UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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AMERICAN PHYSICIANS CAPITAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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it was determined):
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Proposed maximum aggregate value of transaction:
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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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1301
NORTH HAGADORN ROAD
EAST LANSING, MICHIGAN 48823
September 8, 2010
Dear Shareholders:
You are cordially invited to attend a special meeting of
shareholders of American Physicians Capital, Inc., or the
Company, to be held at the Companys
headquarters, 1301 North Hagadorn Road, East Lansing, Michigan
48823, on October 20, 2010, at 9:00 a.m., Eastern Time.
At this important meeting you will be asked to approve and adopt
the Agreement and Plan of Merger, dated as of July 7, 2010,
as amended, among The Doctors Company, Red Hawk Acquisition
Corp. and the Company. If the merger agreement is approved and
adopted, we will become a wholly owned subsidiary of The Doctors
Company and shareholders will receive $41.50 in cash for each
share of common stock. The particulars of the structure of the
transaction and other important facts, such as tax consequences,
are described in detail in the attached documents, which we
encourage you to read in their entirety.
The Companys board of directors has carefully reviewed
and considered the terms and conditions of the merger agreement
and, based on its review, has determined that the merger
agreement and, the transactions contemplated thereby, are
advisable and fair to and in the best interests of the
shareholders of the Company. Therefore, your board unanimously
recommends that shareholders vote FOR approval and
adoption of the merger agreement at the special meeting.
In
reaching its determination, the Companys board of
directors considered a number of factors described more fully in
the accompanying proxy statement.
Your vote is important.
Approval and adoption of the
merger agreement requires the affirmative vote of the holders of
a majority of all outstanding shares of common stock entitled to
vote on the proposal.
AS A RESULT, YOUR FAILURE TO SUBMIT A
PROXY OR VOTE IN PERSON WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
Regardless of the number of shares you own, I encourage you to
take action in time for your vote to be counted.
Whether or
not you plan to attend the meeting, please complete, date, sign
and promptly return the enclosed proxy card in the enclosed
postage-paid envelope, or vote by telephone or via the Internet
using the instructions on the proxy before the meeting.
Returning the enclosed proxy or submitting a proxy by
telephone or Internet will not prevent you from voting in person
but will assure that your vote is counted if you are unable to
attend the meeting.
The accompanying proxy statement provides you with detailed
information about the proposed merger and the special meeting.
Please give the material careful attention. You also may obtain
more information about the Company from documents we have filed
with the Securities and Exchange Commission.
If you have any questions about the proposed merger or about how
to vote your shares, please call the Companys proxy
solicitor, Morrow & Co., LLC, toll free at
1-800-279-6413
or contact the Companys investor relations department at
American Physicians Capital, Inc. 1301 North Hagadorn Road, East
Lansing, Michigan 48823, or by telephone toll free at
1-866-561-8222.
Thank you for your support of American Physicians Capital, Inc.
Sincerely,
R. Kevin Clinton
President and CEO
If you have
questions or need assistance voting your shares contact:
Morrow & Co., LLC
470 West Avenue
3
rd
Floor
Stamford, CT 06902
(800) 279-6413
1301 North Hagadorn Road
East Lansing, Michigan 48823
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
TO BE HELD ON OCTOBER 20, 2010
NOTICE IS HEREBY GIVEN that a special meeting of American
Physicians Capital, Inc., or the Company, will be
held at 1301 North Hagadorn Road, East Lansing, Michigan 48823,
on October 20, 2010, at 9:00 a.m., Eastern Time, to
consider and vote upon the following matters:
a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of
July 7, 2010, as amended, referred to herein as the
merger agreement, by and among The Doctors Company,
a California-domiciled reciprocal inter-insurance exchange,
referred to herein as Parent, Red Hawk Acquisition
Corp., a Michigan corporation and a wholly owned subsidiary of
Parent, referred to herein as Merger Sub, and the
Company (Proposal 1 on the proxy card);
a proposal to
grant authority to the named proxies to adjourn the special
meeting, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the
special meeting to approve and adopt the merger agreement,
referred to herein as the adjournment proposal
(Proposal 2 on the proxy card); and
any other matter
that may properly come before the special meeting or any
adjournment or postponement of the special meeting.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND FOR THE ADJOURNMENT
PROPOSAL.
Only shareholders of record at the close of business on
September 1, 2010, are entitled to receive notice of and to
vote at the special meeting or any adjournments or postponements
thereof. All shareholders, whether or not they expect to attend
the special meeting in person, are requested to complete, date,
sign and return the enclosed proxy card in the accompanying
envelope or to submit a proxy by telephone or the Internet by
following the instructions on the proxy card. The proxy may be
revoked prior to the time at which it is voted at the meeting by
the person who executed it by filing with the Companys
Secretary an instrument of revocation or a duly executed proxy
bearing a later date, or by voting in person at the special
meeting.
If you fail to return your proxy card or fail to submit your
proxy by phone or the Internet, your shares will not be counted
for purposes of determining whether a quorum is present at the
special meeting. ANY FAILURE BY YOU TO RETURN YOUR PROXY CARD OR
SUBMIT YOUR PROXY OR VOTE IN PERSON WILL HAVE THE SAME EFFECT AS
A VOTE AGAINST THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT. Such failure, however, will not affect the outcome of
the vote regarding the adjournment proposal.
The Companys board of directors has determined that the
merger agreement, and the transactions contemplated thereby, are
advisable and fair to and in the best interests of the
shareholders of the Company.
If you receive more than one proxy card because you own shares
that are registered differently, please submit proxies covering
all of your shares shown on all of your proxy cards through one
of the methods described above. If you complete, sign and submit
your proxy card without indicating how you wish to vote, your
proxy
will be counted as a vote in favor of the proposal to approve
and adopt the merger agreement and in favor of the adjournment
proposal.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF
THE MERGER IS COMPLETED, YOU WILL BE SENT
INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
If you have any questions or need assistance in voting your
shares, please call Morrow & Co., LLC, our proxy
solicitation agent, toll-free at
1-800-279-6413.
The merger agreement, as amended, and the merger are described
in the accompanying proxy statement. A copy of the merger
agreement as amended is included as Appendix A to the
accompanying proxy statement. We urge you to read the entire
proxy statement carefully.
By order of the Board of Directors,
Annette E. Flood
Secretary
September 8, 2010
TABLE OF
CONTENTS
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A-1
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B-1
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ii
American
Physicians Capital, Inc.
1301 North Hagadorn Road
East Lansing, Michigan 48823
(800) 748-0465
September 8, 2010
PROXY
STATEMENT
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of American
Physicians Capital, Inc., a Michigan corporation, for use at its
special meeting of shareholders to be held on October 20,
2010, and at any and all adjournments and postponements thereof,
for the purposes set forth in the accompanying notice. We intend
to begin mailing this proxy statement, the attached Notice of
Special Meeting and the accompanying proxy card to shareholders
on or about September 10, 2010.
SUMMARY
TERM SHEET
This summary term sheet summarizes selected information in
the proxy statement. It may not contain all of the information
that may be important to your consideration of the proposed
merger. You should carefully read this entire proxy statement
and the other documents to which this proxy statement refers for
a more complete understanding of the matters being considered at
the special meeting.
The
Parties to the Merger
American
Physicians Capital, Inc.
American Physicians Capital, Inc. is a regional provider of
medical professional liability insurance focused primarily in
the Midwest and New Mexico markets that writes insurance through
its subsidiary American Physicians Assurance Corporation. The
Companys principal executive offices are located at 1301
North Hagadorn Road, East Lansing, Michigan 48823, and its
telephone number is
(800) 748-0465.
References to ACAP, the Company,
we, our, or us in this proxy
statement refer to American Physicians Capital, Inc. and its
subsidiaries, unless otherwise indicated by the context.
The
Doctors Company
The Doctors Company, which we refer to in this proxy statement
as Parent, along with its subsidiaries, is a
California-domiciled reciprocal inter-insurance exchange and a
physician-owned medical malpractice insurer. The Doctors Company
provides protection and risk management for sole practitioners,
doctors groups, and physicians working in clinics,
hospitals and managed care organizations. The Doctors
Companys principal executive offices are located at 185
Greenwood Road, Napa, California, 94558 and its telephone number
is
(800) 421-2368.
Red
Hawk Acquisition Corp.
Red Hawk Acquisition Corp., a Michigan corporation, which we
refer to in this proxy statement as Merger Sub, is a
wholly owned subsidiary of Parent. Merger Sub was organized
solely for the purpose of entering into the merger agreement and
consummating the transactions contemplated by the merger
agreement. It has not conducted any activities to date other
than activities incidental to its organization and in connection
with the transactions contemplated by the merger agreement.
Merger Subs principal executive offices are located at 185
Greenwood Road, Napa, California, 94558 and its telephone number
is
(800) 421-2368.
See The Parties to the Merger beginning on
page 33.
The
Merger
You are being asked to vote to approve and adopt the Agreement
and Plan of Merger, dated as of July 7, 2010, as amended,
among Parent, Merger Sub and ACAP, which we refer to in this
proxy statement as the merger
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agreement, pursuant to which Merger Sub will merge with
and into ACAP, with ACAP continuing as the surviving corporation
in the merger. The surviving corporation following the merger
initially will be a wholly owned subsidiary of Parent. See
The Merger Agreement beginning on page 37. As a
result of the merger, ACAP will cease to be an independent,
publicly traded company. A copy of the merger agreement is
attached as Appendix A to this proxy statement. You should read
the merger agreement in its entirety because it, and not this
proxy statement, is the legal document that governs the merger.
Merger
Consideration
If the merger is completed, you will be entitled to receive
$41.50 in cash, without interest and less any applicable
withholding taxes, for each share of ACAP common stock that you
own. See The Merger AgreementMerger
Consideration beginning on page 37.
Treatment
of Outstanding Options
Immediately prior to the effective time of the merger, each
outstanding, unexercised option to acquire ACAP common stock
(all of which are currently fully vested) will be cancelled and
exchanged for the right to receive a cash payment equal to the
number of shares of ACAP common stock underlying the options,
multiplied by the excess, if any, of $41.50 over the exercise
price per share of ACAP common stock previously subject to such
options, without interest and less any applicable withholding
taxes.
See The Merger AgreementTreatment of Options
beginning on page 37.
Record
Date and Voting
You are entitled to vote at the special meeting if you own
shares of ACAP common stock at the close of business on
September 1, 2010, the record date for the special meeting.
Each outstanding share of ACAP common stock on the record date
entitles the holder to one vote on each matter submitted to
shareholders for approval at the special meeting and any
adjournment or postponement thereof. As of September 1,
2010, there were approximately 9,325,086 shares of ACAP
common stock outstanding. See The Special Meeting of
ShareholdersRecord Date beginning on page 34.
Shareholder
Vote Required to Approve the Merger Agreement and the
Adjournment Proposal
You are being asked to consider and vote upon a proposal to
approve and adopt the merger agreement. For us to complete the
merger, shareholders holding a majority of the shares of ACAP
common stock outstanding at the close of business on the record
date and entitled to vote on the proposal must vote FOR the
proposal to approve and adopt the merger agreement. Abstentions
and broker non-votes will have the effect of a vote AGAINST the
proposal to approve and adopt the merger agreement. The
adjournment proposal requires the affirmative vote of a majority
of the votes cast on such proposal at the meeting. As a result,
abstentions and broker non-votes will not impact the vote on the
adjournment proposal. Abstentions and broker non-votes are
counted only for purposes of determining whether a quorum is
present at the special meeting. See The Special Meeting of
ShareholdersVoting Rights; Quorum; Vote Required for
Approval beginning on page 34.
Voting
Information
Before voting your shares of ACAP common stock, we encourage you
to read this proxy statement in its entirety, including its
appendices, and carefully consider how the merger will affect
you. To ensure that your shares can be voted at the special
meeting, please complete, sign, date and mail the enclosed proxy
card, or submit your proxy via the Internet or by telephone as
soon as possible. If a broker holds your shares in street
name, your broker should provide you with instructions on
how to record your vote. See The Special Meeting of
ShareholdersVoting and Revocation of Proxies
beginning on page 35.
Determination
of the Board of Directors
After careful consideration, the Companys board of
directors has determined that the merger agreement, and the
transactions contemplated thereby, are advisable, fair to and in
the best interests of the shareholders of ACAP. See The
MergerDetermination of the Board of Directors; Reasons for
the Merger; Recommendations beginning on page 18.
2
ACAPS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT
THE MERGER AGREEMENT AND FOR THE ADJOURNMENT
PROPOSAL.
Share
Ownership of ACAP Directors and Officers
As of September 1, 2010, the directors and executive
officers of ACAP held and are entitled to vote at the special
meeting, in the aggregate, 1,691,703 shares of ACAP common
stock representing approximately 18.1% of the outstanding shares
of ACAP common stock.
Each of the directors and executive
officers has informed ACAP that he or she currently intends to
vote all of his or her shares of ACAP common stock FOR the
proposal to approve and adopt the merger agreement and FOR the
adjournment proposal.
See The Special Meeting of
ShareholdersVoting Rights; Quorum; Vote Required for
Approval beginning on page 34.
Opinion
of the Board of Directors Financial Advisor
On July 7, 2010, and in connection with the merger, Raymond
James & Associates, Inc., referred to herein as
Raymond James, delivered to ACAPs board of
directors an oral opinion, which was subsequently confirmed in
writing, to the effect that, as of the date of such opinion and
based upon and subject to the various qualifications, factors,
assumptions and limitations described in the Raymond James
opinion, the merger consideration of $41.50 per share was fair,
from a financial point of view, to holders of outstanding shares
of ACAP common stock. The full text of the written opinion,
dated July 7, 2010, of Raymond James, setting forth the
assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Appendix B to this proxy statement and is incorporated by
reference in its entirety into this proxy statement. Holders of
ACAP common stock are encouraged to read the opinion carefully
in its entirety.
Raymond James provided its opinion to ACAPs board of
directors in connection with its consideration of the merger.
Raymond James expressed no opinion as to the merits of the
underlying decision by ACAP to engage in the merger or as to how
any holder of shares of ACAP common stock should vote with
respect to the merger.
Material
United States Federal Income Tax Consequences
For U.S. federal income tax purposes, your receipt of cash
in exchange for your shares of ACAP common stock generally will
cause you to recognize a gain or loss measured by the
difference, if any, between the cash you receive in the merger
and your adjusted tax basis in your shares of ACAP common stock.
Under U.S. federal income tax law, you may be subject to
information reporting on cash received in the merger unless an
exemption applies. Backup withholding may also apply 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. The tax
consequences of the merger to you are complex and will depend
upon your particular circumstances. You should consult your own
tax advisor for a full understanding of how the merger will
affect your federal, state, local,
non-U.S. and
other taxes and, if applicable, the tax consequences of the
receipt of cash in connection with the conversion of your
options to purchase ACAP common stock into the right to receive
the appropriate option consideration. See The
MergerMaterial U.S. Federal Income Tax
Consequences beginning on page 31.
Procedures
for Receiving the Merger Consideration
See The MergerProcedures for Receiving the Merger
Consideration and Option Consideration beginning on
page 28. Prior to the effective time of the merger, Parent
will appoint a bank or trust company reasonably satisfactory to
ACAP to act as paying agent for the payment of the merger
consideration, without interest and net of any applicable
withholding taxes.
If shares of ACAP common stock (excluding any shares held by
Parent, ACAP and either of their subsidiaries) are held in
certificated form, the paying agent will pay such merger
consideration, pursuant to the terms of the merger agreement,
upon surrender of the certificates representing such shares. If
shares of ACAP common
3
stock (other than shares held by Parent, ACAP and either of
their subsidiaries) are registered with the transfer agent in
any book-entry or uncertificated form, such shareholders will
receive instructions from their broker as to how to surrender
their shares and receive the merger consideration for those
shares following the completion of the merger.
YOU SHOULD NOT
FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A
LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
No
Dissenters Rights
Under Michigan law, because our common stock is traded on the
NASDAQ Global Select Market and the merger consideration is all
cash, holders of shares of common stock are not entitled to
exercise dissenters rights in connection with the merger
and, if the merger is consummated, will only be entitled to
receive $41.50 in cash, without interest, for each share of
common stock owned by such holders. See The Special
Meeting of ShareholdersNo Dissenters Rights.
Termination
of the Merger Agreement
Under certain circumstances, ACAP and Parent may terminate the
merger agreement and abandon the merger prior to the effective
time of the merger, whether before or after obtaining the
required shareholder approval. See The Merger
AgreementTermination of the Merger Agreement
beginning on page 47. Circumstances under which the merger
agreement can be terminated include the following:
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the mutual written consent of Parent and ACAP;
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by Parent or ACAP if any of the following occurs:
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so long as a breach of the merger agreement by the terminating
party is not the primary cause of such action, any actions are
taken by a court of competent jurisdiction or other governmental
authority permanently restraining, enjoining or otherwise
prohibiting the merger, if such actions have become final and
nonappealable,
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the special meeting (including any adjournment thereof) is held
and ACAP fails to obtain approval of the proposal to adopt the
merger agreement from a majority of the holders of ACAPs
outstanding common stock entitled to vote on the
proposal, or
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so long as a breach of the merger agreement by the terminating
party is not the primary cause of the failure of the merger to
occur on or before such date, if the merger has not been
consummated by December 31, 2010 (referred to as the
outside date), subject to extension to
March 31, 2011 if all conditions have been or are capable
of being satisfied at the time of such extension, other than
those relating to a court order and insurance regulatory and
antitrust approval of the merger;
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by ACAP if any of the following occurs:
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subject to compliance with the covenants described under
The Merger AgreementSolicitation of Alternate
Acquisition Proposals, beginning on page 44, if ACAP
accepts a superior proposal to the merger;
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if (a) any representation or warranty of Parent (other than
the financing representation) has become untrue or Parent has
breached any covenant or agreement set forth in the merger
agreement, (b) such breach or misrepresentation is not
capable of being cured prior to the outside date of the merger,
and (c) such breach or misrepresentation would cause
ACAPs conditions regarding the accuracy of Parents
representations or the performance of covenants by Parent not to
be satisfied; or
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if (a) the representation or warranty of Parent related to
financing has become untrue or Parent or Merger Sub has breached
its covenant to make the payments required by the merger
agreement, (b) such breach or misrepresentation is not
capable of being cured prior to the outside date of the merger,
and (c) such breach or misrepresentation would cause
ACAPs
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conditions regarding Parents payments required to be made
in connection with the merger not to be satisfied;
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by Parent if any of the following occurs:
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if ACAPs board of directors has withdrawn or adversely
modified the boards recommendation of the merger, or the
ACAPs board of directors has recommended to ACAPs
shareholders that they approve or accept an acquisition proposal
other than the merger; or
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if (a) any representation or warranty of ACAP has become
untrue or ACAP has breached any covenant or agreement set forth
in the merger agreement, (b) such breach or
misrepresentation is not capable of being cured prior to the
outside date of the merger, and (c) such breach or
misrepresentation would cause Parents conditions regarding
the accuracy of ACAPs representations or the performance
of covenants by ACAP not to be satisfied. See The Merger
AgreementConditions to Completing the Merger
beginning on page 45.
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Termination
Fee
In general, if the merger agreement is terminated, there will be
no liability or obligation on ACAP or Parent except with respect
to certain provisions and the termination fees provided under
the agreement. If ACAP or Parent terminate the merger agreement
under certain circumstances specified in the merger agreement,
ACAP or Parent must pay the other party a termination fee equal
to 3% of the aggregate merger consideration. In the event ACAP
is required to pay a termination fee in connection with a
termination of the merger agreement, such fee will be
Parents sole and exclusive remedy. In the event Parent is
required to pay a termination fee in connection with a
termination of the merger agreement, other than a termination
related to Parents financing representation and covenant,
such fee will be ACAPs sole and exclusive remedy. Except
to the extent the termination fees are the sole and exclusive
remedy of the party receiving the fees, each party will have the
right to recover to the fullest extent permitted by applicable
law any liabilities or damages incurred or suffered by it as a
result of the material breach by the other party of any of its
representations, warranties, covenants or other agreements set
forth in the merger agreement. This includes, in the case that
ACAP is the recovering party, a material breach by Parent of its
obligations to pay the merger consideration at closing. See
The Merger AgreementTermination Fees and
The Merger AgreementLimitation on Liability
beginning on page 48.
Conditions
to the Merger
The obligation of each party to consummate the merger is subject
to the satisfaction or waiver of a number of conditions. See
The Merger AgreementConditions to Completing the
Merger beginning on page 45.
The obligations of ACAP, Parent and Merger Sub to consummate the
merger are subject to the satisfaction of the following
conditions:
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the merger agreement must have been adopted by the affirmative
vote of the holders of not less than a majority of the
outstanding shares of ACAP common stock entitled to vote on the
proposal;
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the waiting period applicable to the consummation of the merger
under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which we refer
to as the HSR Act, must have expired or terminated
and Parent must have delivered to ACAP approval by state
insurance regulators in Michigan of an application for change in
control and any conditions imposed by such approval shall not be
expected to have a regulatory material adverse effect (see
The MergerRegulatory Approvals beginning on
page 33); and
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no temporary restraining order, preliminary or permanent
injunction, judgment, decree or order issued by any court of
competent jurisdiction or other governmental authority which
prevents the consummation of the merger shall be in effect.
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The obligations of Parent and Merger Sub to consummate the
merger are subject to the satisfaction of the following
additional conditions:
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the representations and warranties of ACAP must be true and
correct as of the closing date, subject to certain material
adverse effect qualifications;
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ACAP must have performed in all material respects all
obligations that it is required under the merger agreement to
perform on or prior to the consummation of the merger; and
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since the date of the merger agreement, no change, event or
circumstances must have occurred that has had a material adverse
effect on ACAP that is continuing or is reasonably likely to
have a material effect on ACAP.
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The obligations of ACAP to consummate the merger are subject to
the satisfaction of the following additional conditions:
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the representations and warranties of each of Parent and Merger
Sub must be true and correct as of the closing date, subject to
certain material adverse effect qualifications;
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Parent and Merger Sub must have performed in all material
respects all obligations that each is required under the merger
agreement to perform on or prior to the consummation of the
merger; and
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Parent shall have made the payments required to be made in
connection with the merger.
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Solicitation
and Acceptance of Alternate Acquisition Proposals
From and after the date of the merger agreement, ACAP is
generally not permitted to directly or indirectly:
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solicit, initiate or knowingly facilitate any acquisition
proposal regarding ACAP or any proposal that is reasonably
likely to lead to an acquisition proposal;
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participate in any way in discussions or negotiations with, or
furnish any non-public information to, any person that has made
an acquisition proposal;
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withdraw or modify in a manner adverse to Parent the
recommendation of ACAPs board of directors that adoption
of the merger agreement by ACAPs shareholders is advisable
and that the board has determined that the merger is fair to and
in the best interests of ACAPs shareholders;
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other than the merger, approve or recommend any acquisition
proposal; or
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enter into any agreement or letter of intent with respect to any
acquisition proposal.
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Notwithstanding these restrictions, under certain circumstances,
the ACAP board of directors may respond to a bona fide
unsolicited written alternative acquisition proposal or
terminate the merger agreement and enter into an acquisition
agreement with respect to a superior proposal so long as ACAP
complies with certain terms of the merger agreement described
under The Merger AgreementSolicitation of Alternate
Acquisition Proposals beginning on page 44. These
terms include negotiating with Parent in good faith to make
adjustments to the merger agreement and, if required, paying the
termination fee.
Financing
of the Merger
The merger agreement does not contain any condition to the
merger relating to the receipt of financing by Parent and Merger
Sub. Parent intends to fund the aggregate amount of the merger
consideration and option consideration of approximately
$397 million with available cash.
Interests
of ACAPs Directors and Executive Officers
In considering the recommendations of the board of directors,
ACAPs shareholders should be aware that certain of
ACAPs directors and executive officers have interests in
the transaction that are different from,
and/or
in
addition to, the interests of ACAPs shareholders
generally. The ACAP board of directors was aware
6
of these potential conflicts of interest and considered them,
among other matters, in reaching their decisions and
recommendations with respect to the merger agreement and related
matters.
At the effective time of the merger, shares of ACAP common stock
held by our executive officers and directors will be converted
into cash consideration on the same terms as all shares of ACAP
common stock are converted. Options held by executive officers
will be converted into cash at a price equal to $41.50 per
share, less the exercise price of the option. All outstanding
options are currently vested and exercisable. Our nonemployee
directors do not hold any outstanding options. Certain executive
officers will receive severance benefits if their employment is
not continued after the merger, including if they have good
reason to voluntarily terminate their employment or if they
voluntarily terminate for any reason within a specified period
after closing. Our executive officers and directors will also
benefit from the indemnification and insurance provisions
contained in the merger agreement with respect to their acts or
omissions as executive officers or directors. Our executive
officers may also benefit from Parents obligation to
continue employee benefits after the merger if they continue as
employees. See The MergerInterests of ACAPs
Directors and Executive Officers in the Merger beginning
on page 28.
Regulatory
Approvals
Under the HSR Act, the merger may not be completed until
notification and report forms have been filed with the Federal
Trade Commission and the Antitrust Division of the Department of
Justice and the applicable waiting period has expired or been
terminated. ACAP and Parent filed notification and report forms
under the HSR Act with the Federal Trade Commission and the
Antitrust Division on July 21, 2010. On August 2,
2010, the Federal Trade Commission granted early termination of
the HSR Act waiting period. In addition, the merger requires the
approval of the Michigan Office of Financial and Insurance
Regulation, which was received on September 7, 2010.
See The MergerRegulatory Approvals beginning
on page 33.
Market
Price of ACAP Common Stock
The closing price of ACAP common stock on the NASDAQ Global
Select Market on July 7, 2010, the last trading day prior
to announcement of the proposed merger transaction, was $31.76
per share. The $41.50 per share merger consideration to be paid,
without interest and gross of any applicable withholding taxes,
for each share of ACAP common stock represents a premium of
approximately 31% to the closing price of ACAP common stock on
July 7, 2010.
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers address briefly some
questions you may have regarding the special meeting, the merger
agreement and the proposed merger. These questions and answers
may not address all questions that may be important to you as a
shareholder of ACAP. Please refer to the more detailed
information contained elsewhere in this proxy statement and the
appendices to this proxy statement.
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Q:
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Why am I receiving this proxy statement?
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A:
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ACAP and Parent have agreed that ACAP will merge with Merger
Sub, subject to certain conditions. ACAP is holding a special
meeting of shareholders in order to obtain shareholder approval
of a proposal to approve and adopt the merger agreement, as
described in this proxy statement. We cannot complete the merger
unless holders of a majority of the outstanding shares of our
common stock as of the record date approve this proposal at a
special meeting of the shareholders. We have included in this
proxy statement important information about the merger, the
merger agreement and the special meeting. You should read this
information carefully and in its entirety. We have attached a
copy of the merger agreement as Appendix A. The enclosed
voting materials allow you to submit a proxy by mail, telephone
or the Internet to ensure that your shares of ACAP common stock
are represented and voted at the special meeting, even if you
are unable to attend the special meeting. Your vote is very
important and we encourage you to submit your proxy as soon as
possible, regardless of whether you plan to attend the special
meeting.
YOUR FAILURE TO SUBMIT A PROXY OR VOTE IN PERSON
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WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
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Q:
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Where and when is the special meeting?
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A:
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The special meeting will be held at 1301 North Hagadorn Road,
East Lansing, Michigan 48823, on October 20, 2010, at
9:00 a.m., Eastern Time.
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Q:
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Who can vote on the merger agreement?
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A:
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You are entitled to vote (or submit a proxy to have your shares
voted) at the special meeting if you owned shares of ACAP common
stock at the close of business on September 1, 2010, the
record date for the special meeting. Each outstanding share of
ACAP common stock on the record date entitles the holder to one
vote on each matter submitted to shareholders for approval at
the special meeting. As of September 1, 2010, there were
approximately 9,325,086 shares of ACAP common stock
outstanding held by approximately 104 record holders. See
The Special Meeting of ShareholdersRecord Date
beginning on page 34.
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Q:
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What matters will be voted on at the special meeting?
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A:
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You will be asked to consider and vote on the following
proposals:
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the approval and
adoption of the merger agreement;
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the grant of authority
to the named proxies to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes at the time of the special meeting to
approve and adopt the merger agreement, which we refer to as the
adjournment proposal; and
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any other matter that
may properly come before the special meeting or any adjournment
or postponement thereof.
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Q:
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What will be the effect of the merger?
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A:
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Under the merger agreement, Merger Sub, a wholly owned
subsidiary of Parent, will be merged with and into ACAP, with
ACAP being the surviving corporation. Merger Sub is a Michigan
corporation formed by Parent for the purpose of completing the
merger. After the merger, you will no longer have an equity
interest in ACAP and will not participate in any potential
future earnings or growth of ACAP.
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Q:
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What will I receive in the merger?
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A:
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If the merger is completed, you will be entitled to receive
$41.50 in cash, without interest and less any applicable
withholding taxes, for each share of ACAP common stock that you
own.
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At the effective time of the merger, each outstanding option not
exercised prior to the effective time of the merger will be
cancelled and exchanged for the right to receive a cash payment
equal to the number of shares of ACAP common stock underlying
the options, multiplied by the excess, if any, of $41.50 over
the exercise price per share, without interest and less any
applicable withholding taxes. All outstanding options are
currently vested.
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See The Merger AgreementMerger Consideration
and The Merger AgreementTreatment of Options
beginning on page 37.
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Q:
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How does ACAPs board of directors recommend that I
vote?
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A:
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The ACAP board of directors unanimously recommends that you vote:
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FOR the proposal to approve and
adopt the merger agreement; and
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FOR the adjournment proposal.
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Q:
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How do ACAPs current directors and executive officers
intend to vote?
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A:
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Each of our current directors and executive officers has
informed us that he or she currently intends to vote all of his
or her shares of ACAP common stock FOR the proposal to approve
and adopt the merger agreement and FOR the adjournment proposal.
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Q:
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What vote of our shareholders is required to approve and
adopt the merger agreement and to approve the adjournment
proposal?
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A:
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For us to complete the merger, holders of a majority of the
shares of ACAP common stock outstanding at the close of business
on the record date and entitled to vote on the proposal must
vote FOR the proposal to approve and adopt the merger agreement.
A broker non-vote, failure to vote or an abstention will have
the same effect as a vote AGAINST the proposal to approve and
adopt the merger agreement. The adjournment proposal requires
the affirmative vote of a majority of the votes cast on such
proposal at the meeting. Abstentions and broker non-votes will
therefore have no effect on the adjournment proposal but will
count for purposes of determining whether a quorum is present.
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Q:
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What is a quorum?
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A:
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A quorum of the holders of the outstanding shares of ACAP common
stock must be present for the special meeting to be held. A
quorum is present if the holders of a majority of the
outstanding shares of ACAP common stock entitled to vote at the
special meeting are present at the meeting, either in person or
represented by proxy. Votes for and against the proposals, as
well as abstentions and broker non-votes, are counted as present
for the purpose of determining whether a quorum is present.
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Q:
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Who is soliciting my vote?
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A:
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This proxy solicitation is being made by ACAPs board of
directors and paid for by ACAP. In addition, we have retained
Morrow & Co., LLC to assist in the solicitation. We
will pay Morrow & Co., LLC approximately $7,500 plus
out-of-pocket
expenses for its assistance. Our directors, officers, employees,
advisors and other representatives may also solicit proxies by
personal interview, mail,
e-mail,
telephone, facsimile or by other means of communication. These
persons will not be paid additional remuneration for their
efforts. We will also request brokers and other fiduciaries to
forward proxy solicitation material to the beneficial owners of
shares of ACAP common stock that brokers and fiduciaries hold of
record. We will reimburse them for their reasonable
out-of-pocket
expenses.
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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, if you hold your shares in
your own name as the shareholder of record, please submit your
proxy in one of the following ways:
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by completing, signing, dating and
returning the enclosed proxy card;
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by using the telephone number
printed on your proxy card; or
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by using the Internet voting
instructions printed on your proxy card.
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You can also attend the special meeting and vote, or change your
voting instructions as provided on a previously submitted proxy,
in person. Even if you plan to attend the special meeting, if
you hold your shares in your own name as the shareholder of
record, please submit a proxy to ensure your shares are
represented and voted at the special meeting by using one of the
methods described above. If you hold your shares in street
name through a broker, bank or other nominee, then you
received this proxy statement from the nominee, along with the
nominees proxy card which includes voting instructions and
instructions on how to change your vote.
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Q:
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If my shares are held in street name by my
broker, bank or other nominee, will my broker, bank or other
nominee vote my shares for me?
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A:
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Your broker, bank or nominee will vote your shares on the
proposals, but only if you provide instructions to your broker,
bank or other nominee on how to vote your shares. You should
follow the directions provided by your broker, bank or other
nominee regarding how to instruct your broker to vote your
shares.
Without those instructions, your shares will not be
voted, which will have the same effect as voting AGAINST the
proposal to approve and adopt the merger agreement.
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Q:
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What is a broker non-vote?
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A:
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A broker non-vote occurs when a broker, bank or other nominee
holding shares on your behalf does not vote on a proposal
because the nominee has not received your voting instructions
and lacks discretionary power to vote the shares. Broker
non-votes will not count as votes cast on a proposal but will
count for the purpose of determining whether a quorum is
present. As a result, broker non-votes will have the same effect
as a vote AGAINST the proposal to approve and adopt the merger
agreement but will have no effect on the adjournment proposal.
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Q:
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How do I revoke or change my vote?
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A:
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You can change your vote at any time before your proxy is voted
at the special meeting. You may revoke your proxy if you are a
shareholder of record by notifying the Secretary of ACAP in
writing or by delivering a new proxy, in each case, dated after
the date of the proxy being revoked. In addition, you may revoke
your proxy by attending the special meeting and voting in
person. Simply attending the special meeting, however, will not
revoke your proxy. If you have instructed a broker to vote your
shares, the above-described options for changing your vote do
not apply, and instead you must follow the instructions received
from your broker to change your vote.
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Q:
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What does it mean if I get more than one proxy card?
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A:
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If your shares are registered differently and are in more than
one account, you will receive more than one proxy card. Please
complete and return all of the proxy cards you receive to ensure
that all of your shares are voted.
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Q:
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When do you expect the merger to be completed?
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A:
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We are working to complete the merger as soon as practicable,
and we anticipate that it will be completed during the fourth
quarter of 2010, subject to receipt of shareholder approval of
the proposal to approve and adopt the merger agreement at the
special meeting and the satisfaction of the other closing
conditions under the merger agreement.
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Q:
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What is required to complete the merger?
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A:
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We are not required to complete the merger unless a number of
conditions are satisfied or waived. These conditions include
receipt of the approval of our shareholders at the special
meeting of the proposal to approve and adopt the merger
agreement, receipt of all required approvals of the Michigan
Office of Financial and Insurance Regulation and expiration or
early termination of the applicable waiting period under the HSR
Act. On August 2, 2010, the Federal Trade Commission
granted early termination of the HSR Act waiting period. Parent
received approval from the Michigan Office of Financial and
Insurance Regulation on September 7, 2010. For a more
complete summary of the conditions that must be satisfied or
waived prior to completion of the merger, see The Merger
AgreementConditions to Completing the Merger
beginning on page 45.
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Q:
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Should I send in my stock certificates now?
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A:
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No. Shortly after the completion of the merger, if you hold
certificated shares, you will receive a letter of transmittal
with instructions informing you how to send in your stock
certificates to our exchange agent in order to receive the
merger consideration. You should use the letter of transmittal
to exchange stock certificates for the merger consideration to
which you are entitled as a result of the merger.
YOU
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SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING
AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN
YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
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Q:
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What if my stock is uncertificated and held in street
name?
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A:
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If your shares are uncertificated and held in street
name by your broker, bank or other nominee, you will
receive instructions from your broker, bank or other nominee
shortly after the merger is completed as to how to effect the
surrender of your street name shares in exchange for
the merger consideration to which you are entitled. See
The MergerProcedures for Receiving the Merger
Consideration and Option Consideration beginning on
page 28.
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Q:
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What if I own options?
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A:
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If you are the beneficial owner of options, we will pay the
option consideration to which you are entitled automatically by
delivering the payment to you shortly after the merger is
completed at the address reflected in our records. See The
MergerProcedures for Receiving the Merger Consideration
and Option Consideration beginning on page 28.
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Q:
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Will the merger be taxable to me?
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A:
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Yes. The receipt of cash pursuant to the merger will be a
taxable transaction for U.S. federal income tax purposes and may
also be a taxable transaction under applicable state, local or
foreign income or other tax laws. You should consult your own
tax advisor for a full understanding of how the merger will
affect your federal, state, local,
non-U.S.
and
other taxes and, if applicable, the tax consequences of the
receipt of cash in connection with the conversion of your
options to purchase ACAP common stock into the right to receive
the appropriate option consideration. See The
MergerMaterial U.S. Federal Income Tax Consequences
beginning on page 31.
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Q:
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Am I entitled to dissenters rights?
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A:
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No, under Michigan law, holders of shares of common stock are
not entitled to exercise dissenters rights in connection
with the merger. See The Special Meeting of
ShareholdersNo Dissenters Rights.
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Q:
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How can I obtain additional information about ACAP?
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A:
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We will provide a copy of our Annual Report on
Form 10-K
for the year ended December 31, 2009, excluding its
exhibits, and other filings with the SEC without charge to any
shareholder who delivers a written request to ACAPs
investor relations department at American Physicians Capital,
Inc., 1301 North Hagadorn Road, East Lansing, Michigan 48823.
Our Annual Report on
Form 10-K
and other SEC filings also may be accessed on the Internet at
www.sec.gov or on the investor relations page of ACAPs
website at www.apcapital.com. Our website address is provided as
an inactive textual reference only. The information provided on
our website is not part of this proxy statement, and therefore
is not incorporated by reference. For a more detailed
description of the information available, please refer to
Where You Can Find Additional Information beginning
on page 57.
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Q:
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Who can help answer my other questions?
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A:
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If you have more questions about the merger, need assistance in
submitting your proxy or voting your shares, or need additional
copies of the proxy statement or the enclosed proxy card, you
should contact Morrow & Co., LLC, our proxy
solicitation agent, by telephone at
1-800-279-6413.
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You may also wish to consult your own legal, tax
and/or
other
financial advisors with respect to the merger agreement, the
merger or other matters described in this proxy statement.
11
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Certain statements in this proxy statement, and the documents to
which we refer you in this proxy statement, are not historical
and constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
or the PSLRA. We claim the protection of the PSLRAs safe
harbor for forward-looking statements with respect to all of our
forward-looking statements. When we discuss our future financial
performance (including future revenues, earnings, cash flows or
growth rates), ongoing business strategies or prospects, the
expected closing date of the merger and possible future Company
actions, or use words such as will,
should, likely, believe,
expect, anticipate, estimate
or similar expressions, we are making forward-looking
statements. These forward-looking statements represent our
outlook only as of the date of this report. While we believe
that our forward-looking statements are reasonable, you should
not place undue reliance on any such forward-looking statements.
Because these forward-looking statements are based on estimates
and assumptions that are subject to significant business,
economic and competitive uncertainties, many of which are beyond
our control or are subject to change, actual results could be
materially different. Factors that might cause such a difference
include, without limitation, the risks and uncertainties
discussed from time to time in this report and our other reports
filed with the Securities and Exchange Commission, including
those listed in our most recent Annual Report on
Form 10-K
under Item 1ARisk Factors, and the
following:
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the occurrence of any event, change or other circumstance that
could give rise to the termination of the merger agreement;
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the outcome of any legal proceedings that may be instituted
against ACAP, members of our board of directors and others
relating to the merger agreement;
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the inability to complete the merger due to the failure to
obtain the necessary shareholder approval or the failure to
satisfy other conditions to consummate the merger;
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the failure of the merger to close for any other reason;
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risks that the proposed merger disrupts current plans and
operations and the potential difficulties in employee retention
as a result of the merger;
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a significant delay in the expected completion of the merger;
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the effect of the announcement of the merger on our agent,
broker and customer relationships, operating results, A.M. Best
rating and business generally;
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general economic and market conditions; and
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the amount of the costs, fees, expenses and charges related to
the merger.
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Other factors not currently anticipated by management may also
materially and adversely affect our financial position and
results of operations and our ability to close the merger. We do
not undertake, and expressly disclaim, any obligation to update
or alter our statements, whether as a result of new information,
future events or otherwise, except as required by applicable law.
12
THE
MERGER
The following is a description of the material aspects of the
merger. While ACAP believes that the following description
covers the material terms of the merger, the description may not
contain all of the information that is important to ACAP
shareholders. ACAP encourages you to carefully read this entire
proxy statement, including the appendices, for a more complete
understanding of the merger.
General
ACAPs board of directors has approved the merger agreement
and the transactions contemplated thereby. In the merger, Merger
Sub will merge with and into ACAP. As a result of the merger,
the separate corporate existence of Merger Sub shall cease and
ACAP will continue as the surviving corporation of the merger.
Parent will issue to the paying agent for the benefit of ACAP
shareholders $41.50 in cash for each share of ACAP common stock
outstanding at the effective time of the merger.
Background
of the Merger
We are an insurance holding company that writes medical
professional liability insurance through our primary subsidiary
American Physicians Assurance Corporation, or American
Physicians.
ACAP was incorporated in Michigan in July 2000 to facilitate the
conversion of American Physicians from a mutual insurance
company to a publicly owned stock insurance company. The
conversion became effective, the offerings were closed and
American Physicians and its subsidiaries became subsidiaries of
ACAP on December 13, 2000.
American Physicians, our primary insurance subsidiary, was
formed in June 1975 under the sponsorship of the Michigan State
Medical Society in response to a medical professional liability
insurance crisis in Michigan. Today, American Physicians focuses
on writing physician medical professional liability coverage in
four core states: Michigan, Illinois, Ohio and New Mexico. It
also writes a small amount of business in contiguous states.
ACAPs board of directors, as part of its ongoing oversight
and planning, annually reviews its strategic plan for the
upcoming year, evaluating the business plans prepared by
management, general market conditions, strategic alternatives
and its ability to deliver value to its shareholders. For a
number of years, the board and management have explored various
different strategies to enhance shareholder value, including
expanding its business through acquisitions, organic growth and
evaluating opportunities for a possible sale of ACAP.
In late 2003 and early 2004, ACAP undertook a review of its
strategic options, including discussions with bidders
potentially interested in acquiring ACAP. After extensive
review, the board of ACAP determined that it would continue to
execute on its business plan as a stand-alone company, and
refocus ACAP on its core medical professional liability
business. After stabilizing ACAPs operations and enhancing
profitability, ACAPs board of directors, later in 2004,
instructed management to look for opportunities to grow ACAP
through strategic acquisitions of other companies, as well as to
evaluate the business benefits and risks of entering into new
markets outside of its four core states. Management began an
on-going process of contacting potential insurance companies to
evaluate their interest in entering into a strategic business
alliance with ACAP. As a result of those contacts, ACAP
determined that there were few opportunities for ACAP to acquire
other professional liability insurers, primarily because of its
size and the fact that there were bigger professional liability
insurers who were actively seeking acquisitions.
In September 2004, American Physicians entered into a stock
purchase agreement to purchase over 10% of the outstanding
shares of Physicians Insurance Company of Wisconsin, or PICW,
and filed a Form A seeking regulatory approval of the
proposed transaction. PICW opposed the transaction and the
Form A and ultimately determined to enter into a merger
agreement with another professional liability insurer. In 2005,
pursuant to the resulting merger, American Physicians disposed
of the PICW shares it had acquired, and thereafter continued to
write a relatively small amount of professional liability
insurance in Wisconsin.
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In 2007, ACAP participated in the auction involving SCPIE
Holdings, Inc., a California-based professional liability
insurer. Although ACAP submitted a bid that it believed was
competitive and undertook substantial due diligence, SCPIE
Holdings, Inc. signed an agreement and plan of merger with
Parent on October 15, 2007.
In 2008, ACAP participated in an auction involving another
professional liability insurer. After conducting due diligence
and making an offer, ACAP was not the high bidder in the
proposed transaction. From 2004 to early 2010, management
explored a variety of other acquisition opportunities and other
strategic investments.
As part of the aforementioned strategic review process, on
March 12, 2010, at its annual board conference, ACAPs
board of directors met and considered an update from management
on ACAPs strategic plan. Management presented a detailed
business plan and estimates regarding the return on equity that
it anticipated generating during 2010 and into the future. The
board discussed whether it should consider a potential sale of
ACAP as one of its strategic options, given the good performance
of ACAP historically. While ACAP has continued to generate good
returns, the board considered whether ACAP could continue to
generate acceptable returns on equity to its shareholders based
on managements report on the continued consolidation of
the industry and the risks of a prolonged soft market for
professional liability insurance. In light of the fact that
American Physicians specializes in insuring medium and small
size physician groups, the board discussed whether the continued
consolidation of the industry would reduce the size of American
Physicians target market and require American Physicians
to compete more directly with large insurance carriers, who have
larger capital bases and are better positioned to withstand a
prolonged soft market. Based on these discussions, the board of
directors instructed ACAPs management to evaluate various
strategic alternatives, including whether to continue as an
independent, stand-alone company and whether, in light of
ACAPs recent lack of premium growth, current market
conditions, and changes in the insurance industry largely due to
health care reform, it would be in the best interests of
ACAPs shareholders for the board to consider selling ACAP.
Management was asked to report its recommendations to the board
of directors at the next regular board meeting. As part of the
evaluation of strategic alternatives, the board of directors
authorized R. Kevin Clinton, ACAPs president and chief
executive officer, and Joseph Stilwell, a member of ACAPs
board of directors, to determine potential strategic partners
and contact the potential strategic partners on a preliminary
basis in order to determine interest in acquiring ACAP and
indicative pricing for a potential sale to determine whether
such a transaction would be a viable alternative to maximize
value for shareholders.
During March and April 2010, management conducted analyses of
various strategic alternatives, the medical professional
liability insurance industry, market trends, and ACAP
projections and prospects. Also during this time period,
Messrs. Clinton and Stilwell met with or otherwise
contacted four potential strategic partners, including Parent,
three of which indicated an interest in exploring a possible
transaction with ACAP and eventually executed confidentiality
agreements for the purpose of pursuing further discussions. On
April 14, 2010, Mr. Clinton and Mr. Stilwell met
with Parents chief executive officer in New York. During
the meeting, the parties discussed a general price range and
that if a transaction were pursued, ACAP was interested in
pursuing an all-cash transaction. In determining the list of
potential partners to be selected, ACAP considered several
factors, including without limitation the financial ability of a
potential acquirer to fund an acquisition of ACAP without a
financing contingency, whether the potential partner had
indicated an interest in pursuing a growth strategy or had
exhibited any other interest in acquiring a professional
liability insurance company, whether the potential partners were
reasonably likely to pay full value for ACAP in the event that
the board determined to sell ACAP, whether the geographic
footprint of ACAPs business would be attractive to the
potential partner based on the partners current level of
business in ACAPs core states, and the perceived ability
of the potential partner to timely complete due diligence,
obtain regulatory approvals and close the transaction before
year end. As a result of these factors and its desire to
maintain confidentiality with respect to its process, which it
believed was important to maintain its current customer base,
ACAP determined not to approach financial buyers and multi-line
insurers.
At ACAPs regularly scheduled board meeting on
April 29, 2010, Mr. Clinton and Frank Freund,
ACAPs chief financial officer, provided ACAPs board
of directors with a report on ACAPs strategic options, the
current state of and prospects for the medical professional
liability insurance market, key historical trends within the
industry and how they were expected to impact ACAP, efforts by
ACAP to improve its premiums profitably
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through organic means and through potential acquisitions,
ACAPs five year financial projections and valuation and an
update on the initial discussions with the potential strategic
partners. In addition, a representative of Dykema Gossett PLLC,
ACAPs outside legal counsel, reviewed with the board its
fiduciary responsibilities in connection with the exploration of
strategic alternatives. Following these presentations and
discussion among the board members regarding these issues and
the likelihood of higher capital gains tax rates in 2011, the
board of directors determined to continue to evaluate a possible
transaction to maximize shareholder value and authorized
management to continue discussions with the potential strategic
partners.
On April 30, 2010, ACAP management sent the three
potentially interested parties, including Parent, a letter
requesting a preliminary indication of interest in pursuing an
acquisition of ACAP and an indicative price or price range, and
provided certain publicly available financial and background
information related to ACAP and its subsidiaries.
On May 5, 2010, Messrs. Clinton and Stilwell met with
one of the potentially interested parties. Thereafter, during
May 2010, ACAP provided the three potentially interested parties
(including Parent) with additional detailed financial
information, reserve reports and projections as requested by the
parties.
At a special meeting of the board on May 11, 2010,
Mr. Clinton updated the board regarding actions taken since
the April 29 meeting, including a presentation on the companies
selected for a solicitation of interest, the basis for the
selection, and the preliminary feedback received from the
companies. The board had a detailed discussion of strategic
alternatives available and the solicitation of indications of
interest.
On May 18, 2010, Mr. Clinton received a letter and
phone call from one of the three potentially interested parties
indicating that they would not continue with the process due to
internal issues unrelated to ACAP. On May 21, 2010, ACAP
received preliminary indications of interest from Parent and the
other potentially interested party. Parents letter
indicated its interest in acquiring ACAP at a price range of
$39.00 to $41.00 per share in cash, while the other party (whom
we refer to herein as the third party) indicated its
interest in acquiring ACAP at a lower price range. Both letters
indicated that they were subject to completion of due diligence
but that there would likely be no financing condition.
On the following day, May 22, 2010, ACAPs board of
directors met by teleconference to discuss the initial
indications of interest. ACAPs outside legal counsel made
a detailed presentation to the board of directors regarding the
fiduciary duties of directors in an auction process should the
board decide to sell ACAP. Mr. Clinton provided a detailed
overview to the board of the responses received to the
solicitation of preliminary indications of interest from the
three potentially interested parties and the terms noted in the
two written responses received. The board then engaged in a
detailed discussion of whether to sell ACAP and the various
factors for and against a sale of ACAP. Following this
discussion, ACAPs board of directors instructed management
to continue to pursue negotiations with Parent and the third
party in an effort to determine the best price the parties would
be willing to pay for ACAP and whether it would be in the best
interests of the shareholders to pursue a sale of ACAP.
On May 24, 2010, Mr. Clinton sent a letter to Parent
and the third party acknowledging receipt of their indications
of interest and outlining the anticipated process for completing
due diligence and negotiation of definitive agreements, and ACAP
provided each with access to an electronic due diligence data
room established to facilitate completion of the parties
due diligence.
On May 28, 2010, Dykema Gossett PLLC sent Parent and the
third party a draft merger agreement. During the first and
second weeks of June 2010, both parties conducted due diligence
at ACAPs headquarters and held discussions with
ACAPs management.
On June 14, 2010, ACAPs legal counsel conducted a
telephone conference with counsel for the third party to discuss
the third partys comments to the draft merger agreement.
On June 16, 2010, Mr. Freund received a telephone call
from an investment banker representing a fourth potentially
interested party, whom we refer to herein as the fourth
party, expressing interest in considering a transaction
with the Company. A draft confidentiality agreement was sent to
the fourth party the same day and signed by the parties on
June 18, 2010, at which time the fourth party was sent a
draft merger agreement, was
15
granted access to the electronic data room and began its due
diligence review, which continued through the next week.
Additionally, on June 18, 2010, ACAP received a revised
draft of the merger agreement from the third party which
included a price that was below the bottom of its initial
indicated range. The third party indicated that its offer would
expire on June 25, 2010.
On June 21, 2010, Parent submitted an offer of $40.00 per
share, a markup of the draft merger agreement and requested that
ACAP grant Parent exclusivity.
On June 22, 2010, ACAPs board of directors met to
discuss the offers submitted by Parent and third party.
Mr. Clinton summarized in detail the terms of the bids and
the inclusion of the fourth party in the bidding process. He
noted that he had requested the fourth party to submit its bid
and markup of the draft merger agreement no later than
June 28, 2010 in an attempt to keep the timing of the bids
as parallel as possible while providing sufficient time to
conduct due diligence and review the draft merger agreement. He
indicated his intention to communicate to Parent that the
exclusivity request was not acceptable, as this would inhibit
ACAPs ability to entertain higher bids. He also indicated
his intention to ask the third party to increase its bid and to
extend the time during which its bid would remain open.
Representatives of ACAPs outside legal counsel provided a
detailed update on the bidding process and discussions with
counsel for the Parent and the third party in connection with
the due diligence process, as well as a detailed comparison of
the draft merger agreements submitted by Parent and the third
party. Counsel reiterated the prior advice regarding the
boards fiduciary duties in the context of a possible sale
of ACAP and discussed with the board strategies the board could
pursue to maximize the price to be received by shareholders if
the board decided to approve a sale of ACAP.
Mr. Clinton contacted James Anderson of Parents
financial advisor later that day to discuss Parents
initial offer and to communicate that the request for
exclusivity was not acceptable.
On June 23, 2010, Mr. Clinton contacted the third
partys president to indicate that its bid was not
currently competitive and to ask that the time be extended in
that the board would not be making a decision right away. The
third party agreed to extend the time to June 29, 2010 and
to consider making a higher offer. The same day, Parent
conducted onsite due diligence meetings with certain ACAP
employees. The following day, counsel for the third party and
Dykema Gossett PLLC had a telephone conference to discuss the
terms and conditions of the draft merger agreement between the
two parties. On June 25, 2010, Dykema Gossett PLLC sent a
revised draft of the merger agreement to the third party. On the
same day, Mr. Freund and a representative of Dykema Gossett
PLLC held a conference call with legal counsel and management of
the fourth party to discuss due diligence matters. The fourth
party continued its due diligence review, engaging in multiple
discussions with ACAP management on June 25 and June 26,
2010.
On June 28, 2010, the third party sent ACAP a revised bid
that, while higher than its first bid, remained lower than
Parents initial bid. The same day, the fourth party
delivered its offer and a revised draft of the merger agreement.
The fourth partys offer was an all cash offer for a per
share price that was higher than Parents initial bid. The
offer was not subject to further due diligence and, like the
other bids, indicated that there would be no financing
contingency. That same day, Dykema Gossett PLLC provided
Parents legal counsel with a revised draft of the merger
agreement.
On June 29, 2010, ACAPs board of directors held a
special meeting to discuss the offer and draft merger agreement
of each bidder. Mr. Clinton provided a detailed update to
the board regarding developments and the current status of the
bids. Representatives of ACAPs counsel then updated the
board on the status of the due diligence and merger agreement
negotiations, including a comparison of the key differences
between the drafts submitted by the three outstanding bidders
and the terms that remained subject to negotiation. In view of
the revised bids received since the last board meeting and in an
effort to complete the bidding process and receive the best
price possible, Mr. Clinton recommended that the board
permit him to contact each of the bidders and ask each to
provide ACAP with its best and final offer by July 2.
Following discussion by the board, the board concurred with
Mr. Clintons recommendation and tentatively planned
to meet the following week to review the responses, with the
expectation that management would provide the board with final
bids and substantially complete merger agreements. Following the
board meeting, Mr. Clinton spoke with the fourth
partys financial advisor, informing him that in light of
additional bids being received, final and best bids were being
solicited from each bidder by July 2.
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On June 30, representatives from the fourth partys
counsel and ACAPs counsel had a phone call in which a
representative of ACAPs counsel reiterated what
Mr. Clinton had told the fourth partys financial
advisor and stated that ACAPs board of directors was
carefully considering each bid and the terms and conditions of
each draft merger agreement, including the certainty of closure
of the merger.
The same day, Mr. Clinton and the third partys
president discussed ACAPs request for final and best bids
by July 2 and the lack of competitiveness of the third
partys bid. The third partys president advised
Mr. Clinton that they were not able to increase their offer
any further and would likely not rebid. Mr. Clinton also
spoke with the chief operating officer of The Doctors Management
Company, Parents attorney-in-fact, to inform him that
final and best bids were being solicited from each bidder by
July 2.
On July 1, 2010, the fourth partys counsel and
ACAPs counsel held a negotiating session to revise the
draft merger agreement. Following the negotiation session,
Dykema Gossett PLLC delivered a revised draft of the merger
agreement to the fourth party.
On July 2, 2010, the fourth party delivered a letter to
ACAP indicating that its initial offer was its final and best
bid. On the same day, Parent delivered a letter to ACAP making a
final and best bid of $41.50 per share, which was higher than
the fourth partys final and best bid. Parents final
bid purported to be contingent on being granted exclusivity.
On July 3, 2010, Mr. Clinton informed
Mr. Anderson of Parents financial advisor that
Parents bid would not be considered if they demanded
exclusivity with ACAP, as the board wanted to consider and
compare price and terms between bidders. On July 4, 2010,
Mr. Anderson notified Mr. Clinton that Parent would
waive its request for exclusivity. Additionally, Parents
counsel delivered a revised draft of the merger agreement to
Dykema Gossett PLLC.
On July 5, 2010, Mr. Clinton and Mr. Anderson
discussed certain conditions to closing requested by Parent
related to approval of the transaction by certain insurance
regulators. Mr. Clinton informed Mr. Anderson that
such conditions created unacceptable risk and were not likely to
be accepted. On the same day, representatives of the fourth
partys counsel and ACAPs counsel discussed the
status of the bid process.
On July 6, 2010, legal counsel for ACAP, Parent, and the
fourth party continued to negotiate and revise the respective
drafts of the merger agreement. In the course of the
negotiations, Parent agreed to significantly limit the
regulatory approval condition in a manner determined by ACAP and
its counsel to minimize the associated closing risk.
On July 7, 2010, ACAPs counsel continued to finalize
terms of the draft agreement with Parent and also communicated
with the fourth partys counsel regarding the merger
agreement and disclosure schedules. Later that day, ACAPs
board of directors convened a meeting to consider the final
bids. The board of directors reviewed with ACAPs
management and counsel the status of negotiations with Parent
and the fourth party and the proposed terms and conditions of
the respective merger agreements, including the differences
between the two drafts. Counsel explained that while there were
differences in the agreements, the substantially final forms of
the two agreements did not present differences that were
considered to be significant enough to cause the Board to
discount either offer or to detract from the economic analysis
of the bids. Counsel also noted that a transaction with the
fourth party would involve greater overlap of their markets with
ACAPs and might cause greater regulatory concern, but that
both proposed transactions would likely receive regulatory
approval. Counsel also explained the fiduciary duties of the
directors in considering a sale of the Company and the factors
that the board could consider in determining which transaction
was in the best interests of the shareholders. Mr. Clinton
expressed managements recommendation and belief that the
higher bid was in the best interests of the shareholders, as it
had the best price, similar terms and conditions to the merger
agreement proposed by the other bidder and had less market
overlap. Raymond James then presented a detailed financial
analysis regarding value and delivered its opinion that the
merger consideration proposed to be paid by Parent was fair,
from a financial point of view, to ACAPs shareholders.
After a thorough discussion of each bid and the differences
between the bids and the respective draft merger agreements, and
taking into account the advice of management, legal counsel and
Raymond James, ACAPs board of directors unanimously
determined that the merger with Parent was advisable and in the
best interests of ACAP and its
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shareholders, adopted the merger agreement with Parent and
authorized ACAPs management to execute and deliver the
merger agreement. Later that evening, Parent and ACAP executed
and delivered the merger agreement, and announced the signing of
the merger agreement the next morning on July 8, 2010.
Determination
of the Board of Directors; Reasons for the Merger;
Recommendations
After careful consideration, on July 7, 2010, based on its
own independent review and other factors, ACAPs board of
directors determined that the merger agreement, and the
transactions contemplated thereby, are advisable and fair to and
in the best interests of the shareholders of ACAP and
unanimously approved the merger agreement. Accordingly, the ACAP
board of directors unanimously recommends that shareholders vote
FOR the proposal to approve and adopt the merger agreement.
In considering the merger with Parent, ACAPs board of
directors consulted representatives of Dykema Gossett PLLC,
ACAPs legal counsel, regarding the fiduciary duties of the
members of the board of directors and the terms of the merger
agreement. The board of directors sought and received from
Raymond James an oral opinion, subsequently confirmed in
writing, as to the fairness as of the date of such opinion, from
a financial point of view, of the merger consideration to be
received by holders of outstanding shares of ACAP common stock,
which opinion is described below under Opinion
of Raymond James.
In the course of reaching its determination, the board of
directors considered a number of potentially positive factors in
its deliberations, including the following:
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the current and historical market prices of ACAP common stock,
the fact that the $41.50 per share cash merger consideration
represents a premium of approximately 31% to its closing price
of $31.76 on July 7, 2010 and a substantial premium to book
value of approximately 1.8 times, and the fact that ACAPs
stock had never traded as high as the price offered by Parent
(adjusted for stock splits);
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possible alternatives to the sale of ACAP, such as continuing to
operate ACAP on a stand-alone, independent basis, and the risks
associated with such alternatives, including the risks
associated with ACAPs ability to maintain or expand its
business (organically or through acquisitions) or improve its
profitability, compared to the certainty to shareholders of
realizing a fair value for their investment if the merger is
consummated;
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the robust auction process conducted by ACAP, with the
assistance of ACAPs legal advisors, which involved
engaging in initial discussions with the parties deemed by ACAP
to be able to pay full value for ACAP and to complete a
transaction before the end of 2010, the inclusion of an
additional party in the process that expressed interest in
acquiring ACAP while the auction process was ongoing and the
receipt of proposals from three parties to acquire ACAP, and
which included increases in the purchase price offered by two of
the bidding parties, including the price offered by Parent;
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the relative certainty of the value of the $41.50 per share cash
merger consideration;
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the relative likelihood that the proposed merger with Parent
would be consummated on a timely basis, based on, among other
things, that:
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Parent would not need the approval of its equity holders to
consummate the merger;
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Parent was unlikely to confront difficulties obtaining insurance
and anti-trust regulatory approval for the merger due to the
relative lack of overlapping markets; and
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the merger agreement with Parent is not subject to a financing
condition;
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the views expressed by our management regarding, among other
things, that:
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our financial condition, results of operations, premiums,
business and prospects were somewhat uncertain due to the
continuing soft market and various other circumstances discussed
with board;
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recent trends in the medical professional liability insurance
industry, such as increased rate competition, increased
consolidation of insurers and physician groups and health care
legal
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reform could eventually decrease the customer base in
ACAPs markets, further increase rate competition, deplete
ACAPs capital base and put ACAP at an increasing
disadvantage competitively compared to larger competitors;
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increases in interest rates could put downward pressure on the
value of ACAPs fixed income assets;
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the relative illiquidity of ACAPs common stock due to low
trading volume made it difficult for larger holders to liquidate
their ownership without creating significant downward pressure
on the market price;
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achieving a higher value on a stand-alone basis in the long-term
is unlikely;
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the federal capital gains tax rate for non-corporate
shareholders is scheduled to increase in 2011;
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the fact that ACAPs largest shareholder was in favor of
the merger;
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the presentation of Raymond James regarding the fairness, from a
financial point of view, of consideration to be received by ACAP
shareholders in the merger;
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the opinion of Raymond James addressed to the ACAP board of
directors that, as of July 7, 2010, and based upon and
subject to the various qualifications, factors, assumptions and
limitations described in the opinion, the merger consideration
of $41.50 per share was fair, from a financial point of view, to
holders of outstanding shares of ACAP common stock;
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the structure of the transaction as a merger which will result
in detailed public disclosure and a period of time prior to a
shareholder vote on the merger during which an unsolicited
superior proposal could materialize;
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the reasonableness of the terms and conditions of the merger
agreement, including the following:
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ACAPs ability to consider unsolicited acquisition
proposals and, in certain circumstances, to terminate the merger
agreement to accept a superior proposal after payment of a
termination fee of 3% of the aggregate merger consideration
(which the board of directors believed would not preclude a
superior proposal), which would be Parents sole and
exclusive remedy in the event of such a termination;
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the ability of ACAPs board of directors to change its
recommendation to ACAPs shareholders prior to a
shareholder vote if it concludes that the failure to do so would
be inconsistent with its fiduciary duties; provided that if
Parent terminates the Merger Agreement and an acquisition
proposal is publicly announced prior to such termination, ACAP
must pay a termination fee of 3% of the aggregate merger
consideration to Parent, which fee would be Parents sole
and exclusive remedy in such an event;
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the requirement that Parent pay a termination fee equal to 3% of
the aggregate merger consideration if all necessary antitrust
and insurance regulatory approvals are not obtained for the
merger prior to the outside date, as it may be extended, which
would be ACAPs sole remedy upon such termination if the
fee is paid;
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the requirement that Parent pay a termination fee equal to 3% of
the aggregate merger consideration if Parent is not able or
willing to pay the aggregate merger consideration at closing,
which would not be ACAPs sole remedy for such breach;
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the reasonableness of the covenants, representations and
warranties required to be made by ACAP; and
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the conditions to closing, including the lack of a financing
condition.
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Our board of directors also considered the following material
risks or potentially adverse factors in making its determination:
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the fact that ACAP will cease to be a public company and its
current shareholders will no longer participate in any of its
potential future growth or potential future growth of a combined
company with a bidder offering stock consideration;
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the fact that gains from all-cash transactions are generally
taxable to ACAPs shareholders for U.S. federal income
tax purposes;
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the fact that the merger may not be completed prior to
December 31, 2010, which could result in gains being taxed
at a higher rate;
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the risk of losing employees prior to the closing and the impact
such losses could have on ACAPs ability to close the
merger;
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the interests of certain of ACAPs executive officers may
be different from, or in addition to, the interests of
ACAPs other shareholders;
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the closing conditions of the merger, including approval by
ACAPs shareholders and regulatory approvals;
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the terms of the merger agreement that place limitations on
ACAPs ability to solicit and consider competing proposals
and to terminate the merger agreement and accept a superior
proposal;
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the risk of diverting management focus and resources from
operational matters while working to implement the merger;
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the possibility of disruption to ACAPs operations
following the announcement of the merger, and the resulting
effect if the merger does not close; and
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the restrictions on the conduct of ACAPs business prior to
completion of the merger which could delay or prevent it from
undertaking business opportunities that arise pending completion
of the merger.
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The preceding discussion is not meant to be an exhaustive
description of the information and factors considered by
ACAPs board of directors, but is believed to address the
material information and factors considered. In view of the wide
variety of factors considered in connection with its evaluation
of the merger and the complexity of these matters, ACAPs
board of directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the
various factors considered in reaching its determination. In
considering the factors described above, individual members of
ACAPs board of directors may have given different weights
to different factors.
Opinion
of Raymond James
Pursuant to the terms of an engagement letter dated
June 15, 2010, ACAP engaged Raymond James to render an
opinion as to the fairness, from a financial point of view, to
the holders of the outstanding shares of ACAP common stock of
the merger consideration of $41.50 in cash per share to be
received by such holders pursuant to the merger agreement. At
the meeting of ACAPs board of directors on July 7,
2010, Raymond James rendered its oral opinion, which was
subsequently confirmed in writing, that, as of July 7,
2010, and based upon and subject to the various qualifications,
factors, assumptions and limitations described in the Raymond
James opinion, the merger consideration of $41.50 in cash per
share to be received by holders of ACAP common stock was fair,
from a financial point of view, to such holders.
The full text of Raymond Jamess opinion, dated
July 7, 2010, which describes, among other things, the
assumptions made, procedures followed, matters considered and
limitations on the review undertaken by Raymond James, is
attached as Appendix B to this proxy statement and is
incorporated herein by reference. Raymond Jamess opinion,
which was addressed to, and for the use and benefit of,
ACAPs board of directors was not a recommendation to
holders of ACAP common stock to approve the merger. The opinion
was limited to the fairness, from a financial point of view, of
the merger consideration to
20
the holders of the outstanding shares of ACAP common stock,
other than Parent, Merger Sub and any of their affiliates, as of
the date of the opinion, and Raymond James expressed no opinion
as to the merits of the underlying business decision by ACAP to
engage in the merger, the structure or tax or legal consequences
of the merger agreement or the availability or advisability of
any alternatives to the merger. No limitations were imposed by
ACAPs board of directors upon Raymond James with respect
to the investigations made or procedures followed by it in
rendering its opinion. The summary of Raymond Jamess
opinion set forth in this proxy statement is qualified in its
entirety by reference to the full text of such opinion. Holders
of ACAP common stock are encouraged to, and should, read Raymond
Jamess opinion carefully and in its entirety, including
all text and tables.
In connection with rendering its opinion, Raymond James, among
other things:
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reviewed the financial terms and conditions of the merger
agreement;
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reviewed Annual Reports on
Form 10-K
filed by ACAP for the years ended December 31, 2008 and
2009, as amended;
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reviewed the Quarterly Report on
Form 10-Q
filed by ACAP for the period ending March 31, 2010;
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reviewed the report dated March 5, 2010 prepared by
Ernst & Young LLP titled AP Capital Inc. Actuarial
analysis of loss and loss adjustment expense reserves as of
December 31, 2009;
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reviewed the Annual Statements of ACAPs wholly owned
U.S. domiciled insurance company subsidiaries, referred to
as the Insurance Subsidiaries, filed with the
Michigan Office of Financial and Insurance Regulation for the
years ended December 31, 2007, 2008, and 2009;
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reviewed the Quarterly Statements of the Insurance Subsidiaries
filed with the Michigan Office of Financial and Insurance
Regulation for the three month period ended March 31, 2010;
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reviewed the audited financial statements of the Insurance
Subsidiaries prepared in accordance with statutory accounting
procedures as of and for the year ended December 31, 2009;
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reviewed other ACAP financial and operating information
requested from
and/or
provided by ACAP, including financial forecasts;
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reviewed certain other publicly available information regarding
ACAP;
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discussed with members of the senior management of ACAP certain
information relating to the aforementioned items and any other
matters which Raymond James deemed relevant to its inquiry;
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reviewed the Annual Statements of Parent filed with the
California Department of Insurance for the years ended
December 31, 2008, and 2009; and
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reviewed the Quarterly Statements of Parent filed with the
California Department of Insurance for the three month period
ended March 31, 2010.
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Raymond James assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made
available to it by ACAP, Ernst & Young LLP or any
other party, and Raymond James did not undertake any duty or
responsibility to verify independently any of such information.
Raymond James is not an actuary, did not include any actuarial
analyses, determinations or evaluations and did not make or
order an independent appraisal of the assets or liabilities
(contingent or otherwise) of ACAP. Raymond James did not
evaluate and expressed no opinion with respect to the adequacy
of reserves maintained by ACAP or any of the Insurance
Subsidiaries. Raymond James assumed that the financial forecasts
and other information and data provided to or otherwise reviewed
by or discussed with it were reasonably prepared in good faith
on bases reflecting the best currently available estimates and
judgments of ACAP management, and Raymond James relied on each
party to advise it promptly if any information previously
provided became inaccurate or was required to be updated during
the period of Raymond Jamess review. Raymond James assumed
that the merger will be consummated in accordance with the terms
of the merger agreement without waiver of any conditions thereof.
21
Based upon and subject to the foregoing qualifications,
limitations, factors and assumptions and those set forth in the
opinion, Raymond James was of the opinion that, as of
July 7, 2010, the $41.50 in cash per share of ACAPs
common stock to be received by the holders of ACAPs common
stock in the merger was fair, from a financial point of view, to
such holders. In formulating its opinion, Raymond James
considered only the merger consideration to be received by the
shareholders of ACAP and did not consider and the opinion does
not address, any other payments that may be made in connection
with, or as a result of, the merger to ACAPs directors,
officers, employees or others.
In conducting its investigation and analyses and in arriving at
its opinion, Raymond James took into account such accepted
financial and investment banking procedures and considerations
as Raymond James deemed relevant, including the review of
(i) historical and projected revenues, operating earnings,
net income and capitalization of ACAP and certain other publicly
held companies in businesses it believed to be comparable to
ACAP; (ii) the current and projected financial position and
results of operations of ACAP; (iii) the historical market
prices and trading activity of ACAPs common stock;
(iv) financial and operating information concerning
selected business combinations which Raymond James deemed
comparable in whole or in part; and (v) the general
condition of the securities markets.
The merger consideration was determined through negotiation
between ACAP and Parent and the decision to enter into the
merger agreement was solely that of ACAPs board of
directors. Raymond Jamess opinion and financial analyses
were only one of many factors considered by ACAPs board of
directors in its evaluation of the proposed merger and should
not be viewed as determinative of the views of the board of
directors or management with respect to the merger or the merger
consideration. Raymond Jamess opinion was provided to the
board of directors to assist it in connection with its
consideration of the proposed merger and does not constitute a
recommendation to any person, including the holders of
ACAPs common stock, as to how to vote with respect to the
proposed merger.
In connection with rendering its opinion to ACAPs board of
directors on July 7, 2010, Raymond James performed a
variety of financial and comparative analyses, including those
described below. The following is a summary of the material
financial analyses underlying Raymond Jamess opinion,
dated July 7, 2010, that Raymond James presented to
ACAPs board of directors in connection with the merger at
a meeting of the board of directors on July 7, 2010. The
following summary of Raymond Jamess analyses is not a
complete description of the analyses underlying its opinion. The
order of the analyses described below does not represent the
relative importance or weight given to those analyses by Raymond
James. The financial analyses summarized below include
information presented in tabular format. In order to fully
understand Raymond Jamess financial analyses, the tables
must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial
analyses. Considering the data below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Raymond Jamess
financial analyses. No company or transaction used in the
analyses described below is directly comparable to ACAP, Parent
or the merger.
Trading Analysis.
Raymond James analyzed historical
trading prices of ACAPs common stock over a 12 month
period ending July 6, 2010 (the last trading day before
ACAPs board convened to vote on the proposed merger),
calculated the average daily closing prices for ACAPs
common stock over various time periods, and noted the closing
stock price on selected dates prior to and including
July 6, 2010. ACAPs price per share ranged from
$26.18 to $35.91 over the twelve month period ending on
July 6, 2010. This analysis indicated that the $41.50 per
share cash consideration to be paid to holders of ACAPs
common stock represented a premium of:
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32.0% based on the July 6, 2010 closing price per share of
$31.45;
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31.4% based on the June 29, 2010 (one week prior to July
6) closing price per share of $31.59;
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40.1% based on the June 4, 2010 (one month prior to July
6) closing price per share of $29.63;
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28.4% based on the April 6, 2010 (three months prior to
July 6) closing price per share of $32.33;
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15.6% based on the 52-week high price per share of $35.91;
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33.4% based on the latest one-month average closing price per
share of $31.11;
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22
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30.8% based on the latest three-month average closing price per
share of $31.72; and
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36.7% based on the latest
12-month
average closing price per share of $30.36.
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Selected Public Companies Analysis.
Raymond James
reviewed and compared certain financial information for the
Company to corresponding financial information, ratios and
public market multiples observed for the following publicly
traded medical professional liability insurers:
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American Physicians Service Group;
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FPIC Insurance Group, Inc.; and
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ProAssurance Corp.
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Although none of the selected public companies is directly
comparable to ACAP, the companies included were chosen because
they are publicly traded companies with operations that for
purposes of analysis may be considered similar to operations of
ACAP.
Raymond James calculated various financial multiples and ratios
for the selected public companies based on publicly available
financial information, estimates from Thomson Financial, which
are referred to as Street Estimates, and common
stock closing prices on July 6, 2010. For ACAP, Raymond
James calculated various financial multiples and ratios based on
publicly available financial information, the number of shares
outstanding on July 6, 2010, Street Estimates, financial
projections given to Raymond James by Company management, and
the merger consideration. The Street Estimates were not prepared
in connection with the merger or at Raymond Jamess request
and may or may not prove to be accurate. For each of ACAP and
the selected public companies, Raymond James calculated:
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Diluted equity market value as a multiple of reported GAAP net
income for the most recent actual twelve months results, or
TTM;
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Price as a multiple of Street Estimates for 2010 and 2011
earnings per share, or EPS;
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Price as a multiple of Company management projected 2010 and
2011 EPS for the Company;
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Price as a multiple of GAAP book value per share as of
March 31, 2010;
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Price as a multiple of GAAP book value per share adjusted to
exclude accumulated other comprehensive income, or
Adjusted Book Value as of March 31, 2010;
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Price as a multiple of Street Estimates of 2010 year-end
GAAP book value per share; and
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Price as a multiple of Company management projected
2010 year-end GAAP book value per share for the Company
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The results of these analyses are summarized below.
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Implied by
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Merger
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Multiple
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Consideration
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Low
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Median
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Mean
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High
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Diluted Equity Market Value / TTM Net Income
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10.1
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x
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7.5
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x
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7.8
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x
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7.7
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x
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7.9
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x
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Price per Share /
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2010E EPS - Street Estimates
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12.5
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8.8
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9.3
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9.5
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10.4
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2011E EPS - Street Estimates
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13.9
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8.8
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9.3
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9.6
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10.7
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Book Value per Share
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1.7
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0.9
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1.0
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1.0
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1.0
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Adjusted Book Value per Share
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1.8
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0.9
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1.1
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1.0
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1.1
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2010E Year-End Book Value per Share - Street Estimates
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1.6
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0.8
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0.9
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0.9
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1.0
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23
Raymond James also applied the mean, median, minimum and maximum
relative multiples for each of the metrics to ACAPs actual
and projected financial results and determined the implied
equity price per share of ACAP common stock and then compared
those implied equity values to the merger consideration of
$41.50 per share. These results are summarized below.
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Offer
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Implied Price per Share
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Multiple
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Price
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Low
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Median
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Mean
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High
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Diluted Equity Market Value / TTM Net Income
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$
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41.50
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$
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31.02
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$
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32.10
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$
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31.99
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$
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32.85
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Price per Share /
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|
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|
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2010E EPS - Street Estimates
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41.50
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29.24
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30.79
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31.55
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34.62
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2011E EPS - Street Estimates
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41.50
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26.43
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27.73
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28.76
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32.13
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|
Book Value per Share
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41.50
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21.68
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24.64
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23.89
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25.35
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Adj. Book Value per Share
|
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41.50
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21.56
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24.98
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23.93
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25.26
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2010E Year-End Book Value per Share - Street Estimates
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41.50
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21.60
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24.14
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23.67
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25.27
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2010E EPS - Management projected
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41.50
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32.01
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33.71
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34.54
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37.90
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2011E EPS - Management projected
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41.50
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34.84
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36.56
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37.92
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42.35
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|
2010E Year-End Book Value per Share - Management projected
|
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41.50
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|
|
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21.70
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24.25
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23.78
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25.39
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Selected Transaction Analysis.
Raymond James analyzed
publicly available information relating to selected acquisitions
of companies (determined by Raymond James) whose primary
business, or a substantial portion of their business, was
medical professional liability insurance and prepared a summary
of the relative valuation multiples paid in these transactions.
The selected transactions used in the analysis included:
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Announcement
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Date
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Acquirer / Target
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Oct-09
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Florida Doctors Insurance Co / Physicians Preferred Insurance Co.
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Jul-09
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FPIC Insurance Group / Advocate, MD Financial Group Inc.
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Jun-09
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Medical Professional Mutual Insurance Company/ FinCor Holdings,
Inc.
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Oct-08
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ProAssurance Corp./ Podiatry Insurance Co. of America
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Jun-08
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Allied World Assurance Co./ Darwin Professional Underwriters,
Inc.
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Oct-07
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Doctors Co Interinsurance Exch/ SCPIE Holdings Inc.
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Oct-06
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Doctors Co Interinsurance Exch/ OHIC Insurance Co.
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Dec-05
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ProAssurance Corp./ Physicians Ins Co. Wisconsin
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Sep-05
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Doctors Co Interinsurance Exch/ NW Physicians Mutual Ins Co.
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May-05
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Berkshire Hathaway Inc./ Medical Protective Corp.
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Feb-05
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ProAssurance Corp./ NCRIC Group Inc.
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For each of these transactions, Raymond James examined multiples
of (i) transaction enterprise value compared to the target
companies consolidated surplus and TTM net income
calculated in accordance with statutory accounting rules, or
STAT, and (ii) transaction equity value
compared to GAAP common equity and TTM GAAP net income, in each
case for the latest twelve months ended prior to announcement of
the transaction. Raymond James also reviewed the mean, median,
minimum and maximum relative multiples of the selected
transactions and compared them to the corresponding multiples
for ACAP implied by the merger consideration. Raymond James also
applied the mean, median, minimum and maximum relative valuation
multiples to ACAPs statutory surplus, TTM statutory net
income, GAAP equity and TTM GAAP net income
24
to determine the implied equity price per share and then
compared those implied equity values to the merger consideration
of $41.50 per share. The results of the selected transactions
analysis are summarized below:
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|
Implied by
|
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|
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|
|
|
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|
Merger
|
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|
|
|
|
|
|
|
Multiple
|
|
Consideration
|
|
|
Low
|
|
Median
|
|
Mean
|
|
High
|
|
Enterprise Value /
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STAT Surplus
|
|
|
2.0
|
x
|
|
|
|
0.9
|
x
|
|
|
1.4
|
x
|
|
|
1.5
|
x
|
|
|
2.4
|
x
|
STAT TTM Net Income
|
|
|
10.4
|
|
|
|
|
3.7
|
|
|
|
11.7
|
|
|
|
10.1
|
|
|
|
16.2
|
|
Equity Value /
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Common Equity
|
|
|
1.7
|
|
|
|
|
1.0
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
2.1
|
|
GAAP TTM Net Income
|
|
|
10.1
|
|
|
|
|
9.8
|
|
|
|
12.4
|
|
|
|
13.1
|
|
|
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
Implied Price per Share
|
Multiple
|
|
Consideration
|
|
Low
|
|
Median
|
|
Mean
|
|
High
|
|
Enterprise Value /
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STAT Surplus
|
|
$
|
41.50
|
|
|
$
|
16.40
|
|
|
$
|
28.26
|
|
|
$
|
29.31
|
|
|
$
|
50.00
|
|
STAT TTM Net Income
|
|
|
41.50
|
|
|
|
13.18
|
|
|
|
46.78
|
|
|
|
40.10
|
|
|
|
65.59
|
|
Equity Value /
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Common Equity
|
|
|
41.50
|
|
|
|
24.07
|
|
|
|
33.66
|
|
|
|
34.50
|
|
|
|
50.15
|
|
GAAP TTM Net Income
|
|
|
41.50
|
|
|
|
40.28
|
|
|
|
50.86
|
|
|
|
53.85
|
|
|
|
81.92
|
|
Transaction Premium Analysis.
Raymond James analyzed
the stock price premiums paid in 46 pending or completed merger
and acquisition transactions (excluding transactions between
related parties) announced since January 2008 with equity values
between $300 million and $500 million involving
acquisitions of at least a majority of a target companys
shares. Raymond James measured each transaction price per share
relative to each targets closing price per share
one-day,
one-week, one-month, and three-months prior to announcement of
the transaction. Raymond James compared the mean, median,
minimum and maximum premiums paid from this set of transactions
to the merger consideration expressed as a premium relative to
the closing stock price of ACAP on July 6, 2010,
June 29, 2010, June 4, 2010, and April 6, 2010.
The results of the transaction premium analysis are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
|
|
|
|
|
Consideration
|
|
Implied Premium
|
Premiums Paid
|
|
Premium
|
|
Low
|
|
Median
|
|
Mean
|
|
High
|
|
One-day
prior (7/6/10)
|
|
|
32.0%
|
|
|
|
−2.0
|
%
|
|
|
25.7
|
%
|
|
|
27.2
|
%
|
|
|
76.7
|
%
|
One-week prior (6/29/10)
|
|
|
31.4%
|
|
|
|
−3.8
|
%
|
|
|
34.0
|
%
|
|
|
31.2
|
%
|
|
|
68.9
|
%
|
One-month prior (6/4/10)
|
|
|
40.1%
|
|
|
|
1.3
|
%
|
|
|
28.4
|
%
|
|
|
30.1
|
%
|
|
|
76.9
|
%
|
Three-months prior (4/6/10)
|
|
|
28.4%
|
|
|
|
−18.0
|
%
|
|
|
42.7
|
%
|
|
|
41.8
|
%
|
|
|
127.3
|
%
|
Raymond James also applied the minimum, median, mean, and
maximum premiums for each of the metrics to ACAP
s
actual corresponding closing stock prices to determine the
implied equity price per share and then compared those implied
equity values per share to the merger consideration of $41.50
per share. The results of this are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
|
|
Implied Price per Share
|
Premiums Paid
|
|
Consideration
|
|
Low
|
|
Median
|
|
Mean
|
|
High
|
|
One-day
prior (7/6/10)
|
|
|
$41.50
|
|
|
$
|
30.83
|
|
|
$
|
39.55
|
|
|
$
|
39.99
|
|
|
$
|
55.58
|
|
One-week prior (6/29/10)
|
|
|
41.50
|
|
|
|
30.38
|
|
|
|
42.32
|
|
|
|
41.45
|
|
|
|
53.35
|
|
One-month prior (6/4/10)
|
|
|
41.50
|
|
|
|
30.01
|
|
|
|
38.04
|
|
|
|
38.56
|
|
|
|
52.42
|
|
Three-months prior (4/6/10)
|
|
|
41.50
|
|
|
|
26.51
|
|
|
|
46.12
|
|
|
|
45.84
|
|
|
|
73.48
|
|
25
Discounted Cash Flow Analysis.
Raymond James
performed a discounted cash flow analysis to estimate a range of
implied fully diluted equity values per share for ACAP common
stock. The analysis used financial projections provided by ACAP
management for the years ending December 31, 2010 through
2014, which represented the best available estimates and
judgment of management. The cash flows were modeled assuming
ACAP continues to operate as an independent entity. The
valuation range was determined by adding (i) the present
value of estimated unleveraged free cash flows during the time
period July 7, 2010 to December 31, 2014 and
(ii) the present value of the terminal value of
ACAP. Raymond James calculated an estimate of potential
unleveraged free cash flows by subtracting after-tax holding
company expenses (excluding interest expense) from estimated
dividends received by the holding company from ACAPs
regulated insurance subsidiaries. In calculating terminal
values, Raymond James used book value multiples of estimated
December 31, 2014 GAAP equity and price/earnings multiples
of estimated 2014 GAAP net income, plus estimated debt at
December 31, 2014. The book value multiples ranged from
1.0x to 1.4x, while the price/earnings multiples ranged from
8.0x to 11.0x.
The projected cash flows and terminal values were discounted
using discount rates ranging from 11.0% to 15.0%, which are
rates Raymond James viewed as appropriate for a company with
ACAPs risk characteristics. Raymond James added net
holding company cash and subtracted the face value of
ACAPs debt then divided by the number of diluted shares
outstanding in order to arrive at a range of present values per
share of ACAP common stock. This analysis yielded a range of
implied present values per ACAP share of $25.86 to $38.82.
Additional Considerations.
The preparation of a
fairness opinion is a complex process and is not necessarily
susceptible to a partial analysis or summary description.
Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without
considering the analyses taken as a whole, would create an
incomplete view of the process underlying the analyses set forth
in its opinion. In addition, Raymond James considered the
results of all such analyses and did not assign relative weights
to any of the analyses, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor,
so the ranges of valuations resulting from any particular
analysis described above should not be taken to be Raymond
Jamess view of the actual value of ACAP. Accordingly,
Raymond James believes that its analyses and the summary above
must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in
tabular format, without considering all analyses and factors or
the narrative description of the analyses, would create an
incomplete view of the process underlying Raymond Jamess
opinion.
In performing its analyses, Raymond James made numerous
assumptions with respect to industry performance, general
business, economic and regulatory conditions and other matters,
many of which are beyond the control of ACAP. The analyses
performed by Raymond James are not necessarily indicative of
actual values, trading values or actual future results which
might be achieved, all of which may be significantly more or
less favorable than suggested by such analyses. Such analyses
were provided to ACAPs board of directors and were
prepared solely as part of Raymond Jamess analysis of the
fairness, from a financial point of view, to the holders of ACAP
common stock of the consideration to be received by such holders
in connection with the proposed merger. The analyses do not
purport to be appraisals or to reflect the prices at which
companies may actually be sold, and such estimates are
inherently subject to uncertainty.
Raymond Jamess opinion was necessarily based upon market,
economic, financial and other circumstances and conditions
existing and disclosed to it on July 6, 2010, and any
material change in such circumstances and conditions may affect
Raymond Jamess opinion, but Raymond James does not have
any obligation to update, revise or reaffirm that opinion.
General
As described above, Raymond Jamess opinion to ACAPs
board of directors was among many factors taken into
consideration by the board of directors in making its
determination to approve the merger agreement and recommend the
merger proposal. Such decisions were solely those of the board
of directors. The opinion of Raymond James was provided to the
board of directors and does not constitute a recommendation to
any person, including the holders of ACAPs common stock,
as to how such person should vote or act on any matter related
to the merger proposal.
26
Under the terms of Raymond Jamess engagement letter, ACAP
agreed to pay Raymond James a fee of $475,000 for its services
in connection with the merger, $50,000 of which was payable upon
Raymond Jamess initial engagement by ACAP and the balance
of which was payable upon Raymond James rendering its opinion to
the board of directors. In addition, ACAP also agreed to
reimburse Raymond James for its expenses, and to indemnify
Raymond James against certain liabilities, in connection with
its engagement.
ACAP selected Raymond James in connection with the preparation
of the fairness opinion due to Raymond Jamess reputation
as a nationally recognized investment banking firm with
substantial experience in similar transactions. Raymond James
had also participated in ACAPs public stock offering at
the time American Physicians demutualized, and continued to
follow the stock once it began public trading. Raymond James is
actively engaged in the investment banking business and
regularly undertakes the valuation of investment securities in
connection with public offerings, private placements, business
combinations and similar transactions. In the ordinary course of
Raymond Jamess business, it may trade in ACAPs
securities for its own account or for the accounts of Raymond
James customers, and may at any time hold a long or short
position in such securities. In the previous two years, Raymond
James has provided certain services to ACAP, including executing
trades on ACAPs behalf for equity securities held in
ACAPs investment portfolio, for which ACAP paid Raymond
James a fee.
Effects
of the Merger
If ACAPs shareholders approve and adopt the merger
agreement, and the other conditions to the closing of the merger
are either satisfied or waived, Merger Sub will merge with and
into ACAP, with ACAP continuing as the surviving corporation in
the merger. The surviving corporation initially will be a wholly
owned subsidiary of Parent following the merger. As a result of
the merger, ACAP will cease to be an independent, publicly
traded company.
If the merger is completed, each share of ACAP common stock
issued and outstanding immediately prior to the effective time
of the merger, will be converted into the right to receive
$41.50 in cash, without interest and less any applicable
withholding taxes. The receipt of cash in exchange for shares of
ACAP common stock in the merger will constitute a taxable
transaction to U.S. persons for U.S. federal income
tax purposes. At the effective time of the merger, each
outstanding option to acquire ACAP common stock (all of which
are currently vested) will be cancelled and exchanged for the
right to receive a cash payment equal to the number of shares of
ACAP common stock underlying the options multiplied by the
excess, if any, of $41.50 over the exercise price per share of
ACAP common stock previously subject to such option, without
interest and less any applicable withholding taxes, which cash
payment is referred to as the option consideration.
At the effective time of the merger, current ACAP shareholders
will cease to have ownership interests in ACAP or rights as ACAP
shareholders. Therefore, such current shareholders of ACAP will
not participate in any future earnings or growth of ACAP and
will not benefit from any appreciation in the value of ACAP.
ACAP common stock is currently registered under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and is
listed on the NASDAQ Global Select Market under the symbol
ACAP. As a result of the merger, Parent will own all
of the capital stock of ACAP. After the merger, ACAP common
stock will cease to be quoted on the NASDAQ Global Select
Market. In addition, registration of ACAP common stock under the
Exchange Act will be terminated. This termination will make
certain provisions of the Exchange Act, such as the requirement
of furnishing a proxy or information statement in connection
with shareholders meetings, no longer applicable to ACAP.
After the effective time of the merger and assuming the
termination of ACAP common stocks registration under the
Exchange Act, ACAP will also no longer be required to file
periodic reports with the SEC.
At the effective time of the merger, the directors of Merger Sub
immediately prior to the effective time of the merger will
become the initial directors of the surviving corporation, each
to hold office in accordance with the articles of incorporation
and bylaws of the surviving corporation. The officers of ACAP
immediately prior to the effective time of the merger will
remain the officers of the surviving corporation, each to hold
office in accordance with the articles of incorporation and
bylaws of the surviving corporation. The articles of
incorporation of ACAP will be amended to read in the form of the
articles of incorporation of Merger Sub in
27
effect as of the effective time except that the articles will
provide that the name of the corporation is American
Physicians Capital, Inc. The bylaws of ACAP will be
amended to read in the form of the bylaws of Merger Sub in
effect as of the effective time.
Procedures
for Receiving the Merger Consideration and Option
Consideration
Prior to the effective time of the merger, Parent will appoint a
bank or trust company reasonably satisfactory to ACAP to act as
paying agent for the payment of the merger consideration,
without interest and net of any applicable withholding taxes.
Merger Consideration.
Promptly after the effective
time of the merger, Parent will cause the paying agent to mail
or deliver a letter of transmittal containing instructions for
each record holder of ACAP common stock (other than Parent, ACAP
and either of their subsidiaries) to effect the necessary
exchanges for the merger consideration. A record holder of
shares of ACAP common stock will be entitled to receive such
merger consideration for the number of shares registered in his
or her name only upon surrender to the paying agent of the
holders share certificate(s). Shareholders holding their
shares in street name will receive instructions from their
broker as to how to surrender their street name shares and
receive the merger consideration following the completion of the
merger.
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE
PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT
RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Option Consideration.
The surviving corporation will
pay the option consideration automatically after the effective
time of the merger with respect to options entitled to such
consideration by delivering payment to the beneficial owner at
the address reflected in ACAPs records.
Effects
on ACAP if the Merger is not Completed
In the event that ACAPs shareholders do not approve and
adopt the merger agreement or if the merger is not completed for
any other reason, neither our shareholders nor holders of
options that may be exercised for ACAP common stock will receive
any consideration in respect of their shares of ACAP common
stock or options to purchase such shares as a result of the
merger, but will continue to hold their shares or options.
Instead, ACAP will remain an independent public company and ACAP
common stock will continue to be listed and traded on the NASDAQ
Global Select Market and registered under the Exchange Act. In
addition, if the merger is not completed, we expect that
management will operate the business in a manner similar to the
manner in which it is being operated today and that shareholders
will continue to be subject to the same risks and opportunities
to which they currently are subject, as described in our most
recent
Form 10-K.
Accordingly, if the merger is not consummated, there can be no
assurance as to the effect of these risks and opportunities on
the future value of your ACAP common stock or options to acquire
ACAP common stock that may be exercised. From time to time,
ACAPs board of directors will evaluate and review the
business operations, properties and capitalization of ACAP,
among other things, make such changes as are deemed appropriate
and may continue to seek to identify strategic alternatives to
maximize shareholder value. If ACAPs shareholders do not
approve and adopt the merger agreement or if the merger is not
consummated for any other reason, there can be no assurance that
any other transaction acceptable to ACAP as fair to, and in the
best interests of, our shareholders will be offered, or that the
business, prospects or results of operations, financial
condition, or cash flows of ACAP will not be adversely impacted.
In addition, if the merger agreement is terminated under certain
circumstances, ACAP will be obligated to pay a termination fee
of 3% of the aggregate merger consideration to Parent.
Interests
of ACAPs Directors and Executive Officers in the
Merger
In addition to their interests in the merger as shareholders,
certain of ACAPs current directors and executive officers
have interests in the merger that differ from, or are in
addition to, your interests as shareholders. In considering the
recommendations of ACAPs board, ACAPs shareholders
should be aware of these interests. ACAPs board was aware
of these potential conflicts of interest and considered them,
among other matters, in reaching its decisions and
recommendations with respect to the merger agreement and related
matters.
28
Treatment
of Stock Options Held by ACAPs Directors and
Officers
As of September 1, 2010, there were approximately
346,688 shares of ACAP common stock subject to outstanding
stock options granted under ACAPs stock option plans to
ACAPs current directors and executive officers. Each stock
option to purchase ACAP common stock outstanding immediately
prior to the merger, all of which are currently vested, will be
canceled at the effective time of the merger, and each holder of
such stock option will be entitled to receive a cash payment,
without interest and less any applicable withholding taxes,
equal to the product of:
|
|
|
|
|
the total number of shares of ACAP common stock previously
subject to such stock option; and
|
|
|
|
the excess, if any, of $41.50 over the exercise price per share
of ACAP common stock previously subject to such stock option.
|
The following table summarizes the outstanding
in-the-money
stock options held by ACAPs current directors and
executive officers as of September 1, 2010 and the
consideration that each of them will receive pursuant to the
merger agreement in connection with the cancellation of their
options, gross of applicable withholding taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
No. of
|
|
Per Share
|
|
|
|
|
Shares
|
|
Exercise
|
|
|
|
|
Underlying
|
|
Price of
|
|
|
|
|
Vested and
|
|
Vested and
|
|
|
|
|
Unvested
|
|
Unvested
|
|
Resulting
|
Name
|
|
Options
|
|
Options
|
|
Consideration
|
|
R. Kevin Clinton
|
|
|
159,996
|
|
|
|
$15.33
|
|
|
|
$4,187,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank H. Freund
|
|
|
80,000
|
|
|
|
10.22
|
|
|
|
2,502,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annette E. Flood
|
|
|
89,997
|
|
|
|
14.75
|
|
|
|
2,407,420
|
|
ACAPs nonemployee directors do not hold any options to
purchase ACAP common stock.
Executive
Employment Agreements
ACAP has entered into employment agreements with each of its
executive officers which will require it to provide benefits
with respect to certain terminations of employment within a
specified period after change in control of ACAP. The merger
would constitute a change in control under these agreements. The
employment agreements may be terminated at any time by us or by
the executive. The agreements provide for participation in our
short-term and long-term incentive plans, disability insurance,
expense reimbursement and other customary employment benefits.
Each of our executive officers has agreed to preserve the
confidentiality of our trade secrets, not to solicit our
customers and not to compete with us or work for a competitor of
ours for a period of one year following termination of
employment and not to solicit our employees for a period of two
years following termination of employment.
In the event of (i) the involuntary termination
of the executive, (ii) termination by ACAP within
12 months following a change in control or
(iii) termination by the executive within 12 months
following a change in control, the executive is
entitled, upon execution of a release acceptable to us, to:
|
|
|
|
|
a lump-sum payment of 24 months of the then-current base
salary;
|
|
|
|
bonus payments equal to 150% of the greater of (a) the full
year bonus at 100% target for the calendar year in which
termination occurs or (b) the average of his or her last
two annual bonuses;
|
|
|
|
a lump sum payment of 18 times the then current monthly medical
and dental coverage premiums (medical and dental insurance
benefits are terminated upon termination of employment);
|
|
|
|
|
|
a $4,000 benefit payment to be applied toward the purchase of
terminated disability, life and other insurance
coverages; and
|
29
|
|
|
|
|
payouts of awards under long-term incentive plans, 401(k) plans
and other benefit plans, in accordance with plan provisions, as
well as earned but unused paid time off.
|
Involuntary termination is defined in the employment
agreements to mean:
|
|
|
|
|
termination by us without cause;
|
|
|
|
permanent relocation of the executive more than 90 miles
from the executives principal place of employment without
the employees consent;
|
|
|
|
a material reduction of the executives duties and
responsibilities; or
|
|
|
|
a reduction in the executives annual base salary.
|
A change in control is defined in the employment
agreements to mean:
|
|
|
|
|
the sale by the Company of all or substantially all of its
assets;
|
|
|
|
the sale, exchange or other disposition of the Company of more
than 50% of our outstanding stock, other than by sale, exchange
or disposition of the common stock from a stock offering
sponsored or initiated by us or our Board of Directors;
|
|
|
|
the merger or consolidation of the Company in which our
shareholders receive less than 50% of the outstanding voting
stock of the new or continuing entity; or
|
|
|
|
a change of more than 50% of the directors of our Board of
Directors, other than pursuant to nomination by a majority of
the directors continuing in office.
|
In the event of termination under other circumstances, an
executive is entitled to payment for:
|
|
|
|
|
earned salary through the termination date;
|
|
|
|
earned but unused time off;
|
|
|
|
benefits earned under employee benefit plans through the
termination date; and
|
|
|
|
if termination is due to death or disability, a prorated portion
of the executives bonus earned for the year of termination.
|
The merger will constitute a change in control under the
employment agreements. The following table shows the potential
payments to which our executive officers are entitled pursuant
to the agreements in connection with the merger assuming that
the merger is consummated and a qualifying termination of the
officers occurred on December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
Disability
|
|
|
Accrued Paid
|
|
|
|
|
Name
|
|
Base Salary
|
|
|
Bonus
(1)
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Time Off
|
|
|
Total
|
|
|
R. Kevin Clinton
|
|
$
|
1,393,062
|
|
|
$
|
1,776,155
|
|
|
$
|
38,302
|
|
|
$
|
4,000
|
|
|
|
53,847
(2
|
)
|
|
$
|
3,265,366
|
|
Annette E. Flood
|
|
|
731,358
|
|
|
|
932,481
|
|
|
|
2,383
|
|
|
|
4,000
|
|
|
|
24,285
(3
|
)
|
|
|
1,694,507
|
|
Frank H. Freund
|
|
|
731,358
|
|
|
|
932,481
|
|
|
|
38,302
|
|
|
|
4,000
|
|
|
|
33,755
(4
|
)
|
|
|
1,739,896
|
|
|
|
|
(1)
|
|
Calculation based on average of the
2009 actual bonus and expected bonus for 2010.
|
|
|
|
(2)
|
|
Accrued but unpaid time off based
on 150.75 hours as of September 1, 2010.
|
|
|
|
(3)
|
|
Accrued but unpaid time off based
on 129.5 hours as of September 1, 2010.
|
|
|
|
(4)
|
|
Accrued but unpaid time off based
on 180.0 hours as of September 1, 2010.
|
Benefit
Arrangements with the Surviving Corporation
Pursuant to the merger agreement, ACAPs executive officers
are entitled to certain benefit arrangements with the surviving
corporation.
Indemnification
and Insurance
Pursuant to the merger agreement, ACAPs directors and
officers are entitled to certain indemnification and insurance
arrangements with Parent and the surviving corporation.
30
Material
U.S. Federal Income Tax Consequences
The following discussion describes the material
U.S. federal income tax consequences of the merger to
U.S. holders (as defined below) of our common stock. This
discussion is based upon the Internal Revenue Code of 1986, as
amended, or the Code, the Treasury Regulations promulgated
thereunder, or the Treasury Regulations, judicial decisions, and
published rulings and administrative pronouncements of the
Internal Revenue Service, or the IRS, all as in effect on the
date of this proxy statement. These authorities may change at
any time, possibly retroactively, and any such change could
affect the continuing validity of this discussion. We have not
requested a ruling from the IRS with respect to the
U.S. federal income tax consequences described in this
proxy statement and, accordingly, we cannot assure you that the
IRS will not take a contrary position regarding the tax
consequences of the merger. The statements in this discussion
are not binding on the IRS or any court and, accordingly, we
cannot assure you that the tax consequences described in this
discussion will not be challenged by the IRS, or if challenged,
will be sustained by a court. This discussion does not address
any tax consequences arising under the laws of any state,
locality or foreign jurisdiction or the U.S. federal estate
or gift tax laws. Accordingly, this discussion is not a
comprehensive description of all of the tax consequences that
may be relevant to any particular holder of our common stock.
This discussion assumes that holders hold shares of our common
stock as capital assets within the meaning of Section 1221
of the Code and does not address the tax consequences that may
be relevant to a particular holder subject to special treatment
under U.S. federal income tax law, including but not
limited to:
|
|
|
|
|
U.S. expatriates;
|
|
|
|
non-U.S. holders
(as defined below);
|
|
|
|
banks or other financial institutions;
|
|
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tax-exempt organizations;
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tax-qualified retirement plans;
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regulated investment companies;
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passive foreign investment companies;
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insurance companies;
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traders in securities that elect
mark-to-market;
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brokers or dealers in securities or foreign currencies;
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persons subject to the alternative minimum tax;
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persons who hold shares of our common stock as part of a hedge,
straddle or other risk reduction strategy or as part of a
conversion transaction or other integrated investment; and
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partnerships or other entities treated as partnerships for
U.S. federal income tax purposes and partners in such
partnerships.
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This discussion does not address the U.S. federal income
tax consequences of the merger to holders who acquired our
common stock through stock option or other compensatory
arrangements, nor does it address the receipt of cash in
connection with the cancellation of any stock options or other
compensatory stock-based awards, or any other matters relating
to equity compensation or benefit plans.
As used in this discussion, a U.S. holder is any beneficial
owner of our common stock who is treated for U.S. federal
income tax purposes as:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate, the income of which is subject to U.S. federal
income tax regardless of its source; or
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a trust that (1) is subject to the primary supervision of a
U.S. court and the control of one or more U.S. persons
or (2) has validly elected under the applicable Treasury
Regulations to be treated as a U.S. person for
U.S. federal income tax purposes.
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A
non-U.S. holder
is a beneficial owner of our common stock other than a
U.S. holder.
If a partnership (or other entity treated as a partnership for
U.S. federal income tax purposes) holds our common stock,
the tax treatment of its partners will depend on a
partners status and the activities of the partnership.
Partnerships and their partners should consult their tax
advisors regarding the particular U.S. federal income tax
consequences to them of the merger.
Consequences
of the Merger
The receipt of cash in exchange for shares of our common stock
pursuant to the merger will be a taxable transaction for
U.S. federal income tax purposes. A U.S. holder who
receives cash in exchange for our shares of common stock
pursuant to the merger will recognize capital gain or loss for
U.S. federal income tax purposes equal to the difference,
if any, between the amount of cash received and the
holders adjusted tax basis in the shares of our common
stock exchanged for cash pursuant to the merger. Gain or loss
recognized on a sale of our common stock must be determined
separately for each identifiable block of common stock (i.e.,
shares of common stock acquired at the same cost in a single
transaction). Any such gain or loss will be long-term capital
gain or loss if the U.S. holder has held the common stock
for more than one year as of the effective date of the merger.
It is expected that the merger consideration will be paid on or
before December 31, 2010. If that occurs, long-term capital
gains of non-corporate U.S. holders will be subject to
U.S. federal income tax at a maximum rate of 15%. However,
it is possible that the effective date of the merger could be
delayed beyond December 31, 2010 and effective
January 1, 2011 the maximum U.S. federal long-term
capital gains tax rate for a non-corporate shareholder is
scheduled to increase to 20%. Capital gains of corporate
U.S. holders will be subject to U.S. federal income
tax at the regular tax rates applicable to corporations. The
deductibility of capital losses is subject to limitations.
Information
Reporting and Backup Withholding
Payments made to certain U.S. holders in the merger will be
subject to information reporting and may be subject to backup
withholding (currently at a rate of 28%). Certain holders
(including corporations) are not subject to backup withholding.
To avoid backup withholding, U.S. holders that do not
otherwise establish an exemption should complete and return the
substitute
Form W-9
that each holder will receive with the letter of transmittal
following completion of the merger. The substitute
Form W-9
will require a U.S. holder to provide its taxpayer
identification number and certify that such holder is a
U.S. person, the taxpayer identification number provided is
correct and that such holder is not subject to backup
withholding. A U.S. holder who fails to provide its correct
taxpayer identification number or falsely certifies that it is
not subject to backup withholding may be subject to penalties
imposed by the IRS. Backup withholding is not an additional tax.
Taxpayers may use amounts withheld as a credit against their
U.S. federal income tax liability or may claim a refund of
any excess amounts withheld by timely filing a claim for refund
with the IRS.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE
MAY NOT APPLY TO A PARTICULAR HOLDER DEPENDING ON THE PARTICULAR
HOLDERS PARTICULAR SITUATION. THIS DISCUSSION DOES NOT
ADDRESS EVERY U.S. FEDERAL INCOME TAX CONSIDERATION THAT
MAY BE RELEVANT TO A PARTICULAR HOLDER OF OUR COMMON STOCK. YOU
SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES,
OF THE DISPOSITION OF OUR COMMON STOCK PURSUANT TO THE MERGER,
INCLUDING ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS.
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Regulatory
Approvals
HSR Act; Insurance Regulatory Approvals.
The
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and related
rules, which we refer to in this proxy statement as the
HSR Act, provide that transactions such as the
merger may not be completed until certain information has been
submitted to the Federal Trade Commission and the Antitrust
Division of the U.S. Department of Justice and specified
waiting period requirements have been satisfied. On
July 21, 2010, ACAP, Parent and Merger Sub made the
required filings with the Antitrust Division of the DOJ and the
FTC, and on August 2, 2010, the Federal Trade Commission
granted early termination of the HSR Act waiting period.
At any time before or after consummation of the merger, the
Antitrust Division of the DOJ or the FTC may, however, challenge
the merger on antitrust grounds. Private parties could take
antitrust action under the antitrust laws, including seeking an
injunction prohibiting or delaying the merger, divestiture or
damages under certain circumstances. Additionally, at any time
before or after consummation of the merger, notwithstanding the
termination of the applicable waiting period, any state could
take action under its antitrust laws as it deems necessary or
desirable in the public interest. There can be no assurance that
a challenge to the merger will not be made or that, if a
challenge is made, ACAP, Parent and Merger Sub will prevail.
The insurance laws and regulations of the State of Michigan
require prior approval by the Office of Financial and Insurance
Regulation of the acquisition of control of ACAP whether control
is acquired directly by acquiring the shares of the insurance
subsidiaries or indirectly by acquiring shares of companies
that, in turn, control the insurance subsidiaries. The necessary
application for change in control has been filed with the State
of Michigan and the necessary approval was received on
September 7, 2010.
Under the merger agreement, ACAP and Parent have agreed to use
their commercially reasonable efforts to obtain all required
governmental approvals to avoid any action or proceeding by any
governmental authority in connection with the merger agreement
and the consummation of the merger. In addition, each of ACAP
and Parent agreed to use their reasonable best efforts
(a) to cause the expiration of the notice periods with
respect to the HSR Act and any other laws with respect to the
transactions completed by the merger agreement as promptly as is
reasonably practicable, and (b) to resolve any objections
asserted by any governmental authority with respect to the
merger or other transactions contemplated by the merger
agreement. If any administrative or judicial action or
proceeding is instituted (or threatened to be instituted)
challenging the transaction contemplated by the merger agreement
as violative of any law, ACAP and Parent must cooperate and use
their reasonable best efforts to contest and resist any such
action or proceeding, including any action or proceeding that
seeks a temporary restraining order or preliminary injunction
that would prohibit, prevent or restrict consummation of the
merger.
Except as noted above, and subject to the filing of a
certificate of merger in Michigan at or before the effective
time of the merger, ACAP is unaware of any material federal,
state or foreign regulatory requirements or approvals required
for the execution of the merger agreement or completion of the
merger.
THE
PARTIES TO THE MERGER
American
Physicians Capital, Inc.
We are a regional provider of medical professional liability
insurance focused primarily in the Midwest and New Mexico
markets through our subsidiary American Physicians Assurance
Corporation. Our principal executive offices are located at 1301
North Hagadorn Road, East Lansing, Michigan 48823, and our
telephone number is
(800) 748-0465.
We will provide a copy of our Annual Report on
Form 10-K
for the year ended December 31, 2009, excluding its
exhibits, and other filings with the SEC without charge to any
shareholder who delivers a written request to ACAPs
investor relations department at American Physicians Capital,
Inc., 1301 North Hagadorn Road, East Lansing, Michigan 48823.
Our Annual Report on
Form 10-K
and other SEC filings also may be accessed on the Internet at
www.sec.gov or on the investor relations page of ACAPs
website at www.apcapital.com. Our website address is provided as
an inactive textual reference only. The information provided on
our website is not part of this proxy statement, and therefore
is not incorporated by reference.
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The
Doctors Company
The Doctors Company is a California-domiciled reciprocal
inter-insurance exchange and, along with its subsidiaries, a
physician-owned medical malpractice insurer. The Doctors Company
provides protection and risk management for sole practitioners,
doctors groups, and physicians working in clinics,
hospitals and managed care organizations. The Doctors
Companys principal executive offices are located at 185
Greenwood Road, Napa, California, 94558 and its telephone number
is
(800) 421-2368.
Red
Hawk Acquisition Corp.
Red Hawk Acquisition Corp., a Michigan corporation, is a wholly
owned subsidiary of Parent. Merger Sub was organized solely for
the purpose of entering into the merger agreement and
consummating the transactions contemplated by the merger
agreement. It has not conducted any activities to date other
than activities incidental to its organization and in connection
with the transactions contemplated by the merger agreement.
Merger Subs principal executive offices are located at 185
Greenwood Road, Napa, California, 94558 and its telephone number
is
(800) 421-2368.
THE
SPECIAL MEETING OF SHAREHOLDERS
This proxy statement is furnished in connection with the
solicitation of proxies by ACAPs board of directors for
the special meeting of its shareholders relating to the merger.
Date,
Time and Place of the Meeting
The special meeting is scheduled to be held as follows:
Date: October 20, 2010
Time: 9:00 a.m., Eastern Time
Place: The principal executive offices of ACAP, 1301 North
Hagadorn, East Lansing, MI 48823.
Proposals
to be Considered at the Special Meeting
At the special meeting, you will be asked to consider and vote
on the following proposals:
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to approve and adopt the merger agreement;
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to grant authority to adjourn the special meeting, if necessary
or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve
and adopt the merger agreement; and
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to act upon any other matter that may properly come before the
special meeting and any adjournment or postponement thereof.
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Record
Date
ACAPs board of directors has fixed the close of business
on September 1, 2010 as the record date for the special
meeting, and only holders of record of ACAP common stock on the
record date are entitled to vote (in person or by proxy) at the
special meeting. As of September 1, 2010, there were
approximately 9,325,086 shares of ACAP common stock
outstanding.
Voting
Rights; Quorum; Vote Required for Approval
Each share of ACAP common stock outstanding on the record date
entitles its holder to one vote on all matters properly coming
before the special meeting. The presence, in person or by proxy,
of the holders of a majority of the shares of ACAP common stock
entitled to vote at the special meeting will constitute a quorum
for the purpose of considering the proposals. Shares of ACAP
common stock represented at the special meeting but not voted,
including broker non-votes and shares of ACAP common
stock for which proxies
34
have been received but marked as abstentions, will be treated as
present at the special meeting for purposes of determining the
presence or absence of a quorum for the transaction of all
business. 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.
Approval and adoption of the merger agreement requires the
affirmative vote of shareholders holding a majority of the
shares of ACAP common stock outstanding on the close of business
on the record date and entitled to vote on the proposal.
Abstentions will count for the purpose of determining whether a
quorum is present, but will have the same effect as a vote
AGAINST the proposal to approve and adopt the merger agreement.
In addition, if your shares are held in the name of a broker,
bank or other nominee, your broker, bank or other nominee will
not be entitled to vote your shares in the absence of specific
instructions. These non-voted shares, or broker
non-votes, will have the same effect as a vote AGAINST the
proposal to approve and adopt the merger agreement. Your broker,
bank or nominee will vote your shares on the proposals only if
you provide instructions on how to vote by following the
instructions provided to you by your broker, bank or nominee.
The adjournment proposal requires the affirmative vote of a
majority of the votes cast on such proposal at the meeting. As a
result, abstentions and broker non-votes will not affect the
vote on the adjournment proposal.
As of September 1, 2010, the directors and executive
officers of ACAP held, in the aggregate, 1,691,703 shares
of ACAP common stock, representing approximately 18.1% of the
outstanding shares of ACAP common stock. Each of our current
executive officers and directors has informed us that he or she
currently intends to vote all of his or her shares of ACAP
common stock FOR the proposal to approve and adopt the merger
agreement and FOR the adjournment proposal. If our executive
officers and directors vote all of their respective shares in
favor of the proposal to approve and adopt the merger agreement,
approximately 18.1% of the outstanding shares of ACAP common
stock will have voted for the proposal to approve and adopt the
merger agreement. This means that additional holders of
approximately 33% of the outstanding shares entitled to vote at
the special meeting would need to vote for the proposal to
approve and adopt the merger agreement in order for it to be
approved.
Voting
and Revocation of Proxies
Shareholders of record may submit proxies by mail, by telephone
or electronically through the Internet. Shareholders who wish to
submit a proxy by mail should mark, date, sign and return the
proxy card in the envelope furnished. If you hold your shares in
your name as a shareholder of record, you may submit your proxy
by telephone or electronically through the Internet by following
the instructions included with your proxy card. Shareholders who
hold shares beneficially through a nominee (such as a bank or
broker) may be able to submit a proxy by mail, or by telephone
or the Internet if those services are offered by the nominee.
Proxies received at any time before the special meeting that are
not revoked before being voted, will be voted at the special
meeting. Where a specification is indicated by the proxy, it
will be voted in accordance with the specification. If you sign
your proxy card without indicating your vote, your shares will
be voted FOR the proposal to approve and adopt the
merger agreement and FOR the adjournment proposal,
and in accordance with the recommendations of our board of
directors on any other matter that may properly come before the
special meeting and any adjournment or postponement thereof.
You have the right to revoke your proxy at any time before the
vote taken at the special meeting:
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if you hold your shares in your name as a shareholder of record,
by notifying ACAPs Corporate Secretary, Annette E. Flood,
at 1301 North Hagadorn Road, East Lansing, Michigan 48823;
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by attending the special meeting and voting in person (your
attendance at the meeting will not, by itself, revoke your
proxy; you must vote in person at the meeting);
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by submitting a later-dated proxy card; or
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if you have instructed a broker, bank or other nominee to vote
your shares, by following the directions received from your
broker, bank or other nominee to change those instructions.
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Please do not send in your stock certificates with your proxy
card. When the merger is completed, a separate letter of
transmittal will be mailed to you that will enable you to
receive the merger consideration.
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To Attend
the Special Meeting
You do not need to make a reservation to attend the special
meeting, but if you plan to attend, please check the appropriate
box on the proxy card. To be admitted to the meeting you will
need to demonstrate that you are a ACAP shareholder entitled to
vote at the meeting or the holder of a valid proxy granted by a
ACAP shareholder entitled to vote at the meeting. If your shares
are held in the name of your broker, bank or other nominee, you
will need to bring evidence of your ownership of the shares,
such as your most recent account statement. If you do not have
an admission card or proof that you own ACAP common stock or
hold a valid proxy, you may not be admitted to the meeting.
No
Dissenters Rights
Under Michigan law, because our common stock is traded on the
NASDAQ Global Select Market and the merger consideration is all
cash, holders of our common stock are not entitled to exercise
dissenters rights in connection with the merger and, if
the merger is consummated, will only be entitled to receive
$41.50 in cash, without interest, for each share of common stock
owned by such holder.
Solicitation
of Proxies
This proxy solicitation is being made by our board of directors
and paid for by ACAP. In addition, we have retained
Morrow & Co., LLC to assist in the solicitation. We
will pay Morrow & Co., LLC $7,500 plus
out-of-pocket
expenses for their assistance in the solicitation of proxies for
the special meeting. Our directors, officers, employees,
advisors and other representatives may also solicit proxies by
personal interview, mail,
e-mail,
telephone, facsimile or other means of communication. These
persons will not be paid additional remuneration for their
efforts. We will also request brokers and other fiduciaries to
forward proxy solicitation material to the beneficial owners of
shares of ACAP common stock that the brokers and fiduciaries
hold of record. We will reimburse them for their reasonable
out-of-pocket
expenses. In addition, we will indemnify them against any losses
arising out of that firms proxy soliciting services on our
behalf.
Other
Business
We are not currently aware of any business to be acted upon at
the special meeting other than the matters discussed in this
proxy statement. Under our bylaws, business transacted at the
special meeting is limited to the purposes stated in the notice
of the special meeting, which accompanies this proxy statement.
If other matters do properly come before the special meeting, or
at any adjournment or postponement of the special meeting, we
intend that shares of ACAP common stock represented by properly
submitted proxies will be voted in accordance with the
recommendations of our board of directors.
Questions
and Additional Information
If you have more questions about the merger or how to submit
your proxy, or if you need additional copies of this proxy
statement or the enclosed proxy card or voting instructions,
please call Morrow & Co., LLC, our proxy solicitor,
toll-free at
1-800-279-6413,
or contact our investor relations department at American
Physicians Capital, Inc., 1301 North Hagadorn Road, East
Lansing, Michigan 48823, or by telephone toll free at
1-866-561-8222.
Availability
of Documents
The information referenced in this proxy statement and filed by
ACAP concurrently with this proxy statement will be made
available for inspection and copying at the principal executive
offices of ACAP during its regular business hours by any
interested holder of ACAP common stock.
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THE
MERGER AGREEMENT
The following is a summary of the material terms of the
merger agreement, which is qualified in its entirety by the
merger agreement. A copy of the merger agreement is attached to
this proxy statement as Appendix A and is incorporated
herein by reference. This summary may not contain all of the
information that is important to you. Shareholders are urged to
read the merger agreement in its entirety.
Structure
of the Merger
At the effective time of the merger, Merger Sub will merge with
and into ACAP and the separate corporate existence of Merger Sub
will cease. Immediately after the effective time of the merger,
ACAP will be the surviving corporation and a wholly owned
subsidiary of Parent.
Effective
Time of the Merger
The merger will become effective upon the filing of a
certificate of merger with the Department of Energy,
Labor & Economic Growth of the State of Michigan or at
such later time as is specified in the certificate of merger,
which time is referred to as the effective time.
Articles
of Incorporation; Bylaws; and Directors and Officers of ACAP and
the Surviving Corporation
At the effective time of the merger:
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the articles of incorporation of ACAP will be amended to read in
the form of the articles of incorporation of Merger Sub in
effect as of the effective time, except that the articles will
provide that the name of the corporation is American
Physicians Capital, Inc.;
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the bylaws of ACAP will be amended to read in the form of the
bylaws of Merger Sub in effect as of the effective time;
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the directors of Merger Sub immediately prior to the effective
time of the merger will be the initial directors of the
surviving corporation, each to hold office in accordance with
the articles of incorporation and bylaws of the surviving
corporation; and
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the officers of ACAP immediately prior to the effective time of
the merger will be the initial officers of the surviving
corporation, each to hold office in accordance with the articles
of incorporation and bylaws of the surviving corporation.
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Merger
Consideration
At the effective time of the merger, each share of ACAP common
stock issued and outstanding immediately prior to the effective
time of the merger (other than shares that will be cancelled
without payment, as described below) will be automatically
converted into the right to receive $41.50 in cash, which is
referred to as the merger consideration. After the
effective time of the merger, each holder of shares of ACAP
common stock will no longer have any rights with respect to the
shares, except for the right to receive the merger
consideration. At the effective time of the merger, any shares
of ACAP common stock held in treasury by ACAP will be cancelled
without any payment.
Treatment
of Options
All outstanding options to acquire ACAP common stock (all of
which are currently fully vested) not exercised prior to the
effective time of the merger will be cancelled and exchanged for
the right to receive a cash payment equal to the number of
shares of ACAP common stock underlying the options multiplied by
the excess, if any, of $41.50 over the exercise price per share
of ACAP common stock previously subject to such option, without
interest and less any applicable withholding taxes. The amounts
payable under the merger agreement with respect to options to
acquire ACAP common stock are referred to as the option
consideration.
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Payment
of Merger Consideration and Option Consideration
Payment of Merger Consideration.
Prior to the
effective time of the merger, Parent will designate a bank or
trust company reasonably satisfactory to ACAP to act as
Parents agent for purposes of, among other things,
distributing the merger consideration to ACAPs
shareholders. At or prior to the effective time, Parent will
deposit with the paying agent, for the benefit of holders of
shares of ACAP common stock, cash in an amount sufficient to pay
the merger consideration, which is referred to as the
exchange fund.
No later than two business days after the effective time, Parent
will be required to cause the paying agent to mail to each
holder of record of a certificate representing ACAP common stock
or shares of ACAP common stock held in book-entry form as of
immediately prior to the effective time a letter of transmittal
containing instructions for surrendering certificates or
book-entry shares in exchange for the merger consideration.
Until properly surrendered, each share certificate will be
deemed to represent only the right to receive the merger
consideration, without interest and net of any applicable
withholding taxes. No interest will be paid or accrued on the
merger consideration payable upon surrender of any certificate
or book-entry share. All merger consideration paid in accordance
with the merger agreement will be deemed to have been paid in
full satisfaction of all rights pertaining to shares of ACAP
common stock with respect to which the payments are made.
IF YOUR SHARES OF ACAP COMMON STOCK ARE CERTIFICATED,
YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING
AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN
YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
If payment of the merger consideration is to be made to a person
other than the person in whose name a share certificate is
registered, it will be a condition of payment that the share
certificate so surrendered be properly endorsed, with the
signature guaranteed, or otherwise be in proper form for
transfer, and the person requesting the consideration payment
either pay the paying agent any transfer or other taxes required
or establish to the satisfaction of the paying agent that the
tax has been paid or is not applicable. If any certificate
representing shares of ACAP common stock is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the
person claiming such certificate to be lost, stolen or destroyed
and, if required by Parent, the posting by such person of a
bond, in such reasonable amount as Parent may direct, as
indemnity against any claim that may be made against it with
respect to such certificate, the paying agent will issue in
exchange for such lost, stolen or destroyed certificate the
merger consideration without interest thereon.
Any portion of the exchange fund which remains undistributed to
the holders of ACAP common stock for twelve months after the
effective time of the merger will be delivered to Parent upon
demand. Any holders of ACAP common stock who have not complied
with the applicable provisions in the merger agreement will be
able to look only to Parent (subject to abandoned property,
escheat and similar laws) as general creditors for payment of
the merger consideration without any interest thereon. Neither
Parent nor ACAP will be liable to any holder of ACAP common
stock for any cash from the exchange fund delivered to a public
official pursuant to any abandoned property, escheat or similar
law.
Payment of Option Consideration.
At the closing of
the merger, Parent will make (or cause to be made) payment to
the surviving corporation to the account or accounts designated
by ACAP, cash in an amount sufficient to pay the option
consideration, plus the amount of any employment taxes payable
by the surviving corporation in respect of the payment of the
option consideration. Within two business days after the
effective time of the merger, the surviving corporation will be
required to pay the option consideration to each holder of an
option entitled to receive the consideration. All option
consideration paid in accordance with the merger agreement will
be deemed to have been paid in full satisfaction of all rights
pertaining to the options to acquire ACAP common stock with
respect to which the payments are made.
Withholdings.
Parent, the surviving corporation or
the paying agent will be entitled to deduct and withhold from
the merger consideration and option consideration such amounts
as may be required under state, local or foreign tax laws with
respect to such payment. To the extent that amounts are so
withheld by Parent, the surviving corporation or the paying
agent, such withheld amounts will be treated for all purposes of
the
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merger agreement as having been paid to the applicable holder of
ACAP common stock or options to acquire ACAP common stock.
Transfer
of Shares
At the close of business, New York time, on the day of the
effective time of the merger, the stock transfer books of ACAP
will be closed and there will be no further registration of
transfers of ACAP common stock or options to acquire ACAP common
stock that were outstanding on ACAPs records. From and
after the effective time of the merger, the holders of
certificates representing shares of ACAP common stock (or shares
of ACAP common stock held in book-entry form) immediately prior
to the effective time of the merger will cease to have any
rights with respect to such ACAP common stock, except as
otherwise provided in the merger agreement or by law.
Representations
and Warranties
The merger agreement contains representations and warranties by
each of the parties to the merger agreement. The representations
and warranties made by ACAP, Parent and Merger Sub are qualified
and subject to important limitations agreed to by the parties in
connection with negotiating the terms of the merger agreement.
Furthermore, the representations and warranties were made as of
specific dates and in some cases may be subject to important
exceptions, limitations and supplemental information contained
in the confidential disclosure schedules ACAP provided to Parent
and Merger Sub in connection with the signing of the merger
agreement and may be additionally subject to standards of
materiality applicable to ACAP, Parent and Merger Sub that may
be different from those that are applicable to you or generally
applicable under federal securities laws. In addition, the
representations and warranties may have been included in the
merger agreement for the purpose of allocating risk between
ACAP, Parent and Merger Sub, rather than to establish matters of
fact. While ACAP does not believe that the disclosure schedules
contain information that securities laws require us to disclose,
other than information that has already been so disclosed, the
disclosure schedules contain information that may modify,
qualify or create exceptions to the representations and
warranties set forth in the merger agreement. The disclosure
schedules contain certain information that has been included in
ACAPs prior public disclosures and may contain additional
non-public information. Information concerning the subject
matter of ACAPs representations and warranties may have
changed since the date of the merger agreement, and subsequent
information may or may not be fully reflected in our public
disclosures, except to the extent required by law. The
representations and warranties in the merger agreement and the
description of them in this document should be read in
conjunction with the other information contained in ACAPs
reports, statements and filings publicly filed with the SEC.
Representations and Warranties of ACAP.
In the
merger agreement, ACAP made representations and warranties to
Parent and Merger Sub, subject to identified exceptions and
qualifications, including those relating to:
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the organization, valid existence and qualification to do
business of ACAP and its subsidiaries;
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the completeness of the ACAP organizational documents furnished
to Parent;
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the capital structure of ACAP;
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the valid issuance of outstanding ACAP common stock and the
shares of common stock of ACAPs subsidiaries;
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the requisite corporate power and authority of ACAP to execute
and deliver the merger agreement and to perform its obligations
and consummate the transactions contemplated by the merger
agreement;
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the due execution and delivery of the merger agreement by ACAP
and the validity and binding effect of the merger agreement on
ACAP;
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the sufficiency of the actions taken by ACAPs board of
directors in approving the merger agreement and the merger to
render inapplicable the restrictions on business combinations
contained in
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Section 780 of the Michigan Business Corporations Act,
referred to in this proxy statement as the MBCA;
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the absence of any conflicts with or violations of ACAPs
organizational documents or laws applicable to ACAP or its
subsidiaries as a result of the execution and delivery of the
merger agreement by ACAP and the performance of the merger
agreement and the consummation of the merger by ACAP;
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the absence of any breach, default, loss of benefits, need for
consent, change of control payments or other right of
termination, acceleration or cancellation or similar events
under any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit or other legally binding obligation to
which ACAP or any of its subsidiaries is a party as a result of
the execution and delivery of the merger agreement by ACAP, and
the performance of the merger agreement and the consummation of
the merger by ACAP;
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other than certain specified approvals, the absence of the
necessity to obtain consents or approvals from governmental
authorities in connection with the merger agreement or the
merger;
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the possession of all permits by ACAP and its subsidiaries
necessary to carry on their business and the compliance by ACAP
and its subsidiaries with such permits;
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the absence of misstatements or omissions in the reports and
other documents filed by ACAP with the SEC since January 1,
2007, and the compliance of such documents with the requirements
of the Securities Act of 1933 and the Exchange Act, as of their
respective filing dates;
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the fair presentation of the financial position, results of
operations and cash flows of ACAP and its subsidiaries in the
financial statements contained in ACAPs SEC filings since
January 1, 2007, and the audited statutory financial
statements of ACAPs insurance subsidiaries for the periods
ended December 31, 2009 and 2008, referred to as the
STAT Financial Statements;
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the compliance of the actuarial analyses used to prepare the
STAT Financial Statements with applicable law;
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the absence of certain undisclosed liabilities of ACAP and its
subsidiaries;
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the maintenance by ACAP of disclosure controls and procedures
and internal control over financial reporting under the Exchange
Act and the absence of significant deficiencies or material
weaknesses in ACAPs internal controls over financial
reporting;
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the absence of misstatements and omissions of the information
supplied by ACAP in this proxy statement and other documents
filed with the SEC relating to the merger;
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the absence of certain changes or events since December 31,
2009;
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the administration and compliance of employee benefit plans of
ACAP under the Employee Retirement Income Security Act of 1974
and other applicable laws;
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the compliance by ACAP and its subsidiaries with labor and other
employment laws and the absence of work stoppages, slowdowns or
labor strikes against ACAP and its subsidiaries;
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certain matters with respect to ACAPs and its
subsidiaries material contracts and reinsurance contracts;
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the absence of litigation against its ACAP and its subsidiaries;
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the compliance by ACAP and its subsidiaries with environmental
laws and permits, and other environmental matters;
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the ownership, license and lawful use of intellectual property
used by ACAP and its subsidiaries, and other intellectual
property matters;
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the owned real property, leased real property and the personal
property used by ACAP and its subsidiaries and other matters
relating to their assets and properties;
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the payment of required taxes by ACAP and its subsidiaries, and
other tax matters;
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the compliance by ACAP and its subsidiaries with insurance
regulatory laws and other insurance matters;
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the vote of ACAPs shareholders required to adopt the
merger agreement;
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the absence of brokers entitled to fees in connection with the
merger;
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the receipt by the board of directors of ACAP of an opinion of
its financial advisor in connection with the merger;
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the compliance by ACAP and its subsidiaries with the terms of
insurance policies to which ACAP or its subsidiaries is a
beneficiary or named insured;
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the absence of any indication from one of ACAPs top 20
insurance agencies that it will not continue, or will terminate
its relationship with ACAP subsequent to the merger;
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the absence of certain interested party transactions;
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the absence of any material change in investment policy of ACAP
or its subsidiaries since December 31, 2009 and certain
investment asset matters;
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the compliance by Alpha Advisors, a subsidiary of ACAP, with the
applicable registration and licensing laws under the Investment
Advisers Act of 1940 and applicable state law;
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the absence of any operations that would require ACAP or its
subsidiaries to be registered as a broker-dealer; and
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the absence of restrictions or limitations on the ability of any
ACAP subsidiary to pay dividends or make distributions with
respect to its capital stock.
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Some of the representations and warranties referred to above are
qualified by a material adverse effect standard.
Representations and Warranties of Parent and Merger
Sub.
The merger agreement also contains various
representations and warranties made by Parent and Merger Sub to
ACAP, subject to identified exceptions and qualifications,
including those relating to:
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the organization, valid existence and qualification to do
business of Parent and its subsidiaries;
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the requisite corporate power and authority of each of Parent
and Merger Sub to execute and deliver the merger agreement and
to perform its obligations and consummate the transactions
contemplated by the merger agreement;
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the absence of any conflicts with or violations of Parents
or Merger Subs organizational documents or laws applicable
to Parent or its subsidiaries as a result of the execution and
delivery of the merger agreement by Parent and Merger Sub, and
the performance of the merger agreement and the consummation of
the merger by each of them;
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the absence of any breach, default, loss of benefits, need for
consent, or other right of termination, acceleration or
cancellation or similar events under any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit or other
legally binding obligation to which Parent or any of its
subsidiaries is a party as a result of the execution and
delivery of the merger agreement by Parent and Merger Sub, and
the performance of the merger agreement and the consummation of
the merger by each of them;
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other than certain specified approvals, the absence of the
necessity to obtain consents or approvals from governmental
authorities in connection with the merger agreement or the
merger;
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the absence of misstatements and omissions in the information
supplied by Parent or Merger Sub in this proxy statement and
other documents filed with the SEC relating to the merger;
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the absence of litigation against its Parent and its
subsidiaries;
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the capital structure of Merger Sub and the absence of
obligations or liabilities of Merger Sub other than as
contemplated by the merger agreement;
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the absence of any required vote of Parents equity holders
to consummate the transactions contemplated by the merger
agreement;
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the absence of brokers entitled to fees in connection with the
merger (other than Macquarie Capital Advisors);
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the sufficiency of funds available to Parent to pay the merger
consideration and the option consideration without causing any
of its subsidiaries to pay a dividend to Parent;
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the absence of any arrangements between Parent or its affiliates
and any of the officers or directors of ACAP; and
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the compliance by Parent and its subsidiaries with the
provisions of Chapter 7A of the MBCA necessary for each of
them not to be an interested shareholder of ACAP,
and the lack of ownership by Parent and its subsidiaries of ACAP
common stock.
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Some of the representations and warranties referred to above are
qualified by a material adverse effect standard. As used in the
merger agreement and this proxy statement, a Parent
Material Adverse Effect means any change or event that has
a material adverse effect on the business, financial condition,
or results of operations of Parent and its subsidiaries, taken
as a whole. However, none of the following will be deemed,
either alone or in combination, to constitute, and none of the
following will be taken into account in determining whether
there has been or will be, a material adverse effect on Parent:
(a) any adverse change, effect, event, occurrence, state of
facts or development to the extent attributable to the
announcement or pendency of the merger or the transactions
contemplated thereby; (b) any adverse change, effect,
event, occurrence, state of facts or development after the date
of the merger agreement, attributable to conditions affecting
any of the industries in which Parent participates, the
U.S. economy or financial markets; or (c) any adverse
change, effect, event, occurrence, state of facts or development
arising from or relating to compliance with the terms of the
merger agreement.
Covenants
Relating to Conduct of Business Pending the Merger
From the date of the merger agreement to the effective time of
the merger, subject to identified exceptions, and unless Parent
otherwise consents in writing (such consent not to be
unreasonably withheld or delayed), ACAP must:
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conduct its operations in the ordinary course of business
substantially consistent with past practice (including with
respect to underwriting matters);
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use its commercially reasonable efforts to maintain its
relationships with officers, key employees and customers and to
renew policies with current insureds; and
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use its commercially reasonable efforts to preserve
substantially intact its business organization and goodwill.
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In addition, subject to identified exceptions, from the date of
the merger agreement to the effective time of the merger, ACAP
is not permitted to do any of the following without the prior
written consent of Parent (such consent not to be unreasonably
withheld or delayed):
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amend its articles of incorporation or bylaws;
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except in certain cases, (a) issue or authorize the
issuance of any shares of its capital stock or options, other
than upon settlement of options outstanding on the date of the
merger agreement or
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(b) sell, pledge, dispose of, transfer, lease, license,
guarantee or encumber any material property or assets of ACAP;
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declare, set aside or pay any dividend or other distribution
with respect to any shares of its capital stock (other than
dividends paid by a wholly-owned ACAP subsidiary to the Company
or to any other ACAP subsidiary) or, enter into any agreement
with respect to the voting of its capital stock;
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except in certain cases, reclassify, combine, split, subdivide
or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock, other equity interests of
other securities;
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acquire any interest in any person or all or substantially all
of the assets of any person, other than in connection with
investment management in the ordinary course of business;
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materially change any of its accounting policies or procedures
(including making any material change in actuarial policies or
procedures or ceasing to use a third party consulting actuary),
other than in the ordinary course of business substantially
consistent with past practice or except as may be required by
GAAP, statutory accounting practices, applicable law or a
governmental authority;
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make certain material changes to tax elections or tax accounting
methods, or enter into certain material tax agreements or
settlements;
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except in certain cases, enter into, amend, renew or exercise
any option to terminate or extend any material real estate
lease; enter into, amend or terminate any material contract; or
enter into or amend any change in control or indemnification
agreement with any director or officer of ACAP;
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other than as required by any judgment, order or arbitral award,
enter into any agreement relating to the commutation of any
assumed reinsurance program or assumed reinsurance treaty
existing on the date of the merger agreement, except for
(a) individual commutations where the aggregate settlement
amount (net of applicable recoverables from reinsurance) exceeds
the related reserves held with respect to such program or treaty
(net of applicable recoverables from reinsurance) as of
December 31, 2009 by not more than $500,000 and
(b) aggregate commutations where the aggregate settlement
amount (net of applicable recoverables from reinsurance) exceeds
the related reserves held with respect to such program or treaty
(net of applicable recoverables from reinsurance) as of
December 31, 2009, by not more than $5 million in the
aggregate;
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renew its ceded reinsurance program other than in the ordinary
course of business substantially consistent with past practice;
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make any capital expenditures or commitment for any capital
expenditures in excess of $750,000 in the aggregate;
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settle any action, suit or other proceeding or investigation or
threatened action, suit, or other proceeding or investigation
except in the ordinary course of business substantially
consistent with past practice;
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incur any indebtedness for money borrowed in excess of
$5 million in the aggregate, except for borrowings under
existing lines of credit;
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enter into any new material line of business;
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make any material loan or advance to, guarantee any material
indebtedness for money borrowed of, or otherwise incur such
material indebtedness on behalf of, any third party, other than
in the ordinary course of business substantially consistent with
past practice;
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except in certain cases, (a) grant or pay any increase, or
announce or promise any increase, in the wages, salaries,
compensation, bonuses, incentives, severance, pension or other
direct or indirect compensation or benefits payable to any of
its employees, officers, directors, agents or consultants or
(b) establish or increase or promise to increase any
benefits under any ACAP benefit plan in existence;
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except in certain cases, fail to file any filing with the SEC;
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make any material change in the Companys business or its
reinsurance structure or insurance contracts, rates,
underwriting practices and procedures or marketing methods;
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Enter into any agreement or arrangement that would be required
to be reported by the Company pursuant to Item 404 of
Regulation S-K; or
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authorize or enter into any agreement or otherwise make any
commitment to do any of the foregoing.
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Regulatory
Approvals
Under the merger agreement, ACAP and Parent have agreed to use
their commercially reasonable efforts to obtain all required
governmental approvals to avoid any action or proceeding by any
governmental authority in connection with the merger agreement
and the consummation of the merger. In addition, each of ACAP
and Parent has agreed to use their reasonable best efforts
(a) to cause the expiration of the notice periods with
respect to the HSR Act and any other laws with respect to the
transactions completed by the merger agreement as promptly as is
reasonably practicable, and (b) to resolve any objections
asserted by any governmental authority with respect to the
merger or other transactions contemplated by the merger
agreement.
If any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging the
transaction contemplated by the merger agreement as violative of
any law, each of ACAP and Parent must cooperate and use its
reasonable best efforts to contest and resist any such action or
proceeding, including any action or proceeding that seeks a
temporary restraining order or preliminary injunction that would
prohibit, prevent or restrict consummation of the merger.
Solicitation
of Alternate Acquisition Proposals
No Solicitation.
From the date of the merger
agreement until the effective date of the merger, ACAP and its
representatives may not directly or indirectly:
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solicit, initiate or knowingly facilitate any acquisition
proposal or any proposal that is reasonably likely to lead to
any acquisition proposal;
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participate in any way in discussions or negotiations with, or
furnish any non-public information to, any person that has made
an acquisition proposal;
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withdraw or modify in a manner adverse to Parent the
recommendation of ACAPs board of directors that adoption
of the merger agreement by ACAPs shareholders is advisable
and that the board has determined that the merger is fair to and
in the best interests of ACAPs shareholders (referred to
as the boards recommendation or the
Company Recommendation);
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other than the merger, approve or recommend any acquisition
proposal; or
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enter into any agreement or letter of intent with respect to any
acquisition proposal.
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As used in the merger agreement, acquisition
proposal means any bona fide offer or proposal or
indication of interest concerning any (a) merger,
consolidation, business combination, or similar transaction
involving ACAP, (b) sale, lease or other disposition
directly or indirectly by merger, consolidation, business
combination, share exchange, joint venture, or otherwise of
assets of ACAP or any of its subsidiaries representing 20% or
more of the consolidated assets of ACAP and its subsidiaries,
taken as a whole, (c) issuance, sale, or other disposition
of (including by way of merger, consolidation, business
combination, share exchange, joint venture, or any similar
transaction) equity interests representing 20% or more of the
voting power of ACAP, (d) transaction in which any person
or group shall acquire beneficial ownership, or the right to
acquire beneficial ownership of 20% or more of the outstanding
voting capital stock of ACAP or (e) any combination of the
foregoing (other than the merger), as the same may be amended or
revised from time to time.
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Fiduciary Out.
Notwithstanding anything to the
contrary referenced above, at any time prior to obtaining the
adoption of the merger agreement by ACAPs shareholders,
ACAP will be permitted to:
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take, and disclose to ACAPs shareholders, a position with
respect to any tender or exchange offer by a third party or
amend or withdraw such a position in accordance with
Rules 14d-9
and
14e-2
promulgated under the Exchange Act;
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effect a change in the boards recommendation of the merger
or enter into an agreement with respect to such acquisition
proposal if ACAP has received an unsolicited acquisition
proposal from a third party and ACAPs board of directors
determines in good faith (after consultation with its
independent financial advisor and outside counsel) that such
acquisition proposal constitutes a superior proposal;
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effect a change in the boards recommendation of the merger
if ACAPs board of directors determines in good faith
(after consultation with outside counsel) that failure to do so
would be inconsistent with its fiduciary duties under applicable
law; or
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so long as ACAP does not solicit, initiate or knowingly
encourage any acquisition proposal, participate in any
discussions or negotiations with, or provide any non-public
information to, any person in response to an acquisition
proposal by any such person, pursuant to a confidentiality
agreement substantially similar to the confidentiality agreement
with Parent, if ACAPs board of directors determines in
good faith (after consultation with outside counsel) that there
is a reasonable likelihood that such acquisition proposal will
lead to a superior proposal (provided that ACAP must notify
Parent in writing of such determination and its intention to
participate in discussions or negotiations with, or provide
non-public information to, any person in response to an
acquisition proposal).
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As used in the merger agreement, superior proposal
means an unsolicited acquisition proposal, with references to
20% being changed to 50%, made by a third party which, in the
good faith judgment of ACAPs board of directors (after
consultation with its financial advisor and outside legal
counsel), (a) is reasonably likely to be consummated taking
into account the party making the proposal and all financial,
legal, regulatory and other aspects of the proposal and
(b) would, if consummated, result in a transaction that is
more favorable to ACAPs shareholders than the transactions
contemplated by the merger agreement taking into account all
financial, legal, regulatory and other aspects of the respective
proposals, including the identity of the third party making such
proposal, the terms of any written proposal by Parent to amend
or modify the terms of the merger, and any
break-up
fees, expense reimbursement fees and conditions to consummation.
Parent Right to Notice / Match
Right.
Notwithstanding the foregoing, prior to taking
any of the actions listed in the section directly above,
ACAPs board of directors must provide Parent with three
business days notice advising Parent that it intends to take
such action and specifying the reasons therefor, including (if
such proposed action is in connection with the receipt of a
superior proposal) the material terms and conditions of such
superior proposal. Prior to taking any such action,
(a) ACAP also must discuss with Parent and consider in good
faith any changes to the terms of the merger agreement that are
proposed by Parent in response to the acquisition proposal or
otherwise and (b) any amendment to the financial terms of
the superior proposal shall require ACAP to provide Parent with
a new notice of such superior proposal and a new three business
day notice period.
Conditions
to Completing the Merger
Conditions to Each Partys Obligations.
The
obligations of ACAP, Parent and Merger Sub to consummate the
merger are subject to the satisfaction of the following
conditions:
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Shareholder Approval.
The merger agreement must have
been adopted by ACAPs shareholders at the special meeting.
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No Order.
The consummation of the merger must not
have been restrained, enjoined or prohibited by a court or other
governmental authority. This condition will not be available,
however, to a party
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whose failure to fulfill its obligations to obtain regulatory
approvals and other consents is the primary cause of or has
primarily resulted in such prohibition.
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Insurance Consents.
Parent must have obtained and
have delivered to ACAP the written approval of the Form A
with respect to ACAPs insurance subsidiaries from the
Michigan Office of Financial and Insurance Regulation and such
approval shall not have a regulatory material adverse effect. A
regulatory material adverse effect means an approval
that contains or is subject to any conditions that are expected
to (A) increase the Companys costs, (B) decrease
the Companys revenues or (C) decrease the amount of
annual ordinary dividends that the Company or any of its
subsidiaries may pay, in each case, by an amount greater than
$4.0 million.
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HSR Act.
The waiting period applicable to the merger
under the HSR Act must have expired or been terminated.
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Condition to the Obligations of Parent and Merger
Sub.
The obligations of Parent and Merger Sub to
consummate the merger are subject to the satisfaction of the
following additional conditions:
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Accuracy of Representations.
The representations and
warranties of ACAP contained in the merger agreement must be
true and correct without giving effect to any qualification as
to materiality or Company Material Adverse Effect. This
condition will be deemed to be satisfied, however, so long as
the failure of any representations and warranties to be true and
correct (other than the representations and warranties relating
to the organization, qualification, capitalization and authority
of ACAP) has not had a Company Material Adverse Effect.
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Performance of Covenants.
ACAP must have performed
or complied in all material respects with all agreements and
covenants required by the merger agreement.
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No Company Material Adverse Effect.
Since the date
of the merger agreement, no change, event or circumstance must
have occurred and be continuing that has had, or is reasonably
to likely to have, a Company Material Adverse Effect.
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Conditions to the Obligations of ACAP.
The
obligations of ACAP to consummate the merger are subject to the
satisfaction of the following additional conditions:
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Accuracy of Representations.
The representations and
warranties of Parent contained in the merger agreement must be
true and correct without giving effect to any qualification as
to materiality or Parent Material Adverse Effect.
Notwithstanding the foregoing, other than with respect to the
representations and warranties related to the organization and
qualification of Parent and Merger Sub, this condition will be
deemed to be satisfied so long as the failure of any
representations and warranties to be true and correct has not
had a Parent Material Adverse Effect; provided, further that
Parents representations and warranties regarding its
ability to fund the merger from available cash and the absence
of management arrangements with officers or directors of the
Company shall be true and correct.
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Performance of Covenants.
Parent must have performed
or complied in all material respects with all agreements and
covenants required by the merger agreement.
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Closing Payments.
Parent shall have made the
payments required to be made in connection with the merger.
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Certain
Notices
Between the date of the merger agreement and the effective time
of the merger, each of ACAP and Parent must promptly notify the
other party of the occurrence, or nonoccurrence, of any event
that would reasonably be expected to result in any condition to
closing not to be satisfied. The delivery of a notice of the
occurrence or nonoccurrence of such event, however, will not
cure a breach of any representation or warranty requiring
disclosure of the matter prior to the date of the merger
agreement or otherwise limit or affect the remedies available
under the merger agreement to the party given the notice.
46
Termination
of the Merger Agreement
Under certain circumstances, ACAP
and/or
Parent may terminate the merger agreement and abandon the merger
prior to the effective time of the merger, whether before or
after obtaining the required approval of ACAPs
shareholders.
Termination by Either Party.
Either party may
terminate the merger agreement under the following circumstances:
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Mutual Consent.
The merger agreement may be
terminated by the mutual written consent of Parent and ACAP, by
action of their respective boards of directors or similar
governing bodies.
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Outside Date.
So long as a breach of the merger
agreement by the terminating party is not the primary cause of
the failure of the merger to occur on or before such date, if
the merger has not been consummated by December 31, 2010
(referred to as the outside date), subject to the
extension of the outside date to March 31, 2010, if all
conditions have been or are capable of being satisfied at the
time of such extension, other than those relating to a court
order and insurance regulatory and antitrust approval of the
merger.
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Court Order.
So long as a breach of the merger
agreement by the terminating party is not the primary cause of
such action, any action taken by a court of competent
jurisdiction or other governmental authority permanently
restraining, enjoining or otherwise prohibiting the merger, if
such action is taken and it has become final and nonappealable.
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ACAP Shareholder Approval.
If the merger agreement
is not adopted by ACAPs shareholders at the special
meeting.
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Unilateral Termination by ACAP.
ACAP may
unilaterally terminate the merger agreement under the following
circumstances:
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Superior Proposal.
Subject to compliance with the
covenants described above under Solicitation
of Alternate Acquisition Proposals, if ACAP accepts a
superior proposal.
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Breach of Agreement by Parent.
If (a) any
representation or warranty of Parent or Merger Sub (other than
the representation and warranty regarding Parents ability
to fund the merger from available cash (the Financing
Representation)) has become untrue or Parent or Merger Sub
has breached any covenant or agreement set forth in the merger
agreement, (b) such breach or misrepresentation is not
capable of being cured prior to the outside date of the merger
and (c) such breach or misrepresentation would cause
ACAPs conditions regarding the accuracy of Parents
representations or the performance of covenants by Parent not to
be satisfied.
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Breach of Financing Representation by Parent.
If
(a) the Financing Representation has become untrue or
Parent or Merger Sub has breached its covenant to make the
payments required to be made pursuant to the merger agreement,
(b) such breach or misrepresentation is not capable of
being cured prior to the outside date of the merger and
(c) such breach or misrepresentation would cause
ACAPs conditions regarding the Parents payments
required to be made in connection with the merger not to be
satisfied.
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Unilateral Termination by Parent.
Parent may
unilaterally terminate the merger agreement under the following
circumstances:
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Adverse Recommendation Change.
If ACAPs board
of directors has withdrawn or adversely modified the
boards recommendation of the merger, or the board has
recommended to ACAPs shareholders that they approve or
accept an acquisition proposal other than the merger; or
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Breach of Agreement by ACAP.
If (a) any
representation or warranty of ACAP has become untrue or ACAP has
breached any covenant or agreement set forth in the merger
agreement, (b) such breach or misrepresentation is not
capable of being cured prior to the outside date of the merger
and (c) such breach or misrepresentation would cause
Parents conditions regarding the accuracy of ACAPs
representations or the performance of covenants by ACAP not to
be satisfied.
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47
Termination
Fees
Termination Fee Payable by ACAP to Parent.
In the
event that either:
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ACAP terminates the merger agreement in order to accept a
superior proposal; or
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Parent terminates the merger agreement (a) because
ACAPs board of directors has withdrawn or adversely
modified the boards recommendation of the merger or the
board has recommended to ACAPs shareholders that they
approve an acquisition proposal other than the merger and
(b) an acquisition proposal has been publicly announced and
not withdrawn prior to the termination;
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then ACAP must pay Parent a termination fee of 3% of the
aggregate merger consideration, which will be the sole and
exclusive remedy of Parent in the event of such termination.
Termination Fee Payable by Parent to ACAP.
In the
event that either:
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the merger agreement is terminated by Parent or ACAP because the
merger has not been consummated prior to the outside date of the
merger as a result of the failure to satisfy specified
conditions to obtain required antitrust and insurance regulatory
approval for the merger and on the termination date, and
(i) the vote of ACAPs shareholders to adopt the
merger agreement has been obtained; (ii) no material
adverse effect on ACAP has occurred and is continuing; and
(iii) Parents closing conditions regarding the
accuracy of ACAPs representations and warranties and the
performance of its covenants are still capable of being
satisfied;
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ACAP terminates the merger agreement because (a) the
Financing Representation has become untrue or Parent or Merger
Sub has breached its covenant to make the payments required to
be made pursuant to the merger agreement, (b) such breach
or misrepresentation is not capable of being cured prior to the
outside date of the merger and (c) such breach or
misrepresentation would cause ACAPs conditions regarding
the accuracy of Parents representations and the
performance of covenants by Parent not to be satisfied and on
the termination date, and (i) the vote of ACAPs
shareholders to adopt the merger agreement has been obtained;
(ii) no material adverse effect on ACAP has occurred and is
continuing; and (iii) Parents closing conditions
regarding the accuracy of ACAPs representations and
warranties and the performance of its covenants are still
capable of being satisfied;
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then Parent must pay ACAP a termination fee of 3% of the
aggregate merger consideration. If the termination occurs
despite Parents use of its reasonable best efforts to
obtain all antitrust and insurance regulatory approvals for the
merger, then the termination fee will be the sole and exclusive
remedy of ACAP in the event of such termination. The termination
fee is not the sole and exclusive remedy of ACAP in the event of
a termination by ACAP for breach by Parent of the Financing
Representation or its covenant to make the payments required by
the merger agreement.
Limitation
on Liability
In general, if the merger agreement is terminated, there will be
no liability or obligation on ACAP or Parent except with respect
to certain provisions and the termination fees provided under
the agreement. Except to the extent the termination fees are the
sole and exclusive remedy of the party receiving the fees, each
party will have the right to recover to the fullest extent
permitted by applicable law any liabilities or damages incurred
or suffered by it as a result of the material breach by the
other party of any of its representations, warranties, covenants
or other agreements set forth in the merger agreement. This
includes, in the case that ACAP is the recovering party, a
material breach by Parent of its obligations to pay the merger
consideration at closing.
Definition
of Company Material Adverse Effect
Some of the representations and warranties of ACAP in the merger
agreement are qualified by a material adverse effect standard
and certain of Parents conditions to closing and
termination rights are based on whether or not a material
adverse effect on ACAP has occurred. The following is a
description of the definitions of material adverse effect.
48
Company Material Adverse Effect.
As used in the
merger agreement or this proxy statement, a material
adverse effect on ACAP or a Company Material Adverse
Effect means any change or event that, individually or
together with any other change or event, has a material adverse
effect on the business, financial condition or results of
operations of ACAP and its subsidiaries, taken as a whole.
However, none of the following will be deemed in themselves,
either alone or in combination, to constitute, and none of the
following shall be taken into account in determining whether
there has been or will be, a material adverse effect on ACAP:
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any adverse change, effect, event, occurrence, state of facts or
development attributable to the announcement, pendency or
consummation of the merger or the transactions contemplated
hereby, including without limitation, any rating agency
downgrade of ACAP or any of its subsidiaries resulting therefrom;
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any adverse change, effect, event, occurrence, state of facts or
development attributable to conditions affecting any of the
industries in which ACAP participates, the U.S. economy or
financial markets, except to the extent ACAP or its
subsidiaries, taken as a whole, are disproportionately affected
thereby;
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any adverse change, effect, event, occurrence, state of facts or
development arising from the Companys compliance with the
terms of the merger agreement, action taken, or failure to act
by the Company, to which Parent has expressly consented or
ACAPs failure to reasonably settle any action, suit,
proceeding, proceeding or investigation due to Parent
unreasonably withholding its consent to such settlement;
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changes in laws after the date of the merger agreement;
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changes in GAAP after the date of the merger agreement;
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any failure by ACAP to meet any published or internally prepared
estimates of revenues, earnings or other economic performance
for any period ending on or after the date of the merger
agreement and prior to closing (it being understood that the
facts and circumstances giving rise to such failure may be
deemed to constitute, and may be taken into account in
determining whether there has been, a material adverse effect on
ACAP if such facts and circumstances are not otherwise included
in the provisions above);
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acts of war or terrorism; or
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a decline in the price of ACAPs common stock on the NASDAQ
Global Select market;
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provided that the loss by an ACAP subsidiary of any permit
authorizing it to transact insurance in Illinois, Michigan, Ohio
or New Mexico or any certificate of authority in any
jurisdiction in which such insurer transacts insurance on the
date of the merger agreement shall constitute a Company Material
Adverse Effect.
Access to
Information; Confidentiality
Except as required under any confidentiality agreement to which
ACAP or its subsidiaries are a party, from the date of the
merger agreement to the effective time of the merger, ACAP and
its subsidiaries are required to give Parent, Merger Sub, and
their respective officers, directors, employees, accountants,
consultants, legal counsel, advisors, agents and other
representatives, upon reasonable prior notice to ACAP,
reasonable access during normal business hours to the officers
and books and records of ACAP and its subsidiaries. In addition,
ACAP is required to provide information reasonably requested by
Parent concerning the business, properties, contracts, assets,
liabilities, personnel and other aspects of ACAP and its
subsidiaries. Such access must be conducted at a reasonable
time, upon reasonable advance notice to ACAP and in a manner
that does not interfere unreasonably with the operation of the
business conducted by ACAP or its subsidiaries. All information
so disclosed will be subject to the confidentiality agreement
entered into between ACAP and Parent on April 22, 2010.
ACAP will not be required to allow access or furnish information
to the extent that doing so would result in the loss of
attorney-client privilege.
49
ACAP is required to provide Parent with copies of all internal
actuarial analyses (if any) and all internal quarterly financial
packages (if any) within 2 days of such items becoming
available.
Brokers
or Finders
No broker, finder or investment banker (other than Macquarie
Capital Advisors, in the case of Parent, and Raymond James with
respect to the fairness opinion delivered to ACAP) is entitled
to any brokerage, finders or other fee or commission in
connection with the merger based upon arrangements made by or on
behalf of ACAP or Parent.
Employee
Benefit Matters
Parent will be required to recognize all service of ACAPs
directors, officers and employees (referred to as ACAP
employees) with ACAP or any of its subsidiaries for
purposes of determining eligibility to participate, vesting and
accrual or entitlement to benefits where length of service is
relevant, under any employee benefit plans maintained by Parent
or its subsidiaries (referred to as Parent benefit
plans) in which ACAP employees may be eligible to
participate after the effective time of the merger, other than
benefit accruals under a defined benefit pension plan.
From and after the effective time of the merger, Parent will be
required to honor, in accordance with their terms as may be
amended from time to time, all individual employment, deferred
compensation, severance and change of control agreements, plans
or policies between ACAP or its subsidiaries and any current or
former ACAP employee. From and after the effective time of the
merger, Parent also will be required to provide or pay when due
to any current or former ACAP employee all benefits and
compensation pursuant to any compensatory programs and
arrangements of ACAP or its subsidiaries in effect on the date
of the merger agreement earned or accrued through the effective
time of the merger (or such later time as the programs and
arrangements are terminated in accordance with the merger
agreement).
For a period ending two years after the effective time of the
merger, Parent will be required to provide to ACAP employees
benefits and compensation that are no less favorable in the
aggregate to such persons than those provided to similarly
situated employees of Parent. Under this provision, the titles
and responsibilities of ACAP employees in effect immediately
prior to the effective time of the merger will be taken into
account in order to determine the employees of Parent to whom
the ACAP employees are similarly situated.
Prior to the effective time of the merger, ACAP shall have the
authority to grant salary increases to ACAP employees effective
January 1, 2011 in the ordinary course of business and
consistent with past practice, provided that in no event shall
such increases exceed an average of 4.0% for all ACAP employees
in the aggregate. For the avoidance of doubt, Parent shall
maintain and pay in 2011 the salaries of ACAP employees (so long
as such employees remain employed by the surviving corporation)
as so modified for 2011 (or higher salaries in Parents
sole discretion); provided that this shall not limit
Parents ability to (i) terminate any ACAP employee at
any time or (ii) modify such salaries after
December 31, 2011.
Prior to the effective time of the merger, the Company shall
have the authority to modify the ACAP benefit plans to the
extent required by the Patient Protection and Affordable Care
Act of 2010 or the Health Care and Education Reconciliation Act
of 2010.
Notwithstanding any other provision of the merger agreement,
ACAP is permitted, in the ordinary course and consistent with
past practice, to pay all ACAP employees participating in
ACAPs incentive compensation plan for 2010 a bonus at the
effective time of the merger, but in no event later than
March 1, 2011 calculated in accordance with ACAPs
incentive compensation plan in effect for 2010 based on a 19%
return on shareholders equity for purposes of determining
such bonus.
ACAP is permitted, and Parent will cause the surviving
corporation, to make all matching contributions and employer
contributions pursuant to ACAPs retirement plan as in
effect on the date of the merger agreement for the account of
all ACAP employees who are employed immediately prior to the
effective time of the merger even if they are terminated prior
to year end other than with respect to ACAP employees who
voluntarily terminate their employment with ACAP.
50
Nothing in the merger agreement will require the continued
employment of any person, and, except for as set forth in the
covenant in the merger agreement relating to employee benefit
matters, no provisions will prevent Parent from amending or
terminating any ACAP benefit plan.
Directors
and Officers Indemnification and Insurance
Indemnification of Covered Persons.
For not less
than six years from and after the effective time, Parent is
required to cause the surviving corporation in the merger (i.e.,
ACAP) to indemnify and hold harmless all past and present
directors, officers, employees and agents of ACAP (referred to
as the covered persons) to the same extent such
persons are indemnified as of the date of the merger agreement
by ACAP pursuant to ACAPs articles of incorporation,
bylaws and indemnification agreements, if any, in existence on
the date of the merger agreement with any covered persons for
acts or omissions occurring at or before the effective time of
the merger. Parent agrees to, and to cause the surviving
corporation to, indemnify and hold harmless such persons to the
fullest extent permitted by law for acts or omissions occurring
in connection with the approval of the merger agreement and the
consummation of the transactions contemplated by the merger
agreement.
Advancement of Expenses.
Each covered person is
entitled to advancement of expenses incurred in the defense of
any claim, action, suit, proceeding or investigation with
respect to any matters subject to indemnification under this
provision. Each covered person to whom expenses are advanced,
however, must undertake, to the extent required by the MBCA, to
repay such expenses if it is ultimately determined that such
person is not entitled to indemnification.
Organizational Documents.
For not less than six
years from and after the effective time of the merger, the
articles of incorporation and bylaws of the surviving
corporation must contain provisions no less favorable with
respect to indemnification, advancement of expenses and
exculpation of covered persons than those in ACAPs
articles of incorporation and bylaws as of the date of the
merger agreement.
D&O Insurance.
For six years from the effective
time of the merger, the surviving corporation must provide to
ACAPs current directors and officers an insurance and
indemnification policy that provides coverage for events
occurring on or before the merger that is no less favorable than
ACAPs existing policies in effect on the date of the
merger agreement.
The surviving corporation will be required to purchase the
maximum run-off coverage available under the
existing policies. The surviving corporation, however, will not
be required to pay an annual premium for such
run-off coverage in excess of 250% of the last
annual premium date prior to the date of the merger agreement,
but will purchase as much coverage as is available for such
amount. If the maximum run-off coverage does not
extend fully to the required six-year period, the surviving
corporation must first seek additional coverage from ACAPs
insurers under the existing policies prior to seeking additional
coverage from any other insurers.
Merger of Parent or Surviving Corporation.
In the
event Parent or the surviving corporation consolidates or merges
into any other person and is not the continuing or surviving
corporation or entity, or transfers all or substantially all of
its properties and assets to any person, then proper provision
must be made so that such continuing or surviving corporation or
entity or transferee of such assets must assume the obligations
set forth above in this section.
Public
Announcements
Subject to certain identified exceptions, Parent and ACAP must
coordinate and consult with each other before issuing press
releases or public statements with respect to the transactions
contemplated by the merger agreement. Parent and ACAP are
required to coordinate and consult with each other and to give
each other the opportunity to review and comment upon such press
releases and public statements before they are issued.
51
Fees and
Expenses
Subject to certain exceptions, all expenses incurred by the
Parent and ACAP with respect to the transactions contemplated by
the merger agreement will be borne solely and entirely by the
party which has incurred such expenses.
Amendment
The merger agreement may not be amended except by an instrument
in writing signed by ACAP, Parent and Merger Sub.
Waiver
At any time prior to the effective time of the merger, ACAP, on
one hand, and Parent and Merger Sub, on the other hand, may
(a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other
party contained in the merger agreement or in any document
delivered pursuant to the merger agreement and (c) waive
compliance by the other party with any of the agreements or
conditions contained in the merger agreement. Any such extension
or waiver must be set forth in an instrument in writing, signed
by the party to be bound, but such extension or waiver or
failure to insist on strict compliance with an obligation,
covenant, agreement or condition will not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Assignment
The merger agreement cannot be assigned by operation of law or
otherwise and any purported assignment will be null and void.
Parties
in Interest
Nothing in the merger agreement, express or implied, is intended
to or will confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of the merger
agreement, except pursuant to the provisions described above
under Employee Benefit Matters and
Directors and Officers
Indemnification and Insurance.
Governing
Law; Consent to Jurisdiction; Waiver of Trial by Jury
The merger agreement is governed by, and construed in accordance
with, the internal laws of the State of Delaware, without regard
to laws that may be applicable under conflicts of laws
principles. Under the merger agreement, each of ACAP, Parent and
Merger Sub has irrevocably and unconditionally submitted itself
to the exclusive jurisdiction of the U.S. District Court
for the District of Delaware and the Chancery of the State of
Delaware, and any appellate court in the state, in any action or
proceeding arising out of the merger agreement or the
transactions contemplated thereby. Each of the parties has also
unconditionally waived any right it may have to a trial by jury
in respect of any litigation directly or indirectly arising out
of the merger agreement or the transactions contemplated thereby.
52
OTHER
IMPORTANT INFORMATION REGARDING ACAP
Price
Range of Common Stock
ACAP common stock is quoted on the NASDAQ Global Select Market
under the symbol ACAP. The following table sets
forth for the periods indicated the high and low sale prices per
share of ACAP common stock as reported on the NASDAQ Global
Select Market, the principal market in which the common stock is
traded.
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Price
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Dividend
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Fiscal Year ended
December 31, 2008
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High
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Low
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per Share
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First Quarter
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$
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36.04
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$
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26.51
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$
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0.0750
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Second Quarter
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37.27
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32.31
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0.0750
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Third Quarter
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38.25
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29.01
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0.0750
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Fourth Quarter
|
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37.87
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20.08
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0.0750
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Fiscal Year ended December 31, 2009
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First Quarter
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37.01
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27.44
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0.0825
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Second Quarter
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32.41
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26.51
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0.0825
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Third Quarter
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35.74
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27.65
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0.0825
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Fourth Quarter
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30.80
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|
26.09
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0.0825
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Fiscal Year ended December 31, 2010
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First Quarter
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32.60
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26.42
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0.0900
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Second Quarter
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34.52
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29.02
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0.0900
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Third Quarter (through September 1, 2010)
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42.46
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30.93
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On July 7, 2010, the last trading day prior to the public
announcement of the execution of the merger agreement, the high
and low sales prices of ACAP common stock were $31.79 and $31.40
per share, respectively, and the closing price was $31.76 per
share. On September 1, 2010, the most recent practicable
date before the printing of this proxy statement, the high and
low reported sales prices of ACAP common stock were $41.34 and
$41.25, respectively, and the closing price was $41.29 per
share. You are urged to obtain a current market price quotation
for ACAP common stock.
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
ownership of the common stock as of September 1, 2010,
except as otherwise indicated, by
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each current director,
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each of our executive officers
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all current directors and executive officers as a group, and
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each person who is known by us to own beneficially 5% or more of
our outstanding shares of common stock, whom we refer to as a 5%
Owner.
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The number of shares beneficially owned is determined under
rules of the Securities and Exchange Commission, or SEC, and the
information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any
shares which the individual has the right to acquire on
September 1, 2010 or within 60 days thereafter through
the exercise of any stock option or other right. Unless
53
otherwise indicated, each holder has sole investment and voting
power with respect to the shares set forth in the following
table:
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Number of
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% of
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Name
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Shares(1)
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Class
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Billy B. Baumann, M.D.(2)
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57,683
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*
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R. Kevin Clinton(3)
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331,697
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3.5
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Stephen H. Haynes, M.D.
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27,400
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*
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AppaRao Mukkamala, M.D.(4)
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51,132
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*
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Mitchell A. Rinek, M.D.(5)
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6,000
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*
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Spencer L. Schneider(6)
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1,158
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*
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Joseph D. Stilwell(6)
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1,291,964
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13.9
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Larry W. Thomas
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Annette E. Flood
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108,880
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1.2
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Frank H. Freund(7)
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145,782
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1.6
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All current executive officers and directors as a group
(10 persons)(2)(3)(4)(5)(6)(7)
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2,021,696
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20.9
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Stilwell Value Partners II, L.P., Stilwell Value
Partners V, L.P., Stilwell Associates, L.P., Stilwell
Partners, L.P., Stilwell Offshore Ltd., Stilwell Associates
Insurance Fund of the S.A.L.I. Multiseries Fund L.P.,
Stilwell Advisors LLC, Stilwell Management LLC, and Stilwell
Value LLC(6)
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1,291,964
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13.9
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BlackRock, Inc.(8)
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825,285
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8.9
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JPMorgan Chase & Co.(9)
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596,394
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|
6.4
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The Vanguard Group, Inc.(10)
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595,391
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6.4
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Allianz Global Investors Management Partners LLC and NFJ
Investment Group(11)
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556,233
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6.0
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GGCP, Inc., Mario J. Gabelli, Gabelli Funds, LLC,
GAMCO Asset Management Inc., GAMCO Investors, Inc., and
Gabelli Securities, Inc.(12)
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503,374
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5.4
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*
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Less than one percent.
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(1)
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Includes shares that may be acquired upon exercise of options
granted by the Company by the following persons:
Mr. Freund80,000 shares;
Mr. Clinton159,996 shares;
Ms. Flood89,997 shares; and all current
executive officers and directors as a
group329,993 shares.
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(2)
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Includes 45,430 shares of common stock held of record by
the Rachel A. Baumann Revocable Living Trust U/A dated
November 22, 1982, of which Dr. Baumann has power of
attorney and 2,000 shares of common stock held of record by
Rachel A. Baumann in her individual retirement account. Also
includes 253 shares of common stock held of record by
Dr. Baumanns children. Dr. Baumann shares
dispositive power, but has no voting power over these
253 shares.
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(3)
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Includes 109,854 shares of common stock held of record by
the R. Kevin Clinton Trust U/A dated August 29, 2001,
39,999 shares held of record by his spouses trust and
10,535 shares held of record by his spouses
individual retirement account. Mr. Clinton has sole voting
and dispositive power with respect to the shares held in his
trust and shares the voting and dispositive power with respect
to the shares held in his spouses trust and individual
retirement account.
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(4)
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|
Includes 15,333 shares of common stock held of record by
the Mukkamala Family Ltd. Partnership, a limited partnership of
which Dr. Mukkamala is the general partner and has sole
dispositive and voting power with respect to these shares.
Includes 33,799 shares of common stock held of record by
AppaRao Mukkamala Trust U/A dated October 28, 1996 as to
which Dr. Mukkamala is the trustee and has sole dispositive
and voting power.
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(5)
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|
Includes 2,000 shares of common stock held of record by the
Nancy K. Rinek Living Trust U/A dated March 21, 1997,
as to which Dr. Rinek shares voting and dispositive power.
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(6)
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Stilwell Value Partners II, L.P. and various affiliated entities
and individuals has represented to us that it currently
beneficially owns 1,291,964 shares of our common stock.
Joseph Stilwell and the named
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54
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|
|
|
|
entities share the voting and dispositive power with respect to
all of the shares they own. The business address of Stilwell
Value Partners II, L.P., Stilwell Value Partners V. L.P.,
Stilwell Associates, L.P., Stilwell Partners, L.P., Stilwell
Offshore Ltd., Stilwell Associates Insurance Fund of the
S.A.L.I. Multiseries Fund L.P., Stilwell Advisors LLC, Stilwell
Management LLC, Stilwell Value LLC and Joseph Stilwell is 111
Broadway, 12th Floor, New York, New York 10006.
Mr. Schneider is a joint filer on Schedule 13D with
Mr. Stilwell and such entities with respect to ownership of
our common shares.
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(7)
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|
Includes 65,182 shares of common stock held of record by
the Frank H. Freund Living Trust No. 1 U/A/D dated
April 3, 2008 and 600 shares of common stock held of
record by Mr. Freunds children. Mr. Freund has
sole voting and dispositive power with respect to the shares
held in his trust and shares voting and dispositive power with
respect to the shares held by his children.
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(8)
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Based on information contained in a Schedule 13G filed on
January 29, 2010, with information as of December 31,
2009. BlackRock, Inc. has sole voting and dispositive power with
respect to all of the shares shown in the table. The business
address of BlackRock, Inc. is 40 East 52nd Street, New York, New
York 10022.
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(9)
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Based on information contained in a Schedule 13G filed on
January 28, 2010, with information as of December 31,
2009. JP Morgan Chase & Co. has sole voting power with
respect to 553,930 shares and sole dispositive power with
respect to all of the shares shown in the table. The business
address of JP Morgan Chase & Co. is 270 Park Avenue,
New York, New York 10017.
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(10)
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Based on information contained in a Schedule 13G filed on
February 8, 2010, with information as of December 31,
2009. The Vanguard Group, Inc. is a registered investment
advisor which has sole voting power and shared dispositive power
with respect to 16,328 shares, and sole dispositive power
with respect to 579,053 shares. The business address of The
Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern,
Pennsylvania 19355.
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(11)
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|
Based on information contained in a Schedule 13G filed on
February 12, 2010, with information as of December 31,
2009. NFJ Investment Group (NFJ), a register investment advisor,
is a wholly owned subsidiary of Allianz Global Investors
Management Partners LLC (AGIMP), a parent holding company. NFJ
has sole voting and dispositive power with respect to all of the
shares shown in the table. The business address of AGIMP is 680
Newport Center Drive, Suite 250, Newport Beach, California 92660
and of NFJ is 2100 Ross Avenue, Suite 700, Dallas, Texas
75201.
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(12)
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|
Based on information contained in a Schedule 13D filed on
August 9, 2010, GAMCO Asset Management Inc. has sole voting
and dispositive power over 222,300 shares, Gabelli Funds, LLC
has sole voting and dispositive power over 112,500 (so long as
the beneficial ownership of all joint filers does not exceed 25%
of their total voting interest in ACAP, in which case the proxy
voting committee for each of the funds for which it acts as
adviser would vote the shares), and Gabelli Securities, Inc. has
sole voting and dispositive power over 88,574 shares. Each of
these entities is a registered investment adviser controlled by
Mario J. Gabelli and renders advisory services for various
investment funds controlled by Mario J. Gabelli. The business
address for Mr. Gabelli and these entities, other than GGCP,
Inc., is One Corporate Center, Rye, New York 10580. The address
for GGCP, Inc. is 140 Greenwich Avenue, Greenwich, CT 06830.
|
PROPOSAL TO
GRANT AUTHORITY TO ADJOURN THE SPECIAL MEETING
Adjournment
Proposal
In this proposal, ACAP is asking you to authorize the holder of
any proxy solicited by its board of directors to vote in favor
of granting discretionary authority to the proxy or
attorney-in-fact to vote in favor of adjourning, postponing or
continuing the special meeting and any later adjournments in
order to enable its board of directors to solicit additional
proxies for the approval of the merger agreement. If the
shareholders approve the adjournment proposal, ACAP could
adjourn, postpone or continue the special meeting, and any
adjourned session of the special meeting and use the additional
time to solicit additional proxies, including the solicitation
of proxies from shareholders that have previously voted against
the proposal or respond to an
55
acquisition proposal as permitted in the merger agreement. Among
other effects, approval of the adjournment proposal could mean
that, even if ACAP had received proxies representing a
sufficient number of votes against approval of the merger
agreement to defeat that proposal, ACAP could adjourn the
special meeting without a vote on the merger agreement and seek
to convince the holders of those shares to change their votes to
votes in favor of approval of the merger agreement.
Vote
Required and Board Recommendation
The adjournment proposal requires the affirmative vote of the
holders of a majority of the votes cast in person or by proxy at
the special meeting and entitled to vote thereon. Abstentions
and broker non-votes will have no effect on the adjournment
proposal.
ACAPs board of directors recommends that you vote FOR
the adjournment proposal.
SUBMISSION
OF FUTURE SHAREHOLDER PROPOSALS
If the merger is completed, we will no longer be a publicly held
company and there will be no public participation in future
meetings of our shareholders held after the merger is completed.
If the merger is not completed, however, we expect to hold the
2011 Annual Meeting of Shareholders.
Shareholder proposals intended to be presented at the 2011
Annual Meeting of Shareholders which are eligible for inclusion
in our proxy statement for that meeting under
Rule 14a-8
under the Exchange Act must be received by us not later than
November 27, 2010 in order to be considered for inclusion
in our proxy statement relating to that meeting. Such proposals
should be addressed to the Secretary at our principal executive
offices (the address for which is on the front of this proxy
statement) and should satisfy the informational requirements
applicable to shareholder proposals contained in the applicable
rules of the SEC.
For shareholder proposals not sought to be included in our proxy
statement, Section 4.11 of our bylaws provides that, in
order to be properly brought before the 2011 Annual Meeting,
written notice of such proposal, along with the information
required by Section 4.11, must be received by our Corporate
Secretary at our principal executive offices no earlier than the
close of business on January 11, 2011 and no later than
February 10, 2011. If the 2011 annual meeting date has been
significantly advanced or delayed from the first anniversary of
the date of the 2010 annual meeting, then notice of such
proposal must be given not later than the 90th day before
the meeting or, if later, the 10th day after the first
public disclosure of the date of the annual meeting. A proponent
must also update the information provided in or with the notice
at the times specified in our bylaws.
Only persons who are shareholders both as of the giving of
notice and the date of the shareholder meeting and who are
eligible to vote at the shareholder meeting are eligible to
propose business to be brought before a shareholder meeting. The
proposing shareholder (or his qualified representative) must
attend the shareholder meeting in person and present the
proposed business in order for the proposed business to be
considered.
OTHER
MATTERS
Other
Business at the Special Meeting
Management and the ACAP board of directors are not aware of any
matters to be presented for action at the special meeting other
than those set forth in this proxy statement. However, should
any other matter properly come before the special meeting, or
any adjournment or postponement thereof, the enclosed proxy
confers upon the persons entitled to vote the shares represented
by such proxy, discretionary authority to vote the same in
respect of any such other matter in accordance with the
recommendations of the board of directors of ACAP.
56
Multiple
Shareholders Share One Address
In accordance with
Rule 14a-3(e)(1)
under the Exchange Act, one proxy statement will be delivered to
two or more shareholders who share an address, unless ACAP has
received contrary instructions from one or more of the
shareholders. ACAP will deliver promptly upon written or oral
request a separate copy of the proxy statement to a shareholder
at a shared address to which a single copy of the proxy
statement was delivered. Requests for additional copies of the
proxy statement, and requests that in the future separate proxy
statements be sent to shareholders who share an address, should
be directed to the Corporate Secretary of ACAP at 1301 North
Hagadorn Road, East Lansing, Michigan 48823, telephone:
1-800-748-0465.
In addition, shareholders who share a single address but receive
multiple copies of the proxy statement may request that in the
future they receive a single copy by contacting ACAP at the
address and phone number set forth in the prior sentence.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
ACAP files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy any reports, proxy statements or other information that we
file with the SEC at the SECs Public Reference Room
located at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms.
ACAPs public filings are also available to the public from
document retrieval services and the Internet website maintained
by the SEC at www.sec.gov. In addition, investors and security
holders may obtain free copies of the documents filed with the
SEC by ACAP at the For Investors page on its
corporate website at www.apcapital.com.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us by written or
telephonic request directed to the investor relations department
at ACAP, 1301 North Hagadorn Road, East Lansing, Michigan 48823,
telephone: 1-866-561-8222, or to our proxy solicitor,
Morrow & Co., LLC, telephone
1-800-279-6413.
If you would like to request documents, please do so by
October 13, 2010, in order to receive them before the
special meeting.
This proxy statement does not constitute the solicitation of a
proxy in any jurisdiction to or from any person to whom or from
whom it is unlawful to make such proxy solicitation in that
jurisdiction. You should rely only on the information contained
in this proxy statement or incorporated by reference in this
proxy statement to vote your shares at the special meeting. No
persons have been authorized to give any information or to make
any representations other than those contained in this proxy
statement and, if given or made, such information or
representations must not be relied upon as having been
authorized by us or any other person. This proxy statement is
dated September 8, 2010. You should not assume that the
information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this proxy
statement to shareholders shall not create any implication to
the contrary.
The merger agreement contains a number of representations and
warranties which ACAP and Parent have made to each other. The
assertions embodied in those representations and warranties are
qualified by information in confidential disclosure schedules
that the parties have exchanged in connection with signing the
merger agreement. These disclosure schedules contain information
that has been included in the prior public disclosures of ACAP,
as well as additional non-public information. While ACAP does
not believe that this non-public information is required to be
publicly disclosed under the applicable securities laws, that
information does modify, qualify and create exceptions to the
representations and warranties set forth in the merger
agreement. In addition, these representations and warranties
were made as of the date of the merger agreement. Information
concerning the subject matter of the representations and
warranties may have changed since the date of the merger
agreement, which subsequent information may or may not be fully
reflected in the public disclosures of ACAP. Moreover,
representations and warranties are frequently utilized in merger
agreements as a means of allocating risks, both known and
unknown, rather than to make affirmative factual claims or
statements. Accordingly, you should not rely on the
representations and warranties as current characterizations of
factual information about ACAP or Parent.
57
APPENDIX A
AGREEMENT
AND PLAN OF MERGER
BY AND
AMONG
THE
DOCTORS COMPANY,
RED HAWK
ACQUISITION CORP.
AND
AMERICAN
PHYSICIANS CAPITAL, INC.
Dated as
of JULY 7, 2010
A-1
TABLE OF
CONTENTS
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Page
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Article 1. The Merger
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A-4
|
Section 1.1 The Merger
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A-4
|
Section 1.2 Closing
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A-4
|
Section 1.3 Effective Time
|
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A-4
|
Section 1.4 Effect of the Merger
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A-4
|
Section 1.5 Articles of Incorporation; By-laws
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A-4
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Section 1.6 Directors and Officers
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A-5
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|
Article 2. Conversion of Securities; Exchange of
Certificates
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A-5
|
Section 2.1 Conversion of Securities
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A-5
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Section 2.2 Company Options
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A-5
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Section 2.3 Exchange Procedures
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A-6
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Section 2.4 Stock Transfer Books
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A-7
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Article 3. Representations and Warranties of the
Company
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A-7
|
Section 3.1 Organization and Qualification; Subsidiaries
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A-7
|
Section 3.2 Articles of Incorporation and By-laws
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A-8
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Section 3.3 Capitalization
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A-8
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Section 3.4 Authority
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A-9
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Section 3.5 No Conflict; Required Filings and Consents
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A-9
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Section 3.6 Permits; Compliance With Law
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A-10
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Section 3.7 SEC Filings; Financial Statements
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A-10
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Section 3.8 Disclosure Documents
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A-12
|
Section 3.9 Absence of Certain Changes or Events
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A-12
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Section 3.10 Employee Benefit Plans
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A-12
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Section 3.11 Labor and Other Employment Matters
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A-13
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Section 3.12 Material Contracts
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A-14
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Section 3.13 Reinsurance Contracts
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A-15
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Section 3.14 Litigation
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|
A-15
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Section 3.15 Environmental Matters
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A-15
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Section 3.16 Intellectual Property
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A-16
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Section 3.17 Assets and Properties
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A-16
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Section 3.18 Taxes
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A-17
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Section 3.19 Insurance Practices; Compliance With Laws
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A-17
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Section 3.20 Vote Required
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A-18
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Section 3.21 Brokers
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A-19
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Section 3.22 Opinion of Financial Advisor
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A-19
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Section 3.23 Insurance Policies
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A-19
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Section 3.24 Insurance Producers
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A-19
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Section 3.25 Interested Party Transactions
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A-19
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Section 3.26 Investments
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A-19
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Section 3.27 No Investment Company
|
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A-20
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Section 3.28 Compliance with the Investment Advisers Act
|
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A-20
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Section 3.29 No Broker/Dealer Operations
|
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A-20
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Section 3.30 No Limitations on Dividends
|
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A-20
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A-2
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Article 4. Representations and Warranties of Parent and
Merger Sub
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|
A-20
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Section 4.1 Organization and Qualification; Subsidiaries
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A-20
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Section 4.2 Authority
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A-20
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Section 4.3 No Conflict; Required Filings and Consents
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A-21
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Section 4.4 Disclosure Documents
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A-21
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Section 4.5 Litigation
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A-22
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Section 4.6 Ownership of Merger Sub; No Prior Activities
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A-22
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Section 4.7 Vote Required
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A-22
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Section 4.8 Brokers
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A-22
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Section 4.9 Financing
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A-22
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Section 4.10 Management Arrangements
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A-22
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Section 4.11 Ownership of Company Common Stock
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A-23
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Article 5. Covenants
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A-23
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Section 5.1 Conduct of Business by the Company Pending the
Closing
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A-23
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Section 5.2 Cooperation
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A-25
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Section 5.3 Proxy Statement
|
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A-25
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Section 5.4 Company Shareholders Meeting; Consent of
Parent as Sole Shareholder of Merger Sub
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A-26
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Section 5.5 Access to Information; Confidentiality
|
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A-26
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Section 5.6 Acquisition Proposals
|
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A-27
|
Section 5.7 Appropriate Action; Consents; Filings
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A-28
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Section 5.8 Certain Notices
|
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A-29
|
Section 5.9 Public Announcements
|
|
A-30
|
Section 5.10 Employee Benefit Matters
|
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A-30
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Section 5.11 Indemnification of Directors and Officers
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A-31
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Section 5.12 Certain Tax Matters
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A-32
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Article 6. Closing Conditions
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A-32
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Section 6.1 Conditions to Obligations of Each Party Under
This Agreement
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A-32
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Section 6.2 Additional Conditions to Obligations of Parent
and Merger Sub
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A-33
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Section 6.3 Additional Conditions to Obligations of the
Company
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A-33
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Article 7. Termination, Amendment and Waiver
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|
A-34
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Section 7.1 Termination
|
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A-34
|
Section 7.2 Effect of Termination
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A-35
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Section 7.3 Amendment
|
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A-36
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Section 7.4 Waiver
|
|
A-36
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|
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Article 8. General Provisions
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|
A-36
|
Section 8.1 Non-Survival of Representations and Warranties
|
|
A-36
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Section 8.2 Fees and Expenses
|
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A-36
|
Section 8.3 Notices
|
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A-36
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Section 8.4 Certain Definitions
|
|
A-37
|
Section 8.5 Terms Defined Elsewhere
|
|
A-41
|
Section 8.6 Headings
|
|
A-43
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Section 8.7 Severability
|
|
A-43
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Section 8.8 Entire Agreement
|
|
A-43
|
Section 8.9 No Reliance
|
|
A-43
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Section 8.10 Assignment
|
|
A-43
|
Section 8.11 Parties in Interest
|
|
A-43
|
Section 8.12 Mutual Drafting
|
|
A-43
|
Section 8.13 Governing Law; Consent to Jurisdiction; Waiver
of Trial by Jury
|
|
A-43
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Section 8.14 Disclosure Schedule
|
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A-44
|
Section 8.15 Counterparts
|
|
A-44
|
Exhibit A-1
Officers of Parent
Exhibit A-2
Officers of the Company
A-3
AGREEMENT
AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of July 7, 2010
(this
Agreement
), is by and among THE DOCTORS
COMPANY, a California-domiciled reciprocal inter-insurance
exchange (
Parent
), RED HAWK ACQUISITION
CORP., a Michigan corporation and a wholly owned subsidiary of
Parent (
Merger Sub
), and AMERICAN PHYSICIANS
CAPITAL, INC., a Michigan corporation (the
Company
).
RECITALS
WHEREAS, the Board of Governors of Parent and the respective
Boards of Directors of Merger Sub and the Company have approved
and declared advisable this Agreement and the merger of Merger
Sub with and into the Company (the
Merger
)
upon the terms and subject to the conditions of this Agreement
and in accordance with the Michigan Business Corporation Act
(the
MBCA
); and
WHEREAS, the Board of Governors of Parent and the respective
Boards of Directors of Merger Sub and the Company have
determined that the Merger is in the best interest of their
respective shareholders or policyholders, as applicable.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements
set forth in this Agreement and intending to be legally bound
hereby, the parties hereto agree as follows:
Article 1.
The Merger
Section 1.1
The Merger
. Upon the terms
and subject to satisfaction or waiver of the conditions set
forth in this Agreement, and in accordance with the MBCA, Merger
Sub shall be merged with and into the Company. As a result of
the Merger, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving
corporation of the Merger (the
Surviving
Corporation
).
Section 1.2
Closing
. The closing of the
Merger (the
Closing
) shall take place at the
offices of Dykema Gossett PLLC, 400 Renaissance Center,
Suite 2300, Detroit, Michigan 48243 (or such other place as
agreed by the parties) not later than the second Business Day
following the date on which all of the conditions set forth in
Article 6
are satisfied or, if permissible, waived
(other than those conditions to be satisfied at the Closing, but
subject to the satisfaction or, if permissible, waiver thereof),
unless the parties hereto agree to another date.
Section 1.3
Effective Time
. At the
Closing, subject to the terms and conditions of this Agreement,
the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the
Certificate of
Merger
) with the Michigan Department of Energy, Labor
and Economic Growth, in such form as required by, and executed
in accordance with the relevant provisions of, the MBCA (the
date and time of such filing, or at such later date and time as
Parent and the Company shall agree and specify in the
Certificate of Merger, such specified date and time, being the
Effective Time
).
Section 1.4
Effect of the Merger
. At the
Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of the MBCA. Without limiting the
generality of the foregoing, at the Effective Time, except as
otherwise provided herein, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
Section 1.5
Articles of Incorporation;
By-laws
. The Company Articles, as in effect immediately
prior to the Effective Time, shall be amended at the Effective
Time to read the same as the Articles of Incorporation of Merger
Sub and, as so amended, shall be the articles of incorporation
of the Surviving Corporation, until thereafter changed or
amended as provided therein or by applicable law, subject to
Section 5.11.2
; provided however, that
Article I thereof shall read as follows: The name of
the corporation is: Red Hawk Acquisition Corp. The Company
By-laws, as in effect immediately prior to the Effective Time,
shall be amended at the
A-4
Effective Time to read the same as the Bylaws of Merger Sub and,
as so amended, shall be the by-laws of the Surviving
Corporation, until thereafter changed or amended as provided
therein or by applicable law, subject to
Section 5.11.2
.
Section 1.6
Directors and Officers
. The
directors of Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the articles of
incorporation and by-laws of the Surviving Corporation. The
officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the articles of incorporation
and by-laws of the Surviving Corporation.
Article 2.
Conversion of Securities; Exchange of Certificates
Section 2.1
Conversion of Securities
. At
the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or the
holders of any of the following securities:
Section 2.1.1 Conversion of Company Common
Stock.
Each share of common stock, no par value per
share, of the Company (
Company Common Stock
)
issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Common Stock to be canceled
pursuant to
Section 2.1.2)
shall be converted into
the right to receive $41.50 in cash, payable to the holder
thereof, without interest (the
Merger
Consideration
). All such shares of Company Common
Stock shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and each Certificate
previously representing any such share shall thereafter
represent the right to receive the Merger Consideration therefor.
Section 2.1.2 Cancellation of Certain Company Common
Stock.
Each share of Company Common Stock held in the
treasury of the Company or by any Company Subsidiary shall be
cancelled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
Section 2.1.3 Merger Sub.
Each share of common
stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and be exchanged for
one newly and validly issued, fully paid and nonassessable share
of common stock of the Surviving Corporation.
Section 2.1.4 Change in Company Common
Stock.
If between the date of this Agreement and the
Effective Time the outstanding shares of the Company Common
Stock shall have been changed into a different number of shares
or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Merger Consideration
shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares;
provided
, that
the aggregate Merger Consideration payable shall not exceed the
aggregate amount contemplated pursuant to Section 2.1.1 as
of the date hereof.
Section 2.2
Company Options
. Prior to
the Effective Time, the Board of Directors of the Company (the
Company Board
) (or if appropriate, any
committee thereof) shall adopt appropriate resolutions and take
all other actions necessary and appropriate to provide that,
immediately prior to the Effective Time, each unexpired and
unexercised option or similar rights to purchase Company Common
Stock (the
Company Options
) then outstanding,
under any stock option plan of the Company, including the
Companys Stock Compensation Plan, as amended and restated,
or any other plan, agreement or arrangement (the
Company Stock Option Plans
), shall become
fully vested and exercisable, and that effective as of the
Effective Time, each such Company Option shall be cancelled and,
in exchange therefor, each former holder of any such cancelled
Company Option shall be entitled to receive, in consideration of
the cancellation of such Company Option and in settlement
therefor, a payment in cash (subject to
Section 2.3.8
hereof) of an amount equal to the
product of (A) the total number of shares of Company Common
Stock previously subject to such Company Option and (B) the
excess, if any, of the Merger Consideration over the exercise
price per share of Company Common Stock previously subject to
such Company Option (such amounts payable hereunder being
referred to as the
Option Consideration
).
From and after the Effective Time, any such cancelled Company
Option shall no longer be exercisable by the former holder
thereof and that each such former holder shall only be entitled
to the payment of the Option Consideration. To the extent then
in effect, after the Effective Time,
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all Company Stock Option Plans shall be terminated and no
further Company Options or other awards shall be granted
thereunder.
Section 2.3
Exchange Procedures
.
Section 2.3.1 Paying Agent.
Prior to the
Effective Time, Parent shall designate a bank or trust company
reasonably satisfactory to the Company (the
Paying Agent
), to act as agent for
Parent for purposes of, among other things, mailing and
receiving letters of transmittal, and distributing the Merger
Consideration to the Companys shareholders.
Section 2.3.2 Exchange Procedures for Company Common
Stock.
At or prior to the Effective Time, Parent shall
deposit, or shall cause to be deposited, with the Paying Agent,
for the benefit of the holders of shares of Company Common Stock
for payment in accordance with this
Article 2
, cash
in U.S. dollars in an amount sufficient to pay the Merger
Consideration (the
Exchange Fund
). No
later than two Business Days after the Effective Time, Parent
shall cause the Paying Agent to mail to each holder of record of
a Certificate or Book-Entry Shares as of immediately prior to
the Effective Time (A) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and
title to the Certificate or Book-Entry Shares shall pass, only
upon proper delivery of the Certificate or Book-Entry Shares to
the Paying Agent and shall be in customary form) and
(B) instructions for use in effecting the surrender of the
Certificate or Book-Entry Shares in exchange for the Merger
Consideration, to which such holder is entitled pursuant to this
Agreement. Upon surrender of a Certificate for cancellation to
the Paying Agent together with such letter of transmittal,
properly completed and duly executed (or, in the case of
Book-Entry Shares, upon adherence to the applicable procedures
set forth in such letter of transmittal for surrendering such
shares), and upon surrender of such other documents as may be
required by the Paying Agent, the holder of such Certificate or
Book-Entry Shares shall be entitled to receive in exchange
therefor the Merger Consideration, that such holder has the
right to receive in respect of the Company Common Stock formerly
represented by such Certificate or Book-Entry Shares, and the
Certificate or Book-Entry Shares so surrendered shall forthwith
be canceled. No interest will be paid or accrued on the Merger
Consideration payable upon surrender of any Certificate or
Book-Entry Share. In the event of a permitted transfer of
ownership of shares of Company Common Stock represented by a
Certificate which is not registered in the transfer records of
the Company or the Companys transfer agent on behalf of
the Company, the Merger Consideration may be paid to a
transferee if the Certificate is presented to the Paying Agent,
accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable transfer Taxes
have been paid. Until surrendered as contemplated by this
Section 2.3.2
, each Certificate and Book-Entry Share
shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the
Merger Consideration.
Section 2.3.3 Payment for Company Options.
At
the Closing, Parent will make (or cause to be made) payment to
the Surviving Corporation, by wire transfer of immediately
available funds to the account or accounts designated by the
Company in writing no later than two Business Days prior to the
Closing, in an amount equal to the aggregate Option
Consideration, to the extent payable as provided in
Section 2.2
, plus the amount of any employment Taxes
payable by the Surviving Corporation in respect of the payment
of such Option Consideration (provided that, for the avoidance
of doubt, the Surviving Corporation shall have no obligation to
pay any taxes that may be payable by the holders of Company
Options upon receiving the Option Consideration). At the
Effective Time, or as soon as practicable thereafter (but not
later than two Business Days thereafter), the Surviving
Corporation shall, in consideration of cancellation of the
Company Options that became entitled to receive the
consideration specified in
Section 2.2
, pay the
Option Consideration in respect of each such Company Option to
each holder of a Company Option.
Section 2.3.4 Further Rights in Company
Securities.
All Merger Consideration and Option
Consideration paid in accordance with the terms hereof shall be
deemed to have been paid in full satisfaction of all rights
pertaining to the Company Common Stock and Company Options with
respect to which such payments are made, respectively.
Section 2.3.5 Termination of Exchange Fund.
Any
portion of the Exchange Fund which remains undistributed to the
holders of Company Common Stock for twelve months after the
Effective Time shall be delivered to Parent upon demand, and any
holders of Company Common Stock who have not theretofore
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complied with this
Article 2
shall thereafter look
only to Parent (subject to abandoned property, escheat and
similar Laws) as general creditors thereof for payment of the
Merger Consideration without any interest thereon.
Section 2.3.6 No Liability.
Neither Parent nor
the Company nor the Surviving Corporation shall be liable to any
holder of Company Common Stock for any cash from the Exchange
Fund delivered to a public official pursuant to any abandoned
property, escheat or similar Law.
Section 2.3.7 Lost Certificates.
If any
Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond, in such reasonable
amount as Parent may direct, as indemnity against any claim that
may be made against it with respect to such Certificate, the
Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration without interest
thereon.
Section 2.3.8 Withholding.
Notwithstanding
anything in this Agreement to the contrary, Parent, the
Surviving Corporation or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Common Stock
and Company Options, such amounts as Parent, the Surviving
Corporation or the Paying Agent are required to deduct and
withhold under the Internal Revenue Code of 1986, as amended
(the
Code
), the treasury regulations
thereunder or any other provision of U.S. Tax Law, or any
provision of state, local or foreign Tax Law, with respect to
the making of such payment. To the extent that amounts are so
withheld by Parent, the Surviving Corporation or the Paying
Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of Company
Common Stock or Company Options in respect of whom such
deduction and withholding was made by Parent, the Surviving
Corporation or the Paying Agent.
Section 2.4
Stock Transfer Books
. At the
close of business, New York time, on the day the Effective Time
occurs, the stock transfer books of the Company shall be closed
and there shall be no further registration of transfers of
Company Common Stock or Company Options that were outstanding on
the records of the Company. From and after the Effective Time,
the holders of Certificates or Book Entry Shares immediately
prior to the Effective Time shall cease to have any rights with
respect to such Company Common Stock, except as otherwise
provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Paying Agent or Parent for any
reason shall be cancelled and exchanged as provided in this
Article 2
.
Article 3.
Representations and Warranties of the Company
Except as set forth in the Disclosure Schedule delivered by the
Company to Parent at or prior to the execution of this Agreement
(the
Company Disclosure Schedule
), the
Company hereby makes the following representations and
warranties to Parent. Unless otherwise specified, no disclosure
made in any particular Section of the Company Disclosure
Schedule shall be deemed made in any other Section of the
Company Disclosure Schedule unless expressly made therein (by
cross reference or otherwise).
Section 3.1
Organization and Qualification;
Subsidiaries
. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Michigan. Each Company Subsidiary is duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization, as the
case may be. The Company and each of the Company Subsidiaries
has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is
now being conducted. The Company and each of the Company
Subsidiaries is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of
its business makes such qualification, licensing or good
standing necessary, except for such failures to be so qualified,
licensed or in good standing that would not reasonably be
expected to have a Company Material Adverse Effect or otherwise
prevent or delay (beyond the Outside Date as determined pursuant
to Section 7.1.2) consummation of the Merger.
Section 3.1
of the Company Disclosure Schedule sets
forth a true, complete and correct list of all of the
subsidiaries of the Company (each a
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Company Subsidiary
and, collectively, the
Company Subsidiaries
), together with the
jurisdiction of incorporation of each Company Subsidiary, the
jurisdictions in which each Company Subsidiary is licensed to
conduct business and the authorized capitalization of each
Company Subsidiary. Except as set forth in
Section 3.1
of the Company Disclosure Schedules,
none of the Company or any Company Subsidiary holds an Equity
Interest in any other person.
Section 3.2
Articles of Incorporation and
By-laws
. The copies of the Companys Articles of
Incorporation, as amended (the
Company
Articles
), and Amended and Restated Bylaws (the
Company By-laws
) which were previously
furnished or made available to Parent are true, complete and
correct. The Company has made available to Parent a true,
complete and correct copy of the charter and bylaws (or
equivalent organizational documents) of each of the Company
Subsidiaries.
Section 3.3
Capitalization
.
Section 3.3.1
The authorized capital stock of the
Company consists of 55,000,000 shares of capital stock, of
which 50,000,000 are designated Company Common Stock and
5,000,000 are designated preferred stock, no par value per share
(
Company Preferred Stock
). As of July 7,
2010, (A) 9,323,087 shares of Company Common Stock
were issued and outstanding, all of which were validly issued,
fully paid, nonassessable and free of preemptive rights and
(B) 348,687 shares of Company Common Stock were
reserved for issuance upon exercise of Company Options granted
under the Company Stock Option Plans. As of July 7, 2010
and as of the Effective Time, (i) no shares of Company
Preferred Stock were (or will be) designated, issued and
outstanding and (ii) no shares of Company Common Stock were
(or will be) held in the treasury of the Company or by the
Company Subsidiaries. There are no bonds, debentures, notes or
other debt securities issued by the Company that have the right
to vote (or are convertible into, or exchange for, securities
having the right to vote) on any matters on which holders of
Company Common Stock may vote.
Section 3.3.2
As of July 7, 2010, there are
2,400,000 shares of the Companys Common Stock
authorized for issuance under the Companys Stock
Compensation Plan and only 362,488 remain available for future
grant.
Section 3.3.2
of the Company Disclosure
Schedule sets forth a list of all of the Company Options
outstanding and their exercise prices. Except as set forth in
Section 3.3.2
of the Company Disclosure Schedule,
there are no options, warrants or other rights to acquire
capital stock or other Equity Interests of the Company, or
securities convertible into or exchangeable for capital stock or
other Equity Interests of the Company. Since July 31, 2009
and through the date hereof, the Company has not issued any
shares of its capital stock or other Equity Interests or
securities convertible into or exchangeable for capital stock or
other Equity Interests of the Company, other than Company
Options issued pursuant to the Company Stock Option Plans, and
the issuance of shares pursuant to Company Options. All shares
of Company Common Stock subject to issuance under the Company
Stock Option Plans, upon issuance prior to the Effective Time on
the terms and conditions specified in the instruments pursuant
to which they are issuable, will be validly issued, fully paid,
nonassessable and free of preemptive rights.
Section 3.3.3
Except as set forth in
Section 3.3.3
of the Company Disclosure Schedule and
with respect to the Company Options pursuant to the Company
Stock Option Plans and the related stock option agreements,
there are no outstanding contractual obligations of the Company
or any Company Subsidiary (A) restricting the transfer of,
(B) affecting the voting rights of, (C) requiring the
repurchase, redemption or disposition of, or containing any
right of first refusal with respect to, (D) requiring the
registration for sale of, or (E) granting any preemptive or
antidilutive right with respect to, any shares of Company Common
Stock or any capital stock of, or other Equity Interests in, the
Company or any Company Subsidiary. Except as set forth in
Section 3.3.3
of the Company Disclosure Schedule,
each outstanding share of capital stock of each Company
Subsidiary is validly issued, fully paid, nonassessable and free
of preemptive rights and is owned, beneficially and of record,
by the Company or another Company Subsidiary free and clear of
all security interests, liens, pledges, options, rights of first
refusal, agreements, limitations on the Companys or such
other Company Subsidiarys voting rights, charges and other
encumbrances of any nature whatsoever, in each case, other than
Permitted Liens.
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Section 3.4
Authority
.
Section 3.4.1
The Company has requisite corporate
power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and, subject to the adoption
of this Agreement by the Required Company Shareholders, to
consummate the transactions contemplated by this Agreement to be
consummated by the Company. The execution and delivery of this
Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company and no
shareholder votes are necessary to authorize this Agreement or
the Merger or to consummate the transactions contemplated hereby
subject, with respect to the Merger, to the adoption of this
Agreement by the Required Company Shareholders. This Agreement
has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by each of
the other parties hereto, constitutes a legally valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, preference, fraudulent transfer, moratorium or
other similar laws relating to or affecting the rights and
remedies of creditors and by general principles of equity
regardless of whether enforcement is considered in a proceeding
in equity or at law, concepts of materiality, reasonableness,
good faith and fair dealing, and the discretion of the court
before which any proceeding therefore may be brought.
Section 3.4.2
Assuming the accuracy of the
representation and warranty set forth in the first sentence of
Section 4.11
, the action taken by the Company Board
in approving this Agreement and the Merger is sufficient to
render inapplicable to the Merger the restrictions on business
combinations contained in Section 780 of the MBCA.
Section 3.5
No Conflict; Required Filings and
Consents
.
Section 3.5.1
The execution and delivery of this
Agreement by the Company does not, and the performance of this
Agreement and the consummation of the Merger and the other
transactions contemplated hereby by the Company will not,
(A) assuming the Required Company Shareholders adopt this
Agreement, conflict with or violate any provision of the Company
Articles or the Company By-laws or any equivalent organizational
documents of any Company Subsidiary, (B) assuming that all
consents, approvals, authorizations and permits described in
Section 3.5.2
have been obtained and all filings and
notifications described in
Section 3.5.2
have been
made and any waiting periods thereunder have terminated or
expired, conflict with or violate any Law applicable to the
Company or any Company Subsidiary or by which any property or
asset of the Company or any Company Subsidiary is bound or
(C) assuming that all consents, approvals, authorizations
and permits described in
Section 3.5.2
have been
obtained and all filings and notifications described in
Section 3.5.2
have been made and any waiting periods
thereunder have terminated or expired or except as set forth in
Section 3.5.1
of the Company Disclosure Schedule,
require any consent or approval under, result in any breach of
or any loss of any benefit under, or constitute a change of
control or default (or an event which with notice or lapse of
time or both would become a default) under, or give to others
any right of termination, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any
property or asset of the Company or any Company Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, Company Permit or other legally
binding obligation to which the Company or any Company
Subsidiary is a party, except, as to clauses (B) and (C),
respectively, for any such conflicts, violations, breaches,
defaults or other occurrences which would not reasonably be
expected to have a Company Material Adverse Effect or otherwise
prevent or delay (beyond the Outside Date as determined pursuant
to Section 7.1.2) consummation of the Merger.
Section 3.5.2
The execution and delivery of this
Agreement by the Company does not, and the performance of this
Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (A) as
may be required under the Exchange Act, the Investment Advisors
Act, the rules and regulations of the Nasdaq, the HSR Act, the
filing of the Certificate of Merger as required by the MBCA and
as may be required under applicable insurance regulatory Laws
and (B) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would not reasonably be expected to have a
Company Material
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Adverse Effect or otherwise prevent or delay (beyond the Outside
Date as determined pursuant to Section 7.1.2) consummation
of the Merger. All such consents, approvals, authorizations,
permits, filings and notifications are identified in
Section 3.5.2
of the Company Disclosure Schedule.
Section 3.6
Permits; Compliance With
Law
. Each of the Company and each Company Subsidiary is
in possession of all authorizations, licenses, permits,
certificates, approvals and clearances of any Governmental
Authority (the
Company Permits
) necessary for
the Company and each Company Subsidiary to own, lease and
operate its properties or to carry on its respective business
substantially as it is being conducted as of the date hereof,
and all such Company Permits are valid and in full force and
effect, and there is no pending, or, to the Companys
knowledge, threatened action or proceeding to terminate,
suspend, limit or adversely modify any Company Permit, except
where the failure to be in possession of, or the suspension or
cancellation of, or failure to be valid or in full force and
effect of, any of the Company Permits has not or would not
reasonably be expected to have a Company Material Adverse
Effect. None of the Company or any Company Subsidiary is, or has
received written notice that it is, in material conflict with,
or in material default or violation of, any Law, including
without limitation, the Exchange Act and the Sarbanes-Oxley Act
of 2002 (
SOX
), applicable to the Company or
any Company Subsidiary or any Company Permits, or by which any
property or asset of the Company or any Company Subsidiary is
bound.
Section 3.7
SEC Filings; Financial Statements
.
Section 3.7.1
Except as set forth in
Section 3.7.1
of the Company Disclosure Schedule,
the Company has timely filed all registration statements,
prospectuses, forms, reports, definitive proxy statements,
schedules and documents required to be filed by it under the
Securities Act or the Exchange Act, as the case may be, from and
after January 1, 2007 (collectively, the
Company SEC Filings
). Each Company SEC
Filing, as amended or supplemented if applicable, (A) as of
its date, or, if amended or supplemented, as of the date of the
most recent amendment or supplement thereto, complied in all
material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (B) did not, at
the time it was filed (or became effective in the case of
registration statements), or, if amended or supplemented, as of
the date of the most recent amendment or supplement thereto,
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. As of
the date of this Agreement, no Company Subsidiary is separately
subject to the periodic reporting requirements of the Exchange
Act.
Section 3.7.2
Each of the consolidated financial
statements contained in the Company SEC Filings, including, any
notes thereto, as amended, supplemented or restated, if
applicable, was prepared in accordance with GAAP applied (except
as may be indicated in the notes thereto and, in the case of
unaudited quarterly financial statements, as permitted by
Form 10-Q
under the Exchange Act) on a consistent basis throughout the
periods indicated (except as may be indicated in the notes
thereto), and each of such consolidated financial statements, as
amended, supplemented or restated, if applicable, presented
fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company
and the consolidated Company Subsidiaries as of the respective
dates thereof and for the respective periods indicated therein
(subject, in the case of unaudited quarterly financial
statements, to normal and immaterial year-end adjustments. This
representation and warranty shall not be deemed to be breached
as a result of any change in GAAP or Law after the date of this
Agreement.
Section 3.7.3
Company has made available to Parent
true, complete and correct copies of the annual and quarterly
statements of each of the Company Insurance Subsidiaries for the
most recently ended quarterly period and the years ended
December 31, 2009 and 2008, as appropriate, as filed with
the insurance regulatory authorities of its jurisdiction of
domicile, and audited statutory financial statements for the
Company Insurance Subsidiaries as of and for the periods ended
December 31, 2009 and 2008 as filed with the domestic
insurance regulatory authority, together, in each case, with the
exhibits, schedules and notes thereto and any affirmations and
certifications filed therewith (the
STAT Financial
Statements
). The STAT Financial Statements of each
such Company Insurance Subsidiary present fairly in all material
respects the financial position and results of operations of
such Company Subsidiary as of the respective dates thereof and
for the respective periods set forth therein, in each case in
accordance with Statutory Accounting Principles
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applied on a consistent basis. This representation and warranty
shall not be deemed to be breached as a result of any change in
Statutory Accounting Principles or Law after the date of this
Agreement. Each of the Company Insurance Subsidiaries has filed
or submitted all STAT Financial Statements required to be filed
with or submitted to the insurance regulatory authorities in its
state of domicile. The STAT Financial Statements complied in all
material respects, on their respective dates of filing or
submission, with the Laws of their respective states of domicile.
Section 3.7.4
The Company has made available to
Parent, prior to the date hereof, true, complete and correct
copies of all actuarial reports, actuarial certificates, loss
and loss adjustment expense reserve reports, and deferred
acquisition cost and loss recognition analyses prepared by the
Company or by any third party actuarial consultant on behalf of
or made available to the Company relating to the adequacy of the
reserves of the Company or any Company Subsidiary for any period
ended on or after December 31, 2009 (the
Actuarial Analyses
). Each such
Actuarial Analysis was generated from the same underlying
sources and systems that were utilized by the Company Insurance
Subsidiaries to prepare the STAT Financial Statements, and the
books and records of, the Company and the Company Subsidiaries,
as the case may be, at the relevant time of preparation (which
preparation was accurate in all material respects), and in
conformity in all material respects with applicable Law.
Section 3.7.5
Except as and to the extent set forth
(A) on the consolidated balance sheet of the Company and
the consolidated Company Subsidiaries as of December 31,
2009 included in the Companys annual report filed on
Form 10-K
for the year ended December 31, 2009, including the notes
thereto, (B) in the Company SEC Filings filed after
December 31, 2009 or (C) in
Section 3.7.5
of the Company Disclosure Schedule, none of the Company or any
consolidated Company Subsidiary had at the relevant balance
sheet date, any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would
be required to be reflected or reserved against on a balance
sheet prepared in accordance with GAAP and none have arisen
since such date through the date of this Agreement, except in
each case for liabilities or obligations (i) contemplated
by or under this Agreement or incurred in connection with the
transactions contemplated hereby, (ii) incurred in the
ordinary course of business and in a manner consistent with past
practice or (iii) incurred outside the ordinary course of
business that individually or in the aggregate do not exceed
$5,000,000.
Section 3.7.6
Section 3.7.6
of the
Company Disclosure Schedule accurately lists all Indebtedness of
the Company, including for each item of Indebtedness, as
applicable, the interest rate, maturity date and any assets or
properties securing such Indebtedness.
Section 3.7.7
Section 3.7.7
of the
Company Disclosure Schedule sets forth a list of any material
joint venture, off balance sheet partnership or any similar
contract or arrangement to which the Company or any Company
Subsidiary is a party (including any contract relating to any
transaction or relationship between or among the Company and any
of the Company Subsidiaries, on the one hand, and any
unconsolidated affiliate of the Company or any of the Company
Subsidiaries, including any structured finance, special purpose
or limited purpose entity or Person, on the other hand, or any
off-balance sheet arrangements (as defined in
Item 303(a) of
Regulation S-K
of the SEC)).
Section 3.7.8
Neither the Company nor any Company
Subsidiary has received any complaints (within the
meaning of Exchange Act
Rule 10A-3)
in respect of any accounting, internal accounting controls or
auditing matters. To the Companys knowledge, no complaint
seeking relief under Section 806 of SOX has been filed with
the United States Secretary of Labor and no employee has
threatened to file any such complaint. The Companys Chief
Executive Officer and Chief Financial Officer have made all
certifications and statements required by Sections 302 and
906 of SOX and the related rules and regulations promulgated
thereunder with respect to the Company SEC Filings. The Company
maintains disclosure controls and procedures required by
Rule 13a-15
and
15d-15
under the Exchange Act that are designed to ensure that all
material information concerning the Company and the Company
Subsidiaries are made known on a timely basis to the individuals
responsible for the preparation of the Company SEC Filings and
other public disclosure documents. Since January 1, 2007,
neither the accountants for nor the board of directors or audit
committee of the Company or any Company Subsidiary have been
advised of (A) any significant deficiencies
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or material weaknesses in the design or operation of the
internal controls over financial reporting which are reasonably
likely to adversely affect in any material respect its ability
to record, process, summarize and report financial data or
(B) any fraud that involves management or other employees
who have a role in the financial controls over financial
reporting of the Company or any Company Subsidiary.
Section 3.7.9
Except for insurance policies issued
by the Company or a Company Insurance Subsidiary, to which this
Section 3.7.9
does not apply, neither the Company
nor any Company Subsidiary has any obligations of any kind to
make any loan or advance to, guarantee any indebtedness for
borrowed money of, or otherwise incur such indebtedness on
behalf of, any third party.
Section 3.8
Disclosure Documents
.
Section 3.8.1
The Proxy Statement and any Other
Filings, and any amendments or supplements thereto, that the
Company is responsible for filing at (A) the time the Proxy
Statement or such Other Filing (or any amendment thereof or
supplement thereto) is first made publicly available to the
shareholders of the Company, and (B) the time of the
Company Shareholders Meeting, as applicable, will comply
as to form in all material respects with the applicable
requirements of the Exchange Act and other applicable Law.
Section 3.8.2
The Proxy Statement or any Other
Filing, and any amendments or supplements thereto, that the
Company is responsible for filing, insofar as it reflects
information supplied by the Company for use therein, at
(A) the time the Proxy Statement (or any amendment thereof
or supplement thereto) is first made publicly available to the
shareholders of the Company, and (B) the time of the
Company Shareholders Meeting, will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
Section 3.8.3
The representations and warranties
contained in this
Section 3.8
will not apply to the
failure of the Proxy Statement or any Other Filing to comply as
to form as a result of, or statements or omissions included in
the Proxy Statement or any Other Filings based upon, information
supplied to the Company by Parent or Merger Sub.
Section 3.9
Absence of Certain Changes or
Events
. Since December 31, 2009, except as
(A) disclosed in the Company SEC Filings filed after
December 31, 2009, (B) expressly contemplated by this
Agreement or (C) as set forth in
Section 3.9
of
the Company Disclosure Schedule, there has not been (i) any
event or occurrence that would reasonably be expected to have a
Company Material Adverse Effect, (ii) any action taken by
the Company or any Company Subsidiary through the date of this
Agreement, other than in the ordinary course of business
consistent with past practice, or (iii) any action taken by
the Company or any Company Subsidiary through the date of this
Agreement that would have resulted in a breach of any of the
covenants set forth in
Section 5.1.1
through
5.1.19
if the Company and the Company Subsidiaries had
been subject to such covenants from December 31, 2009 to
the date hereof.
Section 3.10
Employee Benefit Plans
.
Section 3.10.1
The Company Disclosure Schedule sets
forth a true, complete and correct list of each employee
benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
(
ERISA
), and any other material plan, policy,
program, practice, agreement, understanding or arrangement
(whether written or oral) providing compensation or other
benefits to any current or former director, officer, employee or
consultant (or to any dependent or beneficiary thereof of the
Company), which are maintained, sponsored or contributed to by
the Company, or under which the Company has any material
obligation or liability, including, without limitation, all
incentive, bonus, deferred compensation, cafeteria, medical,
disability, stock purchase or equity based compensation plans,
policies or programs (each a
Company Benefit
Plan
). The Company has or will make available prior to
the Closing current, accurate and complete copies of each
Company Benefit Plan as well as all related trust agreements,
summary plan descriptions, summaries of prior modifications, the
most recent audited financial statements with respect to each
Company Benefit Plan required to have such statements, copies of
the most recent determination letters (if any) with respect to
each Company Benefit Plan and copies of the recent annual
reports (Forms 5500) with respect to each Company
Benefit Plan required to file such reports.
A-12
Section 3.10.2
Each Company Benefit Plan has been at
all times operated and administered in all material respects in
accordance with its terms and all applicable Laws, including
ERISA and the Code (including, without limitation,
Section 409A of the Code). With respect to the Company
Benefit Plans, no event has occurred and, to the knowledge of
the Company, there exists no condition or set of circumstances
in connection with which the Company could be subject to any
material liability (other than for routine benefit liabilities)
under the terms of, or with respect to, such Company Benefit
Plans, ERISA, the Code or any other Law applicable to such
Company Benefit Plans. All due contributions, premiums, or
payments under or with respect to any Company Benefit Plans are
current and will have been paid as of the Closing.
Section 3.10.3
(A) Each Company Benefit Plan
which is intended to qualify under Section 401(a) of the
Code has either received a favorable determination letter from
the IRS as to its qualified status or may rely upon an opinion
letter for a prototype plan and, to the Companys
knowledge, as of the date hereof, no fact or event has occurred
that could reasonably be expected to adversely affect the
qualified status of any such Company Benefit Plan or otherwise
result in material liability to the Company, (B) to the
Companys knowledge, there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code, other than a transaction that is
exempt under a statutory or administrative exemption) with
respect to any Company Benefit Plan that could result in
material liability to the Company, and (C) no suit,
administrative proceeding, action or other litigation has been
brought, or to the knowledge of the Company, is threatened
against or with respect to any such Company Benefit Plan,
including any audit or inquiry by the IRS or United States
Department of Labor (other than routine benefits claims).
Section 3.10.4
No Company Benefit Plan is a
multiemployer pension plan (as defined in Section 3(37) of
ERISA) or other pension plan subject to Title IV of ERISA.
The Company has no liability under Title IV of ERISA, and
no condition exists that presents a material risk to the Company
of incurring or being subject (whether primarily, jointly or
secondarily) to a material liability thereunder.
Section 3.10.5
Except as set forth in
Section 3.10.5
of the Company Disclosure Schedule,
no amount that could be received (whether in cash or property or
the vesting of property) as a result of the consummation of the
transactions contemplated by this Agreement by any employee,
officer or director of the Company will be treated as an amount
(i) that is not deductible under either Section 162 or
404 of the Code or (ii) that is an excess parachute
payment under Section 280G of the Code.
Section 3.10.6
Except as set forth in
Section 3.10.6
of the Company Disclosure Schedule
and as required by Law, no Company Benefit Plan provides any
post-employment medical or life insurance benefits.
Section 3.11
Labor and Other Employment
Matters
.
Section 3.11.1
Except as has not had, and would not
reasonably be expected to have, a Company Material Adverse
Effect, each of the Company and each Company Subsidiary is in
material compliance with all applicable Laws respecting labor,
employment, fair employment practices, terms and conditions of
employment, workers compensation, occupational safety,
plant closings, and wages and hours. Neither the Company nor any
Company Subsidiary is a party to a collective bargaining
agreement and no labor union has been certified to represent any
employee or the Company or any Company Subsidiary, or has
applied to represent or is attempting to organize so as to
represent such employees. There is no pending or, to the
knowledge of the Company, threatened work stoppage, slowdown or
labor strike against the Company or any Company Subsidiary.
Neither the Company nor any Company Subsidiary has engaged in
any layoffs or employment terminations sufficient in number to
trigger the application of the Worker Adjustment and Retraining
Notification Act or any similar state or local Law.
Section 3.11.2
Except as set forth in
Section 3.11.2
of the Company Disclosure Schedule,
there are no (A) severance or employment agreements with
directors, officers or employees of to the Company or any
Company Subsidiary; (B) severance programs of the Company
or any Company Subsidiary with or relating to its employees; or
(C) plans, programs or other agreements of the Company or
any Company Subsidiary with or relating to its directors,
officers or employees which contain change in control provisions.
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Section 3.12
Material Contracts
.
Section 3.12.1
Section 3.12.1
of the
Company Disclosure Schedule sets forth a complete and accurate
list of all of the contracts (except for contracts set forth on
the Exhibit Index included in the
Companys
Form 10-K
for the year ended December 31, 2009) to which the
Company or any Company Subsidiary is a party as of the date of
this Agreement of the following categories (each a
Company Material Contract
):
(i) any contract to which the Company or any of the Company
Subsidiaries is a party or by which their respective assets or
properties are bound (other than contracts entered into in the
ordinary course of business and the contracts set forth in
Section 3.13
of the Company Disclosure Schedule)
which (a) calls for the payment, whether contingent or
otherwise, by or on behalf of the Company or any Company
Subsidiary in excess of $500,000 in any
12-month
period during the remaining term thereof, (b) provides for
the Company or any Company Subsidiary to receive any payments in
excess of, or any property with a fair market value in excess
of, $500,000 or more in any
12-month
period during the remaining term thereof;
(ii) any contract that purports to restrict the ability of
the Company or any Company Subsidiary to engage in any line of
business, engage in business in any geographical area or compete
with any person;
(iii) any contract which calls for payment by the Company
or any Company Subsidiary or provides for the receipt of payment
by the Company or any Company Subsidiary in excess of $100,000
in any 12 month period during the remaining term thereof,
that contains a provision granting to another party or other
parties thereto the right to terminate such contract or take
other action adverse to the Company upon or following the Merger;
(iv) indemnification agreements, including contracts that
contain indemnification obligations to the extent not otherwise
disclosed pursuant to this Section, entered into outside the
ordinary course of business with potential indemnification
obligations of the Company in excess of $500,000;
(v) employment contracts and consulting contracts (other
than those entered into in the ordinary course of business with
non-executive employees), and severance agreements, including
without limitation contracts (i) to employ or terminate
executive officers and other contracts with present officers or
directors of the Company or (ii) that will result in the
payment by, or the creation of any obligation to pay on behalf
of the Company, the Surviving Corporation or Parent any
severance, termination, golden parachute, or other
similar payments following termination of employment or
otherwise as a result of the consummation of the transactions
contemplated by this Agreement;
(vi) any material joint venture or material partnership
agreement to which the Company or any of the Company
Subsidiaries is a party; and
(vii) any material contract (as such term is
defined in Item 601(b)(10) of
Regulation S-K
of the SEC).
Section 3.12.2
Company has made available to Parent
true, complete and correct copies of each Company Material
Contract. Except as set forth in
Section 3.12.2
of
the Company Disclosure Schedule, each Company Material Contract
is legally valid and binding on the Company and each Company
Subsidiary party thereto and, to the Companys knowledge,
each other party thereto, except as may be limited by
bankruptcy, insolvency, reorganization, preference, fraudulent
transfer, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors and by general
principles of equity regardless of whether considered in a
proceeding in equity or at law, concepts of materiality,
reasonableness, good faith and fair dealing, and the discretion
of the court before which any proceeding therefore may be
brought. Except as would not reasonably be expected to have a
Company Material Adverse Effect, the Company and each Company
Subsidiary has performed all obligations required to be
performed by it prior to the date hereof under each Company
Material Contract. To the Companys knowledge and except as
would not reasonably be expected to have a Company Material
Adverse Effect, each other party to each Company Material
Contract has performed all obligations required to be performed
by it under such Company Material Contract prior to the date
hereof. None of the Company or any Company Subsidiary has
received notice of any violation or default under (or any
condition which with the passage of time or the giving of notice
would cause such a
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violation of or default under) any Company Material Contract,
except for violations or defaults that would not reasonably be
expected to have a Company Material Adverse Effect.
Section 3.13
Reinsurance Contracts
.
Section 3.13.1
Company has made available to Parent
true, complete and correct copies of all reinsurance agreements
currently in force and agreements for which there are
(A) open claims or (B) other amounts due between the
parties in excess of $100,000, pursuant to which the Company or
any of the Company Insurance Subsidiaries has assumed from or
ceded risk to third parties as of the date hereof
(
Third Party Reinsurance Contracts
) and true,
complete and correct copies of any reinsurance agreements with
affiliates to which any of the Company Insurance Subsidiaries is
a party (
Affiliate Reinsurance Contracts
).
Except as described on
Section 3.13.1
of the Company
Disclosure Schedule or as disclosed in the STAT Financial
Statements, there are no amounts recoverable by the Company
Insurance Subsidiaries under any of the Third Party Reinsurance
Contracts or Affiliate Reinsurance Contracts (collectively, the
Existing Reinsurance Contracts
) that would be
required to be disclosed in the STAT Financial Statements of the
Company Insurance Subsidiaries and which are more than ninety
(90) days past due or greater than $500,000 as of
March 31, 2010. Except as described on
Section 3.13.1
of the Company Disclosure Schedule,
neither the Company nor the Company Insurance Subsidiaries has
received any written notice from any of the reinsurers party to
the Existing Reinsurance Agreements that any amount in excess of
$500,000 recoverable by the Company Insurance Subsidiaries
pursuant to an Existing Reinsurance Agreement is not fully
collectible in due course.
Section 3.13.2
Except as set forth in
Section 3.13.2
of the Company Disclosure Schedule,
no reinsurer under any Third Party Reinsurance Contract has
given any written notice to the Company or the Company
Subsidiaries of termination with respect to any such arrangement.
Section 3.13.3
With respect to the Third Party
Reinsurance Contracts, neither the Company nor the Company
Subsidiaries, nor, to the knowledge of the Company, any other
party thereto, is in default under any such Third Party
Reinsurance Contract, other than any such defaults which,
individually or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect.
Section 3.14
Litigation
. Except as set
forth in
Section 3.14
of the Company Disclosure
Schedule, there is no suit, claim, action or proceeding pending
or, to the knowledge of the Company, threatened, nor, to the
knowledge of the Company, is there any investigation pending, in
each case, against the Company or any Company Subsidiary and
none of the Company or any Company Subsidiary is subject to any
outstanding judgment, order, writ, injunction or decree, in each
case, which would reasonably be expected to have a Company
Material Adverse Effect or would reasonably be expected to
prevent consummation of the Merger. Except as set forth in
Section 3.14
of the Company Disclosure Schedule,
there is no bad faith claim or class action pending against the
Company arising out of the Insurance Contracts.
Section 3.15
Environmental Matters
.
Section 3.15.1
Except as has not had or would not
reasonably be expected to have a Company Material Adverse
Effect, each of the Company and each Company Subsidiary and, to
the knowledge of the Company, Chandler is in compliance with
applicable Environmental Laws and hold all Environmental Permits
necessary to conduct their current operations.
Section 3.15.2
None of the Company or any Company
Subsidiary has received any written notice claim or notice of
violation from any Governmental Authority alleging that the
Company or any Company Subsidiary or, to the knowledge of the
Company, Chandler is in violation of, or liable under, any
Environmental Law.
Section 3.15.3
None of the Company or any Company
Subsidiary or, to the knowledge of the Company, Chandler has
entered into or agreed to any consent decree or order or is
subject to any judgment, decree or judicial order relating to
compliance with Environmental Laws, Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation,
removal or cleanup of Hazardous Materials and, to
A-15
the knowledge of the Company, no investigation, litigation or
other proceeding is pending or threatened in writing with
respect thereto.
Section 3.16
Intellectual
Property
. Section
3.16.1
of the Company
Disclosure Schedule sets forth a complete and accurate list of
all domestic and foreign (A) patents and patent
applications, (B) trademark and service mark registrations
and applications for registration thereof, (C) copyright
and mask work registrations and applications for registration
thereof, and (D) internet domain name registrations. Each
of the Company and the Company Subsidiaries owns or possesses
valid rights to use all Intellectual Property that is material
to the conduct of the business of the Company and the Company
Subsidiaries as is currently conducted. To the Companys
knowledge, the business of the Company and the Company
Subsidiaries as currently conducted (including the use of the
Intellectual Property) does not infringe, misappropriate,
conflict with or otherwise violate any persons
Intellectual Property. The Company has not received written
notice of any claim that the business of the Company and the
Company Subsidiaries as currently conducted (including the use
of the Intellectual Property) infringes, misappropriates,
conflicts with or otherwise violates any persons
Intellectual Property, and there is no, such claim pending or,
to the Companys knowledge, threatened against any of the
Company or the Company Subsidiaries. To the Companys
knowledge, no third party is infringing, misappropriating,
conflicting with or otherwise violating any material
Intellectual Property owned by the Company or the Company
Subsidiaries, and no such claims are pending or threatened
against any person by any of the Company or the Company
Subsidiaries. All Intellectual Property owned by the Company or
the Company Subsidiaries that is material to the conduct of
their respective businesses is owned free and clear of all liens
(other than licenses with third parties entered into in the
ordinary course of business), except for Permitted Liens.
Section 3.17
Assets and Properties
.
Section 3.17.1
Section 3.17
of the
Company Disclosure Schedule contains a complete list of all real
property in which the Company or any Company Subsidiary has a
fee simple interest (
Owned Real Property
).
Except as set forth in
Section 3.17
of the Company
Disclosure Schedule, each of the Company and the Company
Subsidiaries has good and marketable fee simple title to, or a
leasehold interest in, all of its Owned Real Property and leased
real property, respectively (including all rights and privileges
pertaining or relating thereto), free and clear of any and all
liens except for Permitted Liens. Each of the foregoing real
property leases (i) constitutes a legally valid and binding
obligation of the Company or Company Subsidiary party thereto
and assuming such lease is a legally valid and binding
obligation of, and enforceable against, the other parties
thereto, is enforceable against the Company or the Company
Subsidiary party thereto, in each case, except as may be limited
by bankruptcy, insolvency, reorganization, preference,
fraudulent transfer, moratorium or other similar Laws relating
to or affecting the rights and remedies of creditors and by
general principles of equity regardless of whether considered in
a proceeding at law or in equity; and (ii) to the
Companys knowledge is a legally valid and binding
obligation of the other parties thereto, except as may be
limited by bankruptcy, insolvency, reorganization, preference,
fraudulent transfer, moratorium or other similar Laws relating
to or affecting the rights and remedies of creditors and by
general principles of equity regardless of whether considered in
a proceeding at law or in equity. None of the Company or the
Company Subsidiaries is in breach or default in any material
respect under any such lease and, to the Companys
knowledge, none of the landlords or sublandlords under any such
lease is in breach or default in any material respect of its
obligations under such lease. The Company and the Company
Subsidiaries enjoy peaceful and undisturbed possession in all
material respects under each such lease. Copies of all such
leases together with any amendments thereto have heretofore been
made available to Parent. There are no outstanding agreements,
options, rights of first offer or rights of first refusal on the
part of any party to purchase any Owned Real Property. Each of
the Company and the Company Subsidiaries has title to, or a
valid leasehold interest in, as applicable, all personal
property used in, and material to, their respective businesses
free and clear of any and all liens, except for Permitted Liens.
Such personal property, Owned Real Property and leased property
(taken as a whole) are in good operating condition and repair,
ordinary wear and tear and deferred maintenance excepted, and
except for such failures to be in good operating condition and
repair which, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect.
A-16
Section 3.17.2
The Company has not been notified of
any condemnation, expropriation or other proceeding in eminent
domain, pending or, to the knowledge of the Company, threatened,
affecting any parcel of the Owned Real Property or any portion
thereof or interest therein. The Company has not received any
notice of any material tax assessment affecting any Owned Real
Property. Copies of all deeds, existing title insurance policies
and surveys of or pertaining to the Owned Real Property in the
Companys possession or control as of the date of this
Agreement have been made available to Parent.
Section 3.18
Taxes
.
Section 3.18.1
The Company and each Company
Subsidiary has timely filed with the appropriate taxing
authority all material Tax Returns required to be filed, taking
into account any extensions of time within which to file such
Tax Returns, and all such Tax Returns were complete and correct
in all material respects. All Taxes that are shown as due on
such filed Tax Returns have been paid.
Section 3.18.2
Except as set forth in
Section 3.18.2
of the Company Disclosure Schedule,
to the knowledge of the Company, (A) there are no audits or
other proceedings pending with regard to any Taxes or Tax
Returns of the Company or any Company Subsidiary;
(B) neither the Company nor any Company Subsidiary has
received a written notice or announcement of any audits or
proceedings, subject to such exceptions as would not,
individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect; and (C) neither the
Company nor any Company Subsidiary has waived any statute of
limitations with respect to Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency for any
open tax year.
Section 3.18.3
There are no Tax liens upon any
property or assets of the Company or any Company Subsidiary
except liens for current Taxes not yet due and payable.
Section 3.18.4
Neither the Company nor any Company
Subsidiary has been a member of any affiliated group within the
meaning of Section 1504(a) of the Code filing a
consolidated income tax return or any similar return under
state, local or foreign law (other than a group the common
parent of which is the Company), or has any liability for the
Taxes of any Person (other than the Company and the Company
Subsidiaries) under Treasury Regulations
Section 1.1502-6
or any similar provision of state, local or foreign law.
Section 3.19
Insurance Practices; Compliance With
Laws
.
Section 3.19.1
As of the date hereof, each of the
Company and the Company Insurance Subsidiaries is in possession
of all material authorizations, licenses, permits, certificates,
approvals and clearances of any Governmental Authority required
under applicable insurance regulatory Laws, including without
limitation all certificates of authority held by the Company and
the Company Insurance Subsidiaries (
Insurance
Permits
), and
Section 3.19.1
of the
Company Disclosure Schedule sets forth a true, complete and
correct list of all such Insurance Permits, including without
limitation, all certificates of authority in order to conduct
business as an insurer. The Company Insurance Subsidiaries are
in compliance with all such Insurance Permits and all such
Insurance Permits are valid and in full force and effect and
none of the Company Insurance Subsidiaries is operating under
any agreement or understanding with any Governmental Authority
which restricts its authority to do business otherwise permitted
by applicable insurance regulatory Laws, except where the
failure to do so would not reasonably be expected to have a
Company Material Adverse Effect.
Section 3.19.2
Company has made available to Parent
true, complete and correct copies of all material affiliate
agreements respecting Company and the Company Insurance
Subsidiaries and any amendments thereto, and each such affiliate
agreement and any amendments thereto have been reported to and
not disapproved by the applicable Governmental Authority if
required by applicable insurance regulatory Law.
Section 3.19.3
All Insurance Contracts and any and
all marketing materials, are, to the extent required under
applicable Law, on forms approved by the applicable Governmental
Authority which have been filed and not objected to by such
Governmental Authority within the period provided for objection
(the
Forms
). Except as would not
reasonably be expected to have a Company Material Adverse
Effect, the Forms comply with the insurance regulatory Laws
applicable thereto. With respect to premium rates established by
the
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Company and the Company Insurance Subsidiaries which are
required to be filed with or approved by the applicable
Governmental Authority, the rates have been so filed or
approved, the premiums charged conform thereto, and such
premiums comply with the insurance regulatory Laws applicable
thereto.
Section 3.19.4
The respective businesses of the
Company and the Company Insurance Subsidiaries have been and are
being conducted in compliance in all material respects with all
insurance regulatory Laws and orders of all applicable
Governmental Authorities, and all notices, reports, documents
and other information required to be filed thereunder since
January 1, 2007 were properly filed and were in compliance
with such Laws in all material respects.
Section 3.19.5
Each of the Company and the Company
Insurance Subsidiaries has marketed, sold and issued insurance
products in compliance in all material respects with all
applicable insurance regulatory Laws and any market conduct
recommendations resulting from market conduct examinations by
any Governmental Authority in the respective jurisdictions in
which such products have been sold, including, without
limitation, in compliance in all material respects with all
applicable insurance regulatory Laws relating to (i) the
disclosure of the nature of insurance products as policies of
insurance and (ii) the underwriting, marketing, sale and
issuance of, or refusal to sell, any insurance product to
insureds or potential insureds of any race, color, creed or
national origin. None of the Company Insurance Subsidiaries is
subject to any market conduct claim or complaint with respect to
the any insurance products that such person has marketed, sold
or issued and to the knowledge of Company, there are no facts or
circumstances relating to the Company Insurance Subsidiaries,
that could reasonably be expected to give rise to a market
conduct claim relating to any insurance products that such
person has marketed, sold or issued.
Section 3.19.6
The reserves, and other liability
amounts required by Statutory Accounting Principles to be
determined using actuarial methods, of each of the Company
Insurance Subsidiaries, reflected in the STAT Financial
Statements were determined in accordance with commonly accepted
actuarial methods and standards, consistently applied (it being
understood by Parent and Merger Sub that the representations
made in
Sections 3.7.2, 3.7.3, 3.7.4, and 3.7.5
and
this
Section 3.19.6
do not constitute a guarantee
that such reserves or liabilities will ultimately prove
sufficient or adequate for the purposes for which they were
established or that reinsurance recoverables taken into account
in determining the amount of liability will be collectible). The
reserves of each of the Company Insurance Subsidiaries reflected
in the STAT Financial Statements: (i) were computed in
accordance with commonly accepted actuarial standards
consistently applied and were fairly stated in accordance with
sound actuarial principles; (ii) were based on actuarial
assumptions that produce reserves at least as great as those
called for in any contract provision as to reserve basis and
method and are in accordance with all other contract provisions;
(iii) met, in all material respects, the requirements of
the insurance regulatory Laws and regulations of its state of
domicile and each state in which it is admitted as an insurer
and were at least as great as the minimum aggregate amount
required by the insurance regulatory Laws; and (iv) were
computed, in all material respects, on the basis of assumptions
consistent with those used in computing the corresponding items
in the annual statement of the preceding year-end.
Section 3.19.7
The Company has made available to
Parent with respect to the Company Insurance Subsidiaries, any
reports of examination (including, without limitation,
financial, underwriting, market conduct and similar
examinations) issued by any Governmental Authority since
January 1, 2007. All deficiencies or violations noted in
the examination reports described above have been resolved to
the satisfaction of the Governmental Authority that noted such
deficiencies or violations. No examination of the Company
Insurance Subsidiaries by any Governmental Authority is
currently pending or in progress.
Section 3.19.8
Except as set forth on
Section 3.19.8
of the Company Disclosure Schedule,
since December 31, 2009, neither the Company nor the
Company Insurance Subsidiaries has received written notice from
a Governmental Authority that could reasonably be expected to
give rise to an enforcement action against a Company Insurance
Subsidiary by a Governmental Authority.
Section 3.20
Vote Required
. The
affirmative vote of the holders of a majority in voting power of
the outstanding shares of Company Common Stock (the
Required Company Shareholders
), is necessary
to adopt this Agreement. The affirmative vote of the Required
Company Shareholders is the only vote of the holders of
A-18
any class or series of capital stock or other Equity Interests
of the Company necessary to adopt this Agreement, and to
consummate the transactions contemplated hereby.
Section 3.21
Brokers
. No broker, finder
or investment banker is entitled to any brokerage, finders
or other fee or commission in connection with the Merger based
upon arrangements made by or on behalf of the Company.
Section 3.22
Opinion of Financial
Advisor
. On or prior to the date hereof, the Company
Board has received the opinion of Raymond James &
Associates, Inc., financial advisor to the Company Board, to the
effect that, as of the date of such opinion, the Merger
Consideration is fair, from a financial point of view, to the
holders of outstanding shares of Company Common Stock.
Section 3.23
Insurance
Policies
.
Section 3.23
of the Company
Disclosure Schedule sets forth (i) a true and complete list
of all insurance policies currently in force to which the
Company or any Company Subsidiary is a beneficiary or named
insured and (ii) any claims made thereunder or made under
any other insurance policy within the past three years. True and
complete copies of all such policies have been made available to
Parent. All premiums due on such policies have been paid, and
the Company and each Company Subsidiary is otherwise in
compliance with the terms of such policies in all material
respects. To the Companys knowledge, neither the Company
nor any Company Subsidiary has failed to give any notice or
present any claim under any such policy in a timely fashion.
Section 3.24
Insurance Producers
.
Section 3.24.1
Section 3.24.1
of the
Company Disclosure Schedule identifies the top 20 insurance
agencies (by dollar amount of premiums sold) with which the
Company has a written agency agreement (collectively,
Producers
). The Company has delivered
to Parent true, complete and correct copies of all contracts and
agreements between any Producer, on the one hand, and the
Company or any Company Subsidiary on the other hand.
Section 3.24.2
Except as set forth on
Section 3.24.2
of the Company Disclosure Schedule,
since January 1, 2007, none of the Company Subsidiaries has
made a filing with any Governmental Authority seeking an
exemption under 18 USC §1033(e)(2) with respect to any
Producer.
Section 3.24.3
Since January 1, 2007 through
the date of this Agreement, none of the Producers has
(A) indicated in writing to the Company or any Company
Subsidiary that any Producer will be unable or unwilling to
continue its relationship as a Producer with any of the Company
Subsidiaries subsequent to the Merger or, (B) to the
knowledge of the Company, threatened to terminate its
relationship as a Producer with any of the Company Subsidiaries
subsequent to the Merger.
Section 3.25
Interested Party
Transactions
. Except as set forth in the Company SEC
Filings prior to the date hereof, since January 1, 2010,
neither the Company nor any of the Company Subsidiaries is a
party to any agreement or arrangement, and no event has occurred
as of the date of this Agreement that would be required to be
reported by the Company pursuant to Item 404 of
Regulation S-K
promulgated by the SEC.
Section 3.26
Investments
.
Section 3.26.1
All securities and investment assets
(the
Investment Assets
) held by the Company
and each Subsidiary are permissible investments under all
applicable Laws. The Company has made available to Parent prior
to the date hereof a copy of the investment policies of the
Company and the Company Subsidiaries as of December 31,
2009. As of the date hereof, there has been no material change
in investment policy of the Company and any Company Subsidiaries
or in the composition of such investments since
December 31, 2009.
Section 3.26.2
All interest rate swaps, caps, floors
and option agreements and other interest rate risk management
arrangements entered into for the account of the Company or any
Company Subsidiary were entered into in the ordinary course of
business and, to the knowledge of the Company, in accordance
with applicable rules, regulations and policies of any
Governmental Authority.
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Section 3.26.3
Neither the Company nor any Company
Subsidiary has any funding obligations of any kind, or
obligation to make any additional advances or investments
(including any obligation relating to any currency or interest
rate swap, hedge or similar arrangement), in respect of any of
the Investment Assets.
Section 3.26.4
Neither the Company nor any Company
Subsidiary has agreed or otherwise committed to invest in, lend
money to, or guarantee any obligations of, any investment
company, or a company controlled by an
investment company, within the meaning of the
Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended, and the rules and regulations
of the SEC thereunder (any of the foregoing, an
Investment Company
) or in any private
investment company or hedge fund.
Section 3.27
No Investment
Company
. Neither the Company nor any Company Subsidiary
is an Investment Company.
Section 3.28
Compliance with the Investment
Advisers Act
. Since October 2, 1989, Alpha
Advisors, Inc., an Illinois corporation, and a wholly owned
subsidiary of the Company (
Alpha Advisors
),
has been duly registered and licensed, as applicable, as an
investment adviser under the Investment Advisers Act and under
all applicable state Law.
Section 3.28
of the
Company Disclosure Schedule lists the jurisdictions in which
Alpha Advisors is registered as an investment adviser or is
required to give notice that it is acting as an investment
adviser or in which it is required to be registered or licensed
in any other capacity pursuant to any of the Securities Laws.
Each such registration or license is, and when required by
applicable Law has been, in full force and effect.
Section 3.29
No Broker/Dealer
Operations
. Neither the Company nor any Company
Subsidiary conducts any operations that would require the
Company or any Company Subsidiary to be registered as a
broker-dealer with any Governmental Authority.
Section 3.30
No Limitations on
Dividends
. Except as set forth in
Section 3.30
of the Company Disclosure Schedule, the
ability of any Company Subsidiary to pay dividends or make
distributions with respect to its capital stock is not
restricted or limited in any manner, whether by contract or
otherwise, except pursuant to Law.
Article 4.
Representations and Warranties of Parent and Merger
Sub
Except as set forth in the Disclosure Schedule delivered by
Parent and Merger Sub to the Company at or prior to the
execution of this Agreement (the
Parent
Disclosure Schedule
), Parent and Merger Sub hereby
jointly and severally represent and warrant to the Company as
follows:
Section 4.1
Organization and Qualification;
Subsidiaries
. Parent is an inter-insurance exchange
duly organized, validly existing and in good standing under the
laws of the State of California. Merger Sub is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Michigan. Each of Parent and Merger Sub has
the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now
being conducted. Each of Parent and Merger Sub is duly qualified
or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased
or operated by it or the nature of its business makes such
qualification, licensing or good standing necessary, except for
such failures to be so qualified, licensed or in good standing
that would not reasonably be expected to have a Parent Material
Adverse Effect or otherwise prevent or delay (beyond the Outside
Date as determined pursuant to Section 7.1.2) consummation
of the Merger.
Section 4.2
Authority
. Each of Parent
and Merger Sub has requisite inter-insurance exchange or
corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement to be
consummated by it. The execution and delivery of this Agreement
by each of Parent and Merger Sub, as applicable, and the
consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings
on the part of Parent or Merger Sub and no
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shareholder votes are necessary to authorize this Agreement or
the Merger or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by
Parent and Merger Sub and, assuming due authorization, execution
and delivery by the Company, constitutes a legally valid and
binding obligation of Parent and Merger Sub, enforceable against
Parent and Merger Sub in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, preference, fraudulent transfer, moratorium or
other similar laws relating to or affecting the rights and
remedies of creditors and by general principles of equity
regardless of whether enforcement is considered in a proceeding
in equity or at law, concepts of materiality, reasonableness,
good faith and fair dealing, and the discretion of the court
before which any proceeding therefore may be brought.
Section 4.3
No Conflict; Required Filings and
Consents
.
Section 4.3.1
The execution and delivery of this
Agreement does not, and the performance of this Agreement and
the consummation of the Merger and the other transactions
contemplated hereby will not (A) conflict with or violate
any provision of Parents organizational documents, Merger
Subs Articles of Incorporation or Merger Subs
By-laws, (B) assuming that all consents, approvals,
authorizations and permits described in
Section 4.3.2
have been obtained and all filings and
notifications described in
Section 4.3.2
have been
made and any waiting periods thereunder have terminated or
expired, conflict with or violate any Law applicable to Parent
or Merger Sub or any other subsidiary of Parent (each a
Parent Subsidiary
and, collectively, the
Parent Subsidiaries
) or by which any property
or asset of Parent, Merger Sub or any Parent Subsidiary is bound
or (C) require any consent or approval under, result in any
breach of, or any loss of or any benefit under, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of
termination, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset
of Parent, Merger Sub or any Parent Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease,
Parent Permit or other legally binding obligation to which
Parent, Merger Sub or any Parent Subsidiary is party, except, as
to clauses (B) and (C), respectively, for any such
conflicts, violations, breaches, defaults or other occurrences
which would not reasonably be expected to have a Parent Material
Adverse Effect or otherwise prevent or delay (beyond the Outside
Date as determined pursuant to Section 7.1.2) consummation
of the Merger.
Section 4.3.2
The execution and delivery of this
Agreement by Parent and Merger Sub does not, and the performance
of this Agreement by Parent and Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, except (A) as
may be required under the Exchange Act and the HSR Act and the
filing and recordation of the Certificate of Merger as required
by the MBCA, the filing with the Michigan Office of Financial
and Insurance Regulation of a Form A Information Statement
(
Form A
) pursuant to the Michigan
Insurance Code, §500.100
et seq
., and pre-Merger
notice filings (each, a
Form E
) (if
applicable) in the states of Illinois, Indiana, Kentucky,
Minnesota, Nevada, New Mexico, North Dakota, Ohio, South Dakota,
Tennessee, Virginia and Wisconsin, and (B) where failure to
obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not reasonably be
expected to have a Parent Material Adverse Effect or otherwise
prevent or delay (beyond the Outside Date as determined pursuant
to Section 7.1.2) consummation of the Merger.
Section 4.4
Disclosure Documents
.
Section 4.4.1
Any Other Filing and any amendments or
supplements thereto, that Parent is responsible for filing at
(A) the time such Other Filing (or any amendment thereof or
supplement thereto) is first made publicly available to the
shareholders of the Company, and (B) the time of the
Company Shareholders Meeting, as applicable, will comply
as to form in all material respects with the applicable
requirements of the Exchange Act and other applicable Law.
Section 4.4.2
The Proxy Statement or any Other
Filing, or amendments or supplements thereto, that the Company
is responsible for filing, insofar as it reflects information
supplied by Parent or Merger Sub for use therein, at
(A) the time the Proxy Statement or Other Filing (or any
amendment thereof or supplement thereto) is first made publicly
available to the shareholders of the Company, and (B) the
time of the Company Shareholders Meeting, will not contain
any untrue statement of a material fact or omit to state any
material
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fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not
misleading.
Section 4.4.3
The representations and warranties
contained in this
Section 4.4
will not apply to
failure of any Other Filing to comply as to form as a result of,
or statements or omissions included in any Other Filings based
upon, information supplied to Parent or Merger Sub by the
Company or the Company Subsidiaries.
Section 4.5
Litigation
. As of the date
of this Agreement, there is no suit, claim, action or proceeding
pending or, to the knowledge of Parent, threatened, nor, to the
knowledge of Parent, is there any investigation pending, in each
case, against Parent or any Parent Subsidiary, and none of
Parent or any Parent Subsidiary is subject to any outstanding
order, writ, injunction or decree, in each case, which has had a
Parent Material Adverse Effect or would reasonably be expected
to prevent consummation of the Merger.
Section 4.6
Ownership of Merger Sub; No Prior
Activities
.
Section 4.6.1
Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated by this
Agreement.
Section 4.6.2
All of the outstanding capital stock
of Merger Sub is owned directly by Parent. There are no options,
warrants or other rights (including registration rights),
agreements, arrangements or commitments to which Merger Sub is a
party of any character relating to the issued or unissued
capital stock of, or other Equity Interests in, Merger Sub or
obligating Merger Sub to grant, issue or sell any shares of the
capital stock of, or other Equity Interests in, Merger Sub, by
sale, lease, license or otherwise. There are no obligations,
contingent or otherwise, of Merger Sub to repurchase, redeem or
otherwise acquire any shares of the capital stock of Merger Sub.
Section 4.6.3
Except for obligations or liabilities
incurred in connection with its incorporation or organization
and the transactions contemplated by this Agreement, Merger Sub
has not and will not have incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or
liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements
with any person.
Section 4.7
Vote Required
. No vote of
the holders of any class or series of capital stock or other
Equity Interests of Parent is necessary to adopt this Agreement,
or to consummate the transactions contemplated hereby.
Section 4.8
Brokers
. No broker, finder
or investment banker (other than Macquarie Capital Advisors) is
entitled to any brokerage, finders or other fee or
commission in connection with the Merger based upon arrangements
made by or on behalf of Parent.
Section 4.9
Financing
. (A) As of
the Closing, Parent shall have available cash sufficient to
enable Parent to pay the Merger Consideration and to consummate
the transactions contemplated by this Agreement. (B) Parent
is not required to cause any Parent Subsidiary to pay it a
dividend in order to fund the Merger Consideration.
Section 4.10
Management Arrangements
.
Section 4.10.1
Except as contemplated by this
Agreement, as of the date hereof, none of Parent, Merger Sub nor
any of their affiliates has entered into any contract,
agreement, arrangement or understanding (in each case, whether
oral or written), or authorized, committed or agreed to enter
into any agreement, arrangement or understanding (in each case,
whether oral or written) with any of the officers or directors
of the Company that is currently in effect or that would become
effective in the future (upon consummation of the Merger or
otherwise).
Section 4.10.2
As of the date of this Agreement,
none of Parent, Merger Sub nor any their affiliates has entered
into any contract, agreement, arrangement or understanding (in
each case, whether oral or written), or authorized, committed or
agreed to enter into any agreement, arrangement or understanding
(in each case, whether oral or written), pursuant to which any
shareholder of the Company would be entitled to receive
A-22
consideration of a different amount or nature than the Merger
Consideration or pursuant to which any shareholder of the
Company agrees to vote to adopt this Agreement or the Merger or
agrees to vote against any Superior Proposal.
Section 4.11
Ownership of Company Common
Stock
. None of Parent, Merger Sub nor any Parent
Subsidiary is an interested shareholder of the
Company as defined in Section 778(2) of the MBCA. None of
Parent, Merger Sub nor any Parent Subsidiary owns (directly or
indirectly, beneficially or of record) or is a party to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, any
shares of capital stock of the Company (other than as
contemplated by this Agreement).
Article 5.
Covenants
Section 5.1
Conduct of Business by the Company
Pending the Closing
. The Company agrees that, between
the date of this Agreement and the Effective Time, except as set
forth in
Section 5.1
of the Company Disclosure
Schedule, as expressly permitted or contemplated by any other
provision of this Agreement or as required by applicable Law or
the regulations or requirements of the Nasdaq, unless Parent
shall otherwise agree in writing (which agreement shall not be
unreasonably withheld or delayed), the Company will, and will
cause each Company Subsidiary to, (A) conduct its
operations in the ordinary course of business substantially
consistent with past practice (including with respect to
underwriting matters), (B) use its commercially reasonable
efforts to maintain its relationships with officers, key
employees and customers and to renew policies with current
insureds and (C) use its commercially reasonable efforts to
preserve substantially intact its business organization and
goodwill. Without limiting the foregoing, except as set forth in
Section 5.1
of the Company Disclosure Schedule, as
expressly permitted or contemplated by any other provision of
this Agreement or as required by applicable Law or the
regulations or requirements of the Nasdaq, the Company shall
not, and shall not permit any Company Subsidiary to, between the
date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following without the
prior written consent of Parent (which consent shall not be
unreasonably withheld or delayed):
Section 5.1.1
amend its articles of incorporation or
by-laws or equivalent organizational documents;
Section 5.1.2
(A) issue or authorize the
issuance of any shares of capital stock of, or other Equity
Interests in, the Company or any Company Subsidiary of any
class, or securities convertible or exchangeable or exercisable
for any shares of such capital stock or other Equity Interests,
or any options, warrants or other rights of any kind to acquire
any shares of such capital stock or other Equity Interests or
such convertible or exchangeable securities of the Company or
any Company Subsidiary, other than the issuance of Company
Common Stock upon the exercise of Company Options outstanding on
the date hereof, or (B) sell, pledge, dispose of, transfer,
lease, license, guarantee or encumber, or authorize the sale,
pledge, disposition, transfer, lease, license, guarantee or
encumbrance of, any material property or assets of the Company
or any Company Subsidiary, except pursuant to contracts or
commitments or the sale or purchase of goods, other property,
assets or insurance in the ordinary course of business
substantially consistent with past practice;
Section 5.1.3
declare, set aside, make or pay any
dividend or other distribution (whether payable in cash, stock,
property or a combination thereof) with respect to any of its
capital stock (other than dividends paid by a wholly-owned
Company Subsidiary to the Company or to any other wholly-owned
Company Subsidiary) or enter into any agreement with respect to
the voting of its capital stock;
Section 5.1.4
other than in the case of Company
Subsidiaries and other than cashless exercises of Company
Options, reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of
its capital stock, other Equity Interests or other securities;
Section 5.1.5
acquire (including, without
limitation, by merger, consolidation, or acquisition of stock or
assets) any interest in any person or all or substantially all
of the assets of any person, other than in connection with
investment management in the ordinary course of business;
A-23
Section 5.1.6
make any material change in accounting
policies or procedures (including making any material change in
actuarial policies or procedures or ceasing to use a third party
consulting actuary), other than in the ordinary course of
business substantially consistent with past practice or except
as required by GAAP, Statutory Accounting Principles, by
applicable Law or by a Governmental Authority;
Section 5.1.7
(i) make, change or revoke any
material election in respect of Taxes, (ii) adopt or change
any material accounting method in respect of Taxes,
(iii) enter into any material Tax allocation agreement, Tax
sharing agreement, Tax indemnity agreement or closing agreement,
(iv) settle or compromise any material claim, notice, audit
report or assessment in respect of Taxes or (v) surrender
any right to claim a material refund of Taxes;
Section 5.1.8
enter into, amend, renew or exercise
any option to terminate or extend, in each case in any material
respect, any material real estate lease (as lessor or lessee);
enter into, amend or terminate, in each case in any material
respect, any Company Material Contract to which it is a party or
by or to which it or its assets, properties or business are
bound or subject, except as otherwise permitted by this
Section 5.1
or in the ordinary course of business
substantially consistent with past practice; or enter into or
amend any change in control or indemnification agreement with
any director or officer of the Company or any Company Material
Contract pursuant to which it agrees to refrain from competing
with any third party;
Section 5.1.9
other than as required by any
judgment, order or arbitral award, enter into any agreement
relating to the commutation of any assumed reinsurance program
or assumed reinsurance treaty existing on the date hereof,
except for (i) individual commutations where the aggregate
settlement amount (net of applicable recoverables from
reinsurance) exceeds the related reserves held with respect to
such program or treaty (net of applicable recoverables from
reinsurance) as of December 31, 2009 by not more than
$500,000 and (ii) aggregate commutations where the
aggregate settlement amount (net of applicable recoverables from
reinsurance) exceeds the related reserves held with respect to
such program or treaty (net of applicable recoverables from
reinsurance) as of December 31, 2009 by not more than
$5,000,000 in the aggregate;
Section 5.1.10
renew its ceded reinsurance program
other than in the ordinary course of business substantially
consistent with past practice;
Section 5.1.11
make any capital expenditures or
commitment for any capital expenditures in excess of $750,000 in
the aggregate;
Section 5.1.12
settle any action, suit or other
proceeding or investigation or threatened action, suit or other
proceeding or investigation, except in the ordinary course of
business substantially consistent with past practice;
Section 5.1.13
incur any indebtedness for money
borrowed in excess of $5,000,000 in the aggregate, except for
borrowings under existing lines of credit;
Section 5.1.14
enter into any new material line of
business;
Section 5.1.15
make any material loan or advance to,
guarantee any material indebtedness for money borrowed of, or
otherwise incur such material indebtedness on behalf of any
third party, other than in the ordinary course of business
substantially consistent with past practice;
Section 5.1.16
except as set forth in
Section 5.10
and as described on
Section 5.1.16
of the Company Disclosure Schedule
(i) grant or pay any increase, or announce or promise any
increase, in the wages, salaries, compensation, bonuses,
incentives, severance, pension or other direct or indirect
compensation or benefits payable to any of its employees,
officers, directors, agents or consultants (other than legal
counsel, investment bankers, actuaries and accountants),
including, without limitation, any increase or change pursuant
to any Company Benefit Plan, or (ii) establish or increase
or promise to increase any benefits under any Company Benefit
Plan, in either case except (A) as required by the terms of
any Company Benefit Plan in existence on the date hereof, or any
law, rule or regulation or (B) involving ordinary increases
substantially consistent with past practice;
A-24
Section 5.1.17
fail to file any Company SEC Filing
other than (i) any report filed after the applicable
deadline in accordance with
Rule 12b-25
of the Exchange Act that has been filed within the time period
prescribed by that rule; and (ii) with respect to any
matter that is required to reported solely pursuant to
Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e)
of
Form 8-K
and that is reported in the next periodic report on
Form 10-Q
or
Form 10-K
required to be filed after the event giving rise to the
requirement to report under such item;
Section 5.1.18
make any material change in the
business or its reinsurance structure, or Insurance Contracts,
rates, underwriting practices and procedures or marketing
methods;
Section 5.1.19
enter into any agreement or
arrangement that would be required to be reported by the Company
pursuant to Item 404 of
Regulation S-K
promulgated by the SEC; or
Section 5.1.20
authorize or enter into any agreement
or otherwise make any commitment to do any of the foregoing.
Section 5.2
Cooperation
.
Section 5.2.1
The Company and Parent shall
coordinate and cooperate in connection with (A) the
preparation of the Proxy Statement and any Other Filings,
(B) determining whether any action by or in respect of, or
filing with, any Governmental Authority is required, or any
actions, consents, approvals or waivers are required to be
obtained from parties to any Company Material Contracts, in
connection with the consummation of the Merger and
(C) seeking to obtain any such actions, consents, approvals
or waivers or making any such filings required in connection
therewith or with the Proxy Statement or any Other Filings;
provided, however,
that except as expressly provided in
Article 6
, no such actions, consents, approvals,
waivers or filings shall constitute conditions to Closing. Prior
to the Effective Time, the Company shall cooperate with Parent
and use commercially reasonable efforts to take, or cause to be
taken, all actions, and do or cause to be done all things,
reasonably necessary, proper or advisable on its part under
applicable Laws and rules and policies of the Nasdaq to enable
the de-listing by the Surviving Corporation of the Company
Common Stock from the Nasdaq and the deregistration of the
Company Common Stock under the Exchange Act promptly after the
Effective Time.
Section 5.2.2
Prior to the Closing, each of the
Chief Executive Officer, the Chief Financial Officer and the
Chief Operating Officer shall cooperate in preparing for the
transition of the Company at Closing, including without
limitation, arranging and participating in introductory meetings
with Parent and (A) insureds, (B) medical societies
(including without limitation those in New Mexico and Michigan),
(C) agents and brokers and (D) regulators.
Section 5.2.3
Prior to the Closing, the Company
shall cooperate with Parent to facilitate transition and
integration activities in all areas, including without
limitation operating processes, telecommunications and systems.
Section 5.3
Proxy Statement
.
Section 5.3.1
As promptly as practicable after the
execution of this Agreement, the Company shall prepare and file
with the SEC a proxy statement relating to the Company
Shareholders Meeting (together with any amendments thereof
or supplements thereto, the
Proxy Statement
).
In addition, each of the Company and Parent shall prepare and
file with the SEC any Other Filings as and when required or
requested by the SEC. Each of the Company and Parent will use
all reasonable efforts to respond to any comments made by the
SEC with respect to the Proxy Statement and any Other Filings.
Each of the Company and Parent shall furnish all information
concerning it and the holders of its capital stock as the other
party may reasonably request in connection with such actions and
the preparation of the Proxy Statement and any Other Filings. As
promptly as reasonably practicable, the Company shall mail the
Proxy Statement to its shareholders. Subject to
Section 5.6
hereof, the Proxy Statement shall
include the unanimous recommendation of the Company Board that
adoption of this Agreement by the Companys shareholders is
advisable and that the Company Board has determined that the
Merger is fair to and in the best interests of the
Companys shareholders (the
Company
Recommendation
). Subject to applicable Law, the
Company shall provide Parent with the opportunity to
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review the Proxy Statement and any Other Filings that relate to
the transactions contemplated hereby and consider any comments
Parent has on such filings in good faith prior to the filing
thereof with the SEC (other than any Other Filing announcing any
action taken by the Company pursuant to, or as permitted by,
Section 5.6
hereof).
Section 5.3.2
Subject to
Section 5.6
hereof and other than pursuant to Rule 425 of the
Securities Act or
Rule 14a-12
of the Exchange Act with respect to releases made in compliance
with
Section 5.9
of this Agreement, no amendment or
supplement to the Proxy Statement or any Other Filings, nor any
response to any comments or inquiry from the SEC, will be made
by the Company or Parent without the approval of the other
party, which approval shall not be unreasonably withheld or
delayed. The Company and Parent each will advise the other
promptly after it receives notice of any request by the SEC for
amendment of the Proxy Statement or any Other Filings or
comments thereon and responses thereto or requests by the SEC
for additional information.
Section 5.3.3
Parent shall promptly inform the
Company if, at any time prior to the Effective Time, any event
or circumstance relating to Parent, any Parent Subsidiary or
Merger Sub, or any of their respective officers or directors,
should be discovered by Parent and should be set forth in an
amendment or a supplement to the Proxy Statement or any Other
Filing. The Company shall promptly inform Parent if, at any time
prior to the Effective Time, any event or circumstance relating
to the Company or any Company Subsidiary, or any of their
respective officers or directors, should be discovered by the
Company and should be set forth in an amendment or a supplement
to the Proxy Statement or any Other Filing.
Section 5.4
Company Shareholders Meeting;
Consent of Parent as Sole Shareholder of Merger Sub
.
Section 5.4.1
As promptly as reasonably practicable
after the date hereof, the Company shall establish a record date
for, duly call, give notice of, convene and hold a meeting of
its shareholders (including any adjournments thereof, the
Company Shareholders Meeting
) for the
purpose of voting upon the adoption of this Agreement. Subject
to
Section 5.6
, the Company shall (i) include
the Company Recommendation in the Proxy Statement, and
(ii) use commercially reasonable efforts to solicit from
its shareholders proxies in favor of this Agreement and the
transactions contemplated hereby. The Company shall keep Parent
updated with respect to proxy solicitation results as reasonably
requested by Parent. Notwithstanding anything to the contrary in
this
Section 5.4.1
, at any time prior to the Company
Shareholders Meeting and subject to compliance with
Section 5.6
, the Company may adjourn or postpone the
Company Shareholders Meeting in response to an Acquisition
Proposal if the Company Board determines in good faith (after
consultation with outside counsel) that there is a reasonable
likelihood that such Acquisition Proposal will lead to a
Superior Proposal.
Section 5.4.2
Parent, as sole shareholder of Merger
Sub, shall prepare, execute and deliver to Merger Sub, a copy of
which shall be provided to the Company, a written consent to
adopt this Agreement within two (2) Business Days after the
date hereof. Parent will take all reasonable action necessary
(i) to cause Merger Sub to perform its obligations under
this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement, and (ii) to ensure
that, prior to the Effective Time, Merger Sub shall not conduct
any business or activities or make any investments other than as
specifically contemplated by this Agreement, or incur or
guarantee any indebtedness.
Section 5.5
Access to Information;
Confidentiality
.
Section 5.5.1
Except as required pursuant to any
confidentiality agreement or similar agreement or arrangement to
which the Company or any Company Subsidiary is a party, and
subject to applicable Law, from the date of this Agreement to
the Effective Time, the Company shall, and shall cause each
Company Subsidiary to: (A) provide to Parent and Merger Sub
and their respective officers, directors, employees,
accountants, consultants, legal counsel, advisors, agents and
other representatives (collectively,
Parent
Representatives
), upon reasonable prior notice to the
Company, reasonable access during normal business hours to the
officers of the Company and the Company Subsidiaries and to the
books and records thereof and (B) furnish promptly such
information concerning the business, properties, contracts,
assets, liabilities, personnel and other aspects of the Company
and the Company Subsidiaries as Parent or the Parent
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Representatives may reasonably request;
provided,
however
, that any such access shall be conducted at a
reasonable time, upon reasonable advance notice to the Company
and in such a manner as not to interfere unreasonably with the
operation of any business conducted by the Company or any
Company Subsidiary;
provided further,
that the Company
shall not be required to (or cause any Company Subsidiary to) so
afford such access or furnish such information to the extent
that doing so would result in the loss of attorney-client
privilege.
Section 5.5.2
With respect to the information
disclosed pursuant to
Section 5.5.1
, the parties
shall comply with, and cause their respective representatives to
comply with, all of their obligations under the letter
agreement, dated as of April 22, 2010, entered into by the
Company and Parent (as has been or may be amended from time to
time, the
Confidentiality Agreement
).
Section 5.5.3
After the date hereof, Company shall
provide Parent with copies of all internal actuarial analyses
(if any) and all internal quarterly financial packages (if any)
within two (2) days of such items becoming available.
Section 5.6
Acquisition Proposals
Section 5.6.1
Subject to
Section 5.6.2
,
from the date of this Agreement until the Effective Time, the
Company agrees that it shall not, and shall not authorize any
Company Subsidiary or any of the respective directors, officers,
employees, accountants, consultants, legal counsel, advisors,
agents and other representatives of the Company or any Company
Subsidiary (collectively,
Company
Representatives
) to, directly or indirectly, take any
action to (A) solicit, initiate or knowingly facilitate any
Acquisition Proposal or any proposal that is reasonably likely
to lead to an Acquisition Proposal, (B) participate in any
way in discussions or negotiations with, or furnish any
non-public information to, any person that has made an
Acquisition Proposal, (C) withdraw or modify the Company
Recommendation in a manner adverse to Parent, (D) other
than the Merger, approve or recommend any Acquisition Proposal,
or (E) enter into any agreement or letter of intent with
respect to any Acquisition Proposal. On the date of this
Agreement, the Company shall immediately cease and cause to be
terminated any negotiations with any person conducted
theretofore by the Company, the Company Subsidiaries or any
Company Representative with respect to any Acquisition Proposal,
and shall use its (and will cause the Company Representatives to
use their) reasonable best efforts to require other parties
thereto to promptly return or destroy any confidential
information previously furnished by the Company, the Company
Subsidiaries or the Company Representatives thereunder.
Section 5.6.2
Notwithstanding anything to the
contrary contained in
Section 5.6.1
, at any time
prior to obtaining the adoption of this Agreement by the
Required Company Shareholders, the Company shall be permitted to:
(i) take, and disclose to the Companys shareholders,
a position with respect to any tender or exchange offer by a
third party or amend or withdraw such a position in accordance
with
Rule 14d-9
and
Rule 14e-2
promulgated under the Exchange Act;
(ii) if the Company has received an unsolicited Acquisition
Proposal from a third party and the Company Board determines in
good faith (after consultation with its independent financial
advisor and outside counsel) that such Acquisition Proposal
constitutes a Superior Proposal, so long as the Company is in
compliance with Section 5.6.1, effect a change in the
Company Recommendation or enter into an agreement with respect
to such Superior Proposal;
(iii) effect a change in the Company Recommendation if the
Company Board determines in good faith (after consultation with
outside counsel) that failure to do so would be inconsistent
with its fiduciary duties to the shareholders of the Company
under applicable Law; or
(iv) so long as the Company is in compliance with
Section 5.6.1(A) and the last sentence of
Section 5.6.1, participate in any discussions or
negotiations with, or provide any non-public information to, any
person in response to an unsolicited Acquisition Proposal by any
such person, pursuant to a confidentiality agreement containing
confidentiality provisions substantially similar to those set
forth in the Confidentiality Agreement, if the Company Board
determines in good faith (after consultation with
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outside counsel) that there is a reasonable likelihood that such
Acquisition Proposal will lead to a Superior Proposal;
provided
, that the Company shall notify Parent in writing
of such determination and its intention to participate in
discussions or negotiations with, or provide non-public
information to, any person in response to an Acquisition
Proposal;
provided
,
however
, that with respect to
clauses (ii) or (iii) above, the Company Board shall
not take any action until after the third Business Day following
Parents receipt of written notice from the Company
advising Parent that the Company Board intends to take such
action and specifying the reasons therefor, including (if such
proposed action is in connection with receipt of a Superior
Proposal) the material terms and conditions of such Superior
Proposal (it being understood and agreed that, (A) prior to
taking any such action, the Company shall discuss with Parent
and consider in good faith any changes to the terms of this
Agreement proposed by Parent in response to such Superior
Proposal or otherwise and (B) any amendment to the
financial terms of the Superior Proposal shall require Company
to provide Parent with a new notice of such Superior Proposal
and new three Business Day period as set forth above).
Section 5.7
Appropriate Action; Consents;
Filings
.
Section 5.7.1
Subject to
Section 5.6
,
each of the Company and Parent shall use commercially reasonable
efforts to (A) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary,
proper or advisable under any applicable Law to consummate and
make effective the Merger and the other transactions
contemplated by this Agreement as promptly as reasonably
practicable, (B) obtain from Governmental Authorities any
consents, licenses, permits, waivers, approvals, authorizations
or orders required to be obtained or made by Parent or the
Company or any of their respective Subsidiaries, or to avoid any
action or proceeding by any Governmental Authority (including,
without limitation, those in connection with Antitrust Laws), in
connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger and the other
transactions contemplated herein, (C) make or cause to be
made the applications or filings required to be made by Parent
or the Company or any of their respective Subsidiaries under or
with respect to the HSR Act or any other Laws in connection with
the authorization, execution and delivery of this Agreement and
the consummation of the Merger and the other transactions
contemplated herein, and to pay any fees due of it in connection
with such applications or filings, as promptly as is reasonably
practicable, and in any event within ten Business Days after the
date hereof, (D) comply at the earliest practicable date
with any request under or with respect to the HSR Act and any
such other Laws for additional information, documents or other
materials received by Parent or the Company or any of their
respective Subsidiaries from the Federal Trade Commission, the
Department of Justice or any other Governmental Authority in
connection with such applications or filings or the Merger and
the other transactions contemplated by this Agreement and
(E) coordinate and cooperate with, and give due
consideration to all reasonable additions, deletions or changes
suggested in connection with, making (1) any filing under
or with respect to the HSR Act or any such other Laws, and
(2) any filings, conferences or other submissions related
to resolving any investigation or other inquiry by any such
Governmental Authority. Each of the Company and Parent shall,
and shall cause their respective affiliates to, furnish to the
other party all information necessary for any such application
or other filing to be made in connection with the Merger or
other transactions contemplated by this Agreement. Each of the
Company and Parent shall promptly inform the other of any
communication with, and any proposed understanding, undertaking
or agreement with, any Governmental Authority regarding any such
application or filing. If a party hereto intends to
independently participate in any meeting with any Governmental
Authority in respect of any such filings, investigation or other
inquiry, then such party shall give the other party reasonable
prior notice of such meeting and the opportunity to participate
in such meeting. The parties shall coordinate and cooperate with
one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party in
connection with all meetings, actions and proceedings under or
relating to any such application or filing.
Section 5.7.2
Within 10 Business Days following the
date of this Agreement, Parent shall, at its own expense, make
all reasonably necessary filings with state insurance regulatory
authorities and applicable insurance Laws (the
Applicable Insurance Laws
), including,
without limitation, (i) the filing with the Michigan Office
of Financial and Insurance Regulation of a Form A pursuant
to the Michigan Insurance Code,
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§500.100
et seq
. and (ii) Form E filings
(if applicable) in the states of Illinois, Indiana, Kentucky,
Minnesota, Nevada, New Mexico, North Dakota, Ohio, South Dakota,
Tennessee, Virginia and Wisconsin and, in order to obtain the
necessary authorizations, approvals and consents in order to
consummate the transactions contemplated hereby. In connection
therewith, the Parties shall use their respective reasonable
best efforts to promptly resolve any objections and respond to
any inquiries that may arise in connection with any such filings.
Section 5.7.3
The Company and Parent shall give (or
shall cause their respective Subsidiaries to give) any notices
to third parties, and use, and cause their respective
Subsidiaries to use, commercially reasonable efforts to obtain
any third party consents necessary, proper or advisable for such
party to consummate the transactions contemplated in this
Agreement;
provided, however
, that the Company and Parent
shall coordinate and cooperate in determining whether any
actions, consents, approvals or waivers are required to be
obtained from parties to any Company Material Contracts in
connection with consummation of the Merger and seeking any such
actions, consents, approvals or waivers;
provided further,
that except as expressly provided in
Article 6
,
no such actions, consents, approvals or waivers shall constitute
conditions to Closing. In the event that either party shall fail
to obtain any third party consent described in the first
sentence of this
Section 5.7.3
, such party shall use
reasonable best efforts, and shall take any such actions
reasonably requested by the other party hereto, to mitigate any
adverse effect upon the Company and Parent, their respective
subsidiaries, and their respective businesses resulting, or
which could reasonably be expected to result after the Effective
Time, from the failure to obtain such consent.
Section 5.7.4
From the date of this Agreement until
the Effective Time, each of Parent and the Company shall
promptly notify the other in writing of any pending or, to the
knowledge of Parent or the Company (as the case may be),
threatened action, suit or other proceeding or investigation by
any Person (A) challenging or seeking material damages in
connection with the Merger or the other transactions
contemplated by this Agreement or (B) seeking to restrain
or prohibit the consummation of the Merger. From the date of
this Agreement until the Effective Time, the Company shall
promptly notify Parent in writing of any pending or, to the
knowledge of the Company, any threatened action, suit or other
proceeding or investigation by any Governmental Authority.
Section 5.7.5
Each of the Company and Parent shall,
and shall cause their respective affiliates to, use their
reasonable best efforts to (A) cause the expiration of the
notice periods under or with respect to the HSR Act and any
other Laws with respect to the transactions contemplated by this
Agreement as promptly as is reasonably practicable after the
execution of this Agreement and (B) resolve such
objections, if any, as may be asserted by any Governmental
Authority with respect to the Merger or other transactions
contemplated by this Agreement; provided that in no event shall
Parent be required to divest any stock, partnership, membership
or other ownership interest in any entity, divest any material
asset or agree to undertake any divestiture or restrict its
conduct with regard to any business. In connection therewith, if
any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging the
transaction contemplated by this Agreement as violative of any
Law, each of the Company and Parent shall, and shall cause their
respective affiliates to, cooperate and use their reasonable
best efforts to contest and resist, except insofar as the
Company and Parent may otherwise agree, any such action or
proceeding, including any action or proceeding that seeks a
temporary restraining order or preliminary injunction that would
prohibit, prevent or restrict consummation of the Merger or
other transactions contemplated by this Agreement.
Section 5.7.6
Subject to Section 5.1, nothing
contained in this Agreement shall give Parent or Merger Sub,
directly or indirectly, the right to control or direct the
operations of the Company prior to the consummation of the
Merger. Prior to the Effective Time, the Company shall exercise,
consistent with the terms and conditions of this Agreement,
complete unilateral control and supervision over its business
operations.
Section 5.8
Certain Notices
. From and
after the date of this Agreement until the Effective Time, each
party shall promptly notify the other party of the occurrence,
or non-occurrence, of any event that would reasonably be
expected to result in any condition to the obligations of any
party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied;
provided
,
however
, that the delivery of
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any notice pursuant to this
Section 5.8
shall not
cure any breach of any representation or warranty requiring
disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to
the party receiving such notice.
Section 5.9
Public Announcements
. Parent
and the Company shall, as promptly as practicable on the first
Business Day following the date of this Agreement, with respect
to the transactions contemplated by this Agreement, including
the Merger (or if this Agreement is executed on a Business Day,
such Business Day), issue a mutually agreed press release. In
connection with press releases or public statements with respect
to the transactions contemplated by this Agreement, including
the Merger, other than any press release by the Company to
announce action taken by the Company pursuant to, or as
permitted by,
Section 5.6
hereof, Parent and the
Company shall coordinate and consult with each other before
issuing, and give each other the opportunity to review and
comment upon, giving due consideration to all reasonable
additions, deletions or changes suggested in connection
therewith, such press releases or public statements. Parent and
the Company shall not issue any such press release (other than
any press release by the Company to announce action taken by the
Company pursuant to, or as permitted by,
Section 5.6
hereof) or make any such public statement prior to such
consultation, except as may be required by applicable Law, court
process, applicable stock exchange rule or any listing
agreement;
provided
that Parent and the Company shall
coordinate and consult with respect to the timing, basis and
scope of such disclosure requirement. The parties acknowledge
that the Company will be required to file with the SEC a Current
Report on
Form 8-K
reporting the execution of this Agreement and summarizing the
material terms hereof as determined by the Company, and that the
Company will file a copy of this Agreement as an exhibit to such
report.
Section 5.10
Employee Benefit Matters
.
Section 5.10.1
With respect to any employee
benefit plan as defined in Section 3(3) of ERISA
maintained by Parent or any Parent Subsidiary (collectively,
Parent Benefit Plans
) in which any director,
officer or employee of the Company or any Company Subsidiary
(the
Company Employees
) will participate
effective as of the Effective Time, Parent shall, or shall cause
the Surviving Corporation to, recognize all service of the
Company Employees with the Company or a Company Subsidiary, as
the case may be, for purposes of determining eligibility to
participate, vesting and accrual or entitlement to benefits
where length of service is relevant in any Parent Benefit Plan
in which such Company Employees may be eligible to participate
after the Effective Time, other than benefit accruals under a
defined benefit pension plan. Prior to the Effective Time, the
Company shall take all such steps as may be required to cause to
be exempt under
Rule 16b-3
promulgated under the Exchange Act to the extent permitted by
Law, any dispositions of Company Common Stock (including
derivative securities with respect to Company Common Stock) that
are treated as dispositions under such rule and result from the
Merger or other transactions contemplated by this Agreement by
each individual who is subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to the
Company.
Section 5.10.2
From and after the Effective Time,
the Company, the Surviving Corporation or any Parent Subsidiary,
as applicable, will, and Parent will cause the Company, the
Surviving Corporation or any Parent subsidiary, as applicable,
to honor, in accordance with their terms as may be amended from
time to time, all individual employment, deferred compensation,
severance and change of control agreements, plans or policies
between the Company or any Company Subsidiary and any current or
former director, officer or employee of the Company or any
Company Subsidiary, including, without limitation, bonuses,
incentives or deferred compensation, in existence on the date
hereof. Parent acknowledges that consummation of the Merger
shall constitute a Change of Control as defined in
such agreements, plans of policies.
Section 5.10.3
From and after the Effective Time,
the Company, the Surviving Corporation or any Parent Subsidiary,
as applicable, will, and Parent will cause the Company, the
Surviving Corporation or any Parent Subsidiary to, provide or
pay when due to any current or former director, officer or
employee of the Company or any Company Subsidiary, all benefits
and compensation pursuant to the Company Benefit Plans or any
other compensatory programs and arrangements of the Company or
any Company Subsidiary in effect on the date hereof earned or
accrued through, and to which such individuals are entitled as
of, the Effective
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Time (or such later time as such Company Benefit Plans as in
effect at the Effective Time are terminated or canceled by the
Surviving Corporation subject to compliance with this
Section 5.10
).
Section 5.10.4
For a period ending two
(2) years after the Effective Time, the Company, the
Surviving Corporation or any Parent Subsidiary, as applicable,
will, and Parent will cause the Company, the Surviving
Corporation or any Parent Subsidiary, as applicable, to, provide
to the Company Employees benefits and compensation that are no
less favorable in the aggregate to such persons than those
provided to similarly situated employees of Parent (with titles
and responsibilities of the Company Employees in effect
immediately prior to the Effective Time taken into account in
order to determine the employees of Parent to whom such
employees are similarly situated).
Section 5.10.4.1
Prior to the Effective Time, the
Company shall have the authority to grant salary increases to
Company Employees effective January 1, 2011 in the ordinary
course of business and consistent with past practice, provided
that in no event shall such increases exceed an average of 4.0%
for all Company Employees in the aggregate. For the avoidance of
doubt, Parent agrees that it shall cause the Surviving
Corporation to maintain and pay in 2011 the salaries of Company
Employees (so long as such employees remain employed by the
Surviving Corporation) as so modified for 2011 (or higher
salaries in Parents sole discretion); provided that
nothing in this Section 5.10.4.1 shall limit the Surviving
Companys ability to (A) terminate any Company
Employee at any time or (B) modify such salaries after
December 31, 2011.
Section 5.10.4.2
Prior to the Effective Time, the
Company shall have the authority to modify the Company Benefit
Plans to the extent required by the Patient Protection and
Affordable Care Act of 2010 or the Health Care and Education
Reconciliation Act of 2010.
Section 5.10.4.3
For the avoidance of doubt, the
taking of any action by the Company specified in this
Section 5.10.4 shall not constitute a breach of
Section 5.1.
Section 5.10.5
Notwithstanding any other provision
in this Agreement to the contrary, Company shall be permitted,
in the ordinary course of business consistent with past
practices, to pay to all Company Employees participating in the
Companys Incentive Compensation Plan for 2010 a bonus on
the Closing Date but in no event later than March 1, 2011
calculated in accordance with the Incentive Compensation Plan in
effect for 2010 based on a 19% return on shareholders
equity for purposes of determining such bonus.
Section 5.10.6
Nothing in this Agreement shall
require the continued employment of any person, and, except as
set forth in this Section 5.10, no provision of this
Agreement shall prevent Parent or Surviving Corporation from
amending or terminating any Company Benefit Plan.
Section 5.10.7
The Company shall be permitted, and
Parent shall cause the Surviving Corporation, to make all
matching contributions and employer contributions pursuant to
the Companys retirement plan as in effect on the date
hereof for the account of all Company Employees who are employed
immediately prior to the Effective Time even if they are
terminated prior to year end other than with respect to Company
Employees who voluntarily terminate their employment with the
Company.
Section 5.11
Indemnification of Directors and
Officers
.
Section 5.11.1
For not less than six years from and
after the Effective Time, Parent agrees to, and to cause the
Surviving Corporation to, to the extent permitted under
applicable Law, indemnify and hold harmless all past and present
directors, officers, employees and agents of the Company
(
Covered Persons
) to the same extent such
persons are indemnified as of the date of this Agreement by the
Company pursuant to the Company Articles, the Company By-laws
and indemnification agreements, if any, in existence on the date
of this Agreement with any Covered Persons for acts or omissions
occurring at or prior to the Effective Time;
provided
,
however
, that Parent agrees to, and to cause the
Surviving Corporation to, indemnify and hold harmless such
persons to the fullest extent permitted by Law for acts or
omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated
hereby. Each Covered Person shall be entitled to advancement of
expenses incurred in the defense of any claim, action, suit,
proceeding or investigation with respect to any matters subject
to indemnification hereunder,
provided
that any person to
whom expenses are advanced undertakes, to the extent required by
the MBCA, to repay such
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advanced expenses if it is ultimately determined that such
person is not entitled to indemnification. Notwithstanding
anything herein to the contrary, if any claim, action, suit,
proceeding or investigation (whether arising before, at or after
the Effective Time) is made against any Covered Person with
respect to matters subject to indemnification hereunder on or
prior to the sixth anniversary of the Effective Time, the
provisions of this
Section 5.11
shall continue in
effect until the final disposition of such claim, action, suit,
proceeding or investigation.
Section 5.11.2
For not less than six years from and
after the Effective Time, to the extent permitted by applicable
Law, the Articles of Incorporation and By-laws of the Surviving
Corporation shall contain provisions no less favorable with
respect to indemnification, advancement of expenses and
exculpation of Covered Persons than are currently set forth in
the Company Articles and the Company By-laws.
Section 5.11.3
For six years from the Effective
Time, the Surviving Corporation shall provide to the
Companys current directors and officers an insurance and
indemnification policy that provides coverage for events
occurring on or before the Effective Time (
D&O
Insurance
) that is no less favorable than the
Companys existing policies in effect on the date hereof
(the
Existing Policies
). The Surviving
Corporation shall be required to purchase the maximum
run-off coverage available under the Existing
Policies;
provided, however
, that the Surviving
Corporation shall not be required to pay an annual premium for
such run-off coverage in excess of 250% of the last
annual premium paid prior to the date of this Agreement, but in
such case shall purchase as much coverage as is available for
such amount. If such maximum run-off coverage does
not extend fully to the required six year period, the Surviving
Corporation shall first seek the additional coverage from the
Companys insurers under the Existing Policies prior to
seeking such additional coverage from any other insurers. The
provisions of the immediately preceding sentences shall be
deemed to have been satisfied if prepaid policies have been
obtained by Parent or the Company at or prior to the Effective
Time for purposes of this
Section 5.11.3
, which
policies provide such directors and officers with coverage no
less favorable than the Existing Policies for an aggregate
period of at least six years with respect to claims arising from
facts or events that occurred on or before the Effective Time,
including, without limitation, in connection with the approval
of this Agreement and the transactions contemplated hereby. If
such prepaid policies have been obtained prior to the Effective
Time, Parent shall, and shall cause the Surviving Corporation
to, maintain such policies in full force and effect, and
continue to honor the obligations thereunder.
Section 5.11.4
In the event Parent or the Surviving
Corporation (A) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (B) transfers
all or substantially all of its properties and assets to any
person, then, and in each such case, proper provision shall be
made so that such continuing or surviving corporation or entity
or transferee of such assets, as the case may be, shall assume
the obligations set forth in this
Section 5.11
.
Section 5.11.5
The obligations under this
Section 5.11
shall not be terminated or modified in
such a manner as to affect adversely any Covered Person without
the consent of such affected Covered Person, unless such change
is required to comply with applicable Law. The provisions of
this
Section 5.11
shall survive the consummation of
the Merger and are intended to be for the benefit of, and shall
be enforceable by, each of the Covered Persons and their
respective successors, heirs and personal representatives.
Section 5.12
Certain Tax Matters
. At or
prior to the Closing, the Company shall have delivered to Parent
a certificate complying with the Code, in form and substance
reasonably satisfactory to Parent, duly executed and
acknowledged, certifying that shares of Company Common Stock are
not United States real property interests for
purposes of Section 1445 of the Code.
Article 6.
Closing Conditions
Section 6.1
Conditions to Obligations of Each
Party Under This Agreement
. The respective obligations
of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the
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following conditions, any or all of which may be waived, in
whole or in part, to the extent permitted by
Section 7.4
and applicable Law:
Section 6.1.1 Shareholder Approval.
This
Agreement shall have been adopted by the Required Company
Shareholders.
Section 6.1.2 No Order.
No court of competent
jurisdiction or other Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any order, decree,
judgment, injunction or other ruling (whether temporary,
preliminary or permanent), in any case which is in effect and
which prevents or prohibits consummation of the Merger;
provided
,
however
, that the condition in this
Section 6.1.2
shall not be available to any party
whose failure to fulfill its obligations pursuant to
Sections 5.2
or
5.7
has been the primary
cause of, or has primarily resulted in, such order, decree,
judgment, injunction or other ruling.
Section 6.1.3 Insurance Consents.
Parent shall
have obtained and shall have delivered to the Company the
written approval of the Form A issued by the Michigan
Office of Financial and Insurance Regulation and such approval
shall not have a Regulatory Material Adverse Effect.
Section 6.1.4 HSR Act.
Any applicable waiting
period, together with any extensions thereof, under the HSR Act
shall have expired or been terminated.
Section 6.2
Additional Conditions to Obligations
of Parent and Merger Sub
. The obligations of Parent and
Merger Sub to effect the Merger are also subject to the
satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by
Section 7.4
and
applicable Law:
Section 6.2.1 Representations and
Warranties.
Each of the representations and warranties
of the Company contained in this Agreement shall be true and
correct as of the Effective Time without giving effect to any
qualification as to materiality or Company Material Adverse
Effect as though such representations and warranties were made
on and as of the Effective Time (except that those
representations and warranties which address matters only as of
a particular date need only be true and correct as of such
date);
provided, however
, that except with regard to the
representations and warranties of the Company set forth in
Sections 3.1
,
3.2
,
3.3
and
3.4
,
which shall not be subject to the following proviso, the
condition in this
Section 6.2.1
shall be deemed to
be satisfied so long as any failure of such representations and
warranties to be true and correct has not had a Company Material
Adverse Effect. Parent shall have received a certificate of the
Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
Section 6.2.2 Agreements and Covenants.
The
Company shall have performed or complied in all material
respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to
the Effective Time. Parent shall have received a certificate of
the Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
Section 6.2.3 Company Material Adverse
Effect.
Since the date of this Agreement, no change,
event or circumstance shall have occurred that has had a Company
Material Adverse Effect that is continuing or is reasonably
likely to have a Company Material Adverse Effect.
Section 6.3
Additional Conditions to Obligations
of the Company
. The obligations of the Company to
effect the Merger are subject to satisfaction at or prior to the
Effective Time of the following conditions, any or all of which
may be waived, in whole or in part, to the extent permitted by
Section 7.4
and applicable Law:
Section 6.3.1 Representations and
Warranties.
Each of the representations and warranties
of Parent and Merger Sub contained in this Agreement shall be
true and correct as of the Effective Time without giving effect
to any qualification as to materiality or Parent Material
Adverse Effect as though such representations and warranties
were made on and as of the Effective Time (except that those
representations and warranties which address matters only as of
a particular date need only be true and correct as of such
date);
provided however
, that except with regard to the
representations and warranties of Parent and Merger Sub set
forth in
Section 4.1
, which shall not be subject to
the following proviso, the condition in this
Section 6.3.1
shall be deemed to be satisfied so
long as any failure of such representations and warranties to be
true and correct has not had a Parent Material Adverse Effect;
provided further, however
, that notwithstanding the
foregoing,
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Parents and Merger Subs representations contained in
Sections 4.9(A)
and
4.10
shall be true and
correct on and as of the Closing with the same effect as though
such representations and warranties were made on and as of the
Closing. The Company shall have received a certificate of the
Chief Executive Officer or Chief Financial Officer of Parent to
that effect.
Section 6.3.2 Agreements and Covenants.
Parent
shall have performed or complied in all material respects with
all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective
Time. The Company shall have received a certificate of the Chief
Executive Officer or Chief Financial Officer of Parent to that
effect.
Section 6.3.3 Closing Payments.
Parent shall
have made the payments required to be made pursuant to
Section 2.3
.
Article 7.
Termination, Amendment and Waiver
Section 7.1
Termination
. This Agreement
may be terminated, and the Merger contemplated hereby may be
abandoned, at any time prior to the Effective Time, by action
taken or authorized by the Board of Directors or Board of
Governors of the terminating party or parties, whether before or
after approval of the matters presented in connection with the
Merger by the shareholders of the Company:
Section 7.1.1
By mutual written consent of Parent
and the Company, by action of their respective Boards of
Directors or Board of Governors;
Section 7.1.2
By either the Company or Parent if the
Merger shall not have been consummated prior to
December 31, 2010;
provided
that such date shall be
extended to March 31, 2011 in the event all conditions to
effect the Merger other than those set forth in
Section 6.1.2 (No Order)
, (to the extent that the
order, judgment, decree, injunction or ruling relates to a
violation or alleged violation of Antitrust Laws or Applicable
Insurance Laws),
Section 6.1.3 (Insurance Consents)
and
Section 6.1.4 (HSR Act)
(together, the
Specified Conditions
) have been or are
capable of being satisfied at the time of such extension (such
date, as it may be so extended, shall be referred to herein as
the
Outside Date
);
provided further
,
that the right to terminate this Agreement under this
Section 7.1.2
shall not be available to any party
whose breach of this Agreement has been the primary cause of, or
primarily resulted in, the failure of the Merger to occur on or
before such date.
Section 7.1.3
By either the Company or Parent if any
court of competent jurisdiction or other Governmental Authority
shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other
action shall have become final and nonappealable;
provided,
however
, that the right to terminate this Agreement pursuant
to this
Section 7.1.3
shall not be available to any
party whose breach of this Agreement has been the primary cause
of, or primarily resulted in, any such order, decree, ruling or
other action, including, without limitation, such partys
obligation to use its reasonable best efforts to resist, resolve
or lift, as applicable, any such order, decree, ruling or other
action;
Section 7.1.4
By either Parent or the Company if the
adoption of this Agreement by the Required Company Shareholders
shall not have been obtained at the Company Shareholders
Meeting at which a vote on this Agreement is taken by reason of
the failure to obtain the required vote;
Section 7.1.5
By Parent if (A) the Company
Board shall have withdrawn or adversely modified the Company
Recommendation, or (B) the Company Board shall have
recommended to the Companys shareholders that they approve
or accept an Acquisition Proposal other than the Merger;
Section 7.1.6
By the Company, subject to compliance
with
Section 5.6
, if the Company Board determines to
accept a Superior Proposal (with such termination becoming
effective upon the Company entering into a binding written
agreement with respect to such Superior Proposal);
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Section 7.1.7
By Parent, if (A) any
representation or warranty of the Company set forth in this
Agreement shall have become untrue or the Company has breached
any covenant or agreement of the Company set forth in this
Agreement, (B) such breach or misrepresentation is not
capable of being cured prior to the Outside Date, and
(C) such breach or misrepresentation would cause the
conditions set forth in
Section 6.2.1
or
Section 6.2.2
not to be satisfied; and
Section 7.1.8
By the Company, if (A) any
representation or warranty of Parent or Merger Sub set forth in
this Agreement (other than the representations and warranties
set forth in Section 4.9) shall have become untrue or
Parent or Merger Sub has breached any covenant or agreement of
Parent or Merger Sub set forth in this Agreement, (B) such
breach or misrepresentation is not capable of being cured prior
to the Outside Date, and (C) such breach or
misrepresentation would cause the conditions set forth in
Section 6.3.1
or
Section 6.3.2
not to be
satisfied.
Section 7.1.9
By the Company, if (A) the
representations and warranties of Parent or Merger Sub set forth
in
Section 4.9(A)
shall have become untrue or Parent
or Merger Sub has breached its covenant to make the payments
required to be made by
Section 2.3
, (B) such
breach or misrepresentation is not capable of being cured prior
to the Outside Date and (C) such breach or
misrepresentation would cause the conditions set forth in
Section 6.3.3
not to be satisfied.
Section 7.2
Effect of Termination
.
Section 7.2.1 Limitation on Liability.
In the
event of termination of this Agreement by either the Company or
Parent as provided in
Section 7.1
, (A) this
Agreement shall forthwith become void, except that
Section 5.5.2
,
Section 5.9
, this
Section 7.2
and
Article 8
shall survive
such termination, and (B) there shall be no liability or
obligation on the part of Parent, Merger Sub or the Company or
their respective Subsidiaries, officers or directors, except
that, subject to
Sections 7.2.2.1
,
7.2.2.2
and
7.2.2.3
, each party shall have the right to recover
to the fullest extent permitted by applicable Law any
liabilities or damages incurred or suffered by it as a result of
the material breach by the other party of any of its
representations, warranties, covenants or other agreements set
forth in this Agreement (including, in the case that the Company
is the recovering party, a material breach by Parent of any of
its representations and warranties set forth in
Section 4.9
, or its covenants and other agreements
to pay the Merger Consideration as set forth herein).
Section 7.2.2 Termination Fee.
Section 7.2.2.1
In the event that this Agreement is
terminated by the Company pursuant to
Section 7.1.6
,
then the Company shall pay Parent the Termination Fee within
three (3) Business Days after such termination is
effective, which shall be the sole and exclusive remedy of
Parent in the event of such termination.
Section 7.2.2.2
In the event that (A) this
Agreement is terminated by Parent pursuant to
Section 7.1.5
and (B) an Acquisition Proposal
had been publicly announced prior to the occurrence of the
events giving rise to Parents right to terminate pursuant
to
Section 7.1.5
and not withdrawn prior to the date
of such termination, then the Company shall pay Parent, within 3
Business Days of such termination, an amount equal to the
Termination Fee, which shall be the sole and exclusive remedy of
Parent in the event of such termination.
Section 7.2.2.3
In the event that this Agreement is
terminated pursuant to
Section 7.1.2
as a result of
the failure to satisfy the Specified Conditions, and provided
that on the date this Agreement is terminated (i) the vote
of the Required Company Shareholders to adopt this Agreement has
been obtained, (ii) no Company Material Adverse Effect
shall have occurred and be continuing and (iii) the
conditions in
Section 6.2
are still capable of being
satisfied, then Parent shall pay the Company, within three
(3) Business Days after such termination, an amount equal
to the Termination Fee, which, subject to Parent complying with
its obligations under
Section 5.7
, shall be the sole
and exclusive remedy of the Company in the event of such
termination.
Section 7.2.2.4
In the event that this Agreement is
terminated by the Company pursuant to
Section 7.1.9
,
and provided that on the date this Agreement is terminated
(i) the vote of the Required
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Company Shareholders to adopt this Agreement has been obtained,
(ii) no Company Material Adverse Effect shall have occurred
and be continuing and (iii) the conditions in
Section 6.2
are still capable of being satisfied,
then Parent shall pay the Company, within three
(3) Business Days after such termination, an amount equal
to the Termination Fee.
Section 7.2.3 All Payments.
All payments under
Section 7.2
shall be made by wire transfer of
immediately available funds to an account designated by the
party entitled to receive payment.
Section 7.3
Amendment
. This Agreement
may not be amended except by an instrument in writing signed by
the parties hereto.
Section 7.4
Waiver
. At any time prior to
the Effective Time, Parent and Merger Sub, on the one hand, and
the Company, on the other hand, may (A) extend the time for
the performance of any of the obligations or other acts of the
other, (B) waive any inaccuracies in the representations
and warranties of the other contained herein or in any document
delivered pursuant hereto and (C) waive compliance by the
other with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid only if set forth in
an instrument in writing signed by the party or parties to be
bound thereby, but such extension or waiver or failure to insist
on strict compliance with an obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
Article 8.
General Provisions
Section 8.1
Non-Survival of Representations and
Warranties
. None of the representations and warranties
in this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Effective Time. This
Section 8.1
shall not limit any covenant or
agreement of the parties to the extent its terms contemplate
performance after the Effective Time, but any other covenants
and agreements shall not survive the Effective Time.
Section 8.2
Fees and Expenses
. Subject
to
Section 7.2
of this Agreement, or as otherwise
expressly contemplated by this Agreement, all expenses incurred
by the parties hereto shall be borne solely and entirely by the
party which has incurred the same.
Section 8.3
Notices
. Any notices or
other communications required or permitted under, or otherwise
in connection with this Agreement, shall be in writing and shall
be deemed to have been duly given when delivered in person or
upon electronic confirmation of receipt when transmitted by
facsimile transmission (but only if followed by transmittal by
national overnight courier or hand for delivery on the next
Business Day) or on receipt after dispatch by registered or
certified mail, postage prepaid, addressed, or on the next
Business Day if transmitted by national overnight courier, in
each case as follows:
If to Parent or Merger Sub, addressed to it at:
The Doctors Company
185 Greenwood Road
Napa, CA 94558
Facsimile:
(707) 226-0370
Attention: General Counsel
with a copy to:
Farella Braun + Martel LLP
Russ Building
235 Montgomery Street, 17th floor
San Francisco, California 94104
Telephone:
(415) 954-4400
Facsimile:
(415) 954-4480
Attention: Philip W. Peters, Esq.
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If to the Company, addressed to it at:
American Physicians Capital, Inc.
1301 North Hagadorn Road
East Lansing, Michigan 48823
Facsimile:
(517) 351-7866
Attention: R. Kevin Clinton, President and CEO
with copies to:
Dykema Gossett
201 Townsend Street, Suite 900
Lansing, MI 48933
Telephone:
517-374-9150
Fax:
517-374-9191
c/o Lori
McAllister, Esq.
Section 8.4
Certain Definitions
. For
purposes of this Agreement, the term:
affiliate
means a person that directly
or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the
first-mentioned person.
Acquisition Proposal
means any bona
fide offer or proposal or indication of interest concerning any
(A) merger, consolidation, business combination, or similar
transaction involving the Company, (B) sale, lease or other
disposition directly or indirectly by merger, consolidation,
business combination, share exchange, joint venture, or
otherwise of assets of the Company or any Company Subsidiary
representing 20% or more of the consolidated assets of the
Company and the Company Subsidiaries, taken as a whole,
(C) issuance, sale, or other disposition of (including by
way of merger, consolidation, business combination, share
exchange, joint venture, or any similar transaction) Equity
Interests representing 20% or more of the voting power of the
Company or (D) transaction in which any person or group
shall acquire beneficial ownership, or the right to acquire
beneficial ownership of 20% or more of the outstanding voting
capital stock of the Company or (E) any combination of the
foregoing (other than the Merger), as the same may be amended or
revised from time to time.
Antitrust Laws
means the Sherman
Antitrust Act of 1890, as amended, the Clayton Antitrust Act of
1914, as amended, the HSR Act, the Federal Trade Commission Act
of 1914, as amended, and all other applicable competition,
merger control, antitrust, trade regulation or similar
transnational, national, federal or state, domestic or foreign
Laws, and other Laws and administrative and judicial doctrines
that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition through merger or
acquisition.
beneficial ownership
(and related
terms such as
beneficially owned
or
beneficial owner
) has the meaning set
forth in
Rule 13d-3
under the Exchange Act.
Book-Entry Shares
shall mean shares of
Company Common Stock evidenced in book-entry form on the records
of the Company, or the Companys transfer agent on behalf
of the Company, immediately prior to the Effective Time.
Business Day
shall mean any day other
than a day on which the SEC shall be closed.
Certificate
shall mean, with respect
to shares of Company Common Stock, certificates that,
immediately prior to the Effective Time, represented any such
shares.
Chandler
shall mean Chandler Office
Park, L.L.C., a Michigan limited liability company.
Company Insurance Subsidiaries
means
American Physicians Assurance Corporation and APSpecialty
Insurance Corporation.
Company Material Adverse Effect
means
any change or event that, individually or together with any
other change or event, has a material adverse effect on the
business, financial condition or results of
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operations of the Company and the Company Subsidiaries, taken as
a whole;
provided, however
, that none of the following
shall be deemed in themselves, either alone or in combination,
to constitute, and that none of the following shall be taken
into account in determining whether there has been or will be, a
Company Material Adverse Effect: (A) any adverse change,
effect, event, occurrence, state of facts or development
attributable to the announcement, pendency or consummation of
the Merger or the transactions contemplated hereby including,
without limitation, any rating agency downgrade of the Company
or any Company Subsidiary resulting therefrom; (B) any
adverse change, effect, event, occurrence, state of facts or
development attributable to conditions affecting any of the
industries in which the Company participates, the
U.S. economy or financial markets, except to the extent the
Company or the Company Subsidiaries, taken as a whole, are
disproportionately affected thereby; (C) any adverse
change, effect, event, occurrence, state of facts or development
arising from (i) the Companys compliance with the
terms of this Agreement, (ii) action taken, or failure to
act, by the Company to which Parent has consented in writing or
(iii) the Companys failure to reasonably settle any
action under Section 5.1.12 due to Parent unreasonably
withholding its consent to such settlement, (D) changes in
Laws after the date hereof, (E) changes in GAAP after the
date hereof, (F) any failure by the Company to meet any
published or internally prepared estimates of revenues, earnings
or other economic performance for any period ending on or after
the date of this Agreement and prior to Closing (it being
understood that the facts and circumstances giving rise to such
failure may be deemed to constitute, and may be taken into
account in determining whether this has been a Company Material
Adverse Effect if such facts and circumstances are not otherwise
included in clauses (A)-(E) of the definition), (G) acts of
war or terrorism or (H) a decline in the price of the
Company Common Stock on the Nasdaq or any other trading market;
provided
,
however
, that the loss by any Company
Insurance Subsidiary of any Company Permit authorizing it to
transact insurance in Illinois, Michigan, Ohio or New Mexico or
any Certificate of Authority in any jurisdiction in which such
insurer transacts insurance on the date hereof shall constitute
a Company Material Adverse Effect.
control
(including the terms
controlled by
and
under
common control with
) means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether
through the ownership of stock or as trustee or executor, by
contract or otherwise.
Environmental Laws
means any Law
relating to the pollution, protection, investigation or
restoration of the environment, including, without limitation,
those relating to the use, handling, presence, transportation,
treatment, storage, disposal, release, threatened release or
discharge of Hazardous Materials.
Environmental Permits
means any
permit, approval, license or other authorization required under
any applicable Environmental Law.
Equity Interest
means any share,
capital stock, partnership, membership or similar interest in
any entity, and any option, warrant, right or security
convertible, exchangeable or exercisable therefor.
Exchange Act
shall mean Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
GAAP
means generally accepted
accounting principles as applied in the United States.
Governmental Authority
means any
nation or government, any state or other political subdivision
thereof, any entity exercising executive, legislative, judicial,
regulatory or administration functions of or pertaining to
government, including any government authority, agency,
department, board, commission or instrumentality of the United
States, any foreign government, any State of the United States
or any political subdivision thereof, and any court, tribunal or
arbitrator(s) of competent jurisdiction.
group
is defined as in the Exchange
Act, except where the context otherwise requires.
Hazardous Materials
means any
chemical, material or other substance defined or regulated as
toxic or hazardous under any applicable
Environmental Law.
HSR Act
means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder.
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Indebtedness
means
(i) indebtedness for borrowed money, (ii) indebtedness
that is evidenced by a note, bond, debenture or similar
instrument, (iii) obligations under capital leases,
(iv) obligations in respect of outstanding letters of
credit and (v) guarantee obligations, in each case to the
extent exceeding $500,000.
Intellectual Property
means all
intellectual property or other proprietary rights of every kind,
foreign or domestic, including patents, inventions (whether or
not patentable), processes, methodologies, products,
technologies, discoveries, copyrightable and copyrighted works
(whether or not registered), apparatus, trade secrets,
trademarks and service marks (whether or not registered), domain
names, trade names, know-how, trade dress, customer lists,
confidential marketing and customer information, confidential
technical information, software, and documentation related
thereto, and any registrations or applications for registration
of any of the foregoing.
Insurance Contracts
means all
policies, binders, slips, certificates and participation
agreements and other agreements of insurance, whether individual
or group, in effect as of the date hereof (including all
applications, supplements, endorsements, riders and ancillary
agreements in connection therewith) that are issued by the
Company and the Company Subsidiaries.
Investment Advisers Act
shall mean the
Investment Advisers Act of 1940, as amended, and the rules and
regulations of the SEC thereunder.
IRS
means the United States Internal
Revenue Service.
knowledge
will be deemed to be present
with respect to Parent or the Company, as applicable, when the
matter in question was actually known to any executive officer
of Parent listed in
Exhibit A-1
hereto (in the case of Parent) or to any executive officer of
the Company listed in
Exhibit A-2
hereto (in the case of the Company).
Law
means any foreign or domestic law,
statute, code, ordinance, rule, regulation, order, judgment,
writ, stipulation, award, injunction or decree.
Nasdaq
means the Nasdaq Global Select
Market.
Other Filings
means all filings made
by, or required to be made by, the Company, Parent or Merger Sub
with the SEC other than the Proxy Statement.
Parent Material Adverse Effect
means
any change or event that has a material adverse effect on the
business, financial condition, or results of operations of
Parent and the Parent Subsidiaries, taken as a whole;
provided, however
, that none of the following shall be
deemed in themselves, either alone or in combination, to
constitute, and that none of the following shall be taken into
account in determining whether there has been or will be, a
Parent Material Adverse Effect: (A) any adverse change,
effect, event, occurrence, state of facts or development to the
extent attributable to the announcement or pendency of the
Merger or the transactions contemplated hereby; (B) any
adverse change, effect, event, occurrence, state of facts or
development after the date hereof, attributable to conditions
affecting any of the industries in which Parent participates,
the U.S. economy or financial markets; or (C) any
adverse change, effect, event, occurrence, state of facts or
development arising from or relating to compliance with the
terms of this Agreement.
Parent Permit
means all
authorizations, licenses, permits, certificates, approvals and
clearances of any Governmental Authority necessary for Parent,
Merger Sub and each Parent Subsidiary to own, lease and operate
its properties or to carry on its respective businesses
substantially as it is being conducted as of the date hereof.
Permitted Liens
means (i) liens
or other encumbrances for Taxes not yet due and payable or that
are being contested in good faith by appropriate proceedings;
(ii) liens or other encumbrances in favor of vendors,
carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction or similar liens or other encumbrances
arising by operation of law; (iii) liens for utilities and
other governmental charges that, in each case, are not yet due
or payable, are being contested in good faith by appropriate
proceedings or may thereafter be paid without giving rise to any
material penalty or material additional cost or liability;
(iv) matters of record or registered liens affecting title
to any owned or leased real property of a person and its
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subsidiaries; (v) requirements and restrictions of zoning,
building and other applicable Laws and municipal by-laws, and
development, site plan, subdivision or other agreements with
municipalities that do not individually or in the aggregate
materially and adversely affect the use of the owned or leased
real property of a person and its subsidiaries affected thereby
as currently used in the business of such person and its
subsidiaries; (vi) statutory liens of landlords for amounts
not yet due and payable; (vii) liens arising under
reinsurance agreements existing on the date hereof or entered
into in the ordinary course of business; (viii) defects,
irregularities or imperfections of title and other liens which,
individually or in the aggregate, do not materially impair the
continued use of the asset or property to which they relate;
(ix) rabbi trusts established by a person or its
subsidiaries for the benefit of its directors, officers or other
employees prior to the date hereof; (x) with respect to a
person and its subsidiaries, liens arising under any credit
agreement existing as of the date hereof or any refinancing or
replacement thereof in the ordinary course of business;
(xi) liens for judgments not yet due and payable or that
are being contested in good faith by appropriate proceedings;
and (xii) statutory deposits of cash, securities or other
assets pursuant to Applicable Insurance Laws.
person
means an individual,
corporation, limited liability company, partnership,
association, trust, unincorporated organization or other entity
or group.
Regulatory Material Adverse Effect
shall mean an approval that contains or is subject to any
conditions that are expected to (A) increase the
Companys costs, (B) decrease the Companys
revenues or (C) decrease the amount of annual ordinary
dividends that the Company or any Company Insurance Subsidiary
may pay, in each case, by an amount greater than $4,000,000.
SEC
means the United States Securities
and Exchange Commission.
Securities Act
means the Securities
Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Securities Laws
shall mean the
Securities Act, the Exchange Act, the Investment Company Act,
the Investment Advisers Act, state blue sky,
securities and investment advisory laws, all applicable foreign
securities laws, and the rules and regulations promulgated
thereunder.
subsidiary
or
subsidiaries
of Parent, the Company,
the Surviving Corporation or any other person means any
corporation, partnership, joint venture or other legal entity of
which Parent, the Company, the Surviving Corporation or such
other person, as the case may be (either alone or through or
together with any other subsidiary), (i) owns, directly or
indirectly, more than 50% of the outstanding voting securities,
equity securities, profits interest or capital interest or
(ii) is entitled to elect at least a majority of the board
of directors, board of managers or similar governing body.
Statutory Accounting Principles
means
statutory accounting principles prescribed or permitted by the
State of Michigans Office of Financial and Insurance
Regulation, applicable to insurers domiciled in the State of
Michigan.
Superior Proposal
means an unsolicited
Acquisition Proposal, with references to 20% being changed to
50%, made by a third party which, in the good faith judgment of
the Company Board (after consultation with its financial advisor
and outside legal counsel), (i) is reasonably likely to be
consummated taking into account the party making the proposal
and all financial, legal, regulatory and other aspects of the
proposal and (ii) would, if consummated, result in a
transaction that is more favorable to the Companys
shareholders than the transactions contemplated by this
Agreement taking into account all financial, legal, regulatory
and other aspects of the respective proposals, including without
limitation, the identity of the third party making such
proposal, the terms of any written proposal by Parent to amend
or modify the terms of the Merger and the other transactions
contemplated by this Agreement, and any
break-up
fees, expense reimbursement fees and conditions to consummation.
Taxes
means any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind
(together with any and all interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed by
any Governmental Authority or domestic or foreign taxing
authority, including, without limitation, income, franchise,
windfall or other profits, gross receipts, premiums, property,
sales, use, net
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worth, capital stock, payroll, employment, social security,
workers compensation, unemployment compensation, excise,
withholding, ad valorem, stamp, transfer, value-added, gains tax
and license, registration and documentation fees.
Tax Returns
means any report, return,
claim for refund, election, estimated tax filing or declaration
required to be supplied to any Governmental Authority or
domestic or foreign taxing authority with respect to Taxes,
including any schedule or attachment thereto, and including any
amendments thereof.
Termination Fee
means 3% of the Merger
Consideration.
Section 8.5
Terms Defined Elsewhere
. The
following terms are defined elsewhere in this Agreement, as
indicated below:
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Actuarial Analyses
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Section 3.7.4
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Affiliate Reinsurance Contracts
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Section 3.13.1
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Agreement
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Preamble
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Alpha Advisors
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Section 3.28
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Applicable Insurance Laws
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Section 5.7.2
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Certificate of Merger
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Section 1.3
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Closing
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Section 1.2
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Code
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Section 2.3.8
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Company
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Preamble
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Company Articles
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Section 3.2
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Company Benefit Plan
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Section 3.10.1
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Company Board
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Section 2.2
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Company By-laws
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Section 3.2
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Company Common Stock
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Section 2.1.1
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Company Disclosure Schedule
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Article 3
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Company Employees
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Section 5.10.1
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Company Material Contract
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Section 3.12.1
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Company Options
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Section 2.2
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Company Permits
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Section 3.6
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Company Preferred Stock
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Section 3.3.1
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Company Recommendation
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Section 5.3.1
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Company Representatives
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Section 5.6.1
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Company SEC Filings
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Section 3.7.1
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Company Shareholders Meeting
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Section 5.4.1
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Company Stock Option Plans
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Section 2.2
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A-41
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Company Subsidiary
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Section 3.1
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Confidentiality Agreement
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Section 5.5.2
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Covered Persons
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Section 5.11.1
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D&O Insurance
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Section 5.11.3
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Effective Time
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Section 1.3
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ERISA
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Section 3.10.1
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Exchange Fund
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Section 2.3.2
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Existing Policies
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Section 5.11.3
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Existing Reinsurance Contracts
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Section 3.13.1
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Form A
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Section 4.3.2
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Form E
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Section 4.3.2
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Forms
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Section 3.19.3
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Insurance Permit
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Section 3.19.1
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Investment Assets
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Section 3.26.1
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Investment Company
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Section 3.26.4
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MBCA
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Recitals
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Merger
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Recitals
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Merger Consideration
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Section 2.1.1
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Merger Sub
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Preamble
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Option Consideration
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Section 2.2
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Outside Date
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Section 7.1.2
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Owned Real Property
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Section 3.17.1
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Parent
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Preamble
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Parent Benefit Plans
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Section 5.10.1
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Parent Disclosure Schedule
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Article 4
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Parent Representatives
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Section 5.5.1
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Parent Subsidiary
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Section 4.3.1
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Paying Agent
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Section 2.3.1
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Producers
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Section 3.24.1
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Proxy Statement
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Section 5.3.1
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Required Company Shareholders
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Section 3.20
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SOX
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Section 3.6
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A-42
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Specified Conditions
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Section 7.1.2
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STAT Financial Statements
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Section 3.7.3
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Surviving Corporation
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Section 1.1
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Third Party Reinsurance Contracts
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Section 3.13.1
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Section 8.6
Headings
. The headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement.
Section 8.7
Severability
. If any term or
other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of Law or public policy,
all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent
possible.
Section 8.8
Entire Agreement
. This
Agreement (together with the Exhibits, Parent and Company
Disclosure Schedules and the other documents delivered pursuant
hereto), and the Confidentiality Agreement constitute the entire
agreement of the parties and supersede all prior agreements and
undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof.
Section 8.9
No Reliance
. Each of Parent
and Merger Sub has conducted its own independent review and
analysis of the business, operations, assets, liabilities,
results of operations, financial condition, technology and
prospects of the Company and the Company Subsidiaries and
acknowledges that each of Parent and Merger Sub has been
provided access to personnel, properties, premises and records
of the Company and the Company Subsidiaries for such purposes.
In entering into this Agreement, except as expressly provided
herein, each of Parent and Merger Sub has relied solely upon its
independent investigation and analysis of the Company and the
Company Subsidiaries and each of Parent and Merger Sub. Each
party acknowledges and agrees that the other party has not made
and is not making any representations or warranties whatsoever
regarding the subject matter of this Agreement, express or
implied, except as provided herein and that it has not been
induced by and has not relied upon any representations,
warranties or statements, whether express or implied, made by
the other parties, or any of their respective directors,
officers, shareholders, employees, affiliates, agents, advisors
or representatives that are not expressly set forth in this
Agreement, whether or not such representations, warranties or
statements were made in writing or orally.
Section 8.10
Assignment
. This Agreement
shall not be assigned by operation of law or otherwise and any
purported assignment hereof shall be null and void.
Section 8.11
Parties in Interest
. This
Agreement shall be binding upon and inure solely to the benefit
of each party hereto and their respective successors and
assigns, and nothing in this Agreement, express or implied,
other than pursuant to
Section 5.10
and
Section 5.11
is intended to or shall confer upon any
other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
Section 8.12
Mutual Drafting
. Each party
hereto has participated in the drafting of this Agreement, which
each party acknowledges is the result of extensive negotiations
between the parties.
Section 8.13
Governing Law; Consent to
Jurisdiction; Waiver of Trial by Jury
.
Section 8.13.1
This Agreement shall be governed by,
and construed in accordance with, the internal laws of the State
of Delaware, without regard to laws that may be applicable under
conflicts of laws principles.
Section 8.13.2
Each of the parties irrevocably and
unconditionally submits, for itself and its property, to the
exclusive jurisdiction of the U.S. District Court of
Chancery of the State of Delaware, and any appellate court
therefrom, in any action or proceeding arising out of or
relating to this Agreement or the agreements delivered in
connection herewith or the transactions contemplated hereby or
thereby or for recognition or
A-43
enforcement of any judgment relating thereto, and each of the
parties hereby irrevocably and unconditionally (A) agrees
not to commence any such action or proceeding except in such
courts, (B) agrees that any claim in respect of any such
action or proceeding may be heard and determined in the
U.S. District Court of Chancery of the State of Delaware,
(C) waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter
have to the laying of venue of any such action or proceeding in
the U.S. District Court of Chancery of the State of
Delaware, and (D) waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in the U.S. District Court of
Chancery of the State of Delaware. Each of the parties hereto
agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law.
Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in
Section 8.3
. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
Section 8.13.3
EACH PARTY ACKNOWLEDGES AND AGREES
THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION
HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH
WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS
SECTION 8.13.3
.
Section 8.14
Disclosure Schedule
. Each
party hereto has or may have set forth information in its
respective Disclosure Schedule in a section thereof that
corresponds to the section of this Agreement to which it
relates. A matter set forth in one section of the Disclosure
Schedule need not be set forth in any other section of the
Disclosure Schedule so long as its relevance to the latter
section of the Disclosure Schedule or section of the Agreement
is reasonably apparent on the face of the information disclosed
in the Disclosure Schedule. The fact that any item of
information is disclosed in a Disclosure Schedule to this
Agreement shall not be construed to mean that such information
is required to be disclosed by this Agreement. Such information
and the dollar thresholds set forth herein shall not be used as
a basis for interpreting the terms material or
Material Adverse Effect or other similar terms in
this Agreement.
Section 8.15
Counterparts
. This
Agreement may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of
which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same
agreement. The parties agree that this Agreement shall be
legally binding upon the electronic transmission, including by
facsimile or email, by each party of a signed signature page to
this Agreement to the other party.
[SIGNATURE
PAGE FOLLOWS]
A-44
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
THE DOCTORS COMPANY
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By:
|
/s/ Richard
E. Anderson, M.D.
|
Name: Richard E. Anderson, M.D.
|
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Title:
|
Chief Executive Officer
|
RED HAWK ACQUISITION CORP.
|
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By:
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/s/ Richard
E. Anderson, M.D.
|
Name: Richard E. Anderson, M.D.
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Title:
|
Chief Executive Officer
|
AMERICAN PHYSICIANS CAPITAL, INC.
Name: R. Kevin Clinton
A-45
AMENDMENT
NO. 1 TO
AGREEMENT
AND PLAN OF MERGER
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this
Amendment
), is dated July 13, 2010 and
is by and among THE DOCTORS COMPANY, a California-domiciled
reciprocal inter-insurance exchange (
Parent
),
RED HAWK ACQUISITION CORP., a Michigan corporation and a wholly
owned subsidiary of Parent (
Merger Sub
), and
AMERICAN PHYSICIANS CAPITAL, INC., a Michigan corporation (the
Company
).
RECITALS
WHEREAS, the parties have agreed to amend the Agreement and Plan
of Merger, dated as of July 7, 2010, by and among Parent,
Merger Sub and the Company (the
Merger
Agreement
) to clarify a typographical error.
WHEREAS, each of Parent, Merger Sub and the Company have
approved this Amendment.
NOW, THEREFORE, in consideration of the respective covenants and
agreements set forth in this Amendment and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
Amendment
Section 1.1
Amendment
to Section 8.4
. The definition of the term
Termination Fee in Section 8.4 of the Merger
Agreement is hereby amended in its entirety to read as follows:
Termination Fee
means 3% of the
aggregate Merger Consideration.
ARTICLE II
General
Provisions
Section 2.1
Entire
Agreement
. This Amendment and the Merger
Agreement (together with the Exhibits, Parent and Company
Disclosure Schedules and the other documents delivered pursuant
thereto), and the Confidentiality Agreement constitute the
entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the
parties, or any of them, with respect to the subject matter
hereof. Except as amended by this Amendment, the Merger
Agreement remains in full force and effect.
Section 2.2
Capitalized
Terms
. Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to
them in the Merger Agreement. References in the Merger Agreement
to the Agreement shall mean the Merger Agreement as
modified by this Amendment.
Section 2.3
Governing
Law
. This Amendment shall be governed by, and
construed in accordance with, the internal laws of the State of
Delaware, without regard to conflicts of laws principles.
Section 2.4
Counterparts
. This
Amendment may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of
which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same
agreement. The parties agree that this Amendment shall be
legally binding upon the electronic transmission, including by
facsimile or email, by each party of a signed signature page to
this Amendment to the other parties.
A-46
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Amendment to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
THE DOCTORS COMPANY
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By:
|
/s/ Richard
E. Anderson, M.D.
|
Name: Richard E.
Anderson, M.D.
|
|
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|
Title:
|
Chief Executive Officer
|
RED HAWK ACQUISITION CORP.
|
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By:
|
/s/ Richard
E. Anderson, M.D.
|
Name: Richard E. Anderson, M.D.
|
|
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|
Title:
|
Chief Executive Officer
|
AMERICAN PHYSICIANS CAPITAL, INC.
Name: R. Kevin Clinton
A-47
APPENDIX B
RAYMOND
JAMES
July 7, 2010
Board of Directors
American Physicians Capital, Inc.
1301 North Hagadorn Road
East Lansing, MI 48823
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the Shareholders (as defined below),
of the Consideration (as defined below) to be received by such
Shareholders in the proposed merger (the Merger) of
Red Hawk Acquisition Corp. (Merger Sub), a Michigan
corporation and wholly owned subsidiary of The Doctors Company,
a California domiciled reciprocal inter-insurance exchange
(TDC), with and into American Physicians Capital,
Inc., a Michigan corporation (the Company), pursuant
and subject to the Agreement and Plan of Merger between Merger
Sub, the Company and TDC dated as of July 7, 2010 (the
Agreement). For purposes hereof,
Shareholders means the holders of the outstanding
common stock, no par value per share, of the Company (the
Shares), other than TDC, Merger Sub and any of their
affiliates. The consideration to be paid to the Shareholders in
the Merger pursuant to the Agreement is $41.50 per Share (the
Consideration).
In connection with our review of the proposed Merger and the
preparation of our opinion herein, we have, among other things:
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1.
|
reviewed the financial terms and conditions as stated in the
Agreement;
|
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2.
|
reviewed Annual Reports on
Form 10-K
filed by the Company for the years ended December 31, 2008
and 2009, as amended;
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3.
|
reviewed the Quarterly Report on
Form 10-Q
filed by the Company for the period ending March 31, 2010;
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4.
|
reviewed the report dated March 5, 2010 prepared by
Ernst & Young LLP titled AP Capital Inc. Actuarial
analysis of loss and loss adjustment expense reserves as of
December 31, 2009;
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5.
|
reviewed the Annual Statements of the Companys wholly
owned U.S. domiciled insurance company subsidiaries (the
Insurance Subsidiaries) filed with the Michigan
Office of Financial and Insurance Regulation for the years ended
December 31, 2007, 2008, and 2009;
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6.
|
reviewed the Quarterly Statements of the Insurance Subsidiaries
filed with the Michigan Office of Financial and Insurance
Regulation for the three month period ended March 31, 2010;
|
Raymond
James & Associates, Inc.
Member
New York Stock Exchange/SIPC
550 W. Washington
Suite 1650 Chicago, IL 60661
312-612-7785
877-587-7748
Toll Free
312-612-7786
Fax
B-1
Board of Directors
American Physicians Capital, Inc
July 7, 2010
Page 2
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7.
|
reviewed the audited financial statements of the Insurance
Subsidiaries prepared in accordance with statutory accounting
procedures as of and for the year ended December 31, 2009;
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8.
|
reviewed other Company financial and operating information
requested from
and/or
provided by the Company, including financial forecasts;
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9.
|
reviewed certain other publicly available information regarding
the Company;
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10.
|
discussed with members of the senior management of the Company
certain information relating to the aforementioned items and any
other matters which Raymond James deemed relevant to its inquiry;
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11.
|
reviewed the Annual Statements of TDC filed with the California
Department of Insurance for the years ended December 31,
2008, and 2009; and
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12.
|
reviewed the Quarterly Statements of TDC filed with the
California Department of Insurance for the three month period
ended March 31, 2010.
|
With your consent, we have assumed and relied upon the accuracy
and completeness of all information supplied or otherwise made
available to us by the Company, Ernst & Young LLP or
any other party, and we have undertaken no duty or
responsibility to verify independently any of such information.
We are not actuaries and our services did not include any
actuarial analyses, determinations or evaluations by us. We did
not make or order an independent appraisal of the assets or
liabilities (contingent or otherwise) of the Company. We did not
evaluate, and we express no opinion with respect to, the
adequacy of reserves maintained by the Company or any of the
Insurance Subsidiaries. With respect to financial forecasts and
other information and data provided to or otherwise reviewed by
or discussed with us, we have, with your consent, assumed that
such forecasts and other information and data have been
reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of management, and
we have relied upon each party to advise us promptly if any
information previously provided became inaccurate or was
required to be updated during the period of our review. We have
assumed that the final form of the Agreement will be
substantially similar to the draft reviewed by us, and that the
Merger will be consummated in accordance with the terms of the
Agreement without waiver of any conditions thereof.
Our opinion is based upon market, economic, financial and other
circumstances and conditions existing and disclosed to us as of
July 6, 2010 and any material change in such circumstances
and conditions would require a reevaluation of this opinion,
which we are under no obligation to undertake.
We express no opinion as to the underlying business decision to
effect the Merger, the structure or tax or legal consequences of
the Agreement or the availability or advisability of any
alternatives to the Merger. We did not structure the Merger or
negotiate the terms of the Merger. Our opinion is limited to the
fairness, from a financial point of view, of the Consideration
to be received by the
B-2
Board of Directors
American Physicians Capital, Inc
July 7, 2010
Page 3
Shareholders pursuant to the
Agreement. We express no opinion with respect to any reasons,
legal, business, or otherwise, that may support the decision of
the Board of Directors to approve or consummate the Merger. In
formulating our opinion, we have considered only what we
understand to be the Consideration to be received by the
Shareholders as described above, and we have not considered, and
this opinion does not address, any other payments that may be
made in connection with, or as a result of, the Merger to
Company directors, officers, employees or others.
In conducting our investigation and analyses and in arriving at
our opinion expressed herein, we took into account such accepted
financial and investment banking procedures and considerations
as we deemed relevant, including the review of
(i) historical and projected revenues, operating earnings,
net income and capitalization of the Company and certain other
publicly held companies in businesses we believe to be
comparable to the Company; (ii) the current and projected
financial position and results of operations of the Company;
(iii) the historical market prices and trading activity of
the Companys common stock; (iv) financial and
operating information concerning selected business combinations
which we deemed comparable in whole or in part; and (v) the
general condition of the securities markets. The delivery of
this opinion was approved by our Fairness Opinion Committee.
In arriving at this opinion, we did not attribute any particular
weight to any analysis or factor considered by us, but rather
made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, we believe that our
analyses must be considered as a whole and that selecting
portions of our analyses, without considering all analyses,
would create an incomplete view of the process underlying this
opinion.
We are actively engaged in the investment banking business and
regularly undertake the valuation of investment securities in
connection with public offerings, private placements, business
combinations and similar transactions. We will receive a fee
upon the delivery of this opinion, but no part of the fee is
contingent upon consummation of the Merger. In addition, the
Company has agreed to indemnify us against certain liabilities
arising out of our engagement.
In the ordinary course of our business, we may trade in the
securities of the Company for our own account or for the
accounts of our customers and, accordingly, may at any time hold
a long or short position in such securities. We have provided
certain services to the Company (in the previous two years),
including executing trades on its behalf for equity securities
held in its investment portfolio, for which we have been paid a
fee(s).
It is understood that this letter is for the information of the
Board of Directors of the Company in evaluating the proposed
Merger and does not constitute a recommendation to any
shareholder of the Company regarding how said shareholder should
vote on the proposed Merger. Furthermore, this letter should not
be construed as creating any fiduciary duty on the part of
Raymond James to any such party. This opinion is not to be
quoted or referred to, in whole or in part, other than in the
Companys proxy statement in connection with the special
meeting of Shareholders to obtain approval of the Merger,
without our prior written consent, which will not be
unreasonably withheld.
B-3
Board of Directors
American Physicians Capital, Inc
July 7, 2010
Page 4
Based upon and subject to the foregoing, it is our opinion that,
as of July 7, 2010, the Consideration to be received by the
Shareholders pursuant to the Agreement is fair, from a financial
point of view, to such Shareholders.
Very truly yours,
RAYMOND JAMES & ASSOCIATES,
INC.
B-4
The Directors And Officers Of
Cordially Invite You To Attend Our
Special Meeting Of Shareholders
Wednesday, October 20, 2010, 9:00 a.m. Eastern time
APCapitals Headquarters
1301 North Hagadorn Road
East Lansing, Michigan
You can vote in one of three ways: 1) By Mail, 2) By Internet, 3) By Telephone.
IF YOU ARE
NOT
VOTING BY INTERNET OR TELEPHONE, COMPLETE
BOTH SIDES OF THE PROXY CARD, DETACH AND RETURN IN THE ENCLOSED
ENVELOPE TO:
Illinois Stock Transfer Co.
209 West Jackson Boulevard, Suite 903
Chicago, Illinois 60606
If you
plan to personally attend the Special Meeting of Shareholders on
October 20, 2010, please check
the box and list the names of attendees on the reverse side
I/We plan to attend the Special Meeting.
o
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DETACH PROXY CARD HERE
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(continued on reverse side)
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VOTER CONTROL NUMBER
|
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TO VOTE BY INTERNET
Your
internet vote is quick, confidential and your vote is immediately
submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at
www. ilstk.com,
click on the I am a
Shareholder, select the Internet Voting tab, enter your Voter Control Number
and the last four digits of your Tax Identification Number that is associated
with the account you are voting in the designated fields. Your Voter Control
Number is shown above.
Please note that all votes cast by Internet must be
completed
and
submitted
prior to Monday, October 18, 2010 at 11:59 p.m. Central Time.
Your Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated and returned the proxy card.
This is a secured web page site. Your software and/or Internet provider must
be enabled to access this site. Please call your software or Internet
provider for further information if needed.
If You Vote By INTERNET, Please Do Not Return Your Proxy Card By Mail
TO VOTE BY TELEPHONE
Your telephone vote is quick, confidential and immediate. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Using a Touch-Tone telephone, call Toll Free 1-800-555-8140 and follow the
instructions.
3. When asked for your Voter Control Number, enter the number printed above.
Please
note that all votes cast by telephone must be
completed
and
submitted
prior to Monday, October 18, 2010 at 11:59 p.m. Central Time.
Your telephone vote authorizes the named proxies to vote your shares to the same extent as if
you marked, signed, dated and returned the proxy card.
If You Vote By TELEPHONE, Please Do Not Return Your Proxy Card By Mail
TO VOTE BY MAIL
To vote by mail, complete both sides of the proxy card, sign and date on the reverse side,
detach and return the card in the envelope provided.
AMERICAN PHYSICIANS CAPITAL, INC.
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REVOCABLE PROXY
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AMERICAN PHYSICIANS CAPITAL, INC.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned as a shareholder of record on September 1, 2010 hereby appoints R. Kevin Clinton
and Frank H. Freund, or any of them, proxies with full power of substitution and hereby authorizes
them to represent and to vote, as designated below, all the shares of Common Stock of American
Physicians Capital, Inc. which the undersigned would be entitled to vote at the
Special Meeting of Shareholders to be held on October 20, 2010, and at any adjournments thereof, upon
all matters properly coming before the meeting including, without limitation, those set forth in
the related Notice of Meeting and Proxy Statement dated September 8, 2010. In their discretion, to the
extent permitted by law, the proxies are also authorized to vote upon such other matters as may
properly come before the meeting.
The Board unanimously recommends a vote FOR Proposal 1 and FOR Proposal 2.
Proposal
1. To approve and adopt the Agreement and Plan of Merger, dated as of July 7, 2010, as amended, by
and among The Doctors Company, Red Hawk Acquisition Corp. and the Company.
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FOR
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AGAINST
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ABSTAIN
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Proposal 2. To grant authority to the named proxies to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes at the time of the
special meeting to approve Proposal 1.
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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
shareholder. If no direction is made, this proxy will be voted FOR each of the proposals listed
above.
The undersigned acknowledges receipt of the Notice of Special Meeting of Shareholders and
the Proxy Statement dated September 8, 2010. The undersigned ratifies all that the proxies or
either of them or their substitutes may lawfully do or cause to be done by virtue hereof and
revokes all former proxies.
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SIGNATURE
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DATE
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SIGNATURE
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DATE
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Please sign exactly as name appears on the front of the proxy card. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership name by authorized
person.
IF VOTING BY MAIL, PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
DETACH PROXY CARD HERE
Names of
persons attending:
American Physicians Capital (NASDAQ:ACAP)
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