EXHIBIT 8(a)
[On Xxxx & Xxxxxx LLP Letterhead]
June 16, 2005
Board of Directors
ProAssurance Corporation
000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
RE: AGREEMENT AND PLAN OF MERGER DATED FEBRUARY 28, 2005 BETWEEN
PROASSURANCE CORPORATION ("PRA"), NCP MERGER CORPORATION
("NEWCO"), AND NCRIC GROUP, INC. ("NCRIC") (THE "AGREEMENT")
Gentlemen:
This letter is in response to your request pursuant to Section 6.2 of the
Agreement that we provide you our opinions with respect to certain of the
federal income tax consequences of consummating the transactions set forth in
the Agreement. (Capitalized terms which are not otherwise defined in this letter
shall have the meanings ascribed to such terms in the Agreement.)
In rendering our opinions, we have relied upon the facts presented to us
in (i) the Agreement and (ii) the Proxy Statement and Prospectus filed with the
Securities and Exchange Commission as part of PRA's Registration Statement on
Form S-4, including the exhibits thereto (the "Proxy Statement-Prospectus").
Additionally, we have relied upon the written representations of management of
NCRIC and management of PRA which representations we have neither investigated
nor verified, (together with, the Agreement and Proxy Statement-Prospectus
collectively referred to as the "Reviewed Documents"). Capitalized terms used
and not defined herein have the meaning given to them in the Agreement. We have
also assumed that: (i) the transactions contemplated by the Agreement will be
consummated in accordance therewith and as described in the Proxy
Statement-Prospectus (and no transaction or condition described therein and
affecting this opinion will be waived by any party); (ii) the Merger will
qualify as a statutory merger under the DGCL, as amended; and (iii) the Merger
will be reported by PRA and NCRIC on their respective federal income tax returns
in a manner consistent with the opinions set forth below.
In our examination of the Reviewed Documents, we have assumed, with your
consent, that all documents submitted to us as photocopies (including without
limitation the Agreement) reproduce the originals thereof, that such originals
are authentic, that all such documents have
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June 16, 2005
Page 2
been or will be duly executed to the extent required, and that all statements
set forth in such documents are accurate and complete and will be accurate and
complete as of the Effective Time of the Merger.
PROPOSED TRANSACTION
Based solely upon our review of the Reviewed Documents, we understand that
the proposed transaction will occur as follows:
PRA is a Delaware corporation based in Birmingham, Alabama, and currently
is a holding company for several corporations engaged in the business of
providing medical professional liability insurance and personal lines insurance.
NCRIC is a Delaware corporation based in Washington, D.C., that is also engaged
in the business of providing, through its subsidiaries, medical professional
liability insurance and practice management and financial services to physicians
and other health care providers.
The purpose of the Merger is to enable PRA to acquire the assets and
business of NCRIC through the merger of NCRIC into NEWCO, which is a newly
formed, wholly-owned subsidiary of PRA. After the Merger, NCRIC's operations and
business will be continued by PRA. NCRIC and PRA have represented in the S-4
filing related to the Merger that each has a significant business purpose for
the Merger. Under the Agreement, NCRIC will merge with and into NEWCO.
Immediately upon the Effective Time, NCRIC's corporate existence will cease, and
NEWCO will be the surviving corporation. As the surviving corporation, XXXXX
will succeed to all of the assets and liabilities of NCRIC. As a result of the
Merger, NEWCO will change its name to "NCRIC Corporation."
By virtue of the Merger, each holder of record of the NCRIC Common Stock
as of the Effective Time shall have the right to receive PRA Common Stock, the
number of which shares shall be determined by the Exchange Ratio. The Exchange
Ratio shall be subject to change if the Market Value of a share of PRA Common
Stock is greater than $44.00 or less than $36.00.
PRA will not issue fractional shares, and holders of NCRIC Common Stock
will receive cash for the fractional shares of PRA Common Stock into which such
holder's NCRIC Common Stock was converted under the Exchange Ratio.
NCRIC has certain options outstanding for the purchase of NCRIC Common
Stock pursuant to the NCRIC Option Plans and awards of shares of NCRIC Common
Stock that are to be issued pursuant to the NCRIC Award Plan. Each unexercised
NCRIC Stock Option at the Effective Time shall be assumed by PRA and continued
in accordance with its terms with the holder of such NCRIC Stock Option having
an election to either: (i) exchange the NCRIC Stock Option for the right to
acquire a corresponding number of shares of PRA Common Stock at the Effective
Time using Exchange Ratio; or (ii) surrender the NCRIC Stock Option at the
Effective Time in exchange for a cash payment as determined by a formula in the
Agreement. Each
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June 16, 2005
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NCRIC Stock Award shall be assumed by PRA and shall be continued in accordance
with its terms as in effect immediately prior to the Effective Time, and the
holder thereof shall have the right to acquire a number of shares of PRA Common
Stock to be determined by multiplying the Exchange Ratio by the number of shares
of NCRIC Common Stock made the subject of the NCRIC Stock Award; provided that
fractional shares resulting therefrom shall be eliminated.
LEGAL ANALYSIS
Section 368(a)(1)(A) of the Code provides that an "A" reorganization
includes a statutory merger or consolidation effected pursuant to the applicable
corporation laws of the United States or a state or territory of the United
States.
Section 368(a)(2)(D) of the Code provides that the acquisition by one
corporation of substantially all of the properties of another corporation, in
exchange for stock of a corporation which is in control of the acquiring
corporation, shall not disqualify a transaction under Section 368(a)(1)(A) if
(i) no stock of the acquiring corporation is used in the transaction and (ii)
the transaction would have otherwise qualified as an "A" reorganization had the
merger been into the controlling corporation.
Section 1.368-1(b) and 1.368-2(g) of the Treasury Regulations (the
"Regulations") provide that the following additional requirements must be met
for a transaction to qualify as a reorganization within the meaning of Section
368 of the Code:
(i) "continuity of interest" must be present,
(ii) "continuity of business enterprise" must exist, and
(iii) the transaction must be undertaken for reasons germane to the
continuance of the business of a corporation a party to the
reorganization.
In general, the continuity of interest test requires that in substance a
substantial part of the value of the proprietary interests in the "target" or
"acquired" corporation (in this case, NCRIC) be preserved in the reorganization,
meaning they are exchanged for proprietary interests in the "issuing"
corporation (and in the context of a "triangular" reorganization as contemplated
in the Agreement, the "issuing" corporation is the corporation in control of the
acquiring corporation, or PRA). See Regulation Section 1.368-1(e) (providing
guidance on the continuity of interest requirement) and Regulation Section
1.368-1(b) (defining the issuing corporation in triangular reorganizations).
Generally, continuity of interest does not exist to the extent that the
acquiring corporation acquires the stock of the target corporation for
consideration other than stock of the acquiring corporation, or if, in
connection with the plan of reorganization, the acquiring company's stock is
redeemed (or purchased by a related party). In addition, continuity of interest
is not preserved to the extent that, prior to and in connection with the plan of
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June 16, 2005
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reorganization, the target corporation (or a related party) redeems or acquires
target stock with consideration other than stock of the target or makes an
extraordinary distribution with respect to the target stock. Sales by the target
shareholders of stock of the acquirer received in the transaction to unrelated
third parties occurring before or after a reorganization are disregarded.
For advance ruling purposes, the Internal Revenue Service has announced
that it will regard the "continuity of interest" requirement to be satisfied if
the former shareholders of the target corporation have a continuing interest
through stock ownership in the acquiring corporation (or a corporation in
control of the acquiring corporation) which is, in the aggregate, equal in value
to at least 50% of the value of the formerly outstanding stock of the target
corporation. See Rev. Proc. 86-42, 1986-2 C.B. 722, and Rev. Proc 77-37, 1977-2
C.B. 568. NCRIC Common Stock acquired by PRA from historic holders of NCRIC
Common Stock for cash in prior transactions in connection with the Merger is
included in this calculation. See Regulation Section 1.368-1(e)(6), Ex. 4(ii).
Continuity of business enterprise requires that the issuing corporation
either continue the target corporation's historic business or use a significant
portion of the target corporation's historic business assets in a business. The
fact that the issuing corporation and the target corporation are in the same
line of business tends to establish the requisite continuity of business
enterprise, but is not alone sufficient. Our conclusion as to the satisfaction
of this requirement is based on the representations in the Certificates.
OPINIONS
Based upon and subject to the foregoing and assuming that the Merger will
take place as described in the Agreement and that the representations made by
PRA and NCRIC in the Certificates are true and correct both as of the date
hereof and as of the Effective Time, we are of the following opinions:
(1) The Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code, and each of PRA, NEWCO and NCRIC will be a
"party to the reorganization" within the meaning of Section 368(b) of the
Code.
(2) No gain or loss will be recognized to NCRIC on the transfer of
substantially all of its assets to NEWCO in exchange for the PRA Common
Stock, cash paid in lieu of fractional shares of the PRA Common Stock, and
the assumption of liabilities of NCRIC.
(3) No gain or loss will be recognized to PRA or NEWCO upon receipt by
NEWCO of the assets of NCRIC in exchange for the PRA Common Stock, cash
paid in lieu of fractional shares of PRA Common Stock, and the assumption
by NEWCO of the liabilities of NCRIC.
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(4) No gain or loss will be recognized by NCRIC shareholders upon the
exchange of their NCRIC Common Stock solely for PRA Common Stock,
including any fractional share interests to which they may be entitled.
(5) The basis of the PRA Common Stock to be received by the holders of
NCRIC Common Stock as a result of the Merger will be the same as the basis
of the NCRIC Common Stock surrendered in exchange therefor.
(6) The holding period of the PRA Common Stock received by the holders of
NCRIC Common Stock as a result of the Merger will include the holding
period of the NCRIC Common Stock surrendered in exchange therefor,
provided the NCRIC Common Stock was held as a capital asset at the
Effective Time.
(7) The payment of cash in lieu of fractional share interests of PRA
Common Stock will be treated as if the fractional shares were distributed
as part of the exchange and then redeemed by PRA. These cash payments will
be treated as having been received as distributions in full payment in
exchange for the PRA Common Stock redeemed as provided in Section 302(a)
of the Code.
Our opinions are on matters solely related to certain United States
federal income tax consequences of the Merger, and no opinion is expressed as to
the tax consequences under any foreign, state or local tax law or under any
federal tax laws other than those pertaining to federal income tax. This opinion
represents and is based upon our best judgment regarding the application of
relevant current provisions of the Code and interpretations of the foregoing as
expressed in existing court decisions, administrative determinations (including
the practices and procedures of the Service in issuing private letter rulings,
which are not binding on the Service except with respect to the taxpayer
receiving such a ruling) and published rulings and procedures all as of the date
hereof. An opinion of counsel merely represents counsel's best judgment with
respect to the probable outcome on the merits and is not binding on the Service
or the courts. There can be no assurance that positions contrary to our opinions
will not be taken by the Service, or that a court considering the issues would
not hold differently from the Service (and no ruling will be sought) as to any
of the federal income tax consequences addressed in this opinion. Furthermore,
no assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the opinion expressed herein. We undertake no
responsibility to advise you of any new developments in the law or in the
application or interpretation of the federal income tax laws.
In addition, our opinions are based solely on the documents that we have
examined, the additional information that we have obtained, and the statements
set out therein, which we have assumed and you have confirmed to be true on the
date hereof and will be true as of the Effective Time. Our opinions cannot be
relied upon if any of the facts contained in such documents or if
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June 16, 2005
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such additional information is, or later becomes, inaccurate, or if any of the
statements set out herein is, or later becomes, inaccurate. Further, no opinion
is expressed with respect to the United States federal income tax consequences
to holders of NCRIC Common Stock subject to special treatment under United
States federal income tax law, such as holders of NCRIC Common Stock, if any,
who hold NCRIC Common Stock other than as a capital asset, who receive NCRIC
Common Stock upon the exercise of employee stock options or otherwise as
compensation, who hold NCRIC Common Stock as part of a "hedge" "straddle,"
"constructive sale" or "conversion transaction," or who are insurance companies,
securities dealers, financial institutions or foreign persons. Finally, our
opinions are limited to the tax matters specifically covered thereby, and we
have not been asked to address, nor have we addressed, any other tax
consequences of the proposed transaction.
We consent to the reference to this opinion in the Proxy Statement and to
the inclusion of this opinion as an exhibit to S-4 Registration Statement.
Very truly yours,
XXXX & XXXXXX LLP
/s/ XXXX & XXXXXX LLP
BAR/rf
