UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Proxy Statement Pursuant to Section 14(a) of
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the Securities Exchange Act of 1934
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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 Rule 14a-11(c) or Rule 14a-12
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RTW, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed below per Exchange Act Rules 14a-6(i)(l) and 0-11.
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(1
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Title of each class of securities to which transaction applies:
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Common stock, par value $0.01 per share, of RTW, Inc. (RTW common stock)
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(2
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Aggregate number of securities to which transaction applies:
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5,174,845 shares of RTW common stock and options to purchase 580,381shares of
RTW common stock.
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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):
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The filing fee was determined by multiplying .0000307 by the sum of: (a) the product of 5,174,845 shares of RTW common stock and the merger consideration of
$12.45 per share in cash and (b) the product of $5.33 (the merger consideration
of $12.45 minus $7.12, the weighted average per share exercise price of
outstanding options to purchase shares of RTW common stock that are to be
canceled at the effective time pursuant to the merger agreement) and 562,583
shares of RTW common stock, the aggregate number of shares of RTW common stock
subject to options.
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(4
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Proposed maximum aggregate value of transaction: $67,570,000
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(5
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Total fee paid: $2,074.40
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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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Dear Shareholder:
We cordially invite you to attend a special meeting of
shareholders of RTW, Inc. (RTW) to be held at the
8000 Building of Normandale Lake Office Park, Skyway Classroom,
8331 Norman Center Drive, Bloomington, Minnesota 55437, on
December 10, 2007, at 1:00 p.m. (CST).
At the meeting, you will be asked to consider and vote on a
proposal to approve and adopt an agreement and plan of merger
that we have entered into with Rockhill Holding Company
(Rockhill). If our shareholders approve the
agreement and plan of merger and the merger is subsequently
consummated, RTW will become a wholly-owned subsidiary of
Rockhill, your shares of our common stock will be cancelled and
you will have the right to receive $12.45 in cash in exchange
for each share of RTW common stock that you own.
After careful consideration, our board of directors has
unanimously determined that the merger is advisable, fair to and
in the best interests of RTW and our shareholders. Accordingly,
the board has unanimously approved the merger agreement and
unanimously recommends that you vote FOR approval of the merger
agreement at the special meeting.
We encourage you to read the accompanying proxy statement
carefully because it explains in detail the proposed merger, the
agreement and plan of merger and other related matters.
Your vote is important. Approval of the merger agreement
requires the affirmative vote of the holders of at least a
majority of the outstanding shares of RTW common stock entitled
to vote on the merger. Failure to vote will have the same effect
as a vote against the merger.
Whether or not you plan to attend the special meeting in person,
please submit your proxy without delay. You can vote by
telephone, on the Internet or by mail with a proxy card. Voting
by any of these three methods will ensure that we can vote your
shares at the special meeting even if you are not there in
person.
We are very excited about the merger with Rockhill and believe
that the merger is advisable, fair to and in the best interests
of RTW and our shareholders. After you have reviewed the
enclosed materials, please vote by telephone, Internet or mail
the proxy card as soon as you can.
Sincerely,
John O. Goodwyne
Chairman of the Board of Directors
Dated: November 7, 2007
RTW,
INC.
8500 Normandale Lake Boulevard,
Suite 1400
Bloomington, Minnesota 55437
(952) 893-0403
(800) 789-2242
NOTICE OF AND PROXY STATEMENT
FOR
A SPECIAL MEETING OF
SHAREHOLDERS
To the Holders of Common Stock of RTW, Inc.:
We will hold a special meeting of shareholders of RTW, Inc.
(RTW) at the 8000 Building of Normandale Lake Office
Park, Skyway Classroom, 8331 Norman Center Drive, Bloomington,
Minnesota 55437 on December 10, 2007 at
1:00 p.m. (CST). The purpose of the special meeting
will be:
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1.
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To approve and adopt the agreement and plan of merger, dated as
of September 20, 2007 (the merger agreement),
among Rockhill Holding Company (Rockhill), Rockhill
Acquisition Corporation, a wholly-owned subsidiary of Rockhill
(Merger Sub) and RTW. If we complete the merger, we
will become a wholly-owned subsidiary of Rockhill, your shares
of our common stock will be cancelled, and you will have the
right to receive $12.45 in cash for each of your shares.
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2.
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To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the
meeting, including considering any procedural matters incident
to the conduct of the special meeting, such as adjournment or
postponement of the special meeting.
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Only shareholders who held shares of record as of the close of
business on November 6, 2007, are entitled to receive
notice of and to vote at the meeting or any adjournment or
postponement thereof. The affirmative vote of the holders of at
least a majority of the outstanding shares of RTW common stock
entitled to vote on the merger is required to approve and adopt
the merger agreement.
RTWs board of directors unanimously recommends that
shareholders vote FOR the approval and adoption of the merger
agreement.
By Order of the Board of Directors
Alfred L. LaTendresse,
Secretary
Dated: November 7, 2007
YOUR VOTE
IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN THE REPLY
ENVELOPE PROVIDED OR VOTE BY TELEPHONE OR THROUGH THE INTERNET
AS DESCRIBED IN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING.
GIVING YOUR PROXY NOW WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE SPECIAL MEETING.
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers address briefly some
commonly asked questions regarding the proposed merger and the
special meeting. These questions and answers may not address all
questions that may be important to you as a shareholder. Please
refer to the more detailed information contained elsewhere in
this proxy statement, the appendices to this proxy statement and
the other documents we refer to in this proxy statement.
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Q.
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What matters will we vote on at the special meeting?
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A.
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We are asking that you approve the agreement and plan of merger
that we have entered into with Rockhill.
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What is the required vote to adopt the merger agreement?
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A.
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In order to approve the merger agreement, holders of a majority
of all the outstanding shares of our common stock entitled to
vote must vote in favor of the merger. Each share of our common
stock is entitled to one vote.
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Who may vote at the special meeting?
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A.
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Only holders of record of our common stock as of the close of
business on November 6, 2007, may vote at the special
meeting. As of the record date, we had outstanding
5,174,485 shares of common stock entitled to vote.
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Q.
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What do I need to do now?
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A.
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After carefully reading and considering the information
contained in this proxy statement, please vote your shares as
soon as possible. You may vote your shares by signing, dating
and returning the enclosed proxy card. If you are a registered
holder of shares, you may also vote by telephone or through the
Internet by following the instructions on the proxy card. If you
hold your shares through a bank or brokerage firm, you may be
able to vote by telephone or through the Internet in accordance
with instructions your bank or brokerage firm provides.
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Q.
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If my shares are held in street name by my
broker, will my broker vote my shares for me?
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A.
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Your broker will only be permitted to vote your shares if you
instruct your broker how to vote. If you do not instruct your
broker how to vote, your shares will not be voted at the special
meeting, which will have the same effect as a vote against the
merger agreement. You should follow the procedures provided by
your broker regarding the voting of your shares.
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What if I do not vote?
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If you fail to vote by proxy, either by mail, by telephone or
through the Internet, and fail to vote in person, it will have
the same effect as a vote against the merger agreement. If you
return a properly signed proxy card but do not indicate how you
want to vote, your proxy will be counted as a vote FOR approval
and adoption of the merger agreement.
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Q.
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What is the proposed transaction?
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A.
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Rockhill proposes to acquire RTW through a cash merger by
merging Rockhill Acquisition Corporation, a wholly-owned
subsidiary of Rockhill, into RTW. We include the full text of
the merger agreement in Appendix A to this proxy statement.
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Q.
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If you complete the merger, what will I receive for my common
stock?
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You will receive $12.45 in cash, without interest, for each
share of our common stock that you own immediately prior to the
consummation of the merger.
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Q.
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If I hold options and you complete the merger, what will I
receive for my stock options?
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Holders of RTW stock options will receive the excess, if any, of
$12.45 over the per share exercise price of the stock option,
for each share of our common stock subject to the stock option,
less any applicable withholding taxes and without interest. All
options will be cancelled.
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What happens to shares that I am purchasing in the 1995
Employee Stock Purchase Plan?
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RTWs 1995 Employee Stock Purchase Plan (ESPP)
will terminate on the earlier of December 31, 2007 or
immediately prior to the effective time of the merger. At the
effective time of the merger, participants in our ESPP will
receive the excess of $12.45 over the exercise price as
determined under the ESPP for each whole number of shares the
participant would otherwise be entitled to purchase under the
ESPP, less any applicable withholding taxes and without interest.
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Will I owe taxes as a result of the merger?
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A.
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The receipt of cash for shares of RTW common stock pursuant to
the merger will be a taxable transaction for U.S. federal income
tax purposes. In general, you will recognize gain or loss equal
to the difference between the amount of cash you receive and the
adjusted tax basis of your shares of RTW common stock.
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Tax matters are very complicated and the tax
considerations related to the merger that are relevant to you
will depend on the facts of your particular situation. You
should consult your tax and other advisors.
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See the section entitled Approval of the
Merger Certain Material Federal Income Tax
Considerations beginning on page 27 of this proxy
statement for more information.
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Why is the board of directors recommending the merger?
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A.
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Our board has determined that the merger is advisable, fair to
and in the best interests of RTW and our shareholders.
Accordingly, the board has unanimously approved the merger
agreement and unanimously recommends that you vote FOR the
approval and adoption of the merger agreement at the special
meeting. To review the boards reasons for recommending the
merger, see the section entitled Approval of the Merger
Agreement Recommendation of the Board of Directors
of RTW and Reasons for the Merger on
pages 13 through 16.
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Will I have dissenters rights if I dissent from the
merger?
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Yes, you will have dissenters rights.
If you wish to
exercise your dissenters rights, you must not vote in
favor of the merger and you must strictly follow the other
requirements of Minnesota law.
We provide a summary
describing the requirements you must satisfy in order to
exercise your dissenters rights in the section entitled
Dissenters Rights on pages 43 through 46
of this proxy statement. We include the full text of the
dissenters rights section of Minnesota law in
Appendix C to this proxy statement.
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When do you expect to complete the merger?
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A.
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We are working toward completing the merger as quickly as
possible. We expect to close the merger by late 2007. We cannot
complete the merger until we satisfy a number of conditions,
including, among other conditions, approval of the merger
agreement by our shareholders at the special meeting, expiration
or termination of the applicable period under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (referred to as
the HSR Act) and approval of insurance regulators in certain
states.
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Should I send in my stock certificates now?
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A.
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No. After we complete the merger, the paying agent, at our
request, will send you written instructions for returning your
stock certificates. These instructions will tell you how and
where to send in your certificates. If you hold your shares in
street name, your street name holder will work with RTW and the
paying agent to turn in your shares. You will receive your cash
payment after the paying agent receives your stock certificates
and any other documents requested in the instructions. For more
information, please see The Merger Agreement
Payment Procedures for Common Shares on page 34.
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Q.
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Where can I find more information about RTW and Rockhill?
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A.
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RTW files periodic reports and other information with the SEC.
This information is available at the SECs public reference
facilities, and at the Internet site maintained by the SEC at
www.sec.gov
. For a more detailed description of the
information available, please see the section entitled
Where You Can Find More Information at the end of
this proxy statement. Rockhill is a private company, but certain
information about Rockhill is available on its website at
www.rhkc.com
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Who can help answer my questions?
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A.
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If you have questions about the special meeting or the merger
after reading this proxy statement, you should contact our
Investor Relations Department at RTW, Inc., 8500 Normandale Lake
Boulevard, Suite 1400, Bloomington, Minnesota 55437,
telephone
(952) 893-0403
or
(800) 789-2242,
or email: ir@rtwi.com.
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TABLE OF
CONTENTS
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APPENDIX A: Agreement and Plan of Merger dated as of
September 20, 2007 among Rockhill Holding Company, Rockhill
Acquisition Corporation and RTW, Inc.
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A-1
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APPENDIX B: Opinion dated September 20, 2007 by
Keefe, Bruyette &Woods, Inc.
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B-1
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APPENDIX C: Sections 302A.471 and 302A.473 of the
Minnesota Business Corporation Act
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C-1
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v
This summary, together with the Questions and Answers
section, highlights selected information from this proxy
statement. It does not contain all of the information that is
important to you as a shareholder of RTW. Accordingly, we
encourage you to read carefully this entire proxy statement and
the appendices to this proxy statement.
8500 Normandale Lake Boulevard, Suite 1400
Bloomington, Minnesota 55437
(952) 893-0403
RTW, based in Bloomington, Minnesota, is a leading provider of
products and services to manage insured and self-insured
workers compensation, disability and absence programs. RTW
provides these services, primarily directed at workers
compensation to:
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employers insured through its wholly-owned insurance
subsidiaries, American Compensation Insurance Company
(ACIC) and Bloomington Compensation Insurance
Company (BCIC);
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self-insured employers on a fee-for-service basis;
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state assigned risk plans on a percent of premium basis;
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other insurance companies; and
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agents and employers on a consulting basis, charging hourly fees.
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RTW developed two proprietary systems to manage disability and
absence:
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ID15
®
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designed to quickly identify those injured employees who are
likely to become inappropriately dependent on disability system
benefits, including workers compensation; and
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RTW
Solution
®
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designed to lower employers disability costs and improve
productivity by returning injured employees to work as soon as
safely possible.
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RTW supports these proprietary management systems with
state-of-the-art technology and talented people dedicated to its
vision of transforming people from absent or idle to present and
productive. ACIC writes workers compensation insurance for
employers primarily in Minnesota, Colorado and Michigan, but is
growing in new markets including, among others, Florida, Texas,
Kansas, Connecticut, North Carolina and Iowa. BCIC offers
workers compensation insurance to selected employers in
Minnesota and Colorado.
In addition, through its
Absentia
®
division, RTW has expanded and provides non-insurance products
and service offerings on a national basis. RTWs services
are effective across many industries.
700 West
47
th
Street, Suite 350
Kansas City, Missouri 64112
(816) 412-2801
Rockhill Holding Company, based in Kansas City, Missouri, is an
insurance holding company writing specialty property and
casualty business through its two insurance company
subsidiaries, Rockhill Insurance Company and Plaza Insurance
Company. Rockhill Insurance Company, an Excess &
Surplus lines carrier approved in 48 states, is domiciled
in Arizona and serves specialty niches, including Southeast
wind, earthquake/difference in condition, residential
contractors and commercial umbrella. Plaza Insurance Company
(f/k/a National Alliance Insurance Company and acquired by
Rockhill in June 2007) is a Missouri-domiciled property and
casualty carrier admitted in 38 jurisdictions and will serve the
surety, umbrella, and other
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specialty property and casualty markets. Rockhill Insurance
Company is rated A- by A.M. Best and wrote over
$100 million in premiums in 2006. As of June 30, 2007,
Rockhill Insurance Company has total assets of $190 million
and capital of $129 million.
Rockhill
Acquisition Corporation
700 West
47
th
Street, Suite 350
Kansas City, Missouri 64112
(816) 412-2801
Rockhill Acquisition Corporation, a Minnesota corporation, is a
wholly-owned subsidiary of Rockhill formed solely for the
purpose of the merger and is engaged in no other business.
Background
of Special Meeting (page 7)
The merger was announced on September 21, 2007. Beginning
on or about November 9, 2007, we commenced mailing to our
shareholders a notice of special meeting, accompanied by this
proxy statement, for the special meeting of shareholders of RTW.
Date,
Time, Place (page 7)
The special meeting of our shareholders will be held on
December 10, 2007 at the 8000 Building of Normandale Lake
Office Park, Skyway Classroom, 8331 Norman Center Drive,
Bloomington, Minnesota 55437 at 1:00 p.m. (CST).
Matters
to be Considered (page 8)
You will be asked to consider and vote upon a proposal to
approve and adopt the merger agreement that RTW has entered into
with Rockhill and to consider any other matters that properly
come before the special meeting, including any procedural
matters in connection with the special meeting.
Record
Date and Voting Power (page 8)
You are entitled to vote if you owned shares of RTW common stock
at the close of business on November 6, 2007, the record
date for the special meeting. You will have one vote for each
share of RTW common stock you owned at the close of business on
the record date. On the record date, there were
5,174,485 shares of RTW common stock entitled to be voted
at the special meeting.
Approval of the merger agreement requires the affirmative vote
of the holders of a majority of the outstanding shares of RTW
common stock entitled to vote at the special meeting. Failure to
vote by proxy, either by mail, by telephone or through the
Internet, or in person, will have the same effect as a vote
AGAINST adoption of the merger agreement.
Voting
by Proxy (pages 8 through 9)
You may vote by proxy by signing, dating and returning the
enclosed proxy card in the reply envelope provided or by
following the instructions on the proxy card for voting by
telephone or through the Internet. If you hold your shares
through a broker or other nominee, you should follow the
procedures provided by your broker or nominee, which may include
voting through the Internet or by telephone.
2
Revocability
of Proxy (page 9)
You may revoke your proxy at any time before it is voted. If you
are a registered holder of RTW stock, you may revoke your proxy
by:
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voting in person at the special meeting;
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mailing a later-dated proxy;
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giving written notice of revocation to RTW addressed to its
Secretary; or
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if you voted by telephone or through the Internet, by voting
again either by telephone or through the Internet prior to the
close of the voting facility.
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If your shares are held by a broker or nominee in street
name, you should follow the instructions of your broker or
nominee regarding revocation of proxies. If your broker or
nominee allows you to vote by telephone or through the Internet,
you may be able to change your vote by voting again by telephone
or through the Internet.
Whether you are a registered holder or your shares are held by a
broker or nominee, simply attending the special meeting will not
revoke your proxy. You must revoke your proxy as described above.
RTWs
Board Recommendation to RTW Shareholders Regarding the Merger
(page 13)
Our board of directors has unanimously determined that the
merger is advisable, fair to and in the best interests of RTW
and our shareholders. Accordingly, the board has unanimously
approved the merger agreement and unanimously recommends that
RTW shareholders vote FOR the approval and adoption of the
merger agreement at the special meeting.
Background
of the Merger (pages 10 through 13)
This section contains a description of the process that we
undertook with respect to our reaching a definitive agreement
with Rockhill, and includes a discussion of our contacts and
discussions with Rockhill and other parties that led to an
agreement.
Reasons
for the Merger and the Recommendation of the Board of Directors
(pages 14 through 16)
Our board of directors has unanimously determined that the
merger is advisable, fair to and in the best interests of RTW
and our shareholders. Accordingly, the board has unanimously
approved the merger agreement and unanimously recommends that
you vote FOR the approval and adoption of the merger agreement
at the special meeting. In making this determination, our board
has considered a number of factors (which are summarized in this
section beginning on page 14) including, among other
things, RTWs business, competitive position, financial
results, strategy and prospects, Rockhills offer as
compared to trading prices for RTWs common stock over
various time periods and the opinion of Keefe, Bruyette and
Woods, Inc. (KBW) to the effect that, as of
September 20, 2007, and based upon and subject to
assumptions made, procedures followed, matters considered, and
limitations on the review undertaken in connection with the
opinion as set forth therein, the merger consideration to be
received by holders of the RTW common stock is fair, from a
financial point of view, to these shareholders. In the course of
its deliberations, our board also considered a variety of risks
or potential drawbacks relating to the merger that are
summarized in this section beginning on page 15.
Purposes
and Effects of the Merger (page 25)
The principal purpose of the merger is to enable Rockhill to
acquire all of our outstanding common stock in exchange for your
receipt of $12.45 for each share of RTW common stock you hold.
3
Following completion of the merger, we will become a
wholly-owned subsidiary of Rockhill. We will also de-register
under the Securities Exchange Act of 1934, and our common stock
will no longer be listed on The NASDAQ Global Market or any
other market and we will not be publicly traded.
Structure
of the Merger (page 33)
Subject to the terms and conditions of the merger agreement,
Rockhill Acquisition Corporation, a wholly-owned subsidiary of
Rockhill, will merge into RTW. As a result of the merger, RTW
will become a wholly-owned subsidiary of Rockhill. The full text
of the merger agreement is included in Appendix A to this
proxy statement.
Merger
Consideration (pages 33 through 34)
If we complete the merger, your shares of RTW common stock will
be cancelled, and you will have the right to receive $12.45 in
cash, without interest, in exchange for each share of RTW common
stock that you hold.
Treatment
of Outstanding Options (page 35)
RTW stock options held by employees, directors or others, will
vest immediately prior to the effective time of the merger, and
holders will receive an amount equal to the excess, if any, of
$12.45 over the per share exercise price for each share subject
to the applicable option, less any applicable withholding taxes
and without interest. All options will be cancelled. RTWs
1995 Employee Stock Purchase Plan (ESPP) will
terminate on the earlier of December 31, 2007 or
immediately prior to the effective time of the merger. At the
effective time of the merger, each participant in our ESPP will
receive the excess of $12.45 over the exercise price as
determined under the ESPP for each whole number of shares the
participant would be otherwise entitled to purchase under the
ESPP, less any applicable withholding taxes and without
interest. If the merger has not occurred by December 31,
2007, employees cannot continue to participate in the ESPP but,
at the effective time of the merger, shares acquired under the
ESPP through December 31, 2007 will be redeemed in the same
manner.
Conditions
to the Merger (pages 41 through 42)
Before we can complete the merger, both RTW and Rockhill must
satisfy a number of conditions. RTWs and Rockhills
obligations to effect the merger are subject to the satisfaction
or waiver of the following conditions:
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approval and adoption of the merger by RTWs shareholders;
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approval of insurance regulators in certain states and the
absence of any order or proceeding materially restricting our
business in Minnesota, Michigan or Colorado;
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absence of any judgment, decree, injunction, order or proceeding
by any governmental entity which prohibits, restricts or
threatens to invalidate the merger;
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expiration or termination of the applicable waiting period under
the HSR Act;
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certain RTW executives must sign employment agreements with
Rockhill and be able to perform under them;
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absence of material adverse changes in RTWs net liability
for incurred loss and allocated loss adjustment expense
(excluding inter-company loss adjusting expense) as determined
in accordance with statutory accounting policies for accident
years 2006 and prior compared with reported results as of
December 31, 2006; and
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RTWs contract with the Minnesota Workers
Compensation Assigned Risk Plan must be in full force and effect.
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4
In addition, RTWs obligations to effect the merger are
subject to the satisfaction or waiver of the following
conditions:
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Rockhill and Rockhill Acquisition Corporation must comply with
their obligations under the merger agreement in all material
respects;
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Rockhills representations and warranties to RTW must be
true and correct in all material respects, except for specified
exceptions;
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our receipt of an officers certificate from Rockhill
certifying Rockhills compliance with Rockhills
representations, warranties and covenants; and
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our receipt of evidence that Rockhill has complied with the
merger agreements provisions on employee benefit
arrangements for RTW employees.
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Rockhills obligations to effect the merger are subject to
the satisfaction or waiver of the following conditions:
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RTW complying with its obligations under the merger agreement in
all material respects;
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RTWs representations and warranties to Rockhill must be
true and correct in all material respects except for certain
exceptions;
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our board and shareholders must have taken all actions necessary
to approve the merger;
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Rockhills receipt of an officers certificate from us
certifying our compliance with RTWs representations,
warranties, and covenants;
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the holders of no more than 10% of our common stock have
exercised dissenters rights;
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Rockhills receipt of evidence of RTWs compliance
with the merger agreements provisions on employee benefit
arrangements;
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Rockhills receipt of evidence that transaction related
expenses have not exceeded $2.0 million;
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transaction related expenses mean all expenses incurred by RTW
related to executing the agreement, soliciting shareholder
approval and all other matters related to the closing of the
transactions from the date of the agreement to closing, but does
not include payments to officers and directors, legal and other
expenses related to RTWs response to a third party
proposal, or legal and other expenses related to RTWs
response to legal action arising from this agreement; and
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the absence of a material adverse effect on RTW, ACIC, or BCIC.
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We expect to consummate the merger shortly after all of the
conditions to the merger have been satisfied or waived. We will
seek to complete the merger as soon as practicable following the
special meeting, but we cannot be certain when or if the
conditions will be satisfied or waived.
Opinion
of RTWs Financial Advisor (pages 16 through 25)
KBW has given an opinion to our board of directors that, as of
September 20, 2007 (the date the merger agreement was
executed), and based upon and subject to assumptions made,
procedures followed, matters considered, and limitations on the
review undertaken in connection with the opinion as set forth
therein, the $12.45 in cash per share to be received by the
holders of our common stock pursuant to the merger agreement is
fair from a financial point of view to the holders of our common
stock. We include the full text of KBWs written opinion in
Appendix B to this proxy statement. We urge you to read
KBWs opinion carefully and in its entirety.
Termination
of the Merger Agreement (pages 42 through 43)
RTW and Rockhill may agree in writing to terminate the merger
agreement at any time without completing the merger, even after
our shareholders approve it. Either RTW or Rockhill may also
terminate the
5
merger agreement prior to completing the merger under specified
circumstances, including failure of our shareholders to approve
the merger agreement at a duly convened shareholders meeting,
failure of the non-terminating party to satisfy the conditions
to the merger by February 28, 2008 and certain uncured
breaches of covenants, agreements, representations or warranties
by either party.
In addition, Rockhill may terminate the merger agreement under
certain circumstances including, among others, those related to
our boards recommendation to shareholders relating to the
merger agreement with Rockhill.
Moreover, we may terminate the merger agreement if our board of
directors authorizes us to enter into an agreement with respect
to a competing transaction. The exercise of our right of
termination for a competing transaction is subject to
limitations and conditions, including that our board of
directors must determine that the competing transaction is a
superior proposal, as defined in the merger
agreement (taking into account any proposal or offer made by
Rockhill to modify the terms of the merger agreement) and that
the failure of RTW to exercise its right to terminate the merger
agreement would be inconsistent with our boards fiduciary
duties under applicable law.
Termination
Fee (page 43)
RTW must pay to Rockhill a fee in cash of $1.0 million if
the merger agreement is terminated under certain circumstances,
including, among others, if:
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Rockhill or RTW terminates the merger agreement because our
shareholders fail to approve the Agreement and, within six
months of the termination, our board enters into a definitive
agreement with a third party that had publicly announced its
interest in RTW prior to the shareholders meeting at which
the Rockhill agreement was not approved;
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Rockhill terminates the merger agreement because our board fails
to recommend adoption of the Agreement or withdraws, modifies or
qualifies (in a manner adverse to Rockhill) its favorable
recommendation of the merger agreement; or
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RTW terminates the merger agreement to accept a competing offer.
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Interests
of Certain Persons in the Merger (pages 29 through 33)
Our executive officers and directors have interests in the
merger that are different from, or in addition to, the interests
of our shareholders, including:
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vesting and cash-out of all outstanding stock options which,
based on the $12.45 per share merger consideration and holdings
as of November 6, 2007, would result in an estimated
aggregate cash payment to executive officers and directors
totaling approximately $2,264,749 for vested options and
$162,797 for options that accelerate and vest as a result of the
merger;
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our executive officers will collectively receive payments
totaling approximately $30,899 representing the difference in
value between the option price of shares issuable under the ESPP
and the merger consideration of $12.45 per share, assuming the
ESPP terminates on December 31, 2007; and
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certain officers will receive the benefits of an employment
agreement that becomes effective after the merger which provides
a base salary, participation in a bonus program, restricted
stock awards, directors and officers liability insurance
and participation in Rockhills benefits programs. Jeffrey
B. Murphy, President and Chief Executive Officer of RTW, will
receive an additional benefit of a $2.0 million term life
insurance policy for the benefit of his wife and family.
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Certain
Material Federal Income Tax Considerations (pages 27 through
28)
The receipt of cash in the merger by holders of our common stock
will be a taxable transaction for United States federal income
tax purposes and may also be a taxable transaction under
applicable state, local, foreign and other tax laws. For federal
income tax purposes, a holder of shares of our common stock
generally
6
will recognize gain or loss equal to the difference between
(1) the amount of cash received in exchange for these
shares and (2) the holders adjusted tax basis in
these shares. Please refer to the section entitled
Approval of the Merger Agreement Certain
Material Federal Income Tax Considerations on pages 27
through 28 of this proxy statement for a more detailed
explanation of the material federal income tax considerations of
the merger. We urge you to consult your own tax advisors to
determine the particular tax considerations (including the
application and effect of any state, local or foreign income and
other tax laws) relevant to the receipt of cash in exchange for
your shares of our common stock.
Dissenters
Rights (pages 43 through 46 and Appendix C)
Pursuant to Section 473 of the Minnesota Business
Corporations Law (MBCA), any holder of RTW common
stock who does not wish to accept the $12.45 merger
consideration may dissent from the merger and elect to have the
fair value of his or her shares of RTW common stock (exclusive
of any element of value arising from the accomplishment or
expectation of the merger) judicially determined by a court in
Hennepin County and paid to the shareholder in cash, together
with a fair rate of interest, if any, provided that the
shareholder strictly complies with the provisions of
Section 473 of the MBCA. This amount, when determined by
the court, may be more than, equal to or less than $12.45.
Because of the complexity of the dissenters rights
procedures, RTW believes that shareholders who consider
exercising these rights should seek the advice of counsel.
FORWARD-LOOKING
INFORMATION
This proxy statement contains forward-looking statements,
including statements regarding anticipated timing of the merger
and the possible future performance of RTW. All statements other
than statements of historical fact are forward-looking
statements, including statements about the expected timetable
for completing the merger, the satisfaction of closing
conditions, timing or satisfactory receipt of regulatory or RTW
shareholder approvals, future products or market growth,
projections of earnings, revenues, or other financial items, and
any other statements regarding RTWs future expectations,
beliefs, goals or prospects or the plans, strategies and
objectives of management for future operations, and any
statement of assumptions underlying any of the foregoing.
These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those
presented. Factors that could cause these differences include,
without limitation, the possibility that regulatory approvals
may be delayed or denied or that burdensome conditions may be
imposed in connection with these approvals; the possibility of
adverse changes in global, national or local economic or
monetary conditions; competition and change in the insurance
industry; and other factors described in RTWs recent
filings with the SEC. Those factors or others could result, for
example, in delay or termination of the merger transaction
between RTW and Rockhill. Readers should carefully consider
those risks and uncertainties in reading this document. Except
as otherwise required by law, RTW and Rockhill disclaim any
obligation and do not intend to update any forward-looking
statements included in this proxy statement after the date of
this document, whether as a result of new information, future
events, developments, changes in assumptions or otherwise.
THE
SPECIAL MEETING OF SHAREHOLDERS
We are furnishing this proxy statement to shareholders of RTW as
part of the solicitation of proxies by our board of directors
for use at the special meeting of shareholders.
We will hold the special meeting at the 8000 Building of
Normandale Lake Office Park, Skyway Classroom, 8331 Normandale
Center Drive, Bloomington, Minnesota 55437 at 1:00 p.m.
(CST) on December 10, 2007.
7
Purpose
of the Special Meeting
At the special meeting, we will ask holders of RTW common stock
to approve and adopt the merger agreement. Our board of
directors has unanimously determined that the merger is
advisable, fair to and in the best interests of RTW and our
shareholders. Accordingly, the board has unanimously approved
the merger agreement and unanimously recommends that you vote
FOR the approval and adoption of the merger agreement at the
special meeting.
Record
Date; Shares Entitled to Vote; Quorum
Only holders of record of RTW common stock at the close of
business on November 6, 2007, the record date, are entitled
to notice of, and to vote at, the special meeting. On the record
date, 5,174,485 shares of RTW common stock were issued and
outstanding and held by approximately 900 holders of record,
plus a number of additional holders whose shares are held in
street name. A quorum will be present at the special meeting if
the holders of a majority of the voting power of the outstanding
shares of RTW common stock entitled to vote on the record date
are represented in person or by proxy. 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. Holders of record of RTW common stock on the
record date are entitled to one vote per share on the proposal
to adopt the merger agreement at the special meeting.
In order to adopt the merger agreement, holders of at least a
majority of the shares of our common stock outstanding on the
record date and entitled to vote must vote in favor of adopting
the merger agreement. If you withhold a vote or abstain from
voting on the adoption of the merger agreement, it will have the
same effect as a vote against the merger.
Broker non-votes occur when a person holding shares
through a bank or brokerage account does not provide
instructions on how his or her shares should be voted and the
broker does not exercise discretion to vote those shares on a
particular matter. Brokers may not exercise discretion to vote
shares to which instructions are not given. The shares
represented by a broker non-vote will be considered present at
the special meeting for the purposes of determining a quorum,
but will have the same effect as a vote against the
proposal because holders of a majority of the voting power of
all of the shares of our common stock outstanding on the record
date and entitled to vote must affirmatively vote in favor of
the proposal in order to approve it.
Voting
by Directors and Executive Officers
On the record date, the directors and executive officers of RTW,
including their affiliates, owned and were entitled to vote a
total of 1,410,367 shares of RTW common stock or
approximately 27.3% of the shares of RTW common stock then
outstanding, without the effect of shares issuable upon exercise
of outstanding options. Each of these individuals has advised us
that he or she intends to vote all of his or her shares of RTW
common stock FOR approval and adoption of the merger agreement.
All shares represented by properly executed proxies received in
time for the special meeting will be voted in the manner
specified by the holders. Properly executed proxies that do not
contain voting instructions will be voted FOR approval and
adoption of the merger agreement.
All shareholders may attend the special meeting in person.
Whether or not you expect to attend the special meeting, please
submit your proxy as promptly as possible. You may vote your
shares by signing, dating and returning the enclosed proxy card.
Registered holders of RTW shares may also vote by telephone or
through the Internet by following the instructions on the proxy
card. If you hold your shares through a bank or brokerage firm,
you may be able to vote by telephone or through the Internet in
accordance with the instructions your bank or brokerage firm
provides.
Even if you have given your proxy, you may still vote in person
if you attend the special meeting. Please note, however, that if
your shares are held of record by a broker, bank or other
nominee and you wish to vote
8
at the special meeting, you must bring to the special meeting a
letter from the broker, bank or other nominee confirming your
beneficial ownership of shares of the RTW common stock.
Additionally, in order to vote at the special meeting, you must
obtain from the record holder a proxy issued in your name.
If you have questions about the special meeting or the merger
after reading this proxy statement, you should contact our
Investor Relations Department at RTW, Inc., 8500 Normandale Lake
Boulevard, Suite 1400, Bloomington, Minnesota 55437,
telephone
(952) 893-0403
and
(800) 789-2242,
or email: ir@rtwi.com
The grant of a proxy on the enclosed form of proxy does not
preclude a shareholder from voting in person at the special
meeting.
You may revoke your proxy at any time before it is voted. If you
are a registered holder of RTW stock, you may revoke your proxy
by:
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voting in person at the special meeting;
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mailing a later-dated proxy;
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giving written notice of revocation to RTW addressed to its
Secretary; or
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if you voted by telephone or through the Internet, by voting
again either by telephone or through the Internet prior to the
close of the voting facility.
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If your shares are held by a broker or nominee in street
name, you should follow the instructions of your broker or
nominee regarding revocation of proxies. If your broker or
nominee allows you to vote by telephone or through the Internet,
you may be able to change your vote by voting again by telephone
or through the Internet.
Whether you are a registered holder or your shares are held by a
broker or nominee, simply attending the special meeting will not
revoke your proxy. You must revoke your proxy as described above.
In addition to solicitation by mail, we may use our directors,
officers and employees to solicit proxies by telephone, other
electronic means or in person. These people will not receive any
additional compensation for their services, but we will
reimburse them for their out-of-pocket expenses. We will
reimburse banks, brokers, nominees, custodians and fiduciaries
for their reasonable expenses in forwarding copies of this proxy
statement to the beneficial owners of shares of RTW common stock
and in obtaining voting instructions from those owners.
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 our bylaws, except as required by law, no
business may be brought before the special meeting other than
the matters set forth in the notice of special meeting, which is
provided at the beginning of this proxy statement. If other
matters do properly come before the special meeting, or at any
adjournment or postponement thereof, we intend that shares of
RTW common stock represented by properly submitted proxies will
be voted by and at the discretion of the persons named as
proxies on the proxy card. In addition, the grant of a proxy
will confer discretionary authority on the persons named as
proxies on the proxy card to vote in accordance with their best
judgment on procedural matters incident to the conduct of the
special meeting, such as a motion to adjourn in the absence of a
quorum or a motion to adjourn for other reasons, including to
solicit additional votes in favor of approval and adoption of
the merger agreement.
APPROVAL
OF THE MERGER AGREEMENT
At this special meeting, we are asking RTWs shareholders
to adopt the merger agreement. If we complete the merger, RTW
will become a wholly-owned subsidiary of Rockhill, our shares of
common stock
9
will be cancelled, and our shareholders will have the right to
receive $12.45 in cash, without interest, in exchange for each
share of our common stock held immediately prior to the merger.
RTW,
Inc.
RTW, based in Bloomington, Minnesota, is a leading provider of
products and services to manage insured and self-insured
workers compensation, disability and absence programs. RTW
provides these services, primarily directed at workers
compensation to:
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employers insured through its wholly-owned insurance
subsidiaries, ACIC and BCIC;
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self-insured employers on a fee-for-service basis;
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state assigned risk plans on a percent of premium basis;
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other insurance companies; and
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agents and employers on a consulting basis, charging hourly fees.
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RTW developed two proprietary systems to manage disability and
absence:
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ID15
®
,
designed to quickly identify those injured employees who are
likely to become inappropriately dependent on disability system
benefits, including workers compensation; and
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RTW
Solution
®
,
designed to lower employers disability costs and improve
productivity by returning injured employees to work as soon as
safely possible.
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RTW supports these proprietary management systems with
state-of-the-art technology and talented people dedicated to its
vision of transforming people from absent or idle to present and
productive. ACIC writes workers compensation insurance for
employers primarily in Minnesota, Colorado and Michigan, but is
growing in new markets including, among others, Florida, Texas,
Kansas, Connecticut, North Carolina and Iowa. BCIC offers
workers compensation insurance to selected employers in
Minnesota and Colorado.
In addition, through its
Absentia
®
division, RTW has expanded and provides non-insurance products
and service offerings on a national basis. RTWs services
are effective across many industries. RTW, Inc. is traded on the
Nasdaq Global Market under the symbol RTWI. For more information
on RTW, Inc., please visit
www.rtwi.com
.
Rockhill
Holding Company
Rockhill Holding Company, based in Kansas City, Missouri, is an
insurance holding company writing specialty property and
casualty business through its two insurance company
subsidiaries, Rockhill Insurance Company and Plaza Insurance
Company. Rockhill Insurance Company, an Excess &
Surplus lines carrier approved in 48 states, is domiciled
in Arizona and serves specialty niches, including Southeast
wind, earthquake/difference in condition, residential and
commercial umbrella. Plaza Insurance Company (f/k/a National
Alliance Insurance Company and acquired by Rockhill in June
2007) is a Missouri-domiciled property and casualty carrier
admitted in 38 jurisdictions and will serve the surety,
umbrella, and other specialty property and casualty markets.
Rockhill Insurance Company is rated A- by A.M. Best and
wrote over $100 million in premiums in 2006. As of
June 30, 2007, Rockhill Insurance Company has total assets
of $190 million and capital of $129 million.
Rockhill
Acquisition Corporation
Rockhill Acquisition Corporation, a Minnesota corporation, is a
wholly-owned subsidiary of Rockhill formed solely for the
purpose of the merger and is engaged in no other business.
After operating as a workers compensation insurance
company for a number of years, in 2004, RTW began increasingly
to market noninsurance products, in particular consulting
services. As a result of its
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expansion into this new service area, RTW began to call on
non-traditional customers including other insurance and worker
compensation consulting companies. At various times in 2006,
three of these non-traditional customers, Party A, Party B and
Party C, expressed interest in a possible acquisition, business
combination or transaction with RTW. These informal expressions
of interest coincided with concerns expressed by some of
RTWs major shareholders that the board should do more to
enhance shareholder value due to the illiquid nature of RTW
common stock. In the normal course of dealing with
non-traditional customers, RTW would often enter into
nondisclosure agreements with these parties and provide due
diligence information to these parties. This due diligence
information generally covered the details of RTWs
proprietary
ID15
®
and RTW
Solution
®
systems rather than information about future RTW business.
On December 1, 2006, the RTW board established a committee
of David C. Prosser, John O. Goodwyne and Lyron L. Bentovim to
interview investment bankers to advise RTW with respect to
various strategic alternatives including responding to the
unsolicited indications of interest. Jeffrey B. Murphy,
RTWs President and CEO was also included in the selection
process. In December 2006, the committee along with
Mr. Murphy interviewed five investment bankers and
recommended KBW to the full board. KBW was selected because of
its national reputation, its substantial experience in mergers
and acquisitions and its familiarity with RTW. On
January 19, 2007, RTW engaged KBW.
RTWs board determined that the process should remain
confidential because this would better preserve RTWs
sensitive business relationships with its workers
compensation and service business customers. The board also
believed a confidential process would be better to maintain
employee morale.
During the period of January to April 2007, KBW contacted
seventeen parties (including Parties A, B and C) to solicit
their interest in a possible business combination with RTW. Of
the parties contacted, fourteen executed nondisclosure
agreements, and four requested and were granted access to due
diligence materials.
After further discussion with those parties that executed
non-disclosure agreements, and determining each respective
partys level of interest in a potential transaction, KBW
distributed a bid instruction letter to eight of these parties
on April 13, 2007 requesting that they submit a non-binding
indication of interest on or before April 23, 2007. Of the
eight parties that were sent a bid instruction letter, four
parties, including Parties A and B, submitted nonbinding
indications of interest or letters of intent at prices ranging
from $11.00 per share to $14.85 per share.
Of the indications of interest received on April 23, 2007,
one party (Party D) submitted to RTW a non-binding
proposal to acquire RTW at a price of $14.85 per share in cash.
Party D noted that its offer was contingent upon completion of
satisfactory due diligence, particularly Party Ds
valuation assumptions of the historical and expected future
financial and operational results of RTWs insurance and
service business segments. In addition, Party Ds proposal
was contingent upon a successful trust preferred offering.
In April and May 2007, RTW and Party D exchanged drafts of
proposed definitive agreements and Party D continued its due
diligence investigation. During the negotiation of the
definitive merger agreement, Party D did not agree to a
definitive price of $14.85 per share, indicating its valuation
analysis was continuing. Near the end of May, Party D
communicated to KBW that as a result of its due diligence
investigation particularly relating to the service business
pipeline, it was no longer prepared to offer $14.85. Party D
reiterated its interest in a transaction, indicated its revised
range was between $12.00 to 14.00, but Party D did not make a
firm offer at any specified price at that time.
On May 31, Party D submitted a revised non-binding letter
of interest to RTW, modifying the April 23, 2007 indication
of interest. Party D indicated that it would potentially be
willing to pay $12.50 per share in cash for RTW. Party D stated
that while its offer was no longer subject to a financing
contingency, it was contingent on satisfactory completion of due
diligence. The proposal also required RTW to enter into a
30-day
exclusivity agreement with Party D during which time neither RTW
nor its advisors would be allowed to solicit any offers or
engage in any negotiations with other parties. KBW contacted
Party Ds financial advisor, who reported that $12.50 was
Party Ds best offer, and that while the letter mentioned
satisfactory completion of due diligence, that Party Ds
due diligence was substantially complete.
11
At a board meeting on May 31, RTWs board concluded
that based on the significant decrease in the proposed valuation
by Party D, the fact that Party Ds proposal was still
subject to completing additional due diligence and that Party D
had requested exclusivity, the likelihood of ultimately
consummating a transaction with Party D at an acceptable price
to RTW was remote. The board also believed that based upon the
pattern of negotiations and revisions to the proposed agreement
that Party D would seek more price concessions. RTW therefore
terminated negotiations with Party D and did not permit Party D
further access to due diligence materials. The RTW board then
directed KBW to return to the other parties that had expressed
indications of interest and determine their willingness to
proceed with a possible transaction.
On June 14, KBW presented a second bid instruction letter
to Party A and Party B, both parties that had demonstrated a
continued interest in a potential transaction with RTW and who
had submitted initial non-binding indications of interest to
RTW. Party A and Party B were instructed to submit a revised
non-binding indication of interest by July 13.
On June 28, as part of his routine business development,
Mr. Murphy traveled to Kansas City, Missouri to talk with
Rockhill about RTWs services. In the course of that
conversation, Rockhill expressed an interest in evaluating RTW
for a possible business combination. Mr. Murphy directed
Rockhill to contact KBW.
Throughout June and early July, 2007, KBW continued to solicit
interest from other potential buyers, contacting four additional
parties. None of the four parties executed a non-disclosure
agreement with RTW and none indicated an interest in pursuing a
transaction. KBW also called the eight parties who had initially
received letters in April, but who had not earlier submitted
bids to see if they had continued interest in a transaction with
RTW between June and July. None were interested.
On August 9, Party B submitted a second non-binding
indication of interest to purchase 100% of the common stock of
RTW for a price of $12.00 per share in cash, subject to RTW
entering into a
30-day
exclusivity agreement with Party B, Party Bs satisfactory
completion of additional due diligence, confirmation of Party
Bs ability to maintain an A.M. Best rating of A-
following a transaction and execution of a definitive agreement.
On August 10, KBW provided Rockhill with a bid instruction
letter, inviting it to submit a definitive proposal to acquire
RTW. KBW also provided Rockhill with a draft merger agreement
and requested that Rockhills proposal include a copy of
the merger agreement marked to show any changes it would
request. The instruction letter requested that the proposal and
marked merger purchase agreement be submitted to KBW on or
before August 24, 2007.
On August 15, Rockhill submitted a non-binding letter of
intent, together with a marked merger agreement, proposing to
acquire RTW for total aggregate consideration of
$67.57 million in cash. Rockhills letter of intent
included customary conditions to consummating a transaction,
including completion of due diligence investigation,
confirmation from A.M. Best that Rockhill would maintain
its A.M. Best rating of A- following the transaction and
execution of a definitive agreement.
On August 16, 2007, RTWs board met to review the
alternatives to enhance shareholder value. The board considered
the proposals from Rockhill and Party B, and reviewed a possible
PIPE secondary offering and share repurchase if a strategic
transaction was not advisable. The board also discussed the
possibility of Party D coming back into the process. The board
also noted recent performance of RTW over the past several
months. The board reviewed the terms of the Rockhill proposal in
depth. KBW explained that while the aggregate consideration of
$67.57 million was specified, the per share consideration
was not, and certain elements of the proposal, including the
uncertainty surrounding the fully-diluted share count Rockhill
was using, could cause the offer to be below $12.45 per share.
The board directed RTWs counsel and KBW to negotiate a
merger transaction with Rockhill at $12.45 per share in cash.
KBW subsequently reported to the board that Party B was not
interested in raising its $12.00 offer, and that Party D was no
longer interested in a transaction with RTW.
During the week of August 20, 2007, Rockhill and RTW
negotiated various terms including the amount of the termination
fee, the expected transaction costs, the definition of material
adverse effect and scope of RTWs representations and
warranties and employment arrangements for certain RTW
executives following the
12
merger. KBW also contacted Party A and the financial
representative of Party B to determine if either party had
interest in improving its indication of interest. Neither party
indicated a willingness to do so. During this week, RTW and
Rockhill exchanged draft merger agreements.
On August 28, 2007, RTWs board met and received an
update on the status of the proposed transaction with Rockhill
from KBW and RTWs counsel from Lindquist & Vennum,
P.L.L.P. (Lindquist). Over the next several days,
the parties continued to negotiate. On August 31, 2007,
RTWs board met to discuss the proposed merger and received
an update on the status of the negotiations from KBW and
Lindquist. Mr. Murphy reported that Rockhill wanted to
discuss the proposed transaction with A.M. Best to
determine whether A.M. Best would affirm Rockhills A-
rating following the transaction. The board instructed
Mr. Murphy to coordinate with Rockhill on a visit to
A.M. Best concerning the rating. During the first two weeks
of September, the parties continued to work on revisions to the
merger agreement and disclosure letter.
On September 12, Rockhill provided KBW with a draft
employment agreement that Rockhill expected certain RTW
executives to execute as a condition to closing. On
September 12, Mr. Murphy and Mr. Krueger of RTW,
and Mr. Terry Younghanz, the Chief Executive Officer of
Rockhill, and Jessica Buss, Chief Financial Officer of Rockhill,
met with representatives of A.M. Best to discuss the
proposed transaction and to seek a confirmation that the ratings
of A- for Rockhill and B++ for RTW would remain unchanged as a
result of the announcement of the transaction. A.M. Best
advised the parties that it would respond in one week. From
September 13 to September 19, 2007, counsel for the parties
worked on the merger agreement, disclosure letter and employment
arrangements between Rockhill and certain executives of RTW.
On Thursday, September 20, 2007, RTWs board met to
review the terms of the merger agreement and disclosure letter,
review drafts of employment agreements and other employment
arrangements that Rockhill proposed for certain RTW executives
following the merger, and received and discussed the fairness
opinion and analysis from KBW. During the course of the board
meeting, RTW received confirmation from A.M. Best that the
rating for RTWs subsidiaries ACIC and BCIC would remain
B++ and the rating for Rockhills insurance subsidiaries
would remain A- after the announcement of the transaction.
After review, the board and a special committee formed for
purposes of compliance with Minnesota anti-takeover law,
unanimously approved the merger agreement and authorized
Mr. Murphy to execute the merger agreement and to proceed
with the merger. In the late afternoon on September 20,
RTW, Rockhill and their respective counsel finalized the merger
agreement and related documents, and finalized a joint press
release and Mr. Murphy and Mr. Younghanz executed the
merger agreement on behalf of RTW and Rockhill, respectively.
On Friday morning, September 21, 2007, RTW and Rockhill
issued a joint press release announcing the execution of the
merger agreement.
Recommendation
of the Board of Directors of RTW
RTWs board of directors has unanimously determined that
the terms of the merger agreement are advisable, fair to and in
the best interests of RTW and its shareholders and has
unanimously approved the merger agreement.
Accordingly, our
board unanimously recommends that you vote FOR approval and
adoption of the merger agreement.
For a discussion of the
process leading to the boards recommendation to approve
the merger and the factors contributing to its decision, see the
section entitled Approval of The Merger
Agreement Background of the Merger and
Reasons for the Merger beginning on pages 10
and 14
,
respectively.
13
In reaching its decision to approve the merger agreement and to
recommend that you vote to approve and adopt the merger
agreement and merger, our board considered a number of factors,
including the following:
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its knowledge of, and presentations by our management and
financial advisors regarding, our business, operations,
financial condition, earnings and business prospects (as well as
the risks involved in achieving those prospects);
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the challenges facing RTW in its traditional workers
compensation market given the continuing softness in the market
and the fact that RTW believed that this softness would continue
for at least
18-24 months,
as well as the continuing challenges facing it as it developed
its service business including the fact that service revenues
had decreased year-over-year;
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the costs and risks of remaining a public company, RTWs
relatively small shareholder base and relatively illiquid nature
of RTWs common stock;
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RTWs current and historical financial condition and
results of operations, our managements estimates of
financial results for the quarter ending September 30, 2007
and the fiscal year ending December 31, 2007, and
managements financial projections and the risks and
uncertainties involved in achieving those projections;
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the presentation and opinion of KBW on September 20, 2007,
delivered to RTWs board to the effect that, as of
September 20, 2007, and based upon and subject to
assumptions made, procedures followed, matters considered, and
limitations on the review undertaken in connection with the
opinion as set forth therein, the cash payment of $12.45 per
share to be received by the holders of our common stock pursuant
to the merger agreement is fair from a financial point of view
to the holders of our common stock (see Opinion of the
Companys Financial Advisor);
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the current and historical market prices of our common stock,
including its market price relative to those of other industry
participants and general market indices, and the fact that the
cash merger price of $12.45 per share represents:
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a 53.1% premium over the closing price for our common stock on
September 18, 2007;
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a 58.6% and 56.7% premium to RTWs
thirty-day
and
sixty-day
volume weighted average trading prices, respectively;
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a 20.9% premium over the 52-week high closing price for our
common stock prior to the announcement of the merger;
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the potential shareholder value from other alternatives
available to us, including the alternative of remaining a
stand-alone, independent company, as well as the risks and
uncertainties associated with those alternatives, and whether
the result of those alternative strategies could lead to a stock
price greater than $12.45 per share in the near or medium-term;
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the reputation and financial strength of Rockhill and its
ability to consummate the transaction without financing
contingencies;
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the terms of the merger agreement, as reviewed by our board with
our legal advisors, including consideration of several specific
provisions of the merger agreement, such as (a) the
definition of material adverse effect and
superior proposal, (b) the limited conditions
to Rockhills obligation to complete the merger, including
the absence of a financing condition; (c) the ability of
our board to terminate the merger agreement in the exercise of
fiduciary duties under specified circumstances and upon payment
of a termination fee (recognizing the possible effect that a
termination fee has on competing transactions, but believing
that the fee is reasonable for this size of a transaction);
(d) the limited ability of Rockhill to terminate the
agreement; and (e) the provisions related to employee
benefits in the merger agreement (see The Merger
Agreement);
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the likelihood of the merger being approved by the appropriate
regulatory authorities (see Governmental and
Regulatory Approvals; and
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the fact that if particular shareholders do not believe that
$12.45 per share is a fair price, the availability of the right
of these shareholders to dissent from the merger and obtain a
court determination of the fair value of their shares under
Minnesota law, although recognizing that if holders of more than
10% of our outstanding common stock properly exercise such
rights, then Rockhill is not obligated to consummate the merger.
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After considering these factors, our board concluded that the
$12.45 per share cash value was a strong price for our
shareholders in comparison to the values that we might
reasonably achieve in the foreseeable future as a stand-alone,
independent company. Our board believed that this was
particularly true in light of the risks and uncertainties
involved in connection with the results that we could expect to
achieve on our own. Our board also considered potential
drawbacks or risks relating to the merger, including the
following risks and factors:
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the fact that RTW has not publicly announced it has been seeking
offers and the risk that other parties that were not contacted
may be interested in a transaction but the merger agreement
prevents us from soliciting other offers;
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the fact that another party submitted a nonbinding letter of
intent for a higher price but RTW believed that this
partys interest was not genuine because it kept lowering
its offer and would not agree to a final price, which led the
RTW board to conclude that a transaction could not be completed
with this party;
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the fact that the all-cash price would not allow our
shareholders to participate in the benefits of any synergies
created by the merger or in any future growth of the combined
entity;
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the fact that the receipt of the all-cash merger consideration
would be a taxable event to our shareholders;
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the risks and costs to us if the merger does not close,
including the diversion of management and employee attention,
potential employee attrition and the potential effect on
business and customer relationships;
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the risks in the conditions to closing that could cause Rockhill
to terminate the merger, including:
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the requirement that certain executives sign and be
able to perform under employment agreements;
the absence of a material adverse effect;
the requirement that we incur no more than
$2.0 million in transaction related expenses; and
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the absence of material adverse changes in RTWs net
liability for incurred loss and allocated loss adjustment
expense (excluding inter-company lost adjusting expense) as
determined in accordance with statutory accounting policies for
accident years 2006 and prior compared to reported results as of
December 31, 2006;
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the fact that our officers and directors have certain interests
in the merger that are in addition to their interests as
shareholders of RTW, which had the potential to influence their
views and actions in connection with the merger proposal,
including generally, the executive employment agreements with
Rockhill which provide for a base salary, participation in a
bonus program, restricted stock awards, directors and
officers liability insurance, participation in
Rockhills benefits programs and in the case of our
President and CEO, term life insurance for the benefit of his
wife and family (see Interests of Certain Persons
in the Merger);
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the restrictions on the conduct of our business prior to the
consummation of the merger, requiring us to conduct our business
subject to specific limitations, which may delay or prevent us
from undertaking business opportunities that may arise pending
completion of the merger; and
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15
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the possibility that the $1.0 million termination fee
payable to Rockhill under specified circumstances may discourage
a competing acquisition proposal.
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Our board concluded, however, that these potential drawbacks and
risks did not outweigh the benefits of the merger to our
shareholders.
The foregoing discussion of the information and factors that
RTWs board of directors reviewed in its consideration of
the merger is not intended to be exhaustive, but is believed to
include all of the material factors that the board considered.
In view of the variety of factors and the amount of information
considered, the board did not find it practicable to, and did
not make specific assessments of, quantify or otherwise assign
relative weights to the specific factors considered in reaching
its determination. Individual members of the board may have
assigned different weights to different factors; however, the
board made its determination after considering all of the
factors as a whole and, overall, considered them to be favorable
to, and to support its determination.
Opinion
of the Companys Financial Advisor
On January 19, 2007, we engaged Keefe, Bruyette &
Woods, Inc. (KBW) to render financial advisory and
investment banking services in connection with the possible sale
of RTW or an equity interest in RTW to another corporation or
business entity, and such engagement included, if requested by
us, rendering an opinion as to the fairness, from a financial
point of view, to our shareholders of the consideration offered
in a transaction. We selected KBW because KBW is a nationally
recognized investment banking firm with substantial experience
in transactions similar to the merger and is familiar with us
and our business. As part of its investment banking business,
KBW is continually engaged in the valuation of insurance
businesses and their securities in connection with mergers and
acquisitions.
On September 20, 2007, our board of directors held a
meeting to evaluate the proposed merger with Rockhill. At this
meeting, KBW reviewed the financial aspects of the proposed
merger and rendered an oral opinion to our board of directors,
which was subsequently confirmed by delivery of a written
opinion, dated September 20, 2007, that as of the date of
the opinion, and subject to the factors and assumptions set
forth in the written opinion, the merger consideration to be
received by holders of our common stock was fair, from a
financial point of view, to the holders of our common stock.
The full text of KBWs written opinion is attached as
Appendix B to this proxy statement and is incorporated in
this proxy statement by reference. You are urged to read the
opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered and
qualifications and limitations of the review undertaken by
KBW.
KBWs opinion was intended solely for the use and
benefit of our board of directors in connection with its
consideration of the merger, does not address the merits of the
underlying decision by us to enter into the merger agreement or
any of the transactions contemplated thereby, including the
merger, and does not constitute a recommendation to any of our
shareholders as to how that shareholder should vote on, or take
any action with respect to, the merger or any related matter.
KBW was not asked to address nor does its opinion address, the
fairness to, or any other consideration of, the holders of any
other class of securities, creditors or other constituencies of
RTW. This summary of KBWs opinion is qualified in its
entirety by reference to the full text of the opinion attached
to this proxy statement as Appendix B.
In connection with its opinion, KBW reviewed and analyzed the
merger and the financial and operating condition of Rockhill and
us, including, among other things, the following:
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a draft of the merger agreement, dated September 11, 2007;
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our Annual Reports to Shareholders and Annual Reports on Form
10-K
for the
years ended December 31, 2004, 2005 and 2006;
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certain interim reports to our shareholders and our Quarterly
Reports on
Form 10-Q
and certain other communications from us to our shareholders;
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the 2006 annual statutory filing and June 30, 2007
quarterly statutory filing of Rockhill Insurance Company, a
wholly-owned subsidiary of Rockhill;
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Rockhills audited consolidated financial statements for
the years ended December 31, 2005 and 2006;
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selected rating agency and investor presentations by Rockhill
and us;
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certain operating, financial and actuarial information relating
to our business and prospects, including projections for the
five year period ending December 31, 2012, all prepared and
provided to us by our management; and
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other financial information concerning our businesses and
operations and Rockhill furnished to KBW by Rockhill and us for
purposes of its analysis.
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KBW also held discussions with members of our senior management
regarding our past and current business operations, regulatory
relations, financial condition and future prospects and such
other matters as KBW deemed relevant to its inquiry. In
addition, KBW considered such financial and other factors as it
deemed appropriate under the circumstances, including, among
others, the following:
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the historical and current financial position and results of
operations of Rockhill and us;
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the assets and liabilities of Rockhill and us;
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the nature and terms of certain other merger transactions
involving insurance companies and insurance holding companies;
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publicly available financial data, stock market performance data
and trading multiples of companies which KBW deemed generally
comparable to us; and
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such other studies and analyses as KBW considered appropriate.
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KBW also took into account its assessment of general economic,
market and financial conditions and its experience in other
transactions, as well as its experience in securities valuation
and knowledge of the insurance industry generally. KBWs
opinion is necessarily based upon conditions as they existed and
could be evaluated on the date of its opinion and the
information made available to it through the date thereof.
In conducting its review and arriving at its opinion, KBW, with
our consent, assumed and relied upon, without independent
verification, the accuracy and completeness of all of the
financial and other information provided to it or publicly
available and did not assume any responsibility for
independently verifying the accuracy or completeness of any such
information. KBW, with our consent, relied upon our management
as to the reasonableness and achievability of the financial and
operating forecasts and projections (and the related assumptions
and bases) provided to it, and assumed that such forecasts and
projections were reasonably prepared by our management on bases
reflecting the best currently available estimates and judgments
of our management and that such forecasts and projections would
be realized in the amounts and in the time periods currently
estimated by our management. KBW expresses no view as to such
forecasts or projections or the assumptions upon which they were
based. KBW is not an expert in the independent verification of
the adequacy of reserves for loss and loss adjustment expenses
and assumed, with our consent, that our aggregate reserves for
loss and loss adjustment expenses are adequate to cover such
losses. In that regard, KBW made no analysis of, and expressed
no opinion as to, the adequacy of reserves for loss and loss
adjustment expenses. In rendering its opinion, KBW did not make
or obtain any evaluations or appraisals of the property of
Rockhill or us, nor did it examine any of our individual
underwriting files. In addition, KBW has not assumed any
obligation to conduct any physical inspection of our properties
or facilities.
KBW assumed, with our consent, that the merger would be
consummated in accordance with the terms of the merger
agreement, without waiver, modification or amendment of any
material term, condition or agreement, and that, in the course
of obtaining the necessary regulatory or third party approvals,
consents and releases for the merger, no delay, limitation,
restriction or condition will be imposed that would have a
material adverse effect on Rockhill or us. KBW further assumed
that the final terms of the merger agreement would not vary
materially from those set forth in the draft reviewed by KBW.
17
The following is a summary of the material analyses presented by
KBW to our board of directors on September 20, 2007 in
connection with its review of the financial considerations of
the merger. The summary is not a complete description of the
analyses underlying the KBW opinion or the presentation made by
KBW to our board of directors, but summarizes the analyses
performed and presented in connection with such opinion. The
preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of
those methods to the particular circumstances. Therefore, a
fairness opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, KBW did not
attribute any particular weight to any analysis or factor that
it considered, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. KBW did
not form an opinion as to whether any individual analysis or
factor (positive or negative) considered in isolation supported
or failed to support its opinion; rather KBW made its
determination that the merger consideration to be received by
holders of our common stock was fair, from a financial point of
view, to the holders of our common stock on the basis of its
experience and professional judgment, after considering the
results of all of its analyses taken as a whole. The financial
analyses summarized below include information presented in
tabular format, which do not constitute a complete description
of KBWs financial analyses and must be read in conjunction
with the accompanying text. Accordingly, KBW believes that its
analyses must be considered as a whole and that selecting
portions of its analyses and factors or focusing on the
information presented below in tabular format, without
considering all analyses and factors or the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of the process underlying
its analyses and opinion.
Summary of Proposal.
KBW reviewed the
financial terms of the proposed transaction. Pursuant to the
merger agreement, each share of our common stock will be
converted into the right to receive $12.45 in cash. The
aggregate transaction value to the holders of our common stock
is approximately $67.6 million based on the number of
shares and options outstanding on September 18, 2007.
Analysis of Historical Trading
Prices.
KBW reviewed the historical trading
prices and volumes for the shares of our common stock for the
five-year period from September 18, 2002 through
September 18, 2007. KBWs analysis showed the
following concerning the $12.45 per share price offered in the
merger relative to historical prices of our common stock:
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Premium/
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RTW
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(Discount)
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Closing price on September 18, 2007
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$
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8.13
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53.1
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%
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30-day
volume weighted average price
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$
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7.85
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58.6
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%
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60-day
volume weighted average price
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$
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7.95
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56.7
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%
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52-week high (9/27/06)
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$
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10.30
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20.9
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%
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52-week low (8/17/07)
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$
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7.01
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77.6
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%
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5-year
high
(2/16/05)
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$
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12.37
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0.6
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%
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5-year
low
(10/15/02)
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$
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1.20
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937.5
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%
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Comparable Companies Analysis.
Using
publicly available information, KBW compared our financial
performance, financial condition and market valuation to those
of a group of selected publicly-traded property-casualty
insurance companies operating in the workers compensation
insurance marketplace. These companies were selected based on
KBWs professional judgment considering characteristics
such as the type of insurance written and market capitalization.
None of the selected companies are directly comparable to us
and, therefore, the results of the selected companies analysis
and regression analysis are primarily financial calculations
rather than detailed analyses of the differences in operating
characteristics and business mixes of the various companies.
Appropriate use of the data includes qualitative judgments
concerning, among other things, differences among the companies.
Selected companies with a market capitalization greater than
$500 million as of September 18, 2007 included:
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Zenith National Insurance Corp.;
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Employers Holdings Inc.; and
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|
|
AmTrust Financial Services, Inc.
|
Selected companies with a market capitalization less than
$500 million as of September 18, 2007 included:
|
|
|
|
|
SeaBright Insurance Holdings, Inc.;
|
|
|
|
Meadowbrook Insurance Group, Inc.;
|
|
|
|
AMERISAFE, Inc.;
|
|
|
|
Eastern Insurance Holdings, Inc.;
|
|
|
|
AmCOMP Incorporated;
|
|
|
|
CRM Holdings, Ltd.; and
|
|
|
|
Specialty Underwriters Alliance, Inc.
|
To perform its analysis, KBW used financial information at or
for the six months ended June 30, 2007. Market price
information was as of September 18, 2007 and 2007 and 2008
earnings per share estimates were consensus estimates taken from
First Call, a nationally recognized earnings per share estimate
consolidator.
KBWs analysis showed the following concerning RTW and the
selected companies financial performance and financial
condition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Cap >
|
|
|
Market Cap <
|
|
|
|
|
|
|
$500 Million
|
|
|
$500 Million
|
|
|
|
RTW
|
|
|
Median
|
|
|
Median
|
|
|
Last 3 months total shareholder return
|
|
|
(0.1
|
)%
|
|
|
(15.3
|
)%
|
|
|
(8.9
|
)%
|
Last 12 months total shareholder return
|
|
|
(22.7
|
)%
|
|
|
14.2
|
%
|
|
|
2.6
|
%
|
Debt and preferred to total capital ratio
|
|
|
0
|
%
|
|
|
5.5
|
%
|
|
|
17.2
|
%
|
2007 estimated return on average
equity
(1)
|
|
|
6.5
|
%
|
|
|
19.5
|
%
|
|
|
12.0
|
%
|
2008 estimated return on average
equity
(1)
|
|
|
7.1
|
%
|
|
|
18.6
|
%
|
|
|
11.9
|
%
|
2007-2008
estimated EPS growth
rate
(1)
|
|
|
18.8
|
%
|
|
|
2.8
|
%
|
|
|
9.3
|
%
|
Note:
|
|
|
(1)
|
|
Earnings estimates for fiscal years 2007 and 2008 represent our
managements estimates, as no First Call consensus estimate
is published.
|
KBWs analysis showed the following concerning RTW and the
selected companies market valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Cap >
|
|
|
Market Cap <
|
|
|
|
|
|
|
$500 Million
|
|
|
$500 Million
|
|
|
|
RTW
|
|
|
Median
|
|
|
Median
|
|
|
Stock price as a multiple of book value per share
|
|
|
0.80
|
x
|
|
|
1.65
|
x
|
|
|
1.16
|
x
|
Stock price as a multiple of 2007 estimated earnings per
share
(1)
|
|
|
12.3
|
x
|
|
|
10.5
|
x
|
|
|
9.0
|
x
|
Stock price as a multiple of 2008 estimated earnings per
share
(1)
|
|
|
10.4
|
x
|
|
|
10.3
|
x
|
|
|
8.7
|
x
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
1.2
|
%
|
|
|
0.0
|
%
|
Note:
|
|
|
(1)
|
|
Earnings estimates for fiscal years 2007 and 2008 represent our
managements estimates, as no First Call consensus estimate
is published.
|
19
Trading
Multiples Analyses
For each selected company with a market capitalization less than
$500 million at the market close on September 18,
2007, KBW calculated the ratio of its estimated earnings per
share for 2007 and 2008, based on First Call consensus
estimates, to its stock price as of September 18, 2007.
Excluding the high and low values of the selected companies with
a market capitalization of less than $500 million, for
2007, KBW calculated earnings multiples of the selected
companies as ranging from a low of 7.7x to a high of 11.5x. For
2008, using the same methodology, KBW calculated earnings
multiples of the selected companies with market capitalization
of less than $500 million as ranging from a low of 6.6x to
a high of 9.9x (excluding the highest and lowest values). By
applying the derived range of multiples for 2007 of 7.7x to
11.5x to our estimated operating earnings per share of $0.66,
based on management estimates, KBW derived a range of implied
equity values for us of between $5.11 and $7.63 per share. By
applying the derived range of multiples for 2008 of 6.6x to 9.9x
to our 2008 estimated operating earnings per share of $0.78,
based on management estimates, KBW derived a range of implied
equity values for us of between $5.15 and $7.72 per share.
KBW also calculated the ratio of closing stock price as of
September 18, 2007 to reported GAAP book value per share at
June 30, 2007 of the selected companies with market
capitalization less than $500 million at the market close
on September 18, 2007. Excluding the high and low values of
the selected companies with a market capitalization of less than
$500 million, KBW calculated price to book value multiples
ranging from a low of 0.99x to a high of 1.42x. By applying the
derived range of multiples to our reported June 30, 2007
book value per share of $10.14, KBW derived a range of implied
equity values for us of between $10.04 and $14.40 per share.
KBW excluded companies with a market capitalization of more
than $500 million at the market close on September 18,
2007 from its trading multiple analyses because it did not
believe these companies were comparable to us since they are
much larger, have significantly greater liquidity, and are
generally covered by more equity research analysts.
KBW performed a regression analysis, which we refer to as ROAE
in this proxy statement, which assesses the relationship between
price-to-book ratios and return on average shareholders
equity to review, for comparable companies with market
capitalization of more than $500 million and of less than
$500 million at the market close on September 18,
2007, the relationship between (a) the ratio of closing
stock price as of September 18, 2007 to reported GAAP book
value per share at June 30, 2007 and (b) the 2007 and
2008 estimated return on average shareholders equity,
based on our management estimates. This analysis indicated that
based on our managements estimated ROAE of 6.5% and 7.1%
for 2007 and 2008, respectively, our implied book value multiple
was 0.90x and 0.81x, respectively. Based on this analysis, KBW
calculated an implied trading value for shares of our common
stock of $6.99 to $9.37.
Based on the analyses described above, KBW calculated the
following implied ranges of trading values for shares of our
common stock:
|
|
|
Implied Trading Values Based on Management Estimates
|
|
|
|
2007E operating
EPS
(1)
|
|
$ 5.11 to $ 7.63
|
2008E operating
EPS
(1)
|
|
$ 5.15 to $ 7.72
|
June 30, 2007 book value per
share
(1)
|
|
$ 10.04 to $14.40
|
2008E ROAE regression
analysis
(2)
|
|
$ 6.99 to $ 9.37
|
Notes:
|
|
|
(1)
|
|
Implied trading value range based on applying the minimum
metrics of the selected companies < $500 million,
excluding the highest and lowest values, to managements
2007 and 2008 earnings per share estimates and June 30,
2007 book value per share, respectively.
|
|
(2)
|
|
Implied values were derived from managements estimated
book value to the book value multiples implied by the regression
analyses of the selected comparable companies, +/- 15%, assuming
a 7.1% ROAE.
|
20
Sum
of the Parts Analysis
KBW performed a sum of the parts analysis to generate a range of
the implied equity value per share of our common stock, assuming
we were to be valued based on the sum of the values of the
insurance operations and service operations as separate
entities. Using our managements projections for each of
the insurance and service business segments on a stand-alone
basis, and publicly available financial performance and trading
information of selected publicly-traded peer companies for each
of the insurance and service segments, respectively, KBW
calculated a range of implied trading values for shares of our
common stock. These companies were selected based on KBWs
professional judgment considering characteristics such as the
type of business mix, estimated earnings before interest, taxes,
depreciation and amortization (EBITDA) margins,
long-term earnings growth prospects, and market capitalization.
None of the selected companies are directly comparable to us
and, therefore, the results of the sum of the parts analysis are
primarily financial calculations rather than detailed analyses
of the differences in operating characteristics and business
mixes of the various companies. Appropriate use of the data
includes qualitative judgments concerning, among other things,
differences among the companies.
Insurance
Segment
Using publicly available information and our managements
projections, KBW compared our insurance segment projected
financial performance and financial condition on a stand-alone
basis, to those of a group of selected publicly-traded
property-casualty insurance companies operating in the
workers compensation insurance marketplace with a market
capitalization less than $500 million at the market close
on September 18, 2007, which KBW deemed most comparable to
our insurance business segment given its size and focus on
workers compensation. The selected comparable insurance
companies included:
|
|
|
|
|
SeaBright Insurance Holdings, Inc.;
|
|
|
|
Meadowbrook Insurance Group, Inc.;
|
|
|
|
AMERISAFE, Inc.;
|
|
|
|
Eastern Insurance Holdings, Inc.;
|
|
|
|
AmCOMP Incorporated;
|
|
|
|
CRM Holdings, Ltd.; and
|
|
|
|
Specialty Underwriters Alliance, Inc.
|
For each selected company, KBW calculated the ratio of its
estimated operating earnings per share for 2008, based on First
Call consensus estimates, to its stock price as of
September 18, 2007. Excluding the highest and lowest values
of the selected group of companies, for 2008, KBW calculated
earnings multiples of the selected companies as ranging from a
low of 6.6x to a high of 9.9x. By applying the derived range of
multiples for 2008 to our 2008 estimated insurance segment
operating earnings of approximately $3.0 million, based on
management projections. Based on this analysis, KBW derived a
range of implied equity values for the insurance segment of
between $3.80 and $5.70 per share.
KBW also performed a regression analysis, which assesses the
relationship between price-to-reported GAAP book ratios and
ROAE, to review, for the selected comparable companies, the
relationship between (a) the ratio of closing market value
as of September 18, 2007 to reported GAAP book value per
share at June 30, 2007 and (b) the 2008 estimated
return on average shareholders equity, based on our
managements projections. This analysis indicated that,
based on our managements estimated ROAE of 6.5% and 7.1%
for 2007 and 2008, respectively, our implied book value multiple
was 0.90x and 0.81x respectively. Based on this analysis, KBW
derived a range for the implied equity value per share of our
insurance segment of $5.90 to $7.98.
21
Service
Segment
Using publicly available information and our managements
projections, KBW compared our service segment projected
financial performance and financial condition on a stand-alone
basis, to those of a group of selected publicly-traded business
service companies with market capitalizations less than
$1.0 billion at the market close on September 18,
2007, which KBW deemed most comparable to our service business
segment given its small size and focus on disability and absence
management services. The selected comparable service companies
included:
|
|
|
|
|
Administaff, Inc.;
|
|
|
|
Sykes Enterprises, Incorporated;
|
|
|
|
CDI Corp.;
|
|
|
|
CorVel Corporation;
|
|
|
|
Crawford & Company; and
|
|
|
|
Gevity HR, Inc.
|
For each selected company, KBW calculated the ratio of its
enterprise value at the market close on September 18, 2007,
to its estimated EBITDA for 2008, based on Bloomberg consensus
estimates. Excluding the highest and lowest values of the
selected group of companies for 2008, KBW calculated enterprise
value to estimated 2008 EBITDA multiples of the selected
companies as ranging from a low of 6.0x to a high of 7.7x. By
applying the derived range of multiples for 2008 to
managements projected 2008 estimated service segment
EBITDA of approximately $1.8 million, KBW derived a range
of implied enterprise values for the service segment. KBW then
derived an implied range of equity values for the service
segment by subtracting the service segments net debt,
resulting in a range of equity values of between $2.05 and $2.63
per share.
Adding the high and low implied valuations from each of the
insurance segment and service segment valuation analyses
detailed above, KBW calculated an implied sum of the parts range
of equity values for us of $5.85 to $10.61 per share.
Comparable
Transactions Analysis
Using publicly available information, KBW reviewed the range of
implied multiples paid or payable in selected change of control
transactions announced since January 1, 2001 with announced
deal values of less than $100 million involving certain
target companies participating in the workers compensation
segment of the property-casualty insurance market. An analysis
of the resulting multiples of the selected precedent
transactions necessarily involves complex considerations and
judgments concerning differences in financial and operating
characteristics of the companies and other factors that may have
affected the selected transactions
and/or
the
merger. Accordingly, while KBW assessed selected precedent
transactions in the workers compensation sector of the
property-casualty insurance marketplace, it determined that many
of such transactions offered limited comparability to the merger
due to, among other things, the limited information publicly
available for many of the precedent transactions, potential
differences in operating characteristics and performance of the
target companies in the precedent transactions and changes in
the insurance industry market conditions since some of the
precedent transactions were announced. No selected comparable
company or transaction was identical to us or the merger.
For each precedent transaction, KBW derived and compared, among
other things, the implied equity value paid for the acquired
company to (a) the reported GAAP book value of the acquired
company at the most recent quarter ended prior to announcement
and (b) the GAAP net income of the acquired company for the
latest twelve months, or LTM, of results prior to the time the
transaction was announced.
22
Selected transactions with an announced deal value less than
$100 million included:
|
|
|
|
|
Announcement Date
|
|
Target
|
|
Acquirer
|
|
May 14, 2007
|
|
Capital City Holding Company, Inc.
|
|
North Pointe Holdings Corporation
|
September 8, 2006
|
|
Embarcadero Insurance Holdings
|
|
CRM Holdings, Ltd.
|
March 17, 2005
|
|
Eastern Holding Co.
|
|
Educators Mutual Life Insurance Co.
|
Based on the analyses described above, KBW calculated
(a) the multiples of transaction equity value to the LTM
GAAP operating earnings for the target companies as ranging from
a low of 6.7x to a high of 12.0x and (b) the multiples of
transaction equity value to GAAP book value for the target
companies prior to announcement as ranging from a low of 1.01x
to a high of 1.28x. Based upon the minimum and maximum
transaction equity values to LTM GAAP operating earnings
multiples derived from this analysis, KBW calculated a range of
implied equity values for our common stock of between $2.75 and
$4.92 per share based on our LTM GAAP operating earnings per
share of $0.41 at June 30, 2007. Based upon the minimum and
maximum transaction equity values to GAAP book value multiples
derived from this analysis, KBW calculated a range of implied
equity values for our common stock of between $10.24 and $12.98
per share based on our reported June 30, 2007 GAAP book
value per share of $10.14.
Analysis
of Historical Premiums Paid
KBW compared the premium implied by the $12.45 purchase price to
our historical stock price to that of premiums paid in
acquisitions of other publicly-traded companies. As part of its
analysis, KBW reviewed all whole company merger and acquisition
transactions across all industries with an equity purchase price
between $50 million and $200 million announced since
January 1, 2004 until September 18, 2007 in which the
target was a U.S. publicly-traded entity and in selected
acquisitions of financial institutions during the same period
and in the same value range. Based on the high and low median
premiums paid to the closing stock price of target companies
(a) one day, (b) one week and (c) one month prior
to announcement in these transactions, KBW calculated the
implied range of values for RTW to be between $9.67 and $10.33
per share.
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Day
|
|
|
One Week
|
|
|
One Month
|
|
|
|
Premium
|
|
|
Premium
|
|
|
Premium
|
|
|
RTW, Inc.
Transaction
(1)
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
69
|
%
|
All precedent transactions (median)
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
27
|
%
|
All precedent transactions (mean)
|
|
|
27
|
%
|
|
|
29
|
%
|
|
|
33
|
%
|
Financial institutions transactions (median)
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
23
|
%
|
Financial institutions transactions (mean)
|
|
|
25
|
%
|
|
|
26
|
%
|
|
|
29
|
%
|
Notes:
|
|
|
(1)
|
|
Implied premium based on the closing price of our common stock
on September 18, 2007.
|
Based on the analyses described above, KBW calculated the
following implied ranges of trading values for shares of our
common stock:
|
|
|
Comparable Transaction Analysis
|
|
|
|
LTM GAAP operating EPS
|
|
$ 2.75 to $ 4.92
|
June 30, 2007 book value per share
|
|
$10.24 to $12.98
|
Historical premiums
analysis
(1)
|
|
$ 9.67 to $10.33
|
Note:
|
|
|
(1)
|
|
Historical stock price to premiums paid in acquisitions range
from 19% (one day market premium for 145 financial
institutions transactions) to 27% (one month market premium for
403 transactions across all industries).
|
23
Discounted
Cash Flow Analysis
KBW performed a discounted cash flow analysis to generate a
range for the implied present value per share of our common
stock assuming we continued to operate as a stand-alone public
company.
This range was determined by adding (a) the present value
of our estimated future free cash flows to shareholders for the
years 2008 through 2012 and (b) the present value of the
terminal value of our common stock. Terminal values for our
common stock were calculated based on a range of terminal
multiples applied to the 2012 book value for the insurance
operations and applied to the 2012 EBITDA estimates for the
service segment.
In connection with this analysis, KBW utilized, with our
consent, the
5-year
projections provided by our management reflecting
managements best currently available estimates and
judgments of the future financial performance of us. As part of
its analysis and with our consent, KBW assumed, among other
things, that (a) all operating cash flow is retained to
support the growth of the business and maintain financial
strength ratings at the insurance company level, (b) 50% of
working capital at the service segment at 2012 is deemed to be
excess capital and is paid as a cash dividend to shareholders,
and (c) we are sold at December 31, 2012 based on a
trailing multiple with the proceeds being discounted back to
present value.
KBW estimated the range for the implied present value per share
of our common stock by varying the following assumptions:
Insurance:
|
|
|
|
|
a range of terminal multiples applied to year 2012 estimated
GAAP book value of 1.05x to 1.25x; and
|
|
|
|
discount rates representing a weighted average cost of capital
ranging from 17% to 19%, which range KBW, in its professional
judgment, deemed reasonable for a small market capitalization
company with the risk characteristics of our insurance
operations.
|
Service (Absentia):
|
|
|
|
|
a range of terminal multiples applied to year 2012 estimated
EBITDA of 6.0x to 7.0x; and
|
|
|
|
discount rates representing a weighted average cost of capital
ranging from 27.5% to 32.5%, which range KBW, in its
professional judgment, deemed reasonable for a
start-up
company with the risk characteristics of our service operations.
|
This analysis resulted in a range for the implied present value
per share of our common stock of $11.02 to $14.67.
KBW stated that, while discounted cash flow analysis is a widely
accepted and practiced valuation methodology, it is highly
sensitive to the assumptions for projected growth in net income
and shareholders equity, terminal exit multiples and
discount rates. The valuation derived from the discounted cash
flow analysis is not necessarily indicative of RTWs actual
or expected future value or results.
Miscellaneous.
Our board of directors
retained KBW as an independent contractor to act as financial
advisor to us regarding the merger. As part of its investment
banking business, KBW is continually engaged in the valuation of
insurance company and insurance holding company securities in
connection with acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities,
private placements and valuations for various other purposes. As
specialists in the securities of financial institutions,
including insurance companies, KBW has experience in, and
knowledge of, the valuation of insurance enterprises. In the
ordinary course of its business as a broker-dealer, KBW may from
time to time purchase securities from, and sell securities to,
us, and as a market maker in securities, KBW may from time to
time have a long or short position in, and buy or sell, our debt
or equity securities for its own account and for the accounts of
its customers.
KBW also made its determination as to fairness on the basis of
its experience and professional judgment after considering the
results of all of the analyses. KBW reviewed the foregoing
analyses for purposes of providing its opinion to our board of
directors as to the fairness from a financial point of view, of
the merger
24
consideration to be received by holders of our common stock. The
price specified in the merger agreement was determined through
arms-length negotiations between Rockhill and us and was
approved by our board of directors. KBW provided advice to us
during these negotiations. KBW did not, however, recommend any
specific consideration amount to us or to our board of directors.
As described above, KBWs opinion to the board of directors
was one of many factors taken into consideration by our board of
directors in making its determination to approve the merger
agreement. The foregoing summary does not purport to be a
complete description of the analyses performed and reviewed by
KBW, and is qualified in its entirety by reference to the
written opinion of KBW attached as Appendix B to this proxy
statement.
RTW and KBW entered into an engagement letter relating to the
services to be provided by KBW in connection with the merger.
For the services described above, we agreed to pay to KBW:
|
|
|
|
|
a retainer of $65,000 due promptly after execution of the
engagement letter;
|
|
|
|
$350,000 due upon the delivery of a fairness opinion;
|
|
|
|
an additional fee paid as a percentage of the total sales price
net of the fees paid for retainer and the fairness opinion,
estimated to be $436,440 due at closing; and
|
|
|
|
reimbursement for reasonable out-of-pocket expenses and
disbursements incurred.
|
RTW further agreed to indemnify KBW against certain liabilities,
including liabilities under the federal securities laws.
Purposes
and Effects of the Merger
The principal purpose of the merger is to enable Rockhill to
acquire all of the outstanding shares of RTW common stock in
exchange for $12.45 in cash for each share of RTW common stock
you hold immediately prior to the merger. The acquisition will
be accomplished by a merger of Rockhill Acquisition Corporation
with and into RTW, with RTW surviving the merger as a
wholly-owned subsidiary of Rockhill. Each share of our common
stock issued and outstanding immediately prior to the effective
time of the merger (other than shares held by Rockhill or shares
owned by shareholders who dissent from the merger and properly
perfect their appraisal rights as described under
Dissenters Rights) will be cancelled and
converted into the right to receive $12.45 in cash, without
interest. You will be entitled to receive the merger
consideration, minus any withholding taxes required by law,
after the paying agent receives your share certificates together
with certain other documents in accordance with a letter of
transmittal and instructions that will be mailed to you promptly
after completion of the merger (see The Merger
Agreement Payment Procedures for Common
Shares).
Holders of options to purchase shares of RTW common stock will
receive a cash amount equal to the excess, if any, of $12.45
over the exercise price of the option multiplied by the number
of shares of common stock subject to the option, less any
applicable withholding taxes, without interest. All option
vesting periods will be accelerated and all options will be
cancelled. Following the completion of the merger, we will also
de-register under the Securities Exchange Act of 1934, and our
common stock will no longer be listed on The NASDAQ Global
Market or any other market and we will not be publicly traded.
Participants in the ESPP will be treated in a similar manner.
The ESPP will be terminated on the earlier of
|
|
|
|
|
the effective time of the merger; or
|
|
|
|
December 31, 2007.
|
All holders of funded stock options under the ESPP (that is,
options with respect to which amounts sufficient to exercise the
options have been withheld) will receive a payment equal to the
excess, of $12.45 over the exercise price of the option ($6.76
in the case of options under the ESPP) multiplied by the number
of shares of common stock subject to the option, less any
applicable withholding taxes, without interest.
25
Certain
Estimates of Forecasted Results
In connection with KBWs opinion, our management provided
to KBW certain estimates of forecasted financial results. Our
management also provided certain estimates of forecasted results
to parties that participated in the competitive sales process,
including Rockhill. The estimates of forecasted financial
results of RTW as a stand-alone public company that were
provided to KBW are set forth below and included in this proxy
statement only because this information was provided to the
board as part of its consideration of the transaction with
Rockhill.
The estimates of forecasted results described below were
prepared by management of RTW and were not prepared with a view
towards public disclosure. These estimates do not purport to
present operations in accordance with generally accepted
accounting principles. The estimates reflect certain adjustments
made by our management, and our independent auditors have not
examined or compiled the projections and accordingly assume no
responsibility for them. RTWs internal financial estimates
are, in general, prepared solely for internal use and budgeting
and other management decisions and are subjective in many
respects and thus susceptible to interpretations and periodic
revision based on actual experience and business developments.
The estimates also reflect numerous assumptions made by our
management with respect to industry performance, general
business, economic, market and financial conditions and other
matters, all of which are difficult to predict and many of which
are beyond RTWs control. Accordingly, there can be no
assurance that the estimates of forecasted results will prove
accurate. In addition, the estimates do not consider the effect
of any future combination of RTWs business with Rockhill.
Summary
Financial Projections*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
Selected Income Statement Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums earned
|
|
$
|
56,400
|
|
|
$
|
64,800
|
|
|
$
|
73,200
|
|
|
$
|
81,500
|
|
|
$
|
90,300
|
|
Ceded reinsurance
|
|
|
(8,000
|
)
|
|
|
(9,100
|
)
|
|
|
(10,100
|
)
|
|
|
(11,200
|
)
|
|
|
(12,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
48,400
|
|
|
$
|
55,700
|
|
|
$
|
63,100
|
|
|
$
|
70,300
|
|
|
$
|
77,700
|
|
Service revenue (Absentia)
|
|
$
|
7,861
|
|
|
$
|
11,058
|
|
|
$
|
19,351
|
|
|
$
|
27,974
|
|
|
$
|
40,278
|
|
Investment income
|
|
|
6,290
|
|
|
|
6,546
|
|
|
|
7,265
|
|
|
|
8,164
|
|
|
|
9,463
|
|
Intercompany revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
62,552
|
|
|
$
|
73,304
|
|
|
$
|
89,715
|
|
|
$
|
106,439
|
|
|
$
|
127,441
|
|
Claim/claim settlement expenses
|
|
$
|
32,850
|
|
|
$
|
37,377
|
|
|
$
|
41,631
|
|
|
$
|
45,959
|
|
|
$
|
50,371
|
|
Underwriting Expenses
|
|
|
7,911
|
|
|
|
8,991
|
|
|
|
10,288
|
|
|
|
11,499
|
|
|
|
12,825
|
|
General and administrative costs
|
|
|
15,398
|
|
|
|
18,448
|
|
|
|
23,651
|
|
|
|
29,406
|
|
|
|
37,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expense
|
|
$
|
56,159
|
|
|
$
|
64,815
|
|
|
$
|
75,570
|
|
|
$
|
86,863
|
|
|
$
|
100,429
|
|
Income before income taxes
|
|
$
|
6,393
|
|
|
$
|
8,489
|
|
|
$
|
14,145
|
|
|
$
|
19,576
|
|
|
$
|
27,012
|
|
Income tax expense
|
|
|
2,267
|
|
|
|
3,050
|
|
|
|
5,274
|
|
|
|
7,352
|
|
|
|
10,164
|
|
Tax Rate
|
|
|
35.5
|
%
|
|
|
35.9
|
%
|
|
|
37.3
|
%
|
|
|
37.6
|
%
|
|
|
37.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,126
|
|
|
$
|
5,439
|
|
|
$
|
8,871
|
|
|
$
|
12,224
|
|
|
$
|
16,848
|
|
Selected Balance Sheet Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments
|
|
$
|
137,189
|
|
|
$
|
146,004
|
|
|
$
|
161,079
|
|
|
$
|
182,027
|
|
|
$
|
208,394
|
|
Total assets
|
|
|
224,122
|
|
|
|
236,111
|
|
|
|
258,832
|
|
|
|
290,706
|
|
|
|
330,203
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
$
|
59,772
|
|
|
$
|
65,211
|
|
|
$
|
74,082
|
|
|
$
|
86,306
|
|
|
$
|
103,153
|
|
Selected Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity
|
|
|
7.1
|
%
|
|
|
8.7
|
%
|
|
|
12.7
|
%
|
|
|
15.2
|
%
|
|
|
17.8
|
%
|
|
|
|
*
|
|
Due to rounding, some of the totals in this table do not sum to
the amounts shown.
|
26
The estimates of forecasted results described above were not
prepared with a view to public disclosure or compliance with
published guidelines of the Securities and Exchange Commission
or the guidelines established by the American Institute of
Certified Public Accountants regarding forecasts or projections.
These estimates are forward-looking statements and are based on
expectations and assumptions at the time they were prepared by
management. The estimates described above involve risks and
uncertainties that could cause actual outcomes and results to
differ materially from such expectations, including risks and
uncertainties described under Forward Looking
Information. For a discussion of risks and uncertainties
that may be relevant to RTWs results, shareholders may
also refer to RTWs filings with the Securities and
Exchange Commission. There can be no assurance that the
assumptions and adjustments made in preparing the estimates of
forecasted results described above will prove accurate, or that
the estimates will be realized. It is to be expected that there
will be differences between actual and forecasted results, and
actual results may be materially greater or less than those
contained in the estimates of forecasted results described
above. The inclusion of these estimates should not be regarded
as an indication that RTW or Rockhill, or their respective
affiliates or representatives, considered or consider such data
to be a reliable prediction of future events, and such data
should not be relied upon as such. None of RTW, Rockhill or any
of their respective affiliates or representatives has made or
makes any representations to any person regarding the ultimate
performance of RTW compared to the information contained in the
estimates of forecasted results, and none of them intends to
provide any update or revision thereof.
Certain
Material Federal Income Tax Considerations
The following discussion is a summary of certain material United
States federal income tax considerations related to the merger
for U.S. holders (as defined below) of our common stock but
it does not purport to be a comprehensive description of all
potential tax effects that may be relevant to a decision to
dispose of common stock in the merger, including tax
considerations that arise from rules of general application to
all taxpayers or to certain classes of investors or that are
generally assumed to be known by investors. This discussion is
based on the Internal Revenue Code of 1986, as amended (the
Code), applicable Treasury Regulations, judicial
authority, and administrative rulings and procedures, all in
effect on the date of this proxy statement and all of which are
subject to change, possibly with retroactive effect, and to
differing interpretation. For purposes of this discussion, the
term U.S. holder means:
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
|
a corporation, or other entity taxable as a corporation created
or organized under the laws of the United States or of any state
or a political subdivision thereof;
|
|
|
|
a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) was in existence on August 20,
1996 and has elected to continue to be treated as a United
States person;
|
|
|
|
an estate, the income of which is subject to United States
federal income tax regardless of its source; or
|
|
|
|
a person whose worldwide income or gain is otherwise subject to
United States federal income tax on a net income basis.
|
This discussion is limited to shareholders that hold their
shares of our common stock as capital assets within the meaning
of Section 1221 of the Code. This discussion does not
address all aspects of taxation that may be relevant to a
U.S. holder in light of the holders particular
circumstances, or that may apply to a U.S. holder subject
to special tax rules (including, for example, insurance
companies, dealers in securities or foreign currencies,
tax-exempt organizations, financial institutions, mutual funds,
United States expatriates, shareholders who hold shares of our
stock as part of a hedge, straddle, constructive sale or
conversion transaction, or shareholders who acquired their
shares of our common stock through the exercise of employee
stock options or other compensation arrangements). In addition,
this discussion does not address any tax
27
considerations under state, local or foreign laws or federal
laws other than those pertaining to the federal income tax that
may apply to you.
We urge you to consult your own tax advisor
to determine the particular tax considerations (including the
application and effect of any state, local, foreign, or other
tax laws) relevant to the receipt of cash in exchange for your
shares of common stock pursuant to the merger.
The merger will be treated as a taxable sale or exchange of our
common stock for cash for United States federal income tax
purposes. In general, a U.S. holder of our common stock
will recognize gain or loss equal to the difference between
(1) the amount of cash received in exchange for such shares
and (2) the shareholders adjusted tax basis in such
shares. If your holding period in our shares surrendered in the
merger is greater than one year as of the date of the merger,
the gain or loss will be long-term capital gain or loss. The
deductibility of a capital loss recognized on the exchange is
subject to limitations. If you acquired different blocks of our
stock at different times or different prices, you must determine
your tax basis and holding period separately with respect to
each block of our stock. Capital gains recognized by a
non-corporate U.S. holder upon disposition of a share of
our common stock that has been held for more than one year
generally will be subject to a maximum U.S. federal income
tax rate of 15%.
Under the Code, you may be subject, under certain circumstances,
to backup withholding at a rate of 28% with respect to the
amount of cash received in the merger, unless you provide proof
of an applicable exemption or a correct taxpayer identification
number, and otherwise comply with the applicable requirements of
the backup withholding rules. If you are a U.S. holder you
should complete and sign the substitute IRS
Form W-9
included in the letter of transmittal from the paying agent to
provide the information necessary to avoid backup withholding.
Non-U.S. holders
should complete and sign an applicable
Form W-8
(a copy of which may be obtained from the paying agent) to avoid
backup withholding. Backup withholding is not an additional tax
and any amounts withheld may be credited against your United
States federal income tax liabilities.
Governmental
and Regulatory Approvals
Mergers and acquisitions that may have an impact in the United
States are subject to review by the Department of Justice and
the Federal Trade Commission to determine whether they comply
with applicable antitrust laws. Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (which we refer to as the
HSR Act), mergers and acquisitions that meet certain
jurisdictional thresholds, such as the present transaction, may
not be completed until the expiration of a waiting period that
follows the filing of notification forms by both parties to the
transaction with the Department of Justice and the Federal Trade
Commission. The initial waiting period is 30 days, but this
period may be shortened if the reviewing agency grants
early termination of the waiting period, or it may
be lengthened if the reviewing agency determines that an
in-depth investigation is required and issues a formal request
for additional information and documentary material. If the
reviewing agency opens an in-depth investigation by formally
requesting additional information and documentary material
concerning the merger, the waiting period is extended until the
30th calendar day after the date of substantial compliance
with the request by both parties, unless the waiting period is
terminated earlier by the reviewing agency. The HSR Act
authorizes only one extension of the waiting period pursuant to
a request for additional information. Thereafter, either a court
order or the consent of both parties is required to extend the
waiting period. Rockhill and RTW expect to file notification
reports with the Department of Justice and Federal Trade
Commission under the HSR Act on or about November 12, 2007.
In this event, the waiting period would expire 30 days
later, or on or about December 12, 2007, unless a formal
request is made for additional information or documentary
material, or unless the reviewing agency grants early
termination of the waiting period.
The Department of Justice and the Federal Trade Commission
routinely examine the legality under the antitrust laws of
transactions such as the merger. At any time before or after the
merger, the Department of Justice or the Federal Trade
Commission could take action under the antitrust laws as it
deems necessary or desirable in the public interest, including
seeking to enjoin the merger or seeking divestiture of
substantial assets of Rockhill or RTW or their subsidiaries.
Private parties and state attorneys general may also bring an
28
action under the antitrust laws under certain circumstances.
There can be no assurance that a challenge to the merger on
antitrust grounds will not be made or, if a challenge is made,
of the result of the challenge.
RTW and Rockhill will cooperate with each other to file with
relevant insurance regulators requests for approval of the
transactions contemplated by the merger agreement. Rockhill will
notify RTW if it receives any material notice or communication
from any insurance regulator in connection with the transactions
contemplated in the merger agreement, particularly to the extent
that if the merger were not consummated such notice would have a
material adverse effect on RTW.
Interests
of Certain Persons in the Merger
In considering the recommendation of our board of directors with
respect to the merger agreement, you should be aware that our
executive officers and directors have interests in the merger
and have arrangements that are different from, or in addition
to, those of our shareholders generally. Our board of directors
was aware of these interests and considered them, among other
matters, in reaching its decisions to approve the merger
agreement and to recommend that our shareholders vote in favor
of the merger agreement.
Stock
Options and other Incentive Compensation
The merger agreement provides that, upon the effective time of
the merger, all of the stock options outstanding under the
Companys stock option plans that have not yet vested will
vest, including those held by our executive officers and
directors, and that each stock option will be cancelled and
converted into the right to receive the excess, if any, of
$12.45 over the exercise price of the stock option for each
share of our common stock subject to the option, less applicable
withholding taxes and without interest.
Based upon holdings as of November 6, 2007, we expect that
at the record date for the special meeting, our directors and
executive officers will hold the following stock options,
including both presently vested options and unvested options
that will vest at the effective time of the merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value at $12.45
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Included in
|
|
|
per Share of
|
|
|
Value of Vested
|
|
|
|
Total
|
|
|
Average
|
|
|
the Total
|
|
|
Unvested
|
|
|
and Unvested
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Shares
|
|
|
Shares
|
|
|
Options
|
|
|
|
Subject
|
|
|
Price of
|
|
|
Subject to
|
|
|
Subject to
|
|
|
at $12.45
|
|
Name
|
|
to Options
|
|
|
All Options
|
|
|
Options
|
|
|
Options
|
|
|
per Share
|
|
|
Jeffrey B. Murphy
|
|
|
212,007
|
|
|
$
|
6.77
|
|
|
|
23,333
|
|
|
$
|
137,333
|
|
|
$
|
1,218,100
|
|
Alfred L. LaTendresse
|
|
|
67,500
|
|
|
|
5.28
|
|
|
|
|
|
|
|
|
|
|
|
484,225
|
|
Keith D. Krueger
|
|
|
37,250
|
|
|
|
8.46
|
|
|
|
|
|
|
|
|
|
|
|
148,713
|
|
Patricia M. Sheveland
|
|
|
39,294
|
|
|
|
10.10
|
|
|
|
|
|
|
|
|
|
|
|
108,413
|
|
David M. Dietz
|
|
|
29,500
|
|
|
|
8.74
|
|
|
|
|
|
|
|
|
|
|
|
109,465
|
|
Lyron L. Bentovim
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Deters
|
|
|
14,000
|
|
|
|
6.98
|
|
|
|
3,501
|
|
|
|
6,366
|
|
|
|
76,570
|
|
John O. Goodwyne
|
|
|
16,500
|
|
|
|
6.22
|
|
|
|
3,501
|
|
|
|
6,366
|
|
|
|
102,745
|
|
Gregory D. Koschinska
|
|
|
16,500
|
|
|
|
6.22
|
|
|
|
3,501
|
|
|
|
6,366
|
|
|
|
102,745
|
|
David C. Prosser
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Prosser
|
|
|
14,000
|
|
|
|
6.98
|
|
|
|
3,501
|
|
|
|
6,366
|
|
|
|
76,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
446,551
|
|
|
$
|
7.08
|
|
|
|
37,337
|
|
|
$
|
162,797
|
|
|
$
|
2,427,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, at the effective time of the merger, participants
in our 1994 Stock Plan, as amended, the 2005 Stock Plan, as
amended and the ESPP (Company Stock Option Plans)
which include certain of our executive officers, will receive
the excess of $12.45 over the exercise price as determined under
the Company Stock Option Plans for each whole number of shares
the participant would be otherwise entitled to purchase under
the Company Stock Option Plans, less any applicable withholding
tax and without interest. The table above does not show the
value from the number of shares that may be received by our
executive officer
29
participants in the ESPP and our non-executive officer and
non-director
participants in the Company Stock Option Plans. In lieu of
receiving option grants, non-employee directors David C. Prosser
and Lyron L. Bentovim received the cash value of the
non-employee director option grants, payable in equal
installments on the same vesting schedule as the non-employee
director stock option grants. Upon the effective time of the
merger, the remaining liability to Prosser and Bentovim will
vest and each will receive a cash payment of $11,351.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic Value of
|
|
|
Intrinsic Value of
|
|
|
|
|
|
|
in-the-Money Stock
|
|
|
ESPP Shares at
|
|
|
|
|
Name
|
|
Options
|
|
|
12/31/07(1)
|
|
|
Total
|
|
|
Jeffrey B. Murphy
|
|
$
|
1,218,100
|
|
|
|
14,914
|
|
|
|
1,233,014
|
|
Alfred L. LaTendresse
|
|
|
484,225
|
|
|
|
13,127
|
|
|
|
497,352
|
|
Keith D. Krueger
|
|
|
148,713
|
|
|
|
1,429
|
|
|
|
150,142
|
|
Patricia M. Sheveland
|
|
|
108,413
|
|
|
|
|
|
|
|
108,413
|
|
David M. Dietz
|
|
|
109,465
|
|
|
|
1,429
|
|
|
|
110,894
|
|
Notes:
|
|
|
(1)
|
|
Assumes a December 31, 2007 closing date.
|
Payments
to Executives Under the RTW 2007 Profit Sharing Plan
Rockhill has also agreed that, no later than 5 business days
after the effective time of the merger, it will cause the
surviving corporation to pay to our employees who participate in
the RTW 2007 Profit Sharing Plan the cash incentive payment
under the 2007 Profit Sharing Plan payable to such employee as
if the last day prior to the merger date were the last day of
the performance period and based upon actual achievement of each
measure pro-rated based on the number of completed months in the
adjusted performance period. Executives participate in two bonus
pools. One bonus pool includes all employees and depends upon
RTW achieving pre-tax earnings. Executives receive payments of
this pool distributed pro rata to their salaries relative to all
employee participants. The second bonus pool requires that RTW
earns at least $800,000 in pre-tax earnings excluding investment
income and certain favorable developments in claims and claim
settlement expenses. Payments under the second pool are subject
to the discretion of the RTW board.
Based on RTWs results through September 30, 2007, RTW
believes that there is only a remote possibility that the
executive officers will receive any payments under the 2007
Profit Sharing Plan and that if any payments are made, these
payments would not exceed $25,000.
Employment
Agreement with Mr. Murphy
We entered into an employment agreement with Jeffrey B. Murphy,
our President and Chief Executive Officer, on March 28,
2006 that continued through March 31, 2007 and was
subsequently renewed through March 31, 2008. The employment
agreement with Mr. Murphy provides that for his services as
President and Chief Executive Officer, Mr. Murphy receives
an annual base salary of $350,000, subject to review annually
for increase by our board of directors. In addition to base
salary, Mr. Murphy is eligible for bonuses, expense
reimbursements and health, dental, life and disability insurance
consistent with that provided other officers and employees.
Additionally, we agreed to provide Mr. Murphy with a
$2.0 million term life insurance policy for the benefit of
his wife and family and granted him a stock option on
10,000 shares, vesting one third upon grant, and one third
on each of the first and second anniversaries of the grant. This
agreement has been extended, but will be replaced at closing
with a new employment agreement between Mr. Murphy and RTW
to be effective after the merger.
Employment
Agreements with Executive Officers Following the
Merger
Employment Agreements between RTW and Messrs. Murphy,
LaTendresse, Krueger, Dietz and Ms. Sheveland to be
effective after the merger.
30
The board of directors, in connection with the boards
approval of the merger agreement, reviewed and approved proposed
employment agreements under which the following executives will
perform following the merger: Jeffrey B. Murphy, Alfred L.
LaTendresse, Keith D. Krueger, David M. Dietz and Patricia M.
Sheveland. It is a condition to closing that these employment
agreements are signed and these executives are able to perform
their duties after the merger.
The employment agreements for each executive provides for a base
salary, participation in a bonus program, restricted stock
awards, directors and officers liability insurance, and
participation in Rockhills benefits programs.
Mr. Murphy will continue to receive a $2.0 million
term life insurance policy for the benefit of his wife and
family.
Under the employment agreements, if an executives
employment terminates due to death, voluntary resignation, or if
terminated for cause, the executive receives his or her base
salary through the last day of employment and payment of any
earned or accrued benefits. If the executive: (i) is
terminated without cause; (ii) terminates employment for
good reason; or (iii) terminates employment due to
disability, then the executive is entitled to:
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base salary for one year following termination in the case of
Mr. Murphy and the greater of six months or two weeks for
each year of service for the other officers;
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continued participation for the executive and his or her
dependents in all medical, dental, hospitalization, and life
insurance, and participation in all other employee welfare
benefit plans, programs and arrangements in which the executive
and his or her dependents were participating at the time of the
executives termination of employment, to the extent
permitted by applicable law for one year following termination
in the case of Mr. Murphy and the greater of six months or
two weeks for each year of service for the other officers;
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payment of any bonus for the prior year that has not been
paid; and
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continued participation in the restricted stock program on a
pro-rata basis through 2012 based on achieving certain incentive
plan goals.
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Cause is defined as the executives:
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material failure, neglect or refusal to perform his or her
duties, which is not cured after written notice;
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malfeasance, fraud, dishonesty or gross misconduct;
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violation of company policies and practices that has a material
adverse effect;
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material breach of the employment agreement which is not cured
after written notice;
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conviction of, or a guilty or no contest plea to a crime
involving moral turpitude or a felony.
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Good reason means:
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a material change in or undermining of the executives
duties;
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relocation of the executive offices of RTW out of Bloomington,
MN;
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material breach by RTW of the employment agreement; or
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a change in control at RTW or Rockhill, only if performance
goals are satisfied.
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The executives also agree that in the event of termination of
employment for any reason, the executive cannot compete with RTW
for a period of one year, except for Mr. Murphy whose
non-competition covenant is for two years.
The executives are also eligible to participate in a bonus
program based on the consolidated results of Rockhill. The bonus
program is calculated and paid based on a percentage of
underwriting profit. Underwriting profit is based on net earned
premium less estimated ultimate losses and loss adjustment
expense less other operating expenses. Bonuses are calculated at
7.5% of underwriting profit with a minimum of $750,000 and a
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maximum of $3 million in any calendar year to be allocated
among all five of the RTW executives and other executives of
Rockhill in amounts determined by Rockhills chief
executive officer. Bonus payments are paid out over three or six
year periods and bonus plan eligibility is determined by
Rockhills President and Chief Executive Officer. The
minimum and maximum bonus values apply only until
December 31, 2008, and after that date there are no minimum
or maximum bonus amounts. For example, if the company-wide
underwriting profit for a given year were $20,000,000, then a
bonus of $1,500,000 would be eligible for distribution to all
plan participants.
Each of the executives will also receive an award of restricted
shares under Rockhills 2005 Restricted Stock Program. The
executives will each receive an award in the amount described
under each executives name in the chart below. The
restricted shares vest after five years only if the executive
remains employed with Rockhill, and Rockhill achieves
performance goals related to either return on average equity
(between 10% and 12% with 0% vesting for 10% or less and 100%
vesting for 12% or greater and prorated vesting between 10% and
12%) or internal rate of return targets (between 15% and 25%
with 0% vesting at 15% or less and 100% vesting at 25% or
greater and prorated vesting between 15% and 25%) in the
performance period from 2008 to 2012. In the event of
termination due to death, disability, for good reason, or by RTW
without cause, the executive will vest in a pro-rated number of
shares if the performance goals are satisfied. In the event of a
change in control of Rockhill, the restricted shares vest in
full if the performance goals are satisfied. Each share of
restricted stock is valued at approximately $1,000 per share and
the aggregate number of shares issuable to the RTW executives if
the targets are achieved in the performance period is
3,000 shares, representing just over 2% of the total shares
outstanding of Rockhill.
Summary
Chart of Executive Employment Arrangements Following the
Merger
The following chart summarizes the basic terms of the employment
arrangements.
Summary
of Employment Arrangements Following the Merger
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Current
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New Salary
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Restricted
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RTW
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Following
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Share
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Bonus
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Non-
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Salary
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Merger
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Award
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Program
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Term of
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Competition
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Executive
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Title
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($)
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($)
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(#)
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Eligibility
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Agreement
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Covenant
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Jeffrey B. Murphy
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President, Chief Executive Officer
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350,000
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350,000
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1,000
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Yes
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2 years
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2 years
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Alfred L. LaTendresse
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Executive Vice President, Chief Financial Officer
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220,000
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220,000
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400
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Yes
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1 year
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1 year
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Keith D. Krueger
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Chief Operating Officer
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205,000
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205,000
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600
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Yes
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1 year
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1 year
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David M. Dietz
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VP-Business Development
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177,000
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177,000
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600
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Yes
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1 year
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1 year
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Patricia M. Sheveland
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VP-Product Development,
Quality and Compliance
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177,000
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177,000
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400
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Yes
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1 year
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1 year
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Information
Regarding Former Executive Mr. Byers
On June 8, 2007, the employment of Mr. Thomas J.
Byers, Executive Vice President Sales and Marketing,
was terminated. RTW agreed to continue Mr. Byers
salary for 2007 for six months and also agreed that if a
transaction involving RTW occurred prior to December 31,
2007; Mr. Byers would be entitled to an additional payment
equal to the difference between his option exercise prices and
the transaction price. As a result of the Merger, Mr. Byers
will receive a payment of $14,325 representing the difference
between the exercise price of his options and the merger
consideration.
Indemnification
and Benefits Provision in the Merger Agreement
Rockhill has agreed that, for a period of six years from the
effective time of the merger, the articles of incorporation and
bylaws of the surviving corporation will contain provisions no
less favorable with respect to indemnification and exculpation
of our directors and officers prior to the effective time of the
merger than those contained in our articles and bylaws in effect
on the date of the merger agreement. The merger agreement also
provides for the continued indemnification and advancement of
expenses, to the fullest extent
32
permitted by applicable law, of current or former directors,
officers and employees of RTW for certain events occurring at or
before the merger. For more information, please refer to
The Merger Agreement Indemnification and
Directors and Officers Insurance.
The merger agreement also contains provisions regarding the
continuation of directors and officers liability
insurance with respect to claims arising from facts or events
which occurred at or before the effective time of the merger,
and for the continuation of certain employee benefits and
severance plans or arrangements for specified time periods. We
describe these provisions in The Merger
Agreement Indemnification and Insurance and
The Merger Agreement Employee Matters.
The following is a summary of the material terms of the
merger agreement. However, because the merger agreement is the
primary legal document that governs the merger, you should
carefully read the complete text of the merger agreement for its
precise legal terms and other information that may be important
to you. The merger agreement is included as Appendix A to
this proxy statement and is incorporated by reference into this
proxy statement.
If all of the conditions to the merger are satisfied or waived
in accordance with the merger agreement, Rockhill Acquisition
Corporation will merge with and into RTW. RTW will be the
surviving corporation in the merger and will continue its
corporate existence in accordance with Minnesota law. Merger Sub
is a wholly-owned subsidiary of Rockhill created solely for the
purpose of giving effect to the merger.
Effective
Time of the Merger
The merger agreement provides that we will complete the merger
no later than the second business day following the day on which
the last of the conditions in the merger agreement have been
fulfilled or waived, or such other date as we and Rockhill may
agree. Although we expect to complete the merger by late
calendar 2007, we cannot specify when, or assure you that, we
and Rockhill will satisfy or waive all conditions to the merger.
We agreed to call and convene a shareholder meeting to consider
and vote upon the merger agreement and the merger.
Articles
of Incorporation and Bylaws
The articles of incorporation of Rockhill Acquisition
Corporation as in effect immediately prior to the Effective Time
of the Merger will become be the articles of incorporation of
the Surviving Corporation. The bylaws of Merger Sub as in effect
immediately prior to the effective time of the merger will be
the bylaws of the surviving corporation.
Board
of Directors and Officers of the Surviving Corporation
The directors and executive officers of Rockhill Acquisition
Corporation immediately prior to the merger will become the
directors and executive officers of the surviving corporation
following the merger.
Consideration
to Be Received in the Merger
In general, each share of our common stock issued and
outstanding immediately prior to the effective time of the
merger will be cancelled and converted into the right to receive
$12.45 in cash, without interest. All shares of RTW common stock
owned by us or Rockhill will be cancelled upon completion of the
merger, and no payment will be made for these shares.
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As a RTW shareholder, you are entitled to assert
dissenters rights under Minnesota law instead of receiving
the merger consideration. For a description of these
dissenters rights, please see the section titled
Dissenters Rights.
Payment
Procedures for Common Shares
At the effective time of the merger, Rockhill will deposit cash
in the amount of the total merger consideration payable to the
holders of shares of our common stock with Wells Fargo Bank,
N.A.
(
the paying agent) that the parties
mutually agree upon.
Promptly after the effective time of the merger, the paying
agent will mail a letter of transmittal and instructions to you
and other shareholders. The letter of transmittal and
instructions will tell you how to surrender your common stock
certificates or shares you may hold represented by book entry in
exchange for the merger consideration.
You should not return your stock certificates with the
enclosed proxy card, and you should not forward your stock
certificates to the paying agent without a letter of
transmittal.
The paying agent will pay the merger consideration, minus any
withholding taxes required by law, to our shareholders promptly
following the paying agents receipt of the stock
certificates (or book-entry shares) together with a duly
completed and executed letter of transmittal and any other
documents as may be required by the letter of transmittal.
If you are unable to surrender your stock certificates because
they have been lost or destroyed, then before you will be
entitled to receive the merger consideration, you will have to
comply with the replacement requirements established by Rockhill
including, if required, the posting of a bond reasonably
satisfactory to Rockhill.
No interest will be paid or will accrue on the amount of the
merger consideration. The paying agent will be entitled to
deduct and withhold, and pay to the appropriate taxing
authorities, any applicable taxes from the merger consideration.
Any sum which is withheld and paid to a taxing authority by the
paying agent will be deemed to have been paid to the person with
regard to whom it is withheld.
The merger consideration may be paid to a person other than the
person in whose name the corresponding stock certificate is
registered if the certificate is properly endorsed or is
otherwise in the proper form for transfer. In addition, the
person who surrenders such certificate must either pay any
transfer or other applicable taxes or establish to the
satisfaction of Rockhill that such taxes have been paid or are
not applicable.
Any portion of the merger consideration deposited with the
paying agent that remains undistributed 12 months after the
effective time of the merger will be delivered, upon demand, to
the surviving corporation. Holders who have not surrendered
their certificates (or book-entry shares) prior to the delivery
of such funds to the surviving corporation may only look to the
surviving corporation or Rockhill for the payment of the merger
consideration.
Any portion of the merger consideration deposited with the
paying agent that remains unclaimed as of a date that is
immediately prior to the time as these amounts would otherwise
escheat to or become property of any governmental entity will,
to the extent permitted by applicable law, become the property
of Rockhill free and clear of any claims or interests of any
person previously entitled to the merger consideration. Except
as otherwise required by law, none of the paying agent, Rockhill
or the surviving corporation will be liable to any person for
any amounts delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
From the effective time of the merger, certificates formerly
representing shares of our common stock will represent only the
right to receive the merger consideration (except shares as to
which appraisal rights have been properly exercised as described
under Dissenters Rights). After you have
received the merger consideration, you will have no further
rights with respect to your stock ownership. All certificates
formerly representing shares of our common stock surrendered
after the effective time of the merger will be cancelled.
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Stock
Options and the Employee Stock Purchase Plan
The merger agreement provides that all options to purchase RTW
common stock will automatically be accelerated and will become
fully vested and exercisable immediately prior to the effective
time of the merger. At the effective time of the merger, each
outstanding option to purchase RTW common stock will be
cancelled and converted into the right to receive from RTW a
cash amount equal to the excess, if any, of the merger
consideration over the exercise price for such option, minus any
withholding taxes required by law. No interest will be payable
on this cash amount. On September 20, 2007, our board of
directors approved amendments to our 1994 stock plan, and our
2005 stock plan (collectively, the Equity Plans) to
give effect to these provisions of the merger agreement.
Our 1995 Employee Stock Purchase Plan (the ESPP)
will terminate on the earlier of December 31, 2007 or
immediately prior to the effective time of the merger. At the
effective time of the merger, options then outstanding under the
ESPP will be cancelled and exchanged for a cash payment equal to
the whole number of shares the participant would be otherwise
entitled to purchase under the ESPP multiplied by the excess of
$12.45 over the exercise price as determined under the ESPP,
minus any withholding taxes required by law. On
September 20, 2007, our board of directors approved
amendments to our employee stock purchase plan to give effect to
these provisions of the merger agreement.
Representations
and Warranties
RTW and Rockhill made various representations and warranties to
one another in the merger agreement, subject to specifically
identified exceptions. The representations and warranties of RTW
and Rockhill in the merger agreement have been made solely for
the benefit of the other parties to the merger agreement, and
these representations and warranties should not be relied on by
any other person. In addition, these representations and
warranties have been qualified by disclosures made to the other
parties in connection with the merger agreement, and were made
only as of the date of the merger agreement or such other date
as specified in the merger agreement. Accordingly, you should
not rely on the representations and warranties as
characterizations of the actual state of facts or for any
purpose at the time they were made or otherwise.
RTW made representations and warranties to Rockhill and Rockhill
Acquisition Company in the merger agreement, including
representations regarding:
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due incorporation, valid existence, good standing and necessary
corporate powers;
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capitalization;
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RTWs subsidiaries;
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accuracy of financial statements and compliance of financial
statements with U.S. generally accepted accounting
principles, which we sometimes refer to as GAAP;
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compliance of reports, financial statements and other documents
we file with the SEC with applicable federal securities law
requirements, including Sarbanes-Oxley, and accuracy of
information contained in our filings with the SEC;
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authorization, validity and enforceability of the merger
agreement;
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absence of conflicts with our organizational documents and
absence of conflicts with or breaches or defaults under other
obligations of RTW;
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required governmental consents, notices and filings;
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performance of other contractual obligations;
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absence of certain changes or events, including those that have
had or would have a material adverse effect on RTW
(as described below);
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licenses and permits;
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absence of undisclosed liabilities;
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employee benefits matters;
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accuracy of corporate records;
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accuracy of accounting records and internal controls;
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vote of our shareholders required to approve the merger;
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accuracy of information supplied for inclusion in filings with
the SEC and other governmental entities in connection with the
merger, including this proxy statement;
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intellectual property matters;
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inapplicability of state takeover laws;
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receipt of a fairness opinion from KBW;
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insurance matters pertaining to licensing to do business,
underwriting management and administration agreements,
reinsurance contracts, insurance ratings, agents and brokers,
and agreements with regulators;
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restrictions on business activities; and
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limitations on the representations and warranties.
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Material Adverse Effect is defined in the merger
agreement as any circumstance, change in or effect on RTW, its
subsidiaries or the Surviving Corporation that is, or would
reasonably be expected to be, materially adverse to the
condition (financial or otherwise), business, properties,
assets, liabilities, prospects, or results of operations of RTW,
its subsidiaries, or the Surviving Corporation, taken as a
whole. A Material Adverse Effect would also materially impair or
would reasonably be expected to materially impair the ability of
RTW to timely perform its obligations under this Agreement or to
consummate the transactions contemplated hereby.
When determining whether a Material Adverse Effect has occurred,
the following are excluded:
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any change in GAAP, Statutory Accounting Policies, or regulatory
accounting requirements applicable to the insurance industry
generally but not such changes that have a disproportionate
effect on RTW;
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any general social, political, economic, environmental or
natural condition, change, effect, event or occurrence the
effects of which are not specific or unique to RTW, including
changes in prevailing interest rates, currency exchange rates or
general global economic or global market conditions;
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any action or omission by RTW expressly permitted under the
merger agreement including the public announcement of the merger;
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any expenses incurred in connection with the merger agreement or
the transactions contemplated hereby; and
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the payment of any amounts due to, or the provision of any other
benefits to, any officers or employees under contracts or plans
in existence on the date of the merger and disclosed to Rockhill.
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Rockhill made representations and warranties to RTW in the
merger agreement, including representations regarding:
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due incorporation, valid existence, good standing and necessary
corporate powers;
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authorization, validity and enforceability of the merger
agreement;
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absence of conflicts with organizational documents of Rockhill
or Rockhill Acquisition Corporation and absence of conflicts
with or breaches or defaults under other obligations of Rockhill
or Rockhill Acquisition Corporation;
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required governmental consents, notices and filings;
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availability of funds necessary to complete the merger,
including payment of the merger consideration;
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litigation matters;
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ownership and activities of Rockhill Acquisition Corporation;
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regulatory approvals; and
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accuracy of information supplied for inclusion in filings with
the SEC and other governmental entities in connection with the
merger, including this proxy statement.
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Covenants
Relating to the Conduct of RTWs Business
From the date of the merger agreement until the earlier of the
effective time of the merger and the termination of the merger
agreement, we have agreed (subject to applicable laws and
regulations) to conduct our business in the ordinary course in
substantially the manner it was conducted before the date of the
merger agreement. During the same period, we have also agreed
that we will not, among other things, do any of the following
without the prior written consent of Rockhill or as disclosed to
Rockhill prior to executing the merger agreement:
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issue, sell or grant any of our common stock, any rights to
acquire any of our common stock, or any other securities of RTW,
other than in connection with stock options outstanding on the
date of the merger agreement or pursuant to our Employee Stock
Purchase Plan;
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declare, set aside or pay any dividends, or split, combine or
reclassify any shares of our capital stock;
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purchase or redeem any of our capital stock or any options or
other rights to acquire our capital stock, other than in
connection with employee stock options or pursuant to our
Employee Stock Purchase Plan;
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amend our articles of incorporation or bylaws;
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grant any general or uniform raise in pay or employee benefits
other than in the ordinary course of business;
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make or commit to any capital expenditures in excess of $100,000
in the aggregate, except for currently budgeted capital
expenditures;
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grant increases in salary, incentive compensation or employee
benefits or bonuses to any person, except as provided in the
merger agreement;
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compromise or settle any tax deficiency claims, extend the
statute of limitations with any tax authority;
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change or make any tax elections or its tax or accounting
policies and procedures or any method or period of accounting
unless required by GAAP, Statutory Accounting Policies or a
governmental entity;
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take specified actions with respect to employment agreements;
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initiate or knowingly encourage a competing transaction;
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extend credit to any executive officer, director or beneficial
owner of 10% or more of our common stock, or to any of their
affiliates or associates;
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close or relocate our principal offices, or open any new
principal offices;
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grant any powers of attorney;
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incur expenses related to the execution, delivery and
performance of the merger in excess of $2.0 million;
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make any investments other than financial investments of
specified types, and only in the ordinary course of business
consistent with past practices;
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amend or modify any material agreement;
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sell, transfer, mortgage, encumber or otherwise dispose of any
material assets or release or waive any material claim;
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take any action which could reasonably be expected to adversely
affect the ability of Rockhill or RTW to obtain necessary
governmental approvals, adversely affect RTWs ability to
perform its obligations under the merger agreement, or result in
the failure of any of the conditions to the closing of the
merger to be satisfied;
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make any special or extraordinary distributions or payments to
any person;
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settle certain claims or proceedings;
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incur any indebtedness for borrowed money or assume, guaranty,
endorse or otherwise as an accommodation become responsible for
the obligations of any other person, except for certain
short-term borrowings;
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enter into any new line of business;
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engage in any material transaction or incur any material
obligation not in the ordinary course of business consistent
with past practice; or
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agree or commit to take any of the foregoing actions.
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We have also agreed to do the following, among other things,
during the period from the date of the merger agreement until
the effective time of the merger:
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use our commercially reasonable efforts to maintain our business
and our relationships with customers, employees and other third
parties;
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use our commercially reasonable efforts to keep in full force
and effect our material permits and licenses;
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use our commercially reasonable efforts to maintain our
insurance at the levels in effect on the date of the merger
agreement;
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perform contractual obligations and not become in default;
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observe and conform to all applicable laws;
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maintain assets and properties in good condition and repair;
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file all tax returns and promptly pay all taxes due;
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notify Rockhill of any audit, request to extend the statute of
limitations, or other specified events;
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allow Rockhill reasonable access to information necessary to
enable a complete examination of our company;
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continue to make filings, including reports, proxy statements,
and registrations in compliance with all applicable laws;
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promptly notify Rockhill of any event which has had or may have
a material adverse effect, or which may prevent RTW from
fulfilling any of the conditions of the agreement;
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convene a shareholders meeting to consider and vote upon
the agreement; and
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prepare and file a proxy statement.
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Covenants
Relating to Rockhills Activities Pending the
Merger
During the period between the date of the merger agreement and
the effective time of the merger, Rockhill has agreed that it
will not take any action which is reasonably likely to:
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adversely affect the ability of Rockhill to obtain the
governmental approvals necessary for the merger;
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adversely affect Rockhills ability to perform its
obligations under the merger agreement; or
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result in the failure to be satisfied of any of the conditions
to the closing of the merger contained in the merger agreement.
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Rockhill has also agreed to do the following, among other
things, during the period from the date of the merger agreement
until the effective time of the merger:
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promptly prepare and file any applications necessary to
consummate the transactions in the merger agreement, including
filing with governmental entities;
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notify RTW if Rockhill determines that it is unable to fulfill
any of its conditions under the merger agreement; and
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indemnify and hold harmless certain officers and directors of
RTW, and maintain directors and officers liability
insurance.
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Mutual
Covenants of RTW and Rockhill
RTW and Rockhill have agreed, among other things, to:
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make any required filings under the HSR Act and use our
commercially reasonable efforts to cause the waiting period
under the HSR Act to be terminated at as early a date as
possible, and to respond promptly to all investigatory requests;
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obtain relevant insurance regulators approval for the
transaction;
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use our commercially reasonable efforts to take all actions
necessary, proper or advisable under applicable law to
consummate the merger as promptly as practicable; and
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provide each other with reasonable time to comment on any press
release or other public disclosure related to the merger
agreement or the merger.
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Limitation
on Consideration of Competing Transactions
The merger agreement provides that we will not, and will cause
our officers, directors, employees, investment bankers,
financial advisors, attorneys and accountants and any other
advisors retained by us or any of our affiliates not to:
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directly or indirectly initiate, solicit or knowingly encourage,
including by furnishing information, or take any other action to
facilitate, the making of any proposal for a competing
transaction (as described below);
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directly or indirectly negotiate or have discussions with any
person in furtherance of inquiries relating to a competing
transaction or to obtain a competing transaction;
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agree to or endorse any competing transaction;
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or recommend, or execute or enter into, any letter of intent or
other agreement related to any competing transaction;
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agree to do any of the foregoing; or
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authorize any officer, director or professional working with RTW
to agree to do any of the foregoing.
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However, prior to the shareholder meeting to consider and vote
on the merger, we may negotiate with and provide information to
a third party if:
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we receive an unsolicited bona fide written proposal for a
competing transaction after the date of the merger agreement;
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the bidder executes a confidentiality agreement having
confidentiality provisions no less favorable to us than those
contained in our confidentiality agreement with Rockhill;
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our board reasonably determines in good faith, after
consultation with outside legal counsel, that failure to take
such action would be inconsistent with its fiduciary duties
under applicable law;
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our board of directors concludes in good faith, after
consultation with our financial advisor and outside legal
counsel, that the proposal for a competing transaction
constitutes or is reasonably likely to constitute a superior
proposal (as described below); and
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we have given Rockhill at least 48 hours prior notice of
our intent to take such action.
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We have also agreed to notify Rockhill within 48 hours of
any proposal, inquiry or negotiation relating to a competing
transaction and to keep Rockhill informed on a current basis of
the status and terms of any such proposal, inquiry or
negotiation. We have further agreed to provide Rockhill with the
same information provided to any other bidder. Rockhill has the
right to meet any competing transaction.
A competing transaction means any of the following
involving RTW and any person other than Rockhill: any merger,
consolidation, share exchange or other business combination; a
sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets of RTW representing 15% or more of the
consolidated assets of RTW; a sale of shares of capital stock
(or securities convertible or exchangeable into or otherwise
evidencing, or any agreement or instrument evidencing, the right
to acquire capital stock), representing 15% or more of the
voting power of RTW; or a tender offer or exchange offer for at
least 15% of the outstanding shares of RTW.
A superior proposal means a
bona fide
written
proposal for a competing transaction which the board
of directors concludes in good faith, after consultation with
its financial advisor and its legal advisors, taking into
account all legal, financial, regulatory and other aspects of
the proposal and the person making the proposal is more
favorable to RTWs shareholders from a financial point of
view, than the transactions contemplated by this Agreement
(except that references in the definition of competing
transaction to 15% will be replaced by references to
a majority). Nothing in the agreement prohibits RTW
or its board of directors from taking and disclosing to RTW
shareholders a position with respect to a Competing Transaction
to the extent required under the Exchange Act, or from making
such disclosure to RTW shareholders which, after consultation
with outside counsel, the board determines is otherwise required
under applicable law;
Indemnification
and Insurance
The merger agreement requires that, for a period of six years
after the effective time of the merger, the surviving
corporation will maintain in effect directors and
officers liability insurance with respect to claims
arising from facts or events which occurred at or before the
effective time of the merger in amounts and on terms which in
the aggregate are no less favorable to the insured than those we
currently maintain, and Rockhill will cause the surviving
corporation to maintain such policies. Rockhill has the right to
substitute its own policies for those of the surviving
corporation so long as the coverage provided is in amounts and
on terms which in the aggregate are no less advantageous to the
insured than those we currently maintain.
Rockhill has agreed that the articles of incorporation and
bylaws of the surviving corporation will contain provisions no
less favorable with respect to indemnification and exculpation
of our directors and officers prior to the effective time of the
merger than those contained in our articles and bylaws in effect
on the date of the merger agreement.
The merger agreement also provides for the continued
indemnification, to the fullest extent permitted by applicable
law, of current or former directors, officers and employees of
RTW for certain events occurring at or before the merger.
Additionally, Rockhill shall pay all expenses (including
attorneys fees) incurred by an indemnified person in
enforcing these indemnification provisions in a dispute with
Rockhill. Rockhill shall insure that proper provisions are made
so that Rockhills successors and assigns shall assume
these obligations for indemnification and insurance.
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RTWs and Rockhills obligations to effect the merger
are subject to the satisfaction or waiver of the following
conditions:
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approval of the merger by our shareholders;
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all government insurance approvals obtained, and shall be in
full force and effect;
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no proceeding or threatened proceeding by insurance regulatory
authorities in Minnesota, Michigan or Colorado which could
materially restrict Rockhills ability to operate the
business in those states;
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absence of any judgment, decree, injunction, order or proceeding
by any governmental entity which prohibits, restricts or
threatens to invalidate the merger;
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required executive employment agreements will be in place, and
executives able to perform;
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RTWs claim and claim settlement expense shall not have
materially adversely changed prior to the closing date;
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RTWs contract with the Minnesota Workers
Compensation Assigned Risk Plan must be in full force; and
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expiration or termination of the applicable waiting period under
the HSR Act.
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In addition, our obligations to effect the merger are subject to
the satisfaction or waiver of the following conditions:
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Rockhill and Rockhill Acquisition Corporation having complied
with and performed their obligations under the merger agreement
through the closing date of the merger in all material respects;
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each of the representations and warranties of Rockhill being
true and correct (disregarding all materiality qualifications)
as of the date of the merger agreement and the closing date of
the merger, except where the failure to be true and correct
would not, individually or in the aggregate, have or reasonably
be expected to have a material adverse effect on the ability of
Rockhill or Rockhill Acquisition Corporation to perform their
obligations under the merger agreement or to effect the merger;
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officers certificate certifying compliance with
representations, warranties and covenants; and
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adequate evidence given to RTW of compliance with the agreement
as it pertains to employee benefit plans, programs and
arrangements.
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In addition, the obligations of Rockhill to effect the merger
are subject to the satisfaction or waiver of the following
conditions:
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RTW having complied with and performed its obligations under the
merger agreement through the closing date of the merger in all
material respects;
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each of the representations and warranties of RTW (other than
representations referred to in the preceding bullet) being true
and correct (disregarding any qualifications as to materiality
or material adverse effect) as of the date of the
merger agreement and the closing date of the merger, except
where the failure to be true and correct would not, individually
or in the aggregate, have or reasonably be expected to have a
material adverse effect on RTW;
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all actions necessary to authorize the execution, delivery and
performance of the merger agreement and the consummation of the
merger having been duly and validly taken by our board of
directors and our shareholders;
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officers certificate certifying compliance with
representations, warranties, covenants and the authorization of
the merger;
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holders of no more than 10% of our common stock that is issued
and outstanding on the closing date of the merger having
properly exercised dissenters rights under Minnesota law;
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adequate evidence given to Rockhill of compliance with this
agreement as it pertains to employee benefit plans, programs and
arrangements;
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adequate evidence given to Rockhill that transaction related
expenses have not exceeded $2.0 million; and
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no material adverse effect, or anything likely to cause an
adverse effect, on RTW, ACIC, or BCIC.
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Based on incurred expenses and RTWs estimates of future
expenses, RTW does not, as of the date of this proxy statement,
expect that transaction related expenses as defined in the
merger agreement will exceed $2.0 million.
The merger agreement may be terminated and the merger abandoned
at any time prior to the effective time of the merger
(notwithstanding any approval by our shareholders):
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by mutual agreement of RTW and Rockhill; or
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by either RTW or Rockhill if our shareholders fail to approve
the merger at a duly convened shareholders meeting or at any
adjournment or postponement of the meeting, provided that this
right to terminate will not be available to RTW where the
failure to obtain our shareholder approval was caused by a
breach of the merger agreement by RTW; or
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by either RTW or Rockhill if certain conditions precedent
required by the merger agreement are not met; or
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by either RTW or Rockhill if all the conditions to effect the
merger have not been satisfied by February 28, 2008,
provided that this right to terminate will not be available to
the party if the failure of any such condition to be satisfied
resulted from the partys failure to comply in all material
respects with its obligations under the merger agreement
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by RTW:
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if Rockhill or Rockhill Acquisition Corporation breaches any
covenant, agreement, representation or warranty that,
individually or in the aggregate, would result in our conditions
to the merger not being satisfied, if the breach is not cured
within 30 calendar days after written notice of the breach is
given to Rockhill;
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prior to obtaining shareholder approval of the merger, to accept
a proposal for a competing transaction if:
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we have complied in all material respects with our obligations
described under Limitations on Consideration of Competing
Transactions on page 39;
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we have given Rockhill, within 48 hours of our receipt,
notice of any competing proposal;
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Rockhill has not met any such proposal for a competing
transaction before RTW determines the competing transaction is a
superior proposal;
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our board, after consultation with its financial advisor and
outside legal counsel and after taking into account any revised
proposal made by Rockhill in writing, has reasonably determined
in good faith that the competing transaction is a superior
proposal;
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our board has reasonably determined in good faith, after
consultation with outside legal counsel, that the failure to
exercise this termination right would be inconsistent with its
duties under applicable law; and
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prior to or concurrently with the termination, we pay Rockhill
the fee described below under Termination Fee.
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if RTW breaches any covenant, agreement, representation or
warranty that, individually or in the aggregate, would result in
Rockhills conditions to the merger not being satisfied, if
the breach is not cured within 30 calendar days after written
notice of the breach is given to RTW;
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our board withdraws, modifies or qualifies, in a manner adverse
to Rockhill, its recommendation that our shareholders vote to
approve the merger or recommends a competing transaction to our
shareholders, or resolves to take any of those actions;
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The merger agreement requires us to pay Rockhill an amount equal
to the sum of $1.0 million if:
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Rockhill terminates the merger agreement because our board fails
to recommend adoption of the agreement, or withdraws, modifies
or qualified its recommendation in a manner adverse to
Rockhill; or
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RTW terminates the merger agreement in order to accept a
competing transaction; or
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Rockhill or RTW terminates the merger agreement because our
shareholder approval of the merger was not obtained,
and
within six months, RTW entered an agreement with a third
party who had publicly expressed interest before the shareholder
vote at which approval was not obtained.
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Current employees may continue to participate in our employee
benefit plans or arrangements (other than equity-based plans or
arrangements), or to participate in employee benefit plans and
arrangements of Rockhill on the same terms as such plans and
arrangements are generally offered to Rockhills employees
in comparable positions, and that during such period it will
provide severance and other benefits on terms no less favorable
to our employees than those contained in our severance programs
as in effect at the effective time of the merger. Rockhill will
also cause the surviving corporation to assume and perform our
obligations under the terms of certain executive employment
agreements.
Rockhill has also agreed that, no later than 5 business days
after the effective time of the merger, it will cause the
surviving corporation to pay to our employees who participate in
our 2007 Profit Sharing Plan the cash incentive payment under
the 2007 Profit Sharing Plan payable to such employee as if the
last day prior to the merger date were the last day of the
performance period and based upon the actual achievement of each
measure pro-rated based on the number of completed months in the
adjusted performance period. After the merger employees will be
entitled to participate in annual cash incentive performance
programs generally offered to employees of Rockhill.
The parties may amend the merger agreement at any time prior to
the effective time of the merger by action of the boards of
directors of the parties, except as required by applicable law.
The following description of the applicable provisions of
sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act (the MBCA) and the full text of
these provisions, which is attached as Appendix C to this
proxy statement, should be reviewed carefully by any RTW
shareholder who wishes to exercise dissenters rights or
who wishes to preserve the right to do so, since failure to
comply with the statutory procedures described below will result
in the loss of dissenters rights. Any shareholder who
forfeits his or her dissenters rights by failure to follow
these procedures will then receive the merger consideration
described in this proxy statement.
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The merger agreement constitutes a plan of merger for which
shareholder approval is required under the MBCA. Under
sections 302A.471 and 302A.473 of the MBCA, RTW
shareholders will have the right, by fully complying with the
applicable provisions of sections 302A.471 and 302A.473, to
dissent with respect to the merger and to obtain payment in cash
of the fair value of their shares of common stock
after the merger is completed. The term fair value
means the value of the shares of common stock immediately before
the effective time of the merger.
All references in sections 302A.471 and 302A.473 and in
this summary to a shareholder are to a record holder
of the shares of our common stock. A person having beneficial
ownership of shares of our common stock that are held of record
in the name of another person, such as a broker, nominee,
trustee or custodian, must act promptly to cause the following
steps summarized below to be completed in a proper and timely
manner in order to perfect whatever dissenters rights such
beneficial owner may have.
Shareholders considering exercising dissenters rights
should bear in mind that the fair value of their shares
determined under sections 302A.471 and 302A.473 of the MBCA
could be more than, the same as or, in certain circumstances,
less than the consideration they would receive pursuant to the
merger agreement if they do not seek to have the fair value of
their shares separately determined.
Shareholders of record who desire to exercise their
dissenters rights under the MBCA must satisfy all of the
following conditions:
Before the special meeting of RTW shareholders to be held on
Monday, December 10, 2007, the dissenting shareholder must
deliver to the Secretary of RTW a written notice of intent to
demand fair value for his, her or its shares. The
Secretarys address is as follows: Alfred L. LaTendresse,
Secretary, RTW, Inc., 8500 Normandale Lake Boulevard,
Suite 1400, Bloomington, MN 55437. The written demand
should specify the shareholders name and mailing address,
the number of shares owned, and that the shareholder intends to
demand the value of the shareholders shares. This written
demand must be in addition to and separate from any proxy or
vote against the merger. Voting against, abstaining from voting
or failing to vote on the merger does not constitute a demand
for appraisal within the meaning of the MBCA.
RTW shareholders who elect to exercise their dissenters
rights under the MBCA must not vote to adopt and approve the
merger agreement. A shareholders failure to vote against
the adoption and approval of the merger agreement will not
constitute a waiver of dissenters rights. However, if a
shareholder returns a signed proxy but does not specify a vote
against the adoption and approval of the merger agreement and
the transactions contemplated thereby, including the merger, or
direction to abstain, the proxy will be voted for the adoption
and approval of the merger agreement and the transactions
contemplated thereby, including the merger, which will have the
effect of waiving the shareholders dissenters rights.
RTW shareholders may not assert dissenters rights as to
less than all of the shares registered in such holders
name except where certain shares are beneficially owned by
another person but registered in such holders name. If a
record owner, such as a broker, nominee, trustee or custodian,
wishes to dissent with respect to shares beneficially owned by
another person, such shareholder must dissent with respect to
all of such shares and must disclose the name and address of the
beneficial owner on whose behalf the dissent is made. A
beneficial owner of shares of our common stock who is not the
record owner of such shares may assert dissenters rights
as to shares held on such persons behalf, provided that
such beneficial owner submits a written consent of the record
owner to RTW at or before the time such rights are asserted.
If the merger agreement is approved by RTW shareholders at the
special meeting, the surviving corporation will send a written
notice to each shareholder who filed a written demand for
dissenters rights and who did not vote in favor of the
merger agreement. The notice will contain the following
information:
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the address to which the shareholder must send a demand for
payment and deliver the stock certificates in order to obtain
payment and the date by which they must be received;
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any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
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a form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them, and to
demand payment; and
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a copy of sections 302A.471 and 302A.473 of the MBCA and a
brief description of the procedures to be followed in asserting
dissenters rights.
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In order for a dissenting shareholder to receive fair value for
the shareholders shares, the shareholder must, within
30 days after the date the notice from the surviving
corporation was given, send the shareholders stock
certificates, and all other information specified in the notice
(or comply with any restrictions imposed on transfer of
uncertificated shares) to the address identified in such notice,
but the dissenting shareholder will retain all other rights of a
shareholder until the effective time. After a valid demand for
payment and the related stock certificates and other information
are received, or after the completion of the merger, whichever
is later, the surviving corporation will remit to each
dissenting shareholder who has complied with statutory
requirements the amount that the surviving corporation estimates
to be the fair value of such shareholders shares, with
interest.
Remittance will be accompanied by:
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the surviving corporations closing balance sheet and
statement of income for a fiscal year ending not more than
16 months before the effective date of the merger, together
with the latest available interim financial statements;
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an estimate by the surviving corporation of the fair value of
the shareholders shares and a brief description of the
method used to reach the estimate; and
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copies of sections 302A.471 and 302A.473 of the MBCA and a
brief description of the procedures to be followed if such
holder wishes to demand supplemental payment.
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If the dissenting shareholder believes that the amount remitted
by the surviving corporation is less than the fair value of such
holders shares, plus interest, the shareholder may give
written notice to the surviving corporation of such
holders own estimate of the fair value of the shares, plus
interest, within 30 days after the mailing date of the
remittance and demand payment of the difference. This notice
must be delivered to the executive offices of the surviving
corporation. A shareholder who fails to give this written notice
within this time period is entitled only to the amount remitted
by the surviving corporation.
Within 60 days after receipt of a demand for supplemental
payment, the surviving corporation must either pay the
shareholder the amount demanded or agreed to by the shareholder
after discussion with the surviving corporation, or petition a
court for the determination of the fair value of the shares,
plus interest. The petition must be filed in the County of
Hennepin, Minnesota. The petition must name as parties all
shareholders who have demanded supplemental payment and have not
reached an agreement with the surviving corporation. The court,
after determining that the shareholder or shareholders in
question have complied with all statutory requirements, may use
any valuation method or combination of methods it deems
appropriate to use, whether or not used by the surviving
corporation or the dissenting shareholder, and may appoint
appraisers to recommend the amount of the fair value of the
shares. The courts determination will be binding on all
RTW shareholders who properly exercised dissenters rights
and did not agree with the surviving corporation as to the fair
value of the shares. Dissenting shareholders are entitled to
judgment for the amount by which the court-determined fair value
per share, plus interest, exceeds the amount per share, plus
interest, remitted to the shareholders by the surviving
corporation. Dissenting shareholders will not be liable to the
surviving corporation for any amounts paid by the surviving
corporation which exceed the fair value of the shares as
determined by the court, plus interest. The costs and expenses
of the proceeding, including the expenses and compensation of
any appraisers, will be determined by the court and assessed
against the surviving corporation, except that the court may, in
its discretion, assess part or all of those costs and expenses
against any shareholder whose action in demanding supplemental
payment is found to be arbitrary, vexatious or not in good
faith. The court may award fees and expenses to an attorney for
the dissenting shareholders out of the amount, if any, awarded
to shareholders. Fees and expenses of experts or attorneys may
be assessed against the surviving corporation if the court
determines the surviving corporation failed to comply
substantially with
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sections 302A.471 and 302A.473 of the MBCA or against any
person whom the court determines acted arbitrarily, vexatiously
or not in good faith in bringing the proceeding.
The surviving corporation may withhold the remittance of the
estimated fair value, plus interest, for any shares owned by any
person who was not a shareholder or who is dissenting on behalf
of a person who was not a beneficial owner on September 21,
2007, the date on which the proposed merger was first announced
to the public. The surviving corporation will forward to any
such dissenting shareholder who has complied with all
requirements in exercising dissenters rights the notice
and all other materials sent after shareholder approval of the
merger to all shareholders who have properly exercised
dissenters rights, together with a statement of the reason
for withholding the remittance and an offer to pay the
dissenting shareholder the amount listed in the materials if the
shareholder agrees to accept that amount in full satisfaction.
The shareholder may decline this offer and demand payment by
following the same procedure as that described for demand of
supplemental payment by shareholders who owned their shares as
of November 6, 2007. Any shareholder who did not own shares
on November 6, 2007 and who fails properly to demand
payment will be entitled only to the amount offered by the
surviving corporation. Upon proper demand by any such
shareholder, rules and procedures applicable in connection with
receipt by the surviving corporation of the demand for
supplemental payment given by a dissenting shareholder who owned
shares on November 6, 2007 also will apply to any
shareholder properly giving a demand but who did not own shares
of record or beneficially on November 6, 2007, except that
any such shareholder is not entitled to receive any remittance
from the surviving corporation until the fair value of the
shares, plus interest, has been determined pursuant to such
rules and procedures.
RTW shareholders considering whether to seek dissenters
rights should bear in mind that the fair value of their RTW
common stock determined under the MBCA could be more than, the
same as or less than the value of the right to receive the
applicable merger consideration in the merger. Also, RTW and
Rockhill Holding Company reserve the right to assert in any
dissenters rights proceeding that, for purposes thereof,
the fair value of our common stock is less than the
value of the applicable merger consideration to be issued in the
merger.
Any shareholder who fails to strictly comply with the
requirements of sections 302A.471 and 302A.473 of the MBCA,
attached as Annex C to this proxy statement will forfeit
his, her or its rights to dissent from the merger and to
exercise dissenters rights and will receive the applicable
merger consideration on the same basis as all other shareholders.
The process of dissenting requires strict compliance with
technical requirements. Individuals or entities that wish to
dissent and to exercise their dissenters rights should
consult with their own legal counsel in connection to ensure
compliance under sections 302A.471 and 302A.473 of the
MBCA. To the extent there are any inconsistencies between the
foregoing summary and sections 302A.471 and 302A.473 of the
MBCA, the MBCA will control. Sections 302A.471 and 302A.473
of the MCBA are attached as Appendix C to this proxy
statement and should be reviewed carefully.
46
MARKET
PRICE AND DIVIDEND DATA
RTWs common stock is currently traded on The NASDAQ Global
Market under the symbol RTWI. The table below shows,
for the periods indicated, the high and low closing sales prices
for shares of RTW common stock as reported by The Nasdaq Stock
Market, Inc.
|
|
|
|
|
|
|
|
|
|
|
RTW Common Stock
|
|
|
|
High
|
|
|
Low
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
First Quarter Ended March 31, 2005,
|
|
$
|
11.80
|
|
|
$
|
8.72
|
|
Second Quarter Ended June 30, 2005
|
|
|
10.64
|
|
|
|
8.51
|
|
Third Quarter Ended September 30, 2005
|
|
|
11.39
|
|
|
|
9.75
|
|
Fourth Quarter Ended December 31, 2005
|
|
|
11.99
|
|
|
|
9.09
|
|
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
First Quarter Ended March 31, 2006,
|
|
|
11.38
|
|
|
|
9.65
|
|
Second Quarter Ended June 30, 2006
|
|
|
12.04
|
|
|
|
10.44
|
|
Third Quarter Ended September 30, 2006
|
|
|
10.97
|
|
|
|
10.06
|
|
Fourth Quarter Ended December 31, 2006
|
|
|
10.17
|
|
|
|
8.81
|
|
Fiscal Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
First Quarter Ended March 31, 2007,
|
|
|
9.45
|
|
|
|
7.91
|
|
Second Quarter Ended June 30, 2007
|
|
|
8.64
|
|
|
|
7.91
|
|
Third Quarter Ended September 30, 2007
|
|
|
12.17
|
|
|
|
7.20
|
|
Fourth Quarter through November 6, 2007
|
|
|
12.22
|
|
|
|
12.04
|
|
On September 20, 2007, the most recent trading day prior to
the announcement of the execution of the merger agreement, the
closing sales price per share of RTW common stock was $8.10 and
on November 6, 2007, the last trading day before the
printing of this proxy statement, the closing sales price per
share of RTW common stock was $12.22.
Under the merger agreement, we are prohibited from declaring or
paying any dividends on our common stock without the prior
written consent of Rockhill from the date of the merger
agreement until the earlier of the effective time of the merger
or the termination of the merger agreement.
47
SECURITY
OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of the close of business on
November 6, 2007, the number and percentage of outstanding
shares of common stock of the Company beneficially owned
(i) by each person who is known to the Company to
beneficially own more than five percent (5%) of the common stock
of the Company, (ii) by each director of the Company,
(iii) by each executive officer, and (iv) by all
directors and executive officers of the Company as a group.
Unless otherwise indicated, the persons listed below may be
reached at 8500 Normandale Lake Boulevard, Suite 1400,
Bloomington, Minnesota 55437.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address
|
|
Number of
|
|
Right to
|
|
Percent of Shares
|
of Beneficial Owner
|
|
Shares Owned(1)
|
|
Acquire(2)
|
|
Outstanding(2)
|
|
Dimensional Fund Advisors, Inc.
|
|
|
476,995
|
(3)
|
|
|
|
|
|
|
9.2
|
%
|
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyron L. Bentovim
|
|
|
473,022
|
|
|
|
|
|
|
|
9.1
|
%
|
SKIRITAI Capital LLC
388 Market Street, Suite 700
San Francisco, CA 94111
|
|
|
|
|
|
|
|
|
|
|
|
|
First Wilshire Securities Management, Inc.
|
|
|
456,319
|
(4)
|
|
|
|
|
|
|
8.8
|
%
|
600 South Lake Street, Suite 100
Pasadena, CA 91106
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Prosser
|
|
|
427,772
|
(5)
|
|
|
|
|
|
|
8.3
|
%
|
20645 Radisson Road
Shorewood, MN 55331
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Bancorp
|
|
|
404,489
|
(6)
|
|
|
|
|
|
|
7.8
|
%
|
FAF Advisors
800 Nicollet Mall, Suite 800
Minneapolis, MN 55402
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Prosser
|
|
|
346,881
|
(7)
|
|
|
10,499
|
|
|
|
6.9
|
%
|
6358 Oxbow Bend
Chanhassen, MN 55317
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey B. Murphy
|
|
|
26,978
|
|
|
|
208,674
|
|
|
|
4.4
|
%
|
Alfred L. LaTendresse
|
|
|
48,224
|
(8)
|
|
|
67,500
|
|
|
|
2.2
|
%
|
Keith D. Krueger
|
|
|
19,540
|
|
|
|
37,250
|
|
|
|
1.1
|
%
|
William J. Deters
|
|
|
40,275
|
(9)
|
|
|
10,499
|
|
|
|
1.0
|
%
|
Patricia M. Sheveland
|
|
|
4,599
|
|
|
|
39,294
|
|
|
|
*
|
|
David M. Dietz
|
|
|
258
|
|
|
|
29,500
|
|
|
|
*
|
|
John O. Goodwyne
|
|
|
14,418
|
|
|
|
12,999
|
|
|
|
*
|
|
Gregory D. Koschinska
|
|
|
8,400
|
|
|
|
12,999
|
|
|
|
*
|
|
All executive officers and directors as a group (11 persons)
|
|
|
1,410,367
|
|
|
|
429,214
|
|
|
|
32.8
|
%
|
|
|
|
*
|
|
Indicates ownership of less than 1%.
|
|
(1)
|
|
Unless noted, each person or group identified possesses sole
voting and investment power with respect to such shares.
|
|
(2)
|
|
Shares not outstanding but deemed beneficially owned by virtue
of the right of a person to acquire them within 60 days of
November 6, 2007 are treated as outstanding only when
determining the amount and percent owned by such person.
|
|
(3)
|
|
Based on a Schedule 13F dated September 30, 2007 filed
with the Securities and Exchange Commission.
|
|
(4)
|
|
Based on a Schedule 13F dated June 30, 2007 filed with
the Securities and Exchange Commission.
|
|
(5)
|
|
Includes 127,332 shares held jointly by Mr. Prosser
with his wife. Also includes 6,905 shares held by the
David C. Prosser 1995 Unitrust and 11,908 shares
held by the David C. Prosser 1996 Unitrust.
Mr. Prossers daughter, Pamela Prosser Snyder, is the
trustee of each of the above-mentioned Unitrusts.
|
48
|
|
|
(6)
|
|
Based on a Schedule 13F dated June 30, 2007 filed with
the Securities and Exchange Commission.
|
|
(7)
|
|
Includes: (i) 31,725 shares owned by Polly Jane Wolner
Childrens Trust; and (ii) 5,775 shares owned by
Polly J. Wolner 1994 Irrevocable Trust for which John
W. Prosser acts as trustee. John W. Prosser disclaims any
beneficial ownership for shares held by these trusts.
|
|
(8)
|
|
Includes 11,500 shares owned by Mr. LaTendresses
wife and 2,625 shares held by a trust for
Mr. LaTendresses child, with respect to which
Mr. LaTendresse disclaims beneficial ownership.
|
|
(9)
|
|
Includes 20,675 shares owned by W.G. Securities Limited
partnership, 100% owned by Mr. Deters and his wife and
19,600 shares owned by Deters Charitable Remainder Unit
Trust, for which Mr. Deters serves as the Trustee.
|
RTW, based in Bloomington, Minnesota, is a leading provider of
products and services to manage insured and self-insured
workers compensation, disability and absence programs. RTW
provides these services, primarily directed at workers
compensation to:
|
|
|
|
|
employers insured through its wholly-owned insurance
subsidiaries, American Compensation Insurance Company
(ACIC) and Bloomington Compensation Insurance
Company (BCIC);
|
|
|
|
self-insured employers on a fee-for-service basis;
|
|
|
|
state assigned risk plans on a percent of premium basis;
|
|
|
|
other insurance companies; and
|
|
|
|
agents and employers on a consulting basis, charging hourly fees.
|
RTW developed two proprietary systems to manage disability and
absence:
|
|
|
|
|
ID15
®
,
designed to quickly identify those injured employees who are
likely to become inappropriately dependent on disability system
benefits, including workers compensation; and
|
|
|
|
RTW
Solution
®
,
designed to lower employers disability costs and improve
productivity by returning injured employees to work as soon as
safely possible.
|
RTW supports these proprietary management systems with
state-of-the-art technology and talented people dedicated to its
vision of transforming people from absent or idle to present and
productive. ACIC writes workers compensation insurance for
employers primarily in Minnesota, Colorado and Michigan, but is
growing in new markets including, among others, Florida, Texas,
Kansas, Connecticut, North Carolina and Iowa. BCIC offers
workers compensation insurance to selected employers in
Minnesota and Colorado.
In addition, through its
Absentia
®
division, RTW has expanded and provides non-insurance products
and service offerings on a national basis. RTWs services
are effective across many industries.
DESCRIPTION
OF ROCKHILL HOLDING COMPANY
About
Rockhill Holding Company
Rockhill Holding Company, based in Kansas City, Missouri, is an
insurance holding company writing specialty property and
casualty business through its two insurance company
subsidiaries, Rockhill Insurance Company and Plaza Insurance
Company. Rockhill Insurance Company, an Excess &
Surplus lines carrier approved in 48 states, is domiciled
in Arizona and serves specialty niches, including Southeast
wind, earthquake/difference in condition, residential
contractors and commercial umbrella. Plaza Insurance Company
(f/k/a National Alliance Insurance Company and acquired by
Rockhill in June 2007) is a Missouri-domiciled property and
casualty carrier admitted in 38 jurisdictions and will serve the
surety, umbrella, and other specialty property and casualty
markets. Rockhill Insurance Company is rated A- by
A.M. Best and wrote
49
over $100 million in premiums in 2006. As of June 30,
2007, Rockhill Insurance Company has total assets of
$190 million and capital of $129 million.
DESCRIPTION
OF ROCKHILL ACQUISITION CORPORATION
About
Rockhill Acquisition Corporation
Rockhill Acquisition Corporation is a wholly-owned indirect
subsidiary of Rockhill organized under the laws of Minnesota. It
was incorporated in September 2007 solely for purposes of the
merger and is engaged in no other business.
FUTURE
SHAREHOLDER PROPOSALS
If the merger is completed, there will be no public shareholders
of the Company and no public participation in any future meeting
of the Company. However, if the merger is not completed, our
2008 annual meeting of shareholders is expected to be held on or
about June 18, 2008, and proxy materials in connection with
that meeting are expected to be mailed on or about
April 30, 2008. The deadline for submission of shareholder
proposals pursuant to
Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for
inclusion in our proxy statement for our 2008 annual meeting of
shareholders is January 3, 2008. Additionally, if we
receive notice of a shareholder proposal outside the processes
of
Rule 14a-8
after January 3, 2008, such proposal will be considered
untimely pursuant to
Rules 14a-4
and
14a-5(e).
WHERE
YOU CAN FIND MORE INFORMATION
RTW files annual, quarterly and current reports, proxy
statements and other information with the SEC under the
Securities Exchange Act of 1934, as amended. You may read and
copy this information at, or obtain copies of this information
by mail from, the SECs Public Reference Room,
450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the SEC at
1-800-SEC-0330
for further information about the public reference room.
The filings of RTW with the SEC are also available to the public
from commercial document retrieval services and at the web site
maintained by the SEC at
www.sec.gov
.
Your Vote Is Important. Whether or not you plan to attend the
special meeting, please sign and date the enclosed proxy card
and return it promptly in the envelope provided, or vote by
telephone or through the Internet as described in the enclosed
proxy card. Giving your proxy now will not affect your right to
vote in person if you attend the special meeting.
50
APPENDIX A
AGREEMENT
AND PLAN OF MERGER
DATED AS OF SEPTEMBER 20, 2007
AMONG
ROCKHILL HOLDING COMPANY,
ROCKHILL ACQUISITION CORPORATION
AND
RTW, INC.
TABLE
OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
ARTICLE 1. DEFINITIONS
|
|
|
A-1
|
|
|
|
|
|
|
ARTICLE 2. TERMS OF MERGER
|
|
|
A-5
|
|
|
|
|
|
|
2.1. Effect of Merger and Surviving Corporation
|
|
|
A-5
|
|
2.2. Stock of Company
|
|
|
A-5
|
|
2.3. Company Stock Options
|
|
|
A-5
|
|
2.4. Effect on Merger Sub Stock
|
|
|
A-5
|
|
2.5. Exchange Procedures
|
|
|
A-6
|
|
2.6. Adjustments
|
|
|
A-6
|
|
2.7. Directors of Surviving Corporation
|
|
|
A-7
|
|
2.8. Executive Officers of Surviving Corporation
|
|
|
A-7
|
|
2.9. No Further Ownership Rights in Stock
|
|
|
A-7
|
|
2.10. Articles of Incorporation and Bylaws
|
|
|
A-7
|
|
|
|
|
|
|
ARTICLE 3. THE CLOSING
|
|
|
A-7
|
|
3.1. Closing Date
|
|
|
A-7
|
|
3.2. Articles of Merger
|
|
|
A-7
|
|
3.3. Further Assurances
|
|
|
A-7
|
|
|
|
|
|
|
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF COMPANY
|
|
|
A-7
|
|
|
|
|
|
|
4.1. Incorporation, Standing and Power
|
|
|
A-7
|
|
4.2. Capitalization
|
|
|
A-8
|
|
4.3. Subsidiaries
|
|
|
A-8
|
|
4.4. Financial Statements
|
|
|
A-8
|
|
4.5. Reports and Filings
|
|
|
A-9
|
|
4.6. Authority of Company
|
|
|
A-9
|
|
4.7. Insurance
|
|
|
A-10
|
|
4.8. Personal Property
|
|
|
A-10
|
|
4.9. Real Estate
|
|
|
A-10
|
|
4.10. Litigation
|
|
|
A-10
|
|
4.11. Taxes
|
|
|
A-11
|
|
4.12. Compliance with Charter Provisions and Laws and Regulations
|
|
|
A-12
|
|
4.13. Employees
|
|
|
A-13
|
|
4.14. Brokers and Finders
|
|
|
A-13
|
|
4.15. Scheduled Contracts
|
|
|
A-13
|
|
4.16. Performance of Obligations
|
|
|
A-14
|
|
4.17. Certain Material Changes
|
|
|
A-14
|
|
4.18. Licenses and Permits
|
|
|
A-15
|
|
4.19. Undisclosed Liabilities
|
|
|
A-15
|
|
4.20. Employee Benefit Plans
|
|
|
A-15
|
|
4.21. Corporate Records
|
|
|
A-16
|
|
4.22. Accounting Records and Internal Controls
|
|
|
A-16
|
|
4.23. Vote Required
|
|
|
A-16
|
|
4.24. Disclosure Documents and Applications
|
|
|
A-17
|
|
4.25. Intellectual Property
|
|
|
A-17
|
|
i
|
|
|
|
|
|
|
Page
|
|
4.26. State Takeover Laws
|
|
|
A-18
|
|
4.27. Opinion of KBW
|
|
|
A-18
|
|
4.28. Insurance Matters
|
|
|
A-18
|
|
4.29. Restrictions on Business Activities
|
|
|
A-19
|
|
4.30. No Additional Representations
|
|
|
A-20
|
|
|
|
|
|
|
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PARENT
|
|
|
A-20
|
|
|
|
|
|
|
5.1. Incorporation, Standing and Power
|
|
|
A-20
|
|
5.2. Authority
|
|
|
A-20
|
|
5.3. Financing
|
|
|
A-20
|
|
5.4. Litigation
|
|
|
A-21
|
|
5.5. Ownership of Merger Sub
|
|
|
A-21
|
|
5.6. Facts Affecting Regulatory Approvals
|
|
|
A-21
|
|
5.7. Accuracy of Information Furnished for Company Proxy
Statement
|
|
|
A-21
|
|
|
|
|
|
|
ARTICLE 6. COVENANTS OF COMPANY PENDING EFFECTIVE TIME OF
THE MERGER
|
|
|
A-21
|
|
|
|
|
|
|
6.1. Limitation on Conduct Prior to Effective Time of the Merger
|
|
|
A-21
|
|
6.2. Affirmative Conduct Prior to Effective Time of the Merger
|
|
|
A-24
|
|
6.3. Access to Information
|
|
|
A-25
|
|
6.4. Filings
|
|
|
A-25
|
|
6.5. Notices; Reports
|
|
|
A-25
|
|
6.6. Company Shareholders Meeting
|
|
|
A-25
|
|
6.7. Proxy Statement
|
|
|
A-25
|
|
|
|
|
|
|
ARTICLE 7. COVENANTS OF PARENT AND MERGER SUB
|
|
|
A-26
|
|
|
|
|
|
|
7.1. Limitation on Conduct Prior to Effective Time of the Merger
|
|
|
A-26
|
|
7.2. Applications
|
|
|
A-26
|
|
7.3. Notices; Reports
|
|
|
A-26
|
|
7.4. Indemnification and Directors and Officers
Insurance
|
|
|
A-26
|
|
|
|
|
|
|
ARTICLE 8. ADDITIONAL COVENANTS
|
|
|
A-27
|
|
|
|
|
|
|
8.1. HSR Matters
|
|
|
A-27
|
|
8.2. Insurance Approvals
|
|
|
A-27
|
|
8.3. Commercially Reasonable Efforts
|
|
|
A-28
|
|
8.4. Public Announcements
|
|
|
A-28
|
|
|
|
|
|
|
ARTICLE 9. CONDITIONS PRECEDENT TO THE MERGER
|
|
|
A-28
|
|
|
|
|
|
|
9.1. Shareholder Approval
|
|
|
A-28
|
|
9.2. Insurance Approvals
|
|
|
A-28
|
|
9.3. No Judgments or Orders
|
|
|
A-28
|
|
9.4. HSR Approvals
|
|
|
A-28
|
|
9.5. Employment Agreements
|
|
|
A-28
|
|
9.6. Claim & Claim Settlement Expense
|
|
|
A-29
|
|
9.7. Minnesota Workers Compensation Assigned Risk Plan
|
|
|
A-29
|
|
ii
|
|
|
|
|
|
|
Page
|
|
ARTICLE 10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
COMPANY
|
|
|
A-29
|
|
|
|
|
|
|
10.1. Representations and Warranties; Performance of Covenants
|
|
|
A-29
|
|
10.2. Officers Certificate
|
|
|
A-29
|
|
10.3. Employee Benefit Plans
|
|
|
A-29
|
|
|
|
|
|
|
ARTICLE 11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
AND MERGER SUB
|
|
|
A-29
|
|
|
|
|
|
|
11.1. Representations and Warranties; Performance of Covenants
|
|
|
A-29
|
|
11.2. Authorization of Merger
|
|
|
A-30
|
|
11.3. Officers Certificate
|
|
|
A-30
|
|
11.4. Company Dissenting Shares
|
|
|
A-30
|
|
11.5. Employee Benefit Plans
|
|
|
A-30
|
|
11.6. Transaction Related Expenses
|
|
|
A-30
|
|
11.7. No Material Adverse Effect
|
|
|
A-30
|
|
|
|
|
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ARTICLE 12. EMPLOYEE BENEFITS
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12.1. Employee Benefits
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12.2. Company Stock Options and the Company Stock Option Plans
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ARTICLE 13. TERMINATION
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13.1. Termination
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13.2. Effect of Termination
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ARTICLE 14. MISCELLANEOUS
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14.1. Expenses
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14.2. Notices
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14.3. Assignment
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14.4. Counterparts
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14.5. Effect of Representations and Warranties
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14.6. Third Parties
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14.7. Integration
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14.8. Knowledge
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14.9. Governing Law
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14.10. Captions
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14.11. Severability
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14.12. Waiver and Modification; Amendment
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iii
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (
Agreement
)
is made and entered into as of the 20th day of September,
2007, by and among Rockhill Holding Company, a Delaware
corporation (
Parent
), Rockhill Acquisition
Corporation, a Minnesota corporation and a wholly-owned
subsidiary of Parent (
Merger Sub
), and RTW,
INC., a Minnesota corporation (
Company
).
WHEREAS, each of Parent, Merger Sub and Company desires to enter
in to a transaction whereby Merger Sub will merge with and into
Company (the
Merger
), with Company being the
surviving corporation, upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has approved the
Merger, the Agreement and the transactions contemplated therein
in accordance with the provisions of the Minnesota Business
Corporations Act (the
MBCA
) and determined
the Merger is advisable and in the best interests of its
shareholders upon the terms and conditions set forth herein and
in accordance with the MBCA (Company, following the
effectiveness of the Merger, being hereinafter sometimes
referred to as the
Surviving
Corporation
); and
WHEREAS, the Board of Directors of Parent, Merger Sub and
Company each have approved this Agreement and the Merger
pursuant to which Merger Sub will merge with and into Company
and each outstanding share of Company common stock, no par value
per share (
Company Stock
), excluding any
Company Dissenting Shares (as defined below), will be converted
into the right to receive the Merger Consideration (as defined
in Section 2.2(b)) upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the respective covenants, agreements,
representations and warranties contained herein, the parties
hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Except as otherwise expressly provided for in this Agreement, or
unless the context otherwise requires, as used throughout this
Agreement the following terms shall have the respective meanings
specified below:
ACIC means American Compensation Insurance Company,
a wholly owned subsidiary of Company.
Affiliate of, or a Person Affiliated
with, a specific Person(s) is a Person that directly or
indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person(s)
specified.
Affiliated Group means, with respect to any entity,
a group of entities required or permitted to file consolidated,
combined or unitary Tax Returns (as defined herein).
Articles of Merger has the meaning set forth in
Section 3.2.
BCIC means Bloomington Compensation Insurance
Company, a wholly owned subsidiary of ACIC.
Benefit Arrangements has the meaning set forth in
Section 4.20(b).
Book Entry Shares has the meaning set forth in
Section 2.5(b).
Business Day means any day other than a Saturday,
Sunday or other day on which banks in New York and Minnesota are
required or authorized by law to be closed.
Certificates has the meaning set forth in
Section 2.5(b).
Closing means the consummation of the Merger
provided for in Article 2 of this Agreement on the Closing
Date (as defined herein) at the offices of Rockhill Holding
Company, 700 West 47th Street, Suite 350, Kansas
City, Missouri 64112, or at such other place as the parties may
agree upon.
Closing Date means the date that is no later than
the second business day following the day on which the last of
the conditions specified in Articles 9, 10 and 11
(excluding, for purposes of this definition,
A-1
conditions that, by their terms, are to be satisfied on the
Closing Date) have been fulfilled or waived (if permissible) or
such other date as the parties may agree upon.
Code means the Internal Revenue Code of 1986, as
amended.
Company 401(k) Plan means the RTW, Inc. KSOP Plan.
Company Disclosure Letter means that letter
designated as such that has been delivered by Company to Parent
prior to the execution and delivery of this Agreement.
Company Dissenting Shares has the meaning set forth
in Section 2.2(b).
Company Option List has the meaning set forth in
Section 4.2(a).
Company Patents has the meaning set forth in
Section 4.25(b).
Company Property has the meaning set forth in
Section 4.12(b).
Company Registered IP has the meaning set forth in
Section 4.25(b).
Company Registered Marks has the meaning set forth
in Section 4.5(b).
Company SEC Documents has the meaning set forth in
Section 4.5(a).
Company Shareholders Meeting means the meeting
of Companys shareholders referred to in Section 6.6.
Company Stock has the meaning set forth in the
second recital of this Agreement.
Company Stock Option Plans means, collectively, the
1994 Stock Plan, as amended, the 2005 Stock Plan, as amended and
the 1995 Employee Stock Purchase Plan and Trust.
Company Stock Option means any option or right to
acquire Company Stock, or stock appreciation right payable in
cash issued pursuant to Company Stock Option Plans.
Company Supplied Information has the meaning set
forth in Section 4.24.
Competing Transaction has the meaning set forth in
Section 6.1(m).
Confidentiality Agreement means that certain
Confidentiality Agreement dated June 28, 2007 by and
between Rockhill Insurance Company and Company.
Copyrights has the meaning set forth in
Section 4.25(a).
E&Y means Ernst & Young LLP,
Companys independent public accountants.
Effective Time of the Merger means the date upon
which the Articles of Merger is filed with the Secretary of
State of the State of Minnesota, or at such time thereafter as
shall be agreed to by the parties and specified in the Articles
of Merger.
Employee Plans has the meaning set forth in
Section 4.20(a).
Encumbrance shall mean any option, pledge, security
interest, lien, charge, encumbrance or restriction (whether on
voting or disposition or otherwise), whether imposed by
agreement, understanding, law or otherwise.
Environmental Regulations has the meaning set forth
in Section 4.12(b).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
ERISA Affiliates has the meaning set forth in
Section 4.20(a).
Exchange Act means the Securities Exchange Act of
1934, as amended.
Exchange Agent means a bank or trust company that
the parties will designate.
Exchange Fund has the meaning set forth in
Section 2.5(a) hereof.
A-2
Executive Employment Agreement means the existing
employment agreement between the Company and its President and
Chief Executive Officer.
Expenses has the meaning set forth in
Section 14.1 hereof.
Financial Statements of Company means the financial
statements of Company consisting of the balance sheets as of
December 31, 2004, 2005 and 2006, the related statements of
income, shareholders equity and cash flows for the years
then ended and the related notes thereto and related opinions of
E&Y thereon for the years then ended, and any interim
financial statements since December 31, 2006, filed as part
of the SEC Documents.
GAAP means United States generally accepted
accounting principles consistently applied during the periods
involved.
Governmental Entity means any court, tribunal or
judicial or arbitral body in any jurisdiction or any United
States federal, state, municipal or local or any foreign or
other governmental, regulatory or administrative authority,
agency or instrumentality.
HSR Act means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Hazardous Materials has the meaning set forth in
Section 4.12(b).
Indemnified Liabilities has the meaning set forth in
Section 7.4(a).
Indemnified Parties has the meaning set forth in
Section 7.4(a).
Intellectual Property has the meaning set forth in
Section 4.25(a).
IRS means the Internal Revenue Service.
KBW means Keefe, Bruyette & Woods, Inc.
the Companys investment banker.
KBW Agreement means the letter agreement dated
January 19, 2007 between Company and KBW.
Laws means all federal, state, local or foreign or
provincial laws, statutes, ordinances, rules, regulations,
judgments, orders, injunctions, decrees or agency requirements
of or undertaking to or agreement with any Governmental Entity,
including common law.
MBCA has the meaning set forth in the second recital
of this Agreement.
Marks has the meaning set forth in
Section 4.25(a)
Material Adverse Effect means any circumstance,
change in or effect on Company, ACIC, BCIC or the Surviving
Corporation (1) that is, or would reasonably be expected to
be, materially adverse to the condition (financial or
otherwise), business, properties, assets, liabilities,
prospects, or results of operations of Company, ACIC, BCIC or
the Surviving Corporation, taken as a whole, or (2) that
materially impairs or would reasonably be expected to materially
impair the ability of Company to timely perform its obligations
under this Agreement or to consummate the transactions
contemplated hereby;
provided
,
however
, that in
determining whether a Material Adverse Effect has occurred there
shall be excluded the effect of: (i) any change in GAAP,
Statutory Accounting Policies, or regulatory accounting
requirements applicable to the insurance industry generally but
not such changes that have a disproportionate effect on the
Company, (ii) any general social, political, economic,
environmental or natural condition, change, effect, event or
occurrence the effects of which are not specific or unique to
Company, including changes in prevailing interest rates,
currency exchange rates or general global economic or global
market conditions, (iii) any failure by the Company to meet
any published projections, forecasts, or predictions of revenue
or earnings for any period, (iv) any loss or threatened
loss of business from any agents, brokers, or customers of the
Company or its Subsidiaries caused by the announcement or the
pendency of the transactions contemplated by this Agreement,
(v) any action or omission by Company expressly permitted
under this Agreement including the public announcement of the
transactions contemplated by this Agreement, (vi) any
expenses incurred in connection with this Agreement or the
transactions contemplated hereby, and (vii) the payment of
any amounts due to, or the provision of any other benefits to,
any officers or employees under contracts or plans in existence
on the date of this Agreement and disclosed in the Company
Disclosure Letter.
A-3
Merger has the meaning set forth in the first
recital of this Agreement.
Merger Consideration has the meaning set forth in
Section 2.2(a).
Other Incentive Plans has the meaning set forth in
Section 12.1(c)(ii).
Patents has the meaning set forth in
Section 4.25(a).
Person means any individual, corporation,
association, partnership, limited liability company, trust,
joint venture, other entity, unincorporated organization,
government or governmental department or agency.
Proxy Statement means the Proxy Statement, together
with any supplements thereto, that is used to solicit proxies
for the Company Shareholders Meeting in connection with
the Merger.
Representatives has the meaning set forth in
Section 6.1(m).
Scheduled Contract has the meaning set forth in
Section 4.15.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as
amended.
Statutory Accounting Policies means the statutory
accounting practices prescribed or permitted by the Minnesota
Department of Commerce for determining and reporting the
financial condition and results of operations of insurance
companies and determining the solvency of insurance companies
under Minnesota law as set forth in the National Association of
Insurance Commissioners
Accounting Practices and
Procedures
Manual, version effective January 1, 2006 as
adopted by the Minnesota Department of Commerce.
Subsidiary of a Person means any corporation,
partnership, limited liability company or other business entity
of which more than 25% of the voting power is owned or
controlled by such Person.
Superior Proposal has the meaning set forth in
Section 6.1(m).
Surviving Corporation has the meaning set forth in
the first recital of this Agreement.
Tank has the meaning set forth in
Section 4.12(b).
Tax or Taxes means (i) any and all
federal, state, local or foreign taxes, charges, premium taxes,
fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, capital, sales, use,
ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance,
stamp, occupation, property, corporation and estimated taxes,
custom duties, fees, assessments and charges of any kind
whatsoever; (ii) all interest, penalties, fines, additions
to tax or additional amounts imposed by any taxing authority in
connection with any item described in clause (i); and
(iii) any transferred liability in respect of any items
described in clauses (i) or (ii).
Tax Returns means all material returns, sales and
use returns, declarations, reports, information returns,
statements, elections, disclosures and schedules required to be
filed in respect of any Taxes (including any attachments thereto
or amendments thereof).
Termination Fee has the meaning set forth in
Section 13.2(b).
Trade Secrets has the meaning set forth in
Section 4.25(a).
Transaction-Related Expenses means all expenses
incurred by Company in connection with or related to the
authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters
related to the closing of the transactions contemplated hereby,
including without limitation, the HSR Act filing fees, fees of
Representatives, including KBW, and all related other fees and
expenses or agents, representatives, counsel and accountants
employed by Company or its Subsidiaries or Affiliates from the
date of this Agreement. Transaction-Related Expenses
does not include: (i) payments to any officer, director or
employee permitted under Article 12 hereof; (ii) legal
and other expenses including additional investment banking and
other fees related to Companys response in the event of a
third partys proposal that
A-4
might be considered or lead to a Competing Transaction or
Superior Proposal; or (iii) legal or other costs and
expenses related to Companys response to any claim,
action, suit, proceeding or investigation of any Governmental
Entity or any third party based in whole or in part, or arising
from in whole or in part, this Agreement, or regulatory or other
approvals or investigations or inquiries related to this
Agreement and the transactions contemplated by this Agreement.
ARTICLE 2.
TERMS OF
MERGER
2.1.
Effect of Merger and Surviving
Corporation.
At the Effective Time of the Merger,
Merger Sub will be merged with and into Company pursuant to the
terms, conditions and provisions of this Agreement and in
accordance with the applicable provisions of the MBCA, and the
separate corporate existence of Merger Sub shall cease. The
Merger will have the effects set forth in the MBCA.
2.2.
Stock of Company.
Subject to
Section 2.6, each share of Company Stock issued and
outstanding immediately prior to the Effective Time of the
Merger shall, without any further action on the part of Company
or the holders of such shares, be treated on the basis set forth
in this Section 2.2.
(a)
Cancellation of Parent Owned
Stock.
At the Effective Time of the Merger, any
share of the Company Stock held by the Company as treasury
stock, held by ACIC or BCIC, or owned by Parent or Merger Sub
shall be automatically cancelled and retired and shall cease to
exist and no Merger Consideration shall be delivered therefore.
(b)
Conversion of Company Stock.
At the
Effective Time of the Merger, each issued and outstanding share
of Company Stock (other than shares that will converted into the
right to receive the consideration determined under
Section 12.2(a), shares that will be cancelled in
accordance with Section 2.2(a) and any Company Dissenting
Shares) shall be automatically canceled and cease to be an
issued and outstanding share of Company Stock and be converted
into the right to receive per share consideration (the
Merger Consideration
) in cash in the amount
of $12.45.
(c)
Company Dissenting
Shares.
Notwithstanding anything in this
Agreement to the contrary, any shares of Company Stock that are
issued and outstanding as of the Effective Time of the Merger
and that are held by a shareholder of Company who has properly
exercised such holders dissenters rights under the
MBCA (the
Company Dissenting Shares
) shall
not be converted into the right to receive the Merger
Consideration unless and until such holder shall have failed to
perfect, or shall have effectively withdrawn or lost, such
holders right to dissent from the Merger under the MBCA,
but will be converted to the right receive such consideration as
may be determined to be due with respect to such Company
Dissenting Shares pursuant to and subject to the requirements of
the MBCA. If any such holder shall have so failed to perfect or
have effectively withdrawn or lost such right at the Effective
Time of the Merger, each share of such holders Company
Stock shall thereupon be deemed to have been converted into and
to have become, as of the Effective Time of the Merger, the
right to receive, without any interest thereon, the Merger
Consideration. Company shall give Parent (i) prompt notice
of any notice or demands for appraisal or payment for shares of
Company Stock received by Company and (ii) the opportunity
to participate in all negotiations and proceedings with respect
to any such demands or notices. Company shall not, without the
prior written consent of Parent, or as required by MBCA, make
any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
2.3.
Company Stock Options.
Each
Company Stock Option outstanding as of the Effective Time of the
Merger shall be treated in accordance with Section 12.2.
2.4.
Effect on Merger Sub Stock.
At
the Effective Time of the Merger, each issued and outstanding
share of capital stock of Merger Sub shall be converted into and
become one fully paid and nonassessable share of common stock of
the Surviving Corporation.
A-5
2.5.
Exchange Procedures.
(a) At the Effective Time of the Merger, Parent shall
deposit with the Exchange Agent for the benefit of the holders
of shares of Company Stock outstanding immediately prior to the
Effective Time of the Merger, for exchange in accordance with
this Section 2.5 through the Exchange Agent, cash in the
amount of the Merger Consideration payable to such holders of
Company Stock pursuant to Section 2.2 in exchange for their
shares of Company Stock (collectively, the
Exchange
Fund
).
(b) Parent shall direct the Exchange Agent to mail,
promptly after the Effective Time of the Merger, to each holder
of record of shares of Company Stock that are represented by
(x) a certificate or certificates that immediately prior to
the Effective Time of the Merger represented outstanding shares
of Company Stock (the
Certificates
) or
(y) an entry to that effect in the shareholder records
maintained on behalf of Company by the Company stock transfer
agent (the
Book Entry Shares
), whose shares
were converted into the right to receive the Merger
Consideration pursuant to Section 2.2 hereof, (i) a
letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates (if
any) shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other
provisions as Parent and Company may reasonably specify), and
(ii) instructions for use in effecting the surrender of the
Certificates or authorizing transfer and cancellation of Book
Entry Shares in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by
Parent, or authorizing transfer of Book Entry Shares, together
with such letter of transmittal, duly executed, the holder of
such shares of Company stock shall be entitled to receive in
exchange therefore the amount of the Merger Consideration that
such holder has the right to receive pursuant to
Section 2.2 hereof, and any Certificate so surrendered
shall forthwith be canceled. Until surrendered as contemplated
by this Section 2.5, each Certificate and any Book Entry
Shares shall be deemed at any time after the Effective Time of
the Merger to represent only the right to receive upon such
surrender the Merger Consideration to be paid in consideration
therefore upon surrender of such Certificate or transfer of the
Book Entry Shares, as the case may be, as contemplated by this
Section 2.5. Notwithstanding anything to the contrary set
forth herein, if any holder of shares of Company Stock that are
not Book Entry Shares should be unable to surrender the
Certificates for such shares, because they have been lost or
destroyed, such holder shall, if required by Parent or Exchange
Agent, deliver in lieu thereof a bond in form and substance and
with surety reasonably satisfactory to Parent and shall be
entitled to receive the Merger Consideration to be paid in
consideration therefore in accordance with Section 2.2
hereof.
(c) If, after the Effective Time of the Merger,
Certificates or Book Entry Shares are presented to Parent for
any reason, they shall be canceled and exchanged as provided in
this Agreement.
(d) Any portion of the Exchange Fund that remains
undistributed to the shareholders of Company following the
passage of twelve months after the Effective Time of the Merger
shall be delivered to the Surviving Corporation, upon demand,
and any shareholders of Company who have not theretofore
complied with this Section 2.5 shall thereafter look only
to the Surviving Corporation and Parent for payment of their
claim for the Merger Consideration payable in consideration for
any Certificate or transfer of any Book Entry Shares.
(e) Except as otherwise required by Law, neither Parent nor
the Surviving Corporation shall be liable to any holder of
shares of Company Stock for such cash from the Exchange Fund
delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6.
Adjustments.
If after the date
hereof and on or prior to the Effective Time of the Merger but
subject to the prior written consent of Parent, the outstanding
shares of Company Stock shall be changed into a different number
of shares by reason of any reclassification, recapitalization or
combination, stock split, reverse stock split, stock dividend or
rights issued in respect of such stock, or any similar event
shall occur, the Merger Consideration shall be adjusted
accordingly to provide to the holders of Company Stock the same
economic effect as contemplated by this Agreement prior to such
event.
A-6
2.7.
Directors of Surviving
Corporation.
At the Effective Time of the Merger,
the Board of Directors of the Surviving Corporation shall be
comprised of the persons serving as directors of Merger Sub
immediately prior to the Effective Time of the Merger. Such
persons shall serve until the earlier of their resignation or
removal or until their respective successors are duly elected
and qualified.
2.8.
Executive Officers of Surviving
Corporation.
At the Effective Time of the Merger,
the executive officers of the Surviving Corporation shall be
comprised of the persons serving as executive officers of Merger
Sub immediately prior to the Effective Time of the Merger. Such
persons shall serve until the earlier of their resignation or
termination.
2.9.
No Further Ownership Rights in
Stock.
All Merger Consideration delivered upon
the surrender for exchange of shares of Company Stock in
accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to
ownership of such shares of stock. At and after the Effective
Time of the Merger, there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Stock that were outstanding
immediately prior to the Effective Time of the Merger, and upon
delivery of the Merger Consideration upon surrender for exchange
of Company Stock, each such share of Company Stock shall be
canceled.
2.10.
Articles of Incorporation and
Bylaws.
The articles of incorporation of Merger
Sub as in effect immediately prior to the Effective Time of the
Merger shall be the articles of incorporation of the Surviving
Corporation. The bylaws of Merger Sub as in effect immediately
prior to the Effective Time of the Merger shall be the bylaws of
the Surviving Corporation.
ARTICLE 3.
THE
CLOSING
3.1.
Closing Date.
The Closing
shall take place on the Closing Date.
3.2.
Articles of Merger.
Subject to
the provisions of this Agreement, a certificate of merger (the
Articles of Merger
) shall be duly prepared,
executed by the Surviving Corporation and thereafter delivered
to the Secretary of State of the State of Minnesota for filing,
as provided in the MBCA, on the Closing Date.
3.3.
Further Assurances.
At the
Closing, the parties hereto shall deliver, or cause to be
delivered, such documents or certificates as may be necessary in
the reasonable opinion of counsel for any of the parties, to
effectuate the transactions contemplated by this Agreement.
ARTICLE 4.
REPRESENTATIONS
AND WARRANTIES OF COMPANY
The following representations and warranties by Company to
Parent and Merger Sub are qualified by the Company Disclosure
Letter. The Company Disclosure Letter shall refer to the
representation or warranty to which exceptions or matters
disclosed therein relate except that an exception or matter
disclosed with respect to one representation or warranty shall
also be deemed disclosed with respect to each other warranty or
representation to which the exception or matter reasonably
relates. The inclusion of any item in the Company Disclosure
Letter shall not be deemed an admission that such item is a
material fact, event or circumstance or that such item has or
had, or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
4.1.
Incorporation, Standing and
Power.
Each of Company, ACIC and BCIC has been
duly organized, are validly existing and in good standing as a
corporation under the laws of the State of Minnesota. Each of
the Company, ACIC and BCIC have all requisite corporate power
and authority to own, lease and operate its properties and
assets and to carry on its business as presently conducted. Each
of the Company, ACIC and BCIC is duly qualified to do business
in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such
qualification necessary. Company has delivered to Parent
A-7
true and correct copies of the Companys articles of
incorporation and bylaws, ACICs articles of incorporation
and bylaws, and BCICs articles of incorporation and
bylaws, respectively, as currently in effect.
4.2.
Capitalization.
(a) As of the close of business on September 19, 2007,
the authorized capital stock of Company consists of
12,500,000 shares of Company Stock, of which
5,174,845 shares of common stock are outstanding, and
4,750,000 shares of preferred stock, 250,000 shares
have been authorized and none of which are outstanding. All of
the outstanding shares of Company Stock are validly issued,
fully paid and nonassessable. Except for Company Stock Options
covering 580,381 shares of Company Stock granted pursuant
to the Company Stock Option Plans, there are no outstanding
options, warrants or other rights in or with respect to the
unissued shares of preferred stock, Company Stock nor any
securities convertible into such stock, and Company is not
obligated to issue any additional shares of its common stock,
preferred stock or any additional options, warrants or other
rights in or with respect to the unissued shares of such stock
or any other securities convertible into such stock.
Section 4.2(a) of the Company Disclosure Letter is a list
(the
Company Option List
) setting forth the
name of each holder of a Company Stock Option, the number of
shares of Company Stock covered by each such option, the vesting
schedule of each such option, the exercise price per share and
the expiration date of each such option.
(b) No bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which shareholders of
Company may vote are issued and outstanding.
(c) There are no shareholder agreements, voting trusts or
other agreements or understandings to which the Company or any
of its Subsidiaries is a party or of which the Company is
otherwise aware with respect to the voting of the capital stock
or other equity interest of the Company or any of its
Subsidiaries.
(d) No holder of securities in the Company or any of its
Subsidiaries has any right to have such securities registered by
the Company or any of its Subsidiaries, as the case may be.
4.3.
Subsidiaries.
Company
has one wholly owned Subsidiary, namely, American Compensation
Insurance Company (
ACIC
), a Minnesota
corporation. ACIC has one wholly owned Subsidiary, namely,
Bloomington Compensation Insurance Company
(
BCIC
), a Minnesota corporation. None of
Company, ACIC and BCIC has any Subsidiaries other than the
Subsidiaries set out in this Section 4.3. The authorized
capital stock of ACIC consists of 5,000,000 shares of
common stock of which 1,000,000 shares are outstanding and
held by the Company. The authorized capital stock of BCIC
consists of 5,000,000 shares of common stock of which
666,667 shares are outstanding and held by the Company. All
such shares of Subsidiaries are validly issued, fully paid and
non-assessable, and are clear of all Encumbrances. Other than
Subsidiaries and securities held in its respective investment
portfolio, none of the Company, ACIC or BCIC own any equity
interest in any Person.
4.4.
Financial
Statements.
Company has previously furnished
to Parent a copy of the Financial Statements of Company. The
Financial Statements of Company: (a) present fairly, in all
material respects, the financial condition of Company as of the
respective dates indicated and its statements of operations and
changes in shareholders equity and cash flows, for the
respective periods then ended; and (b) have been prepared
in accordance with GAAP consistently applied. The Company has
delivered to Parent a copy of the statutory financial statements
(including the annual reports filed with the Governmental
Entities with jurisdiction over the Company and its
Subsidiaries) for the years ended December 31, 2004, 2005
and 2006 and the financial statements for the three and six
month period ended June 30, 2007. Each such statutory
financial statement presents fairly and in accordance with
Statutory Accounting Policies and practices prescribed or
permitted by the appropriate regulatory agency of each state in
which the statutory financial statements have or may be required
to be filed, the financial position of each of ACIC and BCIC as
of the date of each such referenced period. The amounts shown in
the statutory financial statements reserves and liabilities for
past and future insurance contract claims and expenses were
computed (i) in all material respects in accordance with
generally accepted actuarial standards consistently applied as
in effect on such dates; (ii) in
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compliance with applicable Laws, and (iii) consistent with
actuarial assumptions used to compute corresponding statutory
financial statements.
4.5.
Reports and Filings.
(a) Except as set forth in Section 4.5(a) of Company
Disclosure Letter, Company has filed all required forms,
reports, proxy statements, schedules, registration statements
and other documents with the SEC since December 31, 2003
(the
Company SEC Documents
). As of their
respective dates of filing with the SEC (or, if amended,
supplemented or superseded by a filing prior to the date hereof,
as of the date of such filing), the Company SEC Documents,
including any financial statements or schedules included or
incorporated by reference therein, complied in all material
respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations
of the SEC thereunder applicable to such Company SEC Documents,
and none of the Company SEC Documents, including any financial
statements or schedules included or incorporated by reference
therein, when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading,
except to the extent superseded or amended by a Company SEC
Document filed subsequently and prior to the date hereof. The
financial statements of Company included in the Company SEC
Documents complied as to form, as of their respective dates of
filing with the SEC, in all material respects with all
applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto.
(b) The Company has heretofore made, and hereafter will
make, available to Parent a complete and correct copy of any
amendments or modifications that are required to be filed with
or submitted to the SEC but have not yet been filed with or
submitted to the SEC to agreements, documents or other
instruments that previously had been filed with or submitted to
the SEC by the Company pursuant to the Exchange Act.
(c) Each Company SEC Document containing financial
statements that has been filed with or submitted to the SEC
since July 31, 2002, was accompanied by the certifications
required to be filed or submitted by the Companys chief
executive officer and chief financial officer pursuant to the
Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley
Act
), and at the time of filing or submission of each
such certification, such certification was true and accurate.
(d) Except as set forth in Section 4.5(d) of the
Company Disclosure Letter, since December 31, 2003, neither
the Company nor, to the Companys knowledge, any director,
officer, employee, auditor, accountant or representative of the
Company has received or otherwise had or obtained knowledge of
any complaint, allegation, assertion or claim, whether written
or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of the Company or its
respective internal accounting controls, including any
complaint, allegation, assertion or claim that the Company has
engaged in questionable accounting or auditing practices. No
attorney representing the Company, whether or not employed by
the Company, has reported evidence of a material violation of
securities laws, breach of fiduciary duty or similar violation
by the Company or any of its officers, directors, employees or
agents to the Company Board or any committee thereof or to any
director or officer of the Company.
4.6.
Authority of
Company.
The execution and delivery by
Company of this Agreement and, subject to the requisite approval
of the shareholders of Company of this Agreement and the Merger,
the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate
action on the part of Company including, without limitation, the
vote of the Board of Directors of Company (which vote was
unanimous) approving this Agreement and the Merger. This
Agreement is a valid and binding obligation of Company
enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy,
liquidation, receivership, conservatorship, insolvency,
fraudulent transfer, moratorium or other similar laws affecting
the rights of creditors generally and by general equitable
principles. Neither the execution and delivery by Company of
this Agreement, the consummation of the transactions
contemplated herein, nor compliance by Company with any of the
provisions hereof, will: (a) conflict with or result in a
breach of any provision of its Articles of Incorporation, as
amended, or bylaws, as amended; (b) constitute a
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breach of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to
acquire any securities or assets) under any of the terms,
conditions or provisions of any Scheduled Contract;
(c) result in the creation or imposition of any Encumbrance
on any of the material properties or assets of Company; or
(d) violate any material order, writ, injunction, decree,
statute, rule or regulation applicable to Company or any of its
properties or assets, except with respect to clauses (b),
(c) and (d), for such violations, breaches, defaults or
Encumbrances that would not, individually or in the aggregate,
have a Material Adverse Effect. No consent of, approval of,
notice to or filing with any Governmental Entity having
jurisdiction over any aspect of the business or assets of
Company is required in connection with the execution and
delivery by Company of this Agreement or the consummation by
Company of the Merger or the other transactions contemplated
hereby or thereby, except (i) under the Exchange Act
(including the filing of the Proxy Statement with the SEC);
(ii) the necessary filings, applications and notices to and
approvals and consents, if any, of the departments of the states
charged with the regulation of insurance in the states in which
the Company, ACIC or BCIC are licensed or authorized to do
business; (iii) such other filings or notifications as may
be required under federal or state securities law or the rules
and regulations of NASDAQ Global Select market; (iv) such
other consents, approvals, waivers, orders, authorizations,
registrations, declarations and filings, which if not obtained
or made would not, individually or in the aggregate, materially
affect the ability of the Company to consummate the Merger,
(v) applicable filings, notifications, approvals or
consents under the HSR Act; and (vi) the filing of the
Articles of Merger with the Secretary of State of the State of
Minnesota and appropriate documents with relevant authorities of
other states in which the Company is qualified to do business.
4.7.
Insurance.
Set forth in
Section 4.7 of the Company Disclosure Letter is a list, as
of the date hereof, of all policies of insurance carried and
owned by Company and which are in force on the date hereof. No
insurer under any such policy or bond has canceled or indicated
an intention to cancel or not to renew any such policy or bond
or generally disclaimed liability thereunder. Company is not in
default under any such policy or bond that is material to the
operations of Company and all material claims thereunder have
been filed in a timely fashion.
4.8.
Personal
Property.
Company has good title to all its
properties and assets owned or stated to be owned by Company,
free and clear of all Encumbrances except: (a) as set forth
in the Financial Statements of Company; (b) for
Encumbrances for current taxes not yet due; (c) for
Encumbrances incurred in the ordinary course of business; or
(d) for Encumbrances that are not substantial in character,
amount or extent and that do not materially detract from the
value, or interfere with present use, of the property subject
thereto or affected thereby, or otherwise materially impair the
conduct of business of Company.
4.9.
Real Estate.
None of
Company, ACIC or BCIC own real property. Company, ACIC and BCIC
each have a valid leasehold interest in all real property leased
by the Company as described in Section 4.9 of the Company
Disclosure Letter, free and clear of all Encumbrances, except
(a) for rights of lessors, co-lessees or sublessees in such
matters that are reflected in the lease; (b) for current
taxes not yet due and payable; and (c) for such
Encumbrances, if any, as do not materially detract from the
value of or materially interfere with the present use of such
property.
4.10.
Litigation.
Except as
disclosed in the Company SEC Documents filed prior to the date
of this Agreement or as set forth in the Company Disclosure
Letter, there is no suit, action, investigation or proceeding
(whether judicial, arbitral, administrative or other) pending
or, to the knowledge of Company, threatened, against or
affecting Company, ACIC or BCIC as to which there is a
significant possibility of an adverse outcome that would,
individually or in the aggregate, have a Material Adverse
Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity outstanding against Company,
ACIC or BCIC having or that would have, individually or in the
aggregate, a Material Adverse Effect. To the Companys
Knowledge, there are no judgments, decrees, stipulations or
orders against Company or enjoining its directors, officers or
employees in respect of, or the effect of which is to prohibit,
any business practice or the acquisition of any property or the
conduct of business in any area.
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4.11.
Taxes.
Subject to such
exceptions as would not, individually or in the aggregate, have
a Material Adverse Effect:
(a) (i) All Tax Returns required to be filed by or on
behalf of Company and its subsidiaries or the Affiliated
Group(s) of which Company or a Subsidiary of Company is or was a
member, have been duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax
Returns are required to be filed (after giving effect to any
valid extensions of time in which to make such filings), and all
such Tax Returns were true, complete and correct; (ii) all
Taxes due and payable by or on behalf of Company or its
Subsidiaries, either directly, as part of an Affiliated Group
Tax Return, or otherwise, have been fully and timely paid,
except to the extent adequately reserved therefore in accordance
with GAAP or applicable regulatory accounting principles or
banking regulations consistently applied on the Company balance
sheet, and adequate reserves or accruals for Taxes have been
provided in the Company balance sheet with respect to any period
through the date thereof for which Tax Returns have not yet been
filed or for which Taxes are not yet due and owing; and
(iii) no agreement, waiver or other document or arrangement
extending or having the effect of extending the period for
assessment or collection of Taxes (including, but not limited
to, any applicable statute of limitation) has been executed or
filed with any taxing authority by or on behalf of Company, its
Subsidiaries, or any Affiliated Group(s) of which the Company or
any of its Subsidiaries is or was a member.
(b) The Company and each of its Subsidiaries have complied
with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and has duly and timely
withheld from any salaries, wages or other compensation or
amounts paid to any employee, independent contractor, creditor,
shareholder or other third party and has paid over to the
appropriate taxing authorities all amounts required to be so
withheld and paid over for all periods under all applicable Laws.
(c) The Company and each of its Subsidiaries has furnished
to Parent true and correct copies of (i) all income Tax
Returns of Company relating to all taxable periods beginning
after December 31, 2001; and (ii) any audit report
issued within the last three years relating to any Taxes due
from or with respect to Company and each of its Subsidiaries
with respect to its income, assets or operations.
(d) No written claim has been made by a taxing authority in
a jurisdiction where Company or any of its Subsidiaries does not
file an income, sales, use or franchise Tax Return such that
Company or any of its Subsidiaries is or may be subject to
taxation by that jurisdiction.
(e) Except as set forth in Section 4.11(e) of the
Company Disclosure Letter: (i) All deficiencies asserted or
assessments made as a result of any examinations by any taxing
authority of the Tax Returns of or covering or including
Company, or any of its Subsidiaries, have been fully paid and,
to the knowledge of the Company and each of its Subsidiaries,
there are no other audits or investigations by any taxing
authority in progress, nor has Company or any of its
Subsidiaries received any written notice from any taxing
authority that it intends to conduct such an audit or
investigation; (ii) no requests for a ruling or a
determination letter are pending with any taxing authority; and
(iii) no issue has been raised in writing by any taxing
authority in any current or prior examination that, by
application of the same or similar principles, could reasonably
be expected to result in a proposed deficiency against Company
or any of its Subsidiaries for any subsequent taxable period.
There are no liens for Taxes (other than Taxes not yet due or
payable) upon any assets of the Company or any of its
Subsidiaries.
(f) Except as set forth in Section 4.11 (f) of
the Company Disclosure Letter, neither Company nor any of its
Subsidiaries are a party to any tax allocation, indemnification
or sharing agreement (or similar agreement or arrangement),
whether written or not written, pursuant to which it will have
any obligation to make any payments after the Closing.
(g) Neither Company nor any of its Subsidiaries has been a
member of an Affiliated Group (other than a group whose common
parent was Company).
(h) Neither Company nor any of its Subsidiaries has
liability for the Taxes of any person (other than the Company or
any subsidiary, as applicable) under
section 1.1502-6
of the Treasury Regulations (or any similar provision of state,
local or foreign law), as a transferee or successor, by
contract, or otherwise.
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(i) Neither Company nor any of its Subsidiaries has
requests for rulings in respect of Taxes pending between Company
and any taxing authority.
(j) There is no contract, agreement, plan or arrangement
covering any Person that, individually or collectively, could
give rise to the payment of any amount that would not be
deductible by Company or any of its Subsidiaries or their
Affiliates by reason of Section 280G of the Code, or would
constitute compensation in excess of the limitation set forth in
Section 162(m) of the Code.
(k) There are no Encumbrances as a result of any due and
unpaid Taxes upon any of the assets of Company or any of its
Subsidiaries.
(l) None of the Company or any of its Subsidiaries has
engaged in a trade or business, had a permanent establishment
(within the meaning of an applicable tax treaty or local law) or
has otherwise become subject to Tax in a jurisdiction other than
the country of its formation, and none of the Company or any of
its Subsidiaries that are U.S. persons as that
term is defined in Section 7701 of the Code has branches in
any jurisdiction outside of the United States.
(m) None of the Company or any of its Subsidiaries have
participated, within the meaning of Treasury
Regulation Section 1.6011-4(c),
or have been a material advisor or
promoter (as those terms are defined in
Section 6111 and 6112 of the Code and the Treasury
Regulations promulgated thereunder) in (i) any
reportable transaction within the meaning of
Sections 6011, 6662A and 6707A of the Code and the Treasury
Regulations promulgated thereunder, (ii) any
confidential corporate tax shelter within the
meaning of Section 6111 of the Code and the Treasury
Regulations promulgated thereunder, or (iii) any
potentially abusive tax shelter within the meaning
of Section 6112 of the Code and the Treasury Regulations
promulgated thereunder.
(n) With respect to any reinsurance contracts to which the
Company or any of its Subsidiaries is a party, no facts,
circumstances or basis exists under which the IRS could make any
reallocation, recharacterization or other adjustment under
Section 845(a) of the Code, or make any adjustment arising
from a determination that any reinsurance contract had or has a
significant tax avoidance effect under Section 845(b) of
the Code.
(o) Within the past three years, neither the Company nor
any of its Subsidiaries has been a distributing
corporation or a controlled corporation in a
distribution intended to qualify under Section 355(a) of
the Code.
4.12.
Compliance with Charter Provisions and
Laws and Regulations
(a) Company is not in default under or
in breach or violation of (i) any provision of its Articles
of Incorporation, as amended, or Bylaws, as amended, or
(ii) any law, ordinance, rule or regulation promulgated by
any Governmental Entity, except, with respect to this clause
(ii), for such violations as would not have, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of
Company, no investigation by any Governmental Entity with
respect to Company is pending or threatened, other than, in each
case, those the outcome of which, individually or in the
aggregate, would not have a Material Adverse Effect.
(b) Each of the Company, ACIC and BCIC (i) in
compliance with all Environmental Regulations; (ii) has not
generated, used, stored, transported, disposed of, or arranged
for the disposal of Hazardous Materials, with the exception of
common cleaning materials which may have
de minimus
amounts of Hazardous Materials, if such materials were used,
maintained, and disposed of in compliance with all Environmental
Regulations, (iii) there are no Tanks on or about Company
Property; (iv) there are no Hazardous Materials on, below
or above the surface of, or migrating to or from Company
Property; and (v) without limiting Section 4.10 hereof
or the foregoing representations and warranties contained in
clauses (i) through (v), as of the date of this Agreement,
there is no claim, action, suit, or proceeding or notice thereof
before any Governmental Entity pending against Company and there
is no material outstanding judgment, order, writ, injunction,
decree, or award against or affecting Company Property. For
purposes of this Agreement, the term
Environmental
Regulations
shall mean all Laws, licenses, permits,
orders, approvals, plans, authorizations, concessions,
franchises, and similar items, of all Governmental Entities and
all applicable judicial, administrative, and regulatory decrees,
judgments, and
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orders relating to the protection of human health or the
environment, including, without limitation, those pertaining to
reporting, licensing, permitting, investigation, and remediation
of emissions, discharges, releases, or threatened releases of
Hazardous Materials, chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or
wastes whether solid, liquid, or gaseous in nature, into the
air, surface water, groundwater, or land, or relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances,
pollutants, contaminants, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in
nature and all requirements pertaining to the protection of the
health and safety of employees or the public.
Company
Property
shall mean real estate currently owned or
leased by Company, ACIC or BCIC.
Tank
shall
mean treatment or storage tanks, gas or oil wells and associated
piping transportation devices.
Hazardous
Materials
shall mean any substance: (1) the
presence of which requires investigation or remediation under
any federal, state or local statute, regulation, ordinance,
order, action, policy or common law; (2) that is or becomes
defined as a hazardous waste, hazardous substance, hazardous
material, used oil, pollutant or contaminant under any federal,
state or local statute, regulation, rule or ordinance or
amendments thereto including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. Section 9601,
et seq.
); the
Resource Conservation and Recovery Act (42 U.S.C.
Section 6901,
et seq.
); the Clean Air Act, as
amended (42 U.S.C. Section 7401,
et seq.
); the
Federal Water Pollution Control Act, as amended (33 U.S.C.
Section 1251,
et seq.
); the Toxic Substances Control
Act, as amended (15 U.S.C. Section 9601,
et
seq.
); the Occupational Safety and Health Act, as amended
(29 U.S.C. Section 651; the Emergency Planning and
Community Right-to-Know Act of 1986 (42 U.S.C.
Section 11001,
et seq.
); the Mine Safety and Health
Act of 1977, as amended (30 U.S.C. Section 801,
et
seq.
); the Safe Drinking Water Act (42 U.S.C.
Section 300f,
et seq.
); and all comparable state and
local laws; (3) the presence of which causes or threatens
to cause a nuisance, trespass or other common law tort upon real
property or adjacent properties or poses or threatens to pose a
hazard to the health or safety of persons or without limitation,
that con tains gasoline, diesel fuel or other petroleum
hydrocarbons; or (4) polychlorinated biphenyls (PCBs),
asbestos, lead-containing paints or urea formaldehyde foam
insulation.
4.13.
Employees.
There are
no controversies pending or, to the Companys knowledge,
threatened between Company, ACIC or BCIC and any of their
respective employees that could reasonably be expected to have a
Material Adverse Effect. None of the Company, ACIC and BCIC is a
party to any collective bargaining agreement with respect to any
of their respective employees or any labor organization to which
employees or any of them belong, and no union organizing effort
is pending or threatened against the Company, ACIC or BCIC.
4.14.
Brokers and
Finders.
Except for the obligation to KBW set
forth in the KBW Agreement, a copy of which has been delivered
to Parent, Company is not a party to or obligated under any
agreement with any broker or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for herein
will result in any liability to any broker or finder.
4.15.
Scheduled
Contracts.
Except as set forth in
Section 4.15 of the Company Disclosure Letter or as
disclosed in the Company SEC Documents (each item listed or
required to be listed in such Company Disclosure Letter or the
Company SEC Documents being referred to herein as a
Scheduled Contract or Insurance Contract
pursuant to Section 4.28 hereof), as of the date hereof,
none of the Company, ACIC and BCIC is a party or otherwise
subject to (other than purchase or sales orders entered into in
the ordinary course):
(a) any employment, deferred compensation, bonus or
consulting contract that (i) has a remaining term, as of
the date of this Agreement, of more than one year in length of
obligation on the part of Company and is not terminable by
Company within one year without penalty or (ii) requires
payment by Company of $100,000 or more per annum;
(b) any advertising, brokerage, distributor, representative
or agency relationship or contract requiring payment by Company
of $100,000 or more per annum;
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(c) any contract or agreement that restricts Company (or
would restrict any Affiliate of Company or the Surviving
Corporation (including Merger Sub and its Subsidiaries) after
the Effective Time of the Merger) from competing in any line of
business with any Person;
(d) any lease of real or personal property providing for
annual lease payments by or to Company in excess of $100,000 per
annum;
(e) any license agreement granting any right to use or
practice any right under Intellectual Property (whether as
licensor or licensee);
(f) any stock purchase, stock option, stock bonus, stock
ownership, profit sharing, group insurance, bonus, deferred
compensation, severance pay, pension, retirement, savings or
other incentive, welfare or employment plan or material
agreement providing benefits to any present or former employees,
officers or directors of Company;
(g) any agreement to acquire equipment or any commitment to
make capital expenditures of $100,000 or more;
(h) any agreement for the sale of any material property or
assets in which Company has an ownership interest or for the
grant of any Encumbrance on any such property or asset, except
for investment portfolio transactions in the ordinary course of
business;
(i) any agreement for the borrowing of any money and any
guaranty agreement;
(j) any partnership or joint venture agreement;
(k) any material agreement that would be terminable other
than by Company as a result of the consummation of the
transactions contemplated by this Agreement; or
(l) other than agreements entered into in the ordinary
course of business, any other agreement of any other kind that
involves future payments or receipts or performances of services
or delivery of items requiring payment of $100,000 or more to or
by Company.
Complete copies of all Scheduled Contracts, including all
amendments and supplements thereto, have been delivered or made
available to Parent.
4.16.
Performance of
Obligations.
Company has performed in all
respects all of the obligations required to be performed by it
to date and is not in default under or in breach of any term or
provision of any Scheduled Contract to which it is a party, is
subject or is otherwise bound, and no event has occurred that,
with the giving of notice or the passage of time or both, would
constitute such default or breach, except where such failure of
performance, breach or default would not individually or in the
aggregate have a Material Adverse Effect. Except as set forth in
Section 4.16 of the Company Disclosure Letter, to
Companys knowledge, no other party to any Scheduled
Contract is in default thereunder.
4.17.
Certain Material
Changes.
Except as specifically required,
permitted or effected by this Agreement, or as disclosed in the
Company SEC Documents, since December 31, 2006, there has
not been, occurred or arisen any of the following (whether or
not in the ordinary course of business unless otherwise
indicated):
(a) any change in methods of accounting or accounting
practices, business, or manner of conducting business, of
Company;
(b) any other event or development that has had,
individually or in the aggregate, a Material Adverse Effect;
(c) any material damage, destruction or other casualty loss
(whether or not covered by insurance);
(d) any amendment, modification or termination of any
existing, or entry into any new, material contract or permit;
(e) any disposition by Company of a material asset;
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(f) or any direct or indirect redemption, purchase or other
acquisition by Company of any equity securities or any
declaration, setting aside or payment of any dividend or other
distribution on or in respect of Company Stock whether
consisting of money, other personal property, real property or
other things of value (except for dividends permitted by
Section 6.1(b)).
4.18.
Licenses and
Permits.
Each of Company, ACIC and BCIC has
all licenses and permits that are necessary for the conduct of
its respective business, and such licenses are in full force and
effect in all material respects. The respective properties,
assets, operations and businesses of Company, ACIC and BCIC are
and have been maintained and conducted, in all material
respects, in compliance with all such applicable licenses and
permits. No proceeding is pending or to the knowledge of the
Company, threatened by any Governmental Entity that seeks to
revoke or limit any such licenses or permits.
4.19.
Undisclosed
Liabilities.
Except for liabilities or
obligations that do not individually or in the aggregate have a
Material Adverse Effect, none of the Company, ACIC and BCIC has
any liabilities or obligations of any nature, either accrued,
contingent or otherwise, whether known or unknown, and whether
due or to become due, except those (a) reflected or
disclosed in the Financial Statements of Company or the
statutory financial statements of ACIC or BCIC;
(b) incurred subsequent to June 30, 2007 in the
ordinary course of business consistent with past practices; or
(c) disclosed in the Company Disclosure Letter or Company
SEC Documents.
4.20.
Employee Benefit
Plans.
(a) Company has previously made available to Parent copies
of current documents constituting of each employee benefit
plan, as defined in Section 3(3) of ERISA, of which
Company or any member of the same controlled group of
corporations, trades or businesses as Company within the meaning
of Section 4001(a)(14) of ERISA (
ERISA
Affiliates
) is a sponsor or participating employer
or as to which Company or any of its ERISA Affiliates makes
contributions or is required to make contributions and which is
subject to any provision of ERISA and covers any current or
former employee, director, agent or independent contractor, of
Company or any of its ERISA Affiliates, together with all
amendments thereto, all currently effective and related summary
plan descriptions with respect to plans subject to
Section 401(a) of the Code, the determination letter from
the IRS, the annual reports for the most recent three years
(Form 5500 including, if applicable, Schedule B
thereto, and
Form 11-K,
if applicable) and a summary of modifications prepared in
connection with any such plan. Such plans are hereinafter
referred to collectively as the
Employee
Plans
, and are listed in Section 4.20(a) of the
Company Disclosure Letter. No Employee Plan is a
multiemployer plan within the meaning of
Section 3(37) of ERISA, and neither the Company, its
Subsidiaries nor any ERISA Affiliate has at any time sponsored
or contributed to, or had any liability or obligation in respect
of, any multiemployer plan for the five years
preceding the date of this Agreement.
Neither the Company nor any of its Subsidiaries has any
obligation to provide health, life or other benefits of any kind
to any retired or former employee of either the Company of any
of its Subsidiaries. Each Employee Plan that is intended to be
qualified in form and operation under Section 401(a) of the
Code has received a favorable determination opinion or
notification letter from the IRS and the associated trust for
each such Employee Plan is exempt from tax under
Section 501(a) of the Code and Company knows of no fact
that would adversely affect the qualified status of any such
Employee Plan. No event has occurred that will subject such
Employee Plans to any material tax under Section 511 of the
Code. All amendments required to bring each Employee Plan into
conformity with all of the applicable provisions of ERISA, the
Code and all other applicable laws have been made, except to the
extent that such amendments that would retroactively cover any
period prior to the Effective Time of the Merger are not
required to be adopted prior to the Effective Time of the Merger.
(b) Company has previously made available to Parent copies
or descriptions of each written or unwritten plan or arrangement
maintained or otherwise contributed to, or as to which the
Company or any ERISA Affiliate is obligated, by Company or any
of its ERISA Affiliates that is not an Employee Plan and that
(exclusive of base salary and base wages and any benefit
required solely under the law of any state) provides for any
form of current or deferred compensation, bonus, stock option,
stock awards,
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stock-based compensation or other forms of incentive
compensation, or insurance, profit sharing, benefit, retirement,
group health, disability, workers compensation, welfare or
similar plan or arrangement for the benefit of any particular or
class of current or former employees, directors, agents or
independent contractors of Company or any of its ERISA
Affiliates. Such plans and arrangements are hereinafter
collectively referred to as
Benefit
Arrangements
), and are listed in Section 4.20(b)
of the Company Disclosure Letter. Except as set forth in the
Company Disclosure Letter, there has been no increase in the
compensation of or benefits payable to any senior executive
employee of Company since June 30, 2007, nor any
employment, severance or similar contract entered into with any
such employee, nor any amendment to any such contract, since
June 30, 2007.
(c) With respect to all Employee Plans and Benefit
Arrangements, Company and its ERISA Affiliates are in compliance
with the terms of such Employee Plans and Benefit Arrangements,
the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or
regulations currently in effect, including but not limited to
ERISA and the Code, applicable to such plans or arrangements.
All government reports and filings required by law have been
properly and timely filed and all information required to be
distributed to participants or beneficiaries has been
distributed with respect to each Employee Plan. There is no
pending or, to the Companys knowledge, threatened legal
action, proceeding or investigation against or involving any
Employee Plan or Benefit Arrangement, other than routine claims
for benefits. No prohibited transaction, as defined
in Section 406 of ERISA or Section 4975 of the Code,
has occurred with respect to any Employee Plan that could
subject the Company or any person for whom the Company has an
obligation to indemnity to liability under Title I of ERISA
or to the imposition of tax under Section 4975 of the Code.
No Employee Plan is subject to Title IV or Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the
Code. No reportable event as defined in ERISA has
occurred with respect to any of the Employee Plans. All
contributions required to be made to each of the Employee Plans
or Benefit Arrangement under the terms of the Employee Plan,
Benefit Arrangement and ERISA, the Code or any other applicable
Law have been timely made.
4.21.
Corporate Records.
The
minute books of Company and each Subsidiary accurately reflect
all material corporate actions taken since December 31,
2003 to this date by the respective shareholders, Board of
Directors and committees of Company or Subsidiary, as the case
may be.
4.22.
Accounting Records and Internal
Controls.
The Company has established and
maintains a system of internal control over financial reporting
regarding the reliability of financial reporting and the
preparation of its consolidated financial statements in
accordance with generally accepted accounting principles in the
United States, including policies and procedures that
(i) pertain to the maintenance or records that, in
reasonable detail, accurately and fairly reflect the
transactions and disposition of assets of the Company and its
Subsidiaries, (ii) provide reasonable assurance that the
Company and its transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and
that receipts and expenditures of the Company and its
Subsidiaries are being made only in accordance with appropriate
authorization of management and the Board of Directors of the
Company, and (iii) provide reasonable assurance regarding
prevention or detection of unauthorized acquisition, use or
disposition of the assets of the Company and its Subsidiaries.
The Company has disclosed, based on its most recent evaluation
of internal control over financial reporting to the
Companys independent auditors and the audit committee of
the Board of Directors of the Company all significant
deficiencies and material weaknesses in the design or operation
of internal control over financial reporting that are reasonably
likely to adversely affect the Companys ability to record,
process, summarize and report financial information and any
fraud, whether or not material, that involves Company management
or other employees who have a significant role in the
Companys internal control over financial reporting. The
Company has established and maintains disclosure controls and
procedures to ensure that all material information relating to
the Company and its Subsidiaries required to be disclosed by the
Company in the reports that its files with the SEC under the
Exchange Act and that such material information is accumulated
and communicated to the Companys management for inclusion
in such SEC filings.
4.23.
Vote Required.
The
affirmative vote of the holders of a majority of the outstanding
shares of Company Stock to adopt this Agreement is the only vote
of the holders of any class or series of Company
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capital stock necessary to approve and adopt this Agreement and
the transactions contemplated hereby (including the Merger).
4.24.
Disclosure Documents and
Applications.
None of the information
supplied or to be supplied by Company in writing
(
Company Supplied Information
) for inclusion
in any documents to be filed with the SEC or any other
Governmental Entity in connection with the transactions
contemplated in this Agreement, will, at the respective times
such documents are filed or become effective, or with respect to
the Proxy Statement when mailed, with respect to the Company
Supplied Information, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
4.25.
Intellectual Property
(a) As used herein, the term
Intellectual
Property
means all intellectual property rights
arising under the laws of the United States or any other
jurisdiction with respect to the following: (i) trade
names, trademarks and service marks (registered and
unregistered), domain names and applications to register any of
the foregoing (collectively,
Marks
);
(ii) patents and patent applications (collectively,
Patents
); (iii) copyrights and
registrations and applications therefore (collectively,
Copyrights
); and (iv) know-how,
inventions, discoveries, methods, processes, technical data,
specifications, customer lists, in each case that derives
economic value (actual or potential) from not being generally
known to other persons who can obtain economic value from its
disclosure, but excluding any Copyrights or Patents that cover
or protect any of the foregoing (collectively,
Trade
Secrets
).
(b) The Company Disclosure Letter sets forth an accurate
and complete list of all registered Marks and applications for
registration of Marks owned by the Company (collectively,
Company Registered Marks
), the Company
Disclosure Letter also sets forth an accurate and complete list
of all Patents owned by the Company (collectively, the
Company Patents
and, together with the
Company Registered Marks, the
Company Registered
IP
). Except as set forth in the Company Disclosure
Letter, no Company Registered IP has been or is now involved in
any interference, reissue, reexamination, opposition or
cancellation proceeding and, to the knowledge of the Company, no
such action is or has been threatened with respect to any of the
Company Registered IP. Except as set forth in the Company
Disclosure Letter, the Company Registered IP relating to the
Companys existing products and products currently under
development is valid, subsisting and, to the knowledge of the
Company, enforceable, and no notice or claim challenging the
validity or enforceability or alleging the misuse of any of the
Company Registered IP has been received by the Company. Except
as set forth in the Company Disclosure Letter, and other than
abandoned patent applications or closed patent application
files, (i) the Company has not taken any action or failed
to take any action that could reasonably be expected to result
in the abandonment, cancellation, forfeiture, relinquishment,
invalidation or unenforceability of any of the Company
Registered IP, and (ii) all filing, examination, issuance,
post registration and maintenance fees, annuities and the like
associated with or required with respect to any of the Company
Registered IP have been timely paid.
(c) The Company owns or possesses adequate licenses or
other valid rights to use, all of the Intellectual Property that
is necessary for the conduct of the Companys businesses as
currently conducted. Except as set forth in the Company
Disclosure Letter, none of the Intellectual Property owned by
the Company is subject to any outstanding order, judgment, or
stipulation restricting the use thereof by the Company.
(d) The rights licensed under each agreement granting to
the Company any material right or license under or with respect
to any Intellectual Property owned by a third party shall be
exercisable by the Surviving Corporation on and after the
Closing to the same extent as by the Company prior to the
Closing. No loss or expiration of any such agreement is pending
or reasonably foreseeable or, to the knowledge of the Company,
threatened. Any and all license fees, royalties, or other
amounts due with respect to any such licensed Intellectual
Property licensed have been paid in full. The Company has not
granted to any third party any exclusive rights under any
Intellectual Property owned by the Company or otherwise granted
any rights under such Intellectual Property outside the ordinary
course of business.
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(e) The Company has taken reasonable steps to protect its
rights in the Intellectual Property owned by the Company and
maintain the confidentiality of all material Trade Secrets of
the Company.
(f) The Intellectual Property owned by or validly licensed
to the Company or its Subsidiaries constitutes all the material
Intellectual Property rights necessary for the conduct of their
respective businesses as currently conducted and contemplated to
be conducted.
(g) To the knowledge of the Company, none of the products
or services distributed, sold or offered by the Company, nor any
technology, materials or Intellectual Property used, sold,
distributed or otherwise commercially exploited by or for the
Company, infringes upon, misappropriates or violates any
Intellectual Property of any third party or constitutes unfair
competition or trade practices under the laws of any
jurisdiction and, to the knowledge of the Company, the Company
has not received any notice or claim asserting or suggesting in
writing that any such infringement, misappropriation, violation,
or dilution, unfair competition or trade practices has occurred.
To the knowledge of the Company, except as set forth in the
Company Disclosure Letter, (i) no third party is
misappropriating or infringing any material Intellectual
Property owned by the Company; and (ii) no third party has
made any unauthorized disclosure of any material Trade Secrets
of the Company.
4.26.
State Takeover
Laws.
The Board of Directors of Company has
approved this Agreement and the transactions contemplated
hereby, and taken such other actions, and such actions are
sufficient, to render inapplicable to this Agreement and the
transactions contemplated hereby, including, without limitation,
the Merger, the Minnesota Control Share Acquisition Act, the
Minnesota Business Combination Act, all applicable state
takeover statutes and any similar takeover or
interested shareholder Laws.
4.27.
Opinion of
KBW.
Company has received the opinion of KBW
dated as of the date hereof, to the effect that, based upon and
subject to the matters set forth in the opinion, the Merger
Consideration is fair from a financial point of view to the
holders of the Company Stock.
4.28.
Insurance Matters.
(a)
Insurance Subsidiaries and Insurance
Contracts.
Each of ACIC and BCIC: (i) is
duly licensed or authorized as an insurance company in
Minnesota; (ii) duly licensed or authorized or otherwise
eligible to act as an insurance company in each other
jurisdiction where it is required to be so licensed, authorized
or eligible; and (iii) duly licensed, authorized or
eligible in Minnesota and each other applicable jurisdiction to
write each line of business reported as being written in each
Subsidiaries statutory financial statements. Each
jurisdiction in which each Subsidiary is licensed or authorized
under (i) through (iii) of the foregoing sentence is
set forth in Section 4.28 of the Company Disclosure Letter,
to the extent required by applicable Laws, each insurance
contract issued or distributed by each Subsidiary in any
jurisdiction since January 1, 2002, is to the extent
required by applicable Laws, on a form approved by the
applicable insurance department or has been filed and not
objected to by such insurance department within the period
provided for such objections, and such form complies with
applicable Laws.
(b)
Underwriting Management and Administration
Agreements.
All underwriting management and
administration agreements entered into by the Company and its
Subsidiaries as now in force are, to the extent required by
applicable Laws, in forms acceptable to the applicable insurance
departments of applicable jurisdictions (or have been submitted
for approval which is pending, or have been filed and not
objected to by such insurance departments within the period
provided for objection).
(c)
Reinsurance and Retrocession.
(i) Each insurance contract, treaty or arrangement
(including any facilitative agreements, indemnity agreements, or
terminated or expired treaty or agreement under which there
remains any outstanding material liability with respect to paid
or unpaid case reserves regarding ceding or assumption of
reinsurance, coinsurance, excess insurance, or retrocessions)
(
Reinsurance Contracts
) to which the
Companys Subsidiaries are a party or by or to which any of
them are bound or subject, as each such Reinsurance Contract may
have been amended, modified or supplemented is a valid
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and binding obligation of the parties thereto, is in full force
and effect and is enforceable in accordance with its terms, and
each such Reinsurance Contract is listed on Section 4.28(c)
of the Company Disclosure Letter. Neither the Companys
Subsidiaries nor, to the Companys Knowledge, any other
party thereto, is in default in any material respect, nor to
Companys Knowledge is any default threatened by such
party, with respect to any such Reinsurance Contract.
(ii) Each of the Companys Subsidiaries is entitled
under applicable law to take full credit in its statutory
financial statements for all amounts recoverable by it pursuant
to any Reinsurance Contract, and all such amounts recoverable
have been properly recorded in the books and records of account
of the Company and its Subsidiaries and are properly reflected
in the statutory financial statements. To the Companys
Knowledge, all such amounts recoverable by the Company or any of
its Subsidiaries are fully collectible in due course. Neither
the Company nor any of its Subsidiaries has received notice that
any other party to any Reinsurance Contracts intends not to
perform under any such Reinsurance Contracts, and, to the
Companys Knowledge, the financial condition of each other
party to each Reinsurance Contract pursuant to which its
Subsidiaries have ceded any premiums is not impaired to the
extent that a default thereunder is reasonably anticipated.
(d)
Insurance Ratings.
As of the date of
this Agreement the Companys Subsidiaries have been
assigned a B++ insurer financial strength rating
with a positive outlook by A. M. Best Co. Except as set forth on
Section 4.28 of the Company Disclosure Letter, since
December 31, 2005 the Company has not been downgraded and,
to the Knowledge of the Company as of the date of this
Agreement, A. M. Best Co. has not indicated that it intends to
lower its rating or put the Company on an under
review status.
(e)
Agents and Brokers.
Except as set
forth on Section 4.28 (e) of the Company Disclosure
Letter no single agent broker, intermediary, manager or producer
employed or engaged by the Company or any of its Subsidiaries
(
Producer
) generated more than ten percent
(10%) of the aggregate gross written premium of the Company or
any of its Subsidiaries during either of the years ended
December 31, 2005 or December 31, 2006. To the
Companys Knowledge, except as set forth in
Schedule 4.28(e) of the Company Disclosure Letter, each
Producer complies in all material respects with applicable Laws
regarding such Producers authority to engage in the type
of insurance activities in which such Producer is engaged and
each Producer is duly licensed (including without limitation,
the marketing, sale or issuance of any insurance contracts) in
each jurisdiction in which such Producer places or sells
insurance contracts on behalf of the Company or its
Subsidiaries, and each such Producer is duly authorized and
appointed by the applicable Subsidiary pursuant to applicable
Laws in all material respects. All contracts between any
Producer who accounted for more than ten (10%) of the aggregate
gross written premiums of the Company or its Subsidiaries during
the year ended December 31, 2006 have given or been given
written notice of termination or, to the Companys
Knowledge, threatened or been threatened with termination or
threatened or been threatened with a substantial reduction in
the amount of premiums to be written by such Person on behalf of
the Company or its Subsidiaries. There is no dispute pending or,
to the Companys Knowledge, threatened against the Company
or any of its Subsidiaries by any Producer.
(f)
Agreements with Regulators.
Except as
set forth in Section 4.28 (f) of the Company
Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to any written agreement, consent decree
or memorandum of understanding with, or a party, to any
commitment letter or similar undertaking to, or is subject to
any
cease-and-desist
or other order or directive by, or has adopted any policies,
procedures, or board resolutions at the request of, any
Governmental Entity which restricts the conduct of the business
of Company or any of its Subsidiaries, or relates to the
Companys or any of its Subsidiaries capital adequacy
or risk management policies, nor has the Company or any of its
Subsidiaries been advised in writing by any Governmental Entity
that is it contemplating any such undertakings.
4.29.
Restrictions on Business
Activities.
Except as set forth in
Section 4.29 of the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries is party to or bound by any
contract containing any covenant limiting in any material
respect the right of the Company or any of its Subsidiaries to
engage or compete in any line of business.
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4.30.
No Additional
Representations.
The Company does not make,
and has not made, any representations or warranties relating to
the Company or the business of the Company or otherwise in
connection with the transactions contemplated hereby other than
those expressly set forth in this Agreement that are made by the
Company. Without limiting the generality of the foregoing, the
Company has not made, and shall not be deemed to have made, any
representations and warranties in any presentation of the
business of the Company in connection with the transactions
contemplated hereby and, accordingly, no statement made in any
such presentation shall be deemed a representation or warranty
hereunder or otherwise. It is understood that any cost
estimates, projections or other predictions, any data, any
financial information or any memoranda or offering materials or
presentations are not and shall not be deemed to be or to
include representations or warranties of the Company. No person
has been authorized by the Company to make any representation or
warranty relating to the Company, the business of the Company or
otherwise in connection with the transactions contemplated
hereby and, if made, such representation or warranty must not be
relied upon as having been authorized by the Company.
ARTICLE 5.
REPRESENTATIONS
AND WARRANTIES OF PARENT
Parent represents and warrants to Company as follows:
5.1.
Incorporation, Standing and
Power.
Parent has been duly organized, is
validly existing and in good standing as a corporation under the
laws of Delaware. Merger Sub has been duly organized, is validly
existing and in good standing as a corporation under the laws of
the State of Minnesota. Merger Sub has conducted no business or
operations and has no material liabilities other than its
obligations under this Agreement.
5.2.
Authority.
The
execution and delivery by Parent of this Agreement, and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on
the part of Parent. The execution and delivery by Merger Sub of
this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by
all necessary corporate action on the part of Merger Sub. This
Agreement is a valid and binding obligation of Parent and Merger
Sub, in each case enforceable in accordance with its terms,
except as the enforceability thereof may be limited by
bankruptcy, liquidation, receivership, conservatorship,
insolvency, fraudulent conveyance, moratorium or other similar
laws affecting the rights of creditors generally and by general
equitable principles. Neither the execution and delivery by
Parent or Merger Sub of this Agreement, the consummation of the
transactions contemplated herein, nor compliance by Parent and
Merger Sub with any of the provisions hereof, will:
(a) conflict with or result in a breach of any provision of
its respective governing documents; (b) constitute a breach
of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to
acquire any securities or assets) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or
obligation to which Parent or any Subsidiary of Parent is a
party, or by which Parent or any Subsidiary of Parent or any of
its properties or assets is bound (except as would not be
reasonably likely to have a material adverse effect on the
ability of Parent and Merger Sub to consummate the transactions
contemplated by this Agreement); or (c) violate any order,
writ, injunction, decree, statute, rule or regulation applicable
to Parent or any Subsidiary of Parent or any of their respective
properties or assets. No consent of, approval of, notice to or
filing with any Governmental Entity having jurisdiction over any
aspect of the business or assets of Parent or any of its
Subsidiaries, and no consent of, approval of or notice to any
other Person, is required in connection with the execution and
delivery by Parent or Merger Sub of this Agreement, or the
consummation by Parent and Merger Sub of the Merger or the
transactions contemplated hereby, except (i) applicable
filings, notifications, approvals or consents under the HSR Act
and applicable insurance departments; and (ii) the filing
of the Articles of Merger with the Secretary of State of the
State of Minnesota.
5.3.
Financing.
Parent has
available sufficient cash or other liquid assets or financial
resources which may be used to fund the Merger and perform its
other obligations hereunder. Parents ability to consummate
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the transactions contemplated by this Agreement is not
contingent on raising any equity capital, obtaining financing
therefore, consent of any lender or any other matter.
5.4.
Litigation.
No claim,
action, proceeding or investigation is pending or, to the
knowledge of Parent, threatened, that seeks to delay or prevent
the consummation of, or that would be reasonably likely to
materially adversely affect Parents or Merger Subs
ability to consummate the transactions contemplated by this
Agreement.
5.5.
Ownership of Merger
Sub.
Merger Sub is a direct wholly owned
subsidiary of Parent. Merger Sub has not conducted any
activities other than in connection with the organization of
Merger Sub, the negotiation and execution of this Agreement and
the consummation of the transactions contemplated hereby. Merger
Sub has no Subsidiaries.
5.6.
Facts Affecting Regulatory
Approvals.
To the knowledge of Parent, there
is no fact, event or condition applicable to Parent or any of
its Subsidiaries which will, or reasonably could be expected to,
adversely affect the likelihood of promptly securing the
requisite approvals or consents of any Governmental Entity to
the Merger.
5.7.
Accuracy of Information Furnished for
Company Proxy Statement.
None of the
information supplied or to be supplied by Parent in writing
(
Parent Supplied Information
) for inclusion
in any documents to be filed by Company with the SEC or any
other Governmental Entity in connection with the transactions
contemplated in this Agreement, will, at the respective times
such documents are filed or become effective, or with respect to
the Proxy Statement when mailed, with respect to the Parent
Supplied Information, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
ARTICLE 6.
COVENANTS
OF COMPANY PENDING EFFECTIVE TIME OF THE MERGER
Company covenants and agrees with Parent and Merger Sub as
follows:
6.1.
Limitation on Conduct Prior to Effective
Time of the Merger.
Between the date hereof
and the earlier of the Effective Time of the Merger or the
termination of the Agreement, except as contemplated by this
Agreement and subject to applicable Laws, Company agrees to
conduct its business in the ordinary course in substantially the
manner heretofore conducted, and Company shall not, without the
prior written consent of Parent; which consent shall not be
unreasonably withheld or delayed:
(a) issue, sell or grant any Company Stock (except pursuant
to the exercise of Company Stock Options outstanding as of the
date hereof), any other securities (including long term debt) of
Company, or any rights, stock appreciation rights, options or
securities to acquire any Company Stock, or any other securities
(including long term debt) of Company or enter into any
agreements to take any such actions, except that the Company may
continue to permit employees that are participants in the 1995
Employee Stock Purchase Plan and Trust (the
ESPP
) as of the date hereof, to continue to
participate in the ESPP until the earlier of the Effective Time
of the Merger or December 31, 2007, subject to the rules
and restrictions of the ESPP, and the Company may issue Company
Stock upon the exercise of Company Stock Options pursuant to the
ESPP, provided that no employee currently participating in the
ESPP may increase his or her payroll deductions, and the Company
may not issue more shares than the shares specified in
Section 4.2(a) of the Company Disclosure Letter;
(b) (i) declare, set aside or pay any dividend or make
any other distribution upon any of the capital stock of Company,
or (ii) split, combine or reclassify any shares of capital
stock or other securities of Company;
(c) purchase, redeem or otherwise acquire any capital stock
or other securities of Company or any rights, options, or
securities to acquire any capital stock or other securities of
Company (other than the
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issuance of Company Stock upon the exercise of Company Stock
Options that are outstanding as of the date hereof in accordance
with their present terms);
(d) except as may be required to effect the transactions
contemplated herein, amend its Articles of Incorporation or
bylaws;
(e) grant any general or uniform increase in the rate of
pay of employees or employee benefits other than in the ordinary
course of business consistent with past practices;
(f) except as provided in the Company Disclosure Letter and
in Section 12.1, grant any increase in salary, incentive
compensation or employee benefits or pay any bonus to any Person
or voluntarily accelerate the vesting of any employee benefits,
other than payments of bonuses consistent with past practice
pursuant to plans in effect on the date hereof and disclosed in
the Company Disclosure Letter, increases in salary consistent
with past practice to Persons eligible for such salary increases
on the regularly scheduled review dates of their employment,
provided that the percentage increase in salaries for all such
Persons shall not exceed four percent on average and payment of
retention bonuses to employees deemed necessary by management;
(g) make any capital expenditure or commitments with
respect thereto in excess of $100,000 with respect to any item
or project or in the aggregate with respect to any related items
or projects, except for capital expenditures described in the
Company Disclosure letter and ordinary repairs, renewals and
replacements;
(h) compromise or otherwise settle or adjust any assertion
or claim of a deficiency in taxes (or interest thereon or
penalties in connection therewith), extend the statute of
limitations with any tax authority or file any pleading in court
in any tax litigation or any appeal from an asserted deficiency,
or file or amend any federal, foreign, state or local tax
return, or make any tax election that is inconsistent with
Companys current tax election practices;
(i) change or make any tax elections or its tax or
accounting policies and procedures or any method or period of
accounting unless required by GAAP, Statutory Accounting
Policies or a Governmental Entity;
(j) grant or commit to grant any extension of credit or
amend the terms of any such credit outstanding on the date
hereof to any executive officer, director or holder of 10% or
more of the outstanding Company Stock, or any Affiliate of such
Person;
(k) close or relocate any principal offices at which
business is conducted or open any new principal offices;
(l) except as provided in the Company Disclosure Letter, in
Section 12.1 or elsewhere in this Section 6.1, adopt
or enter into any new employment agreement with any executive
level employee or other employee benefit plan or arrangement or
amend or modify any employment agreement or employee benefit
plan or arrangement of any such type except for such amendments
as are required by applicable Laws;
(m) initiate, solicit or knowingly encourage (including by
way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any
proposal which constitutes, or would reasonably be expected to
lead to, any Competing Transaction (as such term is defined
below), or negotiate or have any discussions with any person in
furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction,
or approve or recommend, or execute or enter into, any letter of
intent, agreement in principle, merger agreement, asset purchase
or share exchange or issuance agreement, option agreement, or
other similar agreement related to any Competing Transaction or
agree to do any of the foregoing, or authorize any of its
officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or any other
representative retained by it or any of its Affiliates (the
Representatives
) to take any such action, and
will cause the Representatives not to take any such action, and
Company shall notify Parent of all of the relevant details
relating to all inquiries and proposals which it may receive
relating to any of such
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matters. For purposes of this Agreement,
Competing
Transaction
shall mean any of the following involving
Company and any Person other than Parent or any of its
Affiliates: any merger, consolidation, share exchange or other
business combination; a sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets of Company representing
15% or more of the consolidated assets of Company; a sale of
shares of capital stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or
instrument evidencing, the right to acquire capital stock),
representing 15% or more of the voting power of Company; or a
tender offer or exchange offer for at least 15% of the
outstanding shares of Company. Company will immediately cease
and cause to be terminated any existing activities, discussions
or negotiations with any parties (other than Parent) conducted
heretofore with respect to any of the foregoing. Company shall
take the necessary steps to inform promptly the appropriate
individuals or entities referred to above of the obligations
undertaken in this Section. Company shall notify Parent within
48 hours of the receipt of any such inquiries, proposals or
offers, the request for any such information, or the initiation
or continuation of any such negotiations or discussions which
are sought to be initiated or continued with Company.
Notwithstanding any other provision in this Section 6.1(m),
prior to the duly convened meeting of the shareholders of the
Company required by Section 6.6, and subject to compliance
with the other terms of this Section 6.1(m), and to first
entering into a confidentiality agreement having confidentiality
provisions that are no less favorable to Company than those
contained in the Confidentiality Agreement, the Board of
Directors of Company shall be permitted to engage in discussions
or negotiations with, or provide any nonpublic information or
data to, any Person in response to an unsolicited
bona fide
written proposal for a Competing Transaction by such Person
first made after the date hereof which the Board of Directors of
Company concludes in good faith (after consultation with its
financial advisor) constitutes or is reasonably likely to result
in a Superior Proposal (as defined below), or to recommend such
Superior Proposal to the holders of Company Stock, if and only
to the extent that the Board of Directors of Company reasonably
determines in good faith (after consultation with outside legal
counsel) that failure to do so would be inconsistent with its
fiduciary duties under applicable law;
provided
, that
Company and the Board of Directors of Company shall have given
Parent at least 48 hours prior notice of its intent to do
so before ta king any such action;
provided
,
further
, that Company and the Board of Directors of
Company shall keep Parent informed of the status and terms of
any such proposals, offers, discussions or negotiations on a
current basis. Parent has the right to meet any such proposal
for a Competing Transaction at any time prior to the Board of
Directors of Company making a determination that the Competing
Transaction is a Superior Proposal. For purposes of this
Agreement,
Superior Proposal
shall mean a
bona fide
written proposal for a Competing Transaction
which the Board of Directors concludes in good faith, after
consultation with its financial advisor and its legal advisors,
taking into account all legal, financial, regulatory and other
aspects of the proposal and the Person making the proposal is
more favorable to the Companys shareholders from a
financial point of view, than the transactions contemplated by
this Agreement.
Provided
, that, for purposes of this
definition of
Superior Proposal
the term
Competing Transaction shall have the meaning assigned to such
term in this Section 6.1(m), except that the reference to
15% or more in the definition of Competing
Transaction shall be deemed to be a reference to a
majority. Nothing in this Section 6.1(m) shall
prohibit Company or its Board of Directors from taking and
disclosing to the Company shareholders a position with respect
to a Competing Transaction to the extent required under the
Exchange Act, or from making such disclosure to the Company
shareholders which, after consultation with outside counsel, the
Board determines is otherwise required under applicable law;
(n) shall use its commercially reasonable best efforts to
not incur expenses related to the execution, delivery and
performance of this Agreement in excess of $2 million;
(o) grant any Person a power of attorney or similar
authority;
(p) make any investment by purchase of stock or securities,
contributions to capital, property transfers or otherwise in any
other Person, except for federal funds, obligations of the
United States Treasury or an agency of the United States
Government the obligations of which are entitled to or implied
to have the full faith and credit of the United States
government and which have an original maturity not
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in excess of one year, bank qualified investment grade municipal
bonds, in any case, in the ordinary course of business
consistent with past practices;
(q) amend or modify any Scheduled Contract or enter into
any agreement or contract that would be required to be a
Scheduled Contract under Section 4.15;
provided
,
that Company may renew an existing Scheduled Contract in the
ordinary course of business on substantially equivalent terms;
(r) sell, transfer, mortgage, encumber or otherwise dispose
of any material assets or release or waive any material claim;
(s) take any action which would or could reasonably be
expected to (i) adversely affect the ability of Parent or
Company to obtain any necessary approval of any Governmental
Entity required for the transactions contemplated hereby;
(ii) adversely affect Companys ability to perform its
covenants and agreements under this Agreement; or
(iii) result in any of the conditions to the performance of
Parents or Companys obligations hereunder, as set
forth in Articles 9, 10 or 11 herein not being satisfied;
(t) make any special or extraordinary distributions or
payments to any Person;
(u) settle any material claim, action or proceeding
involving any material liability for monetary damages or enter
into any settlement agreement containing material obligations;
(v) incur any indebtedness for borrowed money or assume,
guaranty, endorse or otherwise as an accommodation become
responsible for the obligations of any other person, except for
short-term borrowings made at prevailing market rates and terms
consistent with prior practice;
(w) enter into any new material line of business;
(x) engage in any material transaction or incur or sustain
any material obligation not in the ordinary course of business
consistent with past practice; and
(y) agree or make any commitment to take any actions
prohibited by this Section 6.1.
6.2.
Affirmative Conduct Prior to Effective
Time of the Merger.
Between the date hereof
and the Effective Time of the Merger, Company shall cause
Company and Company Subsidiaries to:
(a) use their commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact their
present business organization and to maintain and preserve their
relationships and goodwill with customers, employees and others
having business relationships with Company and Company
Subsidiaries;
(b) use their commercially reasonable efforts to keep in
full force and effect all of the existing material permits and
licenses of Company;
(c) use their commercially reasonable efforts to maintain
insurance coverage at least equal to that now in effect on all
properties which they own or lease and on their business
operations;
(d) perform their contractual obligations and not become in
default on any such obligations;
(e) duly observe and conform to all applicable Laws;
(f) maintain their assets and properties in good condition
and repair, normal wear and tear excepted;
(g) file all Tax Returns required to be filed with any tax
authority in accordance with all applicable laws, timely pay all
Taxes due and payable as shown in the respective Tax Returns
that are so filed and ensure that the Tax Returns will, as of
the time of filing, be based on tax positions that have
substantial support under all applicable Laws; and
(h) promptly notify Parent regarding receipt from any tax
authority of any notification of the commencement of an audit,
any request to extend the statute of limitations, any statutory
notice of deficiency, any revenue agents report, any
notice of proposed assessment, or any other similar notification
of potential adjustments to the Tax liabilities or attributes of
Company, or any actual or threatened collection enforcement
activity by any Tax authority with respect to tax liabilities of
Company.
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6.3.
Access to
Information.
Company will afford, upon
reasonable notice, to Parent and its representatives, counsel,
accountants, agents and employees reasonable access during
normal business hours to all of their business, operations,
properties, books, files and records and will do everything
reasonably necessary to enable Parent and its representatives,
counsel, accountants, agents and employees to make a complete
examination of the financial statements, business, assets and
properties of Company and the condition thereof and to update
such examination at such intervals as Parent shall deem
appropriate. Such examination shall be conducted in cooperation
with the officers of Company and in such a manner as to minimize
any disruption of, or interference with, the normal business
operations of Company. Upon the request of Parent, and upon
Parents execution and delivery of a customary waiver,
Company will request E&Y to provide reasonable access to
representatives of Parent, to auditors work papers with
respect to the business and properties of Company, including tax
accrual work papers prepared for Company during the preceding
60 months, other than (a) books, records and documents
covered by the attorney-client privilege, or that are
attorneys work product, and (b) books, records and
documents that Company are legally obligated to keep
confidential. All documents and information concerning Company
so obtained from any of them (except to the extent that such
documents or information are a matter of public record or
require disclosure in the Proxy Statement or any of the public
portions of any applications required to be filed with any
Governmental Entity to obtain the approvals and consents
required to effect the transactions contemplated hereby), shall
be subject to the Confidentiality Agreement.
6.4.
Filings.
Company agrees
that through the Effective Time of the Merger, Companys
reports, proxy statements, registrations, statements and other
filings required to be filed with any applicable Governmental
Entity will comply in all material respects with all applicable
Laws enforced or promulgated by the Governmental Entity with
which it will be filed and none will contain any untrue
statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
6.5.
Notices;
Reports.
Company will promptly notify Parent
of any event of which Company obtains knowledge which has had or
may have a Material Adverse Effect, or in the event that Company
determines that it is unable to fulfill any of the conditions to
the performance of Parents obligations hereunder, as set
forth in Articles 9 or 11 herein, and Company will furnish
Parent (i) as soon as available, and in any event within
one Business Day after it is mailed or delivered to the Board of
Directors of Company or committees thereof, any report by
Company for submission to the Board of Directors of Company or
committees thereof, provided, however, that Company need not
furnish to Parent communications of Companys legal counsel
regarding Companys rights and obligations under this
Agreement or the transactions contemplated hereby, or other
communication or incident to Companys actions pursuant to
Section 6.1(m) hereof, or books, records and documents
covered by confidentiality agreements or the attorney-client
privilege, or which are attorneys work product,
(ii) as soon as available, all proxy statements,
information statements, financial statements, reports, letters
and communications sent by Company to its shareholders or other
security holders, and all reports filed by Company with the SEC
or other Governmental Entities, and (iii) such other
existing reports as Parent may reasonably request relating to
Company.
6.6.
Company Shareholders
Meeting.
As promptly as practicable after the
execution of this Agreement, Company will take action necessary
in accordance with applicable law and its Articles of
Incorporation and Bylaws to convene a meeting of its
shareholders to consider and vote upon this Agreement and the
transactions contemplated hereby so as to permit the
consummation of the transactions contemplated hereby. The Board
of Directors of Company shall recommend that its shareholders
approve and adopt this Agreement and the transactions
contemplated hereby, including the Merger; provided, however,
that the Board of Directors of Company may withdraw, modify or
change its recommendation to the shareholders if the Board
determines in good faith, following consultation with outside
legal counsel, that failure to do so would be inconsistent with
its fiduciary duties under applicable law. Subject to the
proviso of the immediately preceding sentence, Company will use
its commercially reasonable efforts to obtain the requisite
affirmative vote of the holders of the outstanding Company Stock
for the approval and adoption of this Agreement and the Merger.
6.7.
Proxy
Statement.
Company will promptly prepare or
cause to be prepared the Proxy Statement, and further agrees to
provide any information requested by Parent for the preparation
of any applications
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necessary to consummate the transactions contemplated hereby.
Company shall afford Parent a reasonable opportunity to review
all such applications and all amendments and supplements thereto
before the filing thereof. The Proxy Statement shall contain the
favorable recommendation of the Board of Directors, provided
however, that the Board of Directors of the Company may
withdraw, modify or change the recommendation if the Board of
Directors determines in good faith, following consultation with
outside legal counsel, that to do so would be inconsistent with
its fiduciary duties under applicable law. Company covenants and
agrees that, with respect to the information relating to
Company, the Proxy Statement will comply with all material
applicable Laws, and will not contain any untrue statement of
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were
made, not misleading. Company will use its commercially
reasonable efforts to assist Parent in obtaining all approvals
or consents of Governmental Entities necessary to effect the
Merger and the transactions contemplated herein.
ARTICLE 7.
COVENANTS
OF PARENT AND MERGER SUB
Parent and Merger Sub covenant and agree with Company as follows:
7.1.
Limitation on Conduct Prior to Effective
Time of the Merger.
Between the date hereof
and the Effective Time of the Merger, except as contemplated by
this Agreement, each of Parent and its Subsidiaries shall not,
without the prior written consent of Company, which consent
Company shall not unreasonably withhold or delay:
(a) take any action which would or is reasonably likely to
(i) adversely affect the ability of Parent to obtain any
necessary approvals of any Governmental Entity required for the
transactions contemplated hereby; (ii) adversely affect
Parents ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the
conditions to the performance of Companys or Parents
obligations hereunder, as set forth in Articles 9, 10 or 11
herein not being satisfied; or
(b) agree or make any commitment to take any actions
prohibited by this Section 7.1.
7.2.
Applications.
Parent
will, as promptly as practicable, but in any event within
30 days of the date hereof, prepare and file in final form
or cause to be prepared and filed in final form (it being
recognized that applicable Governmental Entities may require
supplemental filings after such filing in final form) any
applications necessary to consummate the transactions
contemplated hereby. Parent shall afford Company a reasonable
opportunity to review all such applications (except for the
confidential portions thereof) and all amendments and
supplements thereto before the filing thereof.
7.3.
Notices;
Reports.
Parent will promptly notify Company
in the event that Parent determines that it is unable to fulfill
any of the conditions to the performance of Companys
obligations hereunder, as set forth in Articles 9 or 10
herein.
7.4.
Indemnification and Directors and
Officers Insurance.
(a) From and after the Effective Time of the Merger, the
Surviving Corporation shall, to the fullest extent permitted by
applicable Law, indemnify and hold harmless, and provide
advancement of expenses to, each person who is now, or has been
at any time prior to the date hereof or who becomes prior to the
Effective Time of the Merger, an officer or director of Company
(the
Indemnified Parties
) against all losses,
claims, damages, costs, expenses, liabilities or judgments or
amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation based in whole
or in part on or arising in whole or in part out of the fact
that such person is or was a director or officer of Company, and
pertaining to any matter existing or occurring, or any acts or
omissions occurring, at or prior to the Effective Time of the
Merger, whether asserted or claimed prior to, or at or after,
the Effective Time of the Merger (including matters, acts or
omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated
hereby) (
Indemnified Liabilities
) to the same
extent such persons are indemnified or have the right to
advancement of expenses as of the date
A-26
of this Agreement by Company pursuant to Companys Articles
of Incorporation, bylaws and indemnification agreements, if any,
in existence on the date hereof with any directors or officers
of Company.
(b) For a period of six years after the Effective Time of
the Merger, the Surviving Corporation shall cause to be
maintained in effect the current policies of directors and
officers liability insurance maintained by Company
(
provided
that the Surviving Corporation may substitute
therefore policies with a substantially comparable insurer of at
least the same coverage, amounts and retentions containing terms
and conditions which are no less advantageous to the insured)
with respect to claims arising from facts or events which
occurred at or before the Effective Time of the Merger.
(c) The Surviving Corporation shall pay all expenses,
including reasonable fees and expenses of counsel, that an
Indemnified Person may incur in enforcing the indemnity and
other obligations provided for in this Section 7.4 to the
extent that the Indemnified Person prevails in a dispute with
the Surviving Corporation concerning the enforcement of this
Section 7.4.
(d) If the Surviving Corporation or any of its successors
or assigns (i) 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
(ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such
case, to the extent necessary, proper provision shall be made so
that the successors and assigns of the Surviving Corporation, as
the case may be, shall assume the obligations set forth in this
Section 7.4.
(e) The provisions of this Section 7.4, (i) are
intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party, his or her heirs and representatives and
(ii) are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such
person may have by contract or otherwise.
ARTICLE 8.
ADDITIONAL
COVENANTS
The parties hereto hereby mutually covenant and agree with each
other as follows:
8.1.
HSR Matters.
Each party hereto
shall make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable after the date
hereof. Each such filing shall request early termination of the
waiting periods imposed by the HSR Act. Each party hereby agrees
to use commercially reasonable efforts to cause a termination of
the waiting period under the HSR Act without the entry by a
court of competent jurisdiction of an order enjoining the
consummation of the transactions contemplated hereby at as early
a date as possible. Each party also agrees to respond promptly
to all investigatory requests as may be made by the government.
In the event that a Request for Additional Information is issued
under the HSR Act, each party agrees to furnish all information
required and to comply substantially with such Request as soon
as is practicable after its receipt thereof so that any
additional applicable waiting period under the HSR Act may
commence. Each party will keep the other party apprized of the
status of any inquiries made of such party by the Department of
Justice, Federal Trade Commission or any other governmental
agency or authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated
hereby. All filing fees to be paid by Parent, Merger Sub or
Company in connection with filing Notification and Report Forms
pursuant to the HSR Act shall be paid by Company. To the extent
any other antitrust or similar notification or consent is
required from any other Governmental Entity, such filings and
costs shall be undertaken and borne by the Company.
8.2.
Insurance Approvals.
(a) As soon as reasonably practicable following the date of
this Agreement, the Company and Parent shall cooperate with each
other and use (and shall cause their respective Subsidiaries to
use) their respective commercially reasonable efforts to prepare
and file with relevant insurance regulators requests for
approval of the transactions contemplated by this Agreement.
A-27
(b) Parent shall give to the Company prompt written notice
if it receives any material notice or other communication from
any insurance regulator in connection with the transactions
contemplated in this Agreement, and, in the case of any such
written notice or communication, shall promptly furnish the
Company with a copy thereof.
(c) All of Parents applications and substantive
correspondence with the insurance regulators to the extent that
such application or correspondence relates to an issue which, if
the Merger were not consummated would be reasonably likely to
have a material adverse effect on the Company which applications
or correspondence shall be approved in advance by the Company
(such approval not to be unreasonably withheld, conditioned or
delayed).
(d) The Company shall have the right to participate in and
shall, to the extent practicable, receive reasonable prior
notice of, all of Parents telephone calls and meetings to
the extent that an issue which, if the Merger were not
consummated would be reasonably likely to have a Material
Adverse Effect on the Company, is reasonably likely to be
discussed and in which case the Companys right to
participate shall be limited to discussions relating to such
issue.
8.3.
Commercially Reasonable
Efforts.
Subject to the terms and conditions of
this Agreement, each party will use its commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable
under applicable Laws to consummate the transactions
contemplated by this Agreement as promptly as practicable.
8.4.
Public Announcements.
No press
release or other public disclosure of matters related to this
Agreement or any of the transactions contemplated hereby shall
be made by Parent or Company unless the other party shall have
provided its prior consent (which shall not be unreasonably
withheld, delayed or conditioned) to the form and substance
thereof; provided, however, that nothing herein shall be deemed
to prohibit any party hereto from making any disclosure which
its counsel deems necessary or advisable in order to fulfill
such partys disclosure obligations imposed by applicable
Laws.
ARTICLE 9.
CONDITIONS
PRECEDENT TO THE MERGER
The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the
satisfaction, on or before the Closing Date, of the following
conditions:
9.1.
Shareholder Approval.
The
Agreement and the transactions contemplated hereby shall have
received all requisite approvals of the shareholders of Company.
9.2.
Insurance Approvals.
All
insurance approvals of any Governmental Entity shall have been
obtained and such approval shall be in full force and effect,
and there shall be no proceeding, order or pending or threatened
proceeding by insurance regulatory authorities in Minnesota,
Michigan or Colorado, the results of such proceeding could
materially restrict Surviving Corporations ability to
operate Companys business as it is currently being
conducted in those states following the Closing date.
9.3.
No Judgments or Orders.
No
judgment, decree, injunction, order or proceeding shall be
outstanding by any Governmental Entity which prohibits or
restricts the effectuation of, or threatens to invalidate or set
aside, the Merger substantially in the form contemplated by this
Agreement.
9.4.
HSR Approvals.
The waiting
period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired
or been terminated.
9.5.
Employment Agreements.
The
following persons must have signed an Employment Agreement and
are able to perform thereunder with Surviving Corporation in
substantially the form reviewed and
A-28
approved by Companys Board of Directors: Jeffrey B.
Murphy; Keith D. Krueger; Patricia M. Sheveland; David M. Dietz;
and Alfred L. LaTendresse.
9.6.
Claim & Claim Settlement
Expense.
The Companys net ultimate
liability for incurred loss and allocated loss adjustment
expense (excluding inter-company loss adjusting expense) as
determined in accordance with Statutory Accounting Policies for
accident years 2006 and prior shall not have materially
adversely changed from December 31, 2006, based on
information available to Company on the Closing Date.
9.7.
Minnesota Workers Compensation Assigned
Risk Plan.
The Companys contract with the
Minnesota Workers Compensation Assigned Risk Plan shall be
in full force and effect.
ARTICLE 10.
CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF COMPANY
All of the obligations of Company to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or
before the Closing Date, of the following conditions, any of
which may be waived in writing by Company:
10.1.
Representations and Warranties; Performance
of Covenants.
All the covenants, terms and
conditions of this Agreement to be complied with and performed
by Parent or Merger Sub on or before the Closing Date shall have
been complied with and performed in all material respects. Each
of the representations and warranties of Parent contained in
Article 5 of this Agreement shall have been true and
correct in all respects on and as of the date of this Agreement
and (except to the extent such representations and warranties
speak as of an earlier date or for changes expressly
contemplated by this Agreement) on and as of the Closing Date,
subject to such exceptions as would not (individually or in the
aggregate) have a material adverse effect on Parent and its
Subsidiaries, taken as a whole, with the same effect as though
such representations and warranties had been made on and as of
the Closing Date (it being understood that, for purposes of
determining the effect of such exceptions, all materiality
qualifications contained in such representations and warranties
shall be disregarded).
10.2.
Officers
Certificate.
There shall have been delivered to
Company on the Closing Date a certificate executed by an officer
of Parent and Merger Sub certifying, to the best of their
knowledge, compliance with all of the provisions of
Section 10.1.
10.3.
Employee Benefit
Plans.
Company shall have received evidence
reasonably satisfactory to it that all of Companys
employee benefit plans, programs and arrangements have been
treated as provided in Article 12 of this Agreement.
ARTICLE 11.
CONDITIONS
PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
All of the obligations of Parent and Merger Sub to effect the
transactions contemplated hereby shall be subject to the
satisfaction, on or before the Closing Date, of the following
conditions, any of which may be waived in writing by Parent:
11.1.
Representations and Warranties; Performance
of Covenants.
All the covenants, terms and
conditions of this Agreement to be complied with and performed
by Company at or before the Closing Date shall have been
complied with and performed in all material respects. Each of
the representations and warranties of Company contained in
Article 4 of this Agreement shall have been true and
correct in all respects on and as of the date of this Agreement
and (except to the extent such representations and warranties
speak as of an earlier date or for changes expressly
contemplated by this Agreement) on and as of the Closing Date,
subject to such exceptions as would not (individually or in the
aggregate) have a Material Adverse Effect, with the same effect
as though such representations and warranties had been made on
and as of the Closing Date (it being understood that, for
purposes of determining the effect of such exceptions, all
Material Adverse Effect and materiality qualifications contained
in such representations and warranties shall be disregarded),
except
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that the representations and warranties contained in
Section 4.2(a) shall be true and correct in all respects
except for insignificant differences at and as of the date
hereof and the Closing date.
11.2.
Authorization of Merger.
All
actions necessary to authorize the execution, delivery and
performance of this Agreement by Company and the consummation of
the transactions contemplated hereby shall have been duly and
validly taken by the Board of Directors and shareholders of
Company.
11.3.
Officers
Certificate.
There shall have been delivered to
Parent on the Closing Date a certificate executed by the Chief
Executive Officer and the Chief Financial Officer of Company
certifying, to the best of their knowledge, compliance with all
of the provisions of Sections 11.1 and 11.2.
11.4.
Company Dissenting
Shares.
The number of shares of Company Stock
which constitute Company Dissenting Shares shall not exceed 10%
of the Company Stock issued and outstanding as of the Closing
Date.
11.5.
Employee Benefit
Plans.
Parent shall have received satisfactory
evidence that all of Companys employee benefit plans,
programs and arrangements have been treated as provided in
Article 12 of this Agreement.
11.6.
Transaction Related
Expenses.
Parent shall have received satisfactory
evidence that the Transaction Related Expenses shall not have
exceeded $2,000,000.
11.7.
No Material Adverse
Effect.
There shall not have occurred a Material
Adverse Effect on the Company, ACIC or BCIC, nor any change,
event or state of circumstances or facts shall have occurred
that may be reasonably be expected to have a Material Adverse
Effect on the Company, ACIC or BCIC.
ARTICLE 12.
EMPLOYEE
BENEFITS
12.1.
Employee Benefits.
(a) Following the Effective Time of the Merger, current
employees of Company shall continue in the Company Employee
Plans and Benefit Arrangements (other than equity-based plans or
arrangements) or, in Parents sole discretion, shall become
eligible for the employee benefit plans and benefit arrangements
of Parent (including, without limitation, the medical, dental,
short and long term disability, life insurance, cafeteria plan,
paid time off and 401(k) Plan, including any matching
contributions) on substantially similar terms as such plans and
arrangements are generally offered from time to time to
employees of Parent in comparable positions with Parent, it
being understood that, except as otherwise provided under the
terms of any such Company Employee Plan or Benefit Arrangement,
Parent shall be entitled from time to time to modify, terminate
or supplement any such employee plans or benefit arrangements or
to
substitute new employee plans or benefit arrangements for such
employee plans or benefit arrangements in the exercise of its
business judgment.
(b) With respect to any employee plans and benefit
arrangements of Parent in which any current employees of Company
first become eligible to participate on or after the Effective
Time of the Merger (
New Plans
), Parent shall
(i) take commercially reasonable steps to cause the waiver
of all pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements under
any such New Plans, (ii) recognize service of the employees
of Company credited by Company prior to the Effective Time of
the Merger for purposes of eligibility and vesting under the New
Plans (and not for purposes of benefit accrual under any
employee defined benefit pension or retiree medical plans), and
to the extent permissible under such New Plans, and
(iii) credit any deductibles, co-payments or other
out-of-pocket expenses for the benefit plan year for each
employee and dependent recognized or recognizable under the
Company Employee Plans or Benefit Arrangements. Entitlement to
Paid Time Off (PTO) of employees of Company accrued as of the
Effective Time of the Merger shall not be reduced.
(c) Parent agrees that immediately (but no later than 5
business days) after the Effective Time of the Merger, the
Parent will cause the Surviving Corporation to pay or provide to
those persons eligible to
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participate in the Companys 2007 Profit Sharing Plan (the
2007 Profit Sharing Plan
) and employed by
Company on the Effective Time of the Merger (and waiving any
other employment related condition under the 2007 Profit Sharing
Plan), (A) the cash incentive payment under Companys
2007 Profit Sharing Plan payable to such employee as if the last
day prior to the Effective Time of the Merger were the last day
of the performance period for purposes of calculating the
amounts payable to eligible employees under the 2007 Profit
Sharing Plan (
Adjusted Performance Period
)
and based upon the actual achievement of each measure of the
2007 Profit Sharing Plan for the Adjusted Performance Period
compared to the respective fiscal year goals, such goals to be
pro-rated based on the number of completed months in the
Adjusted Performance Period.
(d) Parent agrees that those persons who were employees of
Company who remain as employees of Parent or the Surviving
Corporation after the Effective Time of the Merger, on such date
as determined by Parent in its sole discretion, will be entitled
to participate in annual cash incentive performance programs
generally offered to employees of Parent (to the extent that
such programs are offered from time to time by Parent) on the
same terms as such programs are generally offered from time to
time to employees in comparable positions with Parent.
(e) For a period until six months after the Effective Time
of the Merger, Parent will cause the Surviving Corporation to
pay and provide to employees of Company whose employment
terminates on or after the Effective Time of the Merger
severance benefits and other required benefits under conditions
and in amounts that are no less favorable to the employee than
those provided for under the Companys severance programs
as in effect as of the Effective Time of the Merger. Any such
severance and other benefits under the Companys severance
programs shall be in addition to, and shall not be reduced or
offset by any notice pay, severance pay or pay in lieu of notice
required under any federal or state statute or regulation.
(f) Parent will cause the Surviving Corporation to assume
and perform all of the obligations of Company under the terms of
any Executive Employment Agreement with any of the
Companys executive officers, and to pay and provide to
Employees of the Company whose employment terminates on or after
the Effective Time if the Merger and who, as a result, become
eligible for benefits under the terms of any Executive
Employment Agreement, each and every benefit to which the
employee is entitled under the terms of such agreements.
(g) In the event Section 409A(a)(1)(B) of the Code
requires a deferral of any payment to an employee who is a
specified employee as that term is defined in Code
409A, such payment shall be accumulated and paid in a single
lump sum on the earliest date permitted by Code 409A.
12.2.
Company Stock Options and the Company
Stock Option Plans.
As soon as practicable
following the date of this Agreement, the Board of Directors of
Company (or, if appropriate, any committee administering the
Company Stock Option Plans) shall take such actions as are
required to: (i) provide that each outstanding Company
Stock Option shall automatically accelerate so that each such
Company Stock Option shall, immediately prior to the Effective
Time of the Merger, become fully vested and fully exercisable
for all the Shares at the time subject to such Company Stock
Option and may be exercised by the holder thereof for any or all
of such Shares as fully vested Shares, (ii) provide that
the ESPP shall terminate prior to the earlier of the Effective
Time of the Merger or December 31, 2007 and
(iii) provide that, upon the Effective Time of the Merger,
all outstanding Company Stock Options, to the extent not
exercised immediately prior to the Effective Time of the Merger,
shall be cancelled (and each holder of a Company Stock Option
shall cease to have any rights with respect thereto except as
provided in this Section 12.2(a)(ii)) in exchange for a
cash payment by Company of an amount equal to (A) the
excess, if any, of (x) the Merger Consideration over
(y) the exercise price per share of Company Stock subject
to such Company Stock Option, multiplied by (B) the number
of shares of Company Stock subject to such Company Stock Option.
(a) All amounts payable pursuant to this Section 12.2
shall be subject to any required withholding of taxes and shall
be paid without interest.
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(b) The Board of Directors of Company (or, if appropriate,
any committee administering the Company Stock Plans) shall adopt
such resolutions or take such actions as are required to delete
as of the Effective Time of the Merger the provision in any
other Employee Plan or Benefit Arrangements of Company providing
for the issuance, transfer or grant of any capital stock of
Company or any interest in respect of any capital stock of
Company and to ensure that following the Effective Time of the
Merger no holder of a Company Stock Option or any participant in
any Company Stock Plan or other Company Employee Plan or Benefit
Arrangement shall have any right thereunder to acquire any
capital stock of Company or the Surviving Corporation.
ARTICLE 13.
TERMINATION
13.1.
Termination.
This
Agreement may be terminated at any time prior to the Effective
Time of the Merger, whether before or after approval of this
Agreement by the shareholders of Company, upon the occurrence of
any of the following:
(a) By mutual agreement of Parent and Company, in writing;
(b) By Parent or Company upon the failure of the
shareholders of Company to give the requisite approval of this
Agreement at the duly convened meeting of the shareholders of
the Company required by Section 6.6, or any adjournment or
postponement thereof; provided that the right to terminate this
Agreement under this Section 13.1(b) shall not be available
where the failure to obtain the requisite shareholder approval
of this Agreement shall have been caused by the action or
failure of the Company and such action or failure to act
constitutes a breach by the Company of this Agreement;
(c) By Company, upon written notice to Parent, if there
shall have been a breach by Parent or Merger Sub of any of the
covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of Parent or
Merger Sub, which breach, either individually or in the
aggregate, would result in the failure of the condition set
forth in Section 10.1 and which breach has not been cured
within 30 days following written notice thereof to Parent
or, by its nature, cannot be cured within such time period;
(d) By Parent, upon written notice to Company, if there
shall have been a breach by Company of any of the covenants or
agreements or any of the representations or warranties set forth
in this Agreement on the part of Company, which breach, either
individually or in the aggregate, would result in the failure of
the condition set forth in Section 11.1 and which breach
has not been cured within 30 days following written notice
thereof to Company or, by its nature, cannot be cured within
such time period;
(e) By Company or Parent if any conditions set forth in
Article 9 shall not have been met by February 28,
2008; provided, however, that this Agreement shall not be
terminated pursuant to this Section 13.1(e) if the relevant
condition shall have failed due to the failure of the party
seeking to terminate to comply in all material respects with its
obligations under this Agreement;
(f) By Company if any of the conditions set forth in
Article 10 shall not have been met by February 28,
2008; provided, however, that this Agreement shall not be
terminated pursuant to this Section 13.1(f) if the relevant
condition shall have failed due to the failure of Company to
comply in all material respects with its obligations under this
Agreement;
(g) By Parent if any of the conditions set forth in
Article 11 shall not have been met by February 28,
2008; provided, however, that this Agreement shall not be
terminated pursuant to this Section 13.1(g) if the relevant
condition shall have failed due to the failure of Parent to
comply in all material respects with its obligations under this
Agreement;
(h) By Parent if the Board of Directors of Company shall
have failed to recommend adoption of this Agreement at the duly
convened meeting of the shareholders of the Company required by
Section 6.6, or withdrawn or modified or qualified in a
manner adverse to Parent its favorable recommendation of this
Agreement or recommended any Competing Transaction to the
shareholders of Company; or
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(i) By Company if the Board of Directors of Company shall,
concurrently with such termination, authorize Company to enter
into an agreement with respect to a Competing Transaction;
provided, however, that Company may only exercise its right to
terminate this Agreement pursuant to this Section 13.1(i)
if (i) Company shall have complied in all material respects
with Section 6.1(m); (ii) the Board of Directors of
Company, after consultation with its financial advisor, has
reasonably determined in good faith that such Competing
Transaction is a Superior Proposal (taking into account any
proposal or offer which shall have been made by Parent to modify
the terms of this Agreement); (iii) the Board of Directors
of Company has reasonably determined in good faith (after
consultation with outside legal counsel) that the failure to
exercise such right of termination would be inconsistent with
its fiduciary duties under applicable law; provided, that for
purposes of this Section 13.1(i) the term Competing
Transaction shall have the meaning set forth in
Section 6.1(m), except that the reference to 15% or
more in the definition of Competing Transaction shall be
deemed to be a reference to a majority.
13.2.
Effect of Termination
.
(a) In the event of termination of this Agreement by either
Company or Parent as provided in Section 13.1, neither
Company nor Parent shall have any further obligation or
liability to the other party except under the terms of the
Confidentiality Agreement, Section 13.1(i) and this
Section 13.2; provided, however, that nothing herein shall
relieve any party from liability for any willful and material
breach of the warranties and representations made by it, or
willful and material failure in performance of any of its
covenants, agreements or obligations hereunder.
(b) Company shall pay Parent an amount equal to the sum of
$1,000,000 (the
Termination Fee
) if this
Agreement is terminated as follows:
(i) If Parent or Company terminates the Agreement pursuant
to 13.1(b) because of the failure of shareholders to approve the
Agreement and within six months of such termination the Company
has entered into a definitive agreement with a third party that
had publicly announced its interest in pursuing a transaction
with the Company prior to the Shareholders Meeting at
which this Agreement failed to receive approval, and such
Termination Fee shall be due upon entry of a definitive
agreement with a third party, provided, however, the Company
shall not be required to pay the Termination Fee if the Company
was otherwise entitled to terminate this Agreement pursuant to
Sections 13.1(c), (e) or (f);
(ii) if Parent shall terminate this Agreement pursuant to
Section 13.1(h), then Company shall pay Parent the
Termination Fee on the Business Day following such termination;
provided, however, the Company shall not be required to pay the
Termination Fee if the Company was otherwise entitled to
terminate this Agreement pursuant to Section 13.1(c),
(e) or (f); and
(iii) if the Company terminates this Agreement pursuant to
Section 13.1(i), the Company will pay the Termination Fee
simultaneous with such termination.
(c) If Company fails to pay all amounts due to Parent on
the dates specified in this Section 13.2, then Company
shall pay Parent interest on such unpaid amounts at the prime
lending rate prevailing at such time, as published in the Wall
Street Journal, from the date such amounts were required to be
paid until the date actually received by Parent.
ARTICLE 14.
MISCELLANEOUS
14.1.
Expenses.
Except as
otherwise provided herein, all Expenses incurred by Parent,
Merger Sub and Company in connection with or related to the
authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters
related to the closing of the transactions contemplated hereby,
including, without limitation of the generality of the
foregoing, all fees and expenses of agents, representatives,
counsel and accountants employed by either such party or its
Affiliates, shall be borne solely and entirely by the party
which has incurred the same. Expenses as used in
this Agreement shall
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include all reasonable out-of-pocket expenses (including all
fees and expenses of attorneys, accountants, investment bankers,
experts and consultants to the party and its Affiliates)
incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
14.2.
Notices
.
Any notice,
request, instruction or other document to be given hereunder by
any party hereto to another shall be in writing and delivered
personally or by confirmed facsimile transmission or sent by a
recognized overnight courier service or by registered or
certified mail, postage prepaid, with return receipt requested,
addressed as follows:
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To Parent or Merger Sub:
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Rockhill Holding Company
700 West 47th Street, Suite 350
Kansas City, Missouri 64112
Attention: President and Chief Executive Officer
Facsimile Number:
(816) 412-7550
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With a copy to:
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Lathrop & Gage
2345 Grand Avenue
Kansas City, Missouri 64108
Attention: Thomas H. Stahl
Facsimile Number:
(816) 292-2001
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To Company:
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RTW, Inc.
8500 Normandale Lake Blvd., Suite 1400
Bloomington, Minnesota 55437
Attention: President and Chief Executive Officer
Facsimile Number:
(952) 893-3700
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With a copy to:
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Lindquist & Vennum P.L.L.P.
80 South 8th Street
Minneapolis, MN 55402
Attention: Thomas G. Lovett IV
Jonathan B. Levy
Facsimile Number:
(612) 371-3207
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Any such notice, request, instruction or other document shall be
deemed received (i) on the date delivered personally or
delivered by confirmed facsimile transmission, (ii) on the
next Business Day after it was sent by overnight courier,
delivery charges prepaid; or (iii) on the fourth Business
Day after it was sent by registered or certified mail, postage
prepaid. Any of the persons shown above may change its address
for purposes of this section by giving notice in accordance
herewith.
14.3.
Assignment
.
All terms
and conditions of this Agreement shall be binding upon and shall
inure, to the extent permitted by law, to the benefit of the
parties hereto and their respective permitted transferees and
successors and permitted assigns; provided, however, that this
Agreement and all rights, privileges, duties and obligations of
the parties hereto, without the prior written approval of the
other parties hereto, may not be transferred, assigned or
delegated by any party hereto (by operation of law or otherwise)
and any such attempted transfer, assignment or delegation shall
be null and void.
14.4.
Counterparts
.
This
Agreement and any exhibit hereto may be executed in one or more
counterparts, all of which, taken together, shall constitute one
original document and shall become effective when one or more
counterparts have been signed by the appropriate parties and
delivered to each party hereto.
14.5.
Effect of Representations and
Warranties
.
The representations and
warranties contained in this Agreement shall terminate
immediately after the Effective Time of the Merger.
14.6.
Third Parties
.
Each
party hereto intends that this Agreement shall not benefit or
create any right or cause of action for any person other than
parties hereto, including, without limitation, current or former
employees, directors, agents and independent, contractors,
except as provided in Section 7.4(e). As used in this
Agreement the term parties shall refer only to
Parent, Merger Sub and Company as the context may require.
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14.7.
Integration
.
This
Agreement constitutes the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties in connection
therewith.
14.8.
Knowledge
.
Whenever
any statement herein or in any list, certificate or other
document delivered to any party pursuant to this Agreement is
made to the knowledge or to the
knowledge of any party or another Person, such party or
other Person shall make such statement based upon the actual
knowledge after reasonable inquiry of the senior executive
officers of such Person.
14.9.
Governing Law
.
This
Agreement shall be governed by, and construed in accordance
with, the laws of the State of Minnesota, regardless of the laws
that might otherwise govern under applicable principles of
conflict of laws thereof.
14.10.
Captions
.
The
captions contained in this Agreement are for convenience of
reference only and do not form a part of this Agreement and
shall not affect the interpretation hereof.
14.11.
Severability
.
If any
portion of this Agreement shall be deemed by a court of
competent jurisdiction to be unenforceable, the remaining
portions shall be valid and enforceable only if, after excluding
the portion deemed to be unenforceable, the remaining terms
hereof shall provide for the consummation of the transactions
contemplated herein in substantially the same manner and with
substantially the same effect as originally set forth at the
date this Agreement was executed.
14.12.
Waiver and Modification;
Amendment
.
No waiver of any term, provision
or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a further or continuing
waiver of any such term, provision or condition of this
Agreement. Except as otherwise required by law, this Agreement,
when executed and delivered, may be modified or amended by
action of the Boards of Directors of Parent, Merger Sub and
Company without action by their respective shareholders. This
Agreement may be modified or amended or any provision hereof
waived only by an instrument of equal formality signed by the
parties or their duly authorized agents.
[Remainder
of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties to this Agreement have duly
executed this Agreement as of the day and year first above
written.
ROCKHILL HOLDING COMPANY
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Its:
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Chief Executive Officer
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ROCKHILL ACQUISITION CORPORATION
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Its:
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Chief Executive Officer
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RTW, INC.
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Its:
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President and Chief Executive Officer
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A-36
APPENDIX B
September 20,
2007
The Board of Directors
RTW, Inc.
8500 Normandale Lake Boulevard
Suite 1400
Bloomington, MN 55437
Members of the Board:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the shareholders of
RTW, Inc. (Target) of the Merger Consideration (as
defined below) to be received by such holders in connection with
the proposed merger (the Merger) of Rockhill
Acquisition Company, a Minnesota corporation (Merger
Sub), with and into Target, pursuant to the Agreement and
Plan of Merger (the Agreement), dated as of
September 20, 2007, by and among Target, Rockhill Holding
Company, a Delaware corporation (Parent), and Merger
Sub, a wholly-owned subsidiary of Parent. Pursuant to the terms
of the Agreement, each outstanding share of common stock, no par
value per share, of Target (the Company Stock) will
be converted into the right to receive $12.45 in cash (the
Merger Consideration) payable to the holder thereof,
without interest, upon surrender of the certificate representing
such Company Stock.
Keefe, Bruyette & Woods, Inc., as part of its
investment banking business, is continually engaged in the
valuation of insurance company and insurance holding company
securities in connection with acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for various other
purposes. As specialists in the securities of insurance
companies, we have experience in, and knowledge of, the
valuation of insurance enterprises. In the ordinary course of
our business as a broker-dealer, we may from time to time
purchase securities from, and sell securities to, Target and
Parent, and as a market maker in securities, we may from time to
time have a long or short position in, and buy or sell, debt or
equity securities of Target and Parent for our own account and
for the accounts of our customers. To the extent we have any
such position as of the date of this opinion it has been
disclosed to Target. We also may provide investment banking
services to Target and Parent in the future, for which we may
receive compensation. We have acted exclusively for the Board of
Directors of Target in rendering this fairness opinion and will
receive a fee from Target for our services.
In connection with this opinion, we have reviewed and analyzed
the Merger and the financial and operating condition of Target
and Parent, including among other things, the following:
1) a draft of the Agreement, dated September 11, 2007;
2) Targets Annual Reports to Shareholders and Annual
Reports on Form
10-K
for the
years ended December 31, 2004, 2005 and 2006;
3) certain interim reports to shareholders and Quarterly
Reports on Form
10-Q
of
Target and certain other communications from Target to its
shareholders;
4) the 2006 annual statutory filing and June 30, 2007
quarterly statutory filing of Rockhill Insurance Company, a
wholly-owned subsidiary of Parent;
5) Parents audited consolidated financial statements
for the years ended December 31, 2005 and 2006;
6) selected rating agency and investor presentations of
Parent and Target;
Keefe, Bruyette & Woods 787 Seventh
Avenue New York, NY 10019
212.887.7777 Toll Free
800.966.1559 www.kbw.com
B-1
7) certain operating, financial and actuarial information
relating to Targets business and prospects, including
projections for the five year period ending December 31,
2012, all as prepared and provided to us by Targets
management; and
8) other financial information concerning the businesses
and operations of Target and Parent furnished to us by Target
and Parent for purposes of our analysis.
We have also held discussions with senior management of Target
regarding the past and current business operations, regulatory
and rating agency relations, financial condition and future
prospects of Target and such other matters as we have deemed
relevant to our inquiry. In addition, we have considered such
financial and other factors as we have deemed appropriate under
the circumstances, including, among others, the following:
(i) the historical and current financial position and
results of operations of Target and Parent; (ii) the assets
and liabilities of Target and Parent; (iii) the nature and
terms of certain other merger transactions involving insurance
companies and insurance holding companies; (iv) publicly
available financial data, stock market performance data and
trading multiples of companies which we deemed generally
comparable to Target; and (v) such other studies and
analyses as we considered appropriate. We have also taken into
account our assessment of general economic, market and financial
conditions and our experience in other transactions, as well as
our experience in securities valuation and knowledge of the
insurance industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date
hereof.
In conducting our review and arriving at our opinion, we have
relied upon the accuracy and completeness of all of the
financial and other information provided to us or publicly
available and we have not assumed any responsibility for
independently verifying the accuracy or completeness of any such
information. We have relied upon the management of Target as to
the reasonableness and achievability of the financial and
operating forecasts and projections (and the assumptions and
bases therefor) provided to us, and we have assumed that such
forecasts and projections reflect the best currently available
estimates and judgment of management and that such forecasts and
projections will be realized in the amounts and in the time
periods currently estimated by management. We are not experts in
the independent verification of the adequacy of reserves for
loss and loss adjustment expenses and we have assumed, with your
consent, that the aggregate reserves for loss and loss
adjustment expenses for Target are adequate to cover such
losses. In rendering our opinion, we have not made or obtained
any evaluations or appraisals of the property of Target or
Parent, nor have we examined any individual underwriting files
of Target.
Finally, we have assumed, with your consent, that the Merger
will be consummated in accordance with the terms of the
Agreement, without waiver, modification or amendment of any
material term, condition or agreement, and that, in the course
of obtaining the necessary regulatory or third party approvals,
consents and releases for the Merger, no delay, limitation,
restriction or condition will be imposed that would have a
material adverse effect on Parent or Target. We further have
assumed that the final terms of the Agreement will not vary
materially from those set forth in the draft reviewed by us.
This opinion is for the use and benefit of the Board of
Directors of Target. Our opinion does not address the relative
merits of the Merger as compared to any alternative transactions
that might exist for Target or the effect of any other
transaction in which it might engage and does not constitute a
recommendation to any shareholder as to how such shareholder
should vote on the proposed Merger or any matter related thereto.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration to be received
by holders of the Company Stock is fair, from a financial point
of view, to holders of the Company Stock.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
B-2
APPENDIX C
DISSENTERS
RIGHTS STATUTES
302A.471.
Rights of dissenting shareholders
Subdivision 1. Actions creating
rights.
A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the
shareholders shares in the event of, any of the following
corporate actions:
(a) unless otherwise provided in the articles, an amendment
of the articles that materially and adversely affects the rights
or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a
sinking fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of
the shares to acquire shares, securities other than shares, or
rights to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote
on a matter, or to cumulate votes, except as the right may be
excluded or limited through the authorization or issuance of
securities of an existing or new class or series with similar or
different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that
section 302A.671 does not apply to a control share
acquisition does not give rise to the right to obtain payment
under this section; or
(5) eliminates the right to obtain payment under this
subdivision;
(b) a sale, lease, transfer, or other disposition of
property and assets of the corporation that requires shareholder
approval under section 302A.661, subdivision 2, but not
including a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant
to an order of a court, or a disposition for cash on terms
requiring that all or substantially all of the net proceeds of
disposition be distributed to the shareholders in accordance
with their respective interests within one year after the date
of disposition;
(c) a plan of merger, whether under this chapter or under
chapter 322B, to which the corporation is a constituent
organization, except as provided in subdivision 3, and except
for a plan of merger adopted under section 302A.626;
(d) a plan of exchange, whether under this chapter or under
chapter 322B, to which the corporation is a party as the
corporation whose shares will be acquired by the acquiring
organization, except as provided in subdivision 3;
(e) a plan of conversion adopted by the corporation; or
(f) any other corporate action taken pursuant to a
shareholder vote with respect to which the articles, the bylaws,
or a resolution approved by the board directs that dissenting
shareholders may obtain payment for their shares.
Subd. 2. Beneficial
owners.
(a) A shareholder shall not assert
dissenters rights as to less than all of the shares
registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are
beneficially owned by another person but registered in the name
of the shareholder and discloses the name and address of each
beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter shall be determined as
if the shares as to which the shareholder has dissented and the
other shares were registered in the names of different
shareholders.
(b) A beneficial owner of shares who is not the shareholder
may assert dissenters rights with respect to shares held
on behalf of the beneficial owner, and shall be treated as a
dissenting shareholder under the terms of this section and
section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights
a written consent of the shareholder.
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Subd. 3. Rights not to
apply.
(a) Unless the articles, the bylaws,
or a resolution approved by the board otherwise provide, the
right to obtain payment under this section does not apply to a
shareholder of (1) the surviving corporation in a merger
with respect to shares of the shareholder that are not entitled
to be voted on the merger and are not canceled or exchanged in
the merger or (2) the corporation whose shares will be
acquired by the acquiring organization in a plan of exchange
with respect to shares of the shareholder that are not entitled
to be voted on the plan of exchange and are not exchanged in the
plan of exchange.
(b) If a date is fixed according to section 302A.445,
subdivision 1, for the determination of shareholders entitled to
receive notice of and to vote on an action described in
subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise
dissenters rights.
(c) Notwithstanding subdivision 1, the right to obtain
payment under this section, other than in connection with a plan
of merger adopted under section 302A.621, is limited in
accordance with the following provisions:
(1) The right to obtain payment under this section is not
available for the holders of shares of any class or series of
shares that is listed on the New York Stock Exchange or the
American Stock Exchange or designated as a national market
security on the Nasdaq Stock Market.
(2) The applicability of clause (1) is determined as
of:
(i) the record date fixed to determine the shareholders
entitled to receive notice of, and to vote at, the meeting of
shareholders to act upon the corporate action described in
subdivision 1; or
(ii) the day before the effective date of corporate action
described in subdivision 1 if there is no meeting of
shareholders.
(3) Clause (1) is not applicable, and the right to
obtain payment under this section is available pursuant to
subdivision 1, for the holders of any class or series of shares
who are required by the terms of the corporate action described
in subdivision 1 to accept for such shares anything other than
shares, or cash in lieu of fractional shares, of any class or
any series of shares of a domestic or foreign corporation, or
any other ownership interest of any other organization, that
satisfies the standards set forth in clause (1) at the time
the corporate action becomes effective.
Subd. 4. Other rights.
The
shareholders of a corporation who have a right under this
section to obtain payment for their shares, or who would have
the right to obtain payment for their shares absent the
exception set forth in paragraph (c) of subdivision 3, do
not have a right at law or in equity to have a corporate action
described in subdivision 1 set aside or rescinded, except when
the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473.
Procedures for asserting dissenters rights
Subdivision 1. Definitions.
(a) For
purposes of this section, the terms defined in this subdivision
have the meanings given them.
(b) Corporation means the issuer of the shares
held by a dissenter before the corporate action referred to in
section 302A.471, subdivision 1 or the successor by merger
of that issuer.
(c) Fair value of the shares means the value of
the shares of a corporation immediately before the effective
date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) Interest means interest commencing five
days after the effective date of the corporate action referred
to in section 302A.471, subdivision 1, up to and including
the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action.
If a
corporation calls a shareholder meeting at which any action
described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder
C-2
of the right to dissent and shall include a copy of
section 302A.471 and this section and a brief description
of the procedure to be followed under these sections.
Subd. 3. Notice of dissent.
If the
proposed action must be approved by the shareholders and the
corporation holds a shareholder meeting, a shareholder who is
entitled to dissent under section 302A.471 and who wishes
to exercise dissenters rights must file with the
corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by
the shareholder and must not vote the shares in favor of the
proposed action.
Subd. 4. Notice of procedure; deposit of
shares.
(a) After the proposed action has
been approved by the board and, if necessary, the shareholders,
the corporation shall send to (i) all shareholders who have
complied with subdivision 3, (ii) all shareholders who did
not sign or consent to a written action that gave effect to the
action creating the right to obtain payment under
section 302A.471, and (iii) all shareholders entitled
to dissent if no shareholder vote was required, a notice that
contains:
(1) the address to which a demand for payment and
certificates of certificated shares must be sent in order to
obtain payment and the date by which they must be received;
(2) any restrictions on transfer of uncertificated shares
that will apply after the demand for payment is received;
(3) a form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the
shareholder dissents, acquired the shares or an interest in them
and to demand payment; and
(4) a copy of section 302A.471 and this section and a
brief description of the procedures to be followed under these
sections.
(b) In order to receive the fair value of the shares, a
dissenting shareholder must demand payment and deposit
certificated shares or comply with any restrictions on transfer
of uncertificated shares within 30 days after the notice
required by paragraph (a) was given, but the dissenter
retains all other rights of a shareholder until the proposed
action takes effect.
Subd. 5. Payment; return of
shares.
(a) After the corporate action takes
effect, or after the corporation receives a valid demand for
payment, whichever is later, the corporation shall remit to each
dissenting shareholder who has complied with subdivisions 3 and
4 the amount the corporation estimates to be the fair value of
the shares, plus interest, accompanied by:
(1) the corporations closing balance sheet and
statement of income for a fiscal year ending not more than
16 months before the effective date of the corporate
action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the
estimate; and
(3) a copy of section 302A.471 and this section, and a
brief description of the procedure to be followed in demanding
supplemental payment.
(b) The corporation may withhold the remittance described
in paragraph (a) from a person who was not a shareholder on
the date the action dissented from was first announced to the
public or who is dissenting on behalf of a person who was not a
beneficial owner on that date. If the dissenter has complied
with subdivisions 3 and 4, the corporation shall forward to
the dissenter the materials described in paragraph (a), a
statement of the reason for withholding the remittance, and an
offer to pay to the dissenter the amount listed in the materials
if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand
payment under subdivision 6. Failure to do so entitles the
dissenter only to the amount offered. If the dissenter makes
demand, subdivisions 7 and 8 apply.
C-3
(c) If the corporation fails to remit payment within
60 days of the deposit of certificates or the imposition of
transfer restrictions on uncertificated shares, it shall return
all deposited certificates and cancel all transfer restrictions.
However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment;
demand.
If a dissenter believes that the amount
remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to
the corporation of the dissenters own estimate of the fair
value of the shares, plus interest, within 30 days after
the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is
entitled only to the amount remitted by the corporation.
Subd. 7. Petition; determination.
If
the corporation receives a demand under subdivision 6, it shall,
within 60 days after receiving the demand, either pay to
the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a
petition requesting that the court determine the fair value of
the shares, plus interest. The petition shall be filed in the
county in which the registered office of the corporation is
located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent
domestic corporation shall file the petition in the county in
this state in which the last registered office of the
constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under
subdivision 6 and who have not reached agreement with the
corporation. The corporation shall, after filing the petition,
serve all parties with a summons and copy of the petition under
the Rules of Civil Procedure. Nonresidents of this state may be
served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the Rules of
Civil Procedure apply to this proceeding. The jurisdiction of
the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper,
to receive evidence on and recommend the amount of the fair
value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with
the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the
court finds relevant, computed by any method or combination of
methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The
fair value of the shares as determined by the court is binding
on all shareholders, wherever located. A dissenter is entitled
to judgment in cash for the amount by which the fair value of
the shares as determined by the court, plus interest, exceeds
the amount, if any, remitted under subdivision 5, but shall not
be liable to the corporation for the amount, if any, by which
the amount, if any, remitted to the dissenter under subdivision
5 exceeds the fair value of the shares as determined by the
court, plus interest.
Subd. 8. Costs; fees;
expenses.
(a) The court shall determine the
costs and expenses of a proceeding under subdivision 7,
including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs
and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a
dissenter whose action in demanding payment under subdivision 6
is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to
comply substantially with this section, the court may assess all
fees and expenses of any experts or attorneys as the court deems
equitable. These fees and expenses may also be assessed against
a person who has acted arbitrarily, vexatiously, or not in good
faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and
expenses to an attorney for the dissenters out of the amount
awarded to the dissenters, if any.
C-4
RTW, INC.
SPECIAL MEETING OF SHAREHOLDERS
Monday, December 10, 2007
1:00 p.m. CST (Minneapolis Time)
8000 Building of Normandale Lake Office Park
Skyway Classroom
8331 Norman Center Drive
Bloomington, Minnesota 55437
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RTW, Inc.
8500 Normandale Lake Boulevard
Suite 1400
Bloomington, MN 55437
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proxy
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This proxy is solicited on behalf of the Board of Directors of RTW, Inc.
The undersigned hereby appoints John O. Goodwyne and Alfred L. LaTendresse, or any of them, with
power of substitution to each, as attorneys and proxies, and hereby authorizes them to represent
the undersigned at the Special Meeting of Shareholders of RTW, Inc. to be held at the 8000 Building
of Normandale Lake Office Park, Skyway Classroom, 8331 Norman Center Drive, Bloomington, Minnesota,
on December 10, 2007 at 1:00 p.m. Minneapolis time, and at any adjournment(s) or postponement(s)
thereof, and to vote, as designated on the reverse side, all shares of Common Stock, par value
$0.01 per share, of RTW, Inc. held of record by the undersigned on November 6, 2007 and which the
undersigned would be entitled to vote if present in person at such Special Meeting, hereby revoking
all previously granted proxies.
See reverse for voting instructions.
COMPANY #
There are three ways to vote your Proxy
Your telephone vote authorizes the Named Proxies to vote your shares in the same manner as if
you marked, signed and returned your proxy card.
VOTE BY PHONE TOLL FREE 1-800-560-1965 QUICK
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EASY
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IMMEDIATE
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Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until
noon (CT) on December 9, 2007.
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Please have your proxy card and the last four digits of your Social Security Number
or Tax Identification Number available. Follow the simple instructions the voice provides you.
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VOTE BY INTERNET http://www.eproxy.com/rtwi/ QUICK
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EASY
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IMMEDIATE
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Use the Internet to vote your proxy 24 hours a day, 7 days a week until noon (CT) on
December 9, 2007.
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Please have your proxy card and the last four digits of your Social Security Number
or Tax Identification Number available. Follow the simple instructions to obtain your records
and create an electronic ballot.
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VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope weve provided or
return it to RTW, INC.
,
c/o Shareowner Services
SM
, P.O. Box 64873, St. Paul, MN
55164-0873.
If you vote by Phone or Internet, please do not mail your Proxy Card
↓
Please detach here
↓
The Board of Directors Recommends a Vote FOR Each Proposal.
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1.
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To approve and adopt the Agreement and Plan of Merger, dated as of
September 20, 2007, among Rockhill Holding Company, Rockhill
Acquisition Corporation and RTW, Inc.
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For
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Against
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Abstain
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2.
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To transact such other business as may properly come before the Special
Meeting, or any adjournment or postponement of the meeting, including
considering any procedural matters incident to the conduct of the Special
Meeting, such as adjournment or postponement of the Special Meeting.
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For
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Against
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Abstain
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED.
IF NO DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH
PROPOSAL.
Address Change? Mark Box
o
Indicate changes below:
Signature(s) in Box
Please sign name(s) exactly
as shown at left. When
signing as executor,
administrator, trustee or
guardian, give full title as such; when shares
have been issued in names of
two or more persons, all
should sign.
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