
|
1.38
|
x
|
|
|
1.48
|
x
|
Median
|
|
|
9.9
|
x
|
|
|
11.9
|
x
|
|
|
1.40
|
x
|
|
|
1.47
|
x
|
Low
|
|
|
2.7
|
x
|
|
|
11.1
|
x
|
|
|
0.97
|
x
|
|
|
1.08
|
x
|
|
|
|
(1)
|
|
Last twelve months net operating income is calculated using the
twelve months ending on the quarter preceding the announcement
date.
|
|
(2)
|
|
First Call mean consensus estimates for the full calendar year
following the announcement, as reported on the day prior to
announcement.
|
|
(3)
|
|
GAAP book value multiples are based on aggregate book value, not
book value per share.
|
46
Premiums
Paid Analysis
Sandler ONeill reviewed premiums to stock price paid in
the nine public acquisition transactions described in the
Analysis of Selected Merger Transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
Premium
|
|
Paid on
|
|
|
Paid on 1-Day
|
|
1-Month Prior
|
|
|
Closing Price
|
|
Closing Price
|
|
The Doctors Co./FPIC(1)
|
|
|
27.2
|
%
|
|
|
14.5
|
%
|
High
|
|
|
49.8
|
%
|
|
|
67.3
|
%
|
Mean
|
|
|
32.6
|
%
|
|
|
35.4
|
%
|
Median
|
|
|
31.4
|
%
|
|
|
35.1
|
%
|
Low
|
|
|
16.2
|
%
|
|
|
(2.9
|
)%
|
|
|
|
(1)
|
|
Premiums calculated using current market data. Based on the
closing price on the day prior to the ACAP announcement, the
premium to
1-day
price
and
1-month
price would be 60.3% and 60.9%, respectively.
|
Note: For the CNA Financial/CNA Surety transaction,
premiums calculated relative to the closing price on the day
prior to CNA announcement of an initial bid of $22.00 on
10/29/10.
Source: Pricing data from FactSet.
Present
Value Analysis
Sandler ONeill performed an illustrative present value
analysis to determine a range of implied present values per
share of the Companys common stock based on the Management
Stand-Alone Case prepared by the Companys management,
which included the Company projections. Sandler ONeill
used discount rates of 10% to 14%, terminal values calculated
using multiple ranges of
1.00x-1.40x
shareholders equity at December 31, 2013 and
10.0x-14.0x
estimated net operating income for 2013 and assumed results were
discounted back to March 31, 2011. This analysis resulted
in a range of implied present values per share of the
Companys common stock of $25.90 to $42.09.
Present
Value Per Share(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Shareholders Equity Multiple at
December 31, 2013
|
Discount Rate
|
|
1.00x
|
|
1.20x
|
|
1.40x
|
|
|
10.0
|
%
|
|
$
|
28.46
|
|
|
$
|
33.93
|
|
|
$
|
39.41
|
|
|
11.0
|
%
|
|
|
27.79
|
|
|
|
33.13
|
|
|
|
38.47
|
|
|
12.0
|
%
|
|
|
27.14
|
|
|
|
32.35
|
|
|
|
37.56
|
|
|
13.0
|
%
|
|
|
26.51
|
|
|
|
31.59
|
|
|
|
36.68
|
|
|
14.0
|
%
|
|
|
25.90
|
|
|
|
30.86
|
|
|
|
35.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Estimated LTM Net Operating Income Multiple at
12/31/13E
|
Discount Rate
|
|
10.0x
|
|
12.0x
|
|
14.0x
|
|
|
10.0
|
%
|
|
$
|
30.38
|
|
|
$
|
36.23
|
|
|
$
|
42.09
|
|
|
11.0
|
%
|
|
|
29.66
|
|
|
|
35.37
|
|
|
|
41.08
|
|
|
12.0
|
%
|
|
|
28.96
|
|
|
|
34.53
|
|
|
|
40.11
|
|
|
13.0
|
%
|
|
|
28.29
|
|
|
|
33.73
|
|
|
|
39.17
|
|
|
14.0
|
%
|
|
|
27.64
|
|
|
|
32.95
|
|
|
|
38.25
|
|
|
|
|
(1)
|
|
Using data from Ibbotson Associates, the cost of equity (i.e.,
discount rate) was calculated to be approximately 12% based on
the sum of the risk free rate
(10-Year
US
Treasury Yield of 3.1%), the
|
47
|
|
|
|
|
60-year
equity risk premium (6.1%), the $236 million to
$478 million size premium (2.9%) and fire, marine and
casualty insurance industry premium (-0.12%).
|
|
(2)
|
|
Based on 6.363 million common shares projected to be
outstanding at 12/31/13; 0.100 million of unvested
restricted shares; 0.343 million options outstanding with
cash proceeds from options exercised of $6.9 million; and
0.053 million additional shares from options exercised
after May 11, 2011 with cash proceeds of $0.6 million.
Results are discounted back to 3/31/11.
|
As described above, Sandler ONeills opinion to the
Board was among many factors taken into consideration by the
Board in making its determination to approve the Merger
Agreement and recommend the Merger. Such decisions were solely
those of the Board. The opinion of Sandler ONeill was
provided to the Board and does not constitute a recommendation
to any person, including the holders of the Companys
common stock, as to how such person should vote or act on any
matter related to the Merger proposal. Sandler ONeill did
not recommend any specific amount of consideration to the
Company or the Board or that any specific amount of
consideration constituted the only appropriate consideration for
the Merger.
Under the terms of Sandler ONeills engagement
letter, the Company agreed to pay Sandler ONeill a fee of
1.2% of the aggregate equity value of the transaction, of which
$25,000 became payable upon execution of the engagement letter,
$20,000 became payable for each quarter thereafter until
completion of the Merger or the earlier termination of the
engagement, $250,000 became payable upon the delivery of Sandler
ONeills fairness opinion to the Board and the
balance of which is contingent upon consummation of the Merger.
In addition, the Company also agreed to reimburse Sandler
ONeill for its
out-of-pocket
expenses, and to indemnify Sandler ONeill against certain
liabilities, in connection with its engagement.
The Company selected Sandler ONeill in connection with the
preparation of the fairness opinion due to Sandler
ONeills reputation as a nationally recognized
investment banking firm with substantial experience in similar
transactions. Pursuant to a letter agreement, dated
March 31, 2010, the Company engaged Sandler ONeill to
act as its financial advisor in connection with evaluating the
Companys strategic alternatives, including a possible sale
of the Company. Sandler ONeill is actively engaged in the
investment banking business and regularly undertakes the
valuation of investment securities in connection with public
offerings, private placements, business combinations and similar
transactions. In the ordinary course of Sandler
ONeills business, it may trade in the Companys
securities for its own account or for the accounts of Sandler
ONeill customers, and may at any time hold a long or short
position in such securities. Sandler ONeill has also
received investment banking fees from the Company in the past,
including for providing a fairness opinion to the Board in
connection with the sale of Administrators for the Professions,
Inc. to AJB Ventures Inc. during 2006 and serving as financial
advisor to the Company for its acquisition of Advocate, MD
Insurance Group Inc. in 2009. In the ordinary course of its
business as a broker-dealer, Sandler ONeill may purchase
securities from and sell securities to the Company and TDC and
their respective affiliates.
Effects
on the Company if the Merger is Not Completed
In the event that the Companys shareholders do not approve
and adopt the Merger Agreement or if the Merger is not completed
for any other reason, neither our shareholders nor holders of
equity awards exercisable for or payable in the Companys
common stock will receive any consideration in respect of their
shares or awards as a result of the Merger. Instead, the Company
will remain an independent public company and the Companys
common stock will continue to be listed and traded on the NASDAQ
Global Select Market and registered under the Exchange Act. In
addition, if the Merger is not completed, we expect that the
Companys management will operate the business in a manner
similar to the manner in which it is currently being operated
and that shareholders will continue to be subject to the same
risks and opportunities to which they are currently subject, as
described in our most recent Quarterly Report on
Form 10-Q,
filed with the SEC on May 4, 2011 and in our most recent
Annual Report on
Form 10-K,
filed with the SEC on March 9, 2011. Accordingly, if the
Merger is not consummated, there can be no assurance as to the
effect of these risks and opportunities on the future value of
your common stock or equity awards. From time to time, the Board
will evaluate and review the business operations, properties and
capitalization of the Company, among other things, make such
changes as are deemed appropriate and may continue to seek to
identify strategic alternatives to maximize shareholder value.
If the Companys shareholders do not approve and adopt the
Merger Agreement
48
or if the Merger is not consummated for any other reason, there
can be no assurance that any other transaction acceptable to the
Company as fair to, and in the best interests of, our
shareholders will be offered, or that the business, prospects or
results of operations, financial condition, or cash flows of the
Company will not be adversely affected.
If the Merger Agreement is terminated under certain
circumstances, we will be obligated to pay TDC the Termination
Fee. TDC may also be required to pay the Company the Termination
Fee under certain circumstances. See the section of this proxy
statement entitled
The Merger Agreement
Termination Fees.
Financing
of the Merger
The obligations of TDC and Merger Sub under the Merger Agreement
are not subject to any condition regarding TDCs or Merger
Subs obtaining of funds to consummate the Merger and the
other transactions contemplated by the Merger Agreement. TDC and
Merger Sub have represented in the Merger Agreement that TDC
has, and as of the closing of the Merger, will have, sufficient
funds available to fund all of its and Merger Subs
obligations under the Merger Agreement, including payment of the
aggregate merger consideration.
Material
U.S. Federal Income Tax Consequences
The following is a summary of the material U.S. federal
income tax consequences of the Merger to U.S. holders (as
defined below) whose shares of the Companys common stock
are converted into the right to receive cash in the Merger. This
summary does not purport to consider all aspects of
U.S. federal income taxation that might be relevant to our
shareholders. For purposes of this discussion, we use the term
U.S. holder to mean a beneficial owner of
shares of the Companys common stock that is, for
U.S. federal income tax purposes:
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
|
a corporation (or other entity taxable as a corporation for
U.S. federal income tax purposes) created or organized
under the laws of the United States or any state thereof or the
District of Columbia;
|
|
|
|
a trust that (i) is subject to the supervision of a court
within the United States and the control of one or more
U.S. persons or (ii) has a valid election in effect
under applicable U.S. Treasury regulations to be treated as
a U.S. person; or
|
|
|
|
an estate that is subject to U.S. federal income tax on its
income regardless of its source.
|
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds the
Companys common stock, the tax treatment of a partner will
generally depend on the status of the partner and the activities
of the partnership. A partner of a partnership holding the
Companys common stock should consult the partners
tax advisor regarding the U.S. federal income tax
consequences of the Merger to such partner.
This discussion is based on current law, which is subject to
change, possibly with retroactive effect. The discussion applies
only to beneficial owners who hold shares of the Companys
common stock as capital assets, and does not apply to shares of
the Companys common stock received in connection with the
exercise of employee stock options or stock otherwise received
as compensation, shareholders who hold an equity interest,
actually or constructively, in TDC or the surviving corporation
after the Merger or to certain types of beneficial owners who
may be subject to special rules (such as insurance companies,
banks, tax-exempt organizations, financial institutions,
broker-dealers, partnerships, S corporations or other
pass-through entities, mutual funds, traders in securities who
elect the
mark-to-market
method of accounting, shareholders subject to the alternative
minimum tax, shareholders that have a functional currency other
than the U.S. dollar or shareholders who hold the
Companys common stock as part of a hedge, straddle,
constructive sale or conversion transaction). This discussion
also does not address the U.S. tax consequences to any
shareholder who, for U.S. federal income tax purposes, is a
non-resident alien individual, foreign corporation, foreign
partnership or foreign estate or trust, and does not address the
receipt of cash in connection with the
49
cancellation of options to purchase shares of the Companys
common stock, or any other matters relating to equity
compensation or benefit plans. This discussion does not address
any aspect of state, local or foreign tax laws.
Exchange
of Shares of Common Stock for Cash Pursuant to the Merger
Agreement
The exchange of shares of the Companys common stock for
cash in the Merger will generally be a taxable transaction to
U.S. holders for U.S. federal income tax purposes. In
general, a U.S. holder whose shares of the Companys
common stock are converted into the right to receive cash in the
Merger will recognize capital gain or loss for U.S. federal
income tax purposes in an amount equal to the difference, if
any, between the amount of cash received with respect to such
shares (determined before the deduction of any applicable
withholding taxes) and the U.S. holders adjusted tax
basis in such shares. A U.S. holders adjusted tax
basis will generally equal the price the U.S. holder paid
for such shares. Gain or loss will be determined separately for
each block of shares of the Companys common stock (i.e.,
shares of the Companys common stock acquired at the same
cost in a single transaction). Such gain or loss will be
long-term capital gain or loss provided that the
U.S. holders holding period for such shares of the
Companys common stock is more than 12 months at the
time of the completion of the Merger. Long-term capital gains of
non-corporate U.S. holders are generally eligible for
reduced rates of taxation. There are limitations on the
deductibility of capital losses. The gain or loss will generally
be income or loss from sources within the U.S. for foreign
tax credit limitation purposes.
Backup
Withholding and Information Reporting
Backup withholding of tax may apply to cash payments to which a
U.S. holder is entitled under the Merger Agreement, unless
the U.S. holder or other payee provides a taxpayer
identification number, certifies that such number is correct and
otherwise complies with the backup withholding rules. Each of
our U.S. holders should complete and sign, under penalty of
perjury, an IRS
Form W-9
included as part of the letter of transmittal and return it to
the paying agent, in order to provide the information and
certification necessary to avoid backup withholding, unless an
exemption applies and is established in a manner satisfactory to
the paying agent.
Backup withholding is not an additional tax. Any amounts
withheld from cash payments to a U.S. holder pursuant to
the Merger under the backup withholding rules will be allowable
as a refund or a credit against such U.S. holders
U.S. federal income tax liability, provided that the
required information is timely furnished to the IRS.
Cash payments made pursuant to the Merger will also be subject
to information reporting unless an exemption applies.
The U.S. federal income tax consequences described above
are not intended to constitute a complete description of all tax
consequences relating to the Merger. Because individual
circumstances may differ, each shareholder should consult the
shareholders tax advisor regarding the applicability of
the rules discussed above to the shareholder and the particular
tax effects to the shareholder of the Merger in light of such
shareholders particular circumstances and the application
of state, local and foreign tax laws.
Interests
of Certain Persons in the Merger
In considering the recommendation of the Board with respect to
the Merger Agreement, you should be aware that the
Companys directors and executive officers, including
individuals who participated in meetings of the Board regarding
the Merger Agreement and the Merger, may have interests in the
Merger that are different from, or in addition to, the interests
of our shareholders generally, as more fully described below.
The Board was aware of these potentially differing interests and
considered them, among other matters, in reaching its decision
to approve the Merger Agreement and the Merger and to recommend
that you vote in favor of adopting the Merger Agreement and
approving the Merger.
50
Share
Ownership
On the record date for the special meeting, the Companys
directors and executive officers beneficially owned, in the
aggregate, 645,039 shares of the Companys common
stock (not including shares that may be acquired upon the
exercise of Company options), representing approximately 7.7% of
the outstanding shares of the Companys common stock. For
additional information concerning the share ownership of our
directors and executive officers, see the section of this proxy
statement entitled
Security Ownership of Certain
Beneficial Owners, Directors and Executive Officers.
Employment
and Change in Control Severance Agreements
The Company is a party to employment and change in control
severance agreements with its executive officers and certain
other senior officers. These change in control severance
agreements provide that if the employment of an executive
officer is terminated by the Company for any reason other than
cause, death or disability, or by that executive officer by
reason of constructive discharge either during the three-year
coverage period (as defined therein) after a change of control
of the Company or in contemplation of a change in control of the
Company, the Company will pay severance in a lump sum cash
amount equal to three times, in the case of Mr. Byers, or
two times, in the case of Messrs. Divita or White, the sum
of the affected executive officers (i) annual salary
and (ii) the greater of the target incentive award
opportunity for the current calendar year or the average of the
annual incentive awards for the three prior calendar years. In
addition, the affected executive officers stock options,
restricted stock and other long-term incentives would
immediately vest, and the executive officer would receive
benefits for a two-year period (these benefits include life,
health and disability insurance, benefits under our defined
benefit plan and deferred compensation agreement, employer
contributions to our 401(k) Plan and perquisites). In the case
of Mr. Byers, in the event that payments or benefits under
the severance agreement are subject to the excise tax imposed by
Section 4999 of the Code or any interest, penalty or
addition to tax with respect to such excise tax, the severance
agreement provides for cash
gross-up
payments intended to put him in the same position as though no
excise tax, penalty or interest had been imposed upon or
incurred as a result of any payment or benefits.
The Company has agreed to reimburse the reasonable fees of one
legal counsel to its executive officers and three other
executives in connection with the review and possible
modification of employment and severance arrangements with
respect to compliance with provisions of the Code.
Severance
Payments
In the Merger Agreement, the Company and TDC acknowledge and
agree that (i) the consummation of the Merger will
constitute a Change in Control under the change in
control severance agreements and each other employee benefit
plan to which such term is relevant, and (ii) after the
effective time of the Merger, TDC will not, and will not permit
the surviving corporation to, dispute any assertion by any of
the Companys executive officers and three other senior
officers that the consummation of the Merger constitutes valid
grounds for such employee to terminate his or her employment
with the surviving corporation by reason of his or her
Constructive Discharge within the meaning of such
executives change in control severance agreement.
Immediately after the effective time of the Merger, TDC will
cause the surviving corporation to pay into a rabbi trust for
the benefit of each of the abovementioned executives who
executes a mutually agreeable release a specified amount in cash
equal to the amount of the severance benefit to which such
executive is entitled under his or her change in control
severance agreement. Payout of these amounts from the rabbi
trust to these executives will be made as soon after termination
of these executives employment with the Company as
permitted by law (including Section 409A of the Code) and
in accordance with the terms of each executives change in
control severance agreement.
51
The following table sets forth the approximate amounts of the
payments to be made by the Company into the rabbi trust for the
benefit of Messrs. Byers, Divita and White and the other
senior officers of the Company (other than in respect of 2011
annual bonus and certain other matters).
|
|
|
|
|
Name
|
|
Amount
|
|
John R. Byers
|
|
$
|
5,925,000
|
|
Charles Divita, III
|
|
|
1,615,000
|
|
Robert E. White, Jr.
|
|
|
2,040,000
|
|
Other senior officers
|
|
|
2,030,000
|
|
Total
|
|
$
|
11,610,000
|
|
Additional information concerning these payments can be found
under the heading
Golden Parachute Compensation
below.
Continuing
Employment with the Surviving Corporation
TDC may request certain of the Companys executives to
continue their employment with the surviving corporation on an
interim or long-term basis, with compensation and other terms of
such employment to be negotiated between TDC and such executives.
Non-Competition
Provisions
Each of Messrs. Byers, Divita and White and one other
senior officer of the Company will continue to be subject to the
non-competition provisions contained in their respective
employment agreements for one year after their respective
separations from service with the Company, unless otherwise
agreed between such executive and TDC.
Cash
Payment for Outstanding Options
Under the terms of the Merger Agreement, outstanding Company
options will be cancelled in exchange for a payment to the
option holder, for each share of the Companys common stock
underlying such option, of an amount in cash equal to the excess
of $42.00 over the applicable per share exercise price of such
option. Information with respect to cancellation and payment for
unexercised Company options held by our executive officers is
set forth under the heading
Golden Parachute
Compensation
below. The following table sets forth
information concerning the payments that our non-employee
directors will receive in consideration of the cancellation of
their stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Payment in
|
|
|
Total Number of
|
|
Weighted Average
|
|
Consideration of
|
|
|
Shares Underlying
|
|
Exercise Price of
|
|
Cancellation of
|
Name
|
|
Stock Options
|
|
Stock Options
|
|
Stock Options
|
|
Richard J. Bagby, M.D.
|
|
|
7,500
|
|
|
$
|
17.93
|
|
|
$
|
180,503
|
|
David M. Shapiro, M.D.
|
|
|
22,500
|
|
|
$
|
11.96
|
|
|
$
|
675,900
|
|
Acceleration
of Vesting of Restricted Stock Awards
Under the terms of the Companys Omnibus Incentive Plan and
Director Stock Plan and the Merger Agreement, restricted stock
awards that have not yet vested will become fully vested
immediately prior to the effective time of the Merger, which
constitutes a change in control under these plans. Immediately
prior to the effective time of the Merger, each share of
restricted stock will become fully vested and will be converted
into the right to receive $42.00 in cash without interest.
Information with respect to the acceleration and payment for
unvested restricted stock held by our executive officers is set
forth under the heading
Golden Parachute
Compensation
below. The following table sets forth
information concerning the payments that our
52
non-employee directors will receive in exchange for the shares
of restricted stock the vesting of which is accelerated as a
result of the Merger:
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Payment in Exchange
|
Name
|
|
Restricted Shares
|
|
for Restricted Shares
|
|
John K. Anderson, Jr.
|
|
|
1,500
|
|
|
$
|
63,000
|
|
Richard J. Bagby, M.D.
|
|
|
1,500
|
|
|
$
|
63,000
|
|
Robert O. Baratta, M.D.
|
|
|
1,500
|
|
|
$
|
63,000
|
|
M.C. Harden, III
|
|
|
1,500
|
|
|
$
|
63,000
|
|
Kenneth M. Kirschner
|
|
|
1,500
|
|
|
$
|
63,000
|
|
Terence P. McCoy, M.D.
|
|
|
1,500
|
|
|
$
|
63,000
|
|
John G. Rich
|
|
|
1,500
|
|
|
$
|
63,000
|
|
Joan D. Ruffier
|
|
|
1,500
|
|
|
$
|
63,000
|
|
David M. Shapiro, M.D.
|
|
|
1,500
|
|
|
$
|
63,000
|
|
Cancellation
and Payout of Performance Units
Under the terms of the Companys Omnibus Incentive Plan and
the Merger Agreement, immediately prior to the effective time of
the Merger, each unpaid performance unit awarded under our
Omnibus Incentive Plan will become fully vested and payable and,
effective as of the effective time of the Merger, each such
performance unit will be cancelled in exchange for a cash
payment equal to (x) the Payout Percentage (which is 143%
for performance units granted on January 4, 2010 and 100%
for performance units granted on December 10,
2010) applicable to such performance unit, multiplied by
(y) $42.00. Information with respect to cancellation and
payout of performance units held by our executive officers is
set forth under the heading
Golden Parachute
Compensation
below.
Termination
of the ESPP
Under the terms of the Merger Agreement, immediately prior to
the effective time of the Merger, the account of each
participant in our ESPP for the 2011 plan year will be cancelled
and exchanged for the right to receive a cash payment equal to
(x) $42.00 multiplied by (y) the total number of
notional shares purchased by such participant under the ESPP.
The number of notional shares is equal to the amount of each
such participants 2011 payroll deductions under the ESPP
prior to the effective time of the Merger divided by $30.71 (85%
of the fair market value (determined in accordance with the
terms of the ESPP) of the Companys common stock on
January 14, 2011). Information with respect to cancellation
and payment for accounts of our executive officers under the
ESPP is set forth under the heading
Golden Parachute
Compensation
below.
Distribution
of Accounts under Deferred Compensation Plan
In accordance with its terms, accounts in our Deferred
Compensation Plan will be distributed in a lump sum, subject to
the requirements of Section 409A of the Code, to
participants within 90 days of a participants
separation from service, provided that such separation from
service occurs within 24 months after the effective time of
the Merger. All amounts to be paid under such plan are fully
vested without regard to the Merger. The
53
following table sets forth the balances in the accounts of our
executive officers and directors under our Deferred Compensation
Plan at June 24, 2011:
|
|
|
|
|
|
|
Deferred
|
|
|
Compensation
|
|
|
Plan Account
|
Name
|
|
Balance
|
|
John R. Byers
|
|
$
|
1,932,514
|
|
Charles Divita, III
|
|
$
|
222,735
|
|
M. C. Harden, III
|
|
$
|
31,799
|
|
Terence P. McCoy, M.D.
|
|
$
|
214,831
|
|
David M. Shapiro, M.D.
|
|
$
|
197,000
|
|
Robert E. White, Jr.
|
|
$
|
721,762
|
|
Deferred
Compensation Agreements
Effective December 31, 2008, we entered into Deferred
Compensation Agreements with Messrs. Byers, Divita and
White to replace the benefits previously provided to these
employees by our terminated Excess Benefit Plan and Supplemental
Executive Retirement Plan. Among other things, the Deferred
Compensation Agreements require annual contributions to the
accounts of Messrs. Byers, Divita and White under our
Deferred Compensation Plan. These agreements will continue in
force until the executives respective separations from
service.
Annual
Bonus
The surviving corporation will comply with the terms of the
Companys 2011 Executive Incentive Compensation Plan and
2008 Senior Executive Annual Incentive Plan, as currently in
effect; provided, that all bonuses in respect of 2011 shall be
paid at 100% of the target bonus; and, provided, further, that
employees of the Company whose employment with the Company is
terminated effective at or after the effective time of the
Merger will be entitled to, in addition to their severance
benefits, if any, a portion (equal to the portion of the
calendar year elapsed to the date of termination of employment)
of their respective target bonuses under the 2011 Executive
Incentive Compensation Plan
and/or
the
2008 Senior Executive Annual Incentive Plan, payable at the date
of termination of employment or as soon as reasonably
practicable thereafter.
Indemnification;
Insurance
For not less than six years from and after the effective time of
the Merger, TDC is required to cause the surviving corporation
to indemnify and hold harmless all past and present directors,
officers, employees and agents of the Company to the same extent
such persons are indemnified as of the date of the Merger
Agreement by the Company pursuant to the Companys articles
of incorporation, bylaws and any indemnification agreements in
existence on the date of the Merger Agreement for acts or
omissions occurring at or before the effective time of the
Merger.
TDC will be required to maintain the Companys current
director and officer (referred to herein as
D&O) insurance policy (or an equivalent policy)
for a period of six (6) years from the effective time of
the Merger (at a cost of no more than 250% of the current annual
premium). Notwithstanding the foregoing, prior to the effective
time of the Merger, the Company may, at its option, purchase a
tail insurance policy to cover present and former
officers and directors of the Company for a period of six
(6) years from the effective time of the Merger. In this
case, TDC and the surviving corporation agree to maintain such
tail policy in full force and effect.
For further information regarding the indemnification and
insurance required by the Merger Agreement to be provided by TDC
and the surviving corporation to all past and present directors,
officers, employees and agents of the Company, see the section
of this proxy statement entitled
The Merger
Agreement Director and Officer Indemnification and
Insurance.
54
Golden
Parachute Compensation
The following table sets forth the information required by
Item 402(t) of
Regulation S-K
regarding the compensation for each named executive officer of
the Company that is based on or otherwise relates to the Merger.
This compensation is referred to as golden parachute
compensation. The golden parachute compensation
payable by the Company to these individuals is subject to a
non-binding, advisory vote of the Companys shareholders,
as described under
Advisory Vote on Golden Parachute
Compensation
on page 82, and assumes the
following:
|
|
|
|
|
the price per share paid by TDC in the Merger is $42.00;
|
|
|
|
|
|
the Merger closed on June 24, 2011, which is the last
practicable date prior to the filing of this proxy
statement; and
|
|
|
|
|
|
the named executive officers of the Company were terminated
without cause immediately following a change in control on
June 24, 2011, which is the last practicable date prior to
the filing of this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension/
|
|
Perquisites/
|
|
Tax
|
|
|
|
|
|
|
Cash
|
|
Equity
|
|
NQDC
|
|
Benefits
|
|
Reimbursements
|
|
Other
|
|
Total
|
Name
|
|
($)(1)
|
|
($)(2)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
John R. Byers
|
|
|
6,322,678
|
|
|
|
5,043,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,366,488
|
|
Charles Divita, III
|
|
|
1,723,421
|
|
|
|
1,955,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,678,836
|
|
Robert E. White, Jr.
|
|
|
2,159,151
|
|
|
|
2,026,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,185,230
|
|
|
|
|
(1)
|
|
Includes lump sum cash severance payments in lieu of severance
benefits under employment agreements and change in control
severance agreements and payment of pro-rated portion of 2011
annual target bonus, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Rated
|
|
|
Severance
|
|
Severance
|
|
Cash-Out of
|
|
Portion of
|
|
|
(Multiple of
|
|
(Multiple of
|
|
Perquisites/
|
|
2011 Annual
|
Name
|
|
Base Salary)
|
|
Bonus)
|
|
Benefits
|
|
Cash Bonus
|
|
John R. Byers
|
|
$
|
2,393,391
|
|
|
$
|
2,782,160
|
|
|
$
|
748,229
|
|
|
$
|
398,899
|
|
Charles Divita, III
|
|
|
858,334
|
|
|
|
478,849
|
|
|
|
278,947
|
|
|
|
107,292
|
|
Robert E. White
|
|
|
963,874
|
|
|
|
558,475
|
|
|
|
516,318
|
|
|
|
120,484
|
|
|
|
|
|
|
These amounts are all double
trigger in nature, namely, eligibility to receive these
amounts requires both the occurrence of a change in control and
a qualifying termination of employment. Further, payment of
these amounts to the named executives is subject to the
execution and delivery by each such executive of a mutually
agreeable release of claims in favor of the Company.
|
|
(2)
|
|
Includes consideration for cancellation of stock options,
accelerated vesting of restricted stock, acceleration and payout
of performance units, and cancellation of accounts under the
ESPP, as follows:
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Payment in
|
|
|
Total Number of
|
|
Weighted Average
|
|
Consideration of
|
|
|
Shares Underlying
|
|
Exercise Price of
|
|
Cancellation of
|
Name
|
|
Stock Options
|
|
Stock Options
|
|
Stock Options
|
|
John R. Byers
|
|
|
124,782
|
|
|
$
|
24.51
|
|
|
$
|
2,181,948
|
|
Charles Divita, III
|
|
|
40,166
|
|
|
|
21.40
|
|
|
|
827,583
|
|
Robert E. White, Jr.
|
|
|
43,772
|
|
|
|
21.53
|
|
|
|
896,136
|
|
55
Restricted
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment in
|
|
|
Total Number of
|
|
Exchange for
|
Name
|
|
Restricted Shares
|
|
Restricted Shares
|
|
John R. Byers
|
|
|
25,926
|
|
|
$
|
1,088,892
|
|
Charles Divita, III
|
|
|
5,716
|
|
|
|
240,072
|
|
Robert E. White, Jr.
|
|
|
5,716
|
|
|
|
240,072
|
|
Performance
Units
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment in
|
|
|
|
|
Consideration of
|
|
|
Total Number of
|
|
Cancellation of
|
Name
|
|
Performance Units
|
|
Performance Units*
|
|
John R. Byers
|
|
|
42,159
|
|
|
$
|
1,770,678
|
|
Charles Divita, III
|
|
|
21,078
|
|
|
|
885,276
|
|
Robert E. White, Jr.
|
|
|
21,078
|
|
|
|
885,276
|
|
* Assumes 143% Payout Percentage for performance units
granted on January 4, 2010, and 100% Payout Percentage for
performance units granted on December 10, 2010, as provided
under the terms of the Merger Agreement.
ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Payment in
|
|
|
|
|
Total Number of
|
|
Consideration of
|
|
|
|
|
Notional Shares
|
|
Notional Shares
|
|
|
Payroll
|
|
Attributed to
|
|
(Performance Unit
|
Name
|
|
Deduction
|
|
Executive
|
|
Consideration)
|
|
John R. Byers
|
|
$
|
6,250
|
|
|
|
203
|
|
|
$
|
2,292
|
|
Charles Divita, III
|
|
$
|
6,775
|
|
|
|
220
|
|
|
$
|
2,484
|
|
Robert E. White, Jr.
|
|
$
|
12,500
|
|
|
|
407
|
|
|
$
|
4,595
|
|
These amounts are all single trigger in nature,
namely, eligibility to receive these amounts is conditioned
solely on the occurrence of a change in control.
Based on advice received from its outside advisors the Company
believes that the ultimate payment of the above described
golden parachute compensation to the executives will
not result in adverse tax consequences for the Company
and/or
the
executives under the golden parachute payments
provisions of Sections 280G and 4999 of the Code.
Employee
Matters
TDC will be required to recognize all service of the Company
employees with the Company or any of its subsidiaries for
purposes of determining eligibility to participate, vesting and
accrual or entitlement to benefits where length of service is
relevant, under any employee benefit plans maintained by TDC or
its subsidiaries in which the Company employees may be eligible
to participate after the effective time of the Merger, other
than benefit accruals under a defined benefit plan; provided
that such service need not be recognized to the extent that such
recognition would result in any duplication of benefits for the
same period of service. TDC will permit the Companys
employees to carry over and take vacation days with pay in
accordance with the applicable policies of the Company as in
effect at the effective time of the Merger. TDC will waive or
cause to be waived any pre-existing condition exclusions,
evidence of insurability provisions, waiting period requirements
or any similar provision under any TDC benefit plans that are
welfare plans. Further, to the extent allowable under applicable
law, the Companys employees shall be eligible to receive
credit under TDCs benefit plans for the 2011 calendar year
towards applicable deductibles and annual
out-of-pocket
limits for expenses incurred under the corresponding Company
medical plan during the 2011 calendar year but prior to the
effective time of the Merger.
56
From and after the effective time of the Merger, TDC will be
required to cause the surviving corporation to perform all
obligations and pay all amounts due, in accordance with their
terms as may be amended from time to time, under all Company
benefit plans, including without limitation all Company
employment agreements and Company severance agreements and all
incentive, bonus, deferred compensation, cafeteria, medical,
disability, stock purchase or equity-based compensation plans,
policies or programs (but excluding the Companys severance
policy or customary severance practice for employees without
contractual severance benefits).
For a period ending one year after the effective time of the
Merger, TDC will be required to provide to the Company employees
during their employment benefits and compensation that are no
less favorable in the aggregate to such persons than those
provided to such persons immediately prior to the effective time
of the Merger (but not taking into account for these purposes
any stock-based compensation or other equity incentive plans);
however, Company employees without contractual severance
benefits will be covered by TDCs existing severance policy
rather than any severance policy or customary severance practice
of the Company in effect at the time of the Merger.
Notwithstanding TDCs obligations in respect of individuals
that remain employed with the Company following the Merger, the
Merger Agreement expressly provides that TDC has no obligation
to continue the employment of any person following the Merger.
Company
Defined Benefit Plan; 401(k) Plan
The Company maintains a tax-qualified defined benefit plan,
under which the benefits are based on the employees years
of service and compensation. The Company also maintains a
qualified defined contribution (401(k)) plan and a non-qualified
deferred compensation plan. The Merger Agreement does not
address these benefit plans. Consequently, TDC may continue to
maintain these benefit plans as currently in effect or on a
modified basis or terminate the defined benefit plan in
accordance with the requirements of the Employee Retirement
Income Security Act of 1974 (referred to herein as
ERISA) and the Code. TDC has made no determination
as to how these plans will be handled.
Governmental
and Regulatory Approvals
Antitrust
Clearance; Insurance Regulatory Approvals
The HSR Act provides that transactions such as the Merger may
not be completed until certain information has been submitted to
the FTC and the Antitrust Division of the DOJ and specified
waiting period requirements have been satisfied. On June 8,
2011, the Company, TDC and Merger Sub made the required filings
with the Antitrust Division of the DOJ and the FTC. On
June 17, 2011, the FTC and the DOJ granted early
termination of the HSR Act waiting period.
At any time before or after consummation of the Merger, the
Antitrust Division of the DOJ or the FTC may, however, challenge
the Merger on antitrust grounds. Private parties could take
antitrust action under the antitrust laws, including seeking an
injunction prohibiting or delaying the Merger, divestiture or
damages under certain circumstances. Additionally, at any time
before or after consummation of the Merger, notwithstanding the
termination of the applicable waiting period, any state could
take action under its antitrust laws as it deems necessary or
desirable in the public interest. There can be no assurance that
a challenge to the Merger will not be made or that, if a
challenge is made, the Company, TDC and Merger Sub will prevail.
The insurance laws and regulations of the States of Florida,
Texas and Missouri require prior approval by the Florida Office
of Insurance Regulation, the Texas Insurance Commissioner, and
the Missouri Insurance Director of the acquisition of control of
the Company, whether control is acquired directly by acquiring
the shares of the insurance subsidiaries or indirectly by
acquiring shares of companies that, in turn, control the
insurance subsidiaries. TDC filed the necessary applications for
change in control (Form A) with the States of Florida,
Texas and Missouri on June 14, 2011. The Florida Office of
Insurance Regulation has scheduled a hearing on TDCs
application to be held at 10:00 a.m., Eastern Time, on
July 21, 2011 in Room 116 of the
57
Larson Building, 200 East Gaines Street, Tallahassee,
Florida. A transcript of this hearing will be posted on the
Companys website, www.fpic.com, as soon as it is available.
In addition, the insurance laws of the States of Arkansas and
Georgia require the filing of a pre-acquisition notice with the
Insurance Commissioner of those states and the expiration of a
30-day
waiting period before the Merger may be completed. TDC filed
pre-acquisition notices (Form E) with the Georgia and
Arkansas Insurance Commissioners on June 14, 2011, and
these waiting periods expired on July 14, 2011.
Under the Merger Agreement, the Company and TDC have agreed to
use commercially reasonable efforts to obtain all required
governmental approvals to avoid any action or proceeding by any
governmental authority in connection with the Merger Agreement
and the consummation of the Merger. In addition, each of the
Company and TDC have agreed to use commercially reasonable
efforts to (a) cause the expiration of the notice periods
with respect to the HSR Act and any other laws with respect to
the transactions completed by the Merger Agreement as promptly
as reasonably practicable and (b) resolve any objections
asserted by any governmental authority with respect to the
Merger or other transactions contemplated by the Merger
Agreement. If any administrative or judicial action or
proceeding is instituted (or threatened to be instituted)
challenging the transaction contemplated by the Merger Agreement
as violative of any law, the Company and TDC must cooperate and
use commercially reasonable efforts to contest and resist any
such action or proceeding, including any action or proceeding
that seeks a temporary restraining order or preliminary
injunction that would prohibit, prevent or restrict consummation
of the Merger. See the section of this proxy statement entitled
The Merger Agreement Agreement to Take
Appropriate Actions
for more information.
Except as noted above, and subject to the filing of articles of
merger in Florida at or before the effective time of the Merger,
the Company is unaware of any material federal, state or foreign
regulatory requirements or approvals required for the execution
of the Merger Agreement or completion of the Merger.
Delisting
and Deregistration of Company Common Stock
If the Merger is completed, the Companys common stock will
no longer be traded on the NASDAQ Global Select Market and will
be deregistered under the Exchange Act. We will no longer be
required to file periodic reports with the SEC in respect of our
common stock.
Litigation
Related to the Merger
On June 29, 2011, the Company, the Board, TDC and Merger
Sub were named in a putative stockholder class action complaint
filed in the Circuit Court of the Fourth Judicial Circuit, Duval
County, Florida, by a purported stockholder of the Company. The
complaint generally alleges that the directors of the Company
breached their fiduciary duties by approving the Merger for an
allegedly unfair price and as the result of an allegedly unfair
sale process. The complaint also alleges that the Company, TDC
and Merger Sub aided and abetted the directors alleged
breaches of their fiduciary duties and that the Company failed
to provide material information to shareholders with respect to
the Merger. The complaint seeks, among other things, a
declaration that the action can proceed as a class action, an
order enjoining the completion of the Merger, attorneys
fees and such other relief as the court deems just and proper.
THE
MERGER AGREEMENT
The following is a summary of the material terms and
conditions of the Merger Agreement, which is qualified in its
entirety by reference to the full text of the Merger Agreement,
which is attached as
Annex A
to this proxy statement
and is incorporated herein by reference. This summary may not
contain all of the information that is important to you. You are
encouraged to read the Merger Agreement in its entirety because
it is the legal document that governs the Merger.
Explanatory Note Regarding the Merger Agreement and the
Summary of the Merger Agreement: Representations, Warranties and
Covenants in the Merger Agreement Are Not Intended to Function
or Be Relied on as Public Disclosures.
58
The Merger Agreement and the summary of its terms in this
proxy statement have been included to provide information about
the terms and conditions of the Merger Agreement. The terms and
information in the Merger Agreement are not intended to provide
any other public disclosure of factual information about the
Company, TDC or any of their respective subsidiaries or
affiliates. The representations, warranties and covenants
contained in the Merger Agreement are made by the Company, TDC
and Merger Sub only for the purposes of the Merger Agreement and
are qualified by, and subject to, certain limitations and
exceptions agreed to by the Company, TDC and Merger Sub in
connection with negotiating the terms of the Merger Agreement.
In particular, in your review of the representations and
warranties contained in the Merger Agreement and described in
this summary, it is important to bear in mind that the
representations and warranties were made solely for the benefit
of the parties to the Merger Agreement and were negotiated for
the purpose of allocating contractual risk among the parties to
the Merger Agreement rather than to establish matters as facts.
The representations and warranties may also be subject to a
contractual standard of materiality or material adverse effect
different from those generally applicable to shareholders and
reports and documents filed with the SEC and in some cases may
be qualified by disclosures made by one party to the other,
which are not necessarily reflected in the Merger Agreement.
Moreover, information concerning the subject matter of the
representations and warranties, which do not purport to be
accurate as of the date of this proxy statement, may have
changed since the date of the Merger Agreement, and subsequent
developments or new information qualifying a representation or
warranty may have been included in or incorporated by reference
into this proxy statement.
For the foregoing reasons, the representations, warranties
and covenants or any descriptions of those provisions should not
be read alone or relied upon as characterizations of the actual
state of facts or condition of the Company, TDC or any of their
respective subsidiaries or affiliates. Instead, such provisions
or descriptions should be read only in conjunction with the
other information provided elsewhere in this document or
incorporated by reference into this proxy statement.
The
Merger
Upon the terms and subject to the conditions set forth in the
Merger Agreement, at the effective time of the Merger, Merger
Sub will merge with and into the Company and the separate
corporate existence of Merger Sub will cease. After the Merger,
the Company will continue as the surviving corporation and as a
wholly owned subsidiary of TDC, and the Companys common
stock will cease to be listed on NASDAQ and will no longer be
publicly traded.
Effective
Time
The Merger will become effective upon the filing of the articles
of merger with the Secretary of State of the State of Florida or
at such later time as is agreed by the parties and specified in
the articles of merger.
Articles
of Incorporation; Bylaws; and Directors and Officers of the
Surviving Corporation
At the effective time of the Merger:
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the articles of incorporation of Merger Sub in effect
immediately prior to the effective time of the Merger will be
the articles of incorporation of the surviving corporation,
except that the articles of incorporation will provide that the
name of the surviving corporation is FPIC Insurance Group,
Inc.;
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the bylaws of Merger Sub in effect immediately prior to the
effective time of the Merger will be the bylaws of the surviving
corporation;
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the directors of Merger Sub immediately prior to the effective
time of the Merger will be the initial directors of the
surviving corporation, each to hold office in accordance with
the articles of incorporation and bylaws of the surviving
corporation; and
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the officers of Merger Sub immediately prior to the effective
time of the Merger will be the initial officers of the surviving
corporation, each to hold office in accordance with the articles
of incorporation and bylaws of the surviving corporation.
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Merger
Consideration
At the effective time of the Merger, each share of the
Companys common stock issued and outstanding immediately
prior to the effective time of the Merger (other than shares
that will be cancelled without payment, as described below) will
be automatically converted into the right to receive $42.00 in
cash, without interest and less applicable withholding taxes,
which is referred to herein as the merger
consideration. After the effective time of the Merger,
each holder of shares of the Companys common stock will no
longer have any rights with respect to the shares, except for
the right to receive the merger consideration. At the effective
time of the Merger, any shares of the Companys common
stock held in treasury by the Company or any subsidiary of the
Company will be cancelled without any payment.
Treatment
of Stock Options and Other Equity-Based Awards
Treatment
of Options
At the effective time of the Merger, each outstanding option to
acquire the Companys common stock under the Companys
Omnibus Incentive Plan and Director Stock Plan (all of which are
currently fully vested) not exercised prior to the effective
time of the Merger will be cancelled and exchanged for the right
to receive a cash payment equal to the number of shares of the
Companys common stock underlying the option multiplied by
the excess, if any, of $42.00 over the exercise price per share
of the Companys common stock previously subject to such
option, without interest and less any applicable withholding
taxes.
At the effective time of the Merger, the account of each
participant in our ESPP for the 2011 plan year will be cancelled
and exchanged for the right to receive a cash payment equal to
(x) $42.00 multiplied by (y) the total amount of each
such participants 2011 payroll deductions prior to the
effective time under the ESPP, and divided by (z) $30.71
(85% of the fair market value (determined in accordance with the
terms of the ESPP) of the Companys common stock on
January 14, 2011), without interest and less any applicable
withholding taxes. The amounts payable under the Merger
Agreement with respect to options to acquire the Companys
common stock, including options under the ESPP, are referred to
herein as the option consideration.
Treatment
of Restricted Stock and Performance Units
Each share of restricted stock granted under our Omnibus
Incentive Plan or Director Stock Plan that is outstanding and
unvested immediately prior to the effective time of the Merger
will become fully vested and will be converted into the right to
receive the merger consideration of $42.00, without interest and
less any applicable withholding taxes.
Immediately prior to the effective time of the Merger, each
unpaid performance unit awarded under our Omnibus Incentive Plan
will become fully vested and payable and, effective as of the
effective time of the Merger, each such performance unit will be
cancelled in exchange for the right to receive a cash payment
equal to (x) the Payout Percentage (as defined in the
related award agreements and determined as set forth below)
applicable to such performance unit, multiplied by
(y) $42.00, without interest and less any applicable
withholding taxes. The Payout Percentage will be 143% for
performance units granted on January 4, 2010 and 100% for
performance units granted on December 10, 2010. The amounts
payable under the Merger Agreement with respect to our
performance units are referred to as the performance unit
consideration.
Payment
Procedures
Payment
of Merger Consideration
Prior to the effective time of the Merger, TDC will designate a
bank or trust company reasonably satisfactory to the Company to
act as TDCs paying agent for purposes of, among other
things, distributing the merger consideration to the
Companys shareholders. At or prior to the effective time
of the Merger, TDC will deposit with the paying agent, for the
benefit of holders of shares of the Companys common stock,
including shares of previously unvested restricted stock, cash
in an amount sufficient to pay the merger consideration
(referred to herein as the exchange fund).
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No later than three business days after the effective time of
the Merger, TDC will be required to cause the paying agent to
mail to each holder of record of a certificate representing the
Companys common stock or shares of the Companys
common stock held in book-entry form as of immediately prior to
the effective time of the Merger a letter of transmittal
containing instructions for surrendering certificates or
book-entry shares in exchange for the merger consideration. The
paying agent will pay you the merger consideration to which you
are entitled after you have (i) properly surrendered your
share certificates or book-entry shares, as applicable, to the
paying agent and (ii) provided to the paying agent your
completed and signed letter of transmittal and any other item
specified in the letter of transmittal or instructions thereto.
No interest will be paid or accrued on the merger consideration
payable upon surrender of any certificate or book-entry share.
The paying agent will reduce the amount of any merger
consideration paid to you by any required withholding taxes. All
merger consideration paid in accordance with the Merger
Agreement will be deemed to have been paid in full satisfaction
of all rights pertaining to shares of the Companys common
stock with respect to which the payments are made.
IF YOUR SHARES OF THE COMPANYS COMMON STOCK ARE
CERTIFICATED, YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO
THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD
NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
If payment of the merger consideration is to be made to a person
other than the person in whose name a share certificate is
registered, it will be a condition of payment that the share
certificate so surrendered be properly endorsed, with the
signature guaranteed, or otherwise be in proper form for
transfer, and the person requesting payment of the merger
consideration must either pay the paying agent any transfer or
other taxes required or establish to the satisfaction of the
paying agent that such tax has been paid or is not applicable.
If any certificate representing shares of the Companys
common stock is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate
to be lost, stolen or destroyed and, if required by TDC, the
posting by such person of a bond, in such reasonable amount as
TDC may direct, as indemnity against any claim that may be made
against it with respect to such certificate, the paying agent
will issue in exchange for such lost, stolen or destroyed
certificate the merger consideration without interest thereon.
Any portion of the exchange fund that remains undistributed to
the holders of the Companys common stock for twelve months
after the effective time of the Merger will be delivered to TDC
upon demand. Any holders of the Companys common stock who
have not complied with the applicable provisions in the Merger
Agreement will be able to look only to TDC (subject to abandoned
property, escheat and similar laws) as general creditors for
payment of the merger consideration without any interest
thereon. Neither TDC, the surviving corporation nor the Company
will be liable to any holder of the Companys common stock
for any cash from the exchange fund delivered to a public
official pursuant to any abandoned property, escheat or similar
law.
Payment
of Option Consideration and Performance Unit
Consideration
At the closing of the Merger, TDC will make (or cause to be
made) payment to the surviving corporation to the account or
accounts designated by the Company, cash in an amount sufficient
to pay the option consideration and the performance unit
consideration. Within two business days after the effective time
of the Merger, the surviving corporation will be required to pay
the option consideration and the performance unit consideration
to each holder of an option or a performance unit entitled to
receive the consideration. All option consideration and
performance unit consideration paid in accordance with the
Merger Agreement will be deemed to have been paid in full
satisfaction of all rights pertaining to the options and the
performance units with respect to which the payments are made.
Withholding
TDC, the surviving corporation and the paying agent will be
entitled to deduct and withhold from the merger consideration,
option consideration, and performance unit consideration such
amounts as may be
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required under state, local or foreign tax laws with respect to
such payment. To the extent that amounts are so withheld by TDC,
the surviving corporation or the paying agent, such withheld
amounts will be treated for all purposes of the Merger Agreement
as having been paid to the applicable holder of the
Companys common stock, restricted stock, options or
performance units.
Transfer
of Shares
At the close of business, New York time, on the day of the
effective time of the Merger, the stock transfer books of the
Company will be closed and there will be no further registration
of transfers of the Companys common stock that were
outstanding on the Companys records. From and after the
effective time of the Merger, the holders of certificates
representing shares of the Companys common stock (or
shares of the Companys common stock held in book-entry
form) immediately prior to the effective time of the Merger will
cease to have any rights with respect to the Companys
common stock, except as otherwise provided in the Merger
Agreement or by law.
Representations
and Warranties
The Merger Agreement contains representations and warranties by
each of the parties to the Merger Agreement. The representations
and warranties made by the Company, TDC and Merger Sub are
qualified by and subject to important limitations agreed to by
the parties in connection with negotiating the terms of the
Merger Agreement. Furthermore, the representations and
warranties were made as of specific dates and in some cases may
be subject to important exceptions, limitations and supplemental
information contained in the confidential disclosure schedules
the Company provided to TDC and Merger Sub in connection with
the signing of the Merger Agreement and may be additionally
subject to standards of materiality applicable to the Company,
TDC and Merger Sub that may be different from those that are
generally applicable under federal securities laws. In addition,
the representations and warranties may have been included in the
Merger Agreement for the purpose of allocating risk between the
Company, TDC and Merger Sub, rather than to establish matters of
fact. While the Company does not believe that the disclosure
schedules contain information that securities laws require us to
disclose, other than information that has already been so
disclosed, the disclosure schedules contain information that may
modify, qualify or create exceptions to the representations and
warranties set forth in the Merger Agreement. The disclosure
schedules contain certain information that has been included in
the Companys prior public disclosures and may contain
additional non-public information. Information concerning the
subject matter of the Companys representations and
warranties may have changed since the date of the Merger
Agreement and subsequent information may or may not be fully
reflected in our public disclosures, except to the extent
required by law. The representations and warranties in the
Merger Agreement and the description thereof in this proxy
statement should be read in conjunction with the other
information contained in the Companys reports, statements
and filings publicly filed with the SEC.
Representations
and Warranties of the Company
The Company makes various representations and warranties to TDC
and Merger Sub in the Merger Agreement that are subject, in some
cases, to exceptions and qualifications (including exceptions
and qualifications based on Company Material Adverse Effect, as
defined below in the section of this proxy statement entitled
The Merger Agreement Company Material
Adverse Effect Definition
). The Companys
representations and warranties relate to, among other things:
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the organization, valid existence, good standing and
qualification to do business of the Company and its subsidiaries;
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the completeness of the Companys organizational documents
furnished to TDC;
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the capital structure of the Company;
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the valid issuance of the Companys outstanding shares of
common stock and the shares of common stock of the
Companys subsidiaries;
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the requisite corporate power and authority of the Company to
execute and deliver the Merger Agreement and to perform its
obligations and consummate the transactions contemplated by the
Merger Agreement;
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the due execution and delivery of the Merger Agreement by the
Company and the validity and binding effect of the Merger
Agreement on the Company;
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the sufficiency of the actions taken by the Board in approving
the Merger Agreement and the Merger to render inapplicable the
restrictions on business combinations contained in
Section 607.091 of the FBCA;
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the absence of any conflicts with or violations of the
Companys organizational documents or laws applicable to
the Company or its subsidiaries as a result of the execution and
delivery of the Merger Agreement by the Company and the
performance of the Merger Agreement and the consummation of the
Merger by the Company;
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the absence of any breach, default, loss of benefits, need for
consent, change of control, creation of a lien or other right of
termination, acceleration or cancellation or similar events
under any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit or other legally binding obligation to
which the Company or any of its subsidiaries is a party as a
result of the execution and delivery of the Merger Agreement by
the Company, the performance of the Merger Agreement and the
consummation of the Merger by the Company;
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other than certain specified approvals, the absence of the
necessity to obtain consents or approvals from governmental
authorities in connection with the Merger Agreement or the
Merger;
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the possession of all permits by the Company and its
subsidiaries necessary to carry on their business and the
compliance by the Company and its subsidiaries with such permits;
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the absence of misstatements or omissions in the reports and
other documents filed by the Company with the SEC since
January 1, 2008 and the compliance of such documents with
the requirements of the Securities Act of 1933 and the Exchange
Act, as of their respective filing dates;
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the fair presentation of the financial position, results of
operations and cash flows of the Company and its subsidiaries in
the financial statements contained in the Companys SEC
filings since January 1, 2008 and the audited statutory
financial statements of the Companys insurance
subsidiaries for the period ended December 31, 2009
(referred to herein as the STAT Financial
Statements);
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the compliance of the actuarial analyses used to prepare the
STAT Financial Statements with applicable law;
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the absence of certain undisclosed liabilities of the Company
and its subsidiaries;
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the maintenance by the Company of disclosure controls and
procedures and internal control over financial reporting under
the Exchange Act and the absence of significant deficiencies or
material weaknesses in the Companys internal controls over
financial reporting;
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the absence of misstatements and omissions in the information
supplied by the Company in this proxy statement and other
documents filed with the SEC relating to the Merger;
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the absence of certain changes or events since December 31,
2010;
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the administration and compliance of employee benefit plans of
the Company under ERISA and other applicable laws;
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the compliance by the Company and its subsidiaries with labor
and other employment laws and the absence of work stoppages,
slowdowns or labor strikes against the Company and its
subsidiaries;
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certain matters with respect to the Companys and its
subsidiaries material contracts and reinsurance contracts;
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the absence of litigation against the Company and its
subsidiaries;
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the compliance by the Company and its subsidiaries with
environmental laws and permits, and other environmental matters;
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the ownership, license and lawful use of intellectual property
used by the Company and its subsidiaries, and other intellectual
property matters;
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the owned real property, leased real property and the personal
property used by the Company and its subsidiaries and other
matters relating to their assets and properties;
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the payment of required taxes by the Company and its
subsidiaries, and other tax matters;
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the compliance by the Company and its subsidiaries with
insurance regulatory laws and other insurance matters;
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the vote of the Companys shareholders required to adopt
the Merger Agreement;
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the investment bankers entitled to fees in connection with the
Merger;
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the receipt by the Board of an opinion of its financial advisor
in connection with the Merger;
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the compliance by the Company and its subsidiaries with the
terms of insurance policies to which the Company or its
subsidiaries is a beneficiary or named insured;
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the absence of any indication from any of the Companys
principal insurance agencies that it will not continue or will
terminate its relationship with the Company subsequent to the
Merger;
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the absence of certain interested party transactions;
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the absence of any material change in investment policy of the
Company or its subsidiaries since December 31, 2010 and
certain investment asset matters;
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the absence of any operations that would require the Company or
its subsidiaries to be registered as a broker-dealer; and
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the absence of restrictions or limitations on the ability of any
Company subsidiary to pay dividends or make distributions with
respect to its capital stock.
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Representations
and Warranties of TDC and Merger Sub
The Merger Agreement also contains various representations and
warranties made by TDC and Merger Sub to the Company, subject to
identified exceptions and qualifications. The representations
and warranties of TDC and Merger Sub relate to, among other
things:
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the organization, valid existence and qualification to do
business of TDC and its subsidiaries;
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the requisite corporate power and authority of each of TDC and
Merger Sub to execute and deliver the Merger Agreement and to
perform its obligations and consummate the transactions
contemplated by the Merger Agreement;
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the absence of any conflicts with or violations of TDCs or
Merger Subs organizational documents or laws applicable to
TDC or its subsidiaries as a result of the execution and
delivery of the Merger Agreement by TDC and Merger Sub, and the
performance of the Merger Agreement and the consummation of the
Merger by each of them;
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the absence of any breach, default, loss of benefits, need for
consent, creation of a lien or other right of termination,
acceleration or cancellation or similar events under any note,
bond, mortgage, indenture, contract, agreement, lease, license,
permit or other legally binding obligation to which TDC or any
of its subsidiaries is a party as a result of the execution and
delivery of the Merger Agreement by TDC and Merger Sub, and the
performance of the Merger Agreement and the consummation of the
Merger by each of them;
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other than certain specified approvals, the absence of the
necessity to obtain consents or approvals from governmental
authorities in connection with the Merger Agreement or the
Merger;
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the absence of misstatements and omissions in the information
supplied by TDC or Merger Sub in this proxy statement and other
documents filed with the SEC relating to the Merger;
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the capital structure of Merger Sub and the absence of
obligations or liabilities of Merger Sub other than as
contemplated by the Merger Agreement;
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the absence of any required vote of TDCs equity holders to
consummate the transactions contemplated by the Merger Agreement;
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the absence of brokers entitled to fees in connection with the
Merger (other than Macquarie);
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the sufficiency of funds available to TDC to pay the merger
consideration;
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the absence of any arrangements between TDC or its affiliates
and any of the officers or directors of the Company; and
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the compliance by TDC with insurance regulatory laws and other
insurance matters.
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Some of the representations and warranties of TDC and Merger Sub
referred to above are qualified by a material adverse effect
standard. As used in the Merger Agreement and this proxy
statement, a TDC Material Adverse Effect means any
change or event that has a material adverse effect on the
business, financial condition, or results of operations of TDC
and its subsidiaries, taken as a whole. However, none of the
following will be deemed, either alone or in combination, to
constitute, and none of the following will be taken into account
in determining whether there has been or will be, a TDC Material
Adverse Effect: (a) any adverse change, effect, event,
occurrence, state of facts or development to the extent
attributable to the announcement or pendency of the Merger or
the transactions contemplated thereby; (b) any adverse
change, effect, event, occurrence, state of facts or development
after the date of the Merger Agreement, attributable to
conditions affecting any of the industries in which TDC
participates, the U.S. economy or financial markets; or
(c) any adverse change, effect, event, occurrence, state of
facts or development arising from or relating to compliance with
the terms of the Merger Agreement.
Company
Material Adverse Effect Definition
Some of the representations and warranties of the Company in the
Merger Agreement are qualified by a material adverse effect
standard and certain of TDCs conditions to closing and
termination rights are based on whether or not a material
adverse effect on the Company has occurred.
As used in the Merger Agreement and this proxy statement, a
Company Material Adverse Effect means any change or
event that, individually or together with any other change or
event, has a material adverse effect on the business, financial
condition or results of operations of the Company and its
subsidiaries, taken as a whole. However, none of the following
will be deemed in themselves, either alone or in combination, to
constitute, and none of the following shall be taken into
account in determining whether there has been or will be, a
Company Material Adverse Effect:
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any adverse change or effect attributable to the announcement,
pendency or consummation of the Merger or the transactions
contemplated by the Merger Agreement, including without
limitation, adverse changes in the Companys relationships
with its customers, employees, or producers, or any rating
agency downgrade of the Company or any Company subsidiary;
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any adverse change or effect attributable to conditions
affecting any of the industries in which the Company
participates, the U.S. economy or financial markets, except
to the extent the Company or its subsidiaries, taken as a whole,
are disproportionately affected thereby relative to other
industry participants;
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any adverse change or effect arising from (i) the
Companys compliance with the terms of the Merger
Agreement, (ii) any action taken, or failure to act, by the
Company to which TDC has expressly
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consented or (iii) the Companys failure to reasonably
settle any action, suit, proceeding or investigation due to TDC
unreasonably withholding its consent to such settlement;
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changes in laws or generally accepted accounting principles
after the date of the Merger Agreement;
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any failure by the Company to meet any published or internally
prepared estimates of revenues, earnings or other economic
performance for any period ending on or after the date of the
Merger Agreement and prior to closing (it being understood that
the facts and circumstances giving rise to such failure may be
deemed to constitute, and may be taken into account in
determining whether there has been, a Company Material Adverse
Effect, if such facts and circumstances are not otherwise
included in the provisions above);
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acts of war or terrorism;
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a decline in the price of the Companys common stock on the
NASDAQ Global Select Market or any other trading market; or
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any action, lawsuit or claim arising out of the execution and
announcement of the Merger Agreement.
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Conduct
of Business Prior to Closing
From the date of the Merger Agreement to the effective time of
the Merger, subject to the exceptions specified in the Merger
Agreement, and unless TDC otherwise consents in writing (such
consent not to be unreasonably withheld or delayed), the Company
must:
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conduct its operations in the ordinary course of business
substantially consistent with past practice (including with
respect to underwriting matters);
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use its commercially reasonable efforts to maintain its
relationships with officers, key employees, producers and
customers and to renew policies with current insureds
substantially consistent with past practice; and
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use its commercially reasonable efforts to preserve
substantially intact its business organization and goodwill.
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In addition, subject to certain specified exceptions, from the
date of the Merger Agreement to the effective time of the
Merger, the Company is not permitted to do any of the following
without the prior written consent of TDC (such consent not to be
unreasonably withheld or delayed):
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amend its articles of incorporation or bylaws;
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(i) issue or authorize the issuance of any shares of its
capital stock or options, other than upon settlement of options
outstanding on the date of the Merger Agreement or
(ii) sell, pledge, dispose of, transfer, lease, license,
guarantee or encumber any material property or assets of the
Company;
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declare, set aside or pay any dividend or other distribution
with respect to any shares of its capital stock (other than
dividends paid by (i) First Professionals Insurance
Company, Inc. to the Company not in excess of $100,000,
(ii) a Company subsidiary (other than a Company insurance
subsidiary) to the Company or (iii) a Company insurance
subsidiary to another Company insurance subsidiary to the extent
such dividend may be made without regulatory approval), or enter
into any agreement with respect to the voting of its capital
stock;
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materially change its investment portfolio management practices
or acquire or sell material investment assets, except in the
ordinary course of business consistent with past practice;
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other than cashless exercises of Company options, reclassify,
combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock, other
equity interests or other securities;
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acquire any interest in any person or all or substantially all
of the assets of any person, other than in connection with
investment management in the ordinary course of business;
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materially change any of its accounting policies or procedures
(including making any material change in actuarial policies or
procedures or ceasing to use a third party consulting actuary),
other than in the ordinary course of business substantially
consistent with past practice or except as may be required by
GAAP, statutory accounting practices, applicable law or a
governmental authority;
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make material changes to tax elections or tax accounting
methods, or enter into certain material tax agreements or
settlements;
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(i) enter into, amend, renew or exercise any option to
terminate or extend any material real estate lease,
(ii) enter into, amend or terminate any material contract
or (iii) enter into or amend any material contract pursuant
to which it agrees to refrain from competing with any third
party;
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other than as required by any judgment, order or arbitral award,
enter into any agreement relating to the commutation of any
assumed reinsurance program or assumed reinsurance treaty
existing on the date of the Merger Agreement;
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renew its ceded reinsurance program other than in the ordinary
course of business substantially consistent with past practice;
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make any capital expenditures or commitment for any capital
expenditures in excess of $100,000 in the aggregate outside the
Companys 2011 capital budget;
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settle any action, suit or other proceeding or investigation or
threatened action, suit, or other proceeding or investigation
except in the ordinary course of business substantially
consistent with past practice;
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incur any indebtedness in excess of $1,000,000 in the aggregate;
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enter into any new line of business;
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make any material loan or advance to, guarantee any indebtedness
of, or otherwise incur indebtedness on behalf of, any third
party, other than in the ordinary course of business consistent
with past practice;
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except in certain cases, (i) grant or pay any increase, or
announce or promise any increase, in the wages, salaries,
compensation, bonuses, incentives, equity awards, severance,
pension or other direct or indirect compensation or benefits
payable to any of its employees, officers, directors, any
affiliates of officers or directors, or service providers (other
than commercially reasonable increases to non-affiliated service
providers in the ordinary course of business), or
(ii) establish, increase or promise to increase any
benefits under any Company benefit plan;
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except in certain cases, fail to file any filing with the SEC;
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(i) enter into any new or, except as contemplated in the
Merger Agreement, amend any existing employment, severance,
retention, change in control or indemnification agreement with
any of its past or present officers, directors or employees,
(ii) promote any officers or employees, except in the
ordinary course of business consistent with past practice or
(iii) amend any existing non-competition agreement;
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make any material change to the Companys business or its
reinsurance structure or insurance contracts, rates,
underwriting practices and procedures or marketing methods;
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abandon, encumber, convey title (in whole or in part),
exclusively license or grant any right or other licenses in or
to intellectual property owned by the Company;
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enter into any agreement or arrangement that would be required
to be reported by the Company pursuant to Item 404 of
Regulation S-K; or
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authorize or enter into any agreement or otherwise make any
commitment to do any of the foregoing.
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67
Restrictions
on Solicitations of Other Offers
From the date of the Merger Agreement until the effective time
of the Merger, neither the Company, nor any of its subsidiaries
or representatives, may directly or indirectly:
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solicit, initiate or knowingly facilitate any Acquisition
Proposal (as defined below) or any proposal that is reasonably
likely to lead to an Acquisition Proposal;
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participate in any way in discussions or negotiations with, or
furnish any non-public information to, any person that has made
an Acquisition Proposal; or
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enter into any agreement, term sheet or letter of intent with
respect to any Acquisition Proposal.
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Notwithstanding the foregoing restrictions, at any time prior to
obtaining the approval of the Merger Agreement by the
Companys shareholders, the Company will be permitted to
participate in discussions or negotiations with, or provide
non-public information to, any person making an Acquisition
Proposal that did not result from a breach of the restrictions
on solicitation provisions of the Merger Agreement, if
(i) the parties have entered into a confidentiality
agreement with substantially similar confidentiality
provisions to those set forth in the Confidentiality Agreement
between the Company and TDC dated March 2, 2011;
(ii) the Board has determined in good faith (after
consultation with its independent financial advisor and outside
counsel) that there is a reasonable likelihood that the
Acquisition Proposal will lead to a Superior Proposal (as
defined below); and (iii) the Company has notified TDC in
writing of such determination and its intention to participate
in such negotiations or provide such information. The Company
must promptly provide TDC with a list of any non-public
information concerning the Company provided to any third party
and copies of such information to the extent not previously
provided to TDC.
Further, the Company may enter into a binding agreement with
respect to an Acquisition Proposal if: (i) the Acquisition
Proposal did not result from a breach of the restrictions on
solicitation provisions of the Merger Agreement; (ii) the
Board determines in good faith that such proposal constitutes a
Superior Proposal, (iii) the Company provides at least
three business days prior notice to TDC of its intent to
enter into such agreement (including the material terms and
conditions of, and the identity of the party making, the
Superior Proposal) and discusses and considers in good faith any
changes to the terms of the Merger proposed by TDC in response
to the Superior Proposal; and (iv) within three business
days after termination of the Merger Agreement to enter into the
agreement providing for a Superior Proposal, the Company pays to
TDC the Termination Fee.
As used in the Merger Agreement and in this proxy statement,
Acquisition Proposal means any bona fide offer or
proposal or indication of interest concerning any transaction or
series of related transactions other than the Merger involving:
(i) any direct or indirect acquisition or purchase by any
person or group of more than a 20% beneficial interest in the
total outstanding voting securities of the Company or any
subsidiary of the Company; (ii) any tender offer or
exchange offer that if consummated would result in any person or
group beneficially owning 20% or more of the total outstanding
voting securities of the Company or any subsidiary of the
Company; (iii) any merger, reorganization, share exchange,
consolidation, business combination, recapitalization or similar
transaction involving the Company or any subsidiary of the
Company pursuant to which any person or group would own 20% or
more of the equity interests in the surviving or resulting
entity of such transaction; (iv) any direct or indirect
sale, lease, exchange, transfer, license, acquisition or
disposition, including without limitation through any bulk
reinsurance, reinsurance, coinsurance or similar transaction, of
more than 20% of the assets (based on the fair market value
thereof) of the Company and the subsidiaries of the Company,
considered as a whole; or (v) any liquidation or
dissolution of the Company or any subsidiary of the Company.
As used in the Merger Agreement and this proxy statement,
Superior Proposal means an unsolicited Acquisition
Proposal, with references to 20% being changed to 50% in such
definition, made by a person or group that, in the good faith
judgment of the Board (after consultation with its financial
advisor and outside legal counsel), (i) is reasonably
likely to be consummated taking into account the party making
the proposal and all financial, legal, regulatory and other
aspects of the proposal and (ii) would, if consummated,
result in a transaction that is more favorable to the
Companys shareholders than the transactions contemplated
by the
68
Merger Agreement taking into account all financial, legal,
regulatory and other aspects of the respective proposals,
including without limitation, the identity of the party making
such proposal, the terms of any written proposal by TDC to amend
or modify the terms of the Merger and the other transactions
contemplated by the Merger Agreement, and any
break-up
fees, expense reimbursement fees and conditions to consummation.
Change of
Recommendation
In connection with the meeting of our shareholders to approve
the Merger Agreement (see the section of this proxy statement
entitled
The Merger Agreement
Shareholders Meeting; Proxy
Statement
), the Board has unanimously resolved to
recommend that our shareholders approve and adopt the Merger
Agreement (referred to herein as the Company
recommendation).
We have agreed that the Board may not, except under certain
circumstances set forth below:
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withdraw, modify, amend or materially qualify the Company
recommendation in a manner adverse to TDC;
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approve or recommend any Acquisition Proposal other than the
Merger;
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fail to recommend against acceptance of any tender offer or
exchange offer for the Companys shares within ten business
days after the commencement of such offer; or
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make any public statement inconsistent with the Company
recommendation.
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Notwithstanding the foregoing, at any time prior to obtaining
the adoption and approval of the Merger Agreement by the
Companys shareholders, the Company will be permitted to:
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take, and disclose to the Companys shareholders, a
position with respect to any tender or exchange offer by a third
party or amend or withdraw such a position in accordance with
Rules 14d-9
and
14e-2
promulgated under the Exchange Act;
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if the Company has received an unsolicited Acquisition Proposal
from a third party and the Board determines in good faith (after
consultation with its independent financial advisor and outside
counsel) that such Acquisition Proposal constitutes a Superior
Proposal, effect a change in the Company recommendation or
approve and recommend such Superior Proposal; or
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effect a change in the Company recommendation if the Board
determines in good faith (after consultation with outside
counsel) that failure to do so would be inconsistent with its
fiduciary duties to the Companys shareholders under
applicable law.
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Prior to effecting any such change in the Company recommendation
or approving and recommending a Superior Proposal, the Company
must (i) provide at least three business days written
notice to TDC of the intention to effect such change and
specifying the reasons therefor (including the material terms
and conditions of, and the identity of the party making, any
Superior Proposal, if applicable) and (ii) discuss and
consider in good faith any changes to the terms of the Merger
proposed by TDC. Any amendment to the financial terms of any
Superior Proposal will require an additional three business
days notice to TDC.
Shareholders
Meeting; Proxy Statement
We have agreed, as promptly as reasonably practicable after the
date of the Merger Agreement, to hold a special meeting of our
shareholders for the purpose of obtaining their approval of the
Merger Agreement. In connection with the special meeting, we
have filed this proxy statement with the SEC and have furnished
it to you. Except in the circumstances described above (see the
section of this proxy statement entitled
The Merger
Agreement Change of Recommendation
), the
Board must recommend that the Companys shareholders
approve and adopt the Merger Agreement and such recommendation
must be included in this proxy statement. The Company must use
commercially reasonable efforts to solicit such shareholder
approval. The Company may adjourn or postpone the special
meeting in response to an unsolicited Acquisition Proposal
69
if the Board determines in good faith (after consultation with
outside counsel) that there is a reasonable likelihood that such
Acquisition Proposal will lead to a Superior Proposal.
Agreement
to Take Appropriate Actions
Appropriate
Actions
Subject to the terms and conditions set forth in the Merger
Agreement, the Company and TDC have agreed to use commercially
reasonable efforts to:
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take, or cause to be taken, all appropriate actions, and do, or
cause to be done, all things necessary, proper or advisable
under any applicable law to consummate and make effective the
Merger and the other transactions contemplated by the Merger
Agreement as promptly as reasonably practicable;
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obtain from the relevant governmental authorities any consents,
licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by TDC or the Company or any of
their respective subsidiaries, or to avoid any action or
proceeding by any governmental authority (including, without
limitation, those in connection with antitrust laws), in
connection with the authorization, execution and delivery of the
Merger Agreement and the consummation of the Merger and the
other transactions contemplated by the Merger Agreement;
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make or cause to be made the applications or filings required to
be made by TDC or the Company or any of their respective
subsidiaries under or with respect to the HSR Act or any other
laws in connection with the authorization, execution and
delivery of the Merger Agreement and the consummation of the
Merger and the other transactions contemplated by the Merger
Agreement, and to pay any fees due of it in connection with such
applications or filings, as promptly as reasonably practicable,
and in any event within ten business days after the date of the
Merger Agreement;
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comply at the earliest practicable date with any request under
or with respect to the HSR Act and any such other laws for
additional information, documents or other materials received by
TDC or the Company or any of their respective subsidiaries from
the FTC, the DOJ or any other governmental authority in
connection with such applications or filings or the Merger and
the other transactions contemplated by the Merger Agreement;
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coordinate and cooperate with, and give due consideration to all
reasonable additions, deletions or changes suggested by the
other party in connection with, making (i) any filing under
or with respect to the HSR Act or any such other laws, and
(ii) any filings, conferences or other submissions related
to resolving any investigation or other inquiry by any such
governmental authority;
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cause the expiration of the notice periods under or with respect
to the HSR Act and any other laws with respect to the
transactions contemplated by the Merger Agreement as promptly as
is reasonably practicable after the date of the Merger
Agreement; and
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resolve such objections, if any, as may be asserted by any
governmental authority with respect to the Merger or other
transactions contemplated by the Merger Agreement.
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Each of the Company and TDC will, and will cause their
respective affiliates to, furnish to the other party all
information necessary for any such application or other filing
to be made in connection with the Merger or other transactions
contemplated by the Merger Agreement. Each of the Company and
TDC will promptly inform the other party of any communication
with, and any proposed understanding, undertaking or agreement
with, any governmental authority regarding any such application
or filing. If either the Company or TDC desires to participate
in any meeting with any governmental authority in respect of any
such filings, investigation or other inquiry, then such party
must give the other party reasonable prior notice of such
meeting and the opportunity to participate in such meeting. The
parties must coordinate and cooperate with one another in
connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party in connection with all
meetings, actions and proceedings under or relating to any such
application or filing.
70
Notwithstanding the foregoing, none of TDC, Merger Sub, the
Company or any of their respective subsidiaries shall be
required to become subject to, consent to, or offer or agree to,
or otherwise take any action with respect to, any requirement,
condition, limitation, understanding, agreement or order of or
with any governmental authority (referred to herein as a
Governmental Authority Requirement) to
(i) sell, license, assign, transfer, divest, hold separate
or otherwise dispose of any stock, assets, business or portion
of business of the Company, the surviving corporation, TDC,
Merger Sub or any of their respective subsidiaries (all of the
foregoing, referred to as the Combined Entity),
(ii) conduct, restrict, operate, invest or (exclusive of
the matters set forth in clause (i)) otherwise change the
assets, business or portion of business of the Combined Entity
in any manner, or (iii) impose any restriction, requirement
or limitation on the operation of the business or portion of the
business of the Combined Entity (including without limitation a
rate decrease imposed on the Combined Entity by the Florida
Office of Insurance Regulation), if such Governmental Authority
Requirement would reasonably be expected to give rise to a
Regulatory Material Adverse Effect (as defined below). However,
if the Governmental Authority Requirement would not reasonably
be expected to give rise to a Regulatory Material Adverse
Effect, then TDC must consent and agree to such Governmental
Authority Requirement and take such actions as are contemplated
thereby. The Company is not permitted to agree to a Governmental
Authority Requirement without TDCs prior consent.
As used in the Merger Agreement and in this proxy statement, a
Regulatory Material Adverse Effect means
(A) with respect to clause (i) of the definition of
Governmental Authority Requirement, any such sale, license,
assignment, transfer, divestiture, holding separate or other
disposal involving $10,000,000 or more in annualized revenues
and (B) with respect to clauses (ii) and (iii) of
the definition of Governmental Authority Requirement, any such
requirement, condition, limitation, understanding, agreement,
order, restriction or change that would, individually or in the
aggregate, reasonably be expected to decrease the Combined
Entitys annual revenues
and/or
increase the Combined Entitys annual costs, in the
aggregate, by an amount greater than $10,000,000; provided,
however, that the imposition of any restriction on the ability
of the Companys insurance subsidiaries to upstream cash to
the Company, whether through contractual agreement or the
payment of dividends, shall not constitute a Regulatory Material
Adverse Effect.
Insurance
Filings
TDC has agreed to make all reasonably necessary filings with
state insurance regulatory authorities required by applicable
insurance laws, at its own expense, as promptly as practicable,
but in no event later than fifteen business days from the
date of the Merger Agreement (including the filing of
Forms A and E (as applicable) in Florida, Missouri, Texas,
Arkansas and Georgia).
Third
Party Notices and Consents
The Company and TDC have agreed to give (or cause their
respective subsidiaries to give) any notices to third parties,
and use (and cause their respective subsidiaries to use)
commercially reasonable efforts to obtain any third party
consents, necessary or advisable for such party to consummate
the transactions contemplated by the Merger Agreement (provided
that the Company shall not be obligated to offer any payment or
other concession in connection with obtaining any such consent).
Each party agrees to use commercially reasonable efforts, and
will take any actions reasonably requested by the other party,
to mitigate any adverse effect resulting, or that could
reasonably be expected to result after the effective time of the
Merger, from the failure to obtain any such third party consent.
Financing
The obligations of TDC and Merger Sub under the Merger Agreement
are not subject to any financing condition. TDC has represented
in the Merger Agreement that it has, and as of the closing of
the Merger will have, available cash sufficient to enable it to
pay the aggregate merger consideration.
71
Employee
Matters
Credit
for Prior Service
TDC will be required to recognize all service of the
Companys directors, officers and employees (referred to
herein as the Company employees) with the Company or
any of its subsidiaries for purposes of determining eligibility
to participate, vesting and accrual or entitlement to benefits
where length of service is relevant, under any employee benefit
plans maintained by TDC or its subsidiaries in which the Company
employees may be eligible to participate after the effective
time of the Merger, other than benefit accruals under a defined
benefit plan; provided, that such service need not be recognized
to the extent that such recognition would result in any
duplication of benefits for the same period of service.
Honoring
Existing Employment Arrangements
From and after the effective time of the Merger, TDC will be
required to cause the surviving corporation to perform all
obligations and pay all amounts due, in accordance with their
terms as may be amended from time to time, under all Company
benefit plans, including without limitation all Company
employment agreements and Company severance agreements and all
incentive, bonus, deferred compensation, cafeteria, medical,
disability, stock purchase or equity based compensation plans,
policies or programs (but excluding the Companys severance
policy or customary severance practice for employees without
contractual severance benefits).
TDC and the Company acknowledge and agree that (i) the
consummation of the Merger will constitute a Change in
Control or a Change of Control under the
Company severance agreements and each other Company benefit plan
to which such term is relevant, and (ii) after the
effective time of the Merger, certain specified Company
employees will be entitled to assert that they have been
constructively discharged within the meaning of such
Company employees severance agreement, and (iii) such
constructively discharged employees shall be
entitled to receive the severance payments and other severance
benefits required to be paid under their respective Company
severance agreements.
Nothing in the Merger Agreement shall require the continued
employment of any person by TDC or the surviving corporation
and, except as specifically set forth in the Merger Agreement,
TDC and the surviving corporation shall not be prevented from
amending or terminating any Company benefit plan to the extent
permitted by such plan.
Post-Closing
Benefit Plan Matters
For a period ending one year after the effective time of the
Merger, TDC will be required to provide to the Company employees
during their employment benefits and compensation that are no
less favorable in the aggregate to such persons than those
provided to such persons immediately prior to the effective time
of the Merger (but not taking into account for these purposes
any stock-based compensation or other equity incentive plans);
however, Company employees without contractual severance
benefits will be covered by TDCs existing severance policy
rather than any severance policy or customary severance practice
of the Company in effect at the time of the Merger.
Annual
Executive Incentive Compensation Program
TDC will cause the surviving corporation to comply with the
terms of the Companys 2011 Executive Incentive
Compensation Plan and 2008 Senior Executive Annual Incentive
Plan, provided that 2011 bonuses will be paid at 100% of the
target bonus and Company employees whose employment is
terminated at or following closing will receive their 2011 bonus
pro-rated to the date of termination (in addition to but without
duplication of severance benefits).
Cooperation
Regarding Benefit Plans
Prior to the effective time of the Merger, the Company will
jointly work with TDC to bring all Company benefit plans in
compliance with Section 409A of the Code.
72
Director
and Officer Indemnification and Insurance
Indemnification
of Covered Persons
For not less than six years from and after the effective time of
the Merger, TDC is required to cause the surviving corporation
to indemnify and hold harmless all past and present directors,
officers, employees and agents of the Company (referred to
herein as the covered persons) to the same extent
such persons are indemnified as of the date of the Merger
Agreement by the Company pursuant to the Companys articles
of incorporation, bylaws and any indemnification agreements in
existence on the date of the Merger Agreement with any covered
persons for acts or omissions occurring at or before the
effective time of the Merger. TDC agrees to, and to cause the
surviving corporation to, indemnify and hold harmless such
persons to the fullest extent permitted by law for acts or
omissions occurring in connection with the approval of the
Merger Agreement and the consummation of the transactions
contemplated by the Merger Agreement.
Advancement
of Expenses
Each covered person is entitled to advancement of expenses
incurred in the defense of any claim, action, suit, proceeding
or investigation with respect to any matters subject to
indemnification under the Merger Agreement. Each covered person
to whom expenses are advanced, however, must undertake, to the
extent required by the FBCA, to repay such expenses if it is
ultimately determined that such person is not entitled to
indemnification.
Organizational
Documents
For not less than six years from and after the effective time of
the Merger, the articles of incorporation and bylaws of the
surviving corporation must contain provisions no less favorable
with respect to indemnification, advancement of expenses and
exculpation of covered persons than those in the Companys
articles of incorporation and bylaws as of the date of the
Merger Agreement.
D&O
Insurance
TDC will be required to maintain the Companys current
D&O insurance policy (or an equivalent policy) for a period
of six years from the effective time of the Merger (at a
cost of no more than 250% of the current annual premium).
Notwithstanding the foregoing, prior to the effective time of
the Merger, the Company may, at its option, purchase a
tail insurance policy to cover present and former
officers and directors of the Company for a period of
six years from the effective time of the Merger. In this
case, TDC and the surviving corporation agree to maintain such
tail policy in full force and effect.
Merger
of TDC or Surviving Corporation
In the event TDC or the surviving corporation consolidates or
merges into any other person and is not the continuing or
surviving corporation or entity, or transfers all or
substantially all of its properties and assets to any person,
then proper provision must be made so that such continuing or
surviving corporation or entity or transferee of such assets
must assume the obligations set forth above with respect to
indemnification and insurance for the covered persons.
Other
Covenants
Certain
Notices
Between the date of the Merger Agreement and the effective time
of the Merger, each of the Company and TDC must promptly notify
the other party of the occurrence, or nonoccurrence, of any
event that would reasonably be expected to result in any
condition to closing not being satisfied. The delivery of a
notice of the occurrence or nonoccurrence of such event,
however, will not cure a breach of any representation or
warranty requiring disclosure of the matter prior to the date of
the Merger Agreement or otherwise limit or affect the remedies
available under the Merger Agreement to the party given the
notice.
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Access
to Information; Confidentiality
Except as required under any confidentiality agreement to which
the Company or any of its subsidiaries is a party, from the date
of the Merger Agreement to the effective time of the Merger, the
Company and its subsidiaries are required to give TDC, Merger
Sub, and their respective officers, directors, employees,
accountants, consultants, legal counsel, advisors, agents and
other representatives, upon reasonable prior notice to the
Company, reasonable access during normal business hours to the
offices and books and records of the Company and its
subsidiaries. In addition, the Company is required to provide
information reasonably requested by TDC concerning the business,
properties, contracts, assets, liabilities, personnel and other
aspects of the Company and its subsidiaries. Such access must be
conducted in a manner that does not interfere unreasonably with
the operation of the business conducted by the Company or its
subsidiaries. All information so disclosed will be subject to
the Confidentiality Agreement entered into between the Company
and TDC dated March 2, 2011. The Company will not, however,
be required to allow access or furnish information to the extent
that doing so would result in the loss of attorney-client
privilege.
The Company is required to provide TDC with copies of all
internal actuarial analyses, if any, and all internal quarterly
financial packages, if any, within two days of final reporting
packages for such items becoming available.
Brokers
or Finders
No broker, finder or investment banker (other than Macquarie, in
the case of TDC, and Sandler ONeill, in the case of the
Company and with respect to the fairness opinion delivered to
the Company) is entitled to any brokerage, finders or
other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of the Company or TDC.
Public
Announcements
Subject to certain identified exceptions, TDC and the Company
must coordinate and consult with each other before issuing press
releases or public statements with respect to the transactions
contemplated by the Merger Agreement. TDC and the Company are
required to give each other the opportunity to review and
comment upon such press releases and public statements before
they are issued.
Fees
and Expenses
Subject to certain exceptions, all expenses incurred by TDC and
the Company with respect to the transactions contemplated by the
Merger Agreement will be borne solely and entirely by the party
that has incurred such expenses.
Conditions
to the Completion of the Merger
Conditions
to Each Partys Obligations
The obligations of the Company, TDC and Merger Sub to consummate
the Merger are subject to the satisfaction of the following
conditions:
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Shareholder Approval.
The Merger Agreement
must have been adopted by the Companys shareholders at the
special meeting.
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No Order.
The consummation of the Merger must
not have been restrained, enjoined or prohibited by a court or
other governmental authority. This condition will not be
available, however, to a party whose failure to fulfill its
obligations to obtain regulatory approvals and other consents is
the primary cause of or has primarily resulted in such
prohibition.
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Insurance Consents.
TDC shall have obtained
the written approvals of the Merger issued by the insurance
regulatory authorities of the States of Florida, Missouri and
Texas, provided no such approval from the State of Florida shall
contain or be subject to any conditions that would reasonably be
expected to have a Regulatory Material Adverse Effect.
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HSR Act Waiting Periods.
Any applicable
waiting period, together with any extensions thereof, under the
HSR Act shall have expired or been terminated (early termination
of the HSR Act waiting period was granted on June 17, 2011).
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Conditions
to the Obligations of TDC and Merger Sub
The obligations of TDC and Merger Sub to consummate the Merger
are subject to the satisfaction of the following additional
conditions:
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Accuracy of Representations.
The
representations and warranties of the Company contained in the
Merger Agreement must be true and correct as of the effective
time of the Merger, except for any failure of such
representations and warranties to be true and correct that,
individually or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect (subject to
certain exceptions for the organization and qualification,
capitalization and enforceability representations).
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Performance of Covenants.
The Company must
have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be
performed or complied with at or prior to the effective time of
the Merger.
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No Company Material Adverse Effect.
Since the
date of the Merger Agreement, no change, event or circumstance
shall have occurred and be continuing that has had, or is
reasonably to likely to have, a Company Material Adverse Effect.
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Officers Certificates.
TDC shall have
received from the Company an officers certificate with
respect to each of the above conditions.
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Minimum Funding Standard.
The Company shall
have satisfied the minimum funding standards required by
applicable law with respect to the FPIC Insurance Group, Inc.
Defined Benefit Plan, as amended.
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Conditions
to the Obligations of the Company
The obligations of the Company to consummate the Merger are
subject to the satisfaction of the following additional
conditions:
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Accuracy of Representations.
The
representations and warranties of TDC and Merger Sub contained
in the Merger Agreement must be true and correct as of the
effective time of the Merger, except for any failure of such
representations and warranties (other than TDCs and Merger
Subs organization and due authorization representations)
to be true and correct that has not had a material adverse
effect on the ability of TDC or Merger Sub to perform its
obligations under the Merger Agreement.
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Performance of Covenants.
TDC must have
performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be
performed or complied with at or prior to the effective time of
the Merger.
|
|
|
|
Officers Certificates.
The Company shall
have received from TDC an officers certificate with
respect to each of the above conditions.
|
|
|
|
Closing Payments.
TDC must have deposited the
merger consideration, option consideration and performance unit
consideration with the paying agent or the Company, as
applicable, at or prior to the effective time of the Merger.
|
Termination
of the Merger Agreement
Under certain circumstances, the Company
and/or
TDC
may terminate the Merger Agreement and abandon the Merger prior
to the effective time of the Merger, whether before or after
obtaining the required approval of the Companys
shareholders.
75
Termination
by Mutual Consent
The Merger Agreement may be terminated by the mutual written
consent of the Company and TDC, by action of their respective
board of directors or board of governors.
Termination
by Either Party
Either party may terminate the Merger Agreement under the
following circumstances:
|
|
|
|
|
Outside Date.
So long as a breach of the
Merger Agreement by the terminating party is not the primary
cause of the failure of the Merger to occur on or before such
date, if the Merger has not been consummated by
December 31, 2011, subject to the extension of such date to
March 31, 2012 if all closing conditions have been or are
capable of being satisfied at the time of such extension, other
than those relating to certain governmental consents and
approvals.
|
|
|
|
Court Order.
So long as a breach of the Merger
Agreement by the terminating party is not the primary cause of
such action, if any final, nonappealable action is taken by a
court of competent jurisdiction or other governmental authority
permanently restraining, enjoining or otherwise prohibiting the
Merger.
|
|
|
|
Company Shareholder Approval.
If the Merger
Agreement is not approved and adopted by the Companys
shareholders at the special meeting (or at any adjournment
thereof).
|
Unilateral
Termination by the Company
The Company may unilaterally terminate the Merger Agreement
under the following circumstances:
|
|
|
|
|
Superior Proposal.
Subject to compliance with
the covenants described in the sections of this proxy statement
entitled
The Merger Agreement
Restrictions on Solicitation of Other Offers
and
The Merger Agreement
Change of
Recommendation
,
if the Board determines to
accept a Superior Proposal (with such termination becoming
effective immediately prior to the time the Company enters into
a binding written agreement with respect to such Superior
Proposal).
|
|
|
|
Breach of Agreement by TDC.
If (a) any
representation or warranty of TDC or Merger Sub, other than the
representation and warranty regarding TDCs ability to fund
the Merger from available cash (referred to herein as the
financing representation), has become untrue or TDC
or Merger Sub has breached any covenant or agreement set forth
in the Merger Agreement, (b) such breach or
misrepresentation is not capable of being cured prior to the
outside date and (c) such breach or misrepresentation would
cause the Companys closing conditions regarding the
accuracy of TDCs representations and warranties or the
performance of TDCs covenants not to be satisfied.
|
|
|
|
Breach of Financing Representation by TDC.
If
TDCs financing representation has become untrue and is not
capable of being cured prior to the outside date.
|
Unilateral
Termination by TDC
TDC may unilaterally terminate the Merger Agreement under the
following circumstances:
|
|
|
|
|
if the Board has withdrawn or adversely modified the Company
recommendation;
|
|
|
|
if the Board has recommended to the Companys shareholders
that they approve or accept an Acquisition Proposal other than
the Merger;
|
|
|
|
if the Company has entered into or announced publicly its
intention to enter into any agreement, letter of intent or term
sheet with respect to an Acquisition Proposal other than the
Merger;
|
|
|
|
if the Company has breached or failed to perform in any material
respect the covenants and agreements described in the sections
of this proxy statement entitled
The Merger Agreement
Restrictions on Solicitation of
Other
Offers
and
The Merger Agreement
Change of Recommendation
;
|
76
|
|
|
|
|
if the Board has failed to reaffirm (publicly, if so requested
by TDC) the Company recommendation within fifteen business days
after the date any Acquisition Proposal (or material
modification thereto) is first publicly disclosed by the Company
or the person making such Acquisition Proposal;
|
|
|
|
a tender offer or exchange offer relating to the Companys
common stock has been commenced by a person unaffiliated with
TDC and the Company has not sent to its shareholders pursuant to
Rule 14e-2
under the Exchange Act, within ten business days after such
tender offer or exchange offer is first published, sent or
given, a statement reaffirming the Company recommendation and
recommending that shareholders reject such tender or exchange
offer;
|
|
|
|
if the Company or the Board (or any committee thereof) publicly
announces its intention to do any of the foregoing; or
|
|
|
|
if (a) any representation or warranty of the Company has
become untrue or the Company has breached any covenant or
agreement set forth in the Merger Agreement, (b) such
breach or misrepresentation is not capable of being cured prior
to the outside date and (c) such breach or
misrepresentation would cause TDCs conditions regarding
the accuracy of the Companys representations and
warranties or the performance of the Companys covenants
not to be satisfied.
|
Termination
Fees
Termination
Fee Payable by the Company to TDC
The Company must pay to TDC the Termination Fee of 3% of the
aggregate merger consideration (or approximately
$10.6 million) if:
|
|
|
|
|
the Company terminates the Merger Agreement in order to accept a
Superior Proposal (which shall be TDCs sole and exclusive
remedy in the event of such termination);
|
|
|
|
TDC terminates the Merger Agreement because:
|
|
|
|
|
|
the Board has withdrawn or adversely modified the Company
recommendation;
|
|
|
|
the Board has recommended to the Companys shareholders
that they approve or accept an Acquisition Proposal other than
the Merger;
|
|
|
|
the Company has entered into or announced publicly its intention
to enter into any agreement, letter of intent or term sheet with
respect to an Acquisition Proposal other than the Merger;
|
|
|
|
the Company has breached or failed to perform in any material
respect the covenants and agreements described in the sections
of this proxy statement entitled
The Merger Agreement
Restrictions on Solicitation of Other
Offers
and
The Merger Agreement
Change of Recommendation
;
|
|
|
|
the Board has failed to reaffirm (publicly, if so requested by
TDC) the Company recommendation within fifteen business days
after the date any Acquisition Proposal (or material
modification thereto) is first publicly disclosed by the Company
or the person making such Acquisition Proposal;
|
|
|
|
a tender offer or exchange offer relating to the Companys
common stock has been commenced by a person unaffiliated with
TDC and the Company has not sent to its shareholders pursuant to
Rule 14e-2
under the Exchange Act, within ten business days after such
tender offer or exchange offer is first published, sent or
given, a statement reaffirming the Company recommendation and
recommending that shareholders reject such tender or exchange
offer; or
|
|
|
|
the Company or the Board (or any committee thereof) publicly
announces its intention to do any of the foregoing,
|
which shall be TDCs sole and exclusive remedy in the event
of such termination, except where the Company has breached or
failed to perform in any material respect the covenants and
agreements described in the sections of this proxy statement
entitled
The Merger Agreement
Restrictions on Solicitation of Other Offers
and
The Merger Agreement
Change of
Recommendation
; or
|
|
|
|
|
the Merger Agreement is terminated as a result of (a) the
expiration of the outside date, provided that the Company
shareholder approval of the Merger has not been obtained, or
(b) failure to obtain such shareholder approval, and prior
to such termination or shareholder vote (as applicable) an
Acquisition
|
77
|
|
|
|
|
Proposal has been publicly disclosed and not withdrawn, and
within twelve months following termination of the Merger
Agreement, the Company enters into a definitive agreement
providing for, or consummates, an alternative Acquisition
Proposal (with references to 20% in the definition of
Acquisition Proposal being deemed to be 50%).
|
Termination
Fee Payable by TDC to the Company
TDC must pay the Company the Termination Fee of 3% of the
aggregate merger consideration (or approximately
$10.6 million) if:
|
|
|
|
|
the Merger Agreement is terminated by TDC or the Company because
the Merger has not been consummated prior to the outside date as
a result of the failure to satisfy specified conditions to
obtain required antitrust or insurance regulatory approval for
the Merger and on the termination date (i) the vote of the
Companys shareholders to adopt the Merger Agreement has
been obtained, (ii) no Company Material Adverse Effect has
occurred and is continuing, and (iii) TDCs closing
conditions regarding the accuracy of the Companys
representations and warranties, the performance of its covenants
and funding of the Companys defined benefit plan are still
capable of being satisfied, which shall be the sole and
exclusive remedy of the Company in the event of such
termination, except where TDC has breached or failed to perform
in any material respect any of the covenants described in the
section of this proxy statement entitled
The Merger
Agreement Agreement to Take Appropriate
Actions
; or
|
|
|
|
|
|
the Company terminates the Merger Agreement because TDC lacks
sufficient funds to consummate the Merger or otherwise fails to
make the payments required to be made by it under the Merger
Agreement and on the date of such termination (i) the vote
of the Companys shareholders to adopt the Merger Agreement
has been obtained, (ii) no Company Material Adverse Effect
has occurred and is continuing, and (iii) TDCs
closing conditions regarding the accuracy of the Companys
representations and warranties, the performance of its covenants
and funding of the Companys defined benefit plan are still
capable of being satisfied.
|
Limitation
on Liability
In general, if the Merger Agreement is terminated, there will be
no further liability or obligation on the Company or TDC except
with respect to certain provisions and the Termination Fee
provided under the Merger Agreement. Except to the extent the
Termination Fee is the sole and exclusive remedy of the party
receiving the Termination Fee, each party will have the right to
recover to the fullest extent permitted by applicable law any
liabilities or damages incurred or suffered by it as a result of
the material breach by the other party of any of its
representations, warranties, covenants or other agreements set
forth in the Merger Agreement. This includes, if the Company is
the recovering party, a material breach by TDC of its
obligations to pay the merger consideration at the effective
time of the Merger.
Amendment
The Merger Agreement may not be amended except by an instrument
in writing signed by the Company, TDC and Merger Sub.
Waiver
At any time prior to the effective time of the Merger, the
Company, on one hand, and TDC and Merger Sub, on the other hand,
may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other
party contained in the Merger Agreement or in any document
delivered pursuant to the Merger Agreement and (c) waive
compliance by the other party with any of the agreements or
conditions contained in the Merger Agreement. Any such extension
or waiver must be set forth in an instrument in writing, signed
by the party to be bound, but such extension or waiver or
failure to insist on strict compliance with an obligation,
covenant, agreement or condition will not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Specific
Performance
The parties have agreed that, if for any reason a party fails to
perform its obligations under the Merger Agreement, a party
seeking to enforce the Merger Agreement against such
nonperforming party will be
78
entitled to specific performance and injunctive and other
equitable relief, in addition to and not in limitation of any
other remedy to which it is entitled at law or in equity.
Assignment
The Merger Agreement cannot be assigned by operation of law or
otherwise and any purported assignment will be null and void.
Third-Party
Beneficiaries
Nothing in the Merger Agreement, express or implied, is intended
to or will confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of the Merger
Agreement, except pursuant to the provisions described above
under
The Merger Agreement Employee
Matters
and
The Merger Agreement
Director and Officer Indemnification and
Insurance.
Governing
Law
The Merger Agreement is governed by, and construed in accordance
with, the internal laws of the State of Delaware, without regard
to conflicts of laws principles; provided, that the provisions
of the Merger Agreement governing the consummation of the Merger
and its effects will be governed by, and construed in accordance
with, the internal laws of the State of Florida, without regard
to conflicts of laws principles.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS
The following tables set forth certain information with respect
to beneficial ownership of our common stock for: (1) each
person or entity known to the Company to be the beneficial owner
of more than 5% of the outstanding shares of our common stock,
(2) each of our directors, (3) each of our named
executive officers and (4) all of our executive officers
and directors as a group.
In general, beneficial ownership means the sole or
shared power to vote, or to direct the voting of, a security, or
the sole or shared investment power with respect to a security
(i.e., the power to dispose of, or to direct the disposition of,
a security). In addition, under SEC rules, a person is deemed,
as of any date, to have beneficial ownership of any
security that such person has the right to acquire within
sixty days after such date. The number of shares
beneficially owned by each shareholder is determined according
to the rules of the SEC and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
current rules, beneficial ownership includes any shares as to
which the individual or entity has sole or shared voting power
or investment power. As a consequence, several persons may be
deemed to be the beneficial owners of the same
shares.
Principal
Shareholders
The following table sets forth certain information with respect
to the only persons known to us that beneficially owned more
than 5% of the outstanding shares of our common stock as of
July 12, 2011.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
Percentage of
|
Name of Beneficial Owner
|
|
Owned
|
|
Ownership
|
|
Dimensional Fund Advisors LP(1)
Palisades West, Building One
6300 Bee Cave Road
Austin, Texas 78746
|
|
|
1,090,932
|
|
|
|
13.0
|
%
|
Blackrock, Inc.(2)
40 East 52nd Street
New York, New York 10022
|
|
|
697,081
|
|
|
|
8.30
|
%
|
79
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
Percentage of
|
Name of Beneficial Owner
|
|
Owned
|
|
Ownership
|
|
The Vanguard Group, Inc.(3)
100 Vanguard Blvd.
Malvern, Pennsylvania 19355
|
|
|
528,498
|
|
|
|
6.30
|
%
|
|
|
|
(1)
|
|
As reported on a Statement on Schedule 13G/A filed with the
SEC on February 11, 2011, Dimensional Fund Advisors LP
and its subsidiaries (Dimensional) possess sole
power to vote or to direct the vote of 1,080,432 shares and
sole power to dispose or to direct the disposition of all of
1,090,932 shares. All shares reported are owned by advisory
clients of Dimensional, no one of which, to the knowledge of
Dimensional, owns more than 5% of the class. Dimensional
disclaims beneficial ownership of such shares.
|
|
(2)
|
|
As reported on a Statement on Schedule 13G filed with the
SEC on February 4, 2011, Blackrock, Inc. and its
subsidiaries possess sole power to vote or direct the vote and
to dispose or direct the disposition of these shares.
|
|
(3)
|
|
As reported on a Statement on Schedule 13G filed with the
SEC on February 10, 2011, The Vanguard Group, Inc.
possesses shared power to vote or to direct the vote and to
dispose or direct the disposition of 12,483 shares and sole
power to vote or direct the vote and to dispose or direct the
disposition of 516,015 shares.
|
Directors
and Executive Officers
The following table sets forth, as of July 12, 2011, the
beneficial ownership of our common stock by each of our
directors, by each of our named executive officers, and by all
of our directors and executive officers as a group. Unless
otherwise indicated below, the business address of each person
listed below is:
c/o FPIC
Insurance Group, Inc., 1000 Riverside Avenue, Suite 800,
Jacksonville, Florida 32204.
|
|
|
|
|
|
|
|
|
|
|
Total Shares
|
|
|
|
|
Beneficially
|
|
Percentage of Shares
|
Name
|
|
Owned(1)
|
|
Outstanding(2)
|
|
Directors:
|
|
|
|
|
|
|
|
|
John K. Anderson, Jr.
|
|
|
56,700
|
|
|
|
*
|
|
Richard J. Bagby, M.D.(3)
|
|
|
18,651
|
|
|
|
*
|
|
Robert O. Baratta, M.D.
|
|
|
87,937
|
|
|
|
1.0
|
%
|
John R. Byers(4)
|
|
|
232,254
|
|
|
|
2.7
|
%
|
M. C. Harden, III
|
|
|
64,200
|
|
|
|
*
|
|
Kenneth M. Kirschner
|
|
|
36,485
|
|
|
|
*
|
|
Terence P. McCoy, M.D.(5)
|
|
|
79,369
|
|
|
|
*
|
|
John G. Rich
|
|
|
4,780
|
|
|
|
*
|
|
Joan D. Ruffier
|
|
|
20,985
|
|
|
|
*
|
|
David M. Shapiro, M.D.(6)
|
|
|
45,750
|
|
|
|
*
|
|
Named Executive Officers:
|
|
|
|
|
|
|
|
|
Charles Divita, III(7)
Chief Financial Officer
|
|
|
84,199
|
|
|
|
1.0
|
%
|
Robert E. White, Jr.(8)
President, First Professionals
Insurance Company, Inc
|
|
|
152,449
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
Total (All Directors and Executive Officers)
(9)
|
|
|
883,759
|
|
|
|
10.2
|
%
|
|
|
|
*
|
|
Less than 1% of the total outstanding shares of our common stock.
|
|
(1)
|
|
Shares beneficially owned include unvested restricted shares.
|
|
|
|
(2)
|
|
Based on an aggregate of (i) the number of shares of our
common stock outstanding on July 12, 2011 and
(ii) options held by the person shown that are exercisable
as of July 12, 2011, or that are exercisable within
60 days of July 12, 2011.
|
80
|
|
|
(3)
|
|
Includes 7,500 shares of common stock issuable pursuant to
stock options which were exercisable as of July 12, 2011,
or which become exercisable within 60 days of such date.
|
|
|
|
(4)
|
|
Includes 124,782 shares of common stock issuable pursuant
to stock options which were exercisable as of July 12,
2011, or which become exercisable within 60 days of such
date.
|
|
|
|
(5)
|
|
Excludes 16,800 shares held in trust for
Dr. McCoys son as to which Dr. McCoy disclaims
beneficial ownership.
|
|
|
|
(6)
|
|
Includes 22,500 shares of common stock issuable pursuant to
stock options which were exercisable as of July 12, 2011,
or which become exercisable within 60 days of such date.
|
|
|
|
(7)
|
|
Includes 40,166 shares of common stock issuable pursuant to
stock options which were exercisable as of July 12, 2011,
or which become exercisable within 60 days of such date.
|
|
|
|
(8)
|
|
Includes 43,772 shares of common stock issuable pursuant to
stock options which were exercisable as of July 12, 2011,
or which become exercisable within 60 days of such date.
|
|
|
|
(9)
|
|
Includes 238,720 shares of common stock issuable pursuant
to stock options. Excludes 16,800 shares of common stock as
to which beneficial ownership is disclaimed.
|
MARKET
PRICE OF THE COMPANY COMMON STOCK AND DIVIDEND
INFORMATION
The Companys common stock is quoted on the NASDAQ Global
Select Market under the trading symbol FPIC. The
following table sets forth for the periods indicated the high
and low sale prices per share of the Companys common stock
as reported on the NASDAQ Global Select Market, the principal
market in which our common stock is traded, as adjusted to
reflect the Companys
3-for-2
stock split effective March 8, 2010.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year Ending December 31, 2011:
|
|
|
|
|
|
|
|
|
Third Quarter (through July 12, 2011)
|
|
|
41.86
|
|
|
|
41.55
|
|
Second Quarter
|
|
|
41.84
|
|
|
|
32.00
|
|
First Quarter
|
|
|
38.90
|
|
|
|
34.35
|
|
Fiscal Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
39.24
|
|
|
|
34.14
|
|
Third Quarter
|
|
|
35.24
|
|
|
|
24.96
|
|
Second Quarter
|
|
|
29.14
|
|
|
|
25.51
|
|
First Quarter
|
|
|
28.23
|
|
|
|
23.31
|
|
Fiscal Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
29.54
|
|
|
|
21.17
|
|
Third Quarter
|
|
|
24.39
|
|
|
|
20.06
|
|
Second Quarter
|
|
|
25.80
|
|
|
|
18.41
|
|
First Quarter
|
|
|
29.54
|
|
|
|
21.17
|
|
On May 23, 2011, the last trading day prior to the public
announcement of the execution of the Merger Agreement, the high
and low sales prices of the Companys common stock were
$32.92 and $32.00 per share, respectively, and the closing price
was $32.10 per share. On July 12, 2011, the most recent
practicable date before the printing of this proxy statement,
the high and low reported sales prices of the Companys
common stock were $41.83 and $41.70, respectively, and the
closing price was $41.73 per share. You are urged to obtain a
current market price quotation for the Companys common
stock.
We paid no cash dividends in 2009, 2010 or, as of the date of
this proxy statement, in 2011. We presently intend to retain any
cash for use in the operation and expansion of our business and,
therefore, do not anticipate paying any cash dividends in the
foreseeable future. State insurance laws limit the dividends or
other amounts that may be paid to us by our insurance
subsidiaries. In addition, under certain circumstances,
limitations may be placed on our ability to pay dividends by the
terms of the indenture agreements relating to our junior
subordinated debentures.
81
ADVISORY
VOTE ON GOLDEN PARACHUTE COMPENSATION
Golden
Parachute Compensation Proposal
The Company is requesting the Companys shareholders
approval, on a non-binding advisory basis, of the compensation
that may be payable to the Companys named executive
officers in connection with the Merger and therefore is asking
shareholders to adopt the following resolution:
RESOLVED, that the compensation that may be paid or become
payable to the Companys named executive officers in
connection with the Merger, as disclosed in the table entitled
Golden Parachute Compensation
pursuant to
Item 402(t) of
Regulation S-K,
including the associated narrative discussion, and the
agreements or understandings pursuant to which such compensation
may be paid or become payable, are hereby APPROVED.
Vote
Required and Board Recommendation
The vote on this proposal is a vote separate and apart from the
vote to approve the Merger. Accordingly, you may vote not to
approve this proposal on golden parachute compensation and vote
to approve the Merger and vice versa. Because the vote is
advisory in nature, it will not be binding on either the Company
or TDC regardless of whether the Merger is approved. Approval of
the non-binding, advisory proposal with respect to the
compensation that may be received by the Companys named
executive officers in connection with the Merger is not a
condition to completion of the Merger, and failure to approve
this advisory matter will have no effect on the vote to approve
the Merger. Because the golden parachute compensation to be paid
in connection with the Merger is based on contractual
arrangements with the named executives, such compensation will
be payable, regardless of the outcome of this advisory vote, if
the Merger is approved (subject only to the contractual
conditions applicable thereto).
The advisory vote on the compensation that may be received by
the Companys named executive officers in connection with
the Merger will be approved if a majority of the votes cast on
such proposal vote FOR such proposal.
The Board recommends that shareholders vote FOR
the approval, on a non-binding advisory basis, of the
compensation that may be received by the Companys named
executive officers in connection with the Merger.
PROPOSAL TO
GRANT AUTHORITY TO ADJOURN THE SPECIAL MEETING
Adjournment
Proposal
In this proposal, the Company is asking you to authorize the
holder of any proxy solicited by the Board to vote in favor of
adjourning, postponing or continuing the special meeting and any
later adjournments in order to enable the Board to solicit
additional proxies for the approval of the Merger Agreement. If
the shareholders approve the Adjournment Proposal, the Company
could adjourn, postpone or continue the special meeting, and any
adjourned session of the special meeting and use the additional
time to solicit additional proxies, including the solicitation
of proxies from shareholders that have previously voted against
the proposal, or respond to an acquisition proposal as permitted
in the Merger Agreement. Among other effects, approval of the
Adjournment Proposal could mean that, even if the Company has
received proxies representing a sufficient number of votes
against approval of the Merger Agreement to defeat the proposal
to approve the Merger, the Company could adjourn the special
meeting without a vote on the Merger Agreement and seek to
convince the holders of those shares to change their votes to
votes in favor of approval of the Merger Agreement.
Vote
Required and Board Recommendation
The Adjournment Proposal requires the affirmative vote of the
holders of a majority of the votes cast in person or by proxy at
the special meeting and entitled to vote thereon. Abstentions
and broker non-votes will have no effect on the Adjournment
Proposal.
82
The Board recommends that you vote FOR the
Adjournment Proposal.
FUTURE
SHAREHOLDER PROPOSALS
If the Merger is completed, we will have no public shareholders
and there will be no public participation in any of our future
shareholder meetings. We intend to hold the 2012 Annual Meeting
of Shareholders only if the Merger is not completed.
If a shareholder wishes to submit a proposal for inclusion in
the proxy statement and form of proxy for the 2012 Annual
Meeting of Shareholders, in accordance with
Rule 14a-8
under the Exchange Act, such proposal must have been received by
the Company at its principal executive offices not later than
December 16, 2011. To properly present matters outside the
Rule 14a-8
process or to nominate directors at the 2012 Annual Meeting of
Shareholders, shareholders must comply with the advance notice
requirements contained in the Companys bylaws. Such
notices must be received by the Company not later than
December 16, 2011 and must include the specified
information concerning the proposal or nominee as described in
the Companys bylaws.
HOUSEHOLDING
OF SPECIAL MEETING MATERIALS
In accordance with
Rule 14a-3(e)(1)
under the Exchange Act, one proxy statement will be delivered to
two or more shareholders who share an address, unless the
Company has received contrary instructions from one or more of
the shareholders. The Company will deliver promptly upon written
or oral request a separate copy of the proxy statement to a
shareholder at a shared address to which a single copy of the
proxy statement was delivered. Requests for additional copies of
the proxy statement, and requests that in the future separate
proxy statements be sent to shareholders who share an address,
should be directed to the Secretary of the Company at 1000
Riverside Avenue, Suite 800, Jacksonville, Florida 32204,
telephone:
(904) 354-2482.
In addition, shareholders who share a single address but receive
multiple copies of the proxy statement may request that in the
future they receive a single copy by contacting the Company at
the address and phone number set forth in the prior sentence.
OTHER
MATTERS
The Companys management and the Board are not aware of any
matters to be presented for action at the special meeting other
than those set forth in this proxy statement. However, should
any other matter properly come before the special meeting, or
any adjournment or postponement thereof, the enclosed proxy
confers upon the persons entitled to vote the shares represented
by such proxy, discretionary authority to vote the same in
respect of any such other matter in accordance with the
recommendations of the Board.
WHERE YOU
CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy any reports, proxy statements or other information that we
file with the SEC at the SECs Public Reference Room
located at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms.
The Companys public filings are also available to the
public from document retrieval services and the Internet website
maintained by the SEC at
www.sec.gov
. In addition,
investors and security holders may obtain free copies of the
documents filed with the SEC by the Company at the
Investors page on its corporate website at
www.fpic.com
.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us by written or
telephonic request directed to the investor relations department
at the Company, 1000 Riverside Avenue, Jacksonville, Florida
32204, telephone:
(904) 354-2482,
or to our proxy solicitor, Morrow & Co., LLC,
telephone:
(888) 813-7651.
83
If you would like to request documents, please do so by
August 1, 2011, in order to receive them before the special
meeting.
This proxy statement does not constitute the solicitation of a
proxy in any jurisdiction to or from any person to whom or from
whom it is unlawful to make such proxy solicitation in that
jurisdiction. You should rely only on the information contained
in this proxy statement or incorporated by reference in this
proxy statement to vote your shares at the special meeting. No
persons have been authorized to give any information or to make
any representations other than those contained in this proxy
statement and, if given or made, such information or
representations must not be relied upon as having been
authorized by us or any other person. This proxy statement is
dated July 14, 2011. You should not assume that the
information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this proxy
statement to shareholders shall not create any implication to
the contrary.
The Merger Agreement contains a number of representations and
warranties which the Company and TDC have made to each other.
The assertions embodied in those representations and warranties
are qualified by information in confidential disclosure
schedules that the parties have exchanged in connection with
signing the Merger Agreement. These disclosure schedules contain
information that has been included in the prior public
disclosures of the Company, as well as additional non-public
information. While the Company does not believe that this
non-public information is required to be publicly disclosed
under the applicable securities laws, that information does
modify, qualify and create exceptions to the representations and
warranties set forth in the Merger Agreement. In addition, these
representations and warranties were made as of the date of the
Merger Agreement. Information concerning the subject matter of
the representations and warranties may have changed since the
date of the Merger Agreement, which subsequent information may
or may not be fully reflected in the public disclosures of the
Company. Moreover, representations and warranties are frequently
utilized in merger agreements as a means of allocating risks,
both known and unknown, rather than to make affirmative factual
claims or statements. Accordingly, you should not rely on the
representations and warranties as current characterizations of
factual information about the Company or TDC.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference certain
information into this proxy statement. This means that we can
disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this
proxy statement, and later information that we file with the SEC
will update and supersede that information. We incorporate by
reference the documents listed below and any documents filed by
us pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this proxy statement and prior to
the date of the special meeting:
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FPIC Insurance Group, Inc. Filings:
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Periods/Report Dates:
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Annual Reports on
Form 10-K
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Year ended December 31, 2010, filed with the SEC on March 9, 2011
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Quarterly Reports on
Form 10-Q
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Quarter ended March 31, 2011, filed with the SEC on May 4, 2011
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Current Reports on
Form 8-K
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June 3, 2011
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Notwithstanding the foregoing, information furnished under
items 2.02 and 7.01 of any Current Report on
Form 8-K,
including the related exhibits, is not incorporated by reference
in this proxy statement.
84
EXECUTION
VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE DOCTORS COMPANY,
FOUNTAIN ACQUISITION CORP.,
AND
FPIC INSURANCE GROUP, INC.
Dated as of May 23, 2011
TABLE OF
CONTENTS
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ARTICLE 1 THE MERGER
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A-1
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Section 1.1.
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The Merger
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A-1
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Section 1.2.
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Closing
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A-1
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Section 1.3.
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Effective Time
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A-1
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Section 1.4.
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Effect of the Merger
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A-1
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Section 1.5.
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Articles of Incorporation; By-laws
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A-1
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Section 1.6.
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Directors and Officers
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A-2
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ARTICLE 2 CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
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A-2
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Section 2.1.
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Conversion of Securities
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A-2
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Section 2.2.
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Treatment of Company Equity Awards
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A-2
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Section 2.3.
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Exchange Procedures
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A-3
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Section 2.4.
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Stock Transfer Books
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A-5
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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A-5
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Section 3.1.
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Organization and Qualification; Subsidiaries
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A-5
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Section 3.2.
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Articles of Incorporation and By-laws
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A-6
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Section 3.3.
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Capitalization
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A-6
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Section 3.4.
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Authority
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A-7
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Section 3.5.
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No Conflict; Required Filings and Consents
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A-7
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Section 3.6.
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Permits; Compliance With Law
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A-8
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Section 3.7.
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SEC Filings; Financial Statements
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A-8
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Section 3.8.
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Disclosure Documents
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A-11
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Section 3.9.
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Absence of Certain Changes or Events
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A-11
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Section 3.10.
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Employee Benefit Plans
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A-11
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Section 3.11.
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Labor and Other Employment Matters
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A-12
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Section 3.12.
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Material Contracts
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A-12
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Section 3.13.
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Reinsurance Contracts
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A-13
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Section 3.14.
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Litigation
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A-14
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Section 3.15.
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Environmental Matters
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A-15
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Section 3.16.
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Intellectual Property
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A-15
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Section 3.17.
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Assets and Properties
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A-15
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Section 3.18.
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Taxes
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A-16
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Section 3.19.
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Insurance Practices; Compliance With Laws
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A-17
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Section 3.20.
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Vote Required
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A-18
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Section 3.21.
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Brokers
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A-19
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Section 3.22.
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Opinion of Financial Advisor
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A-19
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Section 3.23.
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Insurance Policies
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A-19
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Section 3.24.
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Insurance Producers
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A-19
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Section 3.25.
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Interested Party Transactions
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A-20
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Section 3.26.
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Investments
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A-20
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Section 3.27.
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No Investment Company
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A-20
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Section 3.28.
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No Broker/Dealer Operations
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A-20
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Section 3.29.
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No Limitations on Dividends
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A-20
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A-i
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB
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A-20
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Section 4.1.
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Organization and Qualification; Subsidiaries
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A-20
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Section 4.2.
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Authority
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A-21
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Section 4.3.
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No Conflict; Required Filings and Consents
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A-21
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Section 4.4.
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Disclosure Documents
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A-21
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Section 4.5.
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Litigation
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A-22
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Section 4.6.
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Ownership of Merger Sub; No Prior Activities
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A-22
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Section 4.7.
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Vote Required
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A-22
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Section 4.8.
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Brokers
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A-22
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Section 4.9.
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Financing
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A-22
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Section 4.10.
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Arrangements with Company Personnel and Shareholders
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A-23
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Section 4.11.
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Ownership of Company Common Stock
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A-23
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Section 4.12.
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Compliance
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A-23
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ARTICLE 5 COVENANTS
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A-23
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Section 5.1.
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Conduct of Business by the Company Pending the Closing
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A-23
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Section 5.2.
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Cooperation
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A-25
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Section 5.3.
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Proxy Statement
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A-26
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Section 5.4.
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Company Shareholders Meeting; Consent of Parent as Sole
Shareholder of Merger Sub
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A-26
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Section 5.5.
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Access to Information; Confidentiality
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A-27
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Section 5.6.
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Acquisition Proposals
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A-27
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Section 5.7.
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Appropriate Action; Consents; Filings
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A-29
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Section 5.8.
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Certain Notices
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A-31
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Section 5.9.
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Public Announcements
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A-31
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Section 5.10.
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Employee Benefit Matters
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A-31
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Section 5.11.
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Cooperation Regarding Company Benefit Plans
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A-33
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Section 5.12.
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Indemnification of Directors and Officers
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A-33
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Section 5.13.
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Rule 16b-3
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A-35
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ARTICLE 6 CLOSING CONDITIONS
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A-35
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Section 6.1.
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Conditions to Obligations of Each Party Under This Agreement
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A-35
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Section 6.2.
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Additional Conditions to Obligations of Parent and Merger Sub
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A-35
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Section 6.3.
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Additional Conditions to Obligations of the Company
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A-36
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ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER
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A-36
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Section 7.1.
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Termination
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A-36
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Section 7.2.
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Effect of Termination
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A-38
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ARTICLE 8 GENERAL PROVISIONS
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A-39
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Section 8.1.
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Non-Survival of Representations and Warranties
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A-39
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Section 8.2.
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Fees and Expenses
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A-39
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Section 8.3.
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Notices
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A-39
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Section 8.4.
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Certain Definitions
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A-40
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Section 8.5.
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Terms Defined Elsewhere
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A-44
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Section 8.6.
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Headings
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A-46
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Section 8.7.
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Severability
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A-46
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Section 8.8.
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Entire Agreement
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A-46
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A-ii
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Section 8.9.
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No Reliance
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A-46
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Section 8.10.
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Assignment
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A-46
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Section 8.11.
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Parties in Interest
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A-47
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Section 8.12.
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Mutual Drafting
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A-47
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Section 8.13.
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Governing Law; Consent to Jurisdiction; WAIVER OF JURY TRIAL
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A-47
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Section 8.14.
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Disclosure Schedule
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A-47
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Section 8.15.
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Counterparts
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A-47
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Section 8.16.
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Amendment
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A-48
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Section 8.17.
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Waiver
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A-48
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Section 8.18.
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Specific Performance
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A-48
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Exhibit A-1 Parents Knowledge Officers
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A-50
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Exhibit A-2 Companys Knowledge Officers
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A-51
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A-iii
AGREEMENT
AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of May 23, 2011
(this
Agreement
), is by and among The Doctors
Company, a California domiciled reciprocal inter-insurance
exchange (
Parent
), Fountain Acquisition
Corp., a Florida corporation and a wholly owned subsidiary of
Parent (
Merger Sub
), and FPIC Insurance
Group, Inc., a Florida corporation (the
Company
).
RECITALS
WHEREAS, the Board of Governors of Parent and the respective
Boards of Directors of Merger Sub and the Company have approved
and declared advisable this Agreement and the merger of Merger
Sub with and into the Company (the
Merger
)
upon the terms and subject to the conditions of this Agreement
and in accordance with the Florida Business Corporation Act (the
FBCA
); and
WHEREAS, the Board of Governors of Parent and the respective
Boards of Directors of Merger Sub and the Company have
determined that the Merger is in the best interest of their
respective shareholders or policyholders, as applicable;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth in this Agreement and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
Section
1.1.
The
Merger
.
Upon the terms and subject to
satisfaction or waiver of the conditions set forth in this
Agreement, and in accordance with the FBCA, at the Effective
Time (as hereinafter defined), Merger Sub shall be merged with
and into the Company. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and the Company
shall continue as the surviving corporation of the Merger (the
Surviving Corporation
).
Section
1.2.
Closing
.
The
closing of the Merger (the
Closing
) shall
take place at the offices of the Company (or such other place as
agreed by the parties) at 9:00 a.m., eastern time, on a
date to be specified by the parties, which shall be no later
than the second Business Day following the date on which all of
the conditions set forth in
Article 6
are satisfied
or, if permissible, waived (other than those conditions to be
satisfied at the Closing, but subject to the satisfaction or, if
permissible, waiver thereof), unless the parties hereto agree to
another place, time or date.
Section
1.3.
Effective
Time
.
At the Closing, subject to the terms
and conditions of this Agreement, the parties hereto shall cause
the Merger to be consummated by filing articles of merger (the
Articles of Merger
) with the Florida
Secretary of State, in such form as required by, and executed in
accordance with the relevant provisions of, the FBCA (the date
and time of such filing, or at such later date and time as
Parent and the Company shall agree and specify in the Articles
of Merger, such specified date and time being the
Effective Time
).
Section
1.4.
Effect
of the Merger
.
At the Effective Time, the
effect of the Merger shall be as provided in the applicable
provisions of the FBCA. Without limiting the generality of the
foregoing, at the Effective Time, except as otherwise provided
herein, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
Section
1.5.
Articles
of Incorporation; By-laws
.
At the Effective
Time, the Articles of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter
amended as permitted by the FBCA;
provided
,
however
, that the name shall be changed to FPIC
Insurance Group, Inc. At the Effective Time, the By-laws
of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation until
A-1
thereafter amended as permitted by Law, the Articles of
Incorporation of the Surviving Corporation and such By-laws. The
Articles of Incorporation and the By-laws of the Surviving
Corporation shall be in accordance with
Section 5.12.2
hereof.
Section
1.6.
Directors
and Officers
.
The directors of Merger Sub
immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and By-laws of the
Surviving Corporation. The officers of Merger Sub immediately
prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and By-laws of the Surviving
Corporation
ARTICLE 2
CONVERSION
OF SECURITIES; EXCHANGE OF CERTIFICATES
Section
2.1.
Conversion
of Securities
.
At the Effective Time, by
virtue of the Merger and without any action on the part of
Parent, Merger Sub, the Company or the holders of any of the
following securities:
2.1.1.
Conversion of Company Common
Stock
.
Each share of common stock,
$0.10 par value per share, of the Company (
Company
Common Stock
) issued and outstanding immediately prior
to the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to
Section 2.1.2)
shall be converted into the right to receive $42.00 in cash,
payable to the holder thereof, without interest (the
Merger Consideration
). All such shares of
Company Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each
Certificate previously representing any such share shall
thereafter represent only the right to receive the Merger
Consideration therefor.
2.1.2.
Cancellation of Certain Company Common
Stock
.
Each share of Company Common Stock
held in the treasury of the Company or by any Company Subsidiary
shall be cancelled and extinguished without any conversion
thereof and no payment shall be made with respect thereto.
2.1.3.
Merger Sub
.
Each
share of common stock, par value $0.001 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time
shall be converted into and be exchanged for one newly and
validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation.
2.1.4.
Change in Company Common
Stock
.
If between the date of this Agreement
and the Effective Time the outstanding shares of the Company
Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Merger Consideration
shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares; provided, that the
aggregate Merger Consideration payable shall not exceed the
aggregate amount contemplated pursuant to
Section 2.1.1
as of the date hereof.
Section
2.2.
Treatment
of Company Equity Awards
.
Prior to the
Effective Time, the Board of Directors of the Company (the
Company Board
) or, if appropriate, any
committee thereof shall adopt appropriate resolutions and take
all other actions necessary and appropriate to provide that,
immediately prior to the Effective Time:
(i) each unexpired and unexercised option to purchase
Company Common Stock (the
Company Options
)
then outstanding under any stock option plan of the Company,
including the Companys Director Stock Plan, as amended and
restated, the Companys Omnibus Incentive Plan, as amended
and restated (the
Company Omnibus Plan
), the
Companys Employee Stock Purchase Plan, as amended (the
Company ESPP
), or any other plan, agreement
or arrangement (collectively, the
Company Stock Option
Plans
), shall become fully vested and exercisable and,
effective as of the Effective Time, each such Company Option
shall be cancelled, and in exchange therefor each former holder
of any such
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cancelled Company Option shall be entitled to receive, in
consideration of the cancellation of such Company Option and in
settlement therefor, a payment in cash (subject to
Section 2.3.8
) of:
(A) in the case of each Company Option other than those
issued under the Company ESPP, an amount equal to the product of
(u) the total number of shares of Company Common Stock
previously subject to such Company Option and (v) the
excess, if any, of the Merger Consideration over the exercise
price per share of Company Common Stock previously subject to
such Company Option; or
(B) in the case of Company Options issued under the ESPP,
an amount for each holder equal to (x) the Merger
Consideration
multiplied
by (y) the total amount of
each such holders 2011 payroll deductions prior to the
Effective Time under the Company ESPP, and
divided
by
(z) $30.71 (85% of the fair market value (determined in
accordance with the terms of the ESPP) of Company Common Stock
on January 14, 2011).
(the total amounts payable hereunder with respect to all Company
Options being referred to as the
Option
Consideration
);
(ii) each unvested share of restricted stock awarded and
outstanding under the Company Stock Option Plans, including
without limitation those issued under the Company ESPP, as to
which the restrictions thereon shall not have lapsed
(
Company Restricted Stock
), shall become a
fully vested and unrestricted share of Company Common Stock and
shall be converted into the Merger Consideration as provided by
Section 2.1.1;
(iii) each unpaid performance unit awarded under the
Company Omnibus Plan (
Company Performance
Units
) shall become fully vested and payable and,
effective as of the Effective Time, each such Company
Performance Unit shall be cancelled, and in exchange therefor
each such cancelled Company Performance Unit shall be converted
into the right to receive, in consideration of the cancellation
of such Company Performance Unit and in settlement therefor, a
payment in cash (subject to
Section 2.3.8
) (such
amounts payable hereunder being referred to as the
Performance Unit Consideration
) equal to the
product of (x) the Payout Percentage (as defined in the
related award agreements and determined as set forth below)
applicable to such Company Performance Unit, and (y) the
Merger Consideration (it being agreed that the Payout Percentage
shall be 143% for Company Performance Units granted on
January 4, 2010 and 100% for Company Performance Units
granted on December 10, 2010); and
(iv) from and after the Effective Time, any such cancelled
Company Option and Company Performance Unit shall no longer be
exercisable by or payable to the former holder thereof and each
such former holder shall only be entitled to the payment of the
Option Consideration or the Performance Unit Consideration, as
applicable. To the extent then in effect, after the Effective
Time, all Company Stock Option Plans shall be terminated and no
further Company Options or other awards shall be granted
thereunder.
Section
2.3.
Exchange
Procedures
.
2.3.1.
Paying Agent
.
Prior
to the Effective Time, Parent shall designate a bank or trust
company reasonably satisfactory to the Company (the
Paying Agent
), to act as agent for Parent for
purposes of, among other things, mailing and receiving letters
of transmittal, and distributing the Merger Consideration to the
Companys shareholders.
2.3.2.
Exchange Procedures for Company Common
Stock
.
(a) At or prior to the Effective
Time, Parent shall deposit, or shall cause to be deposited, with
the Paying Agent, for the benefit of the holders of shares of
Company Common Stock for payment in accordance with this
Article 2
, cash in U.S. dollars in an amount
sufficient to pay the aggregate amount of Merger Consideration
(the
Exchange Fund
). No later than three
Business Days after the Effective Time, Parent shall cause the
Paying Agent to mail or otherwise transmit to each holder of
record of a Certificate or Book-Entry Shares as of immediately
prior to the Effective Time (A) a letter of transmittal
(which shall specify that delivery shall be effected, and risk
of loss and title to the
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Certificate shall pass, only upon proper delivery of the
Certificate to the Paying Agent and shall be in customary form)
or in the case of Book-Entry Shares, a similar notification in
accordance with industry standards and (B) instructions for
use in effecting the surrender of the Certificate or Book-Entry
Shares in exchange for the Merger Consideration, to which such
holder is entitled pursuant to this Agreement. Upon surrender of
a Certificate for cancellation to the Paying Agent together with
such letter of transmittal (as required by Paying Agent),
properly completed and duly executed (or, in the case of
Book-Entry Shares, upon adherence to the applicable procedures
set forth in such letter of transmittal or similar notification
for surrendering such shares), and upon surrender of such other
documents as may be required by the Paying Agent, the holder of
such Certificate or Book-Entry Shares shall be entitled to
receive in exchange therefor the Merger Consideration that such
holder has the right to receive in respect of the Company Common
Stock formerly represented by such Certificate or Book-Entry
Shares, and the Certificate or Book-Entry Shares so surrendered
shall thereupon be canceled. No interest will be paid or accrued
on the Merger Consideration payable upon surrender of any
Certificate or Book-Entry Share. In the event of a permitted
transfer of ownership of shares of Company Common Stock
represented by a Certificate that is not registered in the
transfer records of the Company or the Companys transfer
agent on behalf of the Company, the Merger Consideration may be
paid to a transferee if the Certificate is presented to the
Paying Agent, accompanied by all documents required to evidence
and effect such transfer and the Person requesting such payment
shall pay to the Exchange Agent any transfer or other Tax
required as a result of such payment to a Person other than the
registered holder of such Certificate or Book-Entry Share, as
applicable, or establish to the reasonable satisfaction of the
Paying Agent that such Tax has been paid or is not payable.
Until surrendered as contemplated by this
Section 2.3.2
, each Certificate and Book-Entry Share
shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the
Merger Consideration.
(b) The Exchange Fund shall be invested by the Paying Agent
as directed by Parent or the Surviving Corporation. Earnings on
the Exchange Fund shall be the sole and exclusive property of
Parent and the Surviving Corporation and shall be paid to Parent
or the Surviving Corporation, as Parent directs. No investment
of the Exchange Fund shall relieve Parent, the Surviving
Corporation or the Paying Agent from making the payments
required by this
Article 2
, and following any net
losses from any such investment, Parent shall promptly provide
additional funds to the Paying Agent for the benefit of the
applicable holders of Company Common Stock immediately prior to
the Effective Time in the amount of such net losses, which
additional funds shall be deemed to be part of the Exchange
Fund. No investment of the Exchange Fund shall have maturities
that could prevent or delay payments to be made pursuant to this
Agreement.
2.3.3.
Payment for Company Equity
Awards
.
At the Closing, Parent shall make (or
cause to be made) payment to the Surviving Corporation, by wire
transfer of immediately available funds to the account or
accounts designated by the Company in writing no later than two
Business Days prior to the Closing, in an amount equal to the
sum of the aggregate Option Consideration
plus
the
aggregate Performance Unit Consideration. At the Effective Time,
or as soon as practicable thereafter (but not later than two
Business Days thereafter), in consideration of cancellation of
the Company Options and Company Performance Units that became
entitled to receive the consideration specified in
Section 2.2
, the Surviving Corporation shall, and
Parent shall cause the Surviving Corporation to, pay the Option
Consideration in respect of each such Company Option to each
holder of a Company Option and the Performance Unit
Consideration in respect of each Company Performance Unit to
each holder of a Company Performance Unit.
2.3.4.
Further Rights in Company
Securities
.
All Merger Consideration, Option
Consideration and Performance Unit Consideration paid in
accordance with the terms hereof shall be deemed to have been
paid in full satisfaction of all rights pertaining to the
Company Common Stock, Company Options and Company Performance
Units with respect to which such payments are made, respectively.
2.3.5.
Termination of Exchange
Fund
.
Any portion of the Exchange Fund that
remains undistributed to the holders of Company Common Stock for
twelve months after the Effective Time shall be delivered to
Parent upon demand, and any holders of Company Common Stock who
have not theretofore complied with this
Article 2
shall thereafter look only to Parent (subject to abandoned
property, escheat and similar Laws) as general creditors thereof
for payment of the Merger Consideration without any interest
thereon.
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2.3.6.
No Liability
.
Neither
Parent nor the Company nor the Surviving Corporation shall be
liable to any holder of Company Common Stock for any cash from
the Exchange Fund delivered to a public official pursuant to any
abandoned property, escheat or similar Law.
2.3.7.
Lost Certificates
.
If
any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such person of a bond, in
such reasonable amount as Parent may direct, as indemnity
against any claim that may be made against it with respect to
such Certificate, the Paying Agent or, if the Exchange Fund has
been delivered to Parent, Parent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration
that such person has the right to receive in respect of the
Company Common Stock formerly represented by such Certificate.
2.3.8.
Withholding
.
Notwithstanding
anything in this Agreement to the contrary, Parent, the
Surviving Corporation or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Common Stock
or Company Equity Awards such amounts as Parent, the Surviving
Corporation or the Paying Agent are required to deduct and
withhold under the Internal Revenue Code of 1986, as amended
(the
Code
), the treasury regulations
thereunder or any other provision of U.S. Tax Law, or any
provision of state, local or foreign Tax Law, with respect to
the making of such payment. To the extent that amounts are so
withheld by Parent, the Surviving Corporation or the Paying
Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of Company
Common Stock or Company Equity Awards in respect of whom such
deduction and withholding was made.
Section
2.4.
Stock
Transfer Books
.
At the close of business, New
York time, on the day the Effective Time occurs, the stock
transfer books of the Company shall be closed and there shall be
no further registration of transfers of Company Common Stock
that were outstanding on the records of the Company. From and
after the Effective Time, the holders of Certificates or Book
Entry Shares immediately prior to the Effective Time shall cease
to have any rights with respect to such Company Common Stock,
except as otherwise provided herein or by Law. On or after the
Effective Time, any Certificates presented to the Paying Agent
or Parent for any reason shall be cancelled and exchanged as
provided in this
Article 2
.
ARTICLE 3
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except as (i) disclosed in the Companys
(A) Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, filed by the
Company with the SEC on March 9, 2011 or (B) Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011, filed by the Company
with the SEC on May 4, 2011, in each case, excluding any
risk factor disclosures contained therein under the heading
Risk Factors, any disclosure of risks included in
any forward-looking statements disclaimer or any
other statements that are predictive or forward-looking in
nature, or (ii) set forth in the Disclosure Schedule
delivered by the Company to Parent at or prior to the execution
of this Agreement (the
Company Disclosure
Schedule
), the Company hereby makes the following
representations and warranties to Parent. Unless otherwise
specified, no disclosure made in any particular section of the
Company Disclosure Schedule shall be deemed made in any other
section of the Company Disclosure Schedule unless expressly made
therein (by cross reference or otherwise).
Section
3.1.
Organization
and Qualification; Subsidiaries
.
The Company
is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Florida. Each Company
Subsidiary is duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation
or organization, as the case may be. The Company and each of the
Company Subsidiaries has the requisite corporate power and
authority to own, lease and operate its properties and to carry
on its business as it is now being conducted. The Company and
each of the Company Subsidiaries is duly qualified or licensed
to do business, and is in good standing, in each jurisdiction
where the character of the properties owned, leased or operated
by it or the nature of its business makes such qualification,
licensing or good standing necessary, except for such failures
to be so qualified, licensed or in good standing that would not
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reasonably be expected to have a Company Material Adverse Effect
or otherwise prevent or delay (beyond the Outside Date)
consummation of the Merger.
Section 3.1
of the
Company Disclosure Schedule sets forth a true, complete and
correct list of all of the subsidiaries of the Company (each a
Company Subsidiary
and, collectively, the
Company Subsidiaries
), together with the
jurisdiction of incorporation of each Company Subsidiary, the
jurisdictions in which each Company Subsidiary is licensed to
conduct business, the authorized and issued shares of capital
stock of each Company Subsidiary, the names of the holders
thereof and the number of shares held by each holder. All of the
outstanding shares of capital stock of, or other equity or
voting interests in, each Company Subsidiary that is owned
directly or indirectly by the Company have been validly issued,
were issued free of pre-emptive rights and are fully paid and
non-assessable, and are free and clear of all liens, including
any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other equity or voting interests (other
than restrictions imposed by Law). Except as set forth in
Section 3.1
of the Company Disclosure Schedule, none
of the Company or any Company Subsidiary owns, directly or
indirectly, an Equity Interest representing more than three
percent (3%) of the voting power of any other Person.
Section
3.2.
Articles
of Incorporation and By-laws
.
The copies of
the Companys Amended and Restated Articles of
Incorporation, as amended (the
Company
Articles
), and Amended and Restated By-laws (the
Company By-laws
), as amended, which were
previously furnished or made available to Parent, are true,
complete and correct and Company is not in material violation of
any provisions of the Company Articles or Company Bylaws. The
Company has made available to Parent a true, complete and
correct copy of the charter and by-laws (or equivalent
organizational documents) of each of the Company Subsidiaries
and none of the Company Subsidiaries is in violation of any
provisions of its organizational documents.
Section
3.3.
Capitalization
.
3.3.1.
Authorized
Shares
.
The authorized capital stock of the
Company consists of 100 million shares of capital stock, of
which 50 million are designated Company Common Stock and
50 million are designated preferred stock, $0.10 par
value per share (
Company Preferred Stock
). As
of May 20, 2011 (A) 8,339,434 shares of Company
Common Stock were issued and outstanding, all of which were
validly issued, fully paid, nonassessable and free of preemptive
rights, (B) 342,877 shares of Company Common Stock
were reserved for issuance upon exercise of Company Options
granted under the Company Stock Option Plans, and
(C) 100,229 shares of Company Common Stock were
reserved (based on the Payout Percentage specified in
Section 2.2(iii)
) for issuance upon exercise of
Company Performance Units granted under the Company Omnibus
Plan. As of May 20, 2011, and as of the Effective Time,
(i) no shares of Company Preferred Stock were (or will be)
designated, issued and outstanding and (ii) no shares of
Company Common Stock were (or will be) held in the treasury of
the Company or by the Company Subsidiaries. There are no bonds,
debentures, notes or other debt securities issued by the Company
that have the right to vote (or are convertible into, or
exchangeable for, securities having the right to vote) on any
matters on which holders of Company Common Stock may vote.
3.3.2.
Stock Option Plans and Performance
Units
.
As of May 20, 2011, there were
4,909,500 shares of Company Common Stock authorized for
issuance under the Companys Stock Option Plans and only
1,207,907 remained available for future awards.
Section 3.3.2
of the Company Disclosure Schedule
sets forth a list of all of Company Options outstanding, their
exercise prices and the name of the holder, the number of shares
of unvested Company Restricted Stock (other than under the
Company ESPP) outstanding, and the number of Company Performance
Units outstanding and each of the holders thereof. Except as set
forth in
Section 3.3.2
of the Company Disclosure
Schedule, there are no options, warrants or other rights to
acquire capital stock or other Equity Interests of the Company,
or securities convertible into or exchangeable for capital stock
or other Equity Interests of the Company. Since January 1,
2009 and through the date hereof, the Company has not issued any
shares of its capital stock or other Equity Interests or
securities convertible into or exchangeable for capital stock or
other Equity Interests of the Company, other than Company Equity
Awards and the issuance of shares pursuant to Company Equity
Awards. All shares of Company Common Stock subject to issuance
under the Company Stock Option Plans or the Company ESPP, upon
issuance prior to the Effective Time on the terms and conditions
specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. All
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outstanding shares of Company Common Stock, all outstanding
Company Equity Awards and all outstanding shares of capital
stock, voting securities or other ownership interests in any
Company Subsidiary, have been issued or granted, as applicable,
in compliance in all material respects with all applicable
securities Laws.
3.3.3.
No Contractual
Obligations
.
Except (i) as set forth in
Section 3.3.3
of the Company Disclosure Schedule, or
(ii) pursuant to the Company Equity Awards, there are no
outstanding contractual obligations of the Company or any
Company Subsidiary (A) restricting the transfer of,
(B) affecting the voting rights of, (C) requiring the
repurchase, redemption or disposition of, or containing any
right of first refusal with respect to, (D) requiring the
registration for sale of, or (E) granting any preemptive or
antidilutive right with respect to, any shares of Company Common
Stock or any capital stock of, or other Equity Interests in, the
Company or any Company Subsidiary. Except as set forth in
Section 3.3.3
of the Company Disclosure Schedule,
each outstanding share of capital stock of each Company
Subsidiary is validly issued, fully paid, nonassessable and free
of preemptive rights and is owned, beneficially and of record,
by the Company or another Company Subsidiary free and clear of
all security interests, liens, pledges, options, rights of first
refusal, agreements, limitations on the Companys or such
other Company Subsidiarys voting rights, charges and other
encumbrances of any nature whatsoever, in each case, other than
Permitted Liens. No bonds, debentures, notes or other
indebtedness issued by the Company or any of Company
Subsidiaries having the right to vote on any matters on which
stockholders or equityholders of the Company or any of the
Company Subsidiaries may vote (or which is convertible into, or
exchangeable for, securities having such right), are issued and
outstanding.
Section
3.4.
Authority
.
3.4.1.
Power and Authority; Execution and
Delivery; Binding Effect
.
The Company has
requisite corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and,
subject to the adoption of this Agreement by the Required
Company Shareholders, to consummate the transactions
contemplated by this Agreement to be consummated by the Company.
The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part
of the Company and no shareholder votes are necessary to
authorize this Agreement or the Merger or to consummate the
transactions contemplated hereby subject, with respect to the
Merger, to the adoption of this Agreement by the Required
Company Shareholders. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization,
execution and delivery by each of the other parties hereto,
constitutes a legally valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, preference, fraudulent
transfer, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors and by general
principles of equity regardless of whether enforcement is
considered in a proceeding in equity or at law, concepts of
materiality, reasonableness, good faith and fair dealing, and
the discretion of the court before which any proceeding therefor
may be brought.
3.4.2.
Inapplicability of Takeover
Statutes
.
No fair price,
moratorium, control share acquisition,
business combination or other similar anti-takeover
statute or regulation enacted under any federal, state, local or
foreign laws applicable to the Company (including without
limitation Section 607.0901 and 607.0902 of the FBCA) is
applicable to this Agreement, the Merger or any of the other
transactions contemplated by this Agreement. The Company Board
has taken all actions so that the restrictions contained in the
FBCA applicable to a business combination will not apply to the
execution, delivery or performance of this Agreement and the
consummation of the Merger and the other transactions
contemplated hereby. Assuming the accuracy of the representation
and warranty set forth in the first sentence of
Section 4.11
, the action taken by the Company Board
in approving this Agreement and the Merger is sufficient to
render inapplicable to the Merger the restrictions on business
combinations contained in Section 607.0901 of the FBCA.
Section
3.5.
No
Conflict; Required Filings and Consents
.
3.5.1.
No Conflict
.
The
execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby by
the Company will not, (A) assuming the Required Company
Shareholders adopt this Agreement, conflict with or violate or
breach any provision of the Company Articles or the Company
By-laws or any
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equivalent organizational documents of any Company Subsidiary,
(B) assuming that all consents, approvals, authorizations
and permits described in
Section 3.5.2
have been
obtained and all filings and notifications described in
Section 3.5.2
have been made and any waiting periods
thereunder have terminated or expired, conflict with or violate
any Law applicable to the Company or any Company Subsidiary or
by which any property or asset of the Company or any Company
Subsidiary is bound or (C) assuming that all consents,
approvals, authorizations and permits described in
Section 3.5.2
have been obtained and all filings and
notifications described in
Section 3.5.2
have been
made and any waiting periods thereunder have terminated or
expired or except as set forth in
Section 3.5.1
of
the Company Disclosure Schedule, require any consent or approval
under, result in any breach of or any loss of any benefit under,
or constitute a change of control or default (or an event that
with notice or lapse of time or both would become a default)
under, or give to others any right of termination, acceleration
or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any
Company Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, Company Permit
or other legally binding obligation to which the Company or any
Company Subsidiary is a party, except, as to clauses (B)
and (C), respectively, for any such conflicts, violations,
breaches, defaults or other occurrences that would not
reasonably be expected to have a Company Material Adverse Effect
or otherwise prevent or delay (beyond the Outside Date)
consummation of the Merger.
3.5.2.
Filings and
Consents
.
Except as set forth in
Section 3.5.2
of the Company Disclosure Schedule,
the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority,
except (A) as may be required under the Exchange Act, the
rules and regulations of Nasdaq, the HSR Act, the filing of the
Articles of Merger as required by the FBCA and as may be
required under Laws respecting the business of insurance and
(B) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would not reasonably be expected to have a
Company Material Adverse Effect or otherwise prevent or delay
(beyond the Outside Date) consummation of the Merger.
Section
3.6.
Permits;
Compliance With Law
.
Except for permits
respecting the business of insurance, which are the subject
solely of
Section 3.19
, each of the Company and each
Company Subsidiary is in possession of all authorizations,
licenses, permits, certificates, approvals, consents and
clearances of any Governmental Authority (the
Company
Permits
) necessary for the Company and each Company
Subsidiary to own, lease and operate its properties or to carry
on its respective business substantially as it is being
conducted as of the date hereof, and all such Company Permits
are valid and in full force and effect, and there is no pending,
or, to the Companys knowledge, threatened action or
proceeding to terminate, suspend, limit or adversely modify any
Company Permit, except where the failure to be in possession of,
or the suspension or cancellation of, or failure to be valid or
in full force and effect of, any of the Company Permits has not
or would not reasonably be expected to have a Company Material
Adverse Effect. Except as disclosed in
Section 3.6
of the Company Disclosure Schedule, the Company and each Company
Subsidiary has at all times since January 1, 2009 been and
is in compliance with all applicable Laws, regulations and
orders and neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation of, or, with the
giving of notice or the passage of time, would be in conflict
with, or in default or violation of, (a) any Law applicable
to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is
bound or affected, (b) any of the Company Permits, or
(c) any of the provisions of its certificate of
incorporation or By-laws (or other organizational or governing
instruments), other than such non-compliance, conflict, default
or violation as would not materially and adversely impact the
Company and the Company Subsidiaries considered as a whole.
Section
3.7.
SEC
Filings; Financial Statements
.
3.7.1.
Company SEC
Filings
.
Except as set forth in
Section 3.7.1
of the Company Disclosure Schedule,
the Company has timely filed all registration statements,
prospectuses, forms, reports, definitive proxy statements,
schedules and documents required to be filed by it under the
Securities Act or the Exchange Act, as the case may be, from and
after January 1, 2008 (collectively, the
Company
SEC Filings
). Each Company SEC Filing, as amended or
supplemented if applicable, (A) as of its date, or, if
amended or
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supplemented, as of the date of the most recent amendment or
supplement thereto, complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the
case may be, and (B) did not, at the time it was filed (or
became effective in the case of registration statements), or, if
amended or supplemented, as of the date of the most recent
amendment or supplement thereto, contain any untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were
made, not misleading. As of the date of this Agreement, no
Company Subsidiary is separately subject to the periodic
reporting requirements of the Exchange Act.
3.7.2.
GAAP Financial
Statements
.
Each of the consolidated
financial statements contained in the Company SEC Filings,
including, any notes thereto, as amended, supplemented or
restated, if applicable, was prepared in accordance with GAAP
applied (except as may be indicated in the notes thereto and, in
the case of unaudited quarterly financial statements, as
permitted by
Form 10-Q
under the Exchange Act) on a consistent basis throughout the
periods indicated (except as may be indicated in the notes
thereto), and each of such consolidated financial statements, as
amended, supplemented or restated, if applicable, presented
fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company
and the consolidated Company Subsidiaries as of the respective
dates thereof and for the respective periods indicated therein
(subject, in the case of unaudited quarterly financial
statements, to normal and immaterial year-end adjustments). This
representation and warranty shall not be deemed to be breached
as a result of any change in GAAP or Law after the date of this
Agreement.
3.7.3.
STAT Financial
Statements
.
Company has made available to
Parent true, complete and correct copies of the annual and
quarterly statements of each of the Company Insurance
Subsidiaries for the most recently ended quarterly period and
the years ended December 31, 2010 and 2009, as appropriate,
as filed with the insurance regulatory authorities of its
jurisdiction of domicile, and audited statutory financial
statements for the Company Insurance Subsidiaries as of and for
the period ended December 31, 2009 as filed with the
domestic insurance regulatory authority, together, in each case,
with the exhibits, schedules and notes thereto and any
affirmations and certifications filed therewith (the
STAT Financial Statements
). The STAT
Financial Statements of each such Company Insurance Subsidiary
fairly present in all material respects the financial position
and results of operations of such Company Subsidiary as of the
respective dates thereof and for the respective periods set
forth therein, in each case in accordance with Statutory
Accounting Principles applied on a consistent basis. This
representation and warranty shall not be deemed to be breached
as a result of any change in Statutory Accounting Principles or
Law after the date of this Agreement. Each of the Company
Insurance Subsidiaries has filed or submitted all STAT Financial
Statements required to be filed with or submitted to the
insurance regulatory authorities in its state of domicile. The
STAT Financial Statements complied in all material respects, on
their respective dates of filing or submission, with the Laws of
their respective states of domicile and no material deficiency
of any nature has been asserted with respect to such STAT
Financial Statements by any Governmental Authority which has not
been cured, waived or otherwise resolved to the satisfaction of
any such Governmental Authority. None of the Company Insurance
Subsidiaries had, at the relevant balance sheet date of each
balance sheet included in the STAT Financial Statements, any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be
reflected or reserved against on a balance sheet prepared in
accordance with Statutory Accounting Principles and none have
arisen since such date through the date of this Agreement,
except in each case for liabilities or obligations
(i) reflected in the STAT Financial Statements,
(ii) contemplated by or under this Agreement or incurred in
connection with the transactions contemplated hereby,
(iii) incurred in the ordinary course of business and in a
manner consistent with past practice or (iv) incurred
outside the ordinary course of business that individually or in
the aggregate, in the case of this subsection (iv) only, do
not exceed $1,000,000.
3.7.4.
Actuarial
Information
.
The Company has made available
to Parent, prior to the date hereof, true, complete and correct
copies of all actuarial reports, actuarial certificates, loss
and loss adjustment expense reserve reports, and deferred
acquisition cost and loss recognition analyses prepared by the
Company or by any third party actuarial consultant on behalf of
or made available to the Company relating to the adequacy of the
reserves of the Company or any Company Subsidiary for any period
ended on or after
A-9
December 31, 2008 (the
Actuarial
Analyses
). Each such Actuarial Analysis was generated
from the same underlying sources and systems that were utilized
by the Company Insurance Subsidiaries to prepare the STAT
Financial Statements, was derived from the books and records of
the Company Insurance Subsidiaries at the relevant time of
preparation (which preparation was accurate in all material
respects) and was prepared in conformity in all material
respects with applicable Law.
3.7.5.
Absence of
Liabilities
.
Except as and to the extent set
forth (A) on the consolidated balance sheet of the Company
and the consolidated Company Subsidiaries as of
December 31, 2010 included in the Companys annual
report filed on
Form 10-K
for the year ended December 31, 2010, including the notes
thereto, (B) in the Company SEC Filings filed after
December 31, 2010 or (C) in
Section 3.7.5
of the Company Disclosure Schedule, none of the Company or any
consolidated Company Subsidiary had at the relevant balance
sheet date, any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would
be required to be reflected or reserved against on a balance
sheet prepared in accordance with GAAP and none have arisen
since such date through the date of this Agreement, except in
each case for liabilities or obligations (i) contemplated
by or under this Agreement or incurred in connection with the
transactions contemplated hereby, (ii) incurred in the
ordinary course of business and in a manner consistent with past
practice or (iii) incurred outside the ordinary course of
business that individually or in the aggregate, in the case of
this subsection (iii) only, do not exceed $1,000,000.
3.7.6.
Indebtedness
.
Section 3.7.6
of the Company Disclosure Schedule accurately lists all
Indebtedness of the Company, including for each item of
Indebtedness, as applicable, the interest rate, maturity date
and any assets or properties securing such Indebtedness.
3.7.7.
Off Balance Sheet
Arrangements
.
Section 3.7.7
of
the Company Disclosure Schedule sets forth a list of any
material joint venture, off balance sheet partnership or any
similar contract or arrangement to which the Company or any
Company Subsidiary is a party (including any contract relating
to any transaction or relationship between or among the Company
and any of the Company Subsidiaries, on the one hand, and any
unconsolidated affiliate of the Company or any of the Company
Subsidiaries, including any structured finance, special purpose
or limited purpose entity or Person, on the other hand, or any
off-balance sheet arrangements (as defined in
Item 303(a) of
Regulation S-K
of the SEC)).
3.7.8.
Controls
.
Since
January 1, 2007, neither the Company nor any Company
Subsidiary has received any complaints (within the
meaning of Exchange Act
Rule 10A-3)
in respect of any accounting, internal accounting controls or
auditing matters. To the Companys knowledge, no complaint
seeking relief under Section 806 of the Sarbanes-Oxley Act
of 2002 (
SOX
) has been filed with the United
States Secretary of Labor and no employee has threatened to file
any such complaint. The Companys Chief Executive Officer
and Chief Financial Officer have made all certifications and
statements required by Sections 302 and 906 of SOX and the
related rules and regulations promulgated thereunder with
respect to the Company SEC Filings. The Company maintains
disclosure controls and procedures required by
Rule 13a-15
and
15d-15
under the Exchange Act that are designed to ensure that all
material information concerning the Company and the Company
Subsidiaries is made known on a timely basis to the individuals
responsible for the preparation of the Company SEC Filings and
other public disclosure documents. Except as set forth in
Section 3.7.8
of the Company Disclosure Schedule,
since January 1, 2007, neither the accountants for nor the
board of directors or audit committee of the Company or any
Company Subsidiary have been advised of (A) any significant
deficiencies or material weaknesses in the design or operation
of the internal controls over financial reporting that are
reasonably likely to adversely affect in any material respect
its ability to record, process, summarize and report financial
data or (B) any fraud that involves management or other
employees who have a role in the financial controls over
financial reporting of the Company or any Company Subsidiary.
The Company is otherwise in material compliance with all
applicable provisions of the Sarbanes-Oxley Act and the
applicable listing and corporate governance rules of the NASDAQ.
3.7.9.
Obligations to
Lend
.
Except for insurance policies issued by
the Company or a Company Insurance Subsidiary in the ordinary
course of business, to which this
Section 3.7.9
does
not apply, neither the Company nor any Company Subsidiary has
any obligations of any kind to make any loan or advance to,
guarantee any Indebtedness of, or otherwise incur Indebtedness
on behalf of, any third party.
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Section
3.8.
Disclosure
Documents
.
3.8.1.
Compliance as to
Form
.
The Proxy Statement and any Other
Filings, and any amendments or supplements thereto, that the
Company is responsible for filing at (A) the time the Proxy
Statement or such Other Filing (or any amendment thereof or
supplement thereto) is first made publicly available to the
shareholders of the Company, and (B) the time of the
Company Shareholders Meeting, as applicable, will comply
as to form in all material respects with the applicable
requirements of the Exchange Act and other applicable Law.
3.8.2.
Not Misleading
.
The
Proxy Statement or any Other Filing, and any amendments or
supplements thereto, that the Company is responsible for filing,
insofar as it reflects information supplied by the Company for
use therein, at (A) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first made publicly
available to the shareholders of the Company, and (B) the
time of the Company Shareholders Meeting, will not contain
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were
made, not misleading.
3.8.3.
Parent
Information
.
The representations and
warranties contained in this
Section 3.8
will not
apply to the failure of the Proxy Statement or any Other Filing
to comply as to form as a result of, or statements or omissions
included in the Proxy Statement or any Other Filings based upon,
information supplied to the Company by Parent or Merger Sub.
Section
3.9.
Absence
of Certain Changes or Events
.
Since
December 31, 2010, except as (A) disclosed in the
Company SEC Filings filed after December 31, 2010,
(B) expressly contemplated by this Agreement or (C) as
set forth in
Section 3.9
of the Company Disclosure
Schedule, there has not been (i) any event or occurrence
that would reasonably be expected to have a Company Material
Adverse Effect, (ii) any action taken by the Company or any
Company Subsidiary through the date of this Agreement, other
than in the ordinary course of business consistent with past
practice, or (iii) any action taken by the Company or any
Company Subsidiary through the date of this Agreement that would
have resulted in a breach of any of the covenants set forth in
Section 5.1
if the Company and the Company
Subsidiaries had been subject to such covenants from
December 31, 2010 to the date hereof.
Section
3.10.
Employee
Benefit Plans
.
3.10.1.
Company Benefit
Plans
.
Section 3.10.1
of the
Company Disclosure Schedule sets forth a true, complete and
correct list of each employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (
ERISA
), and
any other material plan, policy, program, agreement or
arrangement maintained, sponsored or contributed to by the
Company or any Company Subsidiary, or under which the Company or
any Company Subsidiary has any material obligation or liability
for current or former directors, employees or individual
consultants of the Company and the Company Subsidiaries,
including, without limitation, the Company Employment and
Company Severance Agreements, incentive, bonus, deferred
compensation, cafeteria, medical, disability, stock purchase or
equity based compensation plans, policies or programs (each a
Company Benefit Plan
). None of the Company
Benefit Plans is a multiemployer plan (as defined in
Section 3(37) of ERISA (a
Multiemployer
Plan
)), is or has been subject to Sections 4063
or 4064 of ERISA, or is subject to Title IV of ERISA. The
Company has or will make available prior to the Closing current,
accurate and complete copies of each Company Benefit Plan and,
to the extent applicable, all related trust agreements, summary
plan descriptions, the most recent audited financial statements
with respect to each Company Benefit Plan required to have such
statements, copies of the most recent determination letter (if
any) with respect to each Company Benefit Plan and copies of the
most recent annual report (Form 5500) with respect to
each Company Benefit Plan required to file such report.
3.10.2.
Compliance;
Liabilities
.
Except as could not reasonably
be expected to result in a Company Material Adverse Effect,
(i) each Company Benefit Plan has been at all times
operated and administered in all material respects in accordance
with its terms and all applicable Laws, including ERISA and the
Code (including, without limitation, Section 409A of the
Code), and (ii) with respect to the Company Benefit Plans,
no event has occurred and, to the knowledge of the Company,
there exists no condition or set of circumstances
A-11
in connection with which the Company could reasonably be subject
to any material liability (other than for routine benefit
liabilities) under the terms of, or with respect to, such
Company Benefit Plans, ERISA, the Code or any other Law
applicable to such Company Benefit Plans. All due contributions,
premiums, or payments under or with respect to any Company
Benefit Plans have been made.
3.10.3.
Determination Letters; Prohibited
Transactions
.
Each Company Benefit Plan that
is intended to qualify under Section 401(a) of the Code has
either received a favorable determination letter from the IRS as
to its qualified status or may rely upon an opinion letter for a
prototype plan and, to the Companys knowledge, as of the
date hereof, no fact or event has occurred that could reasonably
be expected to adversely affect the qualified status of any such
Company Benefit Plan, except as could not reasonably be expected
to result in a Company Material Adverse Effect. To the
Companys knowledge, there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code, other than a transaction that is
exempt under a statutory or administrative exemption) with
respect to any Company Benefit Plan. No suit, administrative
proceeding, action or other litigation is currently pending, or
to the knowledge of the Company, threatened against or with
respect to any such Company Benefit Plan, including any audit or
inquiry by the IRS or United States Department of Labor (other
than routine benefits claims).
3.10.4.
Acceleration of
Payments
.
Except as set forth on
Section 3.10.4
of the Company Disclosure Schedule,
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
(i) result in any payment becoming due to any current or
former employee or individual consultant of the Company or the
Company Subsidiaries, (ii) increase any benefits under any
Company Benefit Plan, (iii) result in the acceleration of
the time of payment, vesting or funding of, or other rights in
respect of, any benefits under any Company Benefit Plan, or
(iv) give rise to the imposition of any excise tax or the
payment of any amount that will not be deductible by reason of
Sections 280G (assuming that the Company Employment
Agreement with Mark Adams as currently in effect is not
extended), 404 or 162(m) (assuming that the Company does not
file with the SEC after the Effective Time information
concerning executive compensation of any Company Employee with
respect to any period of 2011) of the Code under any
contract, agreement, plan or arrangement covering any former
employee of the Company or any Company Subsidiary to which the
Company or any Company Subsidiary is a party.
3.10.5.
Post-Employment
Benefits
.
Except as set forth in
Section 3.10.5
of the Company Disclosure Schedule
and as required by Law, no Company Benefit Plan provides any
post-employment medical or life insurance benefits.
Section
3.11.
Labor
and Other Employment Matters
.
Except as has
not had, and would not reasonably be expected to have, a Company
Material Adverse Effect, (i) each of the Company and each
Company Subsidiary is in material compliance with all applicable
Laws respecting labor, employment, fair employment practices,
terms and conditions of employment, workers compensation,
occupational safety, plant closings, and wages and hours, and
(ii) there is no pending or, to the knowledge of the
Company, threatened work stoppage, slowdown or labor strike
against the Company or any Company Subsidiary. Neither the
Company nor any Company Subsidiary is a party to a collective
bargaining agreement and no labor union has been certified to
represent any employee or the Company or any Company Subsidiary,
or has applied to represent or, the knowledge of the Company, is
attempting to organize so as to represent such employees.
Section
3.12.
Material
Contracts
.
3.12.1.
Company Material
Contracts
.
Section 3.12.1
of the
Company Disclosure Schedule sets forth a complete and accurate
list of all of the contracts (except for contracts set forth on
the Exhibit Index included in the
Companys
Form 10-K
for the year ended December 31, 2010) to which the
Company or any Company Subsidiary is a party as of the date
hereof of the following categories (each, including those
contracts set forth on the Exhibit Index
included in the Companys
Form 10-K
for the year ended December 31, 2010, a
Company
Material Contract
):
(i) any contract to which the Company or any of the Company
Subsidiaries is a party or by which their respective assets or
properties are bound (other than contracts entered into in the
ordinary course of business and the contracts set forth
in
Section 3.13.1
,
3.24.1
, or
3.24.2
of
the Company Disclosure
A-12
Schedule) that (a) calls for the payment, whether
contingent or otherwise, by or on behalf of the Company or any
Company Subsidiary in excess of $500,000 in any
12-month
period during the remaining term thereof, (b) provides for
the Company or any Company Subsidiary to receive any payments in
excess of, or any property with a fair market value in excess
of, $500,000 or more in any
12-month
period during the remaining term thereof;
(ii) any contract that purports to restrict the ability of
the Company or any Company Subsidiary to engage in any line of
business, engage in business in any geographical area or compete
with any person;
(iii) any contract that calls for payment by the Company or
any Company Subsidiary or provides for the receipt of payment by
the Company or any Company Subsidiary in excess of $100,000 in
any 12 month period during the remaining term thereof, that
contains a provision granting to another party or other parties
thereto the right to terminate such contract or take other
action adverse to the Company upon or following the Merger;
(iv) indemnification agreements, including contracts that
contain indemnification obligations to the extent not otherwise
disclosed pursuant to this Section, entered into outside the
ordinary course of business with potential indemnification
obligations of the Company in excess of $500,000;
(v) (A) employment and individual consulting contracts
(other than those entered into in the ordinary course of
business with non-executive employees whose annual cash
compensation is less than $150,000) (the
Company
Employment Agreements
, and (B) severance
agreements, including without limitation, contracts to employ or
terminate executive officers and other contracts with present
officers or directors of the Company or that will result in the
payment by, or the creation of any obligation to pay on behalf
of the Company, the Surviving Corporation or Parent any
severance, termination, parachute payments or other
similar payments following termination of employment or
otherwise as a result of the consummation of the transactions
contemplated by this Agreement (the
Company Severance
Agreements
);
(vi) any material joint venture or material partnership
agreement to which the Company or any of the Company
Subsidiaries is a party; and
(vii) any material contract (as such term is
defined in Item 601(b)(10) of
Regulation S-K
of the SEC).
3.12.2.
Validity;
Breaches
.
The Company has made available to
Parent true, complete and correct copies of each Company
Material Contract. Except as set forth in
Section 3.12.2
of the Company Disclosure Schedule,
each Company Material Contract is legally valid and binding on
the Company and each Company Subsidiary party thereto and, to
the Companys knowledge, each other party thereto, except
as may be limited by bankruptcy, insolvency, reorganization,
preference, fraudulent transfer, moratorium or other similar
Laws relating to or affecting the rights and remedies of
creditors and by general principles of equity regardless of
whether considered in a proceeding in equity or at law, concepts
of materiality, reasonableness, good faith and fair dealing, and
the discretion of the court before which any proceeding therefor
may be brought. Except as would not reasonably be expected to
have a Company Material Adverse Effect, the Company and each
Company Subsidiary has performed all obligations required to be
performed by it prior to the date hereof under each Company
Material Contract. To the Companys knowledge and except as
would not reasonably be expected to have a Company Material
Adverse Effect, each other party to each Company Material
Contract has performed all obligations required to be performed
by it under such Company Material Contract prior to the date
hereof. None of the Company or any Company Subsidiary has
received notice of any violation or default under (or any
condition that with the passage of time or the giving of notice
would cause such a violation of or default under) any Company
Material Contract, except for violations or defaults that would
not reasonably be expected to have a Company Material Adverse
Effect.
Section
3.13.
Reinsurance
Contracts
.
3.13.1.
Reinsurance Contracts;
Recoverables
.
The Company has made available
to Parent true, complete and correct copies of all reinsurance
agreements in force as of the date hereof and agreements for
A-13
which there are (A) open claims or (B) other amounts
due between the parties in excess of $200,000, pursuant to which
the Company or any of the Company Insurance Subsidiaries has
assumed from or ceded risk to third parties as of the date
hereof (
Third Party Reinsurance Contracts
)
and true, complete and correct copies of any reinsurance
agreements with affiliates to which any of the Company Insurance
Subsidiaries is a party (
Affiliate Reinsurance
Contracts
). All Third Party Reinsurance Contracts and
Affiliate Reinsurance Contracts, without regard to the existence
of open claims or amounts due between the parties, have, to the
Companys knowledge, been posted in the Companys
electronic data room hosted by Merrill DataSite relating to the
transaction contemplated hereby. Except as described on
Section 3.13.1
of the Company Disclosure Schedule or
as disclosed in the STAT Financial Statements, there are no
amounts recoverable by the Company Insurance Subsidiaries under
any of the Third Party Reinsurance Contracts or Affiliate
Reinsurance Contracts (collectively, the
Existing
Reinsurance Contracts
) that would be required to be
disclosed in the STAT Financial Statements of the Company
Insurance Subsidiaries and that are more than ninety
(90) days past due or greater than $500,000 as of
March 31, 2011. Except as described on
Section 3.13.1
of the Company Disclosure Schedule,
neither the Company nor the Company Insurance Subsidiaries has
received any written notice from any of the reinsurers party to
the Existing Reinsurance Contracts that any amount in excess of
$500,000 recoverable by the Company Insurance Subsidiaries
pursuant to an Existing Reinsurance Contract is not fully
collectible in due course. Except as described on
Section 3.13.1
of the Company Disclosure Schedule,
no consent is required from any party to any Existing
Reinsurance Contract that involves reinsurance recoverables in
excess of $200,000 in connection with the transactions
contemplated by this Agreement and none of the Existing
Reinsurance Contracts contains any provision providing that the
other party thereto may modify, amend, cancel, commute or
terminate such Existing Reinsurance Contract as a result of the
consummation of the transactions contemplated by this Agreement.
3.13.2.
Certain
Notices
.
Except as set forth in
Section 3.13.2
of the Company Disclosure Schedule,
as of the date hereof, no reinsurer under any Third Party
Reinsurance Contract has given any written notice to the Company
or the Company Subsidiaries of termination with respect to any
such arrangement.
3.13.3.
No Defaults
.
With
respect to the Third Party Reinsurance Contracts, neither the
Company nor the Company Subsidiaries, nor, to the knowledge of
the Company, any other party thereto, is in material default
under any such Third Party Reinsurance Contract.
Section
3.14.
Litigation
.
Except
as set forth on
Section 3.14
of the Company
Disclosure Schedule, as of the date hereof, (i) there is no
suit, claim, action, arbitration or proceeding (each, a
Legal Action
) pending or (except in respect
of bad faith claims), to the knowledge of the Company,
threatened, nor, to the knowledge of the Company, is there any
investigation pending, in each case, against the Company or any
Company Subsidiary or any of their respective properties or
assets, other than any such Legal Action that (A) does not
involve an amount in controversy in excess of $100,000 and
(B) does not seek material injunctive or other material
non-monetary relief, and (ii) none of the Company or any
Company Subsidiary is subject to any outstanding judgment,
order, writ, injunction or decree. There is no Legal Action
pending or (except in respect of bad faith claims), to the
knowledge of Company, threatened, nor, to the knowledge of
Company, is there any investigation pending, in each case,
against the Company or any Company Subsidiary, which would
reasonably be expected to have a Company Material Adverse Effect
or would reasonably be expected to prevent consummation of the
Merger. Except as set forth in
Section 3.14
of the
Company Disclosure Schedule, as of the date hereof, there is no
bad faith claim or class action pending or (with respect to
class actions only), to the knowledge of the Company, threatened
against the Company or any Company Subsidiary arising out of the
Insurance Contracts. As of the date hereof, to the knowledge of
the Company, there are no SEC inquiries or investigations, other
governmental inquiries or investigations or Company internal
investigations pending or, to the knowledge of the Company,
threatened, in each case regarding any accounting practices of
the Company or any Company Subsidiaries or any malfeasance by
any executive officer of the Company or any Company Subsidiary.
A-14
Section
3.15.
Environmental
Matters
.
3.15.1.
Compliance
.
Except
as has not had or would not reasonably be expected to have a
Company Material Adverse Effect, each of the Company and each
Company Subsidiary is in compliance with applicable
Environmental Laws and hold all Environmental Permits necessary
to conduct their current operations.
3.15.2.
No Violations
.
None
of the Company or any Company Subsidiary has received any
written notice, claim or notice of violation from any
Governmental Authority alleging that the Company or any Company
Subsidiary is in violation of, or liable under, any
Environmental Law.
3.15.3.
No Orders
.
None of
the Company or any Company Subsidiary has entered into or agreed
to any consent decree or order or is subject to any judgment,
decree or judicial order relating to compliance with
Environmental Laws, Environmental Permits or the investigation,
sampling, monitoring, treatment, remediation, removal or cleanup
of Hazardous Materials and, to the knowledge of the Company, no
investigation, litigation or other proceeding is pending or
threatened in writing with respect thereto.
3.15.4.
Asbestos
.
Without
limiting the scope of any of the other disclosure requirements
in this
Section 3.15
, prior to the date hereof, the
Company has provided Parent with copies of (or otherwise
provided the Parent with full access to) all studies, reports,
files and records, in any form, relating to the existence of
asbestos on any Owned Real Property or any leased real property
of the Company or the Company Subsidiaries (including without
limitation all written communications with Governmental
Authorities with respect to same).
Section
3.16.
Intellectual
Property
.
Section
3.16
of the Company
Disclosure Schedule sets forth a complete and accurate list of
all material domestic and foreign Company and Company Subsidiary
owned (A) patents and patent applications,
(B) trademark and service mark registrations and
applications for registration thereof, (C) copyright and
mask work registrations and applications for registration
thereof, and (D) internet domain name registrations. Each
of the Company and the Company Subsidiaries owns or possesses
valid rights to use all Intellectual Property that is material
to the conduct of the business of the Company and the Company
Subsidiaries as currently conducted. To the Companys
knowledge, the business of the Company and the Company
Subsidiaries as currently conducted (including the use of the
Intellectual Property) does not infringe, misappropriate,
conflict with or otherwise violate any persons
Intellectual Property. The Company has not received written
notice of any claim that the business of the Company and the
Company Subsidiaries as currently conducted (including the use
of the Intellectual Property) infringes, misappropriates,
conflicts with or otherwise violates any persons
Intellectual Property, and there is no such claim pending or, to
the Companys knowledge, threatened against any of the
Company or the Company Subsidiaries. To the Companys
knowledge, no third party is infringing, misappropriating,
conflicting with or otherwise violating any material
Intellectual Property owned by the Company or the Company
Subsidiaries, and no such claims are pending or threatened
against any person by any of the Company or the Company
Subsidiaries. All Intellectual Property owned by the Company or
the Company Subsidiaries that is material to the conduct of
their respective businesses is owned free and clear of all liens
(other than licenses with third parties entered into in the
ordinary course of business), except for Permitted Liens.
Section
3.17.
Assets
and Properties
.
3.17.1.
Owned Real Property; Real Property
Leases
.
Section 3.17.1
of the
Company Disclosure Schedule contains a complete list of all real
property in which the Company or any Company Subsidiary has a
fee simple interest (
Owned Real Property
) or
a leasehold interest. Except as set forth in
Section 3.17.1
of the Company Disclosure Schedule,
each of the Company and the Company Subsidiaries has good and
marketable fee simple title to, or a leasehold interest in, all
of its Owned Real Property and leased real property,
respectively (including all rights and privileges pertaining or
relating thereto), free and clear of any and all liens except
for Permitted Liens. Each of the foregoing real property leases
(i) constitutes a legally valid and binding obligation of
the Company or Company Subsidiary party thereto and assuming
such lease is a legally valid and binding obligation of, and
enforceable against, the other parties thereto, is enforceable
against the Company or the Company Subsidiary party thereto, in
each case, except as may be limited by bankruptcy, insolvency,
reorganization, preference, fraudulent transfer, moratorium or
other similar Laws
A-15
relating to or affecting the rights and remedies of creditors
and by general principles of equity regardless of whether
considered in a proceeding at law or in equity; and (ii) to
the Companys knowledge is a legally valid and binding
obligation of the other parties thereto, except as may be
limited by bankruptcy, insolvency, reorganization, preference,
fraudulent transfer, moratorium or other similar Laws relating
to or affecting the rights and remedies of creditors and by
general principles of equity regardless of whether considered in
a proceeding at law or in equity. None of the Company or the
Company Subsidiaries is in breach or default in any material
respect under any such lease and, to the Companys
knowledge, none of the landlords or sublandlords under any such
lease is in breach or default in any material respect of its
obligations under such lease. The Company and the Company
Subsidiaries enjoy peaceful and undisturbed possession in all
material respects under each such lease. Copies of all such
leases together with any amendments thereto have heretofore been
made available to Parent. There are no outstanding agreements,
options, rights of first offer or rights of first refusal on the
part of any party to purchase any Owned Real Property. Each of
the Company and the Company Subsidiaries has title to, or a
valid leasehold interest in, as applicable, all personal
property used in, and material to, their respective businesses
free and clear of any and all liens, except for Permitted Liens.
Such personal property, Owned Real Property and leased property
(taken as a whole) are in good operating condition and repair,
ordinary wear and tear and deferred maintenance excepted, and
except for such failures to be in good operating condition and
repair that, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect.
3.17.2.
Certain Notices
.
The
Company has not been notified of any condemnation, expropriation
or other proceeding in eminent domain, pending or, to the
knowledge of the Company, threatened, affecting any parcel of
the Owned Real Property or any portion thereof or interest
therein. Since December 31, 2010, the Company has not
received any notice of any material tax assessment affecting any
Owned Real Property. Copies of all deeds, existing title
insurance policies and surveys of or pertaining to the Owned
Real Property in the Companys possession or control as of
the date of this Agreement have been made available to Parent.
Section
3.18.
Taxes
.
3.18.1.
Tax Returns
.
The
Company and each Company Subsidiary has timely filed with the
appropriate taxing authority all material Tax Returns required
to be filed, taking into account any extensions of time within
which to file such Tax Returns, and all such Tax Returns were
complete and correct in all material respects. All Taxes that
are shown as due on such filed Tax Returns have been paid. The
Companys most recent financial statements reflect an
appropriate reserve (in accordance with GAAP) for all material
Taxes payable by the Company and the Company Subsidiaries
through the date of such financial statements. Neither the
Company nor any of the Company Subsidiaries has incurred any
material liability for Taxes since the date of the
Companys most recent financial statements outside the
ordinary course of business or otherwise inconsistent with past
practice.
3.18.2.
Audits and Related
Matters
.
Except as set forth in
Section 3.18.2
of the Company Disclosure Schedule,
to the knowledge of the Company, as of the date hereof,
(A) there are no audits or other proceedings pending with
regard to any Taxes or Tax Returns of the Company or any Company
Subsidiary; (B) neither the Company nor any Company
Subsidiary has received a written notice or announcement of any
audits or proceedings; and (C) neither the Company nor any
Company Subsidiary has waived any statute of limitations with
respect to Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency for any open tax year.
3.18.3.
Tax Liens
.
There are
no Tax liens upon any property or assets of the Company or any
Company Subsidiary except liens for current Taxes not yet due
and payable.
3.18.4.
Affiliated
Groups
.
Neither the Company nor any Company
Subsidiary has been a member of any affiliated group within the
meaning of Section 1504(a) of the Code filing a
consolidated income tax return or any similar return under
state, local or foreign law (other than a group the common
parent of which is the Company), or has any liability for the
Taxes of any Person (other than the Company and the Company
Subsidiaries) under Treasury Regulations
Section 1.1502-6
or any similar provision of state, local or foreign law.
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3.18.5.
US Real Property Holding
Corporation
.
Neither the Company nor any of
its Subsidiaries has been a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in
Section 897(c)(1)(a) of the Code.
Section
3.19.
Insurance
Practices; Compliance With Laws
.
3.19.1.
Insurance
Permits
.
Each of the Company and the Company
Insurance Subsidiaries is in possession of all authorizations,
licenses, permits, certificates, approvals, exemptions, orders,
registrations or clearances of any Governmental Authority
required under applicable Laws respecting the business of
insurance, including, without limitation, all certificates of
authority held by the Company and the Company Insurance
Subsidiaries (
Insurance Permits
), and
Section 3.19.1
of the Company Disclosure Schedule
sets forth a true, complete and correct list of all such
Insurance Permits, including, without limitation, all
certificates of authority required by each Company Insurance
Subsidiary in order to conduct business as an insurer. True and
complete copies of all such Insurance Permits have been
previously delivered to Parent. The Company Insurance
Subsidiaries are in compliance with all such Insurance Permits
and all such Insurance Permits are valid and in full force and
effect and none of the Company Insurance Subsidiaries is
operating under any agreement or understanding with any
Governmental Authority that restricts its authority to do
business otherwise permitted by applicable Laws. No
investigation or proceeding is pending, or to the knowledge of
Company, threatened, which would reasonably be expected to
result in the revocation, amendment, failure to renew,
limitation, modification, limitation or suspension of any such
Insurance Permit. None of the Insurance Permits owned or held by
any of the Company Insurance Subsidiaries will be adversely
affected by the transactions contemplated by this Agreement.
3.19.2.
Affiliate
Agreements
.
The Company has made available to
Parent true, complete and correct copies of all agreements
between or among the Company and one or more Company Insurance
Subsidiaries, and between or among the Company or any Company
Insurance Subsidiary, on one hand, and an affiliate thereof, on
the other (excluding officers and directors of the Company), and
any amendments thereto, and each such affiliate agreement and
any amendments thereto have been reported to and not disapproved
by the applicable Governmental Authority if required by
applicable Law.
3.19.3.
Forms and Rates
.
All
Insurance Contracts and any and all marketing materials are, to
the extent required under applicable Law, on forms approved by
the applicable Governmental Authority that have been filed and,
as appropriate, either approved or not objected to by such
Governmental Authority within the period provided for objection
(the
Forms
) and such Forms comply with the
Laws applicable thereto in all material respects. With respect
to premium rates established by the Company Insurance
Subsidiaries that are required to be filed with or approved by
the applicable Governmental Authority, the rates have been so
filed or approved, the premiums charged conform thereto, and
such premiums comply with the Laws applicable thereto. All
Insurance Contracts comply with applicable Law and have been
administered by the Company Insurance Subsidiaries in accordance
with applicable Law in all material respects and the terms of
the applicable Insurance Contracts, in each case, in all
material respects.
3.19.4.
Compliance
.
The
respective businesses of the Company and the Company Insurance
Subsidiaries have been and are being conducted in compliance in
all material respects with all Laws respecting the business of
insurance and orders of all applicable Governmental Authorities,
and all notices, reports, documents, statements, registrations,
filings, submissions and other information required to be filed
thereunder since January 1, 2007, including, without
limitation, the STAT Financial Statements, reports of dividends
and filings with Governmental Authorities respecting
transactions with affiliates, were properly filed and were in
material compliance with such Laws. To the knowledge of Company,
no material deficiencies have been asserted in writing by any
Governmental Authority respecting any such notice, report,
document, statement, registration, filing, submission or other
information so filed. None of the Company Insurance Subsidiaries
is a commercially domiciled insurer under the Laws
of any jurisdiction or is otherwise treated as domiciled in a
jurisdiction other than its jurisdiction of organization.
3.19.5.
Marketing
.
Each of
the Company and the Company Insurance Subsidiaries has marketed,
sold and issued insurance products in compliance in all material
respects with all applicable Laws respecting the business of
insurance and any market conduct recommendations resulting from
market conduct examinations
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by any Governmental Authority in the respective jurisdictions in
which such products have been sold, including, without
limitation, in compliance in all material respects with all
applicable Laws respecting the business of insurance relating to
(i) the disclosure of the nature of insurance products as
policies of insurance and (ii) the underwriting, marketing,
sale and issuance of, or refusal to sell, any insurance product
to insureds or potential insureds of any race, color, creed or
national origin. None of the Company Insurance Subsidiaries is
subject to any market conduct claim or complaint with respect to
any insurance products that any such person has marketed, sold,
issued or adjusted claims thereunder and, to the knowledge of
Company, there are no facts or circumstances relating to the
Company Insurance Subsidiaries that could reasonably be expected
to give rise to a market conduct claim relating to any insurance
products that any such person has marketed, sold, issued or
adjusted claims thereunder.
3.19.6.
Reserves
.
The
reserves, and other liability amounts required by Statutory
Accounting Principles to be determined using actuarial methods,
of each of the Company Insurance Subsidiaries reflected in the
STAT Financial Statements were determined in accordance with
commonly accepted actuarial methods and standards, consistently
applied (it being understood by Parent and Merger Sub that the
representations made in
Sections 3.7.2
,
3.7.3
,
3.7.4
, and
3.7.5
and this
Section 3.19.6
do not constitute a guarantee that
such reserves or liabilities will ultimately prove sufficient or
adequate for the purposes for which they were established or
that reinsurance recoverables taken into account in determining
the amount of liability will be collectible). The reserves of
each of the Company Insurance Subsidiaries reflected in the STAT
Financial Statements: (i) were determined in accordance
with commonly accepted actuarial standards and were fairly
stated in accordance with sound actuarial principles;
(ii) were based on actuarial assumptions that produce
reserves at least as great as those called for in any contract
provision applicable to the reserves of the Company Insurance
Subsidiaries as to reserve basis and method and are in
accordance with all other contract provisions to which any of
the company or the Company Insurance Subsidiaries is subject;
(iii) met, in all material respects, the requirements of
the Laws and regulations of its state of domicile and each state
in which it is admitted as an insurer and were at least as great
as the minimum aggregate amount required by such Laws; and
(iv) were computed on the basis of assumptions consistent
with those used in computing the corresponding items in the STAT
Financial Statements of the preceding year-end.
3.19.7.
Reports of
Examination
.
The Company has made available
to Parent with respect to the Company Insurance Subsidiaries any
reports of examination (including, without limitation,
financial, underwriting, claims, market conduct and similar
examinations) issued (whether in draft, preliminary or final
form) by any Governmental Authority since January 1, 2007.
The deficiencies or violations, if any, noted in the examination
reports described above have been resolved to the satisfaction
of the Governmental Authority that noted such deficiencies or
violations. No examination of the Company Insurance Subsidiaries
by any Governmental Authority is currently pending or in
progress.
3.19.8.
Certain
Notices
.
Except as set forth in
Section 3.19.8
of the Company Disclosure Schedule,
since December 31, 2008, neither the Company nor any of the
Company Insurance Subsidiaries has received written notice from
a Governmental Authority that could reasonably be expected to
give rise to an enforcement action against a Company Insurance
Subsidiary by a Governmental Authority.
3.19.9.
Benefits
.
Except as
set forth in Section 3.19.9 of the Company Disclosure
Schedule, all Insurance Contract benefits payable by or on
behalf of the Company Insurance Subsidiaries have in all
material respects been paid in accordance with the terms of the
Insurance Contracts under which they arose, except for such
exceptions for which a Company Insurance Subsidiary has a
reasonable basis to believe that there is a reasonable basis to
contest payment.
3.19.10.
No Restrictions on
Operations
.
No Company Insurance Subsidiary
is subject to any orders, requirements, undertakings,
commitments, consent decrees, settlements or stipulations from
or with any state insurance regulatory authorities that would
subject a Company Insurance Subsidiary to any material
restrictions or limitations on its business or operations
(except pursuant to Law).
Section
3.20.
Vote
Required
.
The affirmative vote of the holders
of a majority in voting power of the outstanding shares of
Company Common Stock (the
Required Company
Shareholders
), is necessary to adopt this Agreement.
The affirmative vote of the Required Company Shareholders is the
only vote of the holders of
A-18
any class or series of capital stock or other Equity Interests
of the Company necessary to adopt this Agreement, and to
consummate the transactions contemplated hereby.
Section
3.21.
Brokers
.
Except
as set forth in
Section 3.21
of the Company
Disclosure Schedule, no broker, finder or investment banker is
entitled to any brokerage, finders or other fee or
commission in connection with the Merger, this Agreement or the
transactions contemplated herein based upon arrangements made by
or on behalf of the Company.
Section
3.22.
Opinion
of Financial Advisor
.
On or prior to the date
hereof, the Company Board has received the opinion of Sandler
ONeill & Partners, LP, financial advisor to the
Company Board, to the effect that, as of the date of such
opinion, the Merger Consideration is fair, from a financial
point of view, to the holders of outstanding shares of Company
Common Stock, and as of the date of this Agreement, such opinion
has not been withdrawn, revoked or modified.
Section
3.23.
Insurance
Policies
.
Section 3.23
of the
Company Disclosure Schedule sets forth (i) a true and
complete list of all insurance policies (other than reinsurance
policies) currently in force to which the Company or any Company
Subsidiary is a beneficiary or named insured and (ii) any
claims made thereunder or made under any other such insurance
policy within the past three years. True and complete copies of
all such policies have been made available to Parent. All
premiums due on such policies have been paid, and the Company
and each Company Subsidiary is otherwise in compliance with the
terms of such policies in all material respects. To the
Companys knowledge, neither the Company nor any Company
Subsidiary has failed to give any notice or present any claim
under any such policy in a timely fashion.
Section
3.24.
Insurance
Producers
.
3.24.1.
Producers
.
Section 3.24.1
of the Company Disclosure Schedule identifies, separately for
each of the Company Insurance Subsidiaries, the top 20 (by
dollar amount of premiums sold) insurance agencies, insurance
agents, insurance brokers, wholesalers, managing general agents
or other insurance producers that produce Insurance Contracts on
behalf of each such Company Insurance Subsidiary for the year
ended December 31, 2010 (collectively, the
Producers
). The top 20 Producers from
January 1, 2011 through the date hereof, for each of First
Professionals Insurance Company, Inc. and Anesthesiologists
Professional Assurance Company, are the same as those set forth
in
Section 3.24.1
of the Company Disclosure Schedule
for the year ended December 31, 2010. The Company has
delivered to Parent true, complete and correct copies of all
contracts and agreements between each Producer, on the one hand,
and the Company or any Company Subsidiary, on the other hand,
and all such contracts have been duly executed by the parties
thereto. Except as set forth in
Section 3.24.1
of
the Company Disclosure Schedule, to the Companys
knowledge, at the time any such Producer wrote, sold or produced
business, or performed such other act on behalf of a Company
Subsidiary that required a license from a Governmental
Authority, such Producer was duly licensed and appointed (where
required) in the particular jurisdiction in which the Producer
produced or serviced such business.
3.24.2.
No 18 USC § 1033(e)(2)
Filings
.
Except as set forth in
Section 3.24.2
of the Company Disclosure Schedule,
since January 1, 2007, none of the Company Subsidiaries has
made a filing with any Governmental Authority seeking an
exemption under 18 USC § 1033(e)(2) with respect
to any Producer.
3.24.3.
Continuation of
Relationships
.
Since January 1, 2010
through the date of this Agreement, no Producer has
(A) indicated in writing, or otherwise to the knowledge of
Company has indicated, to the Company or any Company Subsidiary
that such Producer will be unable or unwilling to continue its
relationship as a Producer with any of the Company Subsidiaries
or, (B) to the knowledge of the Company, threatened to
terminate its relationship as a Producer with any of the Company
Subsidiaries subsequent to any merger or other acquisition of
any Company Subsidiary.
3.24.4.
Producer
Compensation
.
Since January 1, 2009,
none of the Company Subsidiaries compensates or has compensated
its Producers or any other intermediaries related to the
Insurance Contracts using any method other than calculating such
compensation as a straight percentage of premium.
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Section
3.25.
Interested
Party Transactions
.
Except as set forth in
the Company SEC Filings prior to the date hereof, since
January 1, 2011, neither the Company nor any of the Company
Subsidiaries is a party to any agreement or arrangement, and no
event has occurred as of the date of this Agreement, that would
be required to be reported by the Company pursuant to
Item 404 of
Regulation S-K
promulgated by the SEC.
Section
3.26.
Investments
.
3.26.1.
Investment
Assets
.
All securities and investment assets
(the
Investment Assets
) held by the Company
and each Subsidiary are permissible investments under all
applicable Laws. The Company has made available to Parent prior
to the date hereof a copy of the investment policies of the
Company and the Company Subsidiaries as of December 31,
2010. As of the date hereof, there has been no material change
in investment policy of the Company or any Company Subsidiaries
or in the composition of such investments since
December 31, 2010.
3.26.2.
Swaps, Caps,
etc
.
All interest rate swaps, caps, floors
and option agreements and other interest rate risk management
arrangements entered into for the account of the Company or any
Company Subsidiary were entered into in the ordinary course of
business and, to the knowledge of the Company, in accordance
with applicable rules, regulations and policies of any
Governmental Authority.
3.26.3.
Funding
Obligations
.
Except as set forth in
Section 3.26.3
of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary has any funding
obligations of any kind, or obligation to make any additional
advances or investments (including any obligation relating to
any currency or interest rate swap, hedge or similar
arrangement), in respect of any of the Investment Assets.
3.26.4.
Investment Company
Matters
.
Neither the Company nor any Company
Subsidiary has agreed or otherwise committed to invest in, lend
money to, or guarantee any obligations of, any investment
company, or a company controlled by an
investment company, within the meaning of the
Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended, and the rules and regulations
of the SEC thereunder (any of the foregoing, an
Investment Company
) or in any private
investment company or hedge fund.
Section
3.27.
No
Investment Company
.
Neither the Company nor
any Company Subsidiary is an Investment Company.
Section
3.28.
No
Broker/Dealer Operations
.
Neither the Company
nor any Company Subsidiary conducts any operations that would
require the Company or any Company Subsidiary to be registered
as a broker-dealer with any Governmental Authority.
Section
3.29.
No
Limitations on Dividends
.
Except as set forth
in
Section 3.29
of the Company Disclosure Schedule,
the ability of any Company Subsidiary to pay dividends or make
distributions with respect to its capital stock is not
restricted or limited in any manner, whether by contract or
otherwise, except pursuant to Law.
ARTICLE 4
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company as follows:
Section
4.1.
Organization
and Qualification; Subsidiaries
.
Parent is an
inter-insurance exchange duly organized, validly existing and in
good standing under the Laws of the State of California. Merger
Sub is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Florida. Each of
Parent and Merger Sub has the requisite corporate power and
authority to own, lease and operate its properties and to carry
on its business as it is now being conducted. Each of Parent and
Merger Sub is duly qualified or licensed to do business, and is
in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of
its business makes such qualification, licensing or good
standing necessary, except for such failures to be so qualified,
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licensed or in good standing that would not reasonably be
expected to have a Parent Material Adverse Effect or otherwise
prevent or delay (beyond the Outside Date) consummation of the
Merger.
Section
4.2.
Authority
.
Each
of Parent and Merger Sub has requisite corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated by this Agreement to be consummated by it. The
execution and delivery of this Agreement by each of Parent and
Merger Sub, as applicable, and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to authorize this Agreement or the
Merger or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent
and Merger Sub and, assuming due authorization, execution and
delivery by the Company, constitutes a legally valid and binding
obligation of Parent and Merger Sub, enforceable against Parent
and Merger Sub in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, preference, fraudulent transfer, moratorium or
other similar Laws relating to or affecting the rights and
remedies of creditors and by general principles of equity
regardless of whether enforcement is considered in a proceeding
in equity or at law, concepts of materiality, reasonableness,
good faith and fair dealing, and the discretion of the court
before which any proceeding therefore may be brought.
Section
4.3.
No
Conflict; Required Filings and Consents
.
4.3.1.
No Conflicts
.
The
execution and delivery of this Agreement does not, and the
performance of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby will not
(A) conflict with or violate any provision of Parents
organizational documents, Merger Subs articles of
incorporation or Merger Subs By-laws, (B) assuming
that all consents, approvals, authorizations and permits
described in
Section 4.3.2
have been obtained and
all filings and notifications described in
Section 4.3.2
have been made and any waiting periods
thereunder have terminated or expired, conflict with or violate
any Law applicable to Parent or Merger Sub or any other
subsidiary of Parent (each a
Parent
Subsidiary
and, collectively, the
Parent
Subsidiaries
) or by which any property or asset of
Parent, Merger Sub or any Parent Subsidiary is bound or
(C) require any consent or approval under, result in any
breach of, or any loss of or any benefit under, or constitute a
default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any right of
termination, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset
of Parent, Merger Sub or any Parent Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease,
Parent Permit or other legally binding obligation to which
Parent, Merger Sub or any Parent Subsidiary is party, except, as
to clauses (B) and (C), respectively, for any such
conflicts, violations, breaches, defaults or other occurrences
that would not reasonably be expected to have a Parent Material
Adverse Effect or otherwise prevent or delay (beyond the Outside
Date) consummation of the Merger.
4.3.2.
Consents
.
The
execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement by Parent and
Merger Sub will not, require any consent, approval,
authorization or permit of, or filing with or notification to,
any Governmental Authority, except (A) (i) as may be
required under the Exchange Act and the HSR Act, (ii) the
filing and recordation of the Articles of Merger as required by
the FBCA, (iii) the filing of a Form A Information
Statement (
Form A
) with, and receipt of
the approval of, the insurance regulatory authorities of the
States of Florida, Missouri and Texas, and (iv) the filing
of pre-Merger notice filings (each, a
Form E
) with, and receipt of the
approval of, the insurance regulatory authorities of the States
of Arkansas and Georgia and (B) where the failure to obtain
such consents, approvals, authorizations or permits, or to make
such filings or notifications, would not reasonably be expected
to have a Parent Material Adverse Effect or otherwise prevent or
delay (beyond the Outside Date) consummation of the Merger.
Section
4.4.
Disclosure
Documents
.
4.4.1.
Other Filings
.
Any
Other Filing and any amendments or supplements thereto, that
Parent is responsible for filing at (A) the time such Other
Filing (or any amendment thereof or supplement thereto)
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is first made publicly available to the shareholders of the
Company, and (B) the time of the Company Shareholders
Meeting, as applicable, will comply as to form in all material
respects with the applicable requirements of the Exchange Act
and other applicable Law.
4.4.2.
Parent
Information
.
The Proxy Statement or any Other
Filing, or amendments or supplements thereto, that the Company
is responsible for filing, insofar as it reflects information
supplied by Parent or Merger Sub for use therein, at
(A) the time the Proxy Statement or Other Filing (or any
amendment thereof or supplement thereto) is first made publicly
available to the shareholders of the Company, and (B) the
time of the Company Shareholders Meeting, will not contain
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were
made, not materially misleading.
4.4.3.
Company
Information
.
The representations and
warranties contained in this
Section 4.4
will not
apply to failure of any Other Filing to comply as to form as a
result of, or statements or omissions included in any Other
Filings based upon, information supplied to Parent or Merger Sub
by the Company or the Company Subsidiaries.
Section
4.5.
Litigation
.
As
of the date of this Agreement, there is no suit, claim, action
or proceeding pending or, to the knowledge of Parent,
threatened, nor, to the knowledge of Parent, is there any
investigation pending, in each case, against Parent or any
Parent Subsidiary, and none of Parent or any Parent Subsidiary
is subject to any outstanding order, writ, injunction or decree,
in each case, that has had a Parent Material Adverse Effect or
would reasonably be expected to prevent consummation of the
Merger.
Section
4.6.
Ownership
of Merger Sub; No Prior Activities
.
4.6.1.
Formation
.
Merger Sub
was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
4.6.2.
Ownership
.
All of the
outstanding capital stock of Merger Sub is owned directly by
Parent. There are no options, warrants or other rights
(including registration rights), agreements, arrangements or
commitments to which Merger Sub is a party of any character
relating to the issued or unissued capital stock of, or other
Equity Interests in, Merger Sub or obligating Merger Sub to
grant, issue or sell any shares of the capital stock of, or
other Equity Interests in, Merger Sub, by sale, lease, license
or otherwise. There are no obligations, contingent or otherwise,
of Merger Sub to repurchase, redeem or otherwise acquire any
shares of the capital stock of Merger Sub.
4.6.3.
Obligations and
Operations
.
Except for obligations or
liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this
Agreement, Merger Sub has not and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any
obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
Section
4.7.
Vote
Required
.
No vote of the holders of any class
or series of capital stock or other Equity Interests of Parent
is necessary to adopt this Agreement, or to consummate the
transactions contemplated hereby.
Section
4.8.
Brokers
.
No
broker, finder or investment banker (other than Macquarie
Capital Advisors) is entitled to any brokerage, finders or
other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of Parent.
Section
4.9.
Financing
.
(A) Parent
has as of the date of this Agreement, and shall have at the
Closing, available cash sufficient to enable Parent to pay the
Merger Consideration and, subject to the satisfaction or waiver
of the conditions to its obligations hereunder, will use such
cash to consummate the transactions contemplated by this
Agreement. (B) Parent is not required to cause any Parent
Subsidiary to pay it a dividend in order to fund the Merger
Consideration.
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Section
4.10.
Arrangements
with Company Personnel and Shareholders
.
4.10.1.
Company
Personnel
.
Except as expressly contemplated
by this Agreement, as of the date hereof, none of Parent, Merger
Sub nor any of their affiliates has entered into any contract,
agreement, arrangement or understanding (in each case, whether
oral or written), or authorized, committed or agreed to enter
into any agreement, arrangement or understanding (in each case,
whether oral or written) with any of the officers or directors
of the Company or any Company Subsidiary that is currently in
effect or that would become effective in the future (upon
consummation of the Merger or otherwise).
4.10.2.
Shareholders
.
As of
the date of this Agreement, none of Parent, Merger Sub nor any
their affiliates has entered into any contract, agreement,
arrangement or understanding (in each case, whether oral or
written), or authorized, committed or agreed to enter into any
agreement, arrangement or understanding (in each case, whether
oral or written), pursuant to which any shareholder of the
Company would be entitled to receive consideration of a
different amount or nature than the Merger Consideration or
pursuant to which any shareholder of the Company agrees to vote
to adopt this Agreement or the Merger or agrees to vote against
any Superior Proposal.
Section
4.11.
Ownership
of Company Common Stock
.
None of Parent,
Merger Sub nor any Parent Subsidiary is an interested
shareholder of the Company as defined in
Section 607.0901 of the FBCA. None of Parent, Merger Sub
nor any Parent Subsidiary owns (directly or indirectly,
beneficially or of record) or is a party to any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, any shares of
capital stock of the Company (other than as contemplated by this
Agreement).
Section
4.12.
Compliance
.
Parents
business has been and is being conducted in compliance in all
material respects with all Laws respecting the business of
insurance and, to the knowledge of Parent, there are no
investigations pending or threatened by any Governmental
Authority, except for such noncompliance or investigations as
would not reasonably be expected, individually or in the
aggregate, to prevent the consummation of the Merger.
ARTICLE 5
COVENANTS
Section
5.1.
Conduct
of Business by the Company Pending the
Closing
.
The Company agrees that, between the
date of this Agreement and the Effective Time, except as set
forth in
Section 5.1
of the Company Disclosure
Schedule and as expressly permitted or contemplated by any other
provision of this Agreement or as required by applicable Law or
the regulations or requirements of Nasdaq, unless Parent shall
otherwise agree in writing (which agreement shall not be
unreasonably withheld, delayed or conditioned), the Company
shall, and shall cause each Company Subsidiary to,
(A) conduct its operations in the ordinary course of
business substantially consistent with past practice (including
with respect to underwriting matters), (B) use its
commercially reasonable efforts to maintain its relationships
with officers, key employees, Producers and customers and to
renew policies with current insureds substantially consistent
with past practice and (C) use its commercially reasonable
efforts to preserve substantially intact its business
organization and goodwill. Without limiting the foregoing,
except as set forth in
Section 5.1
of the Company
Disclosure Schedule, as expressly permitted or contemplated by
any other provision of this Agreement or as required by
applicable Law or the regulations or requirements of Nasdaq, the
Company shall not, and shall not permit any Company Subsidiary
to, between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the following
without the prior written consent of Parent (which consent shall
not be unreasonably withheld, delayed or conditioned):
(i) amend its articles of incorporation or By-laws or
equivalent organizational documents;
(ii) (A) issue or authorize the issuance of any shares
of capital stock of, or other Equity Interests in, the Company
or any Company Subsidiary of any class, or securities
convertible or exchangeable or exercisable for any shares of
such capital stock or other Equity Interests, or any options,
warrants or other
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rights of any kind to acquire any shares of such capital stock
or other Equity Interests or such convertible or exchangeable
securities of the Company or any Company Subsidiary, other than
the issuance of Company Common Stock in accordance with the
terms of Company Equity Awards outstanding on the date hereof,
or (B) sell, pledge, dispose of, transfer, lease, license,
guarantee or encumber, or authorize the sale, pledge,
disposition, transfer, lease, license, guarantee or encumbrance
of, any material property or assets of the Company or any
Company Subsidiary, except pursuant to contracts or commitments
or the sale or purchase of goods, other property, assets or
insurance in the ordinary course of business substantially
consistent with past practice;
(iii) materially change its investment portfolio management
practices or acquire or sell material Investment Assets, except
in the ordinary course of business consistent with past
practices and except that the Company may sell any or all of the
206,847 shares of Vanguard High Dividend Yield Index ETF
(Ticker: VYM) owned by the Company on the date hereof;
(iv) declare, set aside, make or pay any dividend or other
distribution (whether payable in cash, stock, property or a
combination thereof) with respect to any of its capital stock
(other than dividends paid by (i) First Professionals
Insurance Company, Inc. to the Company not in excess of
$100,000, (ii) a Company Subsidiary (other than a Company
Insurance Subsidiary) to the Company or (iii) a Company
Insurance Subsidiary to another Company Insurance Subsidiary to
the extent such dividend may be made without regulatory
approval) or enter into any agreement with respect to the voting
of its capital stock;
(v) other than cashless exercises of Company Options,
reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital
stock, other Equity Interests or other securities;
(vi) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest
in any person or all or substantially all of the assets of any
person, other than in connection with investment management in
the ordinary course of business;
(vii) make any material change in accounting policies or
procedures (including making any material change in actuarial
policies or procedures or ceasing to use a third party
consulting actuary), except as required by GAAP, Statutory
Accounting Principles, by applicable Law or by a Governmental
Authority;
(viii) (A) make, change or revoke any material
election in respect of Taxes, (B) adopt or change any
material accounting method in respect of Taxes, (C) enter
into any material Tax allocation agreement, Tax sharing
agreement, Tax indemnity agreement or closing agreement,
(D) settle or compromise any material claim, notice, audit
report or assessment in respect of Taxes or (E) surrender
any right to claim a material refund of Taxes;
(ix) enter into, amend, renew or exercise any option to
terminate or extend, in each case in any material respect, any
material real estate lease (as lessor or lessee); enter into,
amend or terminate, in each case in any material respect, any
Company Material Contract to which it is a party or by or to
which it or its assets, properties or business are bound or
subject, except as otherwise permitted by this
Section 5.1
or in the ordinary course of business
substantially consistent with past practice; or enter into or
amend any Company Material Contract pursuant to which it agrees
to refrain from competing with any third party;
(x) other than as required by any judgment, order or
arbitral award, enter into any agreement relating to the
commutation of any assumed reinsurance program or assumed
reinsurance treaty existing on the date hereof;
(xi) renew its ceded reinsurance program other than in the
ordinary course of business substantially consistent with past
practice;
(xii) except pursuant to the Companys 2011 budget, a
true, complete and accurate copy of which has been furnished to
Parent prior to the date hereof, make any capital expenditures
or commitment for any capital expenditures in excess of $100,000
in the aggregate;
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(xiii) settle any action, suit or other proceeding or
investigation or threatened action, suit or other proceeding or
investigation, except in the ordinary course of business
substantially consistent with past practice;
(xiv) incur any Indebtedness in excess of $1,000,000 in the
aggregate;
(xv) enter into any new line of business;
(xvi) make any material loan or advance to, guarantee any
Indebtedness of, or otherwise incur Indebtedness on behalf of
any third party, other than in the ordinary course of business
consistent with past practice;
(xvii) except as set forth in
Section 5.10
and
as described on
Section 5.1
of the Company
Disclosure Schedule (i) grant or pay any increase, or
announce or promise any increase, in the wages, salaries,
compensation, bonuses, incentives, equity awards, severance,
pension or other direct or indirect compensation or benefits
payable to any of its employees, officers, directors, any
affiliates of officers or directors, or service providers (other
than commercially reasonable increases to non-affiliated service
providers in the ordinary course of business), or
(ii) establish, increase or promise to increase any
benefits under any Company Benefit Plan, in either case except
(A) as required by the terms of any Company Benefit Plan in
existence on the date hereof, or any law, rule or regulation,
and (B) the payment of accrued but unpaid bonuses under
existing agreements in the ordinary course of business and
consistent with past practice;
(xviii) fail to file any Company SEC Filing other than
(i) any report filed after the applicable deadline in
accordance with
Rule 12b-25
of the Exchange Act that has been filed within the time period
prescribed by that rule; and (ii) with respect to any
matter that is required to be reported solely pursuant to
Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e)
of
Form 8-K
and that is reported in the next periodic report on
Form 10-Q
or
Form 10-K
required to be filed after the event giving rise to the
requirement to report under such item;
(xix) enter into any new or amend any existing employment,
severance, retention, change in control or indemnification
agreement with any of its past or present officers, directors or
employees, (ii) promote any officers or employees, except
in the ordinary course of business consistent with past practice
or (iii) amend any existing non-competition agreement;
(xx) make any material change in the business or its
reinsurance structure, or Insurance Contracts, rates,
underwriting practices and procedures or marketing methods;
(xxi) abandon, encumber, convey title (in whole or in
part), exclusively license or grant any right or other licenses
in or to Intellectual Property owned by the Company;
(xxii) enter into any agreement or arrangement that would
be required to be reported by the Company pursuant to
Item 404 of
Regulation S-K
promulgated by the SEC; or
(xxiii) authorize or enter into any agreement or otherwise
make any commitment to do any of the foregoing.
Section
5.2.
Cooperation
.
5.2.1.
Proxy Statement; Other Filings;
Nasdaq
.
The Company and Parent shall
coordinate and cooperate in connection with (A) the
preparation of the Proxy Statement and any Other Filings,
(B) determining whether any action by or in respect of, or
filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be
obtained from parties to any Company Material Contracts in
connection with the consummation of the Merger and
(C) seeking to obtain any such actions, consents, approvals
or waivers or making any such filings required in connection
therewith or with the Proxy Statement or any Other Filings;
provided
,
however
, that except as expressly
provided in
Article 6
, no such actions, consents,
approvals, waivers or filings shall constitute conditions to
Closing and the Company shall not be obligated to offer any
payment or other concession in connection with any consent under
any Company Material Contract. Prior to the Effective Time, the
Company shall cooperate with Parent
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and use commercially reasonable efforts to take, or cause to be
taken, all actions, and do or cause to be done all things,
reasonably necessary, proper or advisable on its part under
applicable Laws and rules and policies of Nasdaq to enable the
de-listing by the Surviving Corporation of the Company Common
Stock from Nasdaq and the deregistration of the Company Common
Stock under the Exchange Act promptly after the Effective Time.
5.2.2.
Transition
.
Prior to
the Closing, the Company shall, and shall cause its officers to,
cooperate with the reasonable requests of Parent in preparing
for the transition of the Company at Closing, including without
limitation, arranging and participating in introductory meetings
with Parent and (A) insureds, (B) medical societies,
(C) agents and brokers and (D) regulators.
5.2.3.
Integration
.
Prior to
the Closing, and subject to limitations imposed by applicable
Law, the Company shall cooperate with the reasonable requests of
Parent to facilitate transition and integration activities in
all areas, including without limitation operating processes,
telecommunications and systems.
Section
5.3.
Proxy
Statement
.
5.3.1.
Proxy Statement
.
As
promptly as practicable after the execution of this Agreement,
the Company shall prepare and file with the SEC a proxy
statement relating to the Company Shareholders Meeting
(together with any amendments thereof or supplements thereto,
the
Proxy Statement
). In addition, each of
the Company and Parent shall prepare and file with the SEC any
Other Filings as and when required or requested by the SEC. Each
of the Company and Parent shall use reasonable efforts to
respond to any comments made by the SEC with respect to the
Proxy Statement and any Other Filings. Each of the Company and
Parent shall furnish all information concerning it and the
holders of its capital stock as the other party may reasonably
request in connection with such actions and the preparation of
the Proxy Statement and any Other Filings. As promptly as
reasonably practicable, the Company shall mail the Proxy
Statement to its shareholders. Subject to
Section 5.6
, the Proxy Statement shall include the
unanimous recommendation of all members of the Company Board
that adoption of this Agreement by the Companys
shareholders is advisable and that the Company Board has
determined that the Merger is fair to and in the best interests
of the Companys shareholders (the
Company
Recommendation
). Subject to applicable Law, the
Company shall provide Parent with the opportunity to review the
Proxy Statement and any Other Filings that relate to the
transactions contemplated hereby and consider any comments
Parent has on such filings in good faith prior to the filing
thereof with the SEC (other than the Proxy Statement and any
Other Filing to the extent announcing any action taken by the
Company pursuant to, or as permitted by,
Section 5.6
). Except with respect to the Proxy
Statement and any Other Filing to the extent announcing any
action taken by the Company pursuant to, or as permitted by
Section 5.6
, the Company and Parent each shall
advise the other promptly after it receives notice of any
request by the SEC for amendment of the Proxy Statement or any
Other Filings or comments thereon and responses thereto or
requests by the SEC for additional information.
5.3.2.
Certain
Notices
.
Parent shall promptly inform the
Company if, at any time prior to the Effective Time, any event
or circumstance relating to Parent, any Parent Subsidiary or
Merger Sub, or any of their respective officers or directors,
should be discovered by Parent and should be set forth in an
amendment or a supplement to the Proxy Statement or any Other
Filing. The Company shall promptly inform Parent if, at any time
prior to the Effective Time, any event or circumstance relating
to the Company or any Company Subsidiary, or any of their
respective officers or directors, should be discovered by the
Company and should be set forth in an amendment or a supplement
to the Proxy Statement or any Other Filing.
Section
5.4.
Company
Shareholders Meeting; Consent of Parent as Sole
Shareholder of Merger Sub
.
5.4.1.
Company Shareholders
Meeting
.
As promptly as reasonably
practicable after the date hereof, the Company shall establish a
record date for, duly call, give notice of, convene and hold a
meeting of its shareholders (including any adjournments thereof,
the
Company Shareholders Meeting
) for
the purpose of voting upon the adoption of this Agreement.
Subject to
Section 5.6
, the Company shall
(i) include the Company Recommendation in the Proxy
Statement, and (ii) use commercially reasonable efforts to
solicit from its shareholders proxies in favor of this Agreement
and the transactions contemplated hereby. The Company shall keep
Parent updated with respect to proxy solicitation results as
reasonably requested by
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Parent. Notwithstanding anything to the contrary in this
Section 5.4.1
, at any time prior to the Company
Shareholders Meeting and subject to compliance with
Section 5.6
, the Company may adjourn or postpone the
Company Shareholders Meeting in response to an Acquisition
Proposal if the Company Board determines in good faith (after
consultation with outside counsel) that there is a reasonable
likelihood that such Acquisition Proposal will lead to a
Superior Proposal.
5.4.2.
Parent
Consent
.
Parent, as sole shareholder of
Merger Sub, shall prepare, execute and deliver to Merger Sub, a
copy of which shall be provided to the Company, a written
consent to adopt this Agreement immediately after execution of
this Agreement. Parent shall cause Merger Sub (i) to
perform its obligations under this Agreement and to consummate
the Merger on the terms and conditions set forth in this
Agreement, and (ii) prior to the Effective Time, not to
conduct any business or activities, not to make any investments
other than as specifically contemplated by this Agreement, and
not to incur or guarantee any Indebtedness.
Section
5.5.
Access
to Information; Confidentiality
.
5.5.1.
Confidentiality;
Access
.
Except as required pursuant to any
confidentiality agreement or similar agreement or arrangement to
which the Company or any Company Subsidiary is a party, and
subject to applicable Law, from the date of this Agreement to
the Effective Time, the Company shall, and shall cause each
Company Subsidiary to: (A) provide to Parent and Merger Sub
and their respective officers, directors, employees,
accountants, consultants, legal counsel, advisors, agents and
other representatives (collectively,
Parent
Representatives
), upon reasonable prior notice to the
Company, reasonable access during normal business hours to the
officers of the Company and the Company Subsidiaries and to the
books and records thereof and (B) furnish promptly such
information concerning the business, properties, contracts,
assets, liabilities, personnel and other aspects of the Company
and the Company Subsidiaries as Parent or the Parent
Representatives may reasonably request;
provided
,
however
, that any such access shall be conducted at a
reasonable time, upon reasonable advance notice to the Company
and in such a manner as not to interfere unreasonably with the
operation of any business conducted by the Company or any
Company Subsidiary; provided further, that the Company shall not
be required to (or cause any Company Subsidiary to) so afford
such access or furnish such information to the extent that doing
so would result in the loss of attorney-client privilege (it
being agreed that the Company shall use commercially reasonable
efforts to cause such information to be provided in a manner
that would not result in such jeopardy or contravention). No
investigation shall affect the Companys representations
and warranties contained herein, or limit or otherwise affect
the remedies available to Parent or Merger Sub pursuant to this
Agreement.
5.5.2.
Confidentiality
Agreement
.
With respect to the information
disclosed pursuant to
Section 5.5.1
, the parties
shall comply with, and cause their respective representatives to
comply with, all of their obligations under the letter
agreement, dated as of March 2, 2011, entered into by the
Company and Parent (as has been or may be amended from time to
time, the
Confidentiality Agreement
).
5.5.3. The Company shall provide Parent with
(i) copies of all internal quarterly financial packages and
related internal actuarial analyses prepared by or for the
Company after the date hereof within two (2) days of final
reporting packages becoming available and (ii) monthly
updates regarding any new ECO/XPL claims or any significant
developments in the Companys ECO/XPL claims as of the
Effective Time.
Section
5.6.
Acquisition
Proposals
.
5.6.1.
No
Solicitation
.
Subject to
Section 5.6.2
, from the date of this Agreement until
the Effective Time, the Company agrees that it shall not, and
shall not authorize any Company Subsidiary or any of the
respective directors, officers, employees, accountants,
consultants, legal counsel, advisors, agents and other
representatives of the Company or any Company Subsidiary
(collectively,
Company Representatives
) to,
directly or indirectly, take any action to (A) solicit,
initiate or knowingly facilitate any Acquisition Proposal or any
proposal that is reasonably likely to lead to an Acquisition
Proposal, (B) participate in any way in discussions or
negotiations with, or furnish any non-public information to, any
person that has made an Acquisition Proposal, (C) withdraw,
modify, amend or materially qualify the Company Recommendation
in a manner adverse to Parent, (D) other than the Merger,
approve or recommend any Acquisition Proposal, or (E) enter
into any agreement, letter of intent or term sheet with respect
to any Acquisition Proposal (each a
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Company Acquisition Agreement
). Subject to
Section 5.6.2,
neither the Company Board nor any
committee thereof shall fail to recommend against acceptance of
any tender offer or exchange offer for the shares of Company
Common Stock within ten (10) Business Days after the
commencement of such offer, or make any public statement
inconsistent with the Company Recommendation, or resolve or
agree to take any of the foregoing actions. On the date of this
Agreement, the Company shall immediately cease and cause to be
terminated any negotiations with any person conducted
theretofore by the Company, the Company Subsidiaries or any
Company Representative with respect to any Acquisition Proposal,
and shall use (and shall cause the Company Representatives to
use) commercially reasonable efforts to require other parties
thereto to promptly return or destroy any confidential
information previously furnished by the Company, the Company
Subsidiaries or the Company Representatives thereunder.
5.6.2.
Permitted Actions; Fiduciary
Out
.
Notwithstanding anything to the contrary
contained in
Section 5.6.1
, at any time prior to
obtaining the adoption of this Agreement by the Required Company
Shareholders, the Company shall be permitted to:
(i) take, and disclose to the Companys shareholders,
a position with respect to any tender or exchange offer by a
third party or amend or withdraw such a position in accordance
with
Rule 14d-9
and
Rule 14e-2
promulgated under the Exchange Act;
(ii) if the Company has received an unsolicited Acquisition
Proposal from a third party and the Company Board determines in
good faith (after consultation with its independent financial
advisor and outside counsel) that such Acquisition Proposal
constitutes a Superior Proposal, so long as the Company is in
compliance with
Section 5.6.1
other than as
specifically permitted by this
Section 5.6.2
, effect
a change in the Company Recommendation, approve and recommend
such Superior Proposal or enter into an agreement with respect
to such Superior Proposal;
(iii) effect a change in the Company Recommendation if the
Company Board determines in good faith (after consultation with
outside counsel) that failure to do so would be inconsistent
with its fiduciary duties to the shareholders of the Company
under applicable Law; or
(iv) so long as the Company is in compliance with
Section 5.6.1(A)
and the last sentence of
Section 5.6.1
, participate in any discussions or
negotiations (including, as a part thereof, making
counterproposals) with, or provide any non-public information
to, any person in response to an unsolicited Acquisition
Proposal by any such person, pursuant to a confidentiality
agreement containing confidentiality provisions substantially
similar to those set forth in the Confidentiality Agreement (it
being understood and agreed that such confidentiality agreement
need not restrict the making of Acquisition Proposals), if the
Company Board determines in good faith (after consultation with
its independent financial advisor and outside counsel) that
there is a reasonable likelihood that such Acquisition Proposal
will lead to a Superior Proposal; provided, that the Company
shall notify Parent in writing of such determination and its
intention to participate in discussions or negotiations with, or
provide non-public information to, any person in response to an
Acquisition Proposal;
provided, however,
that with respect to clauses (ii)
or (iii) above, the Company Board shall not take any action
until after the third Business Day following Parents
receipt of written notice from the Company advising Parent that
the Company Board intends to take such action and specifying the
reasons therefor, including (if such proposed action is in
connection with receipt of a Superior Proposal) the material
terms and conditions of such Superior Proposal and a copy of the
most current version of the proposed agreement (which version
shall be updated on a prompt basis) and the identity of the
third party making such Superior Proposal (it being understood
and agreed that, (A) prior to taking any such action, the
Company shall discuss with Parent and consider in good faith any
changes to the terms of this Agreement proposed by Parent in
response to such Superior Proposal or otherwise and (B) any
amendment to the financial terms of the Superior Proposal shall
require the Company to provide Parent with a new notice of such
Superior Proposal and a new three Business Day period as set
forth above). The Company shall promptly provide Parent with a
list of any non-public information concerning the Companys
business, present or future performance, financial condition or
results of operations, provided to any third party,
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and, to the extent such information has not been previously
provided to Parent, copies of such information.
Section
5.7.
Appropriate
Action; Consents; Filings
.
5.7.1.
Appropriate
Actions
.
Subject to
Section 5.6
,
each of the Company and Parent shall use commercially reasonable
efforts to (A) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary,
proper or advisable under any applicable Law to consummate and
make effective the Merger and the other transactions
contemplated by this Agreement as promptly as reasonably
practicable, (B) obtain from Governmental Authorities any
consents, licenses, permits, waivers, approvals, authorizations
or orders required to be obtained or made by Parent or the
Company or any of their respective Subsidiaries, or to avoid any
action or proceeding by any Governmental Authority (including,
without limitation, those in connection with Antitrust Laws), in
connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger and the other
transactions contemplated herein, (C) make or cause to be
made the applications or filings required to be made by Parent
or the Company or any of their respective Subsidiaries under or
with respect to the HSR Act or any other Laws in connection with
the authorization, execution and delivery of this Agreement and
the consummation of the Merger and the other transactions
contemplated herein, and to pay any fees due of it in connection
with such applications or filings, as promptly as is reasonably
practicable, and in any event within ten (10) Business Days
after the date hereof, (D) comply at the earliest
practicable date with any request under or with respect to the
HSR Act and any such other Laws for additional information,
documents or other materials received by Parent or the Company
or any of their respective Subsidiaries from the Federal Trade
Commission, the Department of Justice or any other Governmental
Authority in connection with such applications or filings or the
Merger and the other transactions contemplated by this Agreement
and (E) coordinate and cooperate with, and give due
consideration to all reasonable additions, deletions or changes
suggested by the other party in connection with, making
(1) any filing under or with respect to the HSR Act or any
such other Laws, and (2) any filings, conferences or other
submissions related to resolving any investigation or other
inquiry by any such Governmental Authority. Each of the Company
and Parent shall, and shall cause their respective affiliates
to, furnish to the other party all information necessary for any
such application or other filing to be made in connection with
the Merger or other transactions contemplated by this Agreement.
Each of the Company and Parent shall promptly inform the other
of any communication with, and any proposed understanding,
undertaking or agreement with, any Governmental Authority
regarding any such application or filing. If a party hereto
desires to participate in any meeting with any Governmental
Authority in respect of any such filings, investigation or other
inquiry, then such party shall give the other party reasonable
prior notice of such meeting and the opportunity to participate
in such meeting. The parties shall coordinate and cooperate with
one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party in
connection with all meetings, actions and proceedings under or
relating to any such application or filing.
5.7.2.
Filings
.
As promptly
as practicable, but in no event later than fifteen
(15) Business Days following the date of this Agreement,
Parent shall, at its own expense, make all reasonably necessary
filings with state insurance regulatory authorities required by
applicable insurance Laws (the
Applicable Insurance
Laws
) that are required to be filed prior to the
Effective Time, including, without limitation, (i) the
filing of a Form A with the insurance regulatory
authorities of each of the States of Florida (which shall be the
first Form A to be filed), Missouri and Texas, and
(ii) Form E filings with the insurance regulatory
authority of the States of Arkansas and Georgia, in order to
obtain the necessary authorizations, approvals and consents in
order to consummate the transactions contemplated hereby. In
connection therewith, the Parties shall use commercially
reasonable efforts to promptly resolve any objections and
respond to any inquiries that may arise in connection with any
such filings. The Form A for the State of Florida will
include an affirmative statement to the effect that First
Professionals Insurance Company, Inc. and Anesthesiologists
Professional Assurance Company will continue as Florida
domiciled insurers after the Closing and not be redomesticated
absent further communications with the Florida Office of
Insurance Regulation (
OIR
).
5.7.3.
Notices and
Consents
.
The Company and Parent shall give
(or shall cause their respective Subsidiaries to give) any
notices to third parties, and use, and cause their respective
Subsidiaries to use,
A-29
commercially reasonable efforts to obtain any third party
consents necessary, proper or advisable for such party to
consummate the transactions contemplated in this Agreement. In
addition, the Company shall use commercially reasonable efforts
to obtain the consent of each reinsurer of a Third Party
Reinsurance Contract that is designated on
Section 3.13.1
of the Company Disclosure Schedule
prior to the Closing (it being understood that the Company shall
not be required to make any payments or agree to any
restrictions or changes in connection therewith). Without
limiting the foregoing, the Company and Parent shall coordinate
and cooperate in determining whether any actions, consents,
approvals or waivers are required to be obtained from parties to
any Company Material Contracts in connection with consummation
of the Merger and seeking any such actions, consents, approvals
or waivers; provided further, that except as expressly provided
in
Article 6
, no such actions, consents, approvals
or waivers shall constitute conditions to Closing and the
Company shall not be obligated to offer any payment or other
concession in connection with any consent under any Company
Material Contract. In the event that either party shall fail to
obtain any third party consent described in the first sentence
of this
Section 5.7.3
, such party shall use
commercially reasonable efforts, and shall take any such actions
reasonably requested by the other party hereto, to mitigate any
adverse effect upon the Company and Parent, their respective
subsidiaries, and their respective businesses resulting, or that
could reasonably be expected to result after the Effective Time,
from the failure to obtain such consent.
5.7.4.
Notice of
Proceedings
.
From the date of this Agreement
until the Effective Time, each of Parent and the Company shall
promptly notify the other in writing of any pending or, to the
knowledge of Parent or the Company (as the case may be),
threatened action, suit or other proceeding or investigation by
any Person (A) challenging or seeking material damages in
connection with the Merger or the other transactions
contemplated by this Agreement or (B) seeking to restrain
or prohibit the consummation of the Merger. From the date of
this Agreement until the Effective Time, the Company shall
promptly notify Parent in writing of any pending or, to the
knowledge of the Company, threatened action, suit or other
proceeding or investigation by any Governmental Authority.
5.7.5.
Governmental
Authorities
.
Each of the Company and Parent
shall, and shall cause their respective affiliates to, use their
commercially reasonable efforts to (A) cause the expiration
of the notice periods under or with respect to the HSR Act and
any other Laws with respect to the transactions contemplated by
this Agreement as promptly as is reasonably practicable after
the execution of this Agreement and (B) resolve such
objections, if any, as may be asserted by any Governmental
Authority with respect to the Merger or other transactions
contemplated by this Agreement, subject to the terms of this
Section 5.7.5
. In connection therewith, if any
administrative or judicial action or proceeding is instituted
(or threatened to be instituted) challenging the transaction
contemplated by this Agreement as violative of any Law, each of
the Company and Parent shall, and shall cause their respective
affiliates to, cooperate and use commercially reasonable efforts
to contest and resist, except insofar as the Company and Parent
may otherwise agree, any such action or proceeding, including
any action or proceeding that seeks a temporary restraining
order or preliminary injunction that would prohibit, prevent or
restrict consummation of the Merger or other transactions
contemplated by this Agreement. Notwithstanding anything to the
contrary set forth in this
Section 5.7.5
or
elsewhere in this Agreement, in connection with the actions
contemplated by the first sentence of this
Section 5.7.5
, none of Parent, Merger Sub, the
Company or any of their respective subsidiaries shall be
required to become subject to, consent to, or offer or agree to,
or otherwise take any action with respect to, any Governmental
Authority Requirement if such Governmental Authority Requirement
would reasonably be expected to give rise to a Regulatory
Material Adverse Effect. Parent agrees that if the Governmental
Authority Requirement would not reasonably be expected to give
rise to a Regulatory Material Adverse Effect, then Parent shall
consent and agree to such Governmental Authority Requirement and
take such actions as are contemplated thereby. The Company shall
not agree to a Governmental Authority Requirement without
Parents prior consent. The following terms shall have the
meanings set forth below:
Governmental Authority Requirement
means any requirement, condition, limitation, understanding,
agreement or order of or with any Governmental Authority to
(i) sell, license, assign, transfer, divest, hold separate
or otherwise dispose of any stock, assets, business or portion
of business of the Company, the Surviving Corporation, Parent,
Merger Sub or any of their respective subsidiaries (all of the
foregoing, the
Combined Entity
),
(ii) conduct, restrict, operate, invest or (exclusive of
the matters set
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forth in clause (i) hereof) otherwise change the assets,
business or portion of business of the Combined Entity in any
manner, or (iii) impose any restriction, requirement or
limitation on the operation of the business or portion of the
business of the Combined Entity (including without limitation a
rate decrease imposed on the Combined Entity by the Florida OIR).
Regulatory Material Adverse Effect
means, (A) with respect to clause (i) of the
definition of Governmental Authority Requirement, any such sale,
license, assignment, transfer, divestiture, holding separate or
other disposal involving $10,000,000 or more in annualized
revenues and (B) with respect to clauses (ii) and
(iii) of the definition of Governmental Authority
Requirement, any such requirement, condition, limitation,
understanding, agreement, order, restriction or change that
would, individually or in the aggregate, reasonably be expected
to decrease the Combined Entitys annual revenues
and/or
increase the Combined Entitys annual costs, in the
aggregate, by an amount greater than $10,000,000;
provided,
however,
that the imposition of any restriction on the
ability of the Company Insurance Subsidiaries to upstream cash
to the Company, whether through contractual agreement or the
payment of dividends, shall not constitute a Regulatory
Material Adverse Effect.
5.7.6.
No Control by
Parent
.
Subject to
Section 5.1
,
nothing contained in this Agreement shall give Parent or Merger
Sub, directly or indirectly, the right to control or direct the
operations of the Company prior to the consummation of the
Merger. Prior to the Effective Time, the Company shall exercise,
consistent with the terms and conditions of this Agreement,
complete unilateral control and supervision over its business
operations.
Section
5.8.
Certain
Notices
.
From and after the date of this
Agreement until the Effective Time, each party shall promptly
notify the other party of (i) the occurrence, or
non-occurrence, of any event that would reasonably be expected
to result in any condition to the obligations of any party to
effect the Merger and the other transactions contemplated by
this Agreement not to be satisfied and (ii) any notice or
other communication from any Person alleging that the consent of
such Person is or may be required in connection with the
transactions contemplated by this Agreement,
provided,
however,
that the delivery of any notice pursuant to this
Section 5.8
shall not cure any breach of any
representation or warranty requiring disclosure of such matter
prior to the date of this Agreement or otherwise limit or affect
the remedies available hereunder to the party receiving such
notice and in no event shall any disclosure by the Company or
Parent be deemed to amend or supplement the Company Disclosure
Letter or constitute an exception to any representation or
warranty.
Section
5.9.
Public
Announcements
.
Parent and the Company shall,
as promptly as practicable after the execution and delivery of
this Agreement, issue a mutually agreed press release with
respect to the transactions contemplated by this Agreement,
including the Merger. In connection with press releases or
public statements with respect to the transactions contemplated
by this Agreement, including the Merger, other than any press
release by the Company to announce action taken by the Company
pursuant to, or as permitted by,
Section 5.6
, Parent
and the Company shall coordinate and consult with each other
before issuing, and give each other the opportunity to review
and comment upon, giving due consideration to all reasonable
additions, deletions or changes suggested in connection
therewith, such press releases or public statements. Parent and
the Company shall not issue any such press release (other than
any press release by the Company to announce action taken by the
Company pursuant to, or as permitted by,
Section 5.6
) or make any such public statement prior
to such consultation, except as may be required by applicable
Law, court process, applicable stock exchange rule or any
listing agreement; provided that Parent and the Company shall
coordinate and consult with respect to the timing, basis and
scope of such disclosure requirement. The parties acknowledge
that the Company will be required to file with the SEC a Current
Report on
Form 8-K
reporting the execution of this Agreement and summarizing the
material terms hereof as determined by the Company, and that the
Company will file a copy of this Agreement as an exhibit to such
report.
Section
5.10.
Employee
Benefit Matters
.
5.10.1.
Credit for Prior Service; Recognition
of Co-payments and Deductibles
.
With respect
to any employee benefit plan as defined in
Section 3(3) of ERISA maintained by Parent or any Parent
Subsidiary (collectively,
Parent Benefit
Plans
) in which any director, officer or employee of
the Company or any
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Company Subsidiary (the
Company Employees
)
will participate effective as of the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, recognize
all service of the Company Employees with the Company or a
Company Subsidiary, as the case may be, for purposes of
determining eligibility to participate, vesting and accrual or
entitlement to benefits where length of service is relevant in
any Parent Benefit Plan in which such Company Employees may be
eligible to participate after the Effective Time, other than
benefit accruals under any defined benefit plan;
provided
that such service need not be recognized to the extent that such
recognition would result in any duplication of benefits for the
same period of service. Parent shall permit the Company
Employees to carry over and take vacation days with pay in
accordance with the applicable policies of the Company as in
effect on the Closing Date. Parent shall waive or cause to be
waived any pre-existing condition exclusions, evidence of
insurability provisions, waiting period requirements or any
similar provision under any of the Parent Benefit Plans that are
welfare plans (as defined in Section 3(1) of ERISA).
Further, to the extent allowable under applicable Law, Company
Employees shall be eligible to receive credit under the Parent
Benefit Plans for the 2011 calendar year towards applicable
deductibles and annual
out-of-pocket
limits for expenses incurred under the corresponding Company
medical plan during the 2011 calendar year but prior to the
Closing Date.
5.10.2.
Honoring Existing Employment
Arrangements
.
From and after the Effective
Time, the Company, the Surviving Corporation or any Parent
Subsidiary, as applicable, shall, and Parent shall cause the
Company, the Surviving Corporation or any Parent subsidiary, as
applicable, to perform all obligations and to pay all amounts
due, in accordance with their terms as may be amended from time
to time, under all Company Benefit Plans, including without
limitation all Company Employment Agreements and Company
Severance Agreements. Parent and the Company acknowledge and
agree that (i) the consummation of the Merger shall
constitute a Change in Control or a Change of
Control under the Company Severance Agreements and each
other Company Benefit Plan to which such term is relevant,
(ii) after the Effective Time, the Parent will not, and
will not permit the Surviving Corporation to, dispute any
assertion by any of the Company Employees specifically listed in
Section 5.10.2
of the Company Disclosure Schedule
(provided that such Company Employee provides any required
notices required by such Company Employees Company
Severance Agreement) that the consummation of the Merger
constitutes valid grounds for the Company Employee to terminate
his or her employment with the Surviving Corporation by reason
of his or her Constructive Discharge within the
meaning of such Company Employees Company Severance
Agreement, and (iii) with respect to any such Company
Employee who asserts under (ii) above that the consummation
of the Merger constitutes valid grounds for the Company Employee
to terminate his or her employment with the Surviving
Corporation by reason of his or her Constructive
Discharge, the Surviving Corporation shall, and Parent
shall cause the Surviving Corporation to, pay (with the time and
manner of such payments all being in accordance with the terms
specified in each Company Employees respective Severance
Agreement, as the same may be modified from time to time in the
manner contemplated below in
Section 5.11
, and
except as the time and manner of such payments is affected (if
at all) by the last sentence of this
Section 5.10.2
)
such Company Employee the severance payments and such other
severance benefits required to be paid under such Company
Employees respective Company Severance Agreement, the
amounts of which, other than any tax gross ups, are quantified
and set forth in
Section 5.1
of the Company
Disclosure Schedule. In furtherance of the foregoing, the
Company shall, and Parent shall cause the Surviving Corporation
to, take the actions described on
Section 5.1
of the
Company Disclosure Schedule with respect to the payment of such
payments and benefits to the Company Employees listed on
Section 5.10.2
of the Company Disclosure Schedule.
5.10.3.
Post-Closing Benefit Plan
Matters
.
For the one (1) year period
following the Effective Time, Parent shall cause the Surviving
Corporation to provide to each Company Employee, during his or
her employment, benefits and compensation that are no less
favorable, in the aggregate, to such person than those provided
to such Company Employee immediately prior to the Closing (but
not taking into account for these purposes any stock-based
compensation or other equity incentive plans). Notwithstanding
the foregoing, during said one (1) year period,
Parents severance policy, a copy of which has been
provided to the Company, rather than any severance policy or
customary severance practice of the Company, shall apply in the
case of a terminated Company Employee without a Company
Severance Agreement.
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5.10.4.
No Requirement of Continued Employment;
Permitted Amendments to Company Benefits
Plans
.
Nothing in this Agreement shall
require the continued employment of any person, and, except as
specifically set forth in this
Section 5.10
, no
provision of this Agreement shall prevent Parent or the
Surviving Corporation from amending or terminating any Company
Benefit Plan to the extent permitted by such Company Benefit
Plan.
5.10.5.
Annual Executive Incentive Compensation
Program
.
Parent shall comply, and cause the
Surviving Corporation to comply, with the terms of the
Companys 2011 Executive Incentive Compensation Plan and
2008 Senior Executive Annual Incentive Plan, as in effect on the
date hereof;
provided,
that all bonuses in respect of
2011 shall be paid at 100% of the target bonus; and
provided
further,
that Company Employees whose employment with the
Company is terminated effective at or after the Effective Time
shall be entitled to, in addition to their severance benefits,
if any, a portion (equal to the portion of the calendar year
elapsed to the date of termination of employment) of their
respective target bonuses under the 2011 Executive Incentive
Compensation Plan
and/or
2008
Senior Executive Annual Incentive Plan, payable at the date of
termination of employment or as soon thereafter as reasonably
practicable. In no event will any such Company Employee be
entitled to receive any portion of such 2011 target bonus to the
extent such amount is included as a separate part of such
Company Employees severance benefits, it being agreed that
the multiple of prior year bonuses included in the lump sum
severance benefit shall not be deemed to be a 2011 target bonus.
5.10.6.
Third Party
Beneficiaries
.
The Company Employees
immediately prior to the Effective Time, including without
limitation those employees listed on
Section 5.10.2
of the Company Disclosure Schedule, shall be third party
beneficiaries of the provisions of this
Section 5.10
. The provisions of this
Section 5.10
are intended to be for the benefit of
each such person and his or her successors, heirs or
representatives.
Section
5.11.
Cooperation
Regarding Company Benefit Plans
.
Prior to the
Effective Time, the Company shall jointly work with Parent to
(i) bring all Company Benefit Plans in compliance with
Section 409A of the Code, including without limitation,
amending such Company Benefit Plans if required in connection
therewith (including amendments requiring a Code
Section 409A valid release from each Company Employee who
may claim under
Section 5.10.2
that there has been a
Constructive Discharge of such Company Employee
after the consummation of the Merger within the meaning of such
Company Employees Company Severance Agreement and whose
Company Severance Agreement, as the same may be modified from
time to time, requires a release from such Company Employee in
that event) and (ii) amend the Company Benefit Plans to
eliminate (A) any interest or additional taxes imposed by
Section 409A(a)(1)(B) of the Code that employees of the
Company (or the Company on behalf of the employee) would be
required to pay in connection with any payments received from
the Company or Parent pursuant to any Company Benefit Plan as a
result of an event closely related to the Parents
acquisition of the Company or (B) any excise tax imposed by
Sections 280G or 4999 of the Code or any interest, penalty
or addition to tax with respect to such excise tax that
employees of the Company (or the Company on behalf of the
employee) would be required to pay in connection with any
payments received from the Company or Parent pursuant to any
Company Benefit Plan as a result of an event closely related to
the Parents acquisition of the Company; provided that in
no event shall the Company materially reduce the severance
payments provided to any employee under any existing Company
Benefit Plan to comply with the foregoing obligation.
Section
5.12.
Indemnification
of Directors and Officers
.
5.12.1.
Indemnification
.
For
not less than six years from and after the Effective Time,
Parent agrees to, and to cause the Surviving Corporation to, to
the extent permitted under applicable Law, indemnify and hold
harmless all past and present directors, officers, employees and
agents of the Company (
Covered Persons
) to
the same extent such persons are indemnified as of the date of
this Agreement by the Company pursuant to the Company Articles,
the Company By-laws and indemnification agreements in existence
on the date of this Agreement with any Covered Persons against
and from any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, to the extent such claim, action, suit proceeding
or investigation arises out of or pertains to acts or omissions
A-33
occurring at or prior to the Effective Time;
provided,
however,
that Parent agrees to, and to cause the Surviving
Corporation to, indemnify and hold harmless such persons to the
fullest extent permitted by Law for acts or omissions occurring
in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby. Each
Covered Person shall be entitled to advancement of expenses
incurred in the defense of any claim, action, suit, proceeding
or investigation with respect to any matters subject to
indemnification hereunder, provided that any person to whom
expenses are advanced undertakes, to the extent required by the
FBCA, to repay such advanced expenses if it is ultimately
determined that such person is not entitled to indemnification.
Notwithstanding anything herein to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising
before, at or after the Effective Time) is made against any
Covered Person with respect to matters subject to
indemnification hereunder on or prior to the sixth anniversary
of the Effective Time, the provisions of this
Section 5.12
shall continue in effect until the
final disposition of such claim, action, suit, proceeding or
investigation. Notwithstanding anything to the contrary
contained in this
Section 5.12.1
or elsewhere in
this Agreement, Parent shall not (and Parent shall cause the
Surviving Corporation not to) settle or compromise or consent to
the entry or any judgment or otherwise seek termination with
respect to any claim, action, suit, proceeding or investigation,
unless such settlement, compromise, consent or termination
includes an unconditional release of all of the Covered Persons
covered by the claim, action, suit, proceeding or investigation
from all liability arising out of such claim, action, suit,
proceeding or investigation, without the prior consent of such
Covered Person (not to be unreasonably withheld); provided,
however, the Surviving Corporation or Parent will not be liable
for any settlement effected without the Surviving
Corporations or Parents prior written consent (not
to be unreasonably withheld).
5.12.2.
Articles and
By-Laws
.
For not less than six years from and
after the Effective Time, to the extent permitted by applicable
Law, the Articles of Incorporation and By-laws of the Surviving
Corporation shall contain provisions no less favorable with
respect to indemnification, advancement of expenses and
exculpation of Covered Persons than are currently set forth in
the Company Articles and the Company
By-laws.
5.12.3.
D&O
Insurance
.
For six years from the Effective
Time, the Surviving Corporation shall, and Parent shall cause
the Surviving Corporation to, provide the Companys current
directors and officers, covered under the Companys
existing directors and officers insurance policies prior to the
Effective Time (the
Existing Policies
) one or
more policies or insurance that provide coverage with respect to
claims arising from facts or events that occurred on or before
the Effective Time, including, without limitation, in connection
with the approval of this Agreement and the transactions
contemplated hereby (
D&O Insurance
),
that are no less favorable than the Companys Existing
Policies. Notwithstanding anything to the contrary contained
herein, prior to the Effective Time, the Company may purchase a
tail insurance policy to cover for a period of six
years after the Effective Time the individuals covered by the
Companys directors and officers liability
insurance immediately prior to the Effective Time. In the event
that the Company purchases such a tail policy prior
to the Effective Time, Parent and the Surviving Corporation will
maintain such tail policy in full force and effect
and continue to honor their respective obligations thereunder.
Notwithstanding the foregoing
,
in no event will the
Surviving Corporation or Parent be required to expend an annual
premium for such coverage in excess of two hundred fifty percent
(250%) of the last annual premium paid by the Company for such
insurance prior to the date of this Agreement (the
Maximum Premium
). If such insurance coverage
cannot be obtained at an annual premium equal to or less than
the Maximum Premium, the Surviving Corporation or Parent will
obtain, that amount of directors and officers
insurance (or tail coverage) obtainable for an
annual premium equal to the Maximum Premium.
5.12.4.
Assumption of
Obligations
.
In the event Parent or the
Surviving Corporation (A) consolidates with or merges into
any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or
(B) transfers all or substantially all of its properties
and assets to any person, then, and in each such case, proper
provision shall be made so that such continuing or surviving
corporation or entity or transferee of such assets, as the case
may be, shall assume the obligations set forth in this
Section 5.12
.
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5.12.5.
No Modification without
Consent
.
The obligations under this
Section 5.12
shall not be terminated or modified in
such a manner as to affect adversely any Covered Person without
the consent of such affected Covered Person, unless such change
is required to comply with applicable Law. The provisions of
this
Section 5.12
shall survive the consummation of
the Merger and are intended to be for the benefit of, and shall
be enforceable by, each of the Covered Persons and their
respective successors, heirs and personal representatives.
Section
5.13.
Rule 16b-3
.
Prior
to the Effective Time, the Company shall take all such steps as
may be required to cause to be exempt under
Rule 16b-3
promulgated under the Exchange Act, to the extent permitted by
Law, any dispositions of Company Common Stock (including
derivative securities with respect to Company Common Stock) that
are treated as dispositions under such rule and result from the
Merger or other transactions contemplated by this Agreement by
each individual who is subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to the
Company.
ARTICLE 6
CLOSING
CONDITIONS
Section
6.1.
Conditions
to Obligations of Each Party Under This
Agreement
.
The respective obligations of each
party to effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the
extent permitted by
Section 8.17
and applicable Law:
6.1.1.
Shareholder
Approval
.
This Agreement shall have been
adopted by the Required Company Shareholders.
6.1.2.
No Order
.
No court of
competent jurisdiction or other Governmental Authority shall
have enacted, issued, promulgated, enforced or entered any
order, decree, judgment, injunction or other ruling (whether
temporary, preliminary or permanent), in any case that is in
effect and that prevents or prohibits consummation of the
Merger;
provided, however,
that the condition in this
Section 6.1.2
shall not be available to any party
whose failure to fulfill its obligations pursuant to
Sections 5.2
or
5.7
has been the primary
cause of, or has primarily resulted in, such order, decree,
judgment, injunction or other ruling.
6.1.3.
Insurance
Consents
.
Parent shall have obtained the
written approvals of the Merger issued by the insurance
regulatory authorities of the States of Florida, Missouri and
Texas, provided no such approval from the State of Florida shall
contain or be subject to any conditions that would reasonably be
expected to have a Regulatory Material Adverse Effect.
6.1.4.
HSR Act
.
Any
applicable waiting period, together with any extensions thereof,
under the HSR Act shall have expired or been terminated.
Section
6.2.
Additional
Conditions to Obligations of Parent and Merger
Sub
.
The obligations of Parent and Merger Sub
to effect the Merger are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or
all of which may be waived, in whole or in part, to the extent
permitted by
Section 8.17
and applicable Law:
6.2.1.
Representations and
Warranties
.
Each of the representations and
warranties of the Company contained in this Agreement shall be
true and correct as of the Effective Time without giving effect
to any qualification as to materiality or Company Material
Adverse Effect as though such representations and warranties
were made on and as of the Effective Time (except that those
representations and warranties that address matters only as of a
particular date need only be true and correct as of such date);
provided, however,
that except with regard to the
representations and warranties of the Company set forth in
Section 3.1
, (provided that such
Section 3.1
shall be true and correct in all
material respects),
Section 3.3
(provided that the
outstanding number of Shares of Common Stock set forth in the
second sentence of
Section 3.3.1
shall be true and
correct other than de minimis inaccuracies),
Section 3.4.1
(provided that the last sentence of
Section 3.4.1
shall be true and correct in all
material respects),
Section 3.9(i)
and
Section 3.21
, the condition set forth in this
Section 6.2.1
shall be
A-35
satisfied so long as any failure of such representations and
warranties to be true and correct has not had or would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Parent shall have
received a certificate signed on behalf of the Company by the
Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
6.2.2.
Agreements and
Covenants
.
The Company shall have performed
or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time. Parent shall have
received a certificate signed on behalf of the Company by the
Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
6.2.3.
Company Material Adverse
Effect
.
Since the date of this Agreement, no
change, event or circumstance shall have occurred that has had a
Company Material Adverse Effect that is continuing or is
reasonably likely to have a Company Material Adverse Effect.
Parent shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer or Chief Financial
Officer of the Company to that effect.
6.2.4.
Funding of Defined Benefit
Plan
.
The Company shall have satisfied the
minimum funding standards required by applicable Law with
respect to the FPIC Insurance Group, Inc. Defined Benefit Plan,
as amended.
Section
6.3.
Additional
Conditions to Obligations of the Company
.
The
obligations of the Company to effect the Merger are subject to
satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by
Section 8.17
and
applicable Law:
6.3.1.
Representations and
Warranties
.
Each of the representations and
warranties of Parent and Merger Sub contained in this Agreement
shall be true and correct as of the Effective Time without
giving effect to any qualification as to materiality or Parent
Material Adverse Effect as though such representations and
warranties were made on and as of the Effective Time (except
that those representations and warranties that address matters
only as of a particular date need only be true and correct as of
such date);
provided, however,
that except with regard to
the representations and warranties of Parent and Merger Sub set
forth in the first two sentences of
Section 4.1
and
in
Section 4.2
, the condition set forth in this
Section 6.3.1
shall be satisfied so long as any
failure of such representations and warranties to be true and
correct has not had a material adverse effect on the ability of
Parent or Merger Sub to perform its obligations hereunder. The
Company shall have received a certificate signed by the Chief
Executive Officer or Chief Financial Officer of Parent to that
effect.
6.3.2.
Agreements and
Covenants
.
Parent and Merger Sub shall have
performed or complied in all material respects with all
agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the Effective
Time. The Company shall have received a certificate signed by
the Chief Executive Officer or Chief Financial Officer of Parent
to that effect.
6.3.3.
Closing
Payments
.
Parent shall have made the payments
required to be made pursuant to
Section 2.3
.
ARTICLE 7
TERMINATION,
AMENDMENT AND WAIVER
Section
7.1.
Termination
.
This
Agreement may be terminated, and the Merger contemplated hereby
may be abandoned, at any time prior to the Effective Time, by
action taken or authorized by the Board of Directors or Board of
Governors (as applicable) of the terminating party or parties,
whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company:
7.1.1.
Mutual Consent
.
By
mutual written consent of Parent and the Company, by action of
their respective Boards of Directors or Board of Governors, as
applicable;
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7.1.2.
Outside Date
.
By
either the Company or Parent by delivering written notice to the
other party if the Merger shall not have been consummated prior
to December 31, 2011; provided that such date may be
extended by either party to no later than March 31, 2012 in
the event that as of December 31, 2011 all conditions to
effect the Merger have been satisfied other than the conditions
in
Sections 6.1.2
,
6.1.3
, and
6.1.4
and other than those conditions which by their nature can only
be satisfied at or immediately prior to the Effective Time (such
date, as it may be so extended, shall be referred to herein as
the
Outside Date
); provided further, that the
right to terminate this Agreement under this
Section 7.1.2
shall not be available to any party
whose breach of this Agreement has been the primary cause of, or
primarily resulted in, the failure of the Merger to occur on or
before such date.
7.1.3.
Order, Decree or
Ruling
.
By either the Company or Parent if
any court of competent jurisdiction or other Governmental
Authority shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other
action shall have become final and nonappealable;
provided,
however,
that the right to terminate this Agreement pursuant
to this
Section 7.1.3
shall not be available to any
party whose breach of this Agreement has been the primary cause
of, or primarily resulted in, any such order, decree, ruling or
other action, including, without limitation, such partys
obligation to use commercially reasonable efforts to resist,
resolve or lift, as applicable, any such order, decree, ruling
or other action;
7.1.4.
Shareholder
Approval
.
By either Parent or the Company if
the adoption of this Agreement by the Required Company
Shareholders shall not have been obtained at the Company
Shareholders Meeting at which a vote on this Agreement is
taken by reason of the failure to obtain the required vote
(including any adjournment to solicit additional proxies if
there are insufficient votes at the time of such special meeting
to approve and adopt this Agreement);
7.1.5.
Company
Recommendation
.
By Parent if (A) the
Company Board shall have withdrawn or adversely modified the
Company Recommendation, (B) the Company Board shall have
recommended to the Companys shareholders that they approve
or accept an Acquisition Proposal other than the Merger,
(C) the Company shall have entered into, or publicly
announced its intention to enter into, a Company Acquisition
Agreement, (D) the Company shall have breached or failed to
perform in any material respect any of the covenants and
agreements set forth in
Section 5.6
., (E) the
Company Board fails to reaffirm (publicly, if so requested by
Parent) the Company Recommendation within fifteen
(15) Business Days after the date any Acquisition Proposal
(or material modification thereto) is first publicly disclosed
by the Company or the Person making such Acquisition Proposal,
(F) a tender offer or exchange offer relating to Company
Common Stock shall have been commenced by a Person unaffiliated
with Parent and the Company shall not have sent to its
stockholders pursuant to
Rule 14e-2
under the Exchange Act, within ten (10) Business Days after
such tender offer or exchange offer is first published, sent or
given, a statement reaffirming the Company Recommendation and
recommending that stockholders reject such tender or exchange
offer, or (G) the Company or the Company Board (or any
committee thereof) shall publicly announce its intentions to do
any of actions specified in this Section 7.1.5;
7.1.6.
Superior Proposal
.
By
the Company, subject to compliance with
Section 5.6
,
if the Company Board determines to accept a Superior Proposal
(with such termination becoming effective immediately prior to
the time the Company enters into a binding written agreement
with respect to such Superior Proposal);
7.1.7.
Company Breach
.
By
Parent, if (A) any representation or warranty of the
Company set forth in this Agreement shall have become untrue or
the Company has breached any covenant or agreement of the
Company set forth in this Agreement, (B) such breach or
misrepresentation is not capable of being cured prior to the
Outside Date, and (C) such breach or misrepresentation
would cause the conditions set forth in
Section 6.2.1
or
Section 6.2.2
not to be
satisfied; and
7.1.8.
Parent Breach
.
By the
Company, if (A) any representation or warranty of Parent or
Merger Sub set forth in this Agreement (other than the
representations and warranties set forth in
Section 4.9(A)
) shall have become untrue or Parent
or Merger Sub has breached any covenant or agreement of Parent
or Merger Sub set forth in this Agreement, (B) such breach
or misrepresentation is not capable of being
A-37
cured prior to the Outside Date, and (C) such breach or
misrepresentation would cause the conditions set forth in
Section 6.3.1
or
Section 6.3.2
not to be
satisfied.
7.1.9.
Lack of Funds; No
Payment
.
By the Company, if the
representations and warranties of Parent or Merger Sub set forth
in
Section 4.9(A)
shall have become untrue and such
breach is not capable of being cured by the Outside Date.
Section
7.2.
Effect
of Termination
.
7.2.1.
Limitation on
Liability
.
In the event of termination of
this Agreement by either the Company or Parent as provided in
Section 7.1
, (A) this Agreement shall forthwith
become void, except that
Section 5.5.2
,
Section 5.9
, this
Section 7.2
and
Article 8
shall survive such termination, and
(B) there shall be no liability or obligation on the part
of Parent, Merger Sub or the Company or their respective
Subsidiaries, officers or directors, except that, subject to
references to sole and exclusive remedies in
Section 7.2.2
, each party shall have the right to
recover to the fullest extent permitted by applicable Law any
liabilities or damages incurred or suffered by it as a result of
the material breach by the other party of any of its
representations, warranties, covenants or other agreements set
forth in this Agreement (including, in the case that
(i) the Company is the recovering party, a material breach
by Parent of any of its representations and warranties set forth
in
Section 4.9
or its covenants to pay the Merger
Consideration as set forth herein and (ii) the Parent is
the recovering party, a material breach by Company of any of its
covenants and agreements set forth in
Section 5.6
).
Other than in the case of the sole and exclusive remedies set
forth in Section
7.2.2
, nothing in this Agreement shall
limit the right of any party to seek damages that may be
available under applicable Law based on what such party believes
to be an appropriate theory of damages.
7.2.2.
Termination Fee
.
7.2.2.1. In the event that this Agreement is terminated by
the Company pursuant to
Section 7.1.6
, then the
Company shall pay Parent the Termination Fee within three
(3) Business Days after such termination is effective,
which shall be the sole and exclusive remedy of Parent in the
event of such termination.
7.2.2.2. In the event that this Agreement is terminated by
Parent pursuant to
Section 7.1.5
, then the Company
shall pay Parent, within three (3) Business Days of such
termination, an amount equal to the Termination Fee, which shall
be the sole and exclusive remedy of Parent in the event of such
termination, (provided that the Termination Fee shall not be the
sole and exclusive remedy in the case where such termination
occurs and the Company has breached or failed to perform in any
material respect any of the covenants and agreements set forth
in
Section 5.6
).
7.2.2.3. If this Agreement is terminated by the Company or
Parent pursuant to (i)
Section 7.1.2
hereof and
provided that
the Requisite Company Vote shall not have
been obtained at the Company Stockholders Meeting (including any
adjournment or postponement thereof) or (ii)
Section 7.1.4
hereof, and (A) prior to such
termination (in the case of termination pursuant to
Section 7.1.2
) or the Company Stockholders Meeting
(in the case of termination pursuant to
Section 7.1.4
), an Acquisition Proposal shall have
been publicly disclosed and not withdrawn, and (B) within
twelve (12) months following the date of such termination
of this Agreement the Company shall have entered into a
definitive agreement with respect to any Acquisition Proposal,
or any Acquisition Proposal shall have been consummated (in each
case whether or not such Acquisition Proposal is the same as the
original Acquisition Proposal made, communicated or publicly
disclosed), then in any such event the Company shall pay to
Parent, immediately prior to and as a condition to consummating
such transaction, the Termination Fee. For purposes of this
Section 7.2.2.3
, the term Acquisition
Proposal shall have the meaning assigned to such term in
Section 8.4
hereof, except that the references to
20% in the related definition of Acquisition
Transaction shall be deemed to be references to 50%.
7.2.2.4. In the event that this Agreement is terminated
pursuant to
Section 7.1.2
, and provided that on the
date this Agreement is terminated (i) the vote of the
Required Company Shareholders to adopt this Agreement has been
obtained, (ii) no Company Material Adverse Effect shall
have occurred and be continuing and (iii) the conditions in
Section 6.2
are still capable of being satisfied,
then Parent shall pay the Company, within three
(3) Business Days after such termination, an amount equal
to the Termination Fee, which shall be
A-38
the sole and exclusive remedy of the Company in the event of
such termination (provided that the Termination Fee shall not be
the sole and exclusive remedy of the Company in the case where
such termination occurs and Parent has breached or failed to
perform in any material respect any of the covenants and
agreements set forth in
Section 5.7
).
7.2.2.5. In the event that this Agreement is terminated by
the Company pursuant to
Section 7.1.9
, and provided
that on the date this Agreement is terminated (i) the vote
of the Required Company Shareholders to adopt this Agreement has
been obtained, (ii) no Company Material Adverse Effect
shall have occurred and be continuing and (iii) the
conditions in
Section 6.2
are still capable of being
satisfied, then Parent shall pay the Company, within three
(3) Business Days after such termination, an amount equal
to the Termination Fee.
7.2.3.
All Payments
.
All
payments under
Section 7.2
shall be made by wire
transfer of immediately available funds to an account designated
by the party entitled to receive payment. If the other party
shall fail to pay in a timely manner the amounts due pursuant to
Section 7.2.2
, and, in order to obtain such payment,
the other party makes a claim against the failing party that
results in a judgment against the failing party, the failing
party shall pay to the other party the reasonable costs and
expenses of such party (including its reasonable attorneys
fees and expenses) incurred or accrued in connection with such
suit, together with interest on the amounts set forth in this
Section 7.2.3
at the prime lending rate prevailing
during such period as published in
The Wall Street
Journal
. Any interest payable hereunder shall be calculated
on a daily basis from the date such amounts were required to be
paid until (but excluding) the date of actual payment, and on
the basis of a
360-day
year. The parties acknowledge and agree that in no event shall
either party be obligated to pay the Termination Fee on more
than one occasion.
7.2.4.
Notice of
Termination
.
The party desiring to terminate
this Agreement pursuant to this
Article 7
(other
than pursuant to
Section 7.1.1
) shall deliver
written notice of such termination to each other party hereto
specifying with particularity the reason for such termination,
and any such termination in accordance with this Section shall
be effective immediately upon delivery of such written notice to
the other party.
ARTICLE 8
GENERAL
PROVISIONS
Section
8.1.
Non-Survival
of Representations and Warranties
.
None of
the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive
the Effective Time. This
Section 8.1
shall not limit
any covenant or agreement of the parties to the extent its terms
contemplate performance after the Effective Time, but any other
covenants and agreements shall not survive the Effective Time.
Section
8.2.
Fees
and Expenses
.
Subject to
Section 7.2
of this Agreement, or as otherwise
expressly contemplated by this Agreement, all expenses incurred
by the parties hereto shall be borne solely and entirely by the
party that has incurred the same.
Section
8.3.
Notices
.
Any
notices or other communications required or permitted under, or
otherwise in connection with this Agreement, shall be in writing
and shall be deemed to have been duly given when delivered in
person or upon electronic confirmation of receipt when
transmitted by facsimile transmission (but only if followed by
transmittal by national overnight courier or hand for delivery
on the next Business Day) or on receipt after dispatch by
registered or certified mail, postage prepaid, addressed or if
transmitted by national overnight courier, in each case as
follows:
If to Parent or Merger Sub, addressed to it at:
The Doctors Company
185 Greenwood Road
Napa, California 94558
Telephone:
(707) 226-0100
Facsimile:
(707) 226-0370
Attention: General Counsel
A-39
with a copy to:
Farella Braun + Martel LLP
Russ Building
235 Montgomery Street, 17th floor
San Francisco, California 94104
Telephone:
(415) 954-4400
Facsimile:
(415) 954-4480
Attention: Philip W. Peters, Esq.
If to the Company, addressed to it at:
FPIC Insurance Group, Inc.
1000 Riverside Avenue, Suite 800
Jacksonville, Florida 32204
Telephone:
(904) 354-2482
Facsimile:
(904) 350-1049
Attention: Charles Divita, III
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone:
(212) 310-8000
Facsimile:
(212) 310-8007
Attention: Raymond O. Gietz, Esq.
and
Kirschner & Legler, P.A.
1431 Riverplace Blvd., Suite 910 (The Peninsula)
Jacksonville, Florida 32207
Telephone:
(904) 346-3200
Facsimile:
(904) 346-3299
Attention: Kenneth M. Kirschner, Esq.
Section 8.4.
Certain
Definitions
.
For purposes of this Agreement,
the term:
affiliate
means a person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the
first-mentioned person.
Acquisition Proposal
means any bona fide
offer or proposal or indication of interest concerning any
Acquisition Transaction.
Acquisition Transaction
means any transaction
or series of related transactions other than the Merger
involving: (i) any direct or indirect acquisition or
purchase by any Person or group of more than a twenty percent
(20%) beneficial interest in the total outstanding voting
securities of the Company or any Company Subsidiary;
(ii) any tender offer or exchange offer that if consummated
would result in any Person or group beneficially owning twenty
percent (20%) or more of the total outstanding voting securities
of the Company or any Company Subsidiary; (iii) any merger,
reorganization, share exchange, consolidation, business
combination, recapitalization or similar transaction involving
the Company or any Company Subsidiary pursuant to which any
Person or group would own twenty percent (20)% or more of the
equity interests in the surviving or resulting entity of such
transaction; (iv) any direct or indirect sale, lease,
exchange, transfer, license, acquisition or disposition,
including without limitation through any bulk reinsurance,
reinsurance, coinsurance or similar transaction, of more than
twenty percent (20%) of the assets (based on the fair market
value thereof) of the Company and the Company Subsidiaries,
considered as a whole; or (v) any liquidation or
dissolution of the Company or any Company Subsidiary.
A-40
Antitrust Laws
means the Sherman Antitrust
Act of 1890, as amended, the Clayton Antitrust Act of 1914, as
amended, the HSR Act, the Federal Trade Commission Act of 1914,
as amended, and all other applicable competition, merger
control, antitrust, trade regulation or similar transnational,
national, federal or state, domestic or foreign Laws, and other
Laws and administrative and judicial doctrines that are designed
or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade or
lessening of competition through merger or acquisition.
beneficial ownership
(and related terms such
as
beneficially owned
or
beneficial
owner
) has the meaning set forth in
Rule 13d-3
under the Exchange Act.
Book-Entry Shares
means shares of Company
Common Stock evidenced in book-entry form on the records of the
Company, or the Companys transfer agent on behalf of the
Company, immediately prior to the Effective Time.
Business Day
means any day other than
(i) a Saturday or a Sunday, (ii) a national holiday in
the United States of America, or (iii) a day on which
commercial banks with offices in New York, New York, are
authorized or required to be closed by law or executive order.
Certificate
means, with respect to shares of
Company Common Stock, certificates that, immediately prior to
the Effective Time, represented any such shares.
Company Equity Awards
means, collectively,
the Company Stock Options, the Company Restricted Stock and the
Company Performance Units.
Company Insurance Subsidiaries
means First
Professionals Insurance Company, Inc.; Anesthesiologists
Professional Assurance Company; Advocate, MD Insurance of the
Southwest, Inc.; and Intermed Insurance Company.
Company Material Adverse Effect
means any
change or event that, individually or together with any other
change or event, has a material adverse effect on the business,
financial condition or results of operations of the Company and
the Company Subsidiaries, taken as a whole;
provided,
however,
that none of the following shall be deemed in
themselves, either alone or in combination, to constitute, and
that none of the following shall be taken into account in
determining whether there has been or will be, a Company
Material Adverse Effect: (A) any adverse change, effect,
event, occurrence, state of facts or development attributable to
the announcement, pendency or consummation of the Merger or the
transactions contemplated hereby including, without limitation,
adverse changes in the Companys relationships with its
customers, employees, or Producers, or any rating agency
downgrade of the Company or any Company Subsidiary resulting
therefrom; (B) any adverse change, effect, event,
occurrence, state of facts or development attributable to
conditions affecting any of the industries in which the Company
participates, the U.S. economy or financial markets, except
to the extent the Company or the Company Subsidiaries, taken as
a whole, are disproportionately affected thereby relative to
other industry participants; (C) any adverse change,
effect, event, occurrence, state of facts or development arising
from (i) the Companys compliance with the terms of
this Agreement, (ii) any action taken, or any failure to
act, by the Company to which Parent has consented in writing or
(iii) the Companys failure to reasonably settle any
action under
Section 5.1.(xii)
due to Parents
unreasonably withholding its consent to such settlement,
(D) changes in Laws after the date hereof, (E) changes
in GAAP after the date hereof, (F) any failure by the
Company to meet any published or internally prepared estimates
of revenues, earnings or other economic performance for any
period ending on or after the date of this Agreement and prior
to Closing (it being understood that the facts and circumstances
giving rise to such failure may be deemed to constitute, and may
be taken into account in determining whether this has been a
Company Material Adverse Effect if such facts and circumstances
are not otherwise included in clauses (A)-(E) of the
definition), (G) acts of war or terrorism, (H) a
decline in the price of the Company Common Stock on Nasdaq or
any other trading market or (I) any action, lawsuit or
claim arising out of the execution and announcement of this
Agreement.
control
(including the terms
controlled by
and
under common
control with
) means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or
A-41
policies of a person, whether through the ownership of stock or
as trustee or executor, by contract or otherwise.
ECO
means extra-contractual obligations.
Environmental Laws
means any Law relating to
the pollution, protection, investigation or restoration of the
environment, including, without limitation, those relating to
the use, handling, presence, transportation, treatment, storage,
disposal, release, threatened release or discharge of Hazardous
Materials.
Environmental Permits
means any permit,
approval, license or other authorization required under any
applicable Environmental Law.
Equity Interest
means any share, capital
stock, partnership, membership or similar interest in any
entity, and any option, warrant, right or security convertible,
exchangeable or exercisable therefor.
Exchange Act
means the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
GAAP
means generally accepted accounting
principles as applied in the United States.
Governmental Authority
means any nation or
government, any state or other political subdivision thereof,
any entity exercising executive, legislative, judicial,
regulatory or administration functions of or pertaining to
government, including any government authority, agency,
department, board, commission or instrumentality of the United
States, any foreign government, any State of the United States
or any political subdivision thereof, and any court, tribunal or
arbitrator(s) of competent jurisdiction.
group
has the same meaning as in the Exchange
Act, except where the context otherwise requires.
Hazardous Materials
means any chemical,
material or other substance defined or regulated as
toxic or hazardous under any applicable
Environmental Law.
HSR Act
means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder.
Indebtedness
means (i) indebtedness for
borrowed money, (ii) indebtedness that is evidenced by a
note, bond, debenture or similar instrument,
(iii) obligations under capital leases,
(iv) obligations in respect of outstanding letters of
credit and (v) guarantee obligations, in each case to the
extent exceeding $100,000.
Intellectual Property
means all intellectual
property or other proprietary rights of every kind, foreign or
domestic, including patents, inventions (whether or not
patentable), processes, methodologies, products, technologies,
discoveries, copyrightable and copyrighted works (whether or not
registered), apparatus, trade secrets, trademarks and service
marks (whether or not registered), domain names, trade names,
know-how, trade dress, customer lists, confidential marketing
and customer information, confidential technical information,
software, and documentation related thereto, and any
registrations or applications for registration of any of the
foregoing.
Insurance Contracts
means all policies,
binders, slips, certificates and participation agreements and
other agreements of insurance, whether individual or group, in
effect as of the date hereof (including all applications,
supplements, endorsements, riders and ancillary agreements in
connection therewith) that are issued by the Company and the
Company Subsidiaries.
IRS
means the United States Internal Revenue
Service.
knowledge
will be deemed to be present with
respect to Parent or the Company, as applicable, when the matter
in question was actually known to any executive officer of
Parent listed in
Exhibit A-1
hereto (in the case of Parent) or to any executive officer of
the Company listed in
Exhibit A-2
hereto (in the case of the Company).
A-42
Law
means any foreign or domestic law,
statute, code, ordinance, rule, regulation, order, judgment,
writ, stipulation, award, injunction or decree.
Nasdaq
means the Nasdaq Global Select Market.
Other Filings
means all filings made by, or
required to be made by, the Company, Parent or Merger Sub with
the SEC other than the Proxy Statement.
Parent Material Adverse Effect
means any
change or event that has a material adverse effect on the
business, financial condition, or results of operations of
Parent and the Parent Subsidiaries, taken as a whole;
provided, however,
that none of the following shall be
deemed in themselves, either alone or in combination, to
constitute, and that none of the following shall be taken into
account in determining whether there has been or will be, a
Parent Material Adverse Effect: (A) any adverse change,
effect, event, occurrence, state of facts or development to the
extent attributable to the announcement or pendency of the
Merger or the transactions contemplated hereby; (B) any
adverse change, effect, event, occurrence, state of facts or
development after the date hereof, attributable to conditions
affecting any of the industries in which Parent participates,
the U.S. economy or financial markets; or (C) any
adverse change, effect, event, occurrence, state of facts or
development arising from or relating to compliance with the
terms of this Agreement.
Parent Permit
means all authorizations,
licenses, permits, certificates, approvals and clearances of any
Governmental Authority necessary for Parent, Merger Sub and each
Parent Subsidiary to own, lease and operate its properties or to
carry on its respective businesses substantially as it is being
conducted as of the date hereof.
Permitted Lien
means (i) liens or other
encumbrances for Taxes not yet due and payable or that are being
contested in good faith by appropriate proceedings;
(ii) liens or other encumbrances in favor of vendors,
carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction or similar liens or other encumbrances
arising by operation of law; (iii) liens for utilities and
other governmental charges that, in each case, are not yet due
or payable, are being contested in good faith by appropriate
proceedings or may thereafter be paid without giving rise to any
material penalty or material additional cost or liability;
(iv) matters of record or registered liens affecting title
to any owned or leased real property of a person and its
subsidiaries; (v) requirements and restrictions of zoning,
building and other applicable Laws and municipal by-laws, and
development, site plan, subdivision or other agreements with
municipalities that do not individually or in the aggregate
materially and adversely affect the use of the owned or leased
real property of a person and its subsidiaries affected thereby
as currently used in the business of such person and its
subsidiaries; (vi) statutory liens of landlords for amounts
not yet due and payable; (vii) liens arising under
reinsurance agreements existing on the date hereof or entered
into in the ordinary course of business; (viii) defects,
irregularities or imperfections of title and other liens that,
individually or in the aggregate, do not materially impair the
continued use of the asset or property to which they relate;
(ix) rabbi trusts established by a person or its
subsidiaries for the benefit of its directors, officers or other
employees prior to the date hereof; (x) with respect to a
person and its subsidiaries, liens arising under any credit
agreement existing as of the date hereof or any refinancing or
replacement thereof in the ordinary course of business;
(xi) liens for judgments not yet due and payable or that
are being contested in good faith by appropriate proceedings;
and (xii) statutory deposits of cash, securities or other
assets pursuant to Applicable Insurance Laws.
Person
or
person
means an
individual, corporation, limited liability company, partnership,
association, trust, unincorporated organization or other entity
or group.
SEC
means the United States Securities and
Exchange Commission.
Securities Act
means the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder.
subsidiary
or
subsidiaries
of Parent, the Company, the Surviving Corporation or any
other person means any corporation, partnership, joint venture
or other legal entity of which Parent, the
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Company, the Surviving Corporation or such other person, as the
case may be (either alone or through or together with any other
subsidiary), (i) owns, directly or indirectly, more than
50% of the outstanding voting securities, equity securities,
profits interest or capital interest or (ii) is entitled to
elect at least a majority of the board of directors, board of
managers or similar governing body.
Statutory Accounting Principles
means
statutory accounting principles prescribed or permitted by the
insurance regulatory authority of an insurers jurisdiction
of domicile.
Superior Proposal
means an unsolicited
Acquisition Proposal, with references to 20% being changed to
50% in the definition of Acquisition Transaction, made by a
Person or group that, in the good faith judgment of the Company
Board (after consultation with its financial advisor and outside
legal counsel), (i) is reasonably likely to be consummated
taking into account the party making the proposal and all
financial, legal, regulatory and other aspects of the proposal
and (ii) would, if consummated, result in a transaction
that is more favorable to the Companys shareholders than
the transactions contemplated by this Agreement taking into
account all financial, legal, regulatory and other aspects of
the respective proposals, including without limitation, the
identity of the party making such proposal, the terms of any
written proposal by Parent to amend or modify the terms of the
Merger and the other transactions contemplated by this
Agreement, and any
break-up
fees, expense reimbursement fees and conditions to consummation.
Tax Law
means any Law governing Taxes.
Taxes
means any and all taxes, fees, levies,
duties, tariffs, imposts and other charges of any kind (together
with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any
Governmental Authority or domestic or foreign taxing authority,
including, without limitation, income, franchise, windfall or
other profits, gross receipts, premiums, property, sales, use,
net worth, capital stock, payroll, employment, social security,
workers compensation, unemployment compensation, excise,
withholding, ad valorem, stamp, transfer, value-added, gains tax
and license, registration and documentation fees.
Tax Returns
means any report, return, claim
for refund, election, estimated tax filing or declaration
required to be supplied to any Governmental Authority or
domestic or foreign taxing authority with respect to Taxes,
including any schedule or attachment thereto, and including any
amendments thereof.
Termination Fee
means 3% of the aggregate
Merger Consideration.
XPL
means excess policy limits.
Section
8.5.
Terms
Defined Elsewhere
.
The following terms are
defined elsewhere in this Agreement, as indicated below:
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|
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Actuarial Analyses
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Section 3.7.4
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Affiliate Reinsurance Contracts
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Section 3.13.1
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Agreement
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Preamble
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Alpha Advisors
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Section 3.28
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Applicable Insurance Laws
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Section 5.7.2
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Articles of Merger
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Section 1.3
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Closing
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Section 1.2
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Code
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Section 2.3.8
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Company
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Preamble
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Company Acquisition Agreement
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Section 5.6.1
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Company Articles
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Section 3.2
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Company Benefit Plan
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Section 3.10.1
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Company Board
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Section 2.2
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Company By-laws
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Section 3.2
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Company Common Stock
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Section 2.1.1
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Company Disclosure Schedule
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Article 3
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Company Employees
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Section 5.10.1
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Company Employment Agreement
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Section 3.12(v)
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Company ESPP
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Section 2.2
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Company Material Contract
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Section 3.12.1
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Company Omnibus Plan
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Section 2.2
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Company Options
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Section 2.2
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Company Performance Units
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Section 2.2
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Company Permits
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Section 3.6
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Company Preferred Stock
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Section 3.3.1
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Company Recommendation
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Section 5.3.1
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Company Representatives
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Section 5.6.1
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Company Restricted Stock
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Section 2.2
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Company SEC Filings
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Section 3.7.1
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Company Severance Agreement
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Section 3.12(v)
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Company Shareholders Meeting
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Section 5.4.1
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Company Stock Option Plans
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Section 2.2
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Company Subsidiary
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Section 3.1
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Confidentiality Agreement
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Section 5.5.2
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Covered Persons
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Section 5.12.1
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D&O Insurance
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Section 5.12.3
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Effective Time
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Section 1.3
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ERISA
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Section 3.10.1
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Exchange Fund
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Section 2.3.2
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Existing Policies
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Section 5.12.3
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Existing Reinsurance Contracts
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Section 3.13.1
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FBCA
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Recitals
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Form A
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Section 4.3.2
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Form E
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Section 4.3.2
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Forms
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Section 3.19.3
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Governmental Authority Requirement
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Section 5.7.5
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Insurance Permit
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Section 3.19.1
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Investment Assets
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Section 3.26.1
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Investment Company
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Section 3.26.4
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Maximum Premium
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Section 5.12.3
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Merger
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Recitals
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Merger Consideration
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Section 2.1.1
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Merger Sub
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Preamble
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OIR
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Section 5.7.2
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Option Consideration
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Section 2.2
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Outside Date
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Section 7.1.2
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Owned Real Property
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Section 3.17.1
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Parent
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Preamble
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A-45
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Parent Benefit Plans
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Section 5.10.1
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Parent Representatives
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Section 5.5.1
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Parent Subsidiary
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Section 4.3.1
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Paying Agent
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Section 2.3.1
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Performance Unit Consideration
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Section 2.2
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Producers
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Section 3.24.1
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Proxy Statement
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Section 5.3.1
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Regulatory Material Adverse Effect
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Section 5.7.5
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Required Company Shareholders
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Section 3.20
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SOX
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Section 3.7.8
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Specified Conditions
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Section 7.1.2
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STAT Financial Statements
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Section 3.7.3
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Surviving Corporation
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Section 1.1
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Third Party Reinsurance Contracts
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Section 3.13.1
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Section
8.6.
Headings
.
The
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or
interpretation of this Agreement. Unless otherwise expressly
stated herein, references to sections and Articles are
references to the sections and Articles of this Agreement.
Section
8.7.
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 manner materially
adverse 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 so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the
end that the transactions contemplated hereby are fulfilled to
the extent possible.
Section
8.8.
Entire
Agreement
.
This Agreement (together with the
Exhibits, Parent and Company Disclosure Schedules and the other
documents delivered pursuant hereto) and the Confidentiality
Agreement constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to
the subject matter hereof.
Section
8.9.
No
Reliance
.
Each of Parent and Merger Sub has
conducted its own independent review and analysis of the
business, operations, assets, liabilities, results of
operations, financial condition, technology and prospects of the
Company and the Company Subsidiaries and acknowledges that each
of Parent and Merger Sub has been provided access to personnel,
properties, premises and records of the Company and the Company
Subsidiaries for such purposes. In entering into this Agreement,
except as expressly provided herein, each of Parent and Merger
Sub has relied solely upon its independent investigation and
analysis of the Company and the Company Subsidiaries and each of
Parent and Merger Sub. Each party acknowledges and agrees that
the other party has not made and is not making any
representations or warranties whatsoever regarding the subject
matter of this Agreement, express or implied, except as provided
herein or in any certificate delivered under the terms of this
Agreement and that it has not been induced by and has not relied
upon any representations, warranties or statements, whether
express or implied, made by the other parties, or any of their
respective directors, officers, shareholders, employees,
affiliates, agents, advisors or representatives that are not
expressly set forth in this Agreement or in any certificate
delivered under the terms of this Agreement, whether or not such
representations, warranties or statements were made in writing
or orally.
Section
8.10.
Assignment
.
This
Agreement shall not be assigned by operation of law or otherwise
and any purported assignment hereof shall be null and void.
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Section
8.11.
Parties
in Interest
.
This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and
their respective successors and assigns, and nothing in this
Agreement, express or implied, other than as provided in
Section 5.10
and
Section 5.12
, is
intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
Section
8.12.
Mutual
Drafting
.
Each party hereto has participated
in the drafting of this Agreement, which each party acknowledges
is the result of extensive negotiations between the parties.
Section
8.13.
Governing
Law; Consent to Jurisdiction; WAIVER OF JURY
TRIAL
.
8.13.1.
Governing Law
.
This
Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Delaware, without regard
to laws that may be applicable under conflicts of laws
principles; provided that the provisions of Articles 1 and
2 of this Agreement governing the consummation of the Merger and
its effects shall be governed by, and construed in accordance
with, the internal laws of the State of Florida, without regard
to conflicts of laws principles.
8.13.2.
Jurisdiction
.
Each
of the parties irrevocably and unconditionally submits, for
itself and its property, to the exclusive jurisdiction of the
U.S. District Court of Chancery of the State of Delaware,
and any appellate court therefrom, in any action or proceeding
arising out of or relating to this Agreement or the agreements
delivered in connection herewith or the transactions
contemplated hereby or thereby or for recognition or enforcement
of any judgment relating thereto, and each of the parties hereby
irrevocably and unconditionally (A) agrees not to commence
any such action or proceeding except in such courts,
(B) agrees that any claim in respect of any such action or
proceeding may be heard and determined in the U.S. District
Court of Chancery of the State of Delaware, (C) waives, to
the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of
venue of any such action or proceeding in the U.S. District
Court of Chancery of the State of Delaware, and (D) waives,
to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or
proceeding in the U.S. District Court of Chancery of the
State of Delaware. Each of the parties hereto agrees that a
final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Each party
to this Agreement irrevocably consents to service of process in
the manner provided for notices in
Section 8.3
. Nothing in this Agreement
will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
8.13.3.
WAIVER OF JURY
TRIAL
.
EACH PARTY ACKNOWLEDGES AND AGREES
THAT ANY CONTROVERSY THAT MAY ARISE UNDER OR OUT OF THIS
AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH
SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION PERMITTED UNDER THIS AGREEMENT. EACH PARTY CERTIFIES
AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (C) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(D) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
Section
8.14.
Disclosure
Schedule
.
The fact that any item of
information is disclosed in a Disclosure Schedule to this
Agreement shall not be construed to mean that such information
is required to be disclosed by this Agreement. Such information
and the dollar thresholds set forth herein shall not be used as
a basis for interpreting the terms material or
Material Adverse Effect or other similar terms in
this Agreement.
Section
8.15.
Counterparts
.
This
Agreement may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of
which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same
agreement. The parties agree that
A-47
this Agreement shall be legally binding upon the electronic
transmission, including by facsimile or email, by each party of
a signed signature page to this Agreement to the other party.
Section
8.16.
Amendment
.
This
Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section
8.17.
Waiver
.
At
any time prior to the Effective Time, Parent and Merger Sub, on
the one hand, and the Company, on the other hand, may
(A) extend the time for the performance of any of the
obligations or other acts of the other, (B) waive any
inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto
and (C) waive compliance by the other with any of the
agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby, but
such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure.
Section
8.18.
Specific
Performance
.
Notwithstanding anything in this
Agreement, the parties agree that immediate, extensive and
irreparable damage would occur for which monetary damages would
not be an adequate remedy in the event that any of the
provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached.
Accordingly, the parties agree that, if for any reason Parent,
Merger Sub or the Company shall have failed to perform its
obligations under this Agreement, then the party seeking to
enforce this Agreement against such nonperforming party under
this Agreement shall be entitled to specific performance and the
issuance of immediate injunctive and other equitable relief
without the necessity of proving the inadequacy of money damages
as a remedy, and the parties further agree to waive any
requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief, this being in addition to and not in
limitation of any other remedy to which they are entitled at law
or in equity. Without limiting the foregoing, each of the
parties hereby acknowledges and agrees that it may be difficult
to prove damages with reasonable certainty, that it may be
difficult to procure suitable substitute performance, and that
injunctive relief
and/or
specific performance will not cause an undue hardship to the
parties. Each of the parties hereby further acknowledges and
agrees that the existence of any other remedy contemplated by
this Agreement shall not diminish the availability of specific
performance of the obligations hereunder or any other injunctive
relief and agrees that in the event of any action by the other
party for specific performance or injunctive relief, it will not
assert that a remedy at law or other remedy would be adequate or
that specific performance or injunctive relief in respect of
such breach or violation should not be available on the grounds
that money damages are adequate or any other grounds. Any such
remedies, and any and all other remedies provided for in this
Agreement, shall be cumulative in nature and not exclusive and
shall be in addition to any other remedies whatsoever which any
party may otherwise have.
[SIGNATURE
PAGE FOLLOWS]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
The Doctors Company
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By:
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/s/ Richard
E. Anderson
|
Richard E. Anderson, M.D.
Chief Executive Officer
Fountain Acquisition Corp.
|
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By:
|
/s/ Richard
E. Anderson
|
Richard E. Anderson, M.D.
Chief Executive Officer
FPIC Insurance Group, Inc.
John R. Byers
President and Chief Executive Officer
[Signature
page to Merger Agreement]
A-49
Exhibit A-1
Parents Knowledge Officers
Rob
Francis
David McHale
Marco Vanderlaan
A-50
Exhibit A-2
Companys Knowledge Officers
John
R. Byers
Charles Divita, III
Robert E. White, Jr.
A-51
May 23, 2011
Board of Directors
FPIC Insurance Group, Inc.
1000 Riverside Avenue, Suite 800
Jacksonville, FL 32204
Ladies and Gentlemen:
FPIC Insurance Group, Inc. (FPIC), The Doctors
Company (Doctors) and FPIC Acquisition Corp, a
wholly-owned subsidiary of Doctors (Merger Sub),
have entered into an Agreement and Plan of Merger, dated
May 23, 2011 (the Agreement), pursuant to which
Merger Sub will be merged with and into FPIC, with FPIC as the
surviving entity (the Merger). Under the terms of
the Agreement, upon consummation of the Merger, each share of
FPIC common stock, issued and outstanding immediately prior to
the Merger (the FPIC Common Stock), other than
certain shares specified in the Agreement, will be converted
into the right to receive cash in the amount of $42.00 per share
(the Merger Consideration), without interest.
Capitalized terms used herein without definition shall have the
meanings given to such terms in the Agreement. You have
requested our opinion as to the fairness, from a financial point
of view, of the Merger Consideration to the holders of FPIC
Common Stock.
Sandler ONeill & Partners, L.P., as part of its
investment banking business, is regularly engaged in the
valuation of insurance companies and their securities in
connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement; (ii) certain
publicly available financial statements and other historical
financial information of FPIC that we deemed relevant;
(iii) internal financial projections for FPIC for the years
ending December 31, 2011 through 2013 as prepared by senior
management of FPIC; (iv) the publicly reported historical
stock price and trading activity for FPICs common stock,
including a comparison of certain financial and stock market
information for FPIC with similar publicly available information
for certain other companies the securities of which are publicly
traded; (v) to the extent publicly available, the financial
terms of certain recent business combinations in the medical
professional liability insurance sector and property and
casualty insurance industry; (vi) the market premiums paid
in certain recent business combinations involving property and
casualty insurance companies; (vii) the current property
and casualty insurance environment generally and the medical
professional liability insurance environment in particular; and
(viii) such other information, financial studies, analyses
and investigations and financial, economic and market criteria
as we considered relevant. We also discussed with certain
members of senior management of FPIC the business, financial
condition, results of operations and prospects of FPIC.
In performing our review, we have relied upon the accuracy and
completeness of all of the financial and other information that
was available to us from public sources, that was provided to us
by FPIC or its representatives or that was otherwise reviewed by
us and have assumed such accuracy and completeness for purposes
of rendering this opinion. We have further relied on the
assurances of management of FPIC that it is not aware of any
facts or circumstances that would make any of such information
inaccurate or misleading. We have not been asked to and have not
undertaken an independent verification of any of such
information, and we do not assume any responsibility or
liability for the accuracy or completeness thereof. We did not
make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities
(contingent or otherwise) of FPIC or any of its subsidiaries, or
the collectibility of any such assets, nor have we been
furnished with any such evaluations or appraisals. We are not
experts in the evaluation of reserves for property and casualty
insurance losses and loss adjustment expenses, and we have not
made an independent evaluation of the adequacy of the reserves
of FPIC. In that regard, we have made no analysis of, and
express no opinion as to, the adequacy of the loss and loss
adjustment expense reserves of FPIC.
With respect to the internal financial projections as prepared
by senior management of FPIC and used by Sandler ONeill in
its analyses, FPICs management confirmed to us that they
reflected the best currently available estimates and judgments
of management of the future financial performance of FPIC, and
we assumed that such performances would be achieved. We express
no opinion as to such financial projections or
B-1
the assumptions on which they are based. We have also assumed
that there has been no material change in FPICs assets,
financial condition, results of operations, business or
prospects since the date of the most recent financial statements
made available to us. We have assumed in all respects material
to our analysis that FPIC would remain as a going concern for
all periods relevant to our analyses, that all of the
representations and warranties contained in the Agreement and
all related agreements are true and correct, that each party to
the agreements will perform all of the covenants required to be
performed by such party under the agreements, and that the
conditions precedent in the agreements are not waived. Finally,
with your consent, we have relied upon the advice FPIC has
received from its legal, accounting and tax advisors as to all
legal, accounting and tax matters relating to the Merger and the
other transactions contemplated by the Agreement.
Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Events occurring after
the date hereof could materially affect this opinion. We have
not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the
date hereof.
We have acted as FPICs financial advisor in connection
with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon consummation of
the Merger. FPIC has also agreed to indemnify us against certain
liabilities arising out of our engagement. We have also received
investment banking fees in the past for certain investment
banking services provided to FPIC. In the ordinary course of our
business as a broker-dealer, we may purchase securities from and
sell securities to FPIC and Doctors and their affiliates.
Our opinion is directed to the Board of Directors of FPIC in
connection with its consideration of the Merger and does not
constitute a recommendation to any shareholder of FPIC as to how
such shareholder should vote at any meeting of shareholders
called to consider and vote upon the Merger. Our opinion is
directed only to the fairness, from a financial point of view,
of the Merger Consideration to holders of FPIC Common Stock and
does not address the underlying business decision of FPIC to
engage in the Merger, the relative merits of the Merger as
compared to any other alternative business strategies that might
exist for FPIC or the effect of any other transaction in which
FPIC might engage. Our opinion is not to be quoted or referred
to, in whole or in part, in any document, nor shall this opinion
be used for any other purposes, without Sandler
ONeills prior written consent. This opinion may,
however, be reproduced in any proxy statement mailed to
shareholders of FPIC provided that the opinion is reproduced in
such document in its entirety and such document includes a
summary of the opinion and related analysis in a form prepared
or approved by us (such approval not to be unreasonably
withheld, conditioned or delayed), and may not otherwise be
disclosed publicly in any manner without our prior written
approval. This opinion has been approved by Sandler
ONeills fairness opinion committee and does not
address the amount of compensation to be received in the Merger
by any FPIC officer, director or employee.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration is fair to the
holders of FPIC Common Stock from a financial point of view.
Very truly yours,
/s/ Sandler
ONeill + Partners, L.P.
(SANDLER ONEILL + PARTNERS, L.P.)
B-2
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COMPUTERSHARE INVESTOR SERVICES
ATTN: ESSENTIAL REGISTRY
350 INDIANA STREET, SUITE 750
GOLDEN, CO 80401
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VOTE BY INTERNET -
www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you access the web site and follow the instructions
to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by FPIC Insurance Group, Inc. in mailing proxy
materials, you can consent to receiving all future proxy statements,
proxy cards and annual reports electronically via e-mail or the Internet.
To sign up for electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access shareholder communications
electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until
11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy
card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided or return it to FPIC Insurance Group, Inc., c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS:
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M37448-TBD
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH
AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN
SIGNED AND DATED.
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FPIC INSURANCE GROUP, INC.
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The Board of Directors recommends you vote FOR Proposals 1, 2 and 3
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For
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Against
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Abstain
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Proposal No. 1.
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To approve and adopt the Agreement and Plan of Merger, dated as of May 23, 2011 (referred to herein
as the Merger Agreement), by and among The Doctors Company, a California domiciled
reciprocal inter-insurance exchange (referred to herein as TDC), Fountain Acquisition Corp., a Florida corporation and a wholly owned subsidiary of TDC (referred to herein as Merger Sub) and the Company.
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o
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o
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Proposal No. 2.
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To grant authority to the named proxies to adjourn or postpone the special meeting, if necessary
or appropriate, to solicit additional proxies if there are insufficient votes at the time of the
special meeting to approve and adopt the Merger Agreement (referred to herein as the
Adjournment Proposal).
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o
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o
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Proposal No. 3.
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To approve, on a non-binding advisory basis, the compensation that may be received by the Companys
named executive officers in connection with the merger contemplated by the Merger Agreement.
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o
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o
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o
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PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME
OR NAMES APPEAR(S) HEREON. WHERE MORE THAN ONE OWNER IS SHOWN, EACH SHOULD SIGN. WHEN SIGNING IN A FIDUCIARY
OR REPRESENTATIVE CAPACITY, PLEASE GIVE FULL TITLE. IF ANY PROXY IS SUBMITTED BY A CORPORATION,
IT SHOULD BE EXECUTED IN FULL CORPORATE NAME BY A DULY AUTHORIZED OFFICER. IF ANY PROXY IS SUBMITTED
BY A PARTNERSHIP, IT SHOULD BE EXECUTED IN THE PARTNERSHIP NAME BY AN AUTHORIZED PERSON.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting:
The Notice and Proxy Statement is available at www.proxyvote.com.
M37449-TBD
PRELIMINARY PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FPIC INSURANCE GROUP, INC.
SPECIAL MEETING OF SHAREHOLDERS
August 12, 2011
The undersigned shareholder hereby appoints
Pamela D. Harvey and Becky A. Thackery, or either of them, as proxies, with full power of substitution,
to vote all shares of common stock of FPIC Insurance Group, Inc. (FPIC) held of record by the undersigned
on July 12, 2011, that the undersigned would be entitled to vote if personally present at the special meeting
of shareholders of FPIC on
August 12, 2011, and at any adjournment or postponement thereof, upon all subjects that may properly
come before the meeting, including the matters described in the proxy statement furnished herewith,
subject to any directions indicated on the other side of this card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
EACH OF THE PROPOSALS
Your vote is important. Please sign and date on the reverse side and return promptly in the enclosed postage-paid envelope.
This proxy will be voted as directed, or, if no directions are given, the proxy will be voted FOR
each of the proposals listed on the other side of this card. If any other matters are properly presented for consideration at the
meeting, the proxies are authorized to vote on those matters according to their best judgment.
The undersigned hereby revokes any proxy heretofore given to any person or persons whomsoever
(other than the proxies named above).
[Continued and to be dated and signed on reverse side.]
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