STOCK PURCHASE AGREEMENT
EXHIBIT
99.2
THIS
STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of
October 28, 2008, is entered into by and between PROASSURANCE CORPORATION, a
Delaware corporation (“PRA”) and PODIATRY INSURANCE
COMPANY OF AMERICA, A MUTUAL COMPANY, an Illinois mutual insurance company
(“PICA”). Capitalized
terms used herein and not otherwise defined have the meanings set forth in
Section 10.16.
WITNESSETH:
WHEREAS,
PRA is an insurance holding company which provides, through its insurance
subsidiaries, medical professional liability insurance; and
WHEREAS,
PICA is a mutual insurance company which provides, directly and through its
subsidiaries, medical professional liability insurance to podiatric and
chiropractic physicians throughout the United States; and
WHEREAS,
the Board of Directors of PICA has agreed to adopt a Plan of Conversion in
accordance with Section 1.1 of this Agreement (as amended or supplemented from
time to time, the “Plan of
Conversion”), pursuant to which PICA will be converted (the “Conversion”) from a mutual
insurance company to a stock insurance company pursuant to 215 ILCS 5/59.1 of
the Illinois Insurance Code; and
WHEREAS,
the Plan of Conversion will provide for and be contingent on the sale (the “Sale”) of all of the shares
of common stock of PICA (the “Common Stock”) as part of the
Conversion to PRA upon the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS,
the Boards of Directors of PRA and PICA have determined that it is in the best
interests of their respective companies for PRA to acquire PICA through the
purchase of its newly authorized Common Stock as provided for in this
Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants, representations, warranties
and agreements contained in this Agreement, and intending to be legally bound by
this Agreement, the parties to this Agreement agree as follows:
ARTICLE
1
PLAN OF
CONVERSION
1.1 PICA Plan of
Conversion. PICA has adopted the Plan of Conversion,
substantially in the form of Exhibit A attached hereto. PICA shall
file the Plan of Conversion with the Director (“Director”) of the Illinois
Division of Insurance (the “Division”) in accordance with
215 ILCS 5/59.1 (Conversion to a stock company) of the Illinois Insurance Code
(“215 ILCS
5/59.1”). Following such filing, PICA shall take such
additional actions, consistent with the terms set forth in the form of Plan of
Conversion, as may be required under
215 ILCS
5/59.1 or otherwise by the Director to complete its demutualization pursuant to
the provisions hereof and the Plan of Conversion. The Plan of
Conversion may contain such additional terms not set forth in the form of Plan
of Conversion included as Exhibit A or modifications to terms set forth in the
form of the Plan of Conversion as PICA may determine; provided, however, that any
such additional term or modification that modifies the (i) total cash
consideration or the method for allocating such cash consideration among PICA’s
current and former Members, (ii) the sale of the PICA Common Stock to PRA, (iii)
amount or timing of the Conversion Credits, or (iv) the Amended and Restated
Articles or the Amended and Restated Bylaws shall require the prior written
consent of PRA, which consent shall not be unreasonably withheld or
delayed.
1.2 Approval of the Plan of
Conversion. Subject to Section 7.9 hereof, the Company, in
accordance with the Plan of Conversion and Applicable Law, shall submit a
proposal to Eligible Members to approve the Plan of Conversion (the “Proposal”) and shall give
such notice to Eligible Members containing the date, time and place for voting
on the Proposal as may be required under Applicable Law (including 215 ILCS
5/59.1). Subject to Section 7.9 hereof, the Proposal shall include
the determination of PICA’s Board of Directors that the Plan of Conversion does
not prejudice the interests of the Members and is fair and equitable to the
Members and shall include the Board of Directors’ recommendation that the
Eligible Members approve the Plan of Conversion.
1.3 Information
Statement. PICA, with PRA’s assistance at PICA’s reasonable
request, shall prepare and provide to Eligible Members, in connection with the
solicitation of approval of the Plan of Conversion, an information statement
relating to the Plan of Conversion and the Sale, including a copy of the Plan of
Conversion (the “Information
Statement”) and use commercially reasonable efforts to obtain and furnish
the information required to be included by state and federal law, including 215
ILCS 5/59.1, and to obtain the approval of the Director of the Division for the
Information Statement. Each of PICA and PRA agrees that the
information provided and to be provided by PICA or PRA, as the case may be,
specifically for use in the Information Statement shall not, with respect to the
information supplied by such party (i) on the date upon which the Information
Statement is mailed to Eligible Members, (ii) on the date of the public hearing
before the Director in respect of the Plan of Conversion, if any or (iii) on the
last date on which Eligible Members are entitled to vote on the Proposal,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. No less than three days prior to the filing of the
Information Statement with the Director of the Division, PICA shall provide PRA
a draft of the Information Statement and an opportunity to comment on such
draft; provided, however, that PICA shall have
the right to accept or reject any such comments in its sole
discretion. Each of PRA and PICA agrees to correct as promptly as
practicable any such information provided by it that shall have become false or
misleading in any material respect and to take all steps necessary to furnish to
the Director and obtain the approval of the Director for any amendment or
supplement to the Information Statement so as to correct the same and to cause
the Information Statement as so corrected to be disseminated to Eligible Members
to the extent required by or advisable under Applicable Law.
1.4 Approval of the Change of
Control. Promptly after the execution of this Agreement, PRA
shall request the Director to approve the change of control of PICA and the PICA
Insurance Subsidiaries (as defined in Section 4.2 hereof) as contemplated by the
Plan of Conversion and this Agreement in accordance with the requirements of 215
ILCS 5/131.4 of the Illinois Insurance Code. PRA shall prepare and
file with the Division a Form A and shall take such commercially reasonable
actions consistent with the terms of this Agreement as may be required under 215
ILCS 5/131.4 of the Illinois Insurance Code and the regulations promulgated
thereunder to obtain the Director's approval of the change of control of PICA
and the PICA Insurance Subsidiaries as contemplated in the Plan of Conversion
and this Agreement.
1.5 Effective Time of the Plan
of Conversion. The “Effective Time” of the Plan
of Conversion shall be 12:01 a.m. Illinois time, on the date and time as of
which all of the following steps have been completed: (i) the
Plan of Conversion has been approved by the Director, (ii) the Eligible
Members have approved the Plan of Conversion by the requisite vote in accordance
with the Plan of Conversion, (iii) the Amended and Restated Articles of
Incorporation have been duly adopted and (iv) the Effective Date Filing shall
have been made by PICA.
1.6 Alternative
Structure. In the event that the Plan of Conversion or the
transactions contemplated by this Agreement cannot be consummated in accordance
with the transaction structure provided for in the Plan of Conversion and this
Agreement, despite the parties’ exercise of their commercially reasonable
efforts to obtain regulatory approvals and satisfy the other conditions to
Closing set forth in Article 8, the parties shall discuss in good faith
consummation of the acquisition of PICA by PRA using a different structure that
is in compliance with Applicable Law and reasonably acceptable to both PICA and
PRA and that substantially preserves for the parties the economic and other
material benefits of the Plan of Conversion and the transactions contemplated by
this Agreement and satisfies all other conditions to closing set forth in
Article VIII hereof.
ARTICLE
2
SALE AND
PURCHASE
2.1 Sale and Purchase of the
Shares. Subject to the terms and conditions of this Agreement,
at the Effective Time on the Closing Date without any action on the part of any
Member or DR Former Member, in accordance with the Plan of Conversion, PICA will
issue and sell all of the newly authorized shares of Common Stock (the “Shares”) to PRA, which shall
constitute all of the issued and outstanding stock of PICA, and PRA will
purchase the Shares from PICA.
2.2 Purchase
Price. The purchase price (the “Purchase Price”) to be paid
by PRA for the purchase of the Shares shall be equal to $135,000,000, consisting
of (i) $120,000,000 in cash (the “Cash Consideration”), payable
to the Eligible Members and the DR Former Members pursuant to Section 3
hereof and in accordance with the Plan of Conversion and (ii) $15,000,000
payable to the Qualified Policyholders (as such term is defined in the Plan of
Conversion) as Conversion Credits in accordance with the Plan of Conversion and
Section 2.9 hereof. The Cash Consideration will be allocated among
the Eligible Members and the DR Former Members in the manner set forth in the
Plan of Conversion.
2.3 Articles of
Incorporation. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Amended and Restated Articles of PICA
shall be and continue in effect until amended in accordance with Applicable
Law.
2.4 Bylaws. Subject
to the terms and conditions of this Agreement, at the Effective Time, the
Amended and Restated Bylaws of PICA shall be and continue in effect until
amended in accordance with Applicable Law.
2.5 Management and
Officers. At the Effective Time, each of the directors of PICA
and each PICA Insurance Subsidiary shall resign from their respective board of
directors, and PRA as the sole stockholder of PICA or PICA, as applicable, shall
elect new directors indicated on Exhibit B to serve on the board of directors of
PICA and each PICA Insurance Subsidiary. At the Effective Time, the
officers of PICA and each PICA Subsidiary shall continue as the officers of PICA
and each PICA Subsidiary, as applicable, until their successors are elected and
qualified.
2.6 Advisory
Committees. PRA shall offer to each Person who, as of the date
of this Agreement, is a member of the Board of Directors of PICA, but is not a
full-time employee of PICA or a PICA Subsidiary, a Consulting and Noncompetition
Agreement (each a “Consulting
Agreement”), substantially in the form set forth in Exhibit C attached
hereto. Pursuant to his or her Consulting Agreement, each such Person
shall be paid an initial payment of $50,000, plus a consulting fee of $250,000
payable in 48 monthly installments beginning at the Effective
Time. Notwithstanding the foregoing, no fees of any type shall be
paid to such Person unless he or she shall have executed a Consulting
Agreement. PRA shall cause each Person who executes a Consulting
Agreement to be appointed to an advisory committee to be maintained by PICA
substantially in accordance with PRA’s current practice during the term of such
Person’s Consulting Agreement.
2.7 PRA Board of
Directors. PRA shall cause Xxxxx X. Xxxxx, DPM to be elected
as a director of PRA at or before the next annual meeting of the PRA
stockholders occurring after the Effective Time for a minimum term of three (3)
years. As a condition to such nomination, Xx. Xxxxx shall consent in
writing to being named as a director of PRA and shall provide to PRA such
information relating to him as is required to be disclosed in PRA’s proxy
statement under Regulation A promulgated by the Securities and Exchange
Commission (“SEC”) and
the Securities Exchange Act of 1934, as amended (“Exchange Act”). At
such time as Xx. Xxxxx no longer serves as a director of PRA, PRA shall cause
its Nominating/Corporate Governance Committee to consider the inclusion of a
podiatrist insured by PICA among the physician members nominated for election to
PRA's Board of Directors.
2.8 Insurance
Operations. Each party hereto recognizes and acknowledges that
the ongoing, independent operation and continuity of the podiatric and
chiropractic insurance operations and related business activities of PICA and
the PICA Subsidiaries following the completion of the transactions contemplated
hereby is important to the other party hereto and PICA’s policyholders and PRA
hereby agrees, subject to operating constraints and reasonable financial
performance consistent with past practice, to continue to operate PICA and its
Subsidiaries as a freestanding operation (including underwriting, claims and
risk management operations) from its current offices in Franklin, Tennessee
located at 0000 Xxxxxxxx Xxxx,
37067,
and subject to Section 7.5 hereof, under its current management team with
respect to podiatric and chiropractic related business activities conducted by
PICA and PRA and their respective Subsidiaries. The chief executive
officer of PICA will continue to direct the management of PICA subject to the
direction of the chief executive officer of PRA and the Board of Directors of
PICA.
2.9 Policyholder Conversion
Credits.
(a) In
accordance with and pursuant to the Plan of Conversion, PRA hereby agrees to
cause PICA to declare dividends and distribute such declared dividends as
premium credits to its Qualified Policyholders in amounts credited to such
Qualified Policyholders in accordance with the Plan of Conversion and adjusted
pursuant thereto (collectively, the “Conversion
Credits”).
(b) The
Conversion Credits shall be allocated among the Qualified Policyholders entitled
thereto in accordance with the Plan of Conversion. The Conversion
Credits shall be payable as a credit against premium payments on PICA insurance
policies that are renewed by Qualified Policyholders in accordance with the Plan
of Conversion. If a Qualified Policyholder fails to renew its PICA
insurance policy in the year in which the Conversion Credit is payable pursuant
to the Plan of Conversion, such Qualified Policyholder shall not be entitled to
be paid the Conversion Credit for such year.
(c) PRA
shall (i) pay to PICA, via wire transfer of immediately available funds, a
portion of the Purchase Price in the amount of $15,000,000 to fund the crediting
of the Conversion Credits to Qualified Policyholders pursuant to the Plan of
Conversion and Section 2.9(a) hereof and (ii) cause PICA to deposit such amount
in a segregated account established by PICA on or before the Closing Date to be
held in trust by PICA, separate and apart from any other assets of PICA, for the
sole purpose of funding the payment of the Conversion Credits as required by the
Plan of Conversion and Section 2.9(a) (the “Credit Account”).
(d) It
is the intent of the parties hereto that all amounts held in trust in the Credit
Account will qualify as admitted assets of PICA. Any interest earned
on amounts held in trust in the Credit Account shall be transferred to the
general account of PICA and such amounts shall be distributable to PRA in
accordance with Applicable Law and following the approval of the Director, if
required, on or after April 1, 2013. No interest shall be
accrued or payable to the Qualified Policyholders on the Conversion
Credits. PICA shall not, and PRA shall cause PICA not to, declare,
make or pay any dividend, distribution or other payment to its shareholders
prior to April 1, 2013 that would require the approval of the Director or other
Insurance Regulator under the Insurance Laws, regardless of whether such
approval has been received.
(e) It
is the specific intent of the parties hereto that each Qualified Policyholder is
and will be a third party beneficiary of this Agreement for the purposes of
enforcing its rights to receive the Conversion Credits in the amounts credited
to such Qualified Policyholder as set forth on the Distribution List, as
adjusted in accordance with the Plan of Conversion.
ARTICLE
3
CONVERSION
PROCEDURES
3.1 Conversion
Agent. (a) As soon as practicable after the
execution and delivery of this Agreement and, in any event, not less than five
days prior to the mailing of the Information Statement to Eligible Members, PRA
shall designate a bank to act as conversion agent (the “Conversion Agent”) acceptable
to PICA, to act as paying agent in effecting the distribution of the Cash
Consideration to Eligible Members and DR Former Members pursuant to this
Agreement and the Plan of Conversion. PRA shall be solely responsible
for and pay the charges and expenses of the Conversion Agent.
3.2 Conversion
Procedures.
(a) Prior
to the Effective Time, PICA shall deliver to the Conversion Agent and PRA a
complete and correct copy of the Plan of Conversion as approved by the Director
and the Eligible Members, and PICA shall deliver to the Conversion Agent the
certificate(s) to be dated as of the date of the Effective Time for the Shares
registered in the name of PRA.
(b) Prior
to the Effective Time, PRA shall deposit in trust with the Conversion Agent for
the benefit of the Eligible Members and DR Former Members receiving cash
pursuant to the Plan of Conversion, cash in the amount of the Cash Consideration
(the "Conversion Fund"),
for distribution to such Eligible Members and DR Former Members in accordance
with this Agreement and the Plan of Conversion. The cash deposited
with the Conversion Agent pursuant to this Section 3.2(b) shall be held in
cash and cash equivalents.
(c) No
less than thirty calendar days prior to the Closing Date, PICA shall provide to
the Conversion Agent and PRA (i) a list setting forth the (A) names and
addresses of each of the Eligible Members (including the Qualified
Policyholders) and the DR Former Members, (B) amount of the cash payment that
each of the Eligible Members (including the Qualified Policyholders) and the DR
Former Members is entitled to receive under the Plan of Conversion, (C) amount
of Conversion Credits credited to each Qualified Policyholder pursuant to the
Plan of Conversion, which amounts are subject to adjustment in accordance with
the Plan of Conversion (the “Distribution List”) and (ii)
forms of the Consideration Notices.
(d) On
the Closing Date, the Conversion Agent shall deliver to PRA the certificates for
the Shares. As promptly as practicable, but in no event more than ten
(10) Business Days after the Closing Date, the Conversion Agent shall distribute
to each Eligible Member (including the Qualified Policyholders) and DR Former
Member (i) the cash in the Conversion Fund, in the form of a check for good
funds, in the amount set forth on the Distribution List and required to be paid
to (A) such Eligible Member (including such Qualified Policyholder) in exchange
for such Member’s Membership Interest or (B) such DR Former Member, in each
case, pursuant to the Plan of Conversion and (ii) a notice setting forth the
method by which the amount of such cash, and with respect to each Qualified
Policyholder the amount of Conversion Credits to be credited to such Qualified
Policyholder and payable in 2010, was derived from such Eligible Member’s or DR
Former Member’s allocation of the Purchase Price and, in the case of the
Conversion Credits, when such Conversion Credits will be distributed (the “Consideration
Notices”). Each Eligible Member (including each Qualified
Policyholder)
and DR Former Member shall be a third party beneficiary of this Agreement for
purposes of receiving amounts set forth in the Distribution List in accordance
with this Section 3.2(d).
3.3 Conversion
Fund. All cash that remains in the Conversion Fund
undistributed to the Eligible Members or DR Former Members for six (6) months
after the Effective Time shall be delivered to PRA, on demand, and the
Conversion Agent’s duties hereunder shall terminate. Thereafter and
subject to applicable abandoned property, escheat and similar laws, each
Eligible Member and DR Former Member that has not yet received the Cash
Consideration to which it is entitled pursuant to the Plan of Conversion and
Section 3.2(d) hereof may contact PRA and PRA shall pay to such Eligible Member
or DR Former Member the cash to which it is entitled. None of PRA,
PICA or the Conversion Agent shall be liable to any Person in respect of any
such cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law unless the failure to pay such cash to such
Person is due to a violation by PRA, PICA or the Conversion Agent of the
requirements of Applicable Law, the Plan of Conversion or any order of the
Director.
3.4 Withholding. PRA
or the Conversion Agent will be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement or the transactions
contemplated hereby to any Eligible Member or DR Former Member such amounts as
PRA (or any Affiliate thereof) or the Conversion Agent is required to deduct and
withhold with respect to the making of such payment under the Code, or any
applicable provision of U.S. federal, state, local or non-U.S. tax
law. To the extent that such amounts are properly withheld by PRA or
the Conversion Agent, such withheld amounts will be treated for all purposes of
this Agreement as having been paid to the Eligible Member or DR Former Member in
respect of whom such deduction and withholding were made by PRA or the
Conversion Agent. At least 10 Business Days prior to the Closing
Date, PRA shall notify PICA of any amounts that PRA intends to deduct and
withhold pursuant to this Section 3.4. PRA agrees to consult
with PICA in good faith to determine whether such deduction and withholding is
required under Applicable Law.
ARTICLE
4
REPRESENTATIONS AND
WARRANTIES OF PICA
Concurrently
with the execution and delivery of this Agreement, PICA shall deliver to PRA a
disclosure schedule (the “PICA
Disclosure Schedule”). The PICA Disclosure Schedule will be
arranged in paragraphs corresponding to the sections contained in this Article
and Sections 6.1 and 6.2; provided, however, (i) that each
exception set forth in the PICA Disclosure Schedule shall be deemed disclosed
for purposes of all representations and warranties if such exception is
contained in a section of the PICA Disclosure Schedule corresponding to a
section in this Article 4, and (ii) the mere inclusion of an exception in
the PICA Disclosure Schedule shall not be deemed an admission by PICA that such
exception represents a material fact, event or circumstance or would result in a
material adverse change or Material Adverse Effect on PICA or any PICA
Subsidiary. All documents and instruments attached as exhibits or
annexes to the PICA Disclosure Schedule are incorporated by reference into the
PICA Disclosure Schedule. Except as set forth in the PICA Disclosure
Schedule and in any changes to the PICA Disclosure Schedule that are disclosed
by PICA to PRA in accordance with Section 7.7 hereof, PICA hereby represents and
warrants to PRA, as of the date hereof or such other date as specified, as
follows:
4.1 Corporate
Organization.
(a) PICA
is a mutual insurance company duly organized and validly existing under the laws
of the State of Illinois. PICA has the corporate power and authority
to own or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on
PICA.
(b) PICA
is (i) duly licensed or authorized as an insurance company in Illinois, (ii)
duly licensed or authorized to carry on an insurance business in each other
jurisdiction where it is required to be so licensed or authorized, and (iii)
duly authorized in Illinois and each other applicable jurisdiction to write its
lines of business as required by Applicable Law except, in each case, where such
failure to be so licensed or authorized would not individually or in the
aggregate have a Material Adverse Effect on PICA and the PICA Subsidiaries,
taken as a whole (collectively, all such licenses and authorizations, the “PICA
Permits”). Section 4.1 of the PICA Disclosure Schedule
identifies the type of insurance lines that PICA is authorized or licensed to
write in each state. All of such licenses are in full force and
effect, and there is no proceeding or investigation by any Governmental
Authority pending or, to the Knowledge of PICA, threatened which would
reasonably be expected to lead to the revocation, failure to renew, suspension,
material limitation or material restriction of such license. To the
Knowledge of PICA, PICA has conducted its business in all respects in compliance
with all terms and conditions of such licenses and Applicable Law, except where
failure to so comply has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
4.2 Subsidiaries.
(a) Section
4.2(a) of the PICA Disclosure Schedule sets forth a complete and correct list of
each Subsidiary of PICA (the “PICA Subsidiaries”), together
with the state of incorporation or organization of each PICA
Subsidiary. Each PICA Subsidiary (i) is duly organized and validly
existing as a corporation under the laws of its jurisdiction of organization,
(ii) is duly qualified to do business and in good standing in all jurisdictions
(whether federal, state, local or foreign) where its ownership or leasing of
property or the conduct of its business requires it to be so qualified and in
which the failure to be so qualified would have a Material Adverse Effect on
PICA and the PICA Subsidiaries, taken as a whole, and (iii) has all requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted.
(b) Section
4.2(b) of the PICA Disclosure Schedule identifies the PICA Subsidiaries that
write insurance and the states or other jurisdictions in which they are
authorized or licensed to write insurance, and the type of insurance lines that
they are authorized or licensed to write in each such sate (the "PICA Insurance
Subsidiaries"). Each PICA Insurance Subsidiary is (i) duly
licensed or authorized as an insurance company in its jurisdiction of
incorporation, (ii) duly licensed or authorized to carry on an insurance
business in each other jurisdiction where it is required to be so licensed or
authorized, and (iii) duly authorized in its
jurisdiction
of incorporation and each other applicable jurisdiction to write its line of
business as required by Applicable Law except, in each case, where such failure
to be so licensed or authorized would not individually or in the aggregate have
a Material Adverse Effect on PICA and the PICA Subsidiaries, taken as a whole
(collectively, all such licenses and authorizations, the “PACO Permits” and together
with the PICA Permits, the “Permits”). All of
such licenses are in full force and effect and there is no proceeding or
investigation by any Governmental Authority pending or, to the Knowledge of
PICA, threatened which would reasonably be expected to lead to the revocation,
failure to renew, suspension, material limitation or material restriction of
such license. To the Knowledge of PICA, each PICA Insurance
Subsidiary has conducted its respective businesses in all respects in compliance
with all terms and conditions of such licenses and Applicable Law, except where
any failure to so comply has not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
(c) Except
as set forth in Section 4.2(c) of the PICA Disclosure Schedule, PICA is,
directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the PICA
Subsidiaries. There are no irrevocable proxies granted by PICA or any
PICA Subsidiary with respect to such shares. There are no equity
securities of any of the PICA Subsidiaries that are or may become required to be
issued by reason of any options, warrants, scrips, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any of the
PICA Subsidiaries except shares of the PICA Subsidiaries issued to, or required
to be issued to, other wholly owned PICA Subsidiaries. There are no
contracts, commitments, understandings or arrangements by which any of the PICA
Subsidiaries is bound to issue additional shares of its capital stock or
options, warrants or rights to purchase or acquire any additional shares of its
capital stock or securities convertible into or exchangeable for such
shares. All of the shares of the PICA Subsidiaries described in the
first sentence of this Section 4.2(c) are validly issued, fully paid and
nonassessable and free of preemptive rights, and are owned by PICA or a PICA
Subsidiary free and clear of any and all Liens.
4.3 Corporate
Affairs.
(a) PICA
has made available to PRA correct and complete copies of the Articles of
Incorporation and Bylaws of PICA and each of the PICA Subsidiaries (as amended
to date). PICA has made available to PRA all of the minute books
containing the records of the meetings of the shareholders, the Board of
Directors and any committee of the Board of Directors of PICA and each of the
PICA Subsidiaries (except for confidential portions of such minutes relating to
the Plan of Conversion). To the Knowledge of PICA, the minute books
of PICA and the PICA Subsidiaries reflect all of the material actions taken at a
meeting or by written consent of the Board of Directors of PICA.
(b) The
Plan of Conversion and the Amended and Restated Articles and Amended and
Restated Bylaws have been approved by the Board of Directors of PICA and, when
the Plan of Conversion and the Amended and Restated Articles have been approved
by the Director of the Division and the Eligible Members of PICA as required
under Section 1.2, PICA will be converted from a mutual insurance company to a
stock insurance company at the Effective Time in accordance with the Applicable
Law of the state of Illinois, including 215 ILCS
5/59.1. At the Effective Time, the Amended and Restated Articles and
the Amended and Restated Bylaws shall be duly authorized and validly adopted and
in full force and effect.
4.4 Capitalization.
(a) At
the Effective Time, the authorized capital stock of PICA under the Amended and
Restated Articles will be issued and sold to PRA pursuant to the Plan of
Conversion and this Agreement. The shares of PICA Common Stock issued
to PRA pursuant to the Plan of Conversion will constitute all of the issued and
outstanding shares of PICA Common Stock, all of which will be duly authorized
and validly issued and fully paid, nonassessable and free of preemptive
rights. As of the date of this Agreement and other than as provided
in the Plan of Conversion or this Agreement, PICA does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of PICA Common Stock or any other equity securities of PICA or any securities
representing the right to purchase or otherwise receive any shares of PICA
Common Stock or any other equity securities of PICA. As of the date
of this Agreement no shares of PICA Common Stock were reserved for issuance
except as provided in the Plan of Conversion.
(b) As
of the date of this Agreement and other than as required in connection with that
certain Indenture between PICA and Wilmington Trust Company dated May 22, 2003,
PICA does not have and is not bound by any outstanding subscriptions, warrants,
commitments or agreements of any character calling for the purchase or issuance
of any guaranty fund certificates, surplus notes or other subordinated
indebtedness that would be considered as an equity equivalent under SAP (as
defined in Section 4.6(b) hereof).
4.5 Authority; No Violation;
Consents and Approvals.
(a) Subject
to the receipt of all Requisite Regulatory Approvals, PICA has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and PICA has the authority, assuming all
Requisite Regulatory Approvals are duly received, to adopt the Plan of
Conversion and carry out its obligations thereunder. The execution
and delivery of this Agreement by PICA and the consummation of the transactions
contemplated hereby have been authorized by the Board of Directors of
PICA. The Board of Directors of PICA has adopted the Plan of
Conversion and directed that the Plan of Conversion and this Agreement and the
transactions contemplated by the Plan of Conversion and this Agreement be
submitted to the Eligible Members for approval at a meeting of such Eligible
Members and, other than obtaining Eligible Member approval and adoption of the
Plan of Conversion and this Agreement by the affirmative vote of at least
two-thirds of the Eligible Members voting thereon in accordance with Section 1.2
and any actions required to obtain all Requisite Regulatory Approvals (as
defined in Section 8.1(c) of this Agreement), no other corporate proceedings on
the part of PICA are necessary to approve the Plan of Conversion and this
Agreement and to consummate the transactions contemplated by this
Agreement. Subject to the foregoing, this Agreement has been duly and
validly executed and delivered by PICA and (assuming this Agreement constitutes
a valid and binding obligation of PRA) constitutes a valid and binding
obligation of PICA, subject to applicable bankruptcy, fraudulent
conveyance,
insolvency
and similar laws affecting creditors’ rights generally, and subject, as to
enforceability, to general principles of equity. On or prior to the
date of this Agreement, the Board of Directors of PICA received the opinion of
Xxxxxxx Xxxxx & Associates that the Purchase Price is fair, from a financial
point of view, to the Eligible Members and DR Former Members, as a
group.
(b) Neither
the execution and delivery of this Agreement by PICA nor the consummation by
PICA of the transactions contemplated by the Plan of Conversion and this
Agreement, nor compliance by PICA with any of the terms or provisions of the
Plan of Conversion and this Agreement, will (i) violate any provision of the
Articles of Incorporation or Bylaws of PICA or (ii) assuming that all Requisite
Regulatory Approvals and all of the consents and approvals referred to in
Section 4.5(c) of this Agreement are duly obtained, (x) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to PICA or any of its properties or assets, or (y) violate, conflict
with, result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the properties or assets of PICA
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, surplus debentures, deed of trust, license, lease, agreement or other
instrument or obligation to which PICA is a party, or by which it or any of its
properties or assets may be bound or affected, except (in the case of clause (y)
above) as set forth in Section 4.5(b) of the PICA Disclosure Schedule, or (in
the case of clauses (x) and (y) above) for such violations, conflicts, breaches,
terminations, cancellations, accelerations, Liens or defaults which, either
individually or in the aggregate, would not have a Material Adverse Effect on
PICA and the PICA Subsidiaries, taken as a whole.
(c) Except
for (i) the filing of applications, notices and forms with, and the obtaining of
approvals from, the Insurance Regulators pursuant to the Insurance Laws, with
respect to the transactions contemplated by this Agreement, including all
Requisite Regulatory Approvals, (ii) the approval of the Plan of Conversion
and the Amended Articles of Incorporation with the Director of the Division
pursuant to the Illinois Insurance Code as contemplated in Section 1.2 hereof,
(iii) the filing of a notification and report form (the “HSR Act Report”) with the
Premerger Notification Office of the Federal Trade Commission and with the
Antitrust Division of the Department of Justice (collectively, the “Premerger Notification
Agencies”) pursuant to the Xxxx-Xxxxx-Xxxxxx Anti-Trust Improvements Act,
as amended, and the rules and regulations thereunder (collectively, the “HSR Act”), (iv) any
consents, authorizations, orders and approvals required under the HSR Act, (v)
the approval of the Plan of Conversion and this Agreement by the requisite votes
of the Eligible Members, (vi) the consents and approvals referred to in Section
4.5(b) of the PICA Disclosure Schedule, and (vii) the approvals set forth in
Section 4.5(c) of the PICA Disclosure Schedule, no consents or approvals of or
filings or registrations with any Governmental Authority, or with any other
Person are necessary in connection with the execution and delivery by PICA of
this Agreement or the consummation by PICA of the transactions contemplated by
this Agreement.
4.6 Insurance
Reports.
(a) “PICA SAP Statements” means
(i) the annual statutory statements of each of PICA and the PICA Insurance
Subsidiaries filed with the Insurance Regulator of the jurisdiction of domicile
of PICA or the applicable PICA Insurance Subsidiary, as applicable, as of and
for each of the years ended December 31, 2007, 2006 and 2005, (ii) the
quarterly unaudited statutory statements of PICA and each of the PICA Insurance
Subsidiaries filed with the Insurance Regulator of the jurisdiction of domicile
of PICA or the applicable PICA Insurance Subsidiary, as applicable, as of and
for the quarter ended June 30, 2008, and (iii) all exhibits,
interrogatories, notes and schedules thereto.
(b) Each
PICA SAP Statement was prepared in accordance with statutory accounting
principles (“SAP”)
prescribed or permitted by the Division in conformity with practices
consistently applied by PICA or the PICA Insurance Subsidiary, as applicable,
without modification of the accounting principles used in the preparation
thereof and presents fairly the statutory financial position and results of
operations of PICA or the PICA Insurance Subsidiary, as applicable, as of the
dates and for the periods indicated in accordance with SAP. The
annual balance sheets and income statements included in the PICA SAP Statements
have been, where required by Insurance Laws, audited by an independent
accounting firm. Since January 1, 2005 PICA and each PICA Insurance
Subsidiary have filed all PICA SAP Statements and all other reports and
statements, together with all amendments and supplements thereto, required to be
filed with any Insurance Regulator under the Insurance Laws. Section
4.6(b) of the PICA Disclosure Schedule sets forth a list of, and PICA has made
available to PRA, complete copies of, all such PICA SAP Statements and all audit
opinions related thereto.
(c) Since
January 1, 2005 PICA and each PICA Insurance Subsidiary (i) have filed or
submitted with all applicable Insurance Regulators all registration statements,
notices and reports, together with all supplements and amendments thereto
required by Article VIII ½ of the Illinois Insurance Code or similar Applicable
Laws governing Insurance holding company systems in other states (the “PICA Holding Company Act
Reports”), and (ii) have paid all material fees and assessments due
and payable by them under the Insurance Laws. Section 4.6(c) of the
PICA Disclosure Schedule (x) sets forth a list of, and PICA has made available
to PRA, complete copies of, all PICA Holding Company Act Reports filed with the
Division, and (y) identifies each denial of a request for rate increases
received by PICA from any Insurance Regulator since December 31,
2004. All such PICA SAP Statements, PICA Holding Company Act Reports
and other reports and statements substantially complied with the Insurance Laws
when filed and, as of their respective dates, contained substantially all
information required under the Insurance Laws and did not contain any false
statements or material misstatements of fact or omit to state any material facts
necessary to make the statements set forth therein not materially misleading in
light of the circumstances in which such statements were made. This
Section 4.6(c) does not apply to Taxes, which are covered exclusively by Section
4.12.
(d) Except
for normal examinations conducted by a Governmental Authority in the regular
course of the business of PICA and its Subsidiaries, and except as set forth in
Section 4.6(d) of the PICA Disclosure Schedule, to the Knowledge of PICA, no
Governmental Authority has initiated any proceeding or investigation into the
business or operations of PICA, any PICA Subsidiary, or any director or officer
of PICA or any PICA Subsidiary, since January 1, 2005 that remains open on the
date hereof. There is no unresolved violation or exception that is
not capable of being cured without an incurrence of a material adverse penalty
or monetary fine by any Governmental Authority with respect to any examinations
of PICA or any of its Subsidiaries.
(e) Section
4.6(e) of the PICA Disclosure Schedule lists all financial examinations that any
Insurance Regulator has conducted with respect to PICA or any of the PICA
Insurance Subsidiaries since December 31, 2004. PICA has made
available to PRA complete copies of the reports issued by the applicable
Insurance Regulator with respect to such financial examinations.
(f) Other
than as contemplated herein and, except as set forth in Section 4.6(f) of the
PICA Disclosure Schedule, since January 1, 2005, neither PICA nor any PICA
Subsidiary has received from any Person any notice on Form A or such other form
as may be prescribed under Applicable Law indicating that such Person intends to
make or has made a tender offer for or a request or invitation for tenders of,
or intends to enter into or has entered into any agreement to exchange
securities for, or intends to acquire or has acquired (in the open market or
otherwise), any voting security of PICA or a PICA Insurance Subsidiary, if after
the consummation thereof such Person would directly or indirectly be in control
of PICA or a PICA Insurance Subsidiary.
4.7 Financial Statements;
Financial Reporting.
(a) PICA
has made available to PRA complete copies of (i) the audited consolidated
balance sheets of each of PICA and the consolidated PICA Subsidiaries as of
December 31, 2007, 2006 and 2005, and the related audited consolidated
statements of earnings, policyholders’ equity and cash flows for PICA and the
consolidated PICA Subsidiaries for the years ended December 31, 2007, 2006 and
2005, together with reports on all such financial statements by Ernst &
Young LLP, and (ii) the unaudited consolidated balance sheets for PICA and the
consolidated PICA Subsidiaries as of June 30, 2008 and the related unaudited
consolidated statements of earnings, policyholders’ equity and cash flows for
the six (6) month period ended June 30, 2008 (such financial statements are
collectively referred to as the "Consolidated Financial
Statements").
(b) The
Consolidated Financial Statements including all notes and schedules thereto,
have been prepared in accordance with generally accepted accounting principles
in the United States ("GAAP") throughout the periods
involved (except in case of unaudited financial statements that do not contain
all footnotes and year-end adjustments which may be required by GAAP) and fairly
present in all material respects the consolidated financial position of PICA and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and their consolidated cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments and to any other adjustments described therein).
(c) PICA
maintains internal controls designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the financial
statements of PICA and the PICA Subsidiaries. Neither the Board of
Directors nor audit committee of PICA
or any
PICA Subsidiary have been advised by their accountants or consultants of: (x)
any significant deficiencies or material weaknesses in the design or operation
of the internal controls over financial reporting (as such term is defined in
Section 13(b)(2)(B) and Rules 13a-15(f) and 15d-15(d) of the Exchange Act) of
PICA or any PICA Subsidiary which could adversely affect its ability to record,
process, summarize and report financial data, or (y) any fraud, whether or not
material, that involves management or other employees who have a role in the
internal controls over financial reporting of PICA or any PICA
Subsidiary.
(d) As
of the date hereof, neither PICA nor any of the PICA Subsidiaries had any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise which would be required to be reflected, reserved for or disclosed
in a consolidated balance sheet of PICA and the consolidated PICA Subsidiaries,
including the notes thereto, prepared in accordance with GAAP except (A) as
reflected, reserved for or disclosed in the consolidated balance sheet of PICA
and the consolidated PICA Subsidiaries as of June 30, 2008, including the notes
thereto, (B) as incurred since June 30, 2008 in the ordinary course of business
consistent with past practice, (C) as incurred or to be incurred by PICA or any
Subsidiary pursuant to, in connection with, or as a result of, the Plan of
Conversion and the other transactions contemplated by this Agreement, or (D)
other than liabilities pursuant to contractual obligations identified in this
Agreement or the PICA Disclosure Schedule.
(e) Section
4.7(e) of the PICA Disclosure Schedule lists, and PICA has made available to PRA
copies of the documentation creating or governing, all “off-balance sheet
arrangements” (as defined in Item 303(a)(4)(ii) of Regulation S-K of the SEC)
effected by PICA or any of the PICA Subsidiaries since December 31,
2005.
(f) Ernst
& Young LLP, which has expressed its opinion with respect to the
Consolidated Financial Statements (including the related notes), is and has been
throughout the periods covered by such financial statements a registered public
accounting firm (as defined in Section 2(a)(12) of Sarbanes Oxley Act of 2002
(“SOX”). Section
4.7(f) of the PICA Disclosure Schedule lists all non-audit services (as such
term is defined by SOX) performed by Ernst & Young LLP for PICA and each
PICA Subsidiary for each year commencing after December 31, 2004.
(g) The
books and records of PICA and each of the PICA Subsidiaries (i) are and
have been properly prepared and maintained in form and substance adequate for
preparing audited consolidated financial statements, in accordance with
regulatory accounting principles required by GAAP and any other applicable legal
and accounting requirements and, (ii) reflect only actual
transactions.
4.8 Broker’s
Fees. Except as set forth in Section 4.8 of the PICA
Disclosure Schedule (which sets forth amounts paid or to be paid and names of
parties to which such amounts were or will be paid), none of PICA, the PICA
Subsidiaries and Persons acting on their respective behalf, has employed any
broker or finder or incurred any liability for any broker’s fees or commissions,
or investment banker fees or commissions, or finder’s fees in connection with
the transactions contemplated by this Agreement.
4.9 Absence of Certain Changes
or Events.
(a) Since
December 31, 2007, and except as set forth in Section 4.9(a) of the PICA
Disclosure Schedule, neither PICA nor any PICA Subsidiary has (except as
required by Applicable Law): (i) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount thereof in effect as of
December 31, 2007, except for changes in benefits in the ordinary course of
business, (ii) granted any equity based compensation or severance or termination
pay, entered into any contract to make or grant any equity based compensation or
severance or termination pay, or paid any bonuses, or (iii) suffered any strike,
work stoppage, slowdown, or other labor disturbance.
(b) Since
December 31, 2007, and except as set forth in Section 4.9(b) of the PICA
Disclosure Schedule, there has not been: (i) any Material Adverse
Effect on PICA and the PICA Subsidiaries taken as a whole; (ii) any material
change in any method of accounting or accounting principles or practice by PICA
or any PICA Subsidiary, except as required by GAAP or SAP and disclosed in the
notes to the unaudited financial statements of PICA and the PICA Subsidiaries;
(iii) any material change in the actuarial, investment, reserving,
underwriting or claims administration policies, practices, procedures or methods
of PICA or any PICA Insurance Subsidiary; (iv) any damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting the
properties or business of PICA or any PICA Subsidiary; (v) any discharge or
cancellation, whether in part or in whole, of any material indebtedness owed by
PICA or any PICA Subsidiary to any Person, except reimbursement to employees of
ordinary business expenses or other debts arising in the ordinary course of
business; (vi) any sale or transfer of any material asset or property of PICA or
any PICA Subsidiary, except in the ordinary course of business; (vii) any sale,
assignment or transfer of any trademarks, trade names, or other intangible
assets of PICA or any PICA Subsidiary; or (viii) any material amendment to or
termination of any PICA Contract or Permit.
4.10 Legal Proceedings and
Judgments.
(a) Except
as set forth in Section 4.10(a) of the PICA Disclosure Schedule and excluding
claims made with respect to insurance policies or insurance contracts issued by
PICA or any PICA Insurance Subsidiary for which a claims reserve has been
established, there are no pending or, to the Knowledge of PICA, threatened,
suits, actions, proceedings, claims or Governmental Authority investigations
(whether at law or equity, before or by any Governmental Authority or before any
arbitrator) against PICA, any PICA Subsidiary, any of their respective
businesses or assets, any directors or officers of PICA or any PICA Subsidiary,
in their respective capacities as directors and officers, or challenging the
validity or propriety of the transactions contemplated by this Agreement or
otherwise seeking to enjoin the transactions contemplated by this
Agreement. Section 4.10(a) of the PICA Disclosure Schedule further
identifies any such suits, actions, proceedings, investigations or claims with
pleadings, judgments or orders that are subject to confidentiality restrictions
of the type described in 4.10(b).
(b) Subject
to any applicable confidentiality obligations of PICA or any PICA Subsidiary as
to each matter, if any, described in Section 4.10(a) of the PICA Disclosure
Schedule, accurate and complete copies of all relevant pleadings, judgments and
orders have been made available to PRA.
4.11 Insurance.
(a) Except
as set forth in Section 4.11(a) of the PICA Disclosure Schedule, PICA and the
PICA Subsidiaries maintain policies of general liability, fire and casualty,
automobile, directors and officers, errors and omissions, fiduciary, and other
forms of insurance (the “PICA
Insurance Policies”) in such amounts, with such deductibles and against
such risks and losses, which PICA’s management has reasonably determined to be
prudent in accordance with industry practices, for the business and assets of
PICA and the PICA Subsidiaries. All such policies are in full force
and effect, all premiums due and payable thereon have been paid (other than
retroactive or retrospective premium adjustments that are not yet, but may be,
required to be paid with respect to any period ending prior to the Closing Date
under comprehensive general liability and worker’s compensation insurance
policies), and no notice of cancellation or termination has been received with
respect to any such policy which has not been replaced on substantially similar
terms prior to the date of such cancellation. To the Knowledge of
PICA, the activities and operations of PICA and the PICA Subsidiaries have been
conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies.
(b) No
issuer of the PICA Insurance Policies has issued a reservation-of-rights letter,
or entered into a nonwaiver agreement, or otherwise denied or limited coverage
(in whole or in part), under any of the PICA Insurance Policies, and to the
Knowledge of PICA, no declaratory judgment has been sought by any Person or
entered by any court of competent jurisdiction that denies or limits coverage
(in whole or in part) under any of the PICA Insurance Policies.
4.12 Taxes and Tax
Returns.
(a) As
used in this Agreement: “Tax” or “Taxes” means all federal,
state, county, local, and foreign income, excise, gross receipts, gross income,
profits, franchise, license, ad valorem, profits, gains, capital, sales,
transfer, use, payroll, employment, severance, withholding, duties, intangibles,
franchise, backup withholding, stamp, occupation, premium, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, registration, alternative or add on minimum, estimated, and other taxes,
charges, levies or like assessments (together with all penalties and additions
to tax and interest thereon). “Tax Return” or “Tax Returns” means any and all
returns, declarations, claims for refunds, reports, information returns and
information statements (including, without limitation, Form 1099, Form W-2 and
W-3, Form 5500, and Form 990) with respect to Taxes filed (including any
attached schedules), or required to be filed, by any Person or any Subsidiary of
such Person with the Internal Revenue Service (“IRS”) or any other
Governmental Authority or tax authority or agency, whether domestic or foreign
(including consolidated, combined and unitary tax returns).
(b) PICA
and the PICA Subsidiaries have duly filed all material Tax
Returns required to be filed by them on or prior to the date of this
Agreement (all such Tax Returns being accurate and complete in all material
respects) and have duly paid or made sufficient provisions for the payment of
all Taxes shown thereon as owing on or prior to the date of this Agreement other
than Taxes which are not yet delinquent or are being contested in good faith and
have not
been
finally determined for which adequate reserves have been made on the
Consolidated Financial Statements. Except as disclosed in Section
4.12(b) of the PICA Disclosure Schedule, neither PICA nor any PICA Subsidiary
has waived in writing any statute of limitations in respect of Taxes or agreed
in writing to any extension of time with respect to a Tax Return or tax
assessment or deficiency, other than extensions that are automatically granted
by the taxing authorities upon filing an application therefor, which waiver or
extension is currently in effect. The unpaid Taxes of PICA and the
PICA Subsidiaries do not exceed the reserve for tax liability set forth on the
balance sheets referenced in Section 4.7 of this Agreement as adjusted for the
passage of time through the Closing Date in accordance with past custom and
practice of PICA in filing its returns. To the Knowledge of PICA, no
claim has been made since December 31, 2003 by any Governmental Authority in a
jurisdiction where PICA or any PICA Subsidiary does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction.
(c) There
is no claim, audit, action, suit, proceeding or investigation now pending or,
proposed or threatened in writing against or with respect to PICA or any PICA
Subsidiary in respect of any material Tax. PICA and each PICA
Subsidiary in connection with amounts paid or owed to any employee, independent
contractor, creditor, shareholder or other third party have complied with
applicable tax withholding in all material respects. PICA and each
PICA Subsidiary have reported such withheld amounts to the appropriate taxing
authority and to each such employee, independent contractor, creditor,
shareholder or other third party as required by Applicable Law.
(d) There
are no Tax Liens upon any property or assets of PICA or its Subsidiaries except
Liens for current Taxes not yet due. Neither PICA nor any PICA
Subsidiary has been required to include in income any adjustment pursuant to
Section 481 of the Code by reason of a voluntary change in accounting method
initiated by PICA or any PICA Subsidiary, and the IRS has not initiated or
proposed any such adjustment or change in accounting method. Except
as set forth in the Consolidated Financial Statements, neither PICA nor any PICA
Subsidiary has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code. Neither PICA
nor any PICA Subsidiary is a party to or bound by any tax indemnity, tax sharing
or tax allocation agreement (other than such agreements as exist by and among
themselves). Except as set forth in Section 4.12(d) of the PICA
Disclosure Schedule, neither PICA nor any PICA Subsidiary has ever been a member
of an affiliated group of corporations within the meaning of Section 1504 of the
Code other than an affiliated group in which PICA has been the common parent
corporation. Except with respect to membership in the affiliated
groups disclosed in Section 4.12(d) of the PICA Disclosure Schedule, neither
PICA nor any PICA Subsidiary is liable for the Taxes of any Person under Section
1.1502-6 of the Treasury Regulations (or any similar provision of state, local
or foreign Tax law) or by contract, as a successor or
otherwise. During the five (5) year period ending on the date of this
Agreement, neither PICA nor any PICA Subsidiary was a distributing corporation
or a controlled corporation in a transaction intended to be governed by Section
355 of the Code. Neither PICA nor any PICA Subsidiary is a party to
any joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income tax purposes. PICA’s
basis and excess loss account, if any, in each PICA Subsidiary is set forth in
Section 4.12(d) of the PICA Disclosure Schedule.
(e) Except
as set forth in Section 4.12(e) of the PICA Disclosure Schedule, any amount that
is reasonably likely to be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of PICA or any of its affiliates
who is a “Disqualified Individual” (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or PICA Employee Plan (as defined in
Section 4.13 of this Agreement) currently in effect will not be
characterized as an “excess parachute payment” (as such term is defined in
Section 280G(b)(1) of the Code).
(f) To
the Knowledge of PICA, there is no dispute or claim concerning any tax liability
of PICA or any PICA Subsidiary except as disclosed in Section 4.12(f) of the
PICA Disclosure Schedule. Section 4.12(f) of the PICA Disclosure
Schedule identifies the last Tax Returns that have been audited by the taxing
authority with whom they were filed, and indicates those Tax Returns that
currently are the subject of an audit procedure or that PICA or any PICA
Subsidiary has received written notice will be subject to an audit
procedure. PICA has made available to PRA correct and complete copies
of all federal income Tax Returns (including amendments thereto) of, all
examination reports of, and statements of deficiencies assessed against or
agreed to by, PICA or any PICA Subsidiary since December 31,
2004. Except to the extent other representations and warranties in
this Article 4 relate expressly to Taxes, the representations and
warranties made in this Section 4.12 are the only representations and
warranties made by PICA with respect to matters relating to Taxes (including Tax
Returns and Tax allocation agreements).
4.13 Employee Plans; Labor
Matters.
(a) Section
4.13(a) of the PICA Disclosure Schedule sets forth a true and complete list of
all of the Employee Plans (as defined in Section 10.16(a)) for employees of PICA
and any PICA Subsidiary (“PICA
Employee Plans”). Those PICA Employee Plans which are
non-qualified deferred compensation plans for purposes of Section 409A of the
Code are separately identified in Section 4.13(a) of the PICA Disclosure
Schedule. Except with respect to the PICA Employee Plans, neither
PICA nor any PICA Subsidiary sponsors, maintains or contributes to, or has any
ongoing obligation or liability whatsoever with respect
to: (i) any employee benefit plan as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or (ii) any
other program, plan, trust agreement or arrangement for any bonus, severance,
hospitalization, vacation, sick pay, deferred compensation, pension, profit
sharing, post-employment, retirement, payroll savings, stock option, stock
purchase, group insurance, self insurance, death benefit, fringe benefit,
welfare or any other employee benefit plan or fringe benefit arrangement of any
nature whatsoever including those for the benefit of former
employees. PICA and the PICA Subsidiaries have not made or entered
into any written or oral agreement, arrangement, commitment, or understanding to
create any additional PICA Employee Plan or to continue, modify, change, or
terminate, in any material respect, any PICA Employee Plan.
(b) PICA
has heretofore delivered or made available to PRA complete copies or
descriptions of each PICA Employee Plan and certain related documents, including
where applicable, (i) the plan document and the related trust agreement or
annuity contract for such PICA Employee Plan; (ii) the summary plan description
and material employee communication
document
for such PICA Employee Plan; (iii) the actuarial report for such PICA Employee
Plan for each of the last two years; (iv) all determination letters from
the IRS for such PICA Employee Plan; (v) all insurance policies relating
thereto and any written materials used by PICA to describe employee benefits to
employees of PICA and the PICA Subsidiaries; (vi) the most recent annual
return on Form 5500 (including all schedules thereto along with the
accompanying auditor’s opinion) and tax return (Form 990) for such PICA Employee
Plan; (vii) the most current actuarial, valuation, and
trustee’s reports for such PICA Employee Plan; and (viii) all
material communications with any Governmental Authority (including the
Department of Labor, the IRS, the Pension Benefit Guaranty Corporation, and the
SEC) with respect to such PICA Employee Plan. Each such actuarial or
valuation report correctly shows the value of the assets of such PICA Employee
Plan as of the date thereof, the total accrued and vested liabilities, all
contributions by PICA and the PICA Subsidiaries, and the assumptions on which
the calculations are based.
(c) Except
as set forth in Section 4.13(c) of the PICA Disclosure Schedule, each of the
PICA Employee Plans has been operated and administered in substantial compliance
with Applicable Laws, including, but not limited to, ERISA and the
Code. To the Knowledge of PICA, there has not been any material
violation of the reporting and disclosure provisions of the Code and ERISA with
respect to any PICA Employee Plan. There has not been any termination
or partial termination (including any termination or partial termination
attributable to the transactions contemplated by this Agreement) of such
plans. Neither PICA nor any PICA Subsidiary nor any of their
respective ERISA affiliates, nor any predecessor thereof, contributes to, or has
within the past six years contributed to, any multiemployer plans, as defined in
Section 3(37) of ERISA, or any multiple employer welfare arrangements, as
defined in Section 3(40) of ERISA. Neither PICA nor any PICA
Subsidiary nor any of their respective ERISA affiliates, nor any predecessor
thereof, sponsors, participates in, or contributes to, or has at any time in the
past sponsored, participated in, or contributed to (i) any plan which is subject
to the funding standards or requirements described in Section 412 of the Code,
or (ii) any plan which is subject to any of the requirements, obligations, and
liabilities imposed by Title IV of ERISA.
(d) Each
PICA Employee Plan which is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter or has pending or has time
remaining in which to file, an application for such determination from the IRS,
and PICA is not aware of any reason why any such determination letter should be
revoked or not be reissued, and any related trust is intended to be exempt from
taxation under Section 501(a) of the Code. PICA has made available to
PRA copies of the most recent Internal Revenue Service determination letters
with respect to each such PICA Employee Plan (if applicable). To the
Knowledge of PICA, no prohibited transaction within the meaning of Section 406
of ERISA or Section 4975 of the Code, or breach of fiduciary duty under Title I
of ERISA has occurred with respect to any PICA Employee Plan or with respect to
PICA or any PICA Subsidiary, and no events have occurred with respect to any
PICA Employee Plan that could result in payment or assessment by or against PICA
or any of its Subsidiaries of any material excise taxes under Sections 4972,
4975, 4976, 4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code.
(e) There
has been no amendment to, written interpretation or announcement (whether or not
written) by PICA or any of the PICA Subsidiaries relating to, or change in
employee participation or coverage under, any PICA Employee Plan which would
increase materially
the expense of maintaining PICA Employee Plans above the level of the expense
incurred in respect thereof for the fiscal year ended December 31,
2007. No event has occurred or circumstances exist that could result
in a material increase in the premium costs of PICA Employee Plans that are
insured, or a material increase in benefit costs of the PICA Employee Plans that
are self-insured.
(f) Except
as set forth in Section 4.13(f) of the PICA Disclosure Schedule, there is no
action, suit, investigation, audit or proceeding pending against or involving
or, to the Knowledge of PICA, threatened against or involving any PICA Employee
Plan before any court or arbitrator or any state, federal or local governmental
body, agency or official, except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on
PICA. Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any PICA
Employee Plan is pending or, to the Knowledge of PICA, threatened.
(g) Except
as described in Section 4.13(g) of the PICA Disclosure Schedule, neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated by the Plan of Conversion and this Agreement will (i) result in any
material payment (including severance, unemployment compensation, golden
parachute or otherwise) becoming due to any director or employee of PICA or any
of its Subsidiaries from PICA or any of its Subsidiaries under any PICA Employee
Plan or otherwise; (ii) materially increase any benefits otherwise payable under
any PICA Employee Plan; (iii) result in any acceleration of the time of payment
or vesting of any such benefits to any material extent (in each case under
clauses (i), (ii) or (iii) whether or not such payment or benefit would
constitute a parachute payment within the meaning of Section 280G of the Code);
or (iv) constitute a prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Code, or breach of fiduciary duty under Title I of
ERISA.
(h) Neither
PICA nor any PICA Subsidiary has any direct or indirect material liability or
obligation under any PICA Employee Plan other than as described in the terms of
such PICA Employee Plans. There are no circumstances arising out of
the sponsorship of any PICA Employee Plan which will result in any direct or
indirect material liability to PICA or any PICA Subsidiary, other than liability
for contributions, benefit payments, administrative costs and liabilities
incurred in accordance with the terms of the PICA Employee Plans consistent with
past practice.
(i) PICA
and each PICA Subsidiary have made all payments and contributions due from them
to each PICA Employee Plan. There are no funded benefit obligations
under any PICA Employee Plan for which contributions have not been made or
properly accrued, and there are no unfunded benefit obligations that have not
been accounted for by reserves, or otherwise properly footnoted in the
Consolidated Financial Statements.
(j) Each
PICA Employee Plan which is an “employee pension benefit plan” within the
meaning of Section 3(2) of ERISA that is not qualified under Section 401(a) or
403(a) of the Code is exempt from Parts 2, 3, and 4 of Title I of ERISA as an
unfunded plan that is maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of
ERISA. Except as set forth in Section 4.13(j) of the PICA Disclosure
Schedule, no assets of PICA or any PICA Subsidiary are allocated to or held in a
“rabbi trust” or similar funding vehicle.
(k) Each
PICA Employee Plan that is a “group health plan” (as defined in Section 607(1)
of ERISA or Section 5001(b)(1) of the Code) has been operated at all times in
compliance in all material respects with the provisions of Section 4980B of the
Code and Part 6 of Subtitle B of Title I of ERISA (“COBRA”), with the provisions
of the Code and ERISA enacted by the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”), and with the
provisions of any applicable similar state law.
4.14 Employees.
(a) PICA
has made available to PRA a complete list of the names of the current employees
of PICA and the PICA Subsidiaries, their birth dates, hire dates, base salary
and hourly wages, name of employer and position/job title, and accrued vacation
and sick leave, if any, all as of September 30, 2008. Except as
limited by any employment agreements and severance agreements listed in Section
4.14(a) of the PICA Disclosure Schedule, and except for any limitations of
general application which may be imposed under Applicable Laws, PICA and the
PICA Subsidiaries have the right to terminate the employment of any of their
respective employees at will and without payment to such employees.
(b) PICA
and the PICA Subsidiaries are in compliance, in all material respects, with all
Applicable Laws regarding labor and employment and the compensation therefor,
labor and employment matters, discrimination in employment, terms and conditions
of employment, wages, hours and occupational safety and health, and employment
practices, whether state or federal (including to the extent applicable (which
applicability PICA and the PICA Subsidiaries are not conceding), wage and hour
laws; workplace safety laws; workers’ compensation laws; equal employment
opportunity laws; equal pay laws; civil rights laws; the Occupational Safety and
Health Act of 1970, as amended; the Equal Employment Opportunity Act, as
amended; the Americans With Disabilities Act, 42 U.S.C. Sec. 12101 et seq., as
amended; the Fair Labor Standards Act, 29 U.S.C. Sec. 201 et seq., as amended;
the Equal Pay Act, 29 U.S.C. Sec. 206d, as amended, the Portal-to-Portal Pay Act
of 1947, 29 U.S.C. Sec. 255 et seq., as amended; Title VII of the Civil Rights
Act of 1964, 42 U.S.C. Sec. 2000e, as amended and 42 U.S.C. Sec. 1981, as
amended; the Rehabilitation Act of 1973, as amended; the Vietnam-Era Veterans’
Readjustment Assistance Act of 1974, as amended; the Immigration Reform and
Control Act, 8 U.S.C. Sec. 1324A et seq., as amended; the Employee Polygraph
Protection Act of 1988, as amended; the Veterans Re-employment Act - Handicap
Bias, 38 U.S.C. Sec. 2027 et seq., as amended; the Civil Rights Act of 1991, as
amended; the Family and Medical Leave Act of 1993, as amended; and the Age
Discrimination and Employment Act of 1967, as amended). To the
Knowledge of PICA, no action or investigation has been instituted or is
threatened to be conducted by any state or federal agency regarding any
potential violation by PICA or any PICA Subsidiary of any Applicable Laws
regarding labor and employment or the compensation therefor (including, without
limitation, any of the aforementioned statutes) during the past five (5)
years.
(c) Neither
PICA nor any PICA Subsidiary is a party to or bound by any collective bargaining
contract, nor is any such contract currently being negotiated by PICA or any PICA
Subsidiary. To the Knowledge of PICA, there are no pending activities or
proceedings of any labor union to organize any employees of PICA or any PICA
Subsidiary. Since December 31, 2007, no executive officer of PICA or
any PICA Subsidiary has stated to the Chief Executive Officer of PICA an
intention to terminate his or her employment.
(d) PICA
and each PICA Subsidiary have complied in all material respects with all
applicable notice provisions of and have no material obligations under COBRA
with respect to any former employees or qualifying beneficiaries
thereunder. Except as set forth in Section 4.14(d) of the PICA
Disclosure Schedule, all sums due from PICA or any PICA Subsidiary for employee
compensation (including, without limitation, wages, salaries, bonuses,
relocation benefits, stock options and other incentives) have been paid, accrued
or otherwise provided for, and all employer contributions for employee benefits,
including deferred compensation obligations, and all benefits under any PICA
Employee Plan have been duly and adequately paid, accrued or provided for in
accordance with plan documents. To the Knowledge of PICA, no person
treated as an independent contractor by PICA or any PICA Subsidiary is an
employee as defined in Section 3401(c) of the Code, nor has any employee been
otherwise improperly classified, as exempt, nonexempt or otherwise, for purposes
of federal or state income tax withholding or overtime laws, rules, or
regulations.
(e) Since
December 31, 2007, neither PICA nor any PICA Subsidiary has effectuated (i) a
“plant closing” (as defined in the Worker Adjustment and Retraining Notification
Act (the “WARN Act”))
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of PICA or any PICA Subsidiary; (ii) a
“mass layoff” (as defined in the WARN Act); or (iii) such other transaction,
layoff, reduction in force or employment terminations sufficient in number to
trigger application of any similar foreign, state or local law.
4.15 Compliance with Applicable
Law.
(a) Other
than generally applicable requirements of Applicable Laws, neither PICA nor any
PICA Subsidiary is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar written
undertaking to, or is subject to any order or directive by, or has been a
recipient of any supervisory letter from, or has adopted any board resolutions
at the request of any Governmental Authority that is currently in effect
and: (i) requires any investments of PICA or any PICA Subsidiary
to be treated as non-admitted assets, (ii) requires divestiture of any
investments of PICA or any PICA Subsidiary, (iii) in any manner imposes any
requirements on PICA or any PICA Insurance Subsidiary in respect of risk based
capital requirements that add to or otherwise modify the risk based capital
requirements imposed under the Insurance Laws, (iv) in any manner relate to the
ability of PICA or any PICA Subsidiary to pay or declare dividends,
distributions, or other payments to securityholders or policyholders of PICA or
any PICA Subsidiary, respectively or (v) restricts in any material respect the
conduct of the business, credit policies or PICA’s management or any PICA
Subsidiary (each, whether or not set forth in the PICA Disclosure Schedule, a
“PICA Regulatory
Agreement”), nor has PICA or any of the PICA Subsidiaries been advised by
any Governmental Authority that it is considering issuing or requesting any such
PICA Regulatory Agreement.
(b) Except
as set forth in Section 4.15(b) of the PICA Disclosure Schedule, there are no
material contracts (other than contracts relating to employment), real estate
leases, loans, guarantees or other arrangements or transactions of any nature
between PICA or any PICA Subsidiary, on the one hand, and any of their
respective officers, directors, or other Affiliates, on the other
hand. PICA has not extended or maintained credit, arranged for the
extension of credit, or renewed an extension of credit, in the form of a
personal loan to or for any director or executive officer (or equivalent
thereof) of PICA or any PICA Subsidiary that is now or will be outstanding on
the Closing, except for advancement of expenses incurred in the performance of
business for PICA consistent with the expense policy of PICA.
(c) None
of PICA, the PICA Subsidiaries, and, to the Knowledge of PICA, any of their
respective current or former officers or directors or current or former
employees, agents or representatives have: (i) used any corporate funds for any
illegal contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) used any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic governmental officials or
employees, (iii) violated any provision of the Foreign Corrupt Practices Act of
1977, (iv) established or maintained any unlawful or unrecorded fund of
corporate monies or other assets, (v) made any false or fictitious entries on
the books and records of PICA or any PICA Subsidiary, (vi) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment of any
nature, or (vi) made any material favor or gift which is not deductible for
federal income tax purposes.
4.16 Certain
Contracts.
(a) Section
4.16(a) of the PICA Disclosure Schedule lists all contracts, agreements,
arrangements, commitments, or understandings (whether written or oral) other
than insurance policies issued by PICA or any PICA Insurance Subsidiary to which
PICA or a PICA Subsidiary is a party or bound by: (i) with respect to
the employment of any directors, officers or employees; (ii) which, upon the
consummation of the transactions contemplated by this Agreement will (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from PICA, PRA, or
any of their respective Subsidiaries to any director, officer or employee
thereof; (iii) which
contains obligations for PICA or any PICA Subsidiary to pay in excess of
$100,000 in any twelve month period or provides for PICA or any PICA Subsidiary
to receive in excess of $100,000 in any twelve month period; (iv) that
concerns a partnership or joint venture that is not consolidated with PICA for
financial reporting purposes; (v) that contractually limits the ability of PICA
or any PICA Subsidiary to compete with respect to any product, service or
territory; (vi) that is in the nature of a collective bargaining agreement,
employment agreement, consulting agreement or severance agreement that is not
cancelable by PICA or any PICA Subsidiary without penalty or compensation on
thirty (30) days notice or less; (vii) that provides for the payment to an
employee of PICA or any PICA Subsidiary any incentive or bonus compensation
based on the productivity or performance of such employee or of PICA or any PICA
Subsidiary; or (viii) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. PICA has made available to PRA
complete copies of all employment and deferred compensation agreements which are
in writing and to which PICA or
any PICA
Subsidiary is a party. Each contract, agreement, arrangement,
commitment, or understanding (whether written or oral) of the type described in
Section 4.16(a) of this Agreement, whether or not set forth in the PICA
Disclosure Schedule, is referred to in this Agreement as a “PICA Contract,” and neither
PICA nor any PICA Subsidiary has received notice of any, and to the Knowledge of
PICA there has been no, violation of any PICA Contract by any of the other
parties thereto. For the avoidance of doubt, the term "PICA
Contracts" does not include any insurance policy or contract issued by PICA or a
PICA Insurance Subsidiary.
(b) With
respect to each PICA Contract, such PICA Contract is (assuming due power and
authority of, and due execution and delivery by, the other parties thereto) in
full force and effect (except for contracts that have expired pursuant to the
terms thereof) and is legally valid, binding and enforceable against PICA or any
of the PICA Subsidiaries and to the Knowledge of PICA, the other party thereto
in accordance with its terms (except as may be limited by bankruptcy, fraudulent
conveyance, insolvency, moratorium, reorganization or similar laws affecting the
rights of creditors generally and the availability of equitable
remedies). There are no material defaults by PICA or any PICA
Subsidiary, or, to the Knowledge of PICA, any other party, under such PICA
Contract. Neither PICA nor any PICA Subsidiary has received written
or, to the Knowledge of PICA, oral notice of any default, offset, counterclaim
or defense under such PICA Contract. No condition or event has
occurred which with the passage of time or the giving of notice or both would
constitute a default or breach by PICA or any PICA Subsidiary, or, to the
Knowledge of PICA, any other party under the terms of such PICA
Contract.
4.17 Investments and Interest
Rate Risk Management Instruments.
(a) Except
as set forth in Section 4.17(a) of the PICA Disclosure Schedule, PICA and each
PICA Subsidiary are the record or beneficial owners of all of its investment
securities (except securities sold under repurchase agreements or held in any
fiduciary or agency capacity), free and clear of any Lien. Such
securities are valued on the books of PICA in accordance with GAAP other than
where the failure to be so valued has not had, or would not be reasonably
expected to have, a Materially Adverse Effect. Section 4.17(a) of the
PICA Disclosure Schedule sets forth a list of the securities which are in
default in the payment of principal, interest or dividends or which PICA has
recorded as impaired to any material extent. PICA has provided to PRA
a copy of the investment policies of PICA and the PICA Subsidiaries as of June
30, 2008. There has been no material change in investment policy of
PICA and the PICA Subsidiaries or in the composition of the investments of PICA
and the PICA Subsidiaries since June 30, 2008.
(b) All
interest rate swaps, caps, floors and option agreements and other interest rate
risk management arrangements entered into for the account of PICA or any of the
PICA Subsidiaries were entered into in the ordinary course of business and, to
the Knowledge of PICA, in accordance with Applicable Laws and with
counterparties reasonably determined by PICA's management to be financially
responsible at the time. All of such interest rate swaps, caps,
floors and option agreements and other interest rate risk management
arrangements are (assuming due power and authority of, and due execution and
delivery by, the other parties thereto) legal, valid and binding obligations of
PICA or any of the PICA Subsidiaries enforceable in accordance with their terms
(except as may be limited by bankruptcy, fraudulent
conveyance,
insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies), and are in full
force and effect. PICA and each PICA Subsidiary have duly performed
in all material respects all of their material obligations thereunder to the
extent that such obligations to perform have accrued; and, to the Knowledge of
PICA, there are no material breaches, violations or defaults or allegations or
assertions of such by any party thereunder.
4.18 Intellectual
Property.
(a) PICA
or a PICA Subsidiary owns or has the right to use, pursuant to license,
sublicense, agreement or permission, all Intellectual Property necessary for the
operation of the businesses of PICA and the PICA Subsidiaries as presently
conducted except for such Intellectual Property, the absence of which is not
reasonably likely to have a Material Adverse Effect. As used in this
Agreement, “Intellectual
Property” means all trademarks, service marks, logos, domains and domain
names, trade names and corporate names and registrations and applications for
registration thereof, copyrights and registrations and applications for
registration thereof, computer software (including computer software used in
insurance operations or for accounting operations), data and documentation,
trade secrets and confidential business information (including financial,
marketing and business data, pricing and cost information, business and
marketing plans, and customer and supplier lists and information), other
proprietary rights, and copies and tangible embodiments thereof (in whatever
form or medium). Section 4.18(a) of the PICA Disclosure Schedule
lists all material registered Intellectual Property owned by PICA and each PICA
Subsidiary and used in their respective businesses.
(b) To
the Knowledge of PICA, neither the businesses of PICA nor any PICA Subsidiary
infringes, violates or misappropriates any Intellectual Property of third
parties. Since December 31, 2007, none of PICA, the PICA
Subsidiaries, or any of the directors, officers or employees with responsibility
for intellectual property matters of PICA or any PICA Subsidiary in their
respective capacities as directors, officers or employees has received any
written charge, complaint, claim or notice alleging any such infringement,
misappropriation or violation. Except as set forth in Section 4.18(b)
of the PICA Disclosure Schedule, to the Knowledge of PICA, no third party has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of PICA or any PICA
Subsidiary.
(c) Section 4.18(c)
of the PICA Disclosure Schedule identifies each item of Intellectual Property
that any third party owns and is material to the business of PICA or any PICA
Subsidiary and further identifies each item that is subject to confidentiality
restrictions of the type set forth in the following sentence; provided that
Section 4.18(c) of the PICA Disclosure Schedule omits Intellectual Property that
constitutes commercially available computer software (and associated
documentation). Subject to any applicable confidentiality obligations
of PICA or any PICA Subsidiary, PICA has made complete copies of all such
licenses, sublicenses, agreements and permissions (as amended to date) available
to PRA. With respect to each such item of such Intellectual
Property: (i) the license, sublicense, agreement or permission
covering the item is legal, valid, binding and enforceable against PICA or the
applicable PICA Subsidiary and, to the Knowledge of PICA, against the third
party thereto, and in full force and effect; (ii) except as set forth in
Section 4.5(b) of the PICA Disclosure Schedule, the license,
sublicense,
agreement
or permission will continue to be legal, valid, binding and enforceable against
PICA or the applicable PICA Subsidiary and, to the Knowledge of PICA, the third
party thereto, and in full force and effect on identical terms on and after the
Closing Date; (iii) to the Knowledge of PICA, no party to the license,
sublicense, agreement or permission is in breach or default, and no event of
default has occurred which with notice or lapse of time, or both, would
constitute a breach or default or permit termination, modification or
acceleration thereunder; (iv) to the Knowledge of PICA, no party to the
license, sublicense, agreement or permission has repudiated any provision
thereof; and (v) neither PICA nor any PICA Subsidiary has granted any
sublicense or similar right with respect to the license, sublicense, agreement
or permission.
4.19 Real Property; Environmental
Liability.
(a) Neither
PICA nor any PICA Subsidiary owns any right, title or interest in any real
property except as described in Section 4.19(a) of the PICA Disclosure Schedule
(collectively, the “PICA Real
Property”). Section 4.19(a) of the PICA Disclosure Schedule
sets forth a complete and accurate list and general description of all material
leases for real property (“PICA
Real Property Leases”) to which PICA or any PICA Subsidiary is a party or
by which any of them are bound. PICA or any PICA Subsidiary owns all
right, title and interest in, and has good and marketable title to, the PICA
Real Property, and PICA or any PICA Subsidiary has a valid leasehold interest in
each PICA Real Property Lease, in each case free and clear of all Liens except
for (i) rights of lessors, co-lessees or sublessees that are reflected in
each PICA Real Property Lease; (ii) current taxes or other charges or
assessments of any Governmental Authority, in each case, not yet due and
payable; and (iii) such imperfections of title and encumbrances, if any, as
do not materially detract from the value of or materially interfere with the
present use of the subject property. To the Knowledge of PICA, the
activities of PICA and the PICA Subsidiaries with respect to all PICA Real
Property and PICA Real Property Leases used in connection with their operations
are in all material respects permitted and authorized by applicable zoning laws,
ordinances and regulations.
(b) PICA
and the PICA Subsidiaries enjoy peaceful and undisturbed possession under all
PICA Real Property Leases. PICA has made available to PRA complete
and correct copies of all of the PICA Real Property Leases. Each PICA
Real Property Lease is (assuming due power and authority of, and due execution
by, the other party thereto) in full force and effect and is legally valid,
binding and enforceable against PICA or the applicable PICA Subsidiary and, to
the Knowledge of PICA, the third party thereto in accordance with its terms
(except as may be limited by bankruptcy, fraudulent conveyance, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and the availability of equitable remedies). There are no
monetary defaults and no material nonmonetary defaults by PICA or any PICA
Subsidiary, or, to the Knowledge of PICA, any other party, under any PICA Real
Property Lease. Neither PICA nor any PICA Subsidiary has received
written or, to the Knowledge of PICA, oral notice of any default, offset,
counterclaim or defense under any PICA Real Property Lease. Except as
set forth in Section 4.5(b) of the PICA Disclosure Schedule, no condition or
event has occurred which with the passage of time or the giving of notice or
both would constitute a default or breach by PICA or any PICA Subsidiary, or, to
the Knowledge of PICA, any other party, under of the terms of any PICA Real
Property Lease. To the Knowledge of PICA, there are no purchase
contracts, options or other agreements of any kind whereby any Person has
acquired or will have any basis to assert any right, title or interest in, or
right to the possession, use, enjoyment or proceeds of, any part or all of the
interests in the real property subject to the PICA Real Property
Leases.
(c) PICA
and the PICA Subsidiaries are and have been in compliance with all applicable
Environmental Laws and all Environmental Permits, except for instances of
non-compliance which would not have a Material Adverse Effect on PICA and the
PICA Subsidiaries taken as a whole. There are no legal,
administrative, arbitral or other proceedings pending, no claims, actions, or
causes of action filed or asserted in writing, or, to the Knowledge of PICA,
private environmental investigations or remediation activities or governmental
investigations of any nature ongoing or threatened seeking to impose on PICA or
any PICA Subsidiary, or that could reasonably be expected to result in the
imposition on PICA or any PICA Subsidiary of, any liability or obligation
arising under any Environmental Law which would have a Material Adverse Effect
on PICA. To the Knowledge of PICA, there is no reasonable basis for
any such proceeding, claim, action, investigation or remediation
activity. Neither PICA nor any PICA Subsidiary is subject to any
agreement, order, judgment, decree, or binding agreement by or with any
Governmental Authority or private Person imposing any liability or obligation
under any Environmental Law that would have a Material Adverse Effect on
PICA. For purposes of this Section 4.19, the terms “PICA” and “PICA
Subsidiaries” include any Person that is, in whole or in part, a predecessor of
PICA or any of its Subsidiaries.
4.20 Personal
Property.
(a) None
of the personal property owned by PICA or any PICA Subsidiary is subject to any
Lien except Permitted Liens.
(b) Section
4.20(b) of the PICA Disclosure Schedule lists each personal property lease to
which PICA or any PICA Subsidiary is a party that is not cancelable upon ninety
(90) days notice without penalty and has monthly rent that exceeds $1,500
(collectively, the “PICA
Personal Property Leases”). PICA has made available to PRA
complete and correct copies of all of the PICA Personal Property
Leases. Each PICA Personal Property Lease (assuming due power and
authority of, and due execution by, the other party) is in full force
and effect and is legally valid, binding and enforceable against PICA or the
applicable PICA Subsidiary and, to the Knowledge of PICA, against the third
party thereto, in accordance with its terms (except as may be limited by
bankruptcy, fraudulent conveyance, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and the availability of
equitable remedies). There are no material defaults by PICA or any
PICA Subsidiary, or, to the Knowledge of PICA, any other party, under any PICA
Personal Property Lease. Neither PICA nor any PICA Subsidiary has
received written or, to the Knowledge of PICA, oral notice of any material
default, offset, counterclaim or defense under any PICA Personal Property
Lease. No condition or event has occurred which with the passage of
time or the giving of notice or both would constitute a material default or
breach by PICA or any PICA Subsidiary, or, to the Knowledge of PICA, any other
party under of the terms of any PICA Personal Property Lease. To the
Knowledge of PICA, there are no purchase contracts, options or other agreements
of any kind whereby any Person has acquired or will have any basis to assert any
right, title or interest in, or right to the possession, use, enjoyment or
proceeds of, any part or all of the interests in the personal property subject
to the PICA Personal Property Leases and material to the business of
PICA.
4.21 Insurance
Matters.
(a) Except
as set forth in Section 4.21(a) of the PICA Disclosure Schedule, all policies,
binders, slips, certificates and other agreements of insurance in effect as of
the date hereof (including all applications, endorsements, supplements, riders
and ancillary agreements in connection therewith) issued by PICA and the PICA
Insurance Subsidiaries, and any and all marketing materials, agents agreements,
brokers agreements, service contracts, and managing general agents agreements to
which PICA or any PICA Subsidiary is a party, are, to the extent required under
Applicable Law, on forms approved by the Insurance Regulators or have been filed
with and not objected to by such Insurance Regulators within the period provided
for objection subject to such exceptions that, individually or in the aggregate,
have not had and would not reasonably be expected to have, a Material Adverse
Effect on PICA and the PICA Subsidiaries taken as a whole, and all of such forms
comply with the Insurance Laws in all material respects. As to
premium rates established by PICA or any PICA Insurance Subsidiary which are
required to be filed with or approved by any Insurance Regulators, such rates
have been so filed or approved and the premiums charged conform
thereto. Section 4.21(a) of the PICA Disclosure Schedule sets forth
all increases in premium rates for medical professional liability insurance
submitted by PICA and the PICA Insurance Subsidiaries which have been
disapproved by any Insurance Regulators since December 31,
2004. Section 4.21(a) of the PICA Disclosure Schedule lists all
written correspondence or written communications from any Insurance Regulator
received by PICA or any PICA Insurance Subsidiary after December 31, 2004 that
requests or states that its premium rates, if applicable, for professional
liability insurance should be reduced below the current approved premium
levels.
(b) Except
as set forth in Section 4.21(b) of the PICA Disclosure Schedule, neither PICA
nor any PICA Insurance Subsidiary has issued any participating policies or any
retrospectively rated policies of insurance and neither PICA nor any PICA
Insurance Subsidiary has declared any policyholder dividend which has not been
paid prior to the date of this Agreement.
(c) All
reinsurance treaties or agreements, including retrocessional agreements, to
which PICA or any PICA Insurance Subsidiary is a party and under which PICA or
any PICA Insurance Subsidiary has any existing rights, obligations or
liabilities are listed in Section 4.21(c) of the Disclosure Schedule (the “PICA Reinsurance
Treaties”). Except as disclosed in Section 4.21(c) of the PICA
Disclosure Schedule, (i) PICA has made available to PRA complete copies of all
of such PICA Reinsurance Treaties and all such PICA Reinsurance Treaties are in
full force and effect, and the consummation of the transactions contemplated by
this Agreement will not result in any party having the right to terminate a PICA
Reinsurance Treaty solely as a result of the consummation of the transactions
contemplated hereby and (ii) PICA or the PICA Insurance Subsidiary, as
applicable, has received credit for reinsurance on its most recent PICA SAP
Statement, with respect to the reinsurance provided under each PICA Reinsurance
Treaty to which PICA or the PICA Insurance Subsidiary is the ceding
company. The PICA SAP Statements accurately reflect as of and for the
dates indicated therein the extent to which, pursuant to Insurance Laws, PICA is
entitled to take credit for reinsurance under the PICA Reinsurance
Treaties. To the Knowledge of PICA, all reinsurance recoverable
amounts reflected in the PICA SAP Statements are collectible, and PICA is
unaware of any material adverse change in the financial condition of its
reinsurers that might raise concern regarding their
ability
to honor their reinsurance commitments, except as set forth in Section 4.21(c)
of the PICA Disclosure Schedule. No party to any of the PICA
Reinsurance Treaties has given written notice to PICA or any PICA Insurance
Subsidiary that such party intends to terminate or cancel any of the PICA
Reinsurance Treaties as a result of or following consummation of the Plan of
Conversion. Assuming due power and authority of, and due execution
by, the other party, each PICA Reinsurance Treaty is valid and binding on PICA
and each applicable PICA Subsidiary and, to the Knowledge of PICA, on the other
parties thereto, and none of PICA, any PICA Insurance Subsidiary, and, to the
Knowledge of PICA, any other party thereto, is in default in any material
respect with respect to any such PICA Reinsurance Treaty. Except as
disclosed on Section 4.21(c) of the PICA Disclosure Schedule, no PICA
Reinsurance Treaty contains any provision providing that the other party thereto
may terminate the same solely by reason of the transactions contemplated by this
Agreement, and no party to a PICA Reinsurance Treaty has issued a reservation of
rights notice or otherwise denied or limited coverage (in whole or in part)
under any PICA Reinsurance Treaty. Since December 31, 2007 no PICA
Reinsurance Treaty has been canceled and there has not been any change in the
retention level under any of such PICA Reinsurance Treaties.
(d) The
reserves for the losses and loss adjustment expenses of PICA and each of the
PICA Insurance Subsidiaries ( the "PICA Reserves") reflected in
the PICA SAP Statements as of and for the quarter ended June 30, 2008 (the
“June 30, 2008
Statements”) were determined in accordance with generally accepted
actuarial methods and standards, consistently applied except as set forth
therein. The insurance reserving practices and policies of PICA and
the PICA Insurance Subsidiaries have not changed, in any material respect, since
June 30, 2008 and the results of the application of such practices and policies
are reflected in the June 30, 2008 Statements. All reserves of PICA
and the PICA Insurance Subsidiaries set forth in the June 30, 2008 Statements
were fairly stated in accordance with sound actuarial principles consistently
applied and met the requirements of the Insurance Laws of the applicable
Insurance Regulator as of the dates indicated therein. To the
Knowledge of PICA, since June 30, 2008, there has not been any event or
occurrence affecting the reserves of PICA and the PICA Insurance Subsidiaries
that has resulted, or would be reasonably likely to result, in a Material
Adverse Effect on PICA or the PICA Subsidiaries taken as a
whole. Subject to confidentiality objections of PICA, PICA has made
available to PRA copies of all internally prepared work papers used as the basis
for establishing the PICA Reserves. Except for regular periodic or
special assessments based on developments that are publicly known within the
insurance industry generally or the medical professional liability insurance
industry, to the Knowledge of PICA, no claim or assessment is pending or
threatened against PICA or any PICA Insurance Subsidiary which is peculiar or
unique to PICA or such PICA Insurance Subsidiary by any state insurance guaranty
association in connection with such association’s fund relating to insolvent
insurers.
(e) Section
4.21(e) of the PICA Disclosure Schedule lists each actuary, independent or
otherwise, that has reviewed, on behalf of PICA or any PICA Insurance
Subsidiary, the reserves for losses and loss adjustment expenses of PICA or any
PICA Insurance Subsidiary, and their premium rates for liability insurance in
each of the years commencing after December 31, 2005 (collectively the “PICA Actuaries” and separately
an “PICA
Actuary”). Section 4.21(e) of the PICA Disclosure Schedule
lists each and every actuarial report, and all attachments, supplements, addenda
and modifications thereto prepared for or on behalf of PICA or any PICA
Insurance Subsidiary by the PICA Actuaries, or delivered by the PICA Actuaries
to
PICA or
any PICA Insurance Subsidiary, since December 31, 2005, in which a PICA Actuary
has (i) either expressed an opinion on the adequacy of reserves for losses and
loss adjustment expenses or made recommendations as to either the amount of
reserves for losses and loss adjustment expenses that should be maintained by
PICA or any PICA Insurance Subsidiary, or (ii) expressed an opinion as to the
adequacy of such premiums or made a recommendation as to the premiums that
should be charged by PICA or any PICA Insurance Subsidiary for liability
insurance (collectively, the “PICA Actuarial
Analyses”). To the Knowledge of PICA, the information and data
furnished by PICA to the PICA Actuaries in connection with the PICA Actuarial
Analyses were accurate in all material respects. To the Knowledge of
PICA, each PICA Actuarial Analysis was based upon an accurate inventory of
policies in force for PICA and the PICA Insurance Subsidiaries, as the case may
be, at the relevant time of preparation, was prepared using appropriate modeling
procedures accurately applied and in conformity with generally accepted
actuarial principles consistently applied, and the projections contained therein
were properly prepared in accordance with the assumptions stated
therein. PICA has made available to PRA complete copies of each of
the PICA Actuarial Analyses.
4.22 No Investment
Company. Neither PICA nor any PICA Subsidiary is an
“investment company,” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
ARTICLE
5
REPRESENTATIONS AND
WARRANTIES OF PRA
Except as
disclosed by PRA to PICA in accordance with Section 7.7 of this Agreement, PRA
hereby represents and warrants to PICA, as of the date hereof or such other date
as specified, as follows
5.1 Corporate
Organization. PRA is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as now being conducted.
5.2 Authority; No Violation;
Consents and Approvals.
(a) PRA
has full corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly and validly approved
by the Board of Directors of PRA, and no other corporate proceedings on the part
of PRA (including any approval of the stockholders of PRA) are necessary to
approve this Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly and validly executed and
delivered by PRA and (assuming due authorization, execution and delivery by PICA
and the receipt of all Requisite Regulatory Approvals) constitutes a valid and
binding obligation of PRA, subject to applicable bankruptcy, fraudulent
conveyance, insolvency and similar laws affecting creditors’ rights generally,
and subject, as to enforceability, to general principles of equity.
(b) Neither
the execution and delivery of this Agreement by PRA nor the consummation by PRA
of the transactions contemplated by this Agreement, nor compliance
by
PRA with
any of the terms or provisions of this Agreement, will (i) violate any provision
of the certificate of incorporation or bylaws of PRA or (ii) assuming that all
Requisite Regulatory Approvals and all of the consents and approvals referred to
in Section 5.2(c) of this Agreement are duly obtained, (x) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to PRA or any of its properties or assets, or (y) violate, conflict
with, result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the properties or assets of PRA
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which PRA is a party, or by which it or any of its properties or
assets may be bound or affected, except for such violations, conflicts, breaches
or defaults which, either individually or in the aggregate, would not have a
Material Adverse Effect on PRA.
(c) Except
for (i) the filing of applications, notices and forms with, and the obtaining of
approvals from, the Insurance Regulators pursuant to the Insurance Laws, with
respect to the transactions contemplated by this Agreement, (ii) the
approval of the Plan of Conversion, Amended and Restated Articles, and the
change of control of, and capital contribution to, PICA contemplated by this
Agreement by the Director of the Division pursuant to the Illinois Insurance
Code, (iii) the filing of the HSR Act Report with the Premerger Notification
Agencies pursuant to the HSR Act, (iv) any consents, authorizations, orders
and approvals required under the HSR Act, and (v) the approval of the Plan of
Conversion and this Agreement by the requisite votes of the Eligible Members of
PICA, no consents or approvals of, or filings or registrations with any
Governmental Authority or with any other Person are necessary in connection with
the execution and delivery by PRA of this Agreement or the consummation by PRA
or any PRA Subsidiary of the transactions contemplated by this
Agreement.
5.3 SEC Reports; Financial
Statements.
(a) PRA
has on a timely basis filed all forms, reports and documents required to be
filed by it with the SEC since January 1, 2005, including (i) Annual Reports on
Form 10-K for each fiscal year of PRA commencing after December 31, 2004,
(ii) its Quarterly Reports on Form 10-Q for each of the first three fiscal
quarters in each of the fiscal years of PRA commencing after December 31,
2004, (iii) all proxy statements relating to PRA’s meetings of stockholders
(whether annual or special) held, and all information statements relating to
stockholder consents, since December 31, 2004, (iv) all certifications
and statements required by Rule 13a-14 or 15d-14 under the Exchange Act or 18
U.S.C. Sec.1350 with respect to any report referred to in clause (i) or (ii) of
this sentence, (v) all other forms, reports, registration statements and
other documents (the forms, reports, registration statements and other documents
referred to in clauses (i), (ii), (iii), (iv) and (v) of this sentence together
with any and all amendments thereto are, collectively, the “PRA SEC Reports.”
(b) The
PRA SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the
Exchange Act, as the case may be, in all material respects, and (ii) did not at
the time they were filed with
the SEC,
or if thereafter amended, at the time of such amendment, 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. No Subsidiary of PRA is or has been required to file any
form, report, registration statement or other document with the
SEC. As used in this Section 5.3, the term “file” shall be broadly
construed to include any manner in which a document or information is furnished,
supplied or otherwise made available to the SEC.
(c) The
financial statements of PRA and its Subsidiaries included in the PRA SEC Reports
(including the related notes) complied as to form, as of their respective dates
of filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto (including, without limitation, Regulation S-X), were prepared in
accordance with GAAP during the periods and at the dates involved (except as may
be indicated in the notes thereto and except, in the case of unaudited
statements, to the extent permitted by Regulation S-X for Quarterly Reports on
Form 10-Q), and fairly present the consolidated financial condition of PRA and
its Subsidiaries at the dates thereof and the consolidated results of operations
and cash flows for the periods then ended. Except (x) as reflected in
PRA’s unaudited balance sheet at June 30, 2008, or liabilities described in any
notes thereto (or liabilities for which neither accrual nor footnote disclosure
is required pursuant to GAAP), or (y) for liabilities incurred in the ordinary
course of business since June 30, 2008, consistent with past practice, neither
PRA nor its Subsidiaries has any material liabilities or obligations of any
nature.
5.4 Broker’s
Fees. None of PRA, the PRA Subsidiaries and their respective
officers and directors has employed any broker or finder or incurred any
liability for any broker’s fees or commissions, or investment banker fees or
commissions, or finder’s fees in connection with the transactions contemplated
by this Agreement, except for the engagement of Xxx-Xxxx Xxxxxx Xxxxxxx Xxxxxxx
Xxxxxx as PRA's financial adviser for which PRA shall be solely
responsible.
5.5 Absence of Certain Changes
or Events. Since June 30, 2008, there has not
been: (i) any change in the financial condition, assets, liabilities,
prospects (financial and otherwise) or business of PRA or any of its
subsidiaries which, either individually or in the aggregate, has had or would
have a Material Adverse Effect on PRA; or (ii) any material change in any method
of accounting or accounting principals or practice by PRA, except as required by
GAAP or statutory accounting principles and disclosed in the notes to the
consolidated financial statements of PRA and its Subsidiaries.
5.6 Securities Laws
Considerations. PRA understands and agrees that the PICA
Common Stock has not been registered under the Securities Act or under any state
securities laws. PRA will receive the shares of PICA Common Stock
solely for PRA’s own account and not with a view toward the transfer, sale,
fractional subdivision or other disposition of the PICA Common
Stock.
5.7 Financial
Ability. PRA has the financial ability to consummate the
transactions contemplated by this Agreement.
ARTICLE
6
COVENANTS
6.1 Conduct of Businesses of
PICA Prior to the Effective Time.
(a) During
the period between the date of this Agreement and the Effective Time, except as
expressly contemplated or permitted by this Agreement, PICA shall, and shall
cause each PICA Subsidiary to: (a) conduct its business in the usual,
regular and ordinary course consistent with past practice and its current
business plan, and (b) use commercially reasonable efforts to maintain and
preserve intact its business organization, employees, agents and advantageous
business relationships and retain the services of its key employees and
agents.
(b) During
the period between the date of this Agreement and the Effective Time, PICA shall
permit PRA’s senior officers to meet with the Chief Financial Officer of PICA
and officers of PICA responsible for the financial statements, the internal
controls, and disclosure controls and procedures of PICA to discuss such matters
as PRA may deem reasonably necessary or appropriate for PRA to satisfy its
obligations under Sections 302, 404 and 906 of SOX and any rules and regulations
relating thereto.
(c) Subject
to applicable confidentiality obligations of PICA, PICA agrees to inform and
have discussions with PRA with respect to reserve policies and practices with
respect to (i) losses and loss adjustment expenses of PICA and the PICA
Insurance Subsidiaries and (ii) litigation against PICA and the PICA
Subsidiaries; provided,
however, this Section
6.1(c) shall not require PICA to discuss or disclose any information, where such
discussion or disclosure would jeopardize the attorney-client and work
privileges of the entity in possession or control of such information or
contravene any Applicable Law, fiduciary duty or binding agreement entered into
prior to the date of this Agreement. PRA and PICA shall also inform
and have discussions with each other with respect to the character, amount and
timing of restructuring charges to be taken by each of them in connection with
the transactions contemplated hereby.
6.2 PICA
Forbearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in the PICA Disclosure
Schedule, and, except as expressly contemplated or permitted by the Plan of
Conversion or this Agreement, PICA shall not, and PICA shall not permit any PICA
Subsidiary to, without the prior written consent of PRA (which consent will not
be unreasonably withheld):
(a) incur
any indebtedness for borrowed money (other than short-term indebtedness
incurred on commercially reasonable terms to refinance indebtedness of PICA or
any PICA Subsidiary, on the one hand, to PICA or any PICA Subsidiary, on the
other hand), or assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other individual, corporation or
other entity, or make any loan or advance (other than, in each case, in the
ordinary course of business consistent with past practice, including with regard
to any premium finance activities of PICA and its Subsidiaries, it being
understood and agreed that incurrence of indebtedness in the ordinary course of
business shall include entering into repurchase agreements and reverse
repurchase agreements);
(b) redeem,
repay, discharge or defease any guaranty fund certificate, surplus note, unless
such redemption, repayment, discharge or defeasance is an express condition of
any Requisite Regulatory Approval;
(c) grant
any stock options or stock awards or stock appreciation rights or right with
respect to the PICA Common Stock to be authorized under the Plan of
Conversion;
(d) other
than paying dividends that have been declared prior to the date hereof, make,
declare or pay any dividend or make any other distribution on or with respect to
insurance policies written by PICA or any PICA Subsidiary;
(e) sell,
transfer, mortgage, encumber or otherwise dispose of any of its material
properties or material assets to any Person other than a PICA Subsidiary, or
cancel, release or assign any material indebtedness of any such Person or any
material claims held by any such Person, except in the ordinary course of
business consistent with past practice;
(f) except
pursuant to contracts or agreements in force at the date of this Agreement, make
any material investment (by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets) in any
Person other than a PICA Subsidiary for which the aggregate consideration paid
or payable in any individual transaction is in excess of $100,000 or in the
aggregate in excess of $1,000,000 and that results in a non-admitted
asset;
(g) enter
into, change or terminate any PICA Contract, except in the ordinary course of
business consistent with past practice and other than renewals of contracts,
leases and agreements without material adverse changes of terms;.
(h) except
as contemplated by the agreements and plans set forth in Section 6.2 of the
PICA Disclosure Schedule, increase in any manner the compensation of the
employees of PICA and the PICA Subsidiaries, or pay any bonus or incentive
compensation to such employees; provided that PICA and the PICA Subsidiaries (i)
may make annual increases in the salaries and wages of their employees in the
ordinary course of business and consistent with past practice so long as the
amount, on an individualized basis, of the increase in compensation on an
annualized basis does not exceed four percent (4%) of the aggregate amount of
the compensation paid to the affected employees in the twelve (12) months
preceding the effective date of the increase in compensation, (ii) may grant
promotions and establish new salaries commensurate with the employees’ new
duties and past compensation practices, and (iii) may pay bonuses earned or
accrued by employees of PICA and the PICA Subsidiaries under PICA and PICA
Subsidiary bonus and incentive compensation programs in existence as of the date
of this Agreement in accordance with the terms of such bonus and incentive
compensation programs as in effect as of the date of this Agreement for the
performance years ending on December 31, 2008 and 2009;
(i) except
as contemplated in Section 7.5 hereof, pay any pension or retirement allowance
not required by any existing plan or agreement to any of its employees or become
a party to, amend (except as may be required by law) or commit itself to any
pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any employee or accelerate the vesting of any deferred
compensation plan;
(j) settle
any claim, action or proceeding involving money damages against PICA or a PICA
Subsidiary, except in the ordinary course of business consistent with past
practice; provided,
however, that prior to
the settlement of any lawsuit, claim, action or proceeding against PICA or any
PICA Subsidiary or otherwise in which PICA or any PICA Subsidiary is a named
defendant involving a payment by PICA or any PICA Subsidiary in excess of
$1,000,000 or the settlement of any ECO, XPL or bad faith claim involving any
insurance policy of PICA involving a payment by PICA in excess of $1,000,000,
PICA will notify PRA of the terms of the proposed settlement and will consult
with PRA regarding the terms of the settlement, but shall not be required to
obtain PRA’s consent to the terms of the settlement;
(k) take
any action that would cause the Plan of Conversion to result in the recognition
of gain by PICA under the Code;
(l) amend
its articles of incorporation or bylaws, except as provided for in the Plan of
Conversion and this Agreement;
(m) other
than in accordance with its current investment guidelines, restructure or
materially change its investment securities portfolio through purchases, sales
or otherwise, or the manner in which such portfolio is classified or
reported;
(n) offer
or sell insurance or reinsurance of any type other than such lines of insurance
and reinsurance that it offers and sells on the date of this Agreement or lines
that are substantially similar to such lines;
(o) take
any action that is intended or may reasonably be expected to result in any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or in
any of the conditions set forth in Article 8 of this Agreement not being
satisfied, or in a violation of any provision of this Agreement, except, in
every case, as may be required by Applicable Law; or
(p) agree
to, or make any commitment to, take any of the actions prohibited by this
Section 6.2; provided
that except for and subject to Section 6.2(n), nothing in this Section 6.2 shall
prohibit PICA or any PICA Insurance Subsidiary from issuing any insurance policy
or contract, including any certificates of insurance, riders and endorsements
thereto.
6.3 PRA
Forbearances. During the period from the date of this
Agreement to the Effective Time and, except as expressly contemplated or
permitted by this Agreement, PRA shall not, and PRA shall not permit any PRA
Subsidiary to, without the prior written consent of PICA, which consent shall
not be unreasonably withheld:
(a) take
any action that would cause the Plan of Conversion to result in the recognition
of gain by PICA under the Code;
(b) take
any action that is intended or may reasonably be expected to result in any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or in
any of the conditions set forth in Article 8 of this Agreement not being
satisfied, or in a violation of any provision of this Agreement, except, in
every case, as may be required by Applicable Law;
(c) take
any action that is intended or likely to adversely affect its ability to perform
its covenants and agreements under this Agreement; or
(d) agree
to, or make any commitment to, take any of the actions prohibited by this
Section 6.3.
ARTICLE
7
ADDITIONAL
AGREEMENTS
7.1 Regulatory
Matters.
(a) The
parties shall promptly make all filings and notifications with, and shall use
commercially reasonable efforts to promptly obtain all authorizations, consents,
orders and approvals of all Governmental Authorities that may be or become
necessary for their respective execution and delivery of, and the performance of
their respective obligations pursuant to, and the consummation of the
transactions contemplated by, this Agreement, including as set forth in Sections
7.1(b), (c) and (d) below, and shall take all actions as may be requested by any
such Governmental Authorities to obtain such authorizations, consents, orders
and approvals; provided, however, that in no event
shall PRA or PICA or any of their respective Affiliates be required to agree to
(i) the divestiture of any business or entity of PRA or PICA or any of their
Subsidiaries or (ii) any requirement imposed by a Governmental Authority that
would reasonably be expected to have a (A) Material Adverse Effect on PICA and
the PICA Subsidiaries, taken as a whole, or (B) material and adverse effect on
the aggregate economic value and business benefits that would reasonably be
expected to be obtained by PRA and its Affiliates from the transactions
contemplated by this Agreement (each requirement or limitation specified in
clauses (i) or (ii) of this paragraph, a “Burdensome
Condition”). Neither PRA nor PICA shall take any action that
they should be reasonably aware would have the effect of delaying, impairing or
impeding the receipt of any required approvals.
(b) Promptly
after the execution of this Agreement, PICA shall use commercially reasonable
efforts to prepare and file with the Division in accordance with the
requirements of the Illinois Insurance Code: (i) the Plan of Conversion; (ii)
the notice of the Plan of Conversion proposed to be given to the Eligible
Members in accordance with the requirements of Section 59.1(4) of the Illinois
Insurance Code (215 ILCS 5/59.1(4)); (iii) the form of proxies to be solicited
from the Eligible Members; (iv) the form of notice required to be provided
to persons who are issued policies after the adoption of the Plan of Conversion
as required under Section 59.1(10) of the Illinois Insurance Code (215 ILCS
5/59.1(10)); and (v) copies of the Amended and Restated Articles and Amended and
Restated Bylaws. Upon approval of the Plan of Conversion by the
Director of the Division, PICA shall call a meeting of the Eligible Members to
be held for the purpose of voting on the approval of the Plan of Conversion and
mail the notice of the meeting to the Eligible Members in accordance with the
requirements of Section 59.1(4)(b) of the Illinois Insurance Code (215 ILCS
5/59.1(4)(b)). As soon as practicable
following
(i) the receipt of the Decision and Order, (ii) the Director’s determination
that all conditions to such approval contained in the Decision and Order have
been satisfied, except for those conditions required by the Decision and Order
to be satisfied after the Closing Date and with respect to which the
Director has received PICA’s and PRA’s written commitment to satisfy after
the Closing Date, (iii) the adoption of the Plan of Conversion and the
Amended and Restated Articles of Incorporation by the Eligible Members as
provided in the Plan of Conversion, and (iv) the satisfaction or waiver of all
of the conditions contained in Article 8 hereof, PICA shall file with the
Director (A) the minutes of the special meeting, (B) a certificate of the
Secretary of PICA setting forth the results of the vote on the Plan of
Conversion and the Amended and Restated Articles of Incorporation and certifying
as to whether or not it was approved by not less than two-thirds of the Eligible
Members voting in person or by proxy at the special meeting and (C)
the Amended and Restated Articles of Incorporation and the Amended and Restated
Bylaws of PICA.
(c) To
the extent applicable, PRA shall use commercially reasonable efforts to prepare
and file with all necessary Governmental Authorities (i) a request for approval
of the transactions contemplated by this Agreement by all applicable Insurance
Regulators on Form A or on such other form as may be required by such Insurance
Regulators and Applicable Law; (ii) the preacquisition notification and report
forms and related material on Form E or any other forms required by a necessary
Governmental Authority in connection with the transactions contemplated by this
Agreement; and (iii) a notice on Form D if required, with the Division in
advance of the Capital Contribution required by Section 7.10.
(d) Pursuant
to the HSR Act, PRA and PICA will use commercially reasonable efforts to
promptly prepare and file, or cause to be filed, the HSR Act Report with the
Premerger Notification Agencies in respect of the transactions contemplated by
this Agreement, which filing shall comply as to form with all requirements
applicable thereto and all of the data and information reported therein shall be
accurate and complete in all material respects. Each of PRA and PICA
will use commercially reasonable efforts to promptly comply with all requests,
if any, of the Premerger Notification Agencies for additional information or
documentation in connection with the HSR Act Report forms filed by or on behalf
of each of such parties pursuant to the HSR Act, and all such additional
information or documentation shall comply as to form with all requirements
applicable thereto and shall be accurate and complete in all material
respects.
(e) Each
party shall provide to the other, (i) promptly after filing thereof, copies
of all statements, applications, correspondence or forms filed by such party
prior to the Closing Date with the Premerger Notification Agencies, the
Insurance Regulators and any other Governmental Authority in connection with the
transactions contemplated by this Agreement and (ii) promptly after
delivery to, or receipt from, such regulatory authorities, all written
communications, letters, reports or other documents relating to the transactions
contemplated by this Agreement; provided, however, nothing contained in
this Section 7.1 shall require PICA to provide PRA with any presentations, board
books, work papers or other materials prepared in support of any appraisal or
other valuation analysis of PICA; provided, further that the party
sharing such filing or materials may redact from such filing and communications
any confidential competitive information of such party and its
Affiliates.
(f) The
parties hereto shall cooperate with each other and use their commercially
reasonable efforts to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, to obtain as promptly
as practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including the Plan
of Conversion), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental
Authorities. PRA and PICA shall have the right to review in advance,
and, to the extent practicable, each will consult the other on, in each case
subject to Applicable Laws relating to the exchange of information, all the
information relating to PRA or PICA, as the case may be, and any of their
respective Subsidiaries, which appear in any filing made with, or written
materials submitted to, any third party or any Governmental Authority in
connection with the transactions contemplated by this Agreement; provided, however, nothing contained in
this Section 7.1 shall require PICA to provide PRA with any presentations, board
books, work papers or other materials prepared in support of any appraisal or
other valuation analysis of PICA; provided, further that the party
sharing such filing or materials may redact from such filing and communications
any confidential competitive information of such party and its
Affiliates. The cooperation and coordination of each party required
under this Section 7.1 shall include giving timely public notice of any public
hearings regarding the transactions contemplated by this Agreement, and having
its representatives attend and testify at such public hearings. In
addition, each of the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement.
(g) PRA
and PICA shall, upon request, furnish each other with all information concerning
themselves, their Subsidiaries, directors, officers and shareholders or
stockholders, as applicable, and such other matters as may be reasonably
necessary or advisable in connection with any statement, filing, notice or
application made by or on behalf of PRA, PICA or any of their respective
Subsidiaries to any Governmental Authority in connection with the Plan of
Conversion and the other transactions contemplated by this
Agreement. PICA and the PICA Subsidiaries understand and agree that
PRA may be required to include in PRA SEC Reports to be filed prior to Closing
some or all of the Consolidated Financial Statements, in which event PICA agrees
to consent to the inclusion of such financial statements. In such
event, PICA shall also request the independent auditors of PICA to consent to
the inclusion of said financial statements in any registration statement of PRA
that incorporates the financial statements included in such PRA SEC Report by
reference.
(h) PRA
and PICA shall promptly advise each other upon receiving any communication from
any Governmental Authority relating to the consent or approval from such
Governmental Authority that is required for consummation of the transactions
contemplated by this Agreement.
(i) PICA
and PRA shall use their commercially reasonably efforts to obtain any other
consents and approvals and make any other notifications that may be required
in
connection
with the transactions contemplated by this Agreement; provided, however, that none of PICA,
the PICA Subsidiaries or PRA shall be required to compensate any third party,
commence or participate in litigation or offer or grant any accommodation
(financial or otherwise) to any third party to obtain any such consent or
approval.
(j) Notwithstanding
anything contained herein to the contrary, neither party shall be required to
disclose to the other any of its or its Affiliates, confidential competitive
information and neither party shall be required to comply with any provision of
this Section 7.1 to the extent that such compliance would be prohibited by
Applicable Law.
7.2 Access to
Information.
(a) Upon
reasonable prior notice and subject to Applicable Laws relating to the exchange
of information and to the Confidentiality Agreement dated May 29, 2008,
respectively (the “Confidentiality Agreement”)
which is hereby incorporated into this Agreement by reference and shall continue
in full force and effect until Closing, PICA shall, and shall cause each of the
PICA Subsidiaries to, afford to the officers, employees, accountants, counsel
and other representatives of PRA, access, during normal business hours during
the period prior to the Closing Date, to all of its properties, books,
contracts, commitments and records. During such period, each of PRA
and PICA shall, and shall cause their respective Subsidiaries to, make available
to the other party a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of federal securities laws or Insurance Laws (other than reports or
documents which PRA or PICA, as the case may be, is not permitted to disclose
under Applicable Law or by agreement); provided, however, that all
such access shall be on a basis and follow procedures that the parties shall
mutually agree, and shall not unreasonably interfere with any of the businesses
or operations of PICA or any PICA Subsidiary; provided, further, that the accountants
of PICA will not be obligated to make any work papers available to PRA unless
and until PRA has signed a customary confidentiality agreement relating to such
access to work papers in form and substance reasonably acceptable to such
accountants. Neither PRA nor PICA nor any of their respective
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of PRA’s,
PICA’s, or any PICA Subsidiary's, as the case may be, customers, jeopardize the
attorney-client and work product privileges of the entity in possession or
control of such information or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply.
(b) No
investigation by either of the parties or their respective representatives shall
affect the representations, warranties, covenants or conditions of the other set
forth in this Agreement.
7.3 Recommendation of Eligible
Members. PICA will, through its Board of Directors, subject to
its fiduciary obligations as determined by its Board of Directors, recommend
that its Eligible Members vote in favor of the approval and adoption of the Plan
of Conversion.
7.4 Compliance with Securities
Laws. PICA and PRA understand and agree that the Shares to be
issued pursuant to the Plan of Conversion will not be registered under the
Securities Act or applicable state securities laws in reliance on exemptions
from such registration and the certificates representing such Shares shall bear
appropriate legends to such effect. PICA and PRA shall cooperate with
each other and use commercially reasonable efforts to cause the Shares to be
issued pursuant to available exemptions from registration under the Securities
Act and state securities laws.
7.5 Employee
Plans.
(a) For
the period commencing at the Effective Time and ending no earlier than December
31, 2009, PRA shall take any action necessary so that all individuals who are
employed by PICA or a PICA Subsidiary (including employees who are not actively
at work on account of illness, disability or leave of absence) (“PICA Employees”) at the
Effective Time and who continue in employment with PICA, PRA or any of their
respective Subsidiaries after the Effective Time shall continue to receive base
wages and salaries at rates no less favorable to such employee than the rates of
wages and salaries paid by PICA or a PICA Subsidiary to such employee at the
Effective Time, so long as they are employed by PICA, PRA and their
Subsidiaries; provided
that such obligations of PRA shall be subject to and conditioned upon compliance
with Section 6.2(h) by PICA and the PICA Subsidiaries with respect to such
Continuing Employee. PICA Employees who continue in employment with
PRA or any of its Subsidiaries shall be referred to herein as “Continuing
Employees.” From and after the Effective Time, the PICA
Employee Plans in effect as of the date of this Agreement and at the Effective
Time shall remain in effect with respect to the current and former PICA
Employees covered by such PICA Employee Plans at the Effective Time, until at
least December 31, 2009. PRA agrees that it will honor all PICA
Employee Plans in accordance with their terms as in effect at the Effective
Time, subject to any amendment or termination thereof that may be required by
the plans or Applicable Law. PRA will review all PICA Employee Plans
to determine whether to maintain, terminate or continue such plans for periods
on and after January 1, 2010. In the event employee benefits as
provided by PICA or any PICA Subsidiary at the Effective Time are changed or
terminated by PRA, in whole or in part for periods on and after January 1,
2010, PRA shall provide Continuing Employees with benefits that are, in the
aggregate, no less favorable to the benefits provided to employees of PRA or
applicable PRA Subsidiary (as of the date any such benefit is
provided).
(b) Employees
of PICA or any PICA Subsidiary who become participants in a PRA Employee Plan
shall, for purposes of determining eligibility, benefits (excluding accruals
under a defined benefit plan) and vesting under any such PRA Employee Plan be
given credit for service as an employee of PICA or any PICA Subsidiary or any
predecessor thereto prior to the Effective Time as if such service were with PRA
or applicable PRA Subsidiary. PRA shall provide and recognize, or
cause to be provided and recognized, all accrued but unused vacation of
Continuing Employees as of the Effective Time. In the event of any
termination or consolidation of any PICA health plan with any PRA health plan,
PRA shall make available to Continuing Employees and their dependents
employer-provided health coverage on substantially the same basis as it provides
such coverage to PRA employees and shall waive all pre-existing condition
exclusions under such PRA plans with respect to Continuing Employees and their
dependents. In the event of a termination or consolidation of any
PICA health plan, terminated
PICA
Employees and qualified beneficiaries will have the right to continued coverage
under group health plans of PRA in accordance with Code Section
4980B(f). All PICA Employees who cease participating in a PICA health
plan and become participants in a comparable PRA health plan during any plan
year shall receive credit toward the applicable deductible and out-of-pocket
maximums under the PRA health plan for any amounts paid by the employee under
PICA’s health plan during the applicable plan year, upon substantiation, in a
form satisfactory to PRA, that such payments have been made.
(c) It
is understood that PRA and its Subsidiaries are “at-will”
employers. Nothing in this Section 7.5 shall be interpreted as
preventing PRA from terminating the employment of any individual or, except as
otherwise provided in Section 7.5(a) with respect to PICA Employee Plans for
periods before January 1, 2010, from amending, modifying or terminating any PRA
Employee Plans, or any PICA Employee Plans, or any benefits under any PRA
Employee Plans or any PICA Employee Plans, or any other contracts, arrangements,
commitments or understandings, in accordance with their terms and Applicable
Law. In the event that any Continuing Employee is terminated from
employment with PRA or its Subsidiaries as a result of a consolidation of
operations of PICA with PRA, in whole or in part, after the Effective Time but
prior to the second anniversary of the Effective Time, PRA shall provide, or
cause to be provided, to such terminated Continuing Employee severance benefits
equal to at least six, but not more than twelve, months of such Continuing
Employee’s compensation based on such Continuing Employee’s position and service
with PICA. To the extent not already paid by PICA and the PICA Subsidiaries, PRA
shall pay, or cause to be paid, to Continuing Employees the bonuses such
Continuing Employees have earned or accrued under the PICA and PICA Subsidiary
bonus and incentive compensation programs in existence as of the Effective Time
for the bonus determination period that includes the Effective
Time.
(d) PRA
shall cause PICA or a Subsidiary (i) to offer to continue the employment of
Xxxxx X. Xxxxx, DPM after the Effective Time under an employment agreement that
will supersede his current employment agreement and will include the terms that
PRA has communicated to him, together with such other terms as are consistent
with the terms of employment of other senior executives of PRA and (ii) to offer
to continue the employment of Messrs. Xxxx Xxxxxxx, T. Xxxxxxx Xxxx and Xxxx
Xxxxxxx on such terms as PRA has communicated to them under the terms of the
Release and Severance Compensation Agreements generally offered to other senior
executives of PRA and the Release and Severance Compensation Agreements will
supersede their current employment agreements.
(e) PRA
agrees that PICA shall satisfy any retirement payments or obligations due to
Xxxxx X. Xxxxx, DPM pursuant to the Employment Agreement dated July 20, 2000, as
amended through the date hereof, between Xx. Xxxxx and PICA prior to the Closing
Date. At the Effective Time, PICA shall credit current participants
in the Executive Retention and Deferred Compensation Plan dated January 1, 2007
of PICA (the “Retention
Plan”) with all amounts that would otherwise be credited to their
accounts in 2009, 2010 and 2011 and accelerate the vesting of all benefits for
the current participants under the Retention Plan. PICA shall pay the
total accrued benefits under the Retention Plan to each of the current
participants promptly, but in any event no later than 60 days, after the
Effective Time.
(f) Notwithstanding
anything herein to the contrary, PRA agrees that PRA will assume, maintain and
honor, or cause to be assumed, maintained and honored, the Supplemental Deferred
Compensation Plan in accordance with the terms of such plan as in effect at the
Effective Time for a period ending no earlier than 48 months after the Effective
Time; provided that PRA shall have the right to terminate employer matching
contributions to former directors of PICA who have entered into a Consulting
Agreement under such plan. PRA further agrees that it shall not
terminate such plan, nor take any other action to cause benefits to be
distributed from such plan, prior to the date all benefits are payable to
participants in the plan in accordance with the terms of the plan and
participant elections as in effect on the date which is 48 months after the
Effective Time.
(g) Notwithstanding
anything herein to the contrary, all payments made to PICA Employees under this
Section 7.5 shall be subject to withholding required by applicable federal,
state and local taxing authorities.
7.6 Directors’ and Officers’
Indemnification and Insurance.
(a) PICA
shall use its commercially reasonable efforts, prior to the Effective Time, to
purchase a single payment, run-off or "tail" insurance policy or policies of
directors’ and officers’ liability insurance covering current and former
officers and directors of PICA and the PICA Subsidiaries on terms and
conditions, including limits, no less favorable than their respective directors
and officers liability insurance policy in effect on the date of this Agreement,
such policy or policies to become effective at the Effective Time and remain in
effect for a period of six (6) years after the Effective Time (the “Tail Policy”) with respect to
directors’ and officers’ liability for claims arising from facts or events that
occurred on or prior to the Effective Time. If PICA is unable to
obtain the Tail Policy prior to Closing, PRA shall use its best efforts to cause
the individuals serving as officers and directors of PICA and the PICA
Subsidiaries, immediately prior to the Effective Time to be covered for a period
of six (6) years from the Effective Time (or the period of the applicable
statute of limitations, if longer) by the directors’ and officers’ liability
insurance policy maintained by PICA or the PICA Subsidiary (provided that PRA
may substitute therefor policies of the same or substantially similar coverage
and amounts containing terms and conditions which are not less advantageous in
any material respect than such policy) with respect to acts or omissions
occurring prior to the Effective Time which were committed by such officers and
directors in their capacity as such; provided, however, that in no event
shall the premium for any such insurance be more than 300% of the current amount
expended by PICA or the PICA Subsidiary (the “Insurance Premium Amount”);
and provided further, that if PRA is
unable to maintain or obtain the insurance called for by this Section 7.6, PRA
shall use its best efforts to obtain as much comparable insurance as available
for the Insurance Premium Amount.
(b) For
a period of six years after the Effective Time (unless otherwise required by
Applicable Law), the charter and bylaws of PICA and the PICA Subsidiaries shall
contain provisions no less favorable with respect to the exculpation of,
indemnification of and advancement of expenses to directors, officers, employees
and agents than those set forth in the Amended and Restated Articles and Amended
and Restated Bylaws (or equivalent organizational documents) of PICA (or the
relevant Subsidiary) as in effect on the date hereof; provided, however, that if any claim or
claims are asserted against any individual entitled to the
protections
of such
provisions within such six-year period, such provisions shall not be modified
until the final disposition of any such claims. In addition to the
obligations set forth in Section 7.6(a), PRA shall, and shall cause PICA to,
exculpate, indemnify, defend and hold harmless each person who is now, or who
has been at any time before the date hereof or who becomes before the Effective
Time, an officer, director, employee or agent of PICA or a PICA Subsidiary (the
“Indemnified Parties”)
against all losses, claims, damages, costs, expenses (including attorney’s
fees), liabilities fines, obligations, or judgments or amounts (collectively
"Losses") that are paid
in settlement of or in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative, or investigative (formal
or informal) (each a “Claim”), in which an
Indemnified Party is, or is threatened to be made, a party or witness in whole
or in part on or arising in whole or in part out of the fact that such person is
or was a director, officer, employee or agent of PICA or a PICA Subsidiary if
such Claim pertains to any matter of fact arising, existing or occurring at or
before the Effective Time (including, without limitation, the Plan of Conversion
and this Agreement and the transactions contemplated thereby), regardless of
whether such Claim is asserted or claimed on, before, or after, the Effective
Time (the “Indemnified
Liabilities”), to the fullest extent provided under, the Amended and
Restated Articles and Amended and Restated Bylaws or in the organizational
documents of any PICA Subsidiary or PRA, as applicable, any indemnification
agreement or under Applicable Law. PRA shall pay expenses in advance
of the final disposition of any such action or proceeding to each Indemnified
Party to the full extent provided in the Amended and Restated Articles and
Applicable Law. The Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with PRA; provided, however, that (A) PRA shall
have the right to assume the defense thereof and upon such assumption PRA shall
not be liable to any Indemnified Party for any legal expenses of other counsel
or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if PRA fails to promptly assume
such defense the Indemnified Party may retain counsel reasonably satisfactory to
him after consultation with PRA, and PRA shall pay the reasonable fees and
expenses of such counsel for the Indemnified Party, (B) PRA shall be obligated
pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties except to the extent representation by a single firm or
attorney is, in the absence of an informed consent by the Indemnified Party,
prohibited by ethical rules relating to lawyers’ conflicts of interest, (C) PRA
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld), (D) PRA shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated by this Agreement is prohibited by Applicable
Law and (E) PRA shall have no obligation hereunder to any Indemnified Party
for which and to the extent payment is actually and unqualifiedly made in the
full amount of all such Losses for which indemnification has been sought to such
Indemnified Party under any insurance policy, any other agreement for
indemnification or otherwise. Any Indemnified Party wishing to claim
Indemnification under this Section 7.6, upon learning of any such Claim, shall
notify PRA thereof, provided that the failure to so notify shall not affect the
obligations of PRA under this Section 7.6 except to the extent such failure to
notify prejudices PRA by depriving PRA of the reasonable opportunity to
investigate and assume the defense of the claim. PRA’s obligations under this
Section 7.6 continue in full force and effect for a period of six (6) years from
the Effective Time (or the period of the applicable statute of limitations, if
longer); provided,
however, that all rights to
indemnification in respect of any Claim asserted or made within such period
shall continue until the final disposition of such Claim.
7.7 Advice of
Changes.
(a) Each
party shall have the right, but not the obligation, to deliver to the other
party a written disclosure schedule as to any matter of which it becomes aware
following execution of this Agreement which would constitute a breach of any
representation, warranty or covenant of this Agreement by such party,
identifying on such disclosure schedule the representation, warranty or covenant
which would be so breached. If disclosure of a matter which would
constitute a breach of any representation, warranty or covenant of this
Agreement is made by either party, the nondisclosing party shall have the right,
in its discretion, to terminate this Agreement to the extent such termination is
permitted under Section 9.1 of this Agreement.
(b) PICA
shall update the PICA Disclosure Schedule (the “Closing Date PICA Disclosure
Schedule”) to a date that is no earlier than ten (10) Business Days prior to the
Closing Date and no later than seven (7) Business Days prior to the Closing Date
and shall deliver the Closing Date PICA Disclosure Schedule to PRA not less than
three (3) Business Days prior to the Closing Date. The obligation of
PICA to deliver to PRA the Closing Date PICA Disclosure Schedule shall be a
material obligation for purposes of Section 8.2(a) hereof.
(c) The
provisions of this Section 7.7 and any notices by PRA on the one hand, and PICA
on the other, shall not be deemed in any way to constitute a waiver by the
counterparty of the conditions set forth in Article 8 hereof or any of its
remedies under Article 9 hereof, nor shall any such notices cure any breach of
any representation or warranty which is inaccurate.
7.8 Additional
Agreements.
(a) Prior
to the Effective Time, PICA shall provide to PRA (i) within forty-five (45) days
after the end of each calendar quarter, a copy of the quarterly unaudited
statutory statements of PICA and each of the PICA Insurance Subsidiaries filed
with the Insurance Regulator of the jurisdiction of domicile of PICA or the
applicable PICA Insurance Subsidiary, as applicable, as of and for such quarter
end and all exhibits, schedules and notes attached thereto or provided therewith
and (ii) within sixty (60) days after the end of each fiscal year, a copy of the
statutory annual statements of each of PICA and the PICA Insurance Companies
filed with the Insurance Regulator of the jurisdiction of domicile of PICA or
the applicable PICA Insurance Subsidiary, as applicable, as of and for such year
end and all exhibits, schedules and notes attached thereto and provided
therewith.
(b) Prior
to the Effective Time, PRA shall provide PICA promptly after filing with the SEC
the periodic and current reports filed by PRA pursuant to Section 13(a) of the
Exchange Act together with any financial statements and/or exhibits filed with
such reports (other than those incorporated by reference).
(c) PRA
shall use commercially reasonable efforts to, as of the Closing, have the
financial ability to consummate the transactions contemplated by this
Agreement.
7.9 Negotiations
with Other Parties.
(a) Subject
to Section 7.9(b), so long as this Agreement remains in effect and no notice of
termination has been given under this Agreement, PICA shall not authorize or
knowingly permit any of its representatives, directly or indirectly, to
initiate, entertain, solicit, encourage, engage in, or participate in,
negotiations with any Person or any group of Persons other than the other party
to this Agreement or any of its Affiliates (a “Potential Acquiror”)
concerning any Acquisition Proposal (as defined in this Section 7.9) other than
as expressly provided in this Agreement. PICA will promptly inform
PRA of any bona fide inquiry it receives with respect to any Acquisition
Proposal and shall furnish the information required in Section
7.9(b).
(b) Nothing
contained in this Agreement shall prohibit the Board of Directors of PICA from
either furnishing information to, or entering into discussions or negotiations
with, any Person or group of Persons regarding any Acquisition Proposal, or
approving and recommending to the Eligible Members of PICA an Acquisition
Proposal from any Person or group of Persons, if the Board of Directors of PICA
determines in good faith that such action is appropriate in furtherance of the
best interests of the Members. In connection with any such
determination, (i) PICA shall direct its representatives, officers and other
appropriate personnel to cooperate with and be reasonably available to consult
with any such Person, or group of Persons, (ii) PICA will disclose to PRA that
it is furnishing information to, or entering into discussions or negotiations
with, such Person or group of Persons, which disclosure shall describe the terms
thereof (but need not identify the Person, or group of Persons making the
offer), (iii) prior to furnishing such information to such Person or group of
Persons, PICA shall enter into a written agreement with such Person or group of
Persons which provides for, among other things, (A) the furnishing to PICA of
information regarding such Person or group of Persons that is relevant to its
ability to finance and otherwise perform its obligations under its Acquisition
Proposal; (B) the confidentiality of all non-public information furnished to
such Person or group of Persons by PICA; and (C) procedures reasonably
satisfactory to PICA that are designed to restrict or limit the provision of
information regarding PICA that could be used to the competitive disadvantage of
PICA or PRA; (iv) PICA will not furnish any non-public information regarding PRA
or the transactions contemplated hereby; and (v) PICA will keep PRA informed of
the status of any such discussions or negotiations (provided that PICA shall not
be required to disclose to PRA confidential information concerning the business
or operations of such Person or group of Persons).
(c) As
used in this Agreement, “Acquisition Proposal” means
(i) any proposal pursuant to which any Person or group of Persons, other than
PRA or PICA, would acquire or participate in a merger, consolidation, or other
business combination involving PICA or any of the PICA Subsidiaries, directly or
indirectly; (ii) any proposal by which any Person or group of Persons, other
than PRA or PICA, would acquire a substantial equity interest in PICA or any of
the PICA Subsidiaries, including the right to vote 10% or more of the capital
stock (following a reorganization or conversion) of PICA or any of the PICA
Subsidiaries entitled to vote thereon for the election of directors; (iii) any
acquisition of 10% or more of the assets of PICA or any of the PICA
Subsidiaries, other than in the ordinary course of business; (iv) any
acquisition in excess of 10% of the outstanding capital stock (following a
reorganization or conversion) of PICA or any of the PICA Subsidiaries, other
than as contemplated by this Agreement;
(v) any acquisition of control (as defined under the Insurance Laws) of PICA or
any PICA Subsidiary; or (vi) any transaction similar to the
foregoing.
7.10 Capital
Contribution. On the Closing Date, PRA hereby agrees to pay to
PICA, via wire transfer of immediately available funds, a capital contribution
in the amount of $15,000,000 (the “Capital
Contribution”).
ARTICLE
8
CONDITIONS
PRECEDENT
8.1 Conditions to Each Party’s
Obligation. The respective obligation of each party to
consummate the transactions contemplated by the Plan of Conversion and this
Agreement shall be subject to the satisfaction at or prior to the Effective Time
of the following conditions:
(a) The
Plan of Conversion and this Agreement and the transactions contemplated by this
Agreement shall have been approved and adopted by the requisite affirmative vote
of the Eligible Members of PICA entitled to vote thereon; and
(b) The
Plan of Conversion and the Amended and Restated Articles shall have been
approved by the Director of the Division prior to or on the Closing Date;
and
(c) All
approvals of Governmental Authorities required to consummate the transactions
contemplated by this Agreement shall have been obtained and shall remain in full
force and effect and all statutory waiting periods in respect thereof shall have
expired, (all such approvals and the expiration of all such waiting periods
being referred to in this Agreement as the “Requisite Regulatory
Approvals”). Without limiting the generality of the
foregoing: (i) the HSR Act Report shall have been submitted to
the Premerger Notification Agencies, and the waiting period under the HSR Act
shall have expired or notice of early termination of the waiting period shall
have been received; and (ii) the Plan of Conversion, the Amended and
Restated Articles, the transfer of ownership of PICA and the PICA Subsidiaries
to PRA and the Capital Contribution to be made to PICA shall have been approved
by the Insurance Regulators, to the extent such approvals are required;
and
(d) No
order, injunction or decree issued by any Governmental Authority of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Plan of Conversion or any of the transactions contemplated by this
Agreement shall be in effect. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits, materially restricts or makes illegal
consummation of the Plan of Conversion, including the transactions contemplated
by this Agreement.
8.2 Conditions to Obligation of
PRA. The obligation of PRA to consummate the transactions
contemplated by the Plan of Conversion and this Agreement is also subject to the
satisfaction or waiver by PRA at or prior to the Effective Time of the following
conditions:
(a) PICA
shall have performed in all material respects all material obligations required
to be performed by it under this Agreement at or prior to the Closing Date, and
PRA shall have received a certificate signed on behalf of PICA by the Chief
Executive Officer and the Chief Financial Officer of PICA to such
effect;
(b) The
representations and warranties of PICA contained in Article 4 of this Agreement
shall be true and correct on and as of the Closing Date without giving effect to
any limitation as to "materiality" or "Material Adverse Effect" set forth in
such representation and warranties as if made on and as of such date (except to
the extent that any such representation or warranty has by its terms been made
as of a specific date in which case such representation and warranty shall have
been true and correct as of such specific date); provided, however, that if
the failure of any such representations and warranties to be true and correct on
and as of the Closing Date, individually or in the aggregate, has not resulted
in a Material Adverse Effect on PICA and the PICA Subsidiaries, taken as a
whole, the foregoing condition shall be deemed to have been fulfilled, and PRA
shall have received a certificate signed on behalf of PICA by the Chief
Executive Officer and Chief Financial Officer of PICA to such
effect;
(c) PICA
or the PICA Subsidiaries, taken as a whole, shall not have suffered a Material
Adverse Effect and there shall have been no occurrence, circumstance or
combination thereof (whether arising on, prior to, or after the date hereof),
including litigation pending or threatened, which, as of the Closing Date, is
reasonably likely to result in a Material Adverse Effect on PICA and the PICA
Subsidiaries, taken as a whole, and PRA shall have received a certificate signed
on behalf of PICA by the Chief Executive Officer and Chief Financial Officer of
PICA to such effect; and
(d) PICA
shall have caused an opinion of counsel of Sidley Austin LLP as counsel for
PICA, subject to the limitations and assumptions set forth therein, that neither
PICA nor any of the PICA Subsidiaries will recognize any gain or loss for
federal income tax purposes as a result of the transactions contemplated by the
Plan of Conversion and this Agreement.
8.3 Conditions to Obligation of
PICA. The obligation of PICA to consummate the transactions
contemplated by the Plan of Conversion and this Agreement is also subject to the
satisfaction or waiver by PICA at or prior to the Effective Time (other than
Sections 8.3(c) and (d) which will occur on the date of the Effective Time) of
the following conditions:
(a) PRA
shall have performed in all material respects all material obligations required
to be performed by it under this Agreement at or prior to the Closing Date, and
PICA shall have received a certificate signed on behalf of PRA by the Chief
Executive Officer and the Chief Financial Officer of PRA to such
effect;
(b) PRA
shall have deposited in trust with the Conversion Agent for the benefit of the
Eligible Members (including the Qualified Policyholders) and the DR Former
Members, cash in the amount of the Cash Consideration in accordance with Section
3.2(b) of this Agreement;
(c) PRA
shall have paid to PICA, via wire transfer of immediately available funds, a
portion of the Purchase Price in the amount of $15,000,000 to fund the crediting
of the Conversion Credits to Qualified Policyholders pursuant to the Plan of
Conversion and Section 2.9(a) hereof on the date of the Effective
Time;
(d) PRA
shall have paid to PICA, via wire transfer of immediately available funds, an
amount equal to the Capital Contribution in accordance with Section 7.10;
and
(e) The
representations and warranties of PRA contained in Article 5 of this Agreement
shall be true and correct on and as of the Closing Date without giving effect to
any limitation as to "materiality" or "Material Adverse Effect" set forth in
such representations and warranties as if made on and as of such date (except to
the extent that any such representation or warranty has by its terms been made
as of a specific date in which case such representation and warranty shall have
been true and correct as of such specific date) ; provided, however, that if
the failure of any such representations and warranties to be true and correct on
and as of the Closing Date, individually or in the aggregate, has not resulted
in a Material Adverse Effect on PRA or its Subsidiaries, taken as a whole, the
foregoing condition shall be deemed to have been fulfilled, and PICA shall have
received a certificate signed on behalf of PRA by the Chief Executive Officer
and Chief Financial Officer of PRA to such effect.
ARTICLE
9
TERMINATION AND
AMENDMENT
9.1 Termination. This
Agreement may be terminated at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Plan of
Conversion by the Eligible Members of PICA:
(a) by
mutual consent of PRA and PICA in a written instrument, if the Board of
Directors of PRA and the Board of Directors of PICA so determine to terminate
this Agreement by an affirmative vote of a majority of the members of such
party's entire Board of Directors;
(b) by
either PRA or PICA if (i) any Governmental Authority which must grant a
Requisite Regulatory Approval has denied approval of the Plan of Conversion
(including the transactions contemplated by this Agreement) or approval of the
change of control of PICA or the PICA Insurance Subsidiaries as herein
contemplated, and such denial has become final and nonappealable or any
Governmental Authority of competent jurisdiction shall have issued a final
nonappealable order permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement, and
(ii) the Board of Directors of PRA or the Board of Directors of PICA, as
the case may be, determines to terminate this Agreement by an affirmative vote
of a majority of the members of its entire Board of Directors;
(c) by
either PRA or PICA (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement contained in
this Agreement) if (i) (x) there shall have been a breach of any of the
representations and warranties set forth in this Agreement on the part of the
other party (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth in such representations and warranties),
which breach is not cured within forty-five (45) days following written notice
to the party committing such breach, or which breach, by its nature or timing,
cannot be cured prior to the Closing Date, and (y) such material breach or
breaches of the representations and warranties, individually or in the
aggregate, has resulted in a Material Adverse Effect on such party and its
Subsidiaries taken as a whole and (ii) the Board of Directors of the party
providing the notice determines to terminate this Agreement by an affirmative
vote of a majority of the members of its entire Board of Directors.
(d) by
PRA upon written notice to PICA if (i) the Board of Directors of PICA shall
indicate in writing to PRA that the Board of Directors of PICA is unwilling or
unable to recommend to its Eligible Members that they approve and adopt the Plan
of Conversion, (ii) in the Information Statement distributed by PICA to the
Eligible Members in accordance with the Plan of Conversion the Board of
Directors of PICA does not recommend to the Eligible Members that they approve
and adopt the Plan of Conversion or (iii) after recommending that its Eligible
Members approve and adopt the Plan of Conversion and this Agreement, the Board
of Directors of PICA shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to PRA, without PRA's prior
written consent (each a “PICA
Recommendation Event”), provided that any such notice of termination must
be provided to PICA not later than fifteen (15) Business Days after the later of
the date PRA shall have been advised by PICA in writing of a PICA Recommendation
Event, or such later date as may be agreed upon by PRA and PICA in
writing;
(e) by
PRA upon written notice to PICA, if a PICA Acquisition Event (as defined in
Section 9.5 hereof) has occurred.
(f) by
either PRA or PICA if (i) a meeting of the Eligible Members has been duly held
for purposes of voting on the Plan of Conversion and the transactions
contemplated by this Agreement, and (ii) approval of the Eligible Members of
PICA required for the consummation of the Plan of Conversion shall not have been
obtained by reason of the failure to obtain the required vote at such duly held
meeting of Eligible Members or at any adjournment or postponement
thereof;
(g) by
written notice from PICA to PRA, or from PRA to PICA, if the Closing does not
occur on or before July 1, 2009, for any reason other than breach of this
Agreement by the party giving such notice; or
(h) by
PICA upon the occurrence of a PICA Acquisition Event or PICA Recommendation
Event.
9.2 Effect of
Termination. In the event of termination of this Agreement by either PRA
or PICA as provided in Section 9.1 of this Agreement, (i) this Agreement
shall forthwith become void and have no effect, except that Sections 9.2, 9.5,
10.2, 10.3, 10.4, 10.6, 10.12, 10.13, 10.15 and 10.16 of this Agreement shall
survive any termination of this Agreement, and (ii) neither PRA nor PICA, nor
any of their respective Subsidiaries or any of the officers or directors of any
of them shall have any liability of any nature whatsoever under this Agreement,
or in connection with the transactions contemplated by this Agreement, except as
otherwise provided in Section 9.5 of this Agreement; provided, however, that notwithstanding
anything to the contrary contained in this Agreement, neither PRA nor PICA shall
be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
9.3 Amendment. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto. Subject to the previous sentence and
in compliance with Applicable Law, this Agreement may be amended by the parties
hereto, by action taken or authorized by the Board of Directors of PRA and the
Board of Directors of PICA,
at any
time before or after approval of the matters presented in connection with the
Plan of Conversion and this Agreement by the Eligible Members of PICA; provided, however, that after
any approval of the Plan of Conversion and transactions contemplated by this
Agreement by the Eligible Members of PICA, there may not be, without further
approval of such Eligible Members, any amendment of this Agreement which changes
or otherwise modifies or amends the (i) amount of the Purchase Price, (ii) the
form of the consideration to be delivered to the Eligible Members and the DR
Former Members of PICA under this Agreement, (iii) the Conversion Credits, or
(iv) any other term contained in the Plan of Conversion.
9.4 Extension;
Waiver. At any time prior to the Effective Time, the parties
to this Agreement may, to the extent permitted by Applicable Law, (a) extend the
time for the performance of any of the obligations or other acts of the other
parties to this Agreement, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant
hereto, or (c) waive compliance with any of the agreements or conditions
contained in this Agreement; provided, however, that after
any approval of the Plan of Conversion and the transactions contemplated by this
Agreement by the Eligible Members of PICA, there may not be, without further
approval of such Eligible Members, any extension or waiver of this Agreement or
any portion thereof which changes or otherwise modifies or amends the (i) amount
of the Purchase Price, (ii) the form of the consideration to be delivered to the
Eligible Members and DR Former Members of PICA under this Agreement, (iii) the
Conversion Credits, or (iv) any other term contained in the Plan of
Conversion. Any agreement on the part of a party to this Agreement to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, 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.
9.5 Liquidated Damages;
Termination Fee. Notwithstanding anything to the
contrary contained in this Agreement, in the event that any of the following
events or circumstances shall occur, PICA shall, within ten (10) Business Days
after notice of the occurrence thereof by PRA, pay to PRA the sum equal to
$4,050,000 (which the parties agree and stipulate as reasonable and full
liquidated damages and reasonable compensation for the involvement of PRA in the
transactions contemplated in this Agreement and is not a penalty or forfeiture):
(i) PRA shall terminate this Agreement pursuant to Section 9.1(d) or (e); (ii)
PICA shall terminate this Agreement pursuant to Section 9.1(h); or (iii) if the
Eligible Members of PICA fail to hold the meeting of the Eligible Members of
PICA as required by Section 1.2 of this Agreement within 120 days after the
Director issues his Decision and Order approving the Plan of Conversion and the
Information Statement. For purposes of this Agreement a “PICA Acquisition Event” shall
mean that PICA shall have authorized, recommended, approved, or entered into an
agreement with any Person (other than any of the parties to this Agreement) to
effect an Acquisition Proposal. Upon the making and receipt of such
payment under this Section 9.5, PICA shall have no further obligation of any
kind under this Agreement and PRA shall not have any further obligation of any
kind under this Agreement, except in each case under Section 9.2 of this
Agreement, and no party shall have any liability for any breach or alleged
breach by such party of any provision of this Agreement.
ARTICLE
10
GENERAL
PROVISIONS
10.1 Closing. Subject
to the terms and conditions of this Agreement, the closing of the Plan of
Conversion and the transactions contemplated by this Agreement (the “Closing”) will take place at
the offices of Xxxx & Xxxxxx LLP in Nashville, Tennessee, at 10:00 a.m. on a
date to be mutually agreed upon by PRA and PICA, which shall be no later than
five (5) Business Days after the satisfaction or waiver (subject to Applicable
Law) of the latest to occur of the conditions set forth in Article 8 of this
Agreement, unless extended by mutual agreement of the parties, (such date the
“Closing
Date”).
10.2 Nonsurvival of
Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements of PICA and PRA in this
Agreement or in any instrument delivered by PICA or PRA pursuant to this
Agreement shall survive the Effective Time, except as otherwise provided in
Section 9.2 of this Agreement and except for those covenants and agreements
contained in this Agreement and in any such instrument which by their terms
apply in whole or in part after the Effective Time.
10.3 Expenses. Except
as otherwise expressly provided in this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expense; provided, however, that (a) PRA and
PICA will share the cost of the HSR Act filing fee in
proportion to their relative assets as of December 31, 2007, (b) PICA shall pay
all expenses relating to the approval of the Plan of Conversion by the Director
of the Division, and (c) PRA shall pay all expenses in connection with the
approval of the change of control of PICA contemplated by this Agreement by the
Director of the Division, and any other required filings with any Insurance
Regulator.
10.4 Notices. All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally, by facsimile (with confirmation) followed
by delivery of an original via overnight courier service, mailed by registered
or certified mail (return receipt requested) or delivered by an express courier
(with confirmation) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if
to PRA to:
ProAssurance
Corporation
000
Xxxxxxxxx Xxxxx
Xxxxxxxxxx,
Xxxxxxx 00000
Attention: Chief
Executive Officer, copy to Corporate Secretary
Fax:
(000) 000-0000
with
copies to:
Xxxx
& Xxxxxx LLP
000 X.
00xx
Xxxxxx, Xxxxx 0000
Xxxxxxxxxx,
Xxxxxxx 00000
Attention: Xxxx
X. Xxxxxxxxxx, Esq.
Fax:
(000) 000-0000
(b) if
to PICA, to:
Podiatry
Insurance Company of America
000
Xxxxxxxx Xxxxx
Xxxxxxxxx,
XX 00000
Attention: Chief
Executive Officer
Fax:
(000) 000-0000
with
copies to:
Sidley
Austin LLP
Xxx Xxxxx
Xxxxxxxx
Xxxxxxx,
XX 00000
Attention:
Xxxxx X. Xxxxxxx, Esq.; Xxxx X. Xxxxxx, Esq.
Fax:
(000) 000-0000
and
Xxxxx,
Xxxxxxx and Xxxxx
0000 Xxxx
Xxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx,
XX 00000
Fax:
(000) 000-0000
Attention: Xxxxxx
Xxxxxx, Esq,
10.5 Further
Assurances. Prior to the Closing, at the reasonable request of
any party to this Agreement, the other parties shall execute, acknowledge and
deliver such other documents and/or instruments as may be reasonably required by
the requesting party to carry out the purposes of this Agreement. In
the event any party to this Agreement shall be involved in litigation,
threatened litigation or governmental inquiries with respect to a matter covered
by this Agreement, every other party to this Agreement shall also make available
to such party, at reasonable times and subject to the reasonable requirements of
its own businesses, such of its personnel as may have information relevant to
such matters, provided that such party shall reimburse the providing party for
its reasonable costs for employee time incurred in connection therewith if more
than one business day is required.
10.6 Specific Performance;
Remedies Cumulative. Each party acknowledges and agrees that
the breach of this Agreement would cause irreparable damage to the other party
hereto and that neither party will have an adequate remedy at
law. Therefore, the obligations of PICA and PRA under this Agreement
shall be enforceable by a decree of specific performance issued by any court of
competent jurisdiction, and appropriate injunctive relief may be applied for and
granted in connection therewith. Such remedies shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
10.7 Presumptions. It
is expressly acknowledged and agreed that all parties have been represented by
counsel and have participated in the negotiation and drafting of this Agreement,
and that there shall be no presumption against any party on the ground that such
party was responsible for preparing this Agreement or any part of
it.
10.8 Exhibits and
Schedules. Each of the Exhibits and Schedules referred to in,
and/or attached to, this Agreement is an integral part of this Agreement and is
incorporated in this Agreement by this reference.
10.9 Interpretation;
Conflict. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. 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. Whenever
the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation”. No
provision of this Agreement shall be construed to require PRA, PICA or any of
their respective Subsidiaries or Affiliates to take any action which would
violate any Applicable Law, rule or regulation. In the event of any
conflict between the terms of this Agreement and the Plan of Conversion, the
terms of the Plan of Conversion shall control.
10.10 Counterparts. This
Agreement may be executed in counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
10.11 Entire
Agreement. This Agreement (including the documents and the
instruments referred to in this Agreement) and the Confidentiality Agreement
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement.
10.12 Governing
Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law principles, except that the Plan of Conversion shall
be effected in accordance with and governed by the laws of the State of
Illinois, and the insurance laws of the State of Illinois as they relate to PICA
shall govern to the extent the application of such laws would be inconsistent
with or in contravention of the laws of the State of Delaware.
10.13 Severability. Any
term or provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as
to be unenforceable, the provision shall be interpreted to be only so broad as
is enforceable.
10.14 Publicity. PRA
and PICA shall develop a joint communications plan and each party shall (i)
ensure that all press releases and other public statements and communications
with
respect
to this Agreement and the transactions contemplated hereby shall be consistent
with such joint communications plan and (ii) unless otherwise required by
Applicable Law or by obligations pursuant to any listing agreement with or rules
of the NYSE, consult with each other for a reasonable time before issuing any
press release or otherwise making any public statement or communication
(including any communications that would require a filing with the SEC), and
mutually agree upon any such press release or any such public statement or
communication, with respect to this Agreement or the transactions contemplated
hereby. In addition to the foregoing, unless otherwise required by Applicable
Law or by obligations pursuant to any listing agreement with or rules of the
NYSE, neither PRA nor PICA shall issue any press release or otherwise make any
public statement or disclosure concerning the other party or the other party’s
business, financial conditions or results of operations without the consent of
the other party.
10.15 Assignment; Third Party
Beneficiaries. Neither this Agreement nor any of the rights,
interests or obligations shall be assigned by any of the parties to this
Agreement (whether by operation of law or otherwise) without the prior written
consent of the other parties to this Agreement. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and
assigns. Except as otherwise specifically provided in Sections 2.9,
3.2(b), 3.2(d) and 7.6, this Agreement (including the documents and instruments
referred to in this Agreement) is not intended to confer upon any person other
than the parties to this Agreement any rights or remedies under this
Agreement.
10.16 Definitions.
(a) The
following terms, as used in this Agreement, have the meanings that
follow:
“Affiliate” means with respect
to any specified Person, any other Person that at the time of determination
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such specified
Person.
“Amended and Restated Articles”
means the articles of incorporation of PICA amended and restated at the
Effective Time and in substantially the form attached as Exhibit D to this
Agreement.
“Amended and Restated Bylaws”
means the bylaws of PICA as amended and restated at the Effective Time and in
substantially the form attached as Exhibit E to this Agreement.
“Applicable Law” means all
laws, published rules, statutes, regulations, policies and codes and judgments,
injunctions, orders, decrees, licenses, permits and all other requirements of
Governmental Authorities applicable to the Person, place and situation in
question.
“Board of Directors” means the
board of directors (or similar governing body) of PICA or PRA, as
applicable.
“Business Day” means any day
that is not a Saturday, or Sunday or other day on which commercial banks in the
States of Illinois, Tennessee or Alabama are required or authorized to be
closed.
“Code” means the United States
Internal Revenue Code of 1986, as amended.
“Control” means, as to any
Person, the power to direct or cause the direction of the management and polices
of such Person, whether through the ownership of voting securities, by contract
or otherwise. The terms “Controlled by”, “under common Control with”
and “Controlling” shall have correlative meanings.
“Decision and Order” has the
meaning specified in the Plan of Conversion.
“DR Former Members” means any
former Member of PICA that, according to the books and records of PICA, has,
within the two years immediately preceding the date the Plan of Conversion is
adopted by PICA’s Board of Directors, (a) terminated its policy due to such
Member’s retirement or disability and (b) purchased or earned an extended
reporting endorsement (tail coverage).
“Effective Date Filing” has
the meaning specified in the Plan of Conversion.
“Eligible Member” means each
Member eligible under the Plan of Conversion to receive consideration in
exchange for such Member’s Membership Interests.
“Employee Plan” means any
“employee benefit plan,” as defined in Section 3(3) of ERISA; any employment,
severance or similar service agreement, plan, arrangement or policy; any other
plan or arrangement providing for compensation, bonuses, profit-sharing, stock
option or other equity-related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance (including any self-insured
arrangements), medical, dental or vision benefits, disability or sick leave
benefits, life insurance, employee assistance program, workers’ compensation,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, insurance or medical
benefits); or any loan; in each case including plans or arrangements, both
written and oral, covering or extended to any current or former director,
employee or independent contractor.
“Environmental Laws” means any
federal, state, local or foreign law (including common law) treaty, judicial
decision, regulation, rule, judgment, order, decree, injunction, permit or
governmental restriction or requirement in effect on the date hereof relating to
protection of the environment or to pollutants, contaminants, wastes or
chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substances, wastes or materials.
“Environmental Permits” means,
with respect to any Person, all permits, licenses, franchises, certificates,
approvals and other similar authorizations of Governmental Authorities required
by Environmental Laws and affecting, or relating in any way to, the business of
such Person or any of such Person’s Subsidiaries, as currently
conducted.
“Governmental Authority” means
any United States federal, state or local or any supra-national or non-U.S.
governmental, political subdivision, governmental, regulatory or
administrative
authority, instrumentality, agency, body or commission, self-regulatory
organization or any court, tribunal, or judicial or arbitral body.
“Insurance Laws” means all
Applicable Laws applicable to the business of insurance and the regulation of
insurance holding companies, whether domestic or foreign, and all applicable
orders and directives of Governmental Authorities and market conduct
recommendations resulting from market conduct examinations of Insurance
Regulators.
“Insurance Regulators” means
all Governmental Authorities regulating the business of insurance under the
Insurance Laws.
“Knowledge of PICA” means the
actual knowledge of any person listed on Exhibit F.
“Lien” means, with respect to
any property or asset (real or personal, tangible or intangible), any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any property or
asset that it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
“Material Adverse Effect”
means, with respect to PICA and PRA, as the case may be, a material adverse
effect on the business, assets, properties, operations, or condition (financial
or otherwise) of such party and its Subsidiaries taken as a whole; provided that
any adverse change or effect arising out of or resulting from or attributable to
the following shall be excluded in any determination of Material Adverse Effect:
(i) any circumstance, change or effect (including international events such as
acts of terrorism or war) affecting generally companies operating in the medical
malpractice insurance business; (ii) any circumstance, change or effect
affecting generally the United States or world economy or capital markets
generally, including changes in interest or exchange rates; (iii) changes or
prospective changes in laws, rules or regulations or accounting or actuarial
practices (iv) the execution or announcement of or the consummation of the
transactions contemplated by this Agreement or the Plan of Conversion (including
the adverse effect of any loss or threatened loss of, or disruption or
threatened disruption in, any customer, reinsurer, policyholder, supplier,
professional association and/or vendor relationships or loss of personnel
resulting from such execution, announcement or consummation), (v) actions taken
or omitted by such party at the direction of, or with the prior written consent
of, the other party, or (vi) the effect of any action taken by the other party
or its Affiliates with respect to the transactions contemplated by this
Agreement. For the purposes of the foregoing, without limiting the
exceptions set forth in clauses (i) through (vi) above, a Material Adverse
Effect shall (a) be conclusively presumed to have occurred with respect to PICA
and any adverse change or effect that results, or reasonably could be expected
to result, in a reduction of more than $10 million in the equity of PICA
calculated in accordance with GAAP at and as of June 30, 2008, (b) be
conclusively presumed not to have occurred with respect to PICA and any adverse
change or effect that does not result, or reasonably could not be expected to
result, in a reduction of more than $10 million in the equity of PICA calculated
in accordance with GAAP at and as of June 30, 2008.
“Member” means, as of any date
of determination, a Person who, in accordance with the records of PICA, PICA’s
articles of incorporation and bylaws, and Applicable law, is a member of PICA as
of such date.
“Membership Interest” means all
policyholders’ rights as members arising prior to the Conversion under the
bylaws of PICA or otherwise under Applicable Law. These include the
right to vote and to participate in any distribution of surplus in the event
that PICA is liquidated. The term “Membership Interest” does not
include rights expressly conferred upon the policyholders by their policies or
contract (other than any right to vote), such as the right to any declared
policy dividends.
“Permitted Lien” means any
Liens included in the PICA Disclosure Schedules.
“Person” means an individual,
corporation, partnership (general or limited), limited liability company,
association, trust or other entity or organization, including any Governmental
Authority.
“Qualified Policyholders” has
the meaning set forth in the Plan of Conversion.
“Subsidiary” of any Person
means any corporation, general or limited partnership, joint venture, limited
liability company, limited liability partnership or other Person that is a legal
entity, trust or estate (i) where such Person has the right to elect a majority
of the board of directors (or a majority of another body performing similar
functions) of such corporation or other Person, whether through ownership of
voting securities or interests, by exercising of contractual rights or
otherwise, or (ii) of which (or in which ) more than 50% of the (a) voting
capital stock of such corporation or other Person, (b) interest in the capital
or profits of such partnership, joint venture or limited liability company or
(c) the beneficial interest in such trust or estate, is at the time of
determination directly or indirectly owned or controlled by such
Person.
(b) Set
forth below is an index to the definitions set forth in this
Agreement.
|
Term
|
Section
|
|
215
ILCS 5/59.1
|
1.1
|
|
Acquisition
Proposal
|
7.9(c)
|
|
Affiliate
|
10.16(a)
|
|
Agreement
|
Recitals
|
|
Amended
and Restated Articles
|
10.16(a)
|
|
Amended
and Restated Bylaws
|
10.16(a)
|
|
Applicable
Law
|
10.16(a)
|
|
Board
of Directors
|
10.16(a)
|
|
Burdensome
Condition
|
7.1(a)
|
|
Business
Day
|
10.16(a)
|
|
Capital
Contribution
|
7.10
|
|
Cash
Consideration
|
2.2
|
|
Claim
|
7.6(b)
|
|
Closing
|
10.1
|
|
Closing
Date
|
10.1
|
|
Closing
Date PICA Disclosure Schedule
|
7.7(b)
|
|
COBRA
|
4.13(k)
|
|
Code
|
10.16(a)
|
|
Common
Stock
|
Recitals
|
|
Confidentiality
Agreement
|
7.2(a)
|
|
Consideration
Notices
|
3.2(d)
|
|
Consolidated
Financial Statements
|
4.7(a)
|
|
Consulting
Agreement
|
2.6
|
|
Continuing
Employees
|
7.5(a)
|
|
Control
|
10.16(a)
|
|
Conversion
|
Recitals
|
|
Conversion
Agent
|
3.1
|
|
Conversion
Credits
|
2.9(a)
|
|
Conversion
Fund
|
3.2(b)
|
|
Credit
Account
|
2.9(c)
|
|
Decision
and Order
|
10.16(a)
|
|
Director
|
1.1
|
|
Distribution
List
|
3.2(c)
|
|
Division
|
1.1
|
|
DR
Former Members
|
10.16(a)
|
|
Effective
Date Filing
|
10.16(a)
|
|
Effective
Time
|
1.5
|
|
Eligible
Member
|
10.16(a)
|
|
Employee
Plan
|
10.16(a)
|
|
Environmental
Laws
|
10.16(a)
|
|
Environmental
Permits
|
10.16(a)
|
|
ERISA
|
4.13(a)
|
|
Exchange
Act
|
2.7
|
|
GAAP
|
4.7(b)
|
|
Governmental
Authority
|
10.16(a)
|
|
HIPAA
|
4.13(k)
|
|
HSR
Act
|
4.5(c)
|
|
HSR
Act Report
|
4.5(c)
|
|
Indemnified
Parties
|
7.6(b)
|
|
Indemnified
Liabilities
|
7.6(b)
|
|
Information
Statement
|
1.3
|
|
Insurance
Laws
|
10.16(a)
|
|
Insurance
Premium Amount
|
7.6(a)
|
|
Insurance
Regulators
|
10.16(a)
|
|
Intellectual
Property
|
4.18(a)
|
|
IRS
|
4.12(a)
|
|
June
30, 2008 Statements
|
4.21(d)
|
|
Knowledge
of PICA
|
10.16(a)
|
|
Lien
|
10.16(a)
|
|
Losses
|
7.6(b)
|
|
Material
Adverse Effect
|
10.16(a)
|
|
Member
|
10.16(a)
|
|
Membership
Interest
|
10.16(a)
|
|
PACO
Permits
|
4.2(b)
|
|
Permits
|
4.2(b)
|
|
Permitted
Lien
|
10.16(a)
|
|
Person
|
10.16(a)
|
|
PICA
|
Recitals
|
|
PICA
Acquisition Event
|
9.5
|
|
PICA
Actuarial Analyses
|
4.21(e)
|
|
PICA
Actuaries
|
4.21(e)
|
|
PICA
Contract
|
4.16(a)
|
|
PICA
Disclosure Schedule
|
4
|
|
PICA
Employees
|
7.5(a)
|
|
PICA
Employee Plans
|
4.13(a)
|
|
PICA
Holding Company Act Report
|
4.6(c)
|
|
PICA
Insurance Policies
|
4.11(a)
|
|
PICA
Insurance Subsidiaries
|
4.2(b)
|
|
PICA
Permits
|
4.1(b)
|
|
PICA
Personal Property Leases
|
4.20(b)
|
|
PICA
Real Property
|
4.19(a)
|
|
PICA
Real Property Leases
|
4.19(a)
|
|
PICA
Recommendation Event
|
9.1(d)
|
|
PICA
Regulatory Agreement
|
4.15(a)
|
|
PICA
Reinsurance Treaties
|
4.21(c)
|
|
PICA
Reserves
|
4.21(d)
|
|
PICA
SAP Statements
|
4.6(a)
|
|
PICA
Subsidiaries
|
4.2(a)
|
|
Plan
of Conversion
|
Recitals
|
|
Potential
Acquiror
|
7.9(a)
|
|
PRA
|
Recitals
|
|
PRA
SEC Reports
|
5.3(a)
|
|
Premerger
Notification Agencies
|
4.5(c)
|
|
Proposal
|
1.2
|
|
Purchase
Price
|
2.2
|
|
Qualified
Policyholders
|
10.16(a)
|
|
Requisite
Regulatory Approvals
|
8.1(c)
|
|
Retention
Plan
|
7.5(e)
|
|
Sale
|
Recitals
|
|
SAP
|
4.6(b)
|
|
SEC
|
2.7
|
|
Securities
Act
|
5.3(b)
|
|
Shares
|
2.1
|
|
SOX
|
4.7(f)
|
|
Subsidiary
|
10.16(a)
|
|
Tail
Policy
|
7.6(a)
|
|
Tax
or Taxes
|
4.12(a)
|
|
Tax
Return or Tax Returns
|
4.12(a)
|
|
WARN
Act
|
4.14(e)
|
IN
WITNESS WHEREOF, PRA and PICA have caused this Agreement to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
PROASSURANCE
CORPORATION,
a
Delaware corporation
By: /s/ Xxxxxx X.
Xxxxx
Name: Xxxxxx
X. Xxxxx
Title:
President
PODIATRY
INSURANCE COMPANY OF AMERICA, A MUTUAL COMPANY,
an
Illinois mutual insurance company
By: /s/ Xxxxx X.
Xxxxx
Name: Xxxxx
X. Xxxxx, DPM
Title: Chief
Executive Officer
EXHIBIT
A
FORM
OF PLAN OF CONVERSION
The Plan
of Conversion, including exhibits, is filed as a separate Exhibit to this
8-K.
EXHIBIT
B
DIRECTORS
TO BE ELECTED
For PICA and the PICA
Insurance Subsidiary:
W.
Xxxxxxx Xxxxxxx, Chairman
Xxxxxx X.
Xxxxx
Xxxxx X.
Xxxxx
Xxxxxx X.
Xxxxxxxx
Xxxx
Xxxxxxxx
Xxxxxx X.
Xxxx, Xx.
Xxxx
Xxxxx
Xxxxxx X.
Xxxxxx
Xxxx
Xxxxxxx
EXHIBIT
C
FORM
OF CONSULTING AGREEMENT
DRAFT
October
15, 2008
CONSULTING,
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS
CONSULTING, CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (“Agreement”) is made
and entered into as of the [first day of month after Closing], by and between
ProAssurance Corporation, a Delaware corporation (“ProAssurance”),
and _____________________(the “Consultant”).
W
I T N E S S E T H:
WHEREAS,
ProAssurance desires to retain Consultant for the period set forth in this
Agreement to obtain services from the Consultant, and Consultant is willing to
be retained by ProAssurance pursuant to this Agreement; and
WHEREAS,
Consultant acknowledges (i) that Consultant’s expertise will contribute
significantly to the financial success of the business of ProAssurance and
(ii) that the compensation, covenants not to compete and confidentiality
provisions in this Agreement are reasonable.
NOW,
THEREFORE, in consideration of the premises, as well as for other good and
valuable consideration (the receipt and sufficiency of which is hereby
acknowledged), the parties hereby agree as follows:
1. Definitions. Capitalized
terms not otherwise defined in this Agreement shall have the meanings given to
them in the Stock Purchase Agreement dated as of __________________,
by and among ProAssurance, and Podiatry Insurance Company of America
(“PICA”).
2. Consulting
Relationship. ProAssurance hereby retains Consultant to
provide Consulting Services (as defined in Section 3 of this Agreement) for
a term commencing on the date hereof (the “Effective Date”) and ending on that
date that is the earlier of the date this Agreement is terminated
and ______________, 2013 [48 month after the Effective Date] (the
“Expiration Date”).
3. Consulting
Services. Consultant agrees to provide such services to
ProAssurance as may be reasonably requested from time to time by the Chief
Executive Officer of PICA or ProAssurance, consistent with
Consultant’s skills, background and experience. Consultant shall not
be required to devote a specific amount of time each year to the performance of
his duties, but shall spend that amount of time reasonably necessary to
accomplish the assigned tasks (including Board, advisory board and committee
service) faithfully and completely. The services of Consultant as
described above are collectively defined as the “Consulting
Services.”
4. Compensation.
a. In
consideration of Consultant’s Consulting Services and Consultant’s covenants
regarding confidentiality and noncompetition, ProAssurance shall pay
Consultant: (i)
a fee at
closing of $ 50,000; and (ii) a consulting fee payable in 47
consecutive monthly installments of $5,200 each and one final installment
of $5,600, with such installments commencing on the Effective Date
and payable on the first day of each of the next consecutive 47 fiscal months
thereafter (the “Consulting Fee”).
b. ProAssurance
shall reimburse Consultant, within 30 days after Consultant submits expense
receipts to ProAssurance, for all reasonable out-of-pocket travel expenses that
are paid by Consultant in performing the Consulting Services, in accordance with
the reimbursement policies adopted from time to time by
ProAssurance.
c. It
is understood and agreed that Consultant is responsible for all tax
payments. If ProAssurance, in its sole discretion, shall determine
that ProAssurance or any of its subsidiaries has incurred or will incur any
liability to withhold any federal, state or local income or other taxes by
reason of any remuneration payable to Consultant, then ProAssurance may effect
such withholding.
d. With
respect to any compensation paid pursuant to this Agreement,
Consultant shall be permitted to defer compensation pursuant to the
terms of the PICA Deferred Compensation Plan; provided that neither PICA nor
ProAssurance nor any of their respective subsidiaries shall make a matching
contribution with respect to the compensation payable to Consultant under this
Agreement.
5. Right of
Employment. Neither this Agreement nor any action taken or not
taken pursuant to this Agreement shall be construed as giving Consultant any
right to be retained, as an employee or otherwise, by ProAssurance or any of its
subsidiaries.
6. Termination. This
Agreement may be terminated as follows:
a. This
Agreement shall terminate one day after Consultant’s death.
b. ProAssurance
may terminate this Agreement if, by reason of a disability, Consultant has been
unable to perform Consulting Services for a period of 180 consecutive days. For
purposes of this Agreement, "disability" means a serious injury or illness that
requires Consultant to be under regular care of a licensed medical physician and
renders the Consultant incapable of performing the essential function of this
Agreement as determined by the Board of Directors of PICA in good faith and upon
receipt of and in reliance on competent medical advice from one or more
individuals selected by the Board, who are qualified to give professional
medical advice. Consultant will submit to such medical or psychiatric
examinations and tests as such medical professional deems necessary to make any
determination of Consultant’s disability and consent to such medical
professional sharing the results of such examination with a representative of
the Board.
c. If
Consultant is a Podiatric Physician, ProAssurance may terminate this Agreement
if Consultant fails to be an insured of PICA or a ProAssurance subsidiary;
provided that this section shall not apply if the Consultant is no
longer actively engaged in the private practice of Podiatric
Medicine.
d. ProAssurance
may terminate this Agreement for Cause at any time. For purposes of
this Agreement “Cause” shall mean, and this Agreement shall be deemed to have
been terminated for Cause if such termination results from, (i) willful gross
misconduct on the part of Consultant that is materially and demonstrably
injurious to ProAssurance or any of its subsidiaries as determined by the Board
of Directors of ProAssurance; provided however, that no act,
or failure to act, on the part of Consultant shall be considered willful gross
misconduct unless Consultant acted, or failed to act, other than in good faith
and with a reasonable belief that such action, or failure to act, was in the
best interest of ProAssurance and its subsidiaries; or (ii) Consultant
commits any act that constitutes a felony and that results, or is intended to
result, directly or indirectly, in Consultant’s substantial personal gain or
personal enrichment at the expense of ProAssurance or any of its
subsidiaries.
e. Consultant
may terminate this Agreement with cause or without cause at any
time.
Except
for termination upon the death of the Consultant, any termination of this
Agreement by ProAssurance, or by Consultant, shall be communicated by Notice of
Termination to the other party given in accordance with Section 18
hereof. For purposes of this Agreement, a "Notice of Termination" is a
written notice which indicates the specific termination provision in this
Agreement relied upon. The "Date of Termination" means (i)
if this Agreement is terminated by reason of death of the Consultant,
the date of death shall be the Date of Termination; (ii) if this
Agreement is terminated by reason of Disability, the Date of Termination shall
be the date of determination of Disability by the board of directors of
ProAssurance; (iii) if this Agreement is terminated by ProAssurance other than
for death or Disability , the Date of Termination shall be the date
of receipt of the Notice of Termination by Consultant; or (iv) if this Agreement
is terminated by Consultant for any reason other than death, the Date of
Termination shall be date of receipt of the Notice of Termination by
ProAssurance.
7. Compensation Upon
Termination. Upon termination of this Agreement in accordance
with Section 6, ProAssurance shall have no further obligation under this
Agreement to make any payments to Consultant or to bestow any benefits on
Consultant after the Termination Date, other than payments and
benefits accrued and due and payable to Consultant prior to the Termination
Date. Notwithstanding the foregoing, in the event of the death or Disability of
the Consultant, ProAssurance will pay monthly installments that would otherwise
be due to Consultant pursuant to Section 4 from the Date of Termination to the
Expiration Date. Such payment will be made in a lump sum within thirty days
after the Date of Termination; and, in the event of death, the payment will be
made to the estate of Consultant.
8. Confidentiality.
a. Consultant
acknowledges (i) that as a result of Consultant’s prior service as a
director of PICA and Consultant’s engagement by ProAssurance,
Consultant has and will become informed of, and has had and will have access to,
valuable and confidential information of ProAssurance and its subsidiaries
including, but not limited to, trade secrets, technical information, know-how,
plans, specifications, marketing and sales information, claims
handling
information,
investment information, and the identity of policyholders and reinsurers
(collectively, “Confidential Information”), (ii) that the Confidential
Information is the exclusive property of ProAssurance and its subsidiaries, and
(iii) that the Confidential Information is to be held by Consultant in
trust and solely for the benefit of ProAssurance and its
subsidiaries. Accordingly, Consultant shall not at any time
subsequent to the date of this Agreement, use, reveal, report, publish, transfer
or otherwise disclose to any person or entity any of the Confidential
Information without the prior consent of ProAssurance, except to officers and
employees of ProAssurance and its subsidiaries, and other persons or entities
whom ProAssurance agrees are in a contractual or fiduciary relationship with
ProAssurance or any of its subsidiaries. This provision does not
prohibit Consultant from disclosing information which legally is or becomes of
general public knowledge from authorized sources other than
Consultant.
b. If
the Confidential Information known to Consultant or in Consultant’s possession
is subpoenaed, is subject to a demand for production, or is subject to any other
form of legal process, by any judicial, regulatory, administrative, legislative
or governmental authority, or any other person or entity, Consultant agrees to
notify ProAssurance promptly that such subpoena, demand or other legal process
has been received. Consultant agrees to use Consultant’s best
efforts, consistent with the requirements of applicable law, to protect the
Confidential Information from disclosure and to cooperate with ProAssurance and
its subsidiaries in seeking protection from disclosure of the Confidential
Information. If Consultant is required to disclose the Confidential
Information, Consultant agrees, at ProAssurance’s request and expense, to use
Consultant’s best efforts to obtain assurances that the Confidential Information
will be maintained on a confidential basis and not be disclosed to a greater
degree than legally required.
c. Upon
the termination of this Agreement, Consultant shall promptly deliver to
ProAssurance all originals and all copies that are in Consultant’s possession or
control of the following: all customer lists, stockholder lists, lists of names
of beneficial owners, policyholder lists, manuals, letters, notes, notebooks,
reports and all other materials relating to the business of ProAssurance and its
subsidiaries. Consultant shall represent to ProAssurance that
Consultant has complied with the provisions of this Section 8 at the time
the Consultant ceases to be a consultant to ProAssurance.
9. Noncompetition and
Nonsolicitation.
a. During
the term of this Agreement and until the Expiration Date, Consultant agrees that
Consultant shall not, directly or indirectly, engage, participate, or assist in
any business organization by performing services related to the providing of
malpractice insurance to podiatric physicians, chiropractors and
other persons or entities insured by PICA or any of its subsidiaries (the
“Proscribed Activities”) in the states in which PICA or any of its
subsidiaries is then conducting the Proscribed Activities, whether as owner,
part-owner, stockholder, partner, director, officer, trustee, employee, agent,
consultant or in any other capacity, on Consultant’s own behalf or on behalf of
any person or entity. Consultant may make passive investments in a
competitive enterprise of which the voting equity interests are publicly traded,
provided that Consultant’s holdings in such enterprise, together with the
holdings of any
of the
Consultant’s affiliates (as that term is defined in Rule 405 of the Rules under
the Securities Exchange Act of 1934, as amended) do not exceed 3% of the
outstanding voting equity interests of such enterprise.
b. During
the term of this Agreement and until the Expiration Date, Consultant agrees that
Consultant shall not (i) directly or indirectly solicit any person or entity in
the states in which PICA or any of its subsidiaries is then
conducting the Proscribed Activities to purchase insurance products or services
competitive with the Proscribed Activities, (ii) directly or indirectly solicit
any person or entity to purchase or sell insurance products or services relating
to the Proscribed Activities, or (iii) recruit or otherwise solicit or induce
any person who is at the time an employee or consultant with ProAssurance or any
of its subsidiaries to terminate such person’s employment or consulting
relationship with ProAssurance or any of its subsidiaries.
10. Restrictions
Reasonable. The restrictions against competition and
solicitation set forth above are considered by the parties to be reasonable for
the purposes of protecting the business of ProAssurance and its
subsidiaries. If any restriction is found by a court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time, or over too broad a range of activities, or in too large a geographic
area, then that restriction shall be interpreted to extend only over the maximum
period of time, or range of activities, or geographic area, as to which it may
be enforceable.
11. Remedies. Consultant
and ProAssurance acknowledge that ProAssurance and its subsidiaries would not
have an adequate remedy at law for money damages if the covenants contained in
Sections 8 or 9 of this Agreement were not complied with in accordance with
their terms. Because the breach or threatened breach of any of the
covenants in Sections 8 or 9 of this Agreement will result in immediate and
irreparable injury to ProAssurance and its subsidiaries, Consultant agrees that
ProAssurance and its subsidiaries shall be entitled to an injunction restraining
Consultant from violating Sections 8 and 9 of this Agreement to the fullest
extent allowed by law. Nothing in this Agreement shall prohibit
ProAssurance or any of its subsidiaries from pursuing all other legal or
equitable remedies that may be available to it for a breach or threatened
breach, including the recovery of damages.
12. Resignation from PICA Board
of Directors. Consultant hereby resigns as director and
officer, if applicable, of PICA and any of its direct or indirect subsidiaries,
effective upon the Effective Time as defined and contemplated under the Stock
Purchase Agreement. This resignation shall not require acceptance by
PICA or any of its direct or indirect subsidiaries, and shall take effect
automatically upon the Effective Time without any further action on behalf of
the Consultant or PICA or any of its direct or indirect
subsidiaries.
13. Survival. The
provisions of Sections 8, 9, 10, 11, 12 and 18(b) shall survive the termination
of this Agreement and shall inure to the benefit of ProAssurance, its successors
and assigns, and the provisions of Section 7 shall survive the
termination of this Agreement and inure to the benefit of the Consultant, and
its heirs, representative, successors and assigns.
14. Third-Party Agreements and
Rights. Consultant confirms that Consultant is not bound by
any agreement with any other person or entity that would restrict engagement of
Consultant in any business or Consultant’s use or disclosure of
information. Consultant represents that Consultant’s execution of
this Agreement, engagement by ProAssurance and performance of duties pursuant to
this Agreement will not violate any obligations Consultant may have to any other
person or entity. Consultant shall not disclose or make use of
information in violation of any agreements with or rights of any other person or
entity.
15. Further
Assurances. Consultant and ProAssurance agree to execute,
acknowledge, deliver and file, or cause to be executed, acknowledged, delivered
and filed, all further instruments, agreements or documents as may be necessary
to consummate the transactions provided for in this Agreement and to do all
further acts necessary to carry out the purpose and intent of this
Agreement.
16. No
Waiver. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the party
charged with the waiver or estoppel. No written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of the term or condition for the future or as to any act
other than that specifically waived. The waiver by a party of any
other party’s breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach, and the failure of any party to
exercise any right or remedy shall not operate or be construed as a waiver or
bar to the exercise of such right or remedy upon the occurrence of any
subsequent breach. No delay on the part of a party in exercising a
right, power or privilege hereunder shall operate as a waiver
thereof. No waiver on the part of a party of a right, power or
privilege, or a single or partial exercise of a right, power or privilege, shall
preclude further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of this Agreement are cumulative
and are not exclusive of the rights or remedies that a party may otherwise have
at law or in equity.
17. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to its
conflicts of law principles.
18. Notices. Notices
required or permitted to be given under this Agreement shall be in writing and
shall be deemed given if delivered personally, telecopied (with confirmation),
mailed by registered or certified mail (return receipt requested), or delivered
by an express courier (with confirmation), to the parties at the addresses below
(or at such other address for a party as shall be specified by like
notice):
a. If
to ProAssurance:
ProAssurance
Corporation
000
Xxxxxxxxx Xxxxx
Xxxxxxxxxx,
Xxxxxxx 00000
Attention: Chief
Executive Officer
with copy
to Corporate
Secretary
Fax:
(000) 000-0000
b. If
to Consultant:
19. Assignment.
a. This
Agreement and all of Consultant’s rights, duties and obligations under this
Agreement are personal in nature and shall not be assignable by the
Consultant. A purported assignment shall not be valid or binding on
ProAssurance.
b. This
Agreement shall inure to the benefit of and be legally binding upon all
successors and assigns of ProAssurance. ProAssurance will require a
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
ProAssurance by agreement in form and substance satisfactory to the Consultant,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that ProAssurance would be required to perform it if no such
succession had taken place. For purposes of this Section 18,
“ProAssurance” shall mean ProAssurance as defined above and all successors to
its business or assets that execute and deliver the agreement provided for in
this Section 18 or that otherwise become bound by the terms and provisions
of this Agreement by operation of law.
20. Attorneys’
Fees. If litigation is brought concerning this Agreement, the
prevailing party shall be entitled to receive from the non-prevailing party, and
the non-prevailing party shall upon final judgment and the expiration of all
appeals immediately pay upon demand all reasonable attorneys’ fees and expenses
of the prevailing party.
21. Entire
Agreement. This Agreement constitutes the entire understanding
of the parties and supersedes all prior discussions, negotiations, agreements
and understandings, whether oral or written, with respect to its subject
matter. This Agreement may be modified only by a written instrument
properly executed by Consultant and ProAssurance.
22. Severability. If
any one or more of the provisions of this Agreement is held invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be unimpaired,
and the invalid, illegal or unenforceable provision shall be replaced by a
mutually acceptable valid, legal and enforceable provision which comes closest
to the intent of the parties.
23. Counterparts. This
Agreement may be executed by the parties in separate counterparts, each of which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute one and the same instrument.
The
parties have executed this Agreement effective as of the day and year first
written above.
PROASSURANCE
CORPORATION CONSULTANT
By:
___________________________ ______________________________
Name:
______________________________
Taxpayer Identification
Number
EXHIBIT
D
AMENDED
AND RESTATED ARTICLES
Attached
as Exhibit B to the Plan of Conversion.
EXHIBIT
E
AMENDED
AND RESTATED BYLAWS
Attached
as Exhibit C to the Plan of Conversion.
EXHIBIT
F
KNOWLEDGE
OF PICA
Xx. Xxxxx
X. Xxxxx
Xxxx X.
Xxxxxxx
X.
Xxxxxxxx Xxxx
Xxxx X.
Xxxxxxx
