EXHIBIT C
March 9, 2008
The Board of Directors
National Atlantic Holdings Corporation
0 Xxxxxxx Xxx
Xxxxxxxx, Xxx Xxxxxx 00000
Members of the Board of Directors:
We understand that National Atlantic Holdings Corporation ("NAHC") proposes to
enter into an Agreement and Plan of Merger (the "Agreement") among NAHC,
Palisades Safety and Insurance Association ("Palisades") and Apollo Holdings,
Inc., a wholly owned subsidiary of Palisades ("Merger Sub"), pursuant to which,
among other things, Merger Sub will merge with and into NAHC (the "Merger") and
each outstanding share of the common stock, no par value, of NAHC ("NAHC Common
Stock") will be converted into the right to receive $6.25 in cash (the
"Consideration"). The terms and conditions of the Merger are more fully set
forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of NAHC Common Stock of the Consideration to be received by
such holders in the Merger.
In connection with this opinion, we have, among other things:
(i) reviewed certain publicly available business and financial
information relating to NAHC;
(ii) reviewed certain internal financial and operating information
with respect to the business, operations and prospects of NAHC
furnished to or discussed with us by the management of NAHC,
including certain financial forecasts relating to NAHC
prepared by the management of NAHC (such forecasts, "NAHC
Forecasts");
(iii) discussed with members of senior management of NAHC the past
and current business, operations, financial condition and
prospects of NAHC, including the following:
o assessments of the management of NAHC as to the liquidity
needs of, and financing alternatives and other capital
resources available to, NAHC,
o NAHC's procedures related to bodily injury claims handling
and reserving which NAHC's management determined were not
applied consistently as "best practices" throughout the
NAHC's organization and resulted in a significant increase
in loss reserves for 2007, and
o the fact that A.M. Best had placed the financial strength
ratings of NAHC under review for a possible downgrade and
management's assessment of the likelihood that, if the
Merger were not consummated, A.M. Best would downgrade
such ratings and the potential adverse effects such a
downgrade would have on NAHC's ability to raise capital
and continue to operate at current levels;
(iv) reviewed the trading history for NAHC Common Stock and a
comparison of that trading history with the trading histories
of other companies we deemed relevant;
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The Board of Directors
National Atlantic Holdings Corporation
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(v) compared certain financial and stock market information of
NAHC with similar information of other companies we deemed
relevant;
(vi) compared certain financial terms of the Merger to financial
terms, to the extent publicly available, of other transactions
we deemed relevant;
(vii) considered the fact that NAHC publicly announced that it would
explore its strategic alternatives and the results of our
efforts to solicit, at the direction of NAHC, indications of
interest and definitive proposals from third parties with
respect to a possible acquisition of NAHC;
(viii) reviewed a draft, dated March 9, 2008, of the Agreement (the
"Draft Agreement"), including the provisions set forth therein
for the payment by Palisades of a reverse break-up fee in
certain events (collectively, the "Reverse Break-Up Fee"); and
(ix) performed such other analyses and studies and considered such
other information and factors as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon, without independent
verification, the accuracy and completeness of the financial and other
information and data publicly available or provided to or otherwise reviewed by
or discussed with us and have relied upon the assurances of the management of
NAHC that they are not aware of any facts or circumstances that would make such
information or data inaccurate or misleading in any material respect. With
respect to the NAHC Forecasts, we have been advised by NAHC, and have assumed,
that such forecasts have been reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the management of NAHC
as to the future financial performance of NAHC. We are not actuaries and our
services did not include actuarial determinations or evaluations by us or any
attempt by us to evaluate any actuarial assumptions. In that regard, we express
no opinion with respect to the adequacy of NAHC's liability reserve policies or
levels and have relied upon the estimates and judgments of the management of
NAHC with respect to the adequacy of the reserves established in respect of
contingent liabilities or losses of NAHC and have assumed such adequacy for
purposes of our opinion. We have not made or been provided with any independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of NAHC, nor have we made any physical inspection of the properties or assets of
NAHC. We have not evaluated the solvency of NAHC or Palisades under any state or
federal laws relating to bankruptcy, insolvency or similar matters. We have
assumed, at NAHC's direction, that the Merger will be consummated in accordance
with its terms, without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the necessary
governmental, regulatory and other approvals, consents, releases and waivers for
the Merger, no delay, limitation, restriction or condition will be imposed that
would have an adverse effect on NAHC or the contemplated benefits of the Merger.
We have also assumed, at NAHC's direction, that the final executed Agreement
will not differ in any material respect from the Draft Agreement reviewed by us.
We express no view or opinion as to any terms or other aspects of the Merger
(other than the Consideration to the extent expressly specified herein),
including, without limitation, the form or structure of the Merger, including
the Reverse Break-Up Fee, the amounts thereof and the decision of NAHC to agree
to such terms. Our opinion is limited to the fairness, from a financial point of
view, of the
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The Board of Directors
National Atlantic Holdings Corporation
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Consideration to be received by the holders of NAHC Common Stock and no opinion
or view is expressed with respect to any consideration received in connection
with the Merger by the holders of any other class of securities, creditors or
other constituencies of NAHC. In addition, no opinion or view is expressed with
respect to the fairness of the amount, nature or any other aspect of the
compensation to any of the officers, directors or employees of any party to the
Merger, or class of such persons, relative to the Consideration. Furthermore, no
opinion or view is expressed as to the relative merits of the Merger in
comparison to other strategies or transactions that might be available to NAHC
or in which NAHC might engage or as to the underlying business decision of NAHC
to proceed with or effect the Merger. In addition, we express no opinion or
recommendation as to how any shareholder should vote or act in connection with
the Merger.
We have acted as financial advisor to NAHC in connection with the Merger and
will receive a fee for our services, a portion of which is payable in connection
with the rendering of this opinion and a significant portion of which is
contingent upon consummation of the Merger. In addition, NAHC has agreed to
reimburse our expenses and indemnify us against certain liabilities arising out
of our engagement.
We and our affiliates comprise a full service securities firm and commercial
bank engaged in securities trading and brokerage activities and principal
investing as well as providing investment, corporate and private banking, asset
and investment management, financing and financial advisory services and other
commercial services and products to a wide range of corporations and
individuals. In the ordinary course of our businesses, we and our affiliates may
actively trade the debt, equity or other securities or financial instruments
(including bank loans or other obligations) of NAHC, Palisades and certain of
their respective affiliates for our own account or for the accounts of
customers, and accordingly, we or our affiliates may at any time hold long or
short positions in such securities or financial instruments.
We and our affiliates in the past have provided, currently are providing, and in
the future may provide certain investment banking, commercial banking and other
financial services to Palisades or its affiliates and have received or in the
future may receive compensation for the rendering of these services, including
providing certain cash management and trading services to one such affiliate.
It is understood that this letter is for the benefit and use of the Board of
Directors of NAHC in connection with and for purposes of its evaluation of the
Merger.
Our opinion is necessarily based on financial, economic, monetary, market and
other conditions and circumstances as in effect on, and the information made
available to us as of, the date hereof. It should be understood that subsequent
developments may affect this opinion, and we do not have any obligation to
update, revise, or reaffirm this opinion. The issuance of this opinion was
approved by our Fairness Opinion Review Committee.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, we are of the opinion on the date hereof that the
Consideration to be received in the Merger by holders of NAHC Common Stock is
fair, from a financial point of view, to such holders.
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The Board of Directors
National Atlantic Holdings Corporation
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Very truly yours,
/s/ Banc of America Securities LLC
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BANC OF AMERICA SECURITIES LLC
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