UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

(Amendment No. 1)

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

FPIC INSURANCE GROUP, INC.

(Name of Registrant as Specified In Its Charter)

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies: Common Stock of FPIC Insurance Group, Inc., par value $0.10 per share.
	(2)		Aggregate number of securities to which transaction applies: 8,800,305 shares of Common Stock, including 297,877 options to purchase Common Stock with a per share exercise price less than the per share merger consideration of $42.00 per share, 4,265 shares of Common Stock issuable under the FPIC Insurance Group, Inc. Employee Stock Purchase Plan (the “ESPP”), 64,440 shares of restricted stock and 100,228 shares of Common Stock issuable under performance units.
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): The maximum aggregate value was determined based upon the sum of (A) 8,397,934 shares of Common Stock (including 64,440 shares of restricted stock) multiplied by the merger consideration of $42.00 per share, (B) stock options to purchase 297,877 shares of Common Stock multiplied by $20.74 (which is the difference between $42.00 and the weighted average exercise price of $21.26 per share for the options having an exercise price less than the $42.00 per share merger consideration), (C) the product of $42.00 multiplied by (i) the total amount of participants’ 2011 payroll deductions under the ESPP prior to the effective time of the Merger, divided by (ii) $30.71, and (D) 100,228 shares of Common Stock issuable under performance units multiplied by the merger consideration of $42.00 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00011610 by the sum of the preceding sentence.
	(4)		Proposed maximum aggregate value of transaction: $363,279,952
	(5)		Total fee paid: $42,177

þ		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

EXPLANATORY NOTE

     We are filing this revised definitive proxy statement for the sole purpose of correcting the statements set forth on pages 6 and 58 of the definitive proxy statement filed by us with the Securities and Exchange Commission on July 14, 2011, indicating that the 30-day waiting period under the pre-acquisition notification provisions of the Georgia Insurance Code applicable to the acquisition of FPIC Insurance Group, Inc. by The Doctors Company had expired.

     We have revised the applicable statement on page 6 of the original definitive proxy statement to read as follows:

“Also, under the insurance laws of the States of Arkansas and Georgia, the Merger may not be completed until pre-acquisition notification and report forms have been filed with the Georgia and Arkansas Insurance Commissioners and the applicable waiting periods have expired or been terminated. TDC filed a pre-acquisition notice with each of the Georgia and Arkansas Insurance Commissioners on June 14, 2011, and the Arkansas waiting period expired on July 14, 2011. With respect to Georgia, prior to the expiration of the 30-day waiting period, the Office of the Commissioner of Insurance of Georgia (the “Georgia Insurance Commissioner”) communicated with TDC questioning information in TDC’s pre-acquisition notice concerning market concentration and asserting that the Merger would appear to constitute a prima facie violation of the competitive standards set forth in the Georgia Insurance Code, which would require TDC to provide further information to the Georgia Insurance Commissioner to establish the absence of the requisite anticompetitive effect of the Merger. As a result of this communication, the Georgia pre-acquisition waiting period appears to have been extended until the earlier of the thirtieth day after receipt of such additional information by the Georgia Insurance Commissioner or termination of the waiting period by the Georgia Insurance Commissioner.”

     We have revised the applicable paragraph on page 58 of the original definitive proxy statement to read as follows:

“In addition, the insurance laws of the States of Arkansas and Georgia require the filing of a pre-acquisition notice with the Insurance Commissioners of those states and the expiration of a 30-day waiting period before the Merger may be completed. TDC filed pre-acquisition notices (Form E) with the Georgia and Arkansas Insurance Commissioners on June 14, 2011, and the Arkansas waiting period expired on July 14, 2011. With respect to Georgia, prior to the expiration of the 30-day waiting period, the Georgia Insurance Commissioner communicated with TDC questioning information in TDC’s pre-acquisition notice concerning market concentration and asserting that the Merger would appear to constitute a prima facie violation of the competitive standards set forth in the Georgia Insurance Code, which would require TDC to provide further information to the Georgia Insurance Commissioner to establish the absence of the requisite anticompetitive effect of the Merger. As a result of this communication, the Georgia pre-acquisition waiting period appears to have been extended until the earlier of the thirtieth day after receipt of such additional information by the Georgia Insurance Commissioner or termination of the waiting period by the Georgia Insurance Commissioner.”

     Other than conforming changes to page references and the dates of filing and mailing this revised definitive proxy, no other changes have been made to the definitive proxy statement filed on July 14, 2011. We will print and distribute to our shareholders this revised definitive proxy statement in lieu of the original definitive proxy statement.

 

FPIC INSURANCE GROUP, INC.
1000 Riverside Avenue, Suite 800
Jacksonville, Florida 32204

 

July 18, 2011

 

Dear Shareholder:

 

You are cordially invited to attend a special meeting of shareholders of FPIC Insurance Group, Inc. (referred to herein as the “Company”), to be held at the Company’s principal office, located at 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204, on August 12, 2011, at 10:00 a.m., Eastern Time.

 

At this important meeting, you will be asked to consider and vote upon, among other things, a proposal to approve and adopt the Agreement and Plan of Merger (referred to herein as the “Merger Agreement”), dated as of May 23, 2011 (as it may be amended from time to time), by and among the Company, The Doctors Company, a California domiciled reciprocal inter-insurance exchange, and Fountain Acquisition Corp., a Florida corporation and a wholly owned subsidiary of The Doctors Company. If the Merger Agreement is approved and adopted and the merger contemplated by the Merger Agreement is completed, we will become a wholly owned subsidiary of The Doctors Company and you will receive $42.00 in cash for each share of our common stock that you hold as of the date of the merger (without interest and less applicable withholding taxes). The particulars of the structure of the merger and other important facts, such as tax consequences, are described in detail in the accompanying proxy statement, which we encourage you to read in its entirety.

 

The Company’s Board of Directors has carefully reviewed and considered the terms and conditions of the Merger Agreement and based on its review has determined, by unanimous vote, that the Merger Agreement and the transactions contemplated thereby (including the merger) are advisable and fair to and in the best interests of the shareholders of the Company. Therefore, the Company’s Board of Directors unanimously recommends that shareholders vote “FOR” approval and adoption of the Merger Agreement at the special meeting. In reaching its determination, the Company’s Board of Directors considered a number of factors described more fully in the accompanying proxy statement.

 

Your vote is important. Approval and adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of all outstanding shares of common stock entitled to vote on the proposal. AS A RESULT, YOUR FAILURE TO SUBMIT A PROXY OR VOTE IN PERSON WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.

 

Regardless of the number of shares you own, I encourage you to take action in time for your vote to be counted. Whether or not you plan to attend the meeting, please complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope, or vote by telephone or via the Internet using the instructions on the proxy before the meeting. Returning the enclosed proxy or submitting a proxy by telephone or Internet will not prevent you from voting in person but will assure that your vote is counted if you are unable to attend the meeting. If you receive more than one proxy card because you own shares that are registered differently, please vote all of your shares shown on all of your proxy cards.

 

The accompanying proxy statement provides you with detailed information about the proposed merger and the special meeting. Please give the material careful attention. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement. You also may obtain more information about the Company from documents we have filed with the Securities and Exchange Commission.

 

If you have any questions about the merger or about how to vote your shares, please call the Company’s proxy solicitor, Morrow & Co., LLC, toll free at (888) 813-7651 or contact the Company’s investor relations department at FPIC Insurance Group, Inc., 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204, or by telephone at (904) 354-2482.

 

On behalf of the Company’s Board of Directors, thank you for your continued support of FPIC Insurance Group, Inc.

 

Very truly yours,

 

 

Kenneth M. Kirschner

Chairman of the Board of Directors

 

FPIC INSURANCE GROUP, INC.
1000 Riverside Avenue, Suite 800
Jacksonville, Florida 32204

 

Notice of Special Meeting of Shareholders

to be held on August 12, 2011

 

July 18, 2011

 

Dear Shareholder:

 

You are invited to join us at a special meeting of shareholders of FPIC Insurance Group, Inc. (referred to herein as the “Company”), to be held at the Company’s principal office, located at 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204, on August 12, 2011, at 10:00 a.m., Eastern Time.

 

The special meeting will be held to consider and vote upon the following matters:

 

1. a proposal to approve and adopt the Agreement and Plan of Merger, dated as of May 23, 2011 (referred to herein as the “Merger Agreement”), by and among The Doctors Company, a California domiciled reciprocal inter-insurance exchange (referred to herein as “TDC”), Fountain Acquisition Corp., a Florida corporation and a wholly owned subsidiary of TDC (referred to herein as “Merger Sub”) and the Company;

 

2. a proposal to grant authority to the named proxies to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the Merger Agreement (referred to herein as the “Adjournment Proposal”); and

 

3. a proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the merger contemplated by the Merger Agreement.

 

We expect to transact no other business at the special meeting.

 

The Company’s Board of Directors (the “Board”) has carefully reviewed and considered the terms and conditions of the Merger Agreement and based on its review has determined, by unanimous vote, that the Merger Agreement and the transactions contemplated thereby (including the merger) are advisable and fair to and in the best interests of the shareholders of the Company.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT, “FOR” THE ADJOURNMENT PROPOSAL AND “FOR” THE PROPOSAL TO APPROVE, ON A NON-BINDING ADVISORY BASIS, THE COMPENSATION THAT MAY BE RECEIVED BY THE COMPANY’S NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER.

 

Only shareholders of record at the close of business on July 12, 2011, the record date for the special meeting, are entitled to receive notice of and to vote at the special meeting or at any adjournments or postponements thereof. All shareholders, whether or not they expect to attend the special meeting in person, are requested to complete, date, sign and return the enclosed proxy card in the accompanying postage-paid envelope or to submit a proxy by telephone or via the Internet by following the instructions on the proxy card. The proxy may be revoked prior to the time at which it is voted at the meeting by the person who executed it by filing with the Company’s Secretary an instrument of revocation or a duly executed proxy bearing a later date, or by voting in person at the special meeting.

 

A list of shareholders entitled to vote at the special meeting will be available for inspection by shareholders of record during business hours at the Company’s executive offices at 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204 for ten days prior to the date of the special meeting and will also be available at the special meeting.

Your vote is very important, regardless of the number of shares of the Company’s common stock that you own. The approval and adoption of the Merger Agreement requires the affirmative vote (in person or by proxy) of holders of a majority of all outstanding shares of the Company’s common stock entitled to vote at the special meeting. The Adjournment Proposal, as well as the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the merger, requires the affirmative vote of the majority of votes cast on such proposals at the special meeting.

 

If you fail to return your proxy card or fail to submit your proxy by phone or via the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. ANY FAILURE BY YOU TO RETURN YOUR PROXY CARD OR SUBMIT YOUR PROXY BY PHONE OR VIA THE INTERNET OR VOTE IN PERSON AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT. Such failure, however, will not affect the outcome of the vote regarding the Adjournment Proposal or the non-binding advisory vote regarding compensation that may be received by the Company’s named executive officers in connection with the merger. If you sign and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” the approval and adoption of the Merger Agreement, “FOR” the Adjournment Proposal and “FOR” the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the merger.

 

Any shareholder attending the special meeting may vote in person even if he or she has already voted by proxy card, telephone or via the Internet; such vote by ballot will revoke any proxy previously submitted. If you hold your shares in “street name” through a bank, broker or other nominee, you must provide a legal proxy issued from such bank, broker or other nominee in order to vote your shares in person at the special meeting.

 

If you receive more than one proxy card because you own shares that are registered differently, please submit proxies covering all of your shares shown on all of your proxy cards through one of the methods described above.

 

The Company’s shareholders who do not vote in favor of the approval and adoption of the Merger Agreement will NOT have the right to seek appraisal of the fair value of their shares of the Company’s common stock if the merger contemplated by the Merger Agreement is completed.

 

PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.

 

If you have any questions or need assistance in voting your shares, please call Morrow & Co., LLC, our proxy solicitation agent, toll free at (888) 813-7651 or contact the Company’s investor relations department at FPIC Insurance Group, Inc., 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204, or by telephone at (904) 354-2482.

 

The Merger Agreement and the merger are described in the accompanying proxy statement. A copy of the Merger Agreement is included as Annex A to the accompanying proxy statement. We urge you to read the entire proxy statement and the Merger Agreement carefully.

 

The accompanying proxy statement is first being mailed to shareholders of the Company on or about July 18, 2011.

 

By order of the Board of Directors,

 

 

T. Malcolm Graham

Secretary

 

TABLE OF CONTENTS

 

 

SUMMARY TERM SHEET

	•	solicit, initiate or knowingly facilitate any Acquisition Proposal (as defined in the section of this proxy statement entitled “The Merger Agreement — Restrictions on Solicitations of Other Offers”) or any proposal that is reasonably likely to lead to an Acquisition Proposal;
	•	participate in any way in discussions or negotiations with, or furnish any non-public information to, any person that has made an Acquisition Proposal; or
	•	enter into any agreement, term sheet or letter of intent with respect to any Acquisition Proposal.

	•	Shareholder Approval.  The Merger Agreement must have been adopted by the Company’s shareholders at the special meeting.
	•	No Order.  The consummation of the Merger must not have been restrained, enjoined or prohibited by a court or other governmental authority.
	•	Insurance Consents.  TDC shall have obtained certain written approvals of the Merger from certain insurance regulatory authorities.
	•	HSR Act Waiting Period.  Any applicable waiting period, together with any extensions thereof, under the HSR Act shall have expired or terminated (early termination of the HSR Act waiting period was granted on June 17, 2011).

	•	Accuracy of Representations.  The representations and warranties of the Company contained in the Merger Agreement must be true and correct as of the effective time of the Merger, subject to certain materiality thresholds.

	•	Performance of Covenants.  The Company must have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with at or prior to the effective time of the Merger.

	•	No Company Material Adverse Effect.  Since the date of the Merger Agreement, the absence of any Company Material Adverse Effect (as defined in the section of this proxy statement entitled “The Merger Agreement — Company Material Adverse Effect Definition” beginning on page 66).

	•	Officer’s Certificates.  TDC shall have received from the Company an officer’s certificate with respect to each of the foregoing conditions.
	•	Minimum Funding Standard.  The Company shall have satisfied the minimum funding standards required by applicable law with respect to the FPIC Insurance Group, Inc. Defined Benefit Plan, as amended.

	•	Accuracy of Representations.  The representations and warranties of TDC and Merger Sub contained in the Merger Agreement must be true and correct as of the effective time of the Merger, subject to certain materiality thresholds.
	•	Performance of Covenants.  TDC and Merger Sub must have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with at or prior to the effective time of the Merger.
	•	Officer’s Certificates.  The Company shall have received from TDC an officer’s certificate with respect to each of the foregoing conditions.
	•	Closing Payments.  TDC’s payment of the amounts required under the Merger Agreement.

	•	the Merger has not been consummated by December 31, 2011, subject to the extension of such date to March 31, 2012 (referred to herein as the “outside date”), if all closing conditions have been or are capable of being satisfied at the time of such extension, other than those relating to certain governmental consents and approvals;
	•	a court of competent jurisdiction or other governmental authority issues a final order permanently restraining, enjoining or otherwise prohibiting the Merger; or
	•	the Merger Agreement is not approved and adopted by the Company’s shareholders at the special meeting (or at any adjournment thereof).

	•	the Board determines to accept a Superior Proposal;
	•	TDC breaches any of its representations, warranties or covenants set forth in the Merger Agreement and such breach (i) is not capable of being cured prior to the outside date and (ii) causes the Company’s related closing conditions not to be satisfied; or

	•	TDC does not have sufficient funds to consummate the Merger or otherwise fails to pay the merger consideration.

	•	the Board has withdrawn or adversely modified its recommendation that the Company’s shareholders approve and adopt the Merger Agreement;
	•	the Board has recommended to the Company’s shareholders that they approve or accept an Acquisition Proposal other than the Merger;
	•	the Company has entered into or announced publicly its intention to enter into any agreement with respect to an Acquisition Proposal other than the Merger; or
	•	the Company breaches any of its representations, warranties or covenants set forth in the Merger Agreement and such breach (i) is not capable of being cured prior to the outside date and (ii) causes TDC’s related closing conditions not to be satisfied.

	•	the Company terminates the Merger Agreement in order to accept a Superior Proposal; or
	•	TDC terminates the Merger Agreement because:

	•	the Board has withdrawn or adversely modified its recommendation that the Company’s shareholders approve and adopt the Merger Agreement;

	•	the Board has recommended to the Company’s shareholders that they approve or adopt an Acquisition Proposal other than the Merger; or
	•	the Company has entered into or announced publicly its intention to enter into any agreement with respect to an Acquisition Proposal other than the Merger.

	•	the Merger Agreement is terminated because the Merger has not been consummated prior to the outside date as a result of the failure to obtain required antitrust and insurance regulatory approvals and on the termination date (i) the vote of the Company’s shareholders to adopt the Merger Agreement has been obtained, (ii) no Company Material Adverse Effect has occurred and is continuing and (iii) certain of TDC’s closing conditions are still capable of being satisfied; or
	•	the Company terminates the Merger Agreement because TDC lacks sufficient funds to consummate the Merger or otherwise fails to pay the merger consideration and on the date of such termination (i) the vote of the Company’s shareholders to adopt the Merger Agreement has been obtained, (ii) no Company Material Adverse Effect has occurred and is continuing and (iii) certain of TDC’s closing conditions are still capable of being satisfied.

 

The following questions and answers address briefly some questions you may have regarding the Merger, the Merger Agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Banks and Brokers Call: (203) 658-9400
Stockholders Call Toll Free: (888) 813-7651

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (referred to herein as the “PSLRA”). Forward-looking statements include, among others, information concerning the possible or assumed future results of operations of the Company, the expected completion and timing of the Merger and other information relating to the Merger. We claim the protection of the PSLRA’s safe harbor provisions for forward-looking statements with respect to all of the forward-looking statements made throughout this proxy statement and the documents to which we refer you in this proxy statement. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “Questions and Answers About the Special Meeting and the Merger,” “The Merger,” “The Merger — Governmental and Regulatory Approvals” and “The Merger — Opinion of Sandler O’Neill + Partners, L.P.” When we discuss, among other things, our future financial performance (including future revenues, earnings, cash flows or growth rates), ongoing business strategies or prospects, the expected closing date of the Merger and possible future Company actions or use words such as “will,” “should,” “likely,” “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we are making forward-looking statements. These forward-looking statements represent our outlook only as of the date of this proxy statement. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed from time to time in this proxy statement and our other documents filed publicly with the SEC, including those listed under “Item 1A — Risk Factors” in our most recent Quarterly Report on Form 10-Q, filed on May 4, 2011, and in our most recent Annual Report on Form 10-K, filed on March 9, 2011, and the following:

 

 

 

The forward-looking statements contained in this proxy statement speak only as of the date on which such statements were made and we undertake no obligation, other than as may be required under federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We do not assume responsibility for the accuracy and completeness of forward-looking statements. Any or all of the forward-looking statements contained in this proxy statement and in any other public statements that are made may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and in our most recent filings on Forms 10-Q and 10-K described above. We caution that these risk factors may not be exhaustive. We operate in a continually changing business environment and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the impact, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results or outcomes to differ materially from those expressed or implied by any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this proxy statement might not occur.

 

See the section of this proxy statement entitled “Where You Can Find More Information” for additional information about the Company.

 

 

FPIC Insurance Group, Inc.

 

1000 Riverside Avenue, Suite 800

Jacksonville, Florida 32204

(904) 354-2482

 

We are a leading provider of medical professional liability insurance for physicians, dentists and other healthcare providers. Our business is focused primarily in the southern U.S. through our subsidiaries, First Professionals Insurance Company, Inc., Anesthesiologists Professional Assurance Company, Advocate, MD Insurance of the Southwest Inc., and Intermed Insurance Company. We are headquartered in Jacksonville, Florida. We are licensed in 32 states and our insurance subsidiaries have policyholders in a total of 14 states.

 

We will provide a copy of our most recent Annual Report on Form 10-K for the year ended December 31, 2010 (excluding exhibits), filed with the SEC on March 9, 2011, and other documents filed publicly with the SEC without charge to any shareholder who delivers a written request to our investor relations department at FPIC Insurance Group, Inc., 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204. Our Annual Report on Form 10-K and other SEC filings also may be accessed on the Internet at www.sec.gov or on the investor relations page of the Company’s website at www.fpic.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference herein. Our common stock is publicly traded on NASDAQ under the trading symbol “FPIC.”

 

The Doctors Company

 

185 Greenwood Road

Napa, California 94558-7540

(800) 421-2368

 

Founded by doctors for doctors in 1976 as a California-domiciled reciprocal interinsurance exchange, The Doctors Company is the nation’s largest insurer of physician and surgeon medical professional liability with nearly 55,000 member physicians, $4 billion in assets, and an A rating by Fitch Ratings and A.M. Best Company. The Doctors Company’s principal executive offices are located in Napa, California.

Fountain Acquisition Corp.

 

185 Greenwood Road

Napa, California 94558-7540

(800) 421-2368

 

Fountain Acquisition Corp., a Florida corporation, is a wholly owned subsidiary of The Doctors Company. It was organized solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. It has not conducted any activities to date other than activities incidental to its organization and in connection with the transactions contemplated by the Merger Agreement.

 

This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by the Board for use at the special meeting to be held at the Company’s principal office, located at 1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204, on August 12, 2011 at 10:00 a.m., Eastern Time, or at any postponement or adjournment thereof. The purpose of the special meeting is for our shareholders to consider and vote upon the following proposals:

 

 

Shareholders holding a majority of the issued and outstanding shares of the Company’s common stock at the close of business on the record date must vote to approve and adopt the Merger Agreement in order for the Merger to occur. A copy of the Merger Agreement is attached as Annex A to this proxy statement.

 

After careful consideration, our Board, by unanimous vote, approved and declared advisable the execution, delivery and performance of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and has determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of the Company’s shareholders. The Board unanimously recommends that you vote “FOR” the proposal to approve and adopt the Merger Agreement, “FOR” the Adjournment Proposal and “FOR” the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the Merger.

 

See the section of this proxy statement entitled “The Merger — Reasons for the Merger; Recommendation of Our Board of Directors” for a discussion of the material factors considered by the Board in reaching its conclusions.

 

We have fixed the close of business on July 12, 2011 as the record date for the special meeting. Only holders of record of shares of the Company’s common stock on the record date are entitled to vote (in person or by proxy) at the special meeting. As of July 12, 2011, there were 8,397,934 shares of the Company’s common stock outstanding. Each share of the Company’s common stock outstanding on the record date entitles its holder to one vote on all matters properly coming before the special meeting.

 

The presence at the special meeting, in person or by proxy, of the holders of a majority of the issued and outstanding shares of the Company’s common stock entitled to vote at the special meeting as of the close of

business on the record date will constitute a quorum for the purpose of considering the proposals at the special meeting. Shares of the Company’s common stock represented at the special meeting but not voted, including broker non-votes and shares of the Company’s common stock for which proxies have been received but indicating that the submitting shareholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business at the special meeting. A broker non-vote occurs on an item when a broker is not permitted to vote on that item without instructions from the beneficial owner of the shares and no instructions are given. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.

 

 

The approval and adoption of the Merger Agreement requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of the Company’s common stock outstanding at the close of business on the record date. For the proposal to approve and adopt the Merger Agreement, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions will not be counted as votes cast or shares voting on the proposal to approve and adopt the Merger Agreement, but will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as a vote “AGAINST” the approval and adoption of the Merger Agreement.

 

If your shares are held in “street name” by a broker, bank or other nominee, your broker, bank or other nominee will not be entitled to vote your shares in the absence of specific instructions from you. These non-voted shares (or “broker non-votes”) will have the same effect as a vote “AGAINST” the proposal to approve and adopt the Merger Agreement. Your broker, bank or nominee will vote your shares on the proposals only if you provide instructions on how to vote by following the instructions provided to you by your broker, bank or other nominee.

 

Approval, on a non-binding advisory basis, of the compensation that may be received by the Company’s named executive officers in connection with the Merger requires the affirmative vote of a majority of the votes cast on such proposal at the special meeting. As a result, abstentions and broker non-votes will not affect the vote on such proposal. This vote is advisory in nature and will not be binding on the Company or the Board and will not affect whether or not the compensation is paid. Such compensation will be substantially determined in accordance with existing agreements between the Company and such executives.

 

The Adjournment Proposal requires the affirmative vote of a majority of the votes cast on such proposal at the special meeting. As a result, abstentions and broker non-votes will not affect the vote on the Adjournment Proposal.

 

As of July 12, 2011, the record date for the special meeting, the directors and executive officers of the Company beneficially owned, and had the right to vote, in the aggregate, 645,039 shares of the Company’s common stock (which excludes shares that may be acquired by such persons pursuant to stock option grants), which represents approximately 7.7% of the outstanding shares of the Company’s common stock as of such date. Our current executive officers and directors have informed us that they intend to vote all of their shares of the Company’s common stock “FOR” the proposal to approve and adopt the Merger Agreement, “FOR” the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the Merger and “FOR” the Adjournment Proposal. If our executive officers and directors vote all of their respective shares in favor of the proposal to approve and adopt the Merger Agreement, approximately 7.7% of the outstanding shares of the Company’s common stock will have voted for such proposal. This means that additional holders of approximately 42.3% of the outstanding shares of the Company’s common stock entitled to vote at the special meeting would need to vote for the proposal to approve and adopt the Merger Agreement in order for it to be approved.

 

In order for your shares of the Company’s common stock to be included in the vote, if you are a shareholder of record, you may vote or cause your shares of the Company’s common stock to be voted by proxy using one of the following methods:

 

 

If you hold your shares in “street name,” you may vote or cause your shares of the Company’s common stock to be voted by proxy by following the instructions and procedures provided by your broker, bank or other nominee.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR VIA THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

 

Proxies received at any time before the special meeting that are not revoked or superseded before being voted, will be voted at the special meeting. Where a specification is indicated by the proxy, it will be voted in accordance with the specification. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the proposal to approve and adopt the Merger Agreement, “FOR” the Adjournment Proposal and “FOR” the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the Merger.

 

If you abstain, your shares of the Company’s common stock will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of business; however, your shares will not be counted as votes cast or shares voting on the proposals. If you abstain, it will have the same effect as a vote “AGAINST” the proposal to approve and adopt the Merger Agreement but will have no effect on the Adjournment Proposal or the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the Merger.

 

If your shares of the Company’s common stock are held in “street name,” you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker, bank or other nominee to vote your shares, it has the same effect as a vote “AGAINST” the proposal to approve and adopt the Merger Agreement but will have no effect on the Adjournment Proposal or the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the Merger.

 

If you hold your shares in your name as a shareholder of record, you have the right to change or revoke your proxy at any time before the vote taken at the special meeting by:

 

 

 

If you hold your shares in “street name” through a broker, bank, or other nominee, you have the right to change or revoke your proxy at any time before the vote taken at the special meeting by following the directions received from your broker, bank or other nominee to change or revoke those instructions.

 

PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. IF THE MERGER IS COMPLETED, A SEPARATE LETTER OF TRANSMITTAL WILL BE MAILED TO YOU THAT WILL ENABLE YOU TO RECEIVE THE MERGER CONSIDERATION IN EXCHANGE FOR YOUR STOCK CERTIFICATES.

 

You do not need to make a reservation to attend the special meeting. In order to be admitted to the special meeting, you will need to demonstrate that you are the Company shareholder entitled to vote at the special meeting or the holder of a valid proxy granted by the Company shareholder entitled to vote at the special meeting. If your shares are held in “street name,” you will need to bring evidence of your ownership of the shares (such as your most recent account statement). If you do not have an admission card or proof that you own the Company’s common stock or hold a valid proxy, you may not be admitted to the special meeting.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting, provided that if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the bylaws of the Company will be given to each shareholder of record entitled to notice of and to vote at the meeting. Whether or not a quorum exists, holders of a majority of the Company’s common stock present in person or represented by proxy at the special meeting and entitled to vote may adjourn or postpone the special meeting at any time. Any signed proxies received by us in which no voting instructions are provided on the matter will be voted “FOR” the Adjournment Proposal. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow our shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

Under Florida law, because the Company’s common stock is traded on the NASDAQ Global Select Market and the merger consideration is all cash, holders of the Company’s common stock are not entitled to exercise appraisal or dissenters’ rights in connection with the Merger. If the Merger is consummated, each holder of the Company’s common stock will only be entitled to receive $42.00 in cash, without interest, for each share of Company’s common stock owned by such holder.

 

This proxy solicitation is being made by the Board and paid for by the Company. In addition, we have retained Morrow & Co., LLC to assist in the solicitation. We estimate that we will pay Morrow & Co., LLC $7,500 plus out-of-pocket expenses for its assistance in the solicitation of proxies for the special meeting. Our directors, officers, employees, advisors and other representatives may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their solicitation efforts. We will also request brokers and other fiduciaries to forward proxy solicitation materials to the beneficial owners of shares of the Company’s common stock that

the brokers and fiduciaries hold of record. We will, upon request, reimburse them for their reasonable out-of-pocket expenses incurred in forwarding such materials.

 

We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Under the Florida Business Corporation Act (referred to herein as the “FBCA”), business transacted at the special meeting is limited to the purposes described in the notice of the special meeting, which accompanies this proxy statement. If other matters properly come before the special meeting or at any adjournment or postponement thereof, we intend that shares of the Company’s common stock represented by properly submitted proxies will be voted in accordance with the recommendations of the Board.

 

If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call Morrow & Co., LLC, our proxy solicitor, toll free at (888) 813-7651, or contact our investor relations department at FPIC Insurance Group, Inc., 1000 Riverside Avenue, Jacksonville, Florida 32204. Our telephone number is (904) 354-2482.

 

The information referenced in this proxy statement and filed by the Company concurrently with this proxy statement will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of the Company’s common stock.

 

The following is a description of the material aspects of the Merger. While the Company believes that the following description covers the material terms of the Merger, the description may not contain all of the information that is important to the Company’s shareholders. The Company encourages you to carefully read this entire proxy statement, including the annexes, for a more complete understanding of the Merger.

 

As part of its ongoing evaluation of business and strategic planning, the Board, from time to time, has discussed and reviewed strategic goals and alternatives. These reviews have included a full range of strategic alternatives, including consideration of potential acquisitions and business combinations, as well as the Company’s stand-alone business plans and prospects.

 

During the spring of 2008, in connection with an assessment of the Company’s strategic position and opportunities, the Board authorized the Company’s management to assess with investment bankers and financial advisors familiar with the Company’s industry the possibility of engaging in a business combination transaction, including the possible sale of the Company. Partially as a result of the deterioration in financial markets later in 2008, the Board determined not to actively pursue any such business combination at that time.

 

On July 30, 2009, the Company entered into a definitive agreement to acquire Advocate, MD Financial Group Inc. for approximately $33.6 million (plus any applicable earn-out payments pursuant to the terms of the transaction). This acquisition was completed in November 2009. Sandler O’Neill acted as financial advisor to the Company in connection with this acquisition.

 

In August 2009, at the regular meeting of the Strategic Planning Committee of the Board, that committee reviewed and expressed support for the Company’s 2009 Long Range Strategic Plan. Among other things, the 2009 Long Range Strategic Plan addressed a range of strategic alternatives, including the possible sale of the Company, and factors that might affect the desirability and risks of a possible sale of the Company. The Strategic Planning Committee determined that the Company would remain open to consideration of possible sale transactions.

Beginning in September 2009, the Company held discussions with a potential strategic buyer (referred to herein as “Bidder A”) concerning the possible acquisition of the Company by Bidder A. Bidder A initially conveyed to Mr. Byers, President and Chief Executive Officer of the Company, a preliminary proposal to acquire the Company for $30 per share in cash (as adjusted to reflect the Company’s three-for-two stock split, which became effective on March 8, 2010). Mr. Byers responded that he would need to convey the substance of that conversation to the Board before providing a response.

 

On September 30, 2009, a special telephonic meeting of the Board was held. At this meeting, Mr. Byers described the preliminary proposal conveyed to Mr. Byers by Bidder A. Also at this meeting, the Board requested that Sandler O’Neill and outside counsel assist the Board in determining whether the Company should consider a sale at that time and how to respond to the preliminary proposal from Bidder A.

 

On October 19, 2009, at a special meeting of the Board, after receiving a presentation from Sandler O’Neill and after discussions with Sandler O’Neill, outside counsel and the Company’s management, the Board authorized the Company’s management to explore Bidder A’s preliminary proposal.

 

On October 23, 2009, representatives of the Company, Sandler O’Neill and Bidder A met to discuss the preliminary proposal and the Company entered into a confidentiality agreement with Bidder A. Subsequently, the Company provided Bidder A with financial and other information concerning the Company, and representatives of the Company and Sandler O’Neill held various discussions with representatives of Bidder A regarding the preliminary proposal. On November 3, 2009, Bidder A informed Mr. Byers that any definitive proposal Bidder A might be willing to make would not be at a purchase price in excess of $30 per share (as adjusted to reflect the Company’s three-for-two stock split, which became effective on March 8, 2010).

 

On November 24, 2009, the Board held a special meeting with Sandler O’Neill, outside counsel and the Company’s management in attendance. At this meeting, it was determined that a price of $30 per share was inadequate and the Company should not devote further efforts to exploring a transaction with Bidder A, provided that the possibility of reviving discussions with Bidder A at a future time would not be foreclosed.

 

In February 2010, Bidder A contacted Mr. Byers and indicated that it might be willing to acquire the Company at an increased price of $31.33 per share (as adjusted to reflect the Company’s three-for-two stock split, which became effective on March 8, 2010). At a telephonic meeting held on March 2, 2010, the Board created a special committee (referred to herein as the “Special Committee”) of the Board, comprised of Messrs. Kirschner, Anderson and Byers, Dr. Baratta and Ms. Ruffier, to consider and make a recommendation to the Board on how to proceed in light of this communication.

 

Following meetings held on March 8 and March 18, 2010, the Special Committee recommended, and at a meeting held on March 19, 2010, the Board authorized, the engagement of Sandler O’Neill to assist the Board in evaluating strategic alternatives for the Company, including but not limited to the possible acquisition of the Company by Bidder A.

 

Subsequent to March 19, 2010, representatives of Sandler O’Neill and the Company contacted Bidder A and indicated that the Company was not prepared to proceed with discussions at the indicated price but would be willing to consider a higher offer price. Subsequent to this communication, Bidder A declined to increase its indicated offering price of $31.33 per share. Based on this refusal by Bidder A, the Board determined not to pursue further discussions with Bidder A at that time.

 

In March 2010, Mr. Byers contacted the President of another medical professional liability insurer (referred to herein as “Company B”) that had previously expressed to Mr. Divita, the Company’s Chief Financial Officer, an interest in considering a business combination with the Company, to discuss the possibility of such a transaction. In follow-up to that conversation, on May 20, 2010, Messrs. Byers and Divita and Mr. White, the leader of the Company’s insurance business segment, met with representatives of Company B to further discuss the possibility of a stock-for-stock merger between the Company and Company B. On May 26, 2010, the Company and Company B entered into a mutual confidentiality agreement and began to exchange financial and other information. The possibility of a transaction with Company B was discussed at a meeting of the Strategic Planning Committee of the Board held on June 4, 2010, and Messrs. Byers and Divita met with the President and the Chief Financial Officer of Company B during an investor conference on

June 8, 2010. From June through August, 2010, the Company continued to obtain and review information concerning Company B and held in-depth discussions with management of Company B concerning the possible terms of a merger between the Company and Company B. Shortly thereafter, Company B decided to pursue other strategic plans instead of a potential business combination with the Company.

 

During April 2010, Mr. Byers was contacted by another potential strategic buyer (referred to herein as “Bidder C”), which indicated a preliminary interest in exploring a transaction with the Company.

 

On May 12, 2010, a representative of Sandler O’Neill met with a member of senior management of another potential strategic buyer (referred to herein as “Bidder D”). At this meeting, Bidder D expressed an interest in meeting Mr. Byers.

 

On July 15, 2010, Mr. Byers and representatives of Sandler O’Neill met in Jacksonville with a senior executive of Bidder D to discuss Bidder D’s potential interest in a transaction with the Company.

 

On July 20, 2010, Messrs. Byers and Divita met with senior management of Bidder C to further discuss a possible business combination between the Company and Bidder C.

 

At its regular meeting on August 27, 2010, the Company’s Strategic Planning Committee received a presentation of the 2010 Long Range Strategic Plan developed by the Company. The objectives of the presentation were to ensure a common understanding of the Company’s strategy and business priorities, to provide an understanding of and to assess critical strategic imperatives, and to validate near-term and long-term strategies. Among the topics presented were: the Company’s current position (including an industry update, the Company’s position and outlook, and an analysis of the Company’s strengths, weaknesses, opportunities and threats); strategic imperatives (including a discussion of business development, both organic and through mergers and acquisitions, the claims and regulatory environment, legislative and regulatory matters, organizational capabilities and financial markets); financial projections through 2013; and an executive summary and conclusion. During the presentation, emphasis was placed on the continuing competitive market conditions; the potential impact of healthcare reforms; the Company’s decreasing target market as a result of consolidation in the medical community; challenges inherent in the claims, regulatory and operating environment; the continuing pressure on operating earnings; the importance of the Company’s capital management initiatives; the possible future decline in the level of the Company’s favorable reserve development; and the challenges of developing a successful program to market insurance to physicians operating in a hospital setting or employed by hospitals. An important part of the presentation was an analysis of the universe of potential acquisition targets and a discussion of the challenges in achieving growth through acquisition.

 

At the August 27 meeting, the Strategic Planning Committee also received the presentation of Sandler O’Neill concerning recent communications with Bidder D and Bidder C. Sandler O’Neill also provided information concerning each of Bidder D and Bidder C and discussed their ability to complete a transaction and their presumed rationales for acquiring the Company. Sandler O’Neill also provided a list of other parties that could potentially be interested in acquiring the Company. At the recommendation of Sandler O’Neill, the Strategic Planning Committee authorized Sandler O’Neill and the Company’s management to continue discussions with Bidder D and Bidder C and to approach other parties that might reasonably be interested in acquiring the Company. Prior to and after the August 27 meeting, Sandler O’Neill contacted approximately 20 additional parties to assess their general interest in mergers and acquisitions, interest in the medical professional liability insurance sector and, in certain instances, their possible interest in the Company.

 

On August 31, 2010, Mr. Byers and a representative of Sandler O’Neill met with senior officers of Bidder D to provide Bidder D with additional information concerning the Company. Discussions also continued between Sandler O’Neill and representatives of Bidder C, during which Bidder C indicated it would not be able to begin to evaluate the transaction until after its third quarter financial results were released.

 

On September 7, 2010, Mr. Byers and Mr. Divita met with a member of Bidder C’s senior management as part of the continuing discussions between the Company and Bidder C. During the September 7 discussion, Bidder C continued to indicate that it would not be able to consider a transaction with the Company until after the release of its third quarter financial results.

On October 1, 2010, representatives of Bidder D informed Sandler O’Neill that Bidder D’s preliminary valuation of the Company was in line with the then current trading value of the Company’s shares, or approximately $35 per share.

 

On November 3, 2010, a member of the senior management of another potential strategic buyer (referred to herein as “Bidder E”), met with Mr. Byers and a representative of Sandler O’Neill and indicated a preliminary interest in exploring a transaction with the Company.

 

The Special Committee met on November 12, 2010, to receive a presentation from Sandler O’Neill concerning its activities on the Company’s behalf. Two other members of the Board attended this meeting by telephone. At this meeting, Sandler O’Neill reported on updated market and financial data, including the Company’s year-to-date stock price performance, a comparison of that performance to other property casualty insurers, historical price/book value and other multiples of the Company and its peers, and summary financial and operating statistics of the Company and its peers. Sandler O’Neill also reported on and analyzed recent merger and acquisition activity involving property casualty insurers, including the announced acquisitions of American Physicians Capital, Inc. (referred to herein as “ACAP”) by TDC and American Physicians Services Group, Inc. by ProAssurance Corporation. Also, Sandler O’Neill discussed the financial projections for the Company provided by the Company’s management and the indicated ranges of trading values for the Company’s common stock under various methodologies. Finally, Sandler O’Neill discussed the preliminary discussions held by Sandler O’Neill and the Company’s management with potential acquirors, including Bidder C, Bidder D and Bidder E, and the anticipated future discussions with these parties. Sandler O’Neill also reviewed an extensive list of other contacts made by Sandler O’Neill with various parties, including multi-line property casualty insurers and medical professional liability insurers, and reported that these parties had indicated little or no interest in the medical professional liability insurance sector or acquiring the Company. The Board authorized management and Sandler O’Neill to continue discussions with Bidders C, D and E, including by providing them with confidential, non-public information following their execution of confidentiality agreements with the Company.

 

On November 19, 2010, the Company and Bidder D entered into a confidentiality agreement, after which the Company’s management provided Bidder D with additional financial and other information concerning the Company.

 

On December 6, 2010, the Company and Bidder E entered into a confidentiality agreement, after which the Company’s management provided Bidder E with financial and other information concerning the Company.

 

Bidder C declined to enter into a confidentiality agreement with the Company.

 

At its regular meeting held on December 10, 2010, the Board received an update from the Company’s management on the status of discussions with Bidder D, Bidder C and Bidder E and the lack of apparent interest by other parties in a possible transaction with the Company.

 

On December 21, 2010, Messrs. Byers, Divita and White and a representative of Sandler O’Neill attended a meeting with the senior management of Bidder E at Bidder E’s offices. During this meeting, the historical and future performance of the Company was discussed as well as the implications of a potential business combination between the Company and Bidder E.

 

At a dinner held in Jacksonville on December 22, 2010, Messrs. Byers, White and Divita and a representative of Sandler O’Neill met with a senior executive of Bidder D, who indicated that Bidder D’s view of the Company’s value had not changed from that communicated to the Company on October 1, 2010.

 

On January 13, 2011, Messrs. Byers, White and Divita and representatives of Sandler O’Neill met at Bidder D’s offices with senior executives of Bidder D to discuss the Company’s recent business performance and financial projections and the potential synergies that could be generated through an acquisition of the Company by Bidder D.

 

On January 17, 2011, Bidder D provided to Sandler O’Neill a transaction analysis that, among other things, quantified the synergies to be expected by Bidder D from acquiring the Company and Bidder D’s estimated return on investment, assuming a $40 per share purchase price.

On a conference call held on January 21, 2011, Sandler O’Neill provided Bidder D with feedback on the transaction analysis delivered by Bidder D on January 17. Discussions thereafter continued on this and related subjects between representatives of Sandler O’Neill and Bidder D.

 

On February 3, 2011, the Company received a written non-binding proposal from Bidder D to purchase all of the Company’s outstanding shares for $40 per share in cash. This was communicated to the Board by telephone on February 4, 2011 and a special meeting of the Board was set for February 22, 2011 to discuss this proposal and related matters with Sandler O’Neill and outside counsel. The key elements of Bidder D’s proposal included (i) consideration in a form to be negotiated (all cash, all stock or a combination of the two), (ii) a due diligence period of approximately 30 days, (iii) an “expectation” (or possibly a condition) that the Company’s senior management would remain in positions with the Company or Bidder D post-closing, and (iv) a 30-day exclusivity period.

 

Promptly after this February 4 telephonic Board session, Sandler O’Neill contacted the investment bankers representing Bidder E, who had previously requested that Sandler O’Neill inform them of the need for Bidder E to accelerate its consideration of a possible transaction with the Company, and informed them that, to the extent Bidder E had a continuing interest in the Company, the Company would like to receive by February 18, 2011 a written preliminary proposal from Bidder E. During the week of February 14, 2011, Sandler O’Neill was informed by Bidder E that although potentially still interested, Bidder E was not currently in a position to consider the possible submission of a proposal.

 

By unanimous written consent, on February 10, 2011, the Special Committee approved the retention of Weil, Gotshal & Manges LLP (referred to herein as “Weil”) to represent the Company and the Board in connection with its consideration of strategic alternatives.

 

On February 10, 2011, Sandler O’Neill had a meeting with management of TDC during which they discussed TDC’s potential interest in pursuing a transaction with the Company.

 

On February 18, 2011, TDC indicated to Sandler O’Neill that it had been doing its internal analysis with respect to a potential transaction with the Company and that it would determine whether it would participate in the process by the end of the week of February 21, 2011. TDC also indicated to Sandler O’Neill that it would only participate in pursuing a transaction with the Company if a process was already ongoing.

 

The Board met on February 22, 2011 at a special meeting in Jacksonville to receive and discuss a report from Sandler O’Neill regarding the evaluation of strategic alternatives to date and to determine how to respond to Bidder D’s proposal. Representatives of Sandler O’Neill and Weil, and Messrs. Divita and White and T. Malcolm Graham, our General Counsel and Secretary, also attended this meeting. Sandler O’Neill presented a detailed update on its activities since mid-2010 and, in particular, since the November 12, 2010 meeting of the Special Committee. Sandler O’Neill also discussed in detail the terms of Bidder D’s February 3 proposal letter. Sandler O’Neill reported that Bidder C had decided not to pursue a transaction with the Company and that Bidder E had indicated that it was not currently in a position to consider the possible submission of a proposal. Sandler O’Neill’s conclusion was that Bidder D was likely the only viable potential acquiror of the Company in the foreseeable future, although Sandler O’Neill stated that TDC had indicated that it might be interested in pursuing a transaction with the Company. Sandler O’Neill next reported on (with particular reference to the attractiveness of Bidder D’s proposal) updated market and financial data, updated financial projections for the Company provided by the Company’s management and some of the synergies that would be provided to Bidder D by acquiring the Company. After deliberations and advice from Weil, the Board authorized the Company’s management and its advisors to (i) inform Bidder D that the Board was willing to permit Bidder D to begin detailed due diligence and to begin working towards a definitive agreement, (ii) inform Bidder D that the Board was not willing to grant exclusivity to Bidder D at this time, (iii) pursue further discussions with TDC, and (iv) to take actions consistent with the discussions at the meeting.

 

On February 23, 2011, representatives of Sandler O’Neill contacted Bidder D and communicated the determinations made by the Board at the February 22, 2011 meeting. Sandler O’Neill also communicated its view that the Board would respond positively to an offer of $44 to $45 per share but that it was uncertain whether the Board could support an offer of $40 per share. Bidder D responded that it would not be willing to

offer $44 per share and requested that the Company indicate the price at which it would enter into exclusive due diligence and transaction negotiations. Bidder D also insisted that it be granted exclusivity as a pre-condition to its commencement of detailed due diligence and negotiations toward a definitive agreement.

 

Also on February 23, 2011, another potential strategic buyer (referred to herein as “Bidder F”), contacted Sandler O’Neill and inquired as to whether the Company was involved in a process to evaluate a potential sale of the Company.

 

After the February 23 discussions with Bidder D, Sandler O’Neill reported to Mr. Kirschner, in his capacity as Chairman of the Board and Chairman of the Special Committee, Mr. Anderson, in his capacity as Vice Chairman of the Board and a member of the Special Committee, and Mr. Byers. Based on this report and on discussions among themselves and with Sandler O’Neill, it was determined by Messrs. Kirschner and Anderson that Sandler O’Neill should contact Bidder D and indicate that Messrs. Kirschner and Anderson felt confident that the Board would support an offer from Bidder D at an offering price slightly in excess of $42 per share.

 

After several conversations between Sandler O’Neill, Company representatives and representatives of Bidder D, on February 24, 2011, Bidder D indicated that it would not be willing to meet the $42 price. Bidder D further confirmed that it did not wish to proceed with due diligence and transaction negotiations without the 30-day exclusivity period.

 

On a telephone conference held on the morning of February 28, 2011, representatives of Sandler O’Neill and Messrs. Kirschner and Byers determined to communicate to TDC and Bidder F that the Company was willing to make financial and actuarial information available to them, under the protection of confidentiality agreements, and to give them approximately two weeks to submit written non-binding indications of their interest in acquiring the Company. Mr. Kirschner communicated these developments to the Board later that day.

 

On March 1, 2011, Sandler O’Neill communicated the above message to representatives of TDC and Bidder F. Both TDC and Bidder F confirmed that they were interested in submitting a proposal to acquire the Company and would be able to do so within approximately two weeks. Sandler O’Neill then provided TDC and Bidder F with draft confidentiality agreements.

 

On March 2, 2011, the Company entered into confidentiality agreements with TDC and Bidder F.

 

On March 3, 2011, Sandler O’Neill delivered to TDC and Bidder F letters requesting, by March 16, 2011, preliminary indications of interest in pursuing an acquisition of the Company, including an indication of value and form of proposed consideration. In addition, Sandler O’Neill provided TDC and Bidder F with certain nonpublic information, including a draft of the Company’s fourth quarter 2010 earnings release, summary claims and actuarial information and drafts of year-end external actuarial studies.

 

From March 3 through March 16, 2011, representatives of Sandler O’Neill continued to provide TDC and Bidder F with additional due diligence materials requested by them.

 

During a telephone call between Sandler O’Neill and Bidder D on March 14, 2011, Bidder D expressed its continued interest, but only on an exclusive basis and not at a price in excess of $40 per share. Sandler O’Neill offered to provide Bidder D with access to additional due diligence materials and Company information, but Bidder D declined. Sandler O’Neill and Bidder D agreed to continue to discuss Bidder D’s interest.

 

On March 15, 2011, Macquarie Capital (referred to herein as “Macquarie”), financial advisor to TDC, requested additional time for TDC to submit a proposal letter to Sandler O’Neill. TDC was granted an extension of its deadline to March 18, 2011.

 

On March 16, 2011, Bidder F delivered a letter to Sandler O’Neill conveying Bidder F’s non-binding indication of interest in pursuing discussions related to the acquisition of all of the Company’s outstanding shares for $38 per share in cash. Bidder F’s letter requested a 60-day period to complete its due diligence and to negotiate a definitive agreement.

 

On March 16, 2011, Mr. White met with a senior executive of TDC at an industry conference and discussed operational aspects of the possible acquisition of the Company by TDC.

On March 18, 2011, TDC delivered to Sandler O’Neill a non-binding preliminary indication of interest in acquiring all of the Company’s outstanding shares for cash in a range of $39 to $42 per share. This letter also outlined the operational and financial due diligence contemplated by TDC and stated that its review of the most critical due diligence area, review of actuarial information, had already begun based on information provided to TDC. TDC also stated that it believed that four weeks would be adequate for TDC to complete its due diligence investigation and that TDC anticipated another two weeks to negotiate and enter into definitive agreements.

 

On March 18, 2011 and March 21, 2011, representatives of Sandler O’Neill and members of the Special Committee discussed how to proceed in light of the three indications of interest received from Bidder F, TDC and Bidder D. Members of the Special Committee also conferred separately by telephone. During the period after February 3 through March 21, 2011, the Board was given weekly updates of the progress of discussions with Bidder D, TDC and Bidder F (as applicable) and was provided with copies of the Bidder D, TDC and Bidder F proposal letters promptly upon receipt.

 

During the March 18 and March 21, 2011 discussions, the Special Committee expressed its reluctance to provide extensive access to sensitive Company information to any prospective acquiror, unless it appeared that the prospective acquiror was reasonably anticipated to make a competitive offer for the Company and to complete a transaction. As a result of these discussions, on March 21, 2011, the Special Committee instructed Sandler O’Neill to contact each of TDC and Bidder F and to inform (i) TDC that the Company was willing, only if TDC believed it would be able to refine its indicated offering price at the high end of its indicated range, to allow TDC to commence a detailed due diligence investigation, and (ii) Bidder F that the Company was not willing to allow Bidder F to commence a detailed due diligence investigation unless Bidder F increased its offering price to a level competitive with that of the other prospective acquirors and gave assurances of its intention to complete a transaction. Sandler O’Neill communicated the Company’s responses to TDC and Bidder F on March 22, 2011.

 

During a telephone call with Bidder F on March 22, 2011, Sandler O’Neill offered Bidder F access to the Company’s management and additional information to help it revise its indicated offering price. Bidder F indicated that it was uncertain whether it would be willing to increase its offering price but would discuss the matter internally and respond to Sandler O’Neill after a few days. During the next few weeks, Sandler O’Neill communicated frequently with Bidder F. Sandler O’Neill informed Bidder F that Bidder F’s offer was not competitive, but that the difference was not dramatic. Sandler O’Neill also informed Bidder F that Bidder F would not be given access to detailed due diligence information without it indicating a willingness to increase its indicated offering price. Sandler O’Neill also encouraged Bidder F to continue its analysis in order to increase its indicated offering price to a competitive level.

 

On March 22, 2011, the Company’s management and representatives of Sandler O’Neill held a conference call to receive an update from Sandler O’Neill on its discussions with Bidder F and TDC and to discuss the mechanics of setting up an on-line data site that would enable TDC and possibly Bidder F to conduct documentary due diligence. After this call, the Company and Sandler O’Neill set up and began posting documents on the on-line data site.

 

On March 29, 2011, a senior executive of Bidder D telephoned Mr. Byers and communicated Bidder D’s continuing interest in pursuing a transaction with the Company but that Bidder D did not foresee that it would be able to increase its offering price. Conversations between Sandler O’Neill and Bidder D continued after that time. During these discussions, Sandler O’Neill informed Bidder D that the Company was involved in discussions with other parties.

 

Also, on March 29, 2011, Bidder F indicated to Sandler O’Neill that it would not be able to increase its proposal from $38 per share. Sandler O’Neill informed Bidder F that it would not be able to continue to participate in the process at the price it proposed.

 

On March 31, 2011, Sandler O’Neill delivered a letter to TDC on behalf of the Company requesting a revised proposal from TDC by April 20, 2011, indicating, among other things, the value and form of consideration proposed to be offered, further due diligence required, plans with respect to the Company’s operations, management and employees, and required approvals and timing. This letter also informed TDC that the Company would

establish and provide TDC with access to an on-line data site and would make the Company’s senior management team (and, via conference call, its consulting actuaries) available to TDC for a meeting in Jacksonville. This letter also informed TDC that following receipt of TDC’s revised proposal, the Company would determine whether to grant TDC permission to conduct additional due diligence, including a review of the Company’s underwriting and claims files, and further meetings with key members of the Company’s senior management. The letter stated that the Company expected to provide TDC with a draft merger agreement, and to ask TDC to submit its comments on the draft merger agreement along with its definitive proposal by early May, 2011.

 

On April 1, 2011, after conversations with Sandler O’Neill confirming that TDC believed its refined indicated offering price would be in the high end of its indicated $39 to $42 range, TDC was given access to the on-line data site.

 

During the weeks of April 4 and April 11, 2011, representatives of Sandler O’Neill held several conversations with representatives of Macquarie concerning information that TDC would like to be able to review in the on-line data site and concerning the timing and location of a meeting in Jacksonville with the Company’s management team. As a result of these conversations, the time, place, attendees and agenda for a meeting in Jacksonville between representatives of TDC, Macquarie, the Company and Sandler O’Neill were determined. During this time, Sandler O’Neill and the Company’s management also prepared written materials to be provided to TDC and Macquarie at the scheduled meeting. In a conversation on April 13, 2011, Macquarie informed Sandler O’Neill that TDC intended to submit a written proposal on April 20, 2011.

 

On April 14, 2011, Sandler O’Neill indicated to Bidder D that the Company was in non-exclusive discussions with one other party and invited Bidder D to participate in due diligence.

 

On April 15, 2011, Sandler O’Neill contacted Messrs. Kirschner and Anderson and informed them of Sandler O’Neill’s conversations with Bidder F, Bidder D and TDC. In a telephone message to the Board later that day, Mr. Kirschner summarized the information provided by Sandler O’Neill and informed the members of the Board that there would be an informal information session by telephone on April 18, 2011, at which time Sandler O’Neill would provide an update directly to the members of the Board. Mr. Kirschner also informed the members of the Board that he contemplated that a formal meeting of the Board would be held on April 21, 2011 to review and consider TDC’s revised indication of interest and to determine how to proceed. On the afternoon of April 18, 2011, the informal information session was held. Representatives of Sandler O’Neill and Weil participated in the session and Sandler O’Neill’s discussions with Bidder F, Bidder D and TDC were discussed. As a result of Sandler O’Neill’s report, it was tentatively determined that the Board would convene formally on April 21, 2011, one day after the anticipated receipt of TDC’s revised indication of interest, to discuss next steps.

 

On April 19, 2011, representatives of TDC, Macquarie, the Company and Sandler O’Neill met in Jacksonville. In attendance were certain senior executives of TDC, representatives from Macquarie and Sandler O’Neill, and Messrs. Byers, Divita, White and Graham and Louis V. Sicilian, Senior Vice President and Treasurer of the Company’s principal insurance subsidiary. At this meeting, the TDC representatives were provided with written materials prepared by the Company, and Messrs. Byers, White and Divita made oral presentations on the Company generally; the medical professional liability insurance marketplace; the Company’s business strategy, financial performance, claims results, reserve position, reinsurance programs, investment portfolio, and financial projections; and potential synergies available to an acquiror of the Company. The TDC representatives were given the opportunity to ask questions of the Company’s management, and a list of follow-up information desired by TDC was generated. During the time when this meeting was being held, representatives of TDC, the Company and the Company’s consulting actuaries met by telephone to discuss the Company’s reserves and related actuarial matters. At the conclusion of the April 19 meetings, recognizing that TDC would need additional time to consider the information provided to TDC and its actuaries, the Company gave TDC a one-day extension (to April 21, 2011) to submit its revised indication of interest.

 

On April 19, 2011, following up on its conversation with Sandler O’Neill, Bidder D declined to enter the on-line data site.

As a result of the extension given to TDC, notice was given of a meeting of the Board to be held on April 25, 2011, instead of April 21 as previously contemplated.

 

On April 21, 2011, TDC delivered to Sandler O’Neill a revised non-binding indication of interest in acquiring all of the Company’s outstanding shares for $40.50 in cash per share. This letter also outlined TDC’s tentative plans for the future operation of the Company’s business and described the additional confirmatory due diligence that it would need to complete. As a condition to moving forward with its proposal, TDC requested a 21-day exclusivity period, which it stated it believed would be adequate to complete due diligence and to negotiate and enter into a definitive agreement.

 

On April 22, 2011, representatives of the Company, Weil and Sandler O’Neill conferred by telephone with respect to the revised TDC proposal and the upcoming meeting of the Board.

 

On April 25, 2011, the Board met in Jacksonville. Representatives of Sandler O’Neill and Weil also attended by teleconference. At this meeting, Sandler O’Neill reported that it had contacted representatives of Bidder D that morning and had informed Bidder D that the Company had received a proposal from a qualified purchaser that was close but superior in price to the proposal made by Bidder D in its February 3 proposal letter. Sandler O’Neill also informed Bidder D that Bidder D needed promptly to commence a serious due diligence effort if it wished to continue to be considered a viable potential acquiror of the Company. Later that morning, Bidder D contacted Sandler O’Neill and confirmed that it desired access to the on-line data site.

 

After providing this update with respect to Bidder D to the Board, Sandler O’Neill reviewed the terms of TDC’s revised proposal and gave a presentation, which included updated valuation, market and financial data, projected financial information for the Company on a stand-alone basis and a net present value analysis of the revised TDC proposal. At the conclusion of this meeting, the Board authorized Sandler O’Neill to continue discussions with both Bidder D and TDC in an effort to obtain the highest and best offer for the Company and to negotiate the terms of a definitive acquisition agreement as expeditiously as possible.

 

Later on April 25, 2011, Sandler O’Neill contacted Bidder D, made arrangements for Bidder D’s representatives to have access to the on-line data site, and reiterated the need for Bidder D to perform and complete its due diligence and to increase its indicated offering price. Sandler O’Neill also contacted TDC and informed TDC that the Company was evaluating one other offer, which was close in terms of price to that of TDC. Sandler O’Neill also informed TDC that as a result of the existence of a viable competing offer, the Company was not able to grant TDC the exclusivity it had requested but would work with it expeditiously through final due diligence and negotiation of a definitive merger agreement, a draft of which would be promptly supplied to TDC.

 

On April 26, 2011, Macquarie communicated an inquiry to Sandler O’Neill about the price at which the Company would enter into exclusive negotiations. As instructed by the Company based upon the Board’s prior deliberations, Sandler O’Neill responded that a preemptive price would be $42 per share. Macquarie agreed to discuss this with TDC.

 

On April 27, 2011, Macquarie informed Sandler O’Neill that TDC was willing to continue without an exclusivity arrangement at its current offer of $40.50 per share. On that date, Sandler O’Neill sent an email to Bidder D and TDC enclosing a form of definitive merger agreement prepared by the Company’s counsel and requested TDC and Bidder D to provide by May 13, 2011 the final terms of their respective offers for the Company, as indicated by their markups of the form of definitive merger agreement.

 

During the period from April 27 through May 13, 2011, representatives of the Company and Sandler O’Neill held numerous telephone conversations with representatives of TDC and Bidder D concerning due diligence questions and requests, and the Company prepared and posted in the on-line data site additional information requested by TDC and Bidder D.

 

On May 2 and 3, 2011, members of TDC’s management and representatives of Macquarie met with members of the Company’s management and a representative of Sandler O’Neill and reviewed additional information requested by TDC at the Company’s offices in Jacksonville. On May 4 and 5, 2011, members of

Bidder D’s management met with members of the Company’s management and representatives of Sandler O’Neill and reviewed additional information requested by Bidder D at the Company’s offices in Jacksonville.

 

On May 6, 2011, a member of Bidder F’s senior management called Sandler O’Neill to inquire about the status of the Company’s sale process. Sandler O’Neill informed Bidder F that the process was ongoing, and asked Bidder F whether its indicated offer price remained at $38 per share.

 

From May 9, 2011 through May 10, 2011, TDC conducted additional on-site due diligence. During the same time period, Bidder F reconfirmed to Sandler O’Neill its interest in the Company at $38 per share but indicated no interest at a higher price.

 

On May 13, 2011, each of TDC and Bidder D delivered to Sandler O’Neill letters containing revised indications of interest in acquiring the Company and markups of the Company’s form of merger agreement. Bidder D’s letter indicated that after conducting more extensive due diligence, Bidder D had concluded that the best price it could offer would be $38 per share in cash, subject to certain conditions. TDC’s letter contained TDC’s final proposal to acquire all of the Company’s outstanding shares of common stock for $42 in cash, subject to its being granted a seven-day exclusivity period and subject to limited confirmatory due diligence. After receipt of these letters, Sandler O’Neill contacted Bidder D and TDC and informed them that the Board had scheduled a meeting for May 16, 2011 to consider the revised proposals, and that Sandler O’Neill would contact Bidder D and TDC promptly after the conclusion of the meeting to convey the determinations of the Board.

 

On May 16, 2011, the Board met in Jacksonville. Representatives of Sandler O’Neill and Weil, as well as certain members of the Company’s senior management, also attended. A written presentation by Sandler O’Neill to the Board had been previously provided to the Board. At this meeting, Sandler O’Neill reported that on May 13, 2011, it had received letters containing revised non-binding indications of interest from Bidder D and TDC and described in detail the proposals contained in those letters. Sandler O’Neill gave a presentation, which included updated valuation, market and financial data, including a comparison of implied transaction multiples, the Company’s relative stock price performance, the Company’s preliminary first quarter financial results, analyst estimates of the Company’s future performance, historical price/book value and other multiples of the Company and its peers, data concerning recent public company acquisitions in the U.S. property and casualty insurance sector, transaction statistics for selected recent medical professional liability insurance company acquisitions, projected financial information for the Company on a stand-alone basis, and a net present value analysis of the revised Bidder D and TDC proposals. At the conclusion of this meeting, the Board authorized the Company’s execution and delivery of TDC’s proposal letter, solely for purposes of agreeing to the seven-day exclusivity period and confidentiality obligations contained therein, and authorized Messrs. Kirschner and Byers, in consultation with members of the Company’s management and the Company’s advisors, to negotiate the terms of a merger agreement reflecting TDC’s proposal, subject to review by and the approval of the Board. The Board also authorized individual members of the Company’s management, to the extent required by TDC, to discuss with TDC employment and related matters in connection with the TDC proposal, provided that such member or members of the Company’s management kept the Chairman of the Board and the Chairman of the Compensation Committee apprised of the content of all such discussions.

 

On May 17, 2011, Weil sent a revised draft of the merger agreement to TDC’s legal advisors, Farella Braun & Martel LLP (referred to herein as “Farella”). During the ensuing period, Weil and representatives of the Company negotiated the terms of the merger agreement with representatives of TDC and Farella. Revised drafts of the merger agreement were circulated early in the morning on May 20, 2011 and late in the evening on May 20, 2011, by Farella and Weil respectively. Farella provided a list of the remaining outstanding issues in the merger agreement on May 21, 2011. Weil provided written responses to the issues raised by Farella on May 22, 2011, and Weil, representatives of the Company and Farella discussed the remaining issues on a teleconference held on May 22, 2011. Farella circulated a revised draft of the merger agreement in the evening of May 22, 2011, reflecting these discussions.

 

On May 18, 2011, TDC conducted final on-site due diligence.

On May 23, 2011, the Board met to consider and review the terms of the proposed merger agreement between TDC, Merger Sub and the Company. Representatives of Sandler O’Neill, Weil and the Company’s management were also in attendance. At the meeting, representatives of Sandler O’Neill made a presentation as to their financial analyses with respect to TDC’s proposed merger consideration of $42 per share in cash. Sandler O’Neill then delivered to the Board its oral opinion, which was subsequently confirmed in writing, dated May 23, 2011, that as of such date, and based on and subject to the various limitations and assumptions described in the opinion, the $42 per share in cash to be paid to the holders of the outstanding shares of the Company’s common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders (a copy of the written opinion of Sandler O’Neill is attached to this proxy statement as Annex B). The Board then discussed with Company management and representatives of Sandler O’Neill and Weil the proposed transaction with TDC, and Weil’s representative reviewed the terms of the proposed merger agreement. In addition, Weil’s representative reviewed with the Board its fiduciary duties in connection with the review and, if applicable, approval of the proposed transaction with TDC.

 

After careful consideration and discussion, the Board unanimously voted to adopt resolutions approving and declaring advisable the execution, delivery and performance of the Merger Agreement and the transactions contemplated thereby, and determined that the Merger Agreement and the transactions contemplated thereby (including the Merger) were advisable and in the best interests of the Company’s shareholders.

 

Following the Board meeting on May 23, 2011, the parties finalized the terms of the Merger Agreement in accordance with the terms discussed with the Board, and TDC, Merger Sub, and the Company executed the Merger Agreement. On the morning of May 24, 2011, TDC and the Company issued a joint press release announcing the Merger.

 

The Board, with the advice and assistance of the Company’s management and its legal and financial advisors, at a meeting on May 23, 2011, carefully evaluated the proposed Merger, including the terms and conditions of the Merger Agreement. Following such evaluation, the Board unanimously (i) determined that the Merger Agreement and the Merger are advisable and in the best interests of the Company and its shareholders, (ii) approved the Merger Agreement and (iii) resolved to recommend the approval and adoption of the Merger Agreement to the Company’s shareholders.

 

In the course of reaching its determination, the Board consulted with the Company’s management and its legal and financial advisors and considered a number of substantive factors and potential benefits of the Merger. The Board believed that, taken as a whole, the following factors, among others, supported its decision to approve and recommend the proposed Merger and the Merger Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

In addition, the Board was aware of and considered the interests that the Company’s directors and executive officers may have with respect to the Merger that may differ from, or may be in addition to, their interests as shareholders of the Company, as described in the section of this proxy statement entitled “The Merger — Interests of Certain Persons in the Merger.”

 

The Board also considered and balanced against the expected benefits of the Merger a number of potential risks or adverse factors concerning the Merger, including but not limited to the following:

 

 

 

 

 

 

The Board also considered a number of factors relating to the procedures involved in the negotiation of the Merger Agreement, including that the Board:

 

 

The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive but, we believe, includes all material factors considered by the Board in considering the Merger. In view of the wide variety of factors and the amount of information considered, as well as the complexity of these matters, the Board did not find it practicable to, and did not attempt to, quantify or assign relative weights to the above factors or the other factors considered by it. In addition, the Board did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Board may have given different weights to different factors.

 

The Board unanimously recommends that the Company’s shareholders vote “FOR” the approval and adoption of the Merger Agreement, “FOR” the Adjournment Proposal and “FOR” the proposal to approve, on a non-binding advisory basis, the compensation that may be received by the Company’s named executive officers in connection with the Merger.

 

The Company is including in this proxy statement certain non-public financial forecasts for the years ending December 31, 2011, 2012 and 2013, respectively (referred to herein as the “Company projections”) that the Company’s management prepared for the Board in connection with its consideration of the Merger. The Company projections also were provided to the Company’s financial advisor. See “The Merger — Opinion of Sandler O’Neill + Partners, L.P.,” beginning on page 40. The Company projections were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC or the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally accepted accounting principles but, in the view of the Company’s management, were prepared on a reasonable basis and reflected the best then-currently available estimates and judgments of the Company’s management relevant to strategic planning and budgeting. The inclusion of the Company projections in this document should not be regarded as an indication that the Company or any other recipient of this information considered, or now considers, this information to be necessarily predictive of actual future results. The inclusion of the Company projections in this document does not constitute an admission or representation by the Company that such information is material.

 

The Company projections were prepared by, and are the responsibility of, the Company’s management and are unaudited. Neither the Company’s independent registered public accounting firm, nor any other independent auditor, has compiled, examined or performed any procedures with respect to the prospective financial information contained in the Company projections, nor have they expressed any opinion or given any form of assurance on the Company projections or their achievability. They assume no responsibility for, and disclaim any association with, the prospective financial information contained therein. Furthermore, the Company projections:

 

 

 

The Company projections were prepared by the Company’s management based on information management had at the time of preparation and are not a guarantee of future performance. The Company projections were, in general, prepared solely for use by the Board and the Company’s financial advisor and are subjective in many respects and thus subject to interpretation. The Company cannot assure you that the Company projections will be realized or that its future financial results will not materially vary from such projections. The Company projections cover multiple years and such information by its nature becomes less predictive with each succeeding year.

 

The Company projections do not necessarily take into account any circumstances or events occurring after the date they were prepared. The Company has not updated or revised, and does not intend to update or otherwise revise, the Company projections to reflect changes in circumstances since the preparation of the Company projections, including changes in general economic or industry conditions, or to reflect the occurrence of unanticipated events or changes in assumptions underlying the Company projections, even in the event that any or all of the underlying assumptions are shown to be in error. The Company projections are forward-looking statements. For additional information on factors that may cause the Company’s future financial results to materially vary from the Company projections, see the section of this proxy statement entitled “Cautionary Statement Concerning Forward-Looking Information” beginning on page 19.

 

Company Projections (Including Key Assumptions)

 

The Company also provided certain financial projections (for the years ending December 31, 2011, 2012 and 2013) to TDC in connection with TDC’s evaluation of the proposed Merger. The financial projections provided to TDC were prepared using the same assumptions, and contained substantially the same projections, as the Company projections, except that the projections provided to TDC assumed that the Company’s share repurchases pursuant to its Rule 10b5-1 plan would cease after the results of the first quarter of 2011 were reported. This specific assumption was modified to reflect the Company’s financial prospects going forward as a wholly owned subsidiary of TDC (rather than on a stand-alone basis). This modified assumption with respect to the Company’s share repurchase plan impacted the Company’s projections with respect to net investment income (as a result of the increase in Company assets available for investment). The impact on net investment income, as well as the decrease in total share repurchases, affected the projections for certain items, including total revenues, operating earnings and book value per share, that were provided to TDC, as reflected in the table below:

 

 

By letter dated March 31, 2010, the Company retained Sandler O’Neill to act as its financial advisor in connection with the Company’s consideration of potential strategic alternatives, including a possible sale of the Company. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of insurance companies and their securities in connection with mergers and acquisitions and other corporate transactions.

 

Sandler O’Neill acted as financial advisor to the Company in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the Merger Agreement. At the May 23, 2011 meeting at which the Board considered and approved the Merger Agreement, Sandler O’Neill delivered to the Board its oral opinion that, as of such date, the merger consideration was fair to the holders of the Company’s common stock from a financial point of view.

 

The full text of Sandler O’Neill’s opinion is attached hereto as Annex B. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the opinion. The Company’s shareholders are urged to read the entire opinion carefully in connection with their consideration of the Merger.

 

Sandler O’Neill’s opinion speaks only as of the date thereof. The opinion is directed to the Board and is directed only to the fairness of the merger consideration to the Company’s shareholders from a financial point of view. It does not address the underlying business decision of the Company to engage in the Merger or any other aspect of the Merger and is not a recommendation to any Company shareholder as to how such shareholder should vote at the special meeting with respect to the Merger or any other matter.

 

In connection with rendering its May 23, 2011 opinion, Sandler O’Neill reviewed and considered, among other things:

 

 

 

Sandler O’Neill also discussed with certain members of the Company’s senior management the business, financial condition, results of operations and prospects of the Company.

 

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to Sandler O’Neill by the Company or its representatives or that was otherwise reviewed by Sandler O’Neill and assumed such accuracy and completeness for purposes of rendering its opinion. Sandler O’Neill further relied on the assurances of the Company’s management that the Company’s management was not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Sandler O’Neill was not asked to and did not undertake an independent verification of any of such information, and it does not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of the Company or any of its subsidiaries, or the collectability of any such assets, nor was Sandler O’Neill furnished with any such evaluations or appraisals. Sandler O’Neill is not an expert in the evaluation of reserves for property and casualty insurance losses and loss adjustment expenses, and it did not make an independent evaluation of the adequacy of the loss and loss adjustment expense reserves of the Company. In that regard, Sandler O’Neill made no analysis of, and expressed no opinion as to, the adequacy of the loss and loss adjustment expense reserves of the Company.

 

With respect to the internal financial projections as prepared by the Company’s senior management and used by Sandler O’Neill in its analyses, the Company’s management confirmed to Sandler O’Neill that they reflected the best currently available estimates and judgments of management of the future financial performance of the Company, and Sandler O’Neill assumed that such financial results would be achieved. Sandler O’Neill expressed no opinion as to such financial projections or the assumptions on which they are based. Sandler O’Neill also assumed that there had been no material change in the Company’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to it. Sandler O’Neill assumed in all respects material to its analysis that the Company would remain a going concern for all periods relevant to its analyses, that all of the representations and warranties contained in the Merger Agreement and all related agreements are true and correct, that each party to the agreements will perform all of the covenants required to be performed by such party under the agreements, and that the conditions precedent in the agreements would not be waived. Finally, with the Company’s consent, Sandler O’Neill relied upon the advice the Company received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Merger and the other transactions contemplated by the Merger Agreement.

 

Sandler O’Neill’s opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Events occurring after the

date of its opinion could materially affect its opinion. Sandler O’Neill did not undertake to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof.

 

Sandler O’Neill’s opinion is directed to the Board in connection with the Board’s consideration of the Merger and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the Merger. Sandler O’Neill’s opinion is directed only to the fairness, from a financial point of view, of the merger consideration to holders of the Company’s common stock and does not address the underlying business decision of the Company to engage in the Merger, the relative merits of the Merger as compared to any other alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage.

 

Summary of Proposal

 

Sandler O’Neill reviewed the financial terms of the proposed transaction. Based on the merger consideration of $42.00 per share in cash and using common shares, unvested restricted shares, and options outstanding as of March 31, 2011, Sandler O’Neill calculated an aggregate transaction value(1) of $364.5 million, which was comprised of consideration related to common shares outstanding of $350.7 million, unvested restricted shares of $4.2 million and outstanding stock options of $9.6 million. Sandler O’Neill calculated the following transaction ratios:

 

 

 

 

Historical Stock Price Performance Analysis

 

Sandler O’Neill reviewed the stock price performance of the Company’s common stock, the Standard & Poor’s 500 Index, the Standard & Poor’s Property & Casualty Index and the stock price performance of ProAssurance Corporation (referred to herein as “ProAssurance”) for the one and three year periods ended May 20, 2011.

The results of these analyses are summarized as follows:

 

 

 

 

Source: SNL Financial

 

Sandler O’Neill reviewed the historical Price/Book Value Per Share multiples of the Company’s common stock, ProAssurance and a peer group, which Sandler O’Neill determined, for the period between July 9, 2007 and May 20, 2011.

 

The results of these analyses were summarized as follows:

 

 

 

 

Note: Announcement of ACAP’s sale to The Doctor’s Company was on July 8, 2010.

 

Source: SNL Financial

 

Comparable Company Analysis

 

Sandler O’Neill used publicly available information to perform a comparison of selected financial and market trading information for the Company.

 

Sandler O’Neill also used publicly available information to compare selected financial and market trading information for medical professional liability insurance companies consisting of the Company and ProAssurance and a group of commercial property and casualty (referred to herein as “P&C”) insurance companies between $100 million and $1 billion selected by Sandler O’Neill. The selected commercial P&C

companies between $100 million and $1 billion consisted of the following publicly traded insurance companies or holding companies thereof:

 

 

 

 

The analysis compared publicly available financial information for the Company and the mean market data for the medical professional liability insurers and the mean and median market data for the selected commercial P&C companies between $100 million and $1 billion and for all companies included in the analysis as of or for the twelve-month period ended March 31, 2011. The table below sets forth the data based on market data as of May 20, 2011:

 

 

 

 

Analysis of Selected Merger Transactions

 

Sandler O’Neill reviewed nine merger transactions announced from January 1, 2010 through May 20, 2011 involving publicly traded U.S. P&C insurers. In each of the comparable transactions, Sandler O’Neill reviewed the following multiples: (i) transaction equity value to the last twelve months of net operating income, (ii) purchase price per share to estimated earnings per share, (iii) transaction equity value to book value and (iv) transaction equity value to tangible book value, and computed the high, mean, median and low

multiples for these transactions. The transactions reviewed and the high, mean, median and low multiples for the transactions are set forth in the following two tables:

 

 

 

 

Sources: SNL Financial; SEC Filings.

 

 

 

 

Sandler O’Neill also reviewed nine merger transactions announced from January 1, 2005 through May 20, 2011 involving medical professional liability insurers with total equity values greater than $35 million. In each of the comparable transactions involving medical professional liability insurers, Sandler O’Neill reviewed the following multiples: (i) transaction equity value to the last twelve months of net operating income, (ii) purchase price per share to estimated earnings per share, (iii) transaction equity value to book value and (iv) transaction equity value to tangible book value, and computed the high, mean, median and low multiples

for these transactions. The transactions reviewed and the high, mean, median and low multiples for the transactions are set forth in the following two tables:

 

 

 

 

Sources: SNL Financial; Company Filings.

 

 

 

 

Premiums Paid Analysis

 

Sandler O’Neill reviewed premiums to stock price paid in the nine public acquisition transactions described in the Analysis of Selected Merger Transactions.

 

 

 

 

Note: For the CNA Financial/CNA Surety transaction, premiums calculated relative to the closing price on the day prior to CNA announcement of an initial bid of $22.00 on 10/29/10.

 

Source: Pricing data from FactSet.

 

Present Value Analysis

 

Sandler O’Neill performed an illustrative present value analysis to determine a range of implied present values per share of the Company’s common stock based on the Management Stand-Alone Case prepared by the Company’s management, which included the Company projections. Sandler O’Neill used discount rates of 10% to 14%, terminal values calculated using multiple ranges of 1.00x-1.40x shareholders’ equity at December 31, 2013 and 10.0x-14.0x estimated net operating income for 2013 and assumed results were discounted back to March 31, 2011. This analysis resulted in a range of implied present values per share of the Company’s common stock of $25.90 to $42.09.

 

Present Value Per Share(1)(2)

 

 

 

 

 

As described above, Sandler O’Neill’s opinion to the Board was among many factors taken into consideration by the Board in making its determination to approve the Merger Agreement and recommend the Merger. Such decisions were solely those of the Board. The opinion of Sandler O’Neill was provided to the Board and does not constitute a recommendation to any person, including the holders of the Company’s common stock, as to how such person should vote or act on any matter related to the Merger proposal. Sandler O’Neill did not recommend any specific amount of consideration to the Company or the Board or that any specific amount of consideration constituted the only appropriate consideration for the Merger.

 

Under the terms of Sandler O’Neill’s engagement letter, the Company agreed to pay Sandler O’Neill a fee of 1.2% of the aggregate equity value of the transaction, of which $25,000 became payable upon execution of the engagement letter, $20,000 became payable for each quarter thereafter until completion of the Merger or the earlier termination of the engagement, $250,000 became payable upon the delivery of Sandler O’Neill’s fairness opinion to the Board and the balance of which is contingent upon consummation of the Merger. In addition, the Company also agreed to reimburse Sandler O’Neill for its out-of-pocket expenses, and to indemnify Sandler O’Neill against certain liabilities, in connection with its engagement.

 

The Company selected Sandler O’Neill in connection with the preparation of the fairness opinion due to Sandler O’Neill’s reputation as a nationally recognized investment banking firm with substantial experience in similar transactions. Pursuant to a letter agreement, dated March 31, 2010, the Company engaged Sandler O’Neill to act as its financial advisor in connection with evaluating the Company’s strategic alternatives, including a possible sale of the Company. Sandler O’Neill is actively engaged in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions. In the ordinary course of Sandler O’Neill’s business, it may trade in the Company’s securities for its own account or for the accounts of Sandler O’Neill customers, and may at any time hold a long or short position in such securities. Sandler O’Neill has also received investment banking fees from the Company in the past, including for providing a fairness opinion to the Board in connection with the sale of Administrators for the Professions, Inc. to AJB Ventures Inc. during 2006 and serving as financial advisor to the Company for its acquisition of Advocate, MD Insurance Group Inc. in 2009. In the ordinary course of its business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to the Company and TDC and their respective affiliates.

 

In the event that the Company’s shareholders do not approve and adopt the Merger Agreement or if the Merger is not completed for any other reason, neither our shareholders nor holders of equity awards exercisable for or payable in the Company’s common stock will receive any consideration in respect of their shares or awards as a result of the Merger. Instead, the Company will remain an independent public company and the Company’s common stock will continue to be listed and traded on the NASDAQ Global Select Market and registered under the Exchange Act. In addition, if the Merger is not completed, we expect that the Company’s management will operate the business in a manner similar to the manner in which it is currently being operated and that shareholders will continue to be subject to the same risks and opportunities to which they are currently subject, as described in our most recent Quarterly Report on Form 10-Q, filed with the SEC on May 4, 2011 and in our most recent Annual Report on Form 10-K, filed with the SEC on March 9, 2011. Accordingly, if the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your common stock or equity awards. From time to time, the Board will evaluate and review the business operations, properties and capitalization of the Company, among other things, make such changes as are deemed appropriate and may continue to seek to identify strategic alternatives to maximize shareholder value. If the Company’s shareholders do not approve and adopt the Merger Agreement

or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to the Company as fair to, and in the best interests of, our shareholders will be offered, or that the business, prospects or results of operations, financial condition, or cash flows of the Company will not be adversely affected.

 

If the Merger Agreement is terminated under certain circumstances, we will be obligated to pay TDC the Termination Fee. TDC may also be required to pay the Company the Termination Fee under certain circumstances. See the section of this proxy statement entitled “The Merger Agreement — Termination Fees.”

 

The obligations of TDC and Merger Sub under the Merger Agreement are not subject to any condition regarding TDC’s or Merger Sub’s obtaining of funds to consummate the Merger and the other transactions contemplated by the Merger Agreement. TDC and Merger Sub have represented in the Merger Agreement that TDC has, and as of the closing of the Merger, will have, sufficient funds available to fund all of its and Merger Sub’s obligations under the Merger Agreement, including payment of the aggregate merger consideration.

 

The following is a summary of the material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) whose shares of the Company’s common stock are converted into the right to receive cash in the Merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our shareholders. For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of the Company’s common stock that is, for U.S. federal income tax purposes:

 

 

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds the Company’s common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. A partner of a partnership holding the Company’s common stock should consult the partner’s tax advisor regarding the U.S. federal income tax consequences of the Merger to such partner.

 

This discussion is based on current law, which is subject to change, possibly with retroactive effect. The discussion applies only to beneficial owners who hold shares of the Company’s common stock as capital assets, and does not apply to shares of the Company’s common stock received in connection with the exercise of employee stock options or stock otherwise received as compensation, shareholders who hold an equity interest, actually or constructively, in TDC or the surviving corporation after the Merger or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, shareholders subject to the alternative minimum tax, shareholders that have a functional currency other than the U.S. dollar or shareholders who hold the Company’s common stock as part of a hedge, straddle, constructive sale or conversion transaction). This discussion also does not address the U.S. tax consequences to any shareholder who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and does not address the receipt of cash in connection with the

cancellation of options to purchase shares of the Company’s common stock, or any other matters relating to equity compensation or benefit plans. This discussion does not address any aspect of state, local or foreign tax laws.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement

 

The exchange of shares of the Company’s common stock for cash in the Merger will generally be a taxable transaction to U.S. holders for U.S. federal income tax purposes. In general, a U.S. holder whose shares of the Company’s common stock are converted into the right to receive cash in the Merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding taxes) and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such shares. Gain or loss will be determined separately for each block of shares of the Company’s common stock (i.e., shares of the Company’s common stock acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that the U.S. holder’s holding period for such shares of the Company’s common stock is more than 12 months at the time of the completion of the Merger. Long-term capital gains of non-corporate U.S. holders are generally eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses. The gain or loss will generally be income or loss from sources within the U.S. for foreign tax credit limitation purposes.

 

Backup Withholding and Information Reporting

 

Backup withholding of tax may apply to cash payments to which a U.S. holder is entitled under the Merger Agreement, unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. Each of our U.S. holders should complete and sign, under penalty of perjury, an IRS Form W-9 included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

 

Backup withholding is not an additional tax. Any amounts withheld from cash payments to a U.S. holder pursuant to the Merger under the backup withholding rules will be allowable as a refund or a credit against such U.S. holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.

 

Cash payments made pursuant to the Merger will also be subject to information reporting unless an exemption applies.

 

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the Merger. Because individual circumstances may differ, each shareholder should consult the shareholder’s tax advisor regarding the applicability of the rules discussed above to the shareholder and the particular tax effects to the shareholder of the Merger in light of such shareholder’s particular circumstances and the application of state, local and foreign tax laws.

 

In considering the recommendation of the Board with respect to the Merger Agreement, you should be aware that the Company’s directors and executive officers, including individuals who participated in meetings of the Board regarding the Merger Agreement and the Merger, may have interests in the Merger that are different from, or in addition to, the interests of our shareholders generally, as more fully described below. The Board was aware of these potentially differing interests and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and to recommend that you vote in favor of adopting the Merger Agreement and approving the Merger.

Share Ownership

 

On the record date for the special meeting, the Company’s directors and executive officers beneficially owned, in the aggregate, 645,039 shares of the Company’s common stock (not including shares that may be acquired upon the exercise of Company options), representing approximately 7.7% of the outstanding shares of the Company’s common stock. For additional information concerning the share ownership of our directors and executive officers, see the section of this proxy statement entitled “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers.”

 

Employment and Change in Control Severance Agreements

 

The Company is a party to employment and change in control severance agreements with its executive officers and certain other senior officers. These change in control severance agreements provide that if the employment of an executive officer is terminated by the Company for any reason other than cause, death or disability, or by that executive officer by reason of constructive discharge either during the three-year coverage period (as defined therein) after a change of control of the Company or in contemplation of a change in control of the Company, the Company will pay severance in a lump sum cash amount equal to three times, in the case of Mr. Byers, or two times, in the case of Messrs. Divita or White, the sum of the affected executive officer’s (i) annual salary and (ii) the greater of the target incentive award opportunity for the current calendar year or the average of the annual incentive awards for the three prior calendar years. In addition, the affected executive officer’s stock options, restricted stock and other long-term incentives would immediately vest, and the executive officer would receive benefits for a two-year period (these benefits include life, health and disability insurance, benefits under our defined benefit plan and deferred compensation agreement, employer contributions to our 401(k) Plan and perquisites). In the case of Mr. Byers, in the event that payments or benefits under the severance agreement are subject to the excise tax imposed by Section 4999 of the Code or any interest, penalty or addition to tax with respect to such excise tax, the severance agreement provides for cash gross-up payments intended to put him in the same position as though no excise tax, penalty or interest had been imposed upon or incurred as a result of any payment or benefits.

 

The Company has agreed to reimburse the reasonable fees of one legal counsel to its executive officers and three other executives in connection with the review and possible modification of employment and severance arrangements with respect to compliance with provisions of the Code.

 

Severance Payments

 

In the Merger Agreement, the Company and TDC acknowledge and agree that (i) the consummation of the Merger will constitute a “Change in Control” under the change in control severance agreements and each other employee benefit plan to which such term is relevant, and (ii) after the effective time of the Merger, TDC will not, and will not permit the surviving corporation to, dispute any assertion by any of the Company’s executive officers and three other senior officers that the consummation of the Merger constitutes valid grounds for such employee to terminate his or her employment with the surviving corporation by reason of his or her “Constructive Discharge” within the meaning of such executive’s change in control severance agreement.

 

Immediately after the effective time of the Merger, TDC will cause the surviving corporation to pay into a rabbi trust for the benefit of each of the abovementioned executives who executes a mutually agreeable release a specified amount in cash equal to the amount of the severance benefit to which such executive is entitled under his or her change in control severance agreement. Payout of these amounts from the rabbi trust to these executives will be made as soon after termination of these executives’ employment with the Company as permitted by law (including Section 409A of the Code) and in accordance with the terms of each executive’s change in control severance agreement.

 

The following table sets forth the approximate amounts of the payments to be made by the Company into the rabbi trust for the benefit of Messrs. Byers, Divita and White and the other senior officers of the Company (other than in respect of 2011 annual bonus and certain other matters).

 

 

Additional information concerning these payments can be found under the heading “Golden Parachute Compensation” below.

 

Continuing Employment with the Surviving Corporation

 

TDC may request certain of the Company’s executives to continue their employment with the surviving corporation on an interim or long-term basis, with compensation and other terms of such employment to be negotiated between TDC and such executives.

 

Non-Competition Provisions

 

Each of Messrs. Byers, Divita and White and one other senior officer of the Company will continue to be subject to the non-competition provisions contained in their respective employment agreements for one year after their respective separations from service with the Company, unless otherwise agreed between such executive and TDC.

 

Cash Payment for Outstanding Options

 

Under the terms of the Merger Agreement, outstanding Company options will be cancelled in exchange for a payment to the option holder, for each share of the Company’s common stock underlying such option, of an amount in cash equal to the excess of $42.00 over the applicable per share exercise price of such option. Information with respect to cancellation and payment for unexercised Company options held by our executive officers is set forth under the heading “Golden Parachute Compensation” below. The following table sets forth information concerning the payments that our non-employee directors will receive in consideration of the cancellation of their stock options:

 

 

Acceleration of Vesting of Restricted Stock Awards

 

Under the terms of the Company’s Omnibus Incentive Plan and Director Stock Plan and the Merger Agreement, restricted stock awards that have not yet vested will become fully vested immediately prior to the effective time of the Merger, which constitutes a change in control under these plans. Immediately prior to the effective time of the Merger, each share of restricted stock will become fully vested and will be converted into the right to receive $42.00 in cash without interest. Information with respect to the acceleration and payment for unvested restricted stock held by our executive officers is set forth under the heading “Golden Parachute Compensation” below. The following table sets forth information concerning the payments that our

non-employee directors will receive in exchange for the shares of restricted stock the vesting of which is accelerated as a result of the Merger:

 

 

Cancellation and Payout of Performance Units

 

Under the terms of the Company’s Omnibus Incentive Plan and the Merger Agreement, immediately prior to the effective time of the Merger, each unpaid performance unit awarded under our Omnibus Incentive Plan will become fully vested and payable and, effective as of the effective time of the Merger, each such performance unit will be cancelled in exchange for a cash payment equal to (x) the Payout Percentage (which is 143% for performance units granted on January 4, 2010 and 100% for performance units granted on December 10, 2010) applicable to such performance unit, multiplied by (y) $42.00. Information with respect to cancellation and payout of performance units held by our executive officers is set forth under the heading “Golden Parachute Compensation” below.

 

Termination of the ESPP

 

Under the terms of the Merger Agreement, immediately prior to the effective time of the Merger, the account of each participant in our ESPP for the 2011 plan year will be cancelled and exchanged for the right to receive a cash payment equal to (x) $42.00 multiplied by (y) the total number of notional shares purchased by such participant under the ESPP. The number of notional shares is equal to the amount of each such participant’s 2011 payroll deductions under the ESPP prior to the effective time of the Merger divided by $30.71 (85% of the fair market value (determined in accordance with the terms of the ESPP) of the Company’s common stock on January 14, 2011). Information with respect to cancellation and payment for accounts of our executive officers under the ESPP is set forth under the heading “Golden Parachute Compensation” below.

 

Distribution of Accounts under Deferred Compensation Plan

 

In accordance with its terms, accounts in our Deferred Compensation Plan will be distributed in a lump sum, subject to the requirements of Section 409A of the Code, to participants within 90 days of a participant’s separation from service, provided that such separation from service occurs within 24 months after the effective time of the Merger. All amounts to be paid under such plan are fully vested without regard to the Merger. The

following table sets forth the balances in the accounts of our executive officers and directors under our Deferred Compensation Plan at June 24, 2011:

 

 

Deferred Compensation Agreements

 

Effective December 31, 2008, we entered into Deferred Compensation Agreements with Messrs. Byers, Divita and White to replace the benefits previously provided to these employees by our terminated Excess Benefit Plan and Supplemental Executive Retirement Plan. Among other things, the Deferred Compensation Agreements require annual contributions to the accounts of Messrs. Byers, Divita and White under our Deferred Compensation Plan. These agreements will continue in force until the executives’ respective separations from service.

 

Annual Bonus

 

The surviving corporation will comply with the terms of the Company’s 2011 Executive Incentive Compensation Plan and 2008 Senior Executive Annual Incentive Plan, as currently in effect; provided, that all bonuses in respect of 2011 shall be paid at 100% of the target bonus; and, provided, further, that employees of the Company whose employment with the Company is terminated effective at or after the effective time of the Merger will be entitled to, in addition to their severance benefits, if any, a portion (equal to the portion of the calendar year elapsed to the date of termination of employment) of their respective target bonuses under the 2011 Executive Incentive Compensation Plan and/or the 2008 Senior Executive Annual Incentive Plan, payable at the date of termination of employment or as soon as reasonably practicable thereafter.

 

Indemnification; Insurance

 

For not less than six years from and after the effective time of the Merger, TDC is required to cause the surviving corporation to indemnify and hold harmless all past and present directors, officers, employees and agents of the Company to the same extent such persons are indemnified as of the date of the Merger Agreement by the Company pursuant to the Company’s articles of incorporation, bylaws and any indemnification agreements in existence on the date of the Merger Agreement for acts or omissions occurring at or before the effective time of the Merger.

 

TDC will be required to maintain the Company’s current director and officer (referred to herein as “D&O”) insurance policy (or an equivalent policy) for a period of six (6) years from the effective time of the Merger (at a cost of no more than 250% of the current annual premium). Notwithstanding the foregoing, prior to the effective time of the Merger, the Company may, at its option, purchase a “tail” insurance policy to cover present and former officers and directors of the Company for a period of six (6) years from the effective time of the Merger. In this case, TDC and the surviving corporation agree to maintain such “tail” policy in full force and effect.

 

For further information regarding the indemnification and insurance required by the Merger Agreement to be provided by TDC and the surviving corporation to all past and present directors, officers, employees and agents of the Company, see the section of this proxy statement entitled “The Merger Agreement — Director and Officer Indemnification and Insurance.”

Golden Parachute Compensation

 

The following table sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each named executive officer of the Company that is based on or otherwise relates to the Merger. This compensation is referred to as “golden parachute” compensation. The “golden parachute” compensation payable by the Company to these individuals is subject to a non-binding, advisory vote of the Company’s shareholders, as described under “Advisory Vote on Golden Parachute Compensation” on page 82, and assumes the following:

 

 

 

 

 

 

 

 

 

Stock Options

 

Restricted Stock

 

 

Performance Units