<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from _______to ______.
Commission file number 1-11983
FPIC Insurance Group, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-3359111
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204
(Address of principal executive offices) (Zip Code)
(904) 354-5910
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of July 31, 1999 there were 9,890,463 shares of the registrant's common stock
outstanding.
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Part I - Financial Information
<S> <C>
Item 1. Consolidated Financial Statements (unaudited) of FPIC
Insurance Group, Inc. and Subsidiaries:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Part II - Other Information
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
<PAGE> 3
FPIC INSURANCE GROUP, INC.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(unaudited)
1999 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,918,475 7,062,695
Bonds and U.S. Government securities, available for sale 334,281,633 325,922,559
Equity securities 10,298,439 10,327,990
Other invested assets 4,581,524 4,171,771
Real estate investments 5,107,825 4,581,671
------------- -----------
Total cash and investments 356,187,896 352,066,686
Premiums receivable 50,552,108 40,296,590
Accrued investment income 5,224,215 4,981,612
Reinsurance recoverable 1,997,438 3,190,042
Due from reinsurers on unpaid losses and advance premiums 54,511,067 42,100,852
Property and equipment 2,889,846 2,614,686
Deferred policy acquisition costs 2,227,931 2,001,248
Deferred income taxes 17,859,855 9,348,494
Finance charge receivable 419,628 370,875
Prepaid expenses 1,073,859 644,336
Intangible assets 75,518,852 16,586,261
Federal income tax receivable 450,210 271,029
Other assets 7,157,008 4,905,757
------------- -----------
Total assets $ 576,069,913 479,378,468
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loss and loss adjustment expenses $ 266,989,000 242,377,000
Unearned premiums 62,986,362 44,309,691
Paid in advance and unprocessed premiums 2,930,888 5,767,080
Short-term debt 58,177,797 27,165,000
Accrued expenses and other liabilities 12,564,793 8,829,169
------------- -----------
Total liabilities 403,648,840 328,447,940
------------- -----------
Commitments and contingencies
Common stock, $.10 par value, 50,000,000 shares authorized; 9,868,797 and
9,518,679 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 986,880 951,868
Additional paid-in capital 47,017,696 34,297,994
Unearned compensation (293,585) (356,528)
Accumulated other comprehensive income (342,278) 5,621,533
Retained earnings 125,052,360 110,415,661
------------- -----------
Total shareholders' equity 172,421,073 150,930,528
------------- -----------
Total liabilities and shareholders' equity $ 576,069,913 479,378,468
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
(unaudited)
--------------------------------------------------------------
Three months ended June 30 Six months ended June 30
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Net premiums earned $26,549,586 22,954,687 54,133,175 40,809,986
Net investment income 4,880,776 4,372,425 9,332,524 8,712,179
Net realized investment gains (losses) 9,298 (32,497) 313,356 (47,219)
Claims administration and management fees 6,205,022 2,513,422 12,439,337 5,103,421
Commission income 1,230,607 242,839 1,977,360 468,943
Finance charge and other income 482,778 408,995 1,170,692 899,241
----------- ---------- ---------- ----------
Total revenues 39,358,067 30,459,871 79,366,444 55,946,551
----------- ---------- ---------- ----------
EXPENSES
Net losses and loss adjustment expenses 14,725,790 18,164,209 33,374,912 32,682,159
Other underwriting expenses 6,491,780 2,584,922 10,494,491 4,369,929
Claims administration and management expenses 6,159,814 2,365,344 12,078,484 4,657,084
Interest expense 911,898 71,374 1,754,939 71,374
Other expenses 1,044,581 238,869 2,133,858 427,435
----------- ---------- ---------- ----------
Total expenses 29,333,863 23,424,718 59,836,684 42,207,981
----------- ---------- ---------- ----------
Income before income taxes 10,024,204 7,035,153 19,529,760 13,738,570
Income taxes 2,621,939 1,988,666 4,893,061 3,906,975
----------- ---------- ---------- ----------
Net income $ 7,402,265 5,046,487 14,636,699 9,831,595
=========== ========== ========== ==========
Basic earnings per common share $ 0.75 0.55 1.50 1.07
=========== ========== ========== ==========
Diluted earnings per common share $ 0.71 0.52 1.41 1.01
=========== ========== ========== ==========
Basic weighted average common shares outstanding 9,813,626 9,211,851 9,773,179 9,205,918
=========== ========== ========== ==========
Diluted weighted average common shares outstanding 10,453,430 9,719,184 10,412,983 9,713,251
=========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
(unaudited)
--------------------------------------------------------------------
Three months ended June 30 Six months ended June 30
1999 1998 1999 1998
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net Income $ 7,402,265 5,046,487 14,636,699 9,831,595
----------- --------- ---------- ---------
Other Comprehensive Income
Unrealized (losses) gains on securities
Unrealized holding (losses) gains arising
during period (7,463,289) 592,485 (9,488,450) 644,347
Less reclassification adjustment for gains
(losses) included in net income 9,298 (32,497) 313,356 (47,219)
Income tax benefit (expense) related to unrealized
gains and losses on securities 2,671,897 (195,996) 3,211,283 (208,995)
----------- --------- ---------- ---------
Other comprehensive (loss) income (4,782,094) 363,992 (5,963,811) 388,133
----------- --------- ---------- ---------
Comprehensive income $ 2,620,171 5,410,479 8,672,888 10,219,728
=========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
---------------------------------
Six months ended June 30
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,636,699 9,831,595
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 2,702,003 956,822
Realized (gain) loss on investments (313,356) 47,219
Realized loss on sale of property and equipment 16,191 --
Noncash compensation 62,943 --
Net loss (earnings) from equity investments 87,074 (74,612)
Deferred income taxes (346,860) (69,840)
Changes in assets and liabilities:
Premiums receivable, net (6,825,569) (6,498,062)
Accrued investment income, net 176,784 (541,073)
Reinsurance recoverable 1,192,604 (1,392,846)
Due from reinsurers on unpaid losses and advance premiums 832,676 (386,937)
Deposits with reinsurers -- 17,809,790
Deferred policy acquisition costs 35,505 (395,704)
Prepaid expenses and finance charge receivable (59,900) 146,335
Other assets 176,623 (7,638,553)
Loss and loss adjustment expenses (12,687,872) 6,111,538
Unearned premiums 9,851,618 8,969,586
Paid in advance and unprocessed premiums (2,836,192) (2,375,922)
Federal income tax receivable (89,224) (1,728,928)
Accrued expenses and other liabilities (4,747,482) 134,640
------------ ---------
Net cash provided by operating activities 1,864,265 22,905,048
------------ ---------
Cash flows from investing activities:
Proceeds from sale or maturity of bonds and U.S. Government securities 44,256,594 26,173,165
Purchase of bonds and U.S. Government securities (32,162,375) (50,326,165)
Purchase of preferred stock -- (1,000,000)
Purchase of real estate investments (650,906) (261,783)
Purchase of other invested assets (409,753) (2,000,000)
Purchases of property and equipment, net (214,412) (595,796)
Purchase of subsidiary's net other assets and stock (919,303) --
Purchase of intangible assets (49,045,471) --
------------ ---------
Net cash used in investing activities (39,145,626) (28,010,579)
------------ ---------
Cash flows from financing activities:
Receipt of short-term debt 31,012,797 2,000,000
Issuance of common stock, net 1,124,344 333,535
------------ ---------
Net cash provided by financing activities 32,137,141 2,333,535
------------ ---------
Net decrease in cash and cash equivalents (5,144,220) (2,771,996)
Cash and cash equivalents at beginning of period 7,062,695 7,679,822
------------ ---------
Cash and cash equivalents at end of period $ 1,918,475 4,907,826
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
Continued.
6
<PAGE> 7
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
---------------------------------
Six months ended June 30
1999 1998
------------ -------------
<S> <C> <C>
Supplemental disclosure of noncash financing activities:
Interest paid $ 1,754,939 71,374
============ =========
Federal income taxes paid $ 4,200,000 5,068,000
============ =========
Supplemental schedule of noncash investing and financing activities:
The Company purchased all of the capital stock of Administrators
For The Professions for $53,830,370 and a 70% equity interest in
a limited liability company for $2,500,000. In conjunction with
the acquisitions, common stock was issued as follows:
Goodwill and other tangible assets acquired $ 56,330,370 --
Cash paid for the capital stock (44,700,000) --
------------ ---------
Common stock issued and related additional paid-in capital $ 11,630,370 --
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
FPIC INSURANCE GROUP, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
FPIC Insurance Group, Inc. (the Company) is an insurance holding company.
The Company's principal direct and indirect subsidiaries include Florida
Physicians Insurance Company, Inc. (FPIC), Anesthesiologists' Professional
Assurance Company, Inc. (APAC), Administrators For The Professions, Inc.
(AFP), McCreary Corporation (MCC), Employer's Mutual, Inc. (EMI), The
Tenere Group, Inc. (Tenere), Intermed Insurance Company (Intermed) and
Interlex Insurance Company (Interlex).
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries, and have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. These unaudited consolidated
financial statements and notes should be read in conjunction with the
financial statements and notes included in the audited consolidated financial
statements of the Company for the year ended December 31, 1998, which were
filed with the Securities and Exchange Commission on Form 10-K on March 31,
1999.
2. LOSS AND LOSS ADJUSTMENT EXPENSE LIABILITY
The liability for loss and loss adjustment expenses represents management's
best estimate of the ultimate cost of all losses incurred but unpaid. The
estimated liability is continually reviewed and any adjustments that become
necessary are included in current income. Incurred losses and loss adjustment
expenses for the six-month period ended June 30, 1999 and 1998 were
principally determined by considering prior loss experience, loss trends, the
Company's loss retention levels, rate increases, rate of claim closures, and
changes in frequency and severity of claims.
3. INCOME TAXES
Income taxes are accounted for under the asset and liability method. Income
tax expense differs from the normal relationship to financial statement
income principally because of tax-exempt interest income.
8
<PAGE> 9
4. INVESTMENTS
Proceeds from sales of investments available-for-sale were $44,256,594 and
$26,173,165 during the six months ended June 30, 1999 and 1998, respectively.
Gross realized gains and (losses) from investments available-for-sale based
on specific identification were $346,164 and $(32,808) and $81 and $(47,300)
for the six months ended June 30, 1999 and 1998, respectively.
The amortized cost of investments available-for-sale was $335,050,320 and
$327,602,037 as of June 30, 1999 and December 31, 1998, respectively.
5. BUSINESS ACQUISITIONS
The acquisition agreements for MCC and EMI specify additional payments, based
upon earnings, to be made to the sellers from the acquisition date through
2001. The remaining contingent payments and the year of payment for these two
acquisitions are as follows:
<TABLE>
<CAPTION>
MCC EMI
--- ---
<S> <C> <C>
1999 $ 700,000 $250,000
2000 600,000 250,000
2001 -- 250,000
</TABLE>
These payments are subject to adjustment in accordance with the agreements
based on attainment of projected annual earnings from the date of acquisition
through 2001. No individual annual payment will exceed the annual earnings,
and may be reduced if the projected earnings are not attained for that year.
The agreements allow for additional final payments based on the aggregate
earnings compared to the aggregate projected earnings during the earnout
periods. The effect of these subsequent payments is to increase the original
purchase price and the recorded goodwill.
On July 1, 1997, the Company purchased 20% of the common stock of APS
Insurance Services, Inc. (APS), a Texas insurance service corporation, for
$2,000,000. The purchase agreement provides an option to purchase an
additional 35% of the common stock of APS in 1999, allowing the Company 55%
ownership. This investment is accounted for under the equity method. The
market value of APS approximated its book value at June 30, 1999.
On July 1, 1998, the Company purchased all of the outstanding common stock of
APAC, a medical professional liability insurance company, for aggregate
consideration equal to $18,000,000, paid in cash of $9,000,000 and Company
common stock. Additionally, $3,500,000 was paid in non-compete agreements and
other fees to affiliated parties. APAC insures over 700 anesthesiologists in
over 30 states.
Concurrent with the purchase of APAC on July 1, 1998, the Company purchased a
9.9% interest in American Professional Assurance Ltd. (APAL), a Cayman
Islands captive reinsurer, for $5,500,000. The purchase of such interest is
accounted for under the cost method.
9
<PAGE> 10
On January 6, 1999, the Company purchased all of the outstanding common stock
of AFP for aggregate consideration equal to $54,000,000, paid in cash of
$44,000,000 and Company common stock. AFP is the manager and attorney-in-fact
for Physicians' Reciprocal Insurers, the second largest medical professional
liability insurer for physicians in the state of New York.
On March 17, 1999, the Company's subsidiary, FPIC, acquired all of the
outstanding common stock of Tenere for $19,608,000 in cash. Tenere,
headquartered in Springfield, Missouri, is a stock holding company, with two
primary insurance subsidiaries, Intermed and Interlex, which provide medical
and legal professional liability insurance.
6. REINSURANCE
The Company's insurance subsidiaries presently have excess of loss
reinsurance contracts that serve to limit the Company's maximum loss to
$500,000 per occurrence. To the extent that any reinsurer is unable to meet
its obligations, the Company would be liable for such defaulted amounts not
covered by letters of credit. The Company obtains letters of credit from
reinsurers that are not designated as authorized reinsurers by the
Departments of Insurance in the states where it conducts business.
7. COMMITMENTS AND CONTINGENCIES
The Company's insurance subsidiaries are involved in numerous legal actions
arising from insurance policies. The legal actions arising from insurance
policies have been considered by the Company's insurance subsidiaries in
establishing their reserves. While the outcomes of all legal actions are not
presently determinable, management is of the opinion that the settlement of
these actions will not have a material adverse effect on the Company's
financial position or results of operations.
8. BORROWING ARRANGEMENTS
The Company maintains a $75,000,000 revolving credit facility, in which five
banks participate, to meet certain non-operating cash needs as they may
arise. The credit facility terminates January 4, 2002. The Company is not
required to maintain compensating balances in connection with this credit
facility but is charged a fee on the unused portion, which ranges from 20 to
30 basis points. As of June 30, 1999, the Company had borrowed approximately
$58,200,000 against the credit facility for non-operating purposes.
9. SEGMENT INFORMATION
Under the provisions of SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company determined it has two
reportable operating segments, insurance and third party administration and
management (TPA). The insurance segment provides a variety of insurance
products for participants in the healthcare industry including medical
professional liability (MPL) insurance for medical professionals, managed
care liability insurance, professional and comprehensive general liability
insurance for healthcare
10
<PAGE> 11
facilities, provider stop loss insurance, workers compensation insurance, and
group accident and health coverage. The TPA segment provides management
services and third party administration services such as the administration
of self-insurance plans for large employers.
The Company evaluates a segment's performance based on net income or loss.
Intersegment revenues for transactions between the two segments are based on
actual costs incurred and are similar to services that may have been obtained
from an unrelated third party. All segments are managed separately as each
business requires different technology and marketing strategies.
Information by industry segment follows (in thousands):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
---------
External customers:
-------------------
Insurance $31,402 27,524 63,989 50,084
TPA 7,956 2,936 15,377 5,863
------- ------- ------- -------
$39,358 30,460 79,366 55,947
Intersegment:
-------------
Insurance $ 200 190 380 441
TPA 215 37 619 82
------- ------- ------- -------
$39,773 30,687 80,365 56,470
======= ======= ======= =======
Net income:
- -----------
Insurance $ 6,836 4,767 13,743 9,240
TPA 566 279 894 592
------- ------- ------- -------
$ 7,402 5,046 14,637 9,832
======= ======= ======= =======
Identifiable assets:
- --------------------
Insurance $ -- -- 628,201 392,385
TPA -- -- 67,268 8,062
------- ------- ------- -------
$ -- -- 695,469 400,447
======= ======= ======= =======
</TABLE>
The following tables reconcile net income and assets to the Company's
consolidated totals:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income:
- -----------
Reportable segments $ 7,402 5,046 14,637 9,832
Other -- -- -- --
------ ------ ------ ------
Total consolidated $ 7,402 5,046 14,637 9,832
====== ====== ====== ======
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
6/30/99 6/30/98
------- -------
<S> <C> <C>
Total assets:
-------------
Reportable segments $ 695,469 400,447
Inter Segment assets (117,957) (23,019)
Other (1,442) (914)
--------- ---------
Total consolidated $ 576,070 376,514
========= =========
</TABLE>
10. RECONCILIATION OF BASIC AND DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income and income from
continuing operations $ 7,402,265 5,046,487 14,636,699 9,831,595
----------- --------- ---------- ---------
Basic weighted average
shares outstanding 9,813,626 9,211,851 9,773,179 9,205,918
Common stock equivalents 639,804 507,333 639,804 507,333
----------- --------- ---------- ---------
Diluted weighted average
shares outstanding 10,453,430 9,719,184 10,412,983 9,713,251
=========== ========= ========== =========
Basic earnings per share $ 0.75 0.55 1.50 1.07
----------- --------- ---------- ---------
Diluted earnings per share $ 0.71 0.52 1.41 1.01
----------- --------- ---------- ---------
</TABLE>
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of the following discussion and analysis, "Company" refers to
FPIC Insurance Group, Inc., the holding company, and its consolidated
subsidiaries. The Company's principal direct and indirect subsidiaries
include Florida Physicians Insurance Company, Inc. ("FPIC"), McCreary
Corporation ("McCreary"), Anesthesiologists' Professional Assurance Company
("APAC"), Administrators For The Professions, Inc. ("AFP"), and The Tenere
Group, Inc. ("Tenere") and its subsidiaries - Intermed Insurance Company
("Intermed") and Interlex Insurance Company ("Interlex").
The results of operations for the six months ended June 30, 1999 include the
results of AFP from January 6, 1999 and Tenere from March 17, 1999. All amounts
in this discussion and analysis have been rounded to the nearest $100,000.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the audited consolidated financial
statements and notes included in the Company's Form 10-K for the year ended
December 31, 1998, which was filed with the Securities and Exchange Commission
on March 31, 1999.
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements under
many different captions. These forward-looking statements are subject to certain
risks, uncertainties or assumptions. Except for historical information, all
information provided under "Quantitative and Qualitative Disclosures About
Market Risk" and "Year 2000" should be considered forward-looking statements.
Should one or more of these risks, uncertainties or other factors materialize or
should any underlying assumptions prove incorrect, actual results, performance
or achievements of the Company may vary materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
The assumptions underlying certain forward-looking statements are that the
Company will continue to: (i) profitably price its insurance products; (ii)
maintain its underwriting standards; (iii) market its insurance products
competitively; (iv) maintain its successful handling of claims; (v) retain
existing agents and key management personnel; and (vi) reserve adequately for
losses and loss adjustment expenses (LAE). Additionally, the primary risk in
maintaining adequate reserves is unexpected changes in the frequency or severity
of reported claims particularly during the last three report years. Other
important considerations include: (i) the Company's reinsurers remaining solvent
and (ii) competitors not further reducing rates for medical professional
liability (MPL) insurance products.
Many of the forward-looking statements are also premised upon the Company's
successfully continuing its growth strategy. Although the Company has
experienced significant growth in the past through accretive acquisitions, there
can be no assurance that the Company will be able to continue to identify
suitable acquisition candidates, be able to negotiate acquisitions on acceptable
terms, and be able to integrate successfully all acquired businesses. The
Company's diversification of its product portfolio and geographic expansion
present additional risks and
13
<PAGE> 14
uncertainties. These risks and uncertainties include whether the Company can
demonstrate the necessary underwriting and marketing expertise required by these
new products and locations. Many of the forward-looking statements, as well as
many of the Company's strategies, are dependent upon the market price of the
Company's common stock. The Company's common stock can be affected not only by
the Company's financial performance but also by general economic and market
conditions that are not within the Company's control. The liquidity of the
Company's common stock is small compared to the liquidity of many other stocks.
As a result, the Company's common stock may be more volatile. Any adverse
developments with the Company's common stock price could greatly hinder, among
other things, the Company's growth strategy.
Assumptions relating to the foregoing are difficult or impossible to predict
accurately and many are beyond the control of the Company. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
GENERAL
The Company's primary source of revenue is dividends from its subsidiaries. The
primary sources of revenues for these dividends are premiums earned and
investment income derived from the insurance operations of FPIC, APAC, Intermed
and Interlex, and fee and commission income from McCreary and AFP. The Company
concentrates on liability insurance products for the healthcare community, with
MPL insurance for physicians and dentists as its primary product. The Company,
through FPIC, APAC and Intermed, writes MPL insurance, substantially on a
claims-made basis, providing protection to the insured against only those claims
that arise out of incidents occurring and of which notice to the insurer is
given while coverage is effective. The Company recently supplemented its line of
insurance products by adding coverage for small employer group health plans.
On January 6, 1999, the Company purchased all of the outstanding common stock of
AFP, for aggregate consideration equal to $54,000,000, paid in cash of
$44,000,000 and Company common stock. AFP is the manager and attorney-in-fact
for Physicians' Reciprocal Insurers, the second largest MPL insurer for
physicians in the state of New York.
On March 17, 1999, the Company's subsidiary, FPIC, acquired all of the
outstanding common stock of Tenere for $19,608,000 in cash. Tenere,
headquartered in Springfield, Missouri, is a stock holding company, with two
primary insurance subsidiaries, Intermed and Interlex, which provide medical and
legal professional liability insurance.
For information concerning the Company's acquisitions during 1997 and 1998, see
the Company's report on Form 10-K for the year ended December 31, 1998.
The Company's financial position and results of operations are subject to
fluctuations due to a variety of factors. Unexpected high frequency or severity
of losses in any period, particularly in the Company's prior three policy years,
would have a material adverse effect on the Company. Additionally, reevaluations
of the Company's liability for loss and loss adjustment expenses
14
<PAGE> 15
(LAE) could result in an increase or decrease in the liability and a
corresponding adjustment to earnings. The Company's historical results of
operations are not necessarily indicative of future results.
Stock Repurchase Plan
On June 29, 1999, the Company's Board of Directors approved the extension of a
stock repurchase plan pursuant to which the Company is authorized to repurchase,
at management's discretion, up to 500,000 of its shares on the open market over
a twelve-month period. During 1998, 71,000 shares had been repurchased by the
Company pursuant to this plan at a cost of approximately $1,840,000. As of June
30, 1999, the Company has repurchased no additional shares.
SELECTED BALANCE SHEET ITEMS - JUNE 30, 1999 COMPARED TO DECEMBER 31, 1998
As noted above, the Company completed two significant acquisitions in the first
quarter of 1999, AFP and Tenere, both of which were accounted for under the
purchase method. These acquisitions had an impact on certain balance sheet
accounts and the effects are described below.
Due From Reinsurers on Unpaid Losses and Advance Premiums
Due from reinsurers on unpaid losses and advance premiums increased $12.4
million, from $42.1 million at December 31, 1998 to $54.5 million at June 30,
1999 due to the acquisition of Tenere.
Deferred Income Taxes
Deferred income taxes increased $8.6 million, from $9.3 million at December 31,
1998 to $17.9 million at June 30, 1999. Approximately $5 million of the increase
is due to the acquisition of Tenere. The remaining $3.6 million relates to
deferred tax changes due to fluctuations in unrealized gains and losses on
investments available for sale.
Intangible Assets
Intangible assets increased $58.9 million, from $16.6 million at December 31,
1998 to $75.5 million at June 30, 1999. The increase is primarily related to
purchased goodwill, associated with the acquisitions of AFP and Tenere, of $55.0
million and $3.9 million, respectively.
Loss and Loss Adjustment Expenses
The liability for loss and LAE increased $24.6 million, from $242.4 million at
December 31, 1998 to $267.0 million at June 30, 1999. The increase is primarily
due to the acquisition of Tenere and the inclusion of its reserves.
Unearned Premiums
Unearned premiums increase $18.7 million, from $44.3 million at December 31,
1998 to $63.0 million at June 30, 1999. Approximately $8.0 million of the
increase is due to the acquisition of
15
<PAGE> 16
Tenere. The remaining $9.7 million is primarily due to an increase in premiums
assumed during 1999.
Short-Term Debt
Short-term debt increased $31.0 million, from $27.2 million at December 31, 1998
to $58.2 million at June 30, 1999 and is primarily due to additional borrowings
from the credit facility to complete the acquisition of AFP.
Additional Paid-In Capital
Additional paid-in capital increased $12.7 million, from $34.3 million at
December 31, 1998 to $47.0 million at June 30, 1999. This increase is primarily
due to shares issued in connection with the purchase of AFP.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1998.
Premiums
Direct premiums written and assumed increased $12.5 million, or 49%, from $25.7
million for the three months ended June 30, 1998 to $38.2 million for the three
months ended June 30, 1999. The increase in premiums written and assumed is due
to additional health premiums of approximately $1.8 million related to a program
set up for the members of the Florida Dental Association ("FDA"), the
acquisitions of APAC and Tenere, which added $3.0 million and $2.0 million,
respectively, and additional assumed MPL premium of $5.0 million. Net premiums
earned increased $3.5 million, or 15%, from $23.0 million for the three months
ended June 30, 1998 to $26.5 million for the three months ended June 30, 1999.
The increase in net premiums earned is due to the acquisitions of APAC and
Tenere, which added $1.3 million and $2.2 million, respectively.
Net Investment Income
Net investment income increased $0.5 million, or 11%, from $4.4 million for the
three months ended June 30, 1998 to $4.9 million for the three months ended June
30, 1999. The increase in net investment income is due to the inclusion of APAC
and Tenere. No significant change in the yield or duration of the Company's
fixed-income portfolio occurred during the second quarter of 1999.
Claims Administration and Management Fees and Commission Income
Claims administration and management fees and commission income combined
increased $4.6 million, or 164% from $2.8 million for the three months ended
June 30, 1998 to $7.4 million for the three months ended June 30, 1999. The
increase is primarily attributable to the acquisition of AFP, which added $4.0
million in management fees and commissions during the second quarter of 1999.
16
<PAGE> 17
Net Losses and Loss Adjustment Expenses
Net losses and LAE decreased $3.5 million, or 19%, from $18.2 million for the
three months ended June 30, 1998 to $14.7 million for the three months ended
June 30, 1999. The loss and LAE ratios were 79.1% for the three months ended
June 30, 1998 and 55.5% for the three months ended June 30, 1999. The lower loss
ratio in 1999 reflects a change in the mix of business, assumed reinsurance
premium, a rate increase on FPIC's MPL business, a decline in FPIC's frequency
of reported claims and the release of loss reserves prior to the 1997 report
year. These developments were partially offset by adverse development in the
Florida Dental Association ("FDA") health plan. The Company has exhausted a $2.2
million rate stabilization fund that was assumed with the FDA health plan. In
addition, the Company has expended an additional $1.0 million to cover adverse
development in the FDA health plan. To offset such adverse development, as of
April 1, 1999, the Company implemented a rate increase of approximately 15%
related to the FDA health plan, and through agreements with the FDA and vendors
has reduced related administrative expenses by 13.0%.
The decline of FPIC's frequency of reported MPL claims, coupled with a rate
increase, has permitted FPIC to record losses in the current year at a loss
ratio of 90%, which is lower than the 92% loss ratio that was recorded in the
prior year. Interlex recorded losses in the current year at a loss ratio of 80%,
which is lower than the 82.5% loss ratio that was recorded in the prior year.
The Company's other insurance subsidiaries, Intermed and APAC, continued to
record losses in the current year at a loss ratio of 90% and 100%, respectively,
which is consistent with the loss ratio that was recorded in the prior year.
FPIC released reserves related to the prior years' experience of approximately
$8.1 million for the three months ended June 30, 1999 and approximately $4.0
million for the three months ended June 30, 1998.
The liability for losses and LAE represents management's best estimate of the
ultimate cost of all losses incurred but unpaid and considers prior loss
experience, loss trends, the Company's loss retention levels and changes in
frequency and severity of claims. The estimated liability is continually
reviewed and any adjustments that become necessary are included in current
operations. Loss experience on the 1996 and prior report years is developing as
expected and, in some instances, better than expected. However, report years
1997 to present are not mature enough to determine the adequacy of management's
estimates.
Other Underwriting Expenses
Other underwriting expenses increased $3.9 million, or 150%, from $2.6 million
for the three months ended June 30, 1998 to $6.5 million for the three months
ended June 30, 1999. The increase is primarily attributable to an increase in
expenses related to assumed premiums of $1.9 million, general and administrative
expenses of $0.7 million and the inclusion of APAC and Tenere, which, combined,
added $1.1 million. In addition, the Company's health insurance products have a
higher expense factor than the Company's core MPL products.
Claims Administration and Management Expenses
Claims administration and management expenses increased $3.8 million, or 158%,
from $2.4 million for the three months ended June 30, 1998 to $6.2 million for
the three months ended June
17
<PAGE> 18
30, 1999. The increase is primarily attributable to the purchase of AFP, which
added $3.6 million in management expenses during the second quarter of 1999. The
process of converting the computer system for AFP is taking longer than
anticipated. The delay in conversion prevents additional cost reductions
anticipated for AFP in 1999, which were anticipated to be approximately $2.0
million in annualized expenses.
Other Expenses
Other expenses increased $0.8 million or 400%, from $0.2 million for the three
months ended June 30, 1998 to $1.0 million for the three months ended June 30,
1999. The increase is primarily attributable to amortization expense on
intangible assets, recorded in connection with acquisitions accounted for under
the purchase method.
Net Income
For the reasons stated above, net income increased $2.4 million, or 48%, from
$5.0 million for the three months ended June 30, 1998 to $7.4 million for the
three months June 30, 1999. Diluted earnings increased $0.19 per share, or 37%,
from $0.52 per share for the three months ended June 30, 1998 to $0.71 per share
for the three months ended June 30, 1999.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1998.
Premiums
Direct premiums written and assumed increased $20.2 million, or 36%, from $55.5
million for the six months ended June 30, 1998 to $75.7 million for the six
months ended June 30, 1999. The increase in premiums written and assumed is due
to the acquisitions of APAC and Tenere, which added $5.9 million and $2.5
million, respectively, and additional assumed premiums written of $9.0 million.
Net premiums earned increased $13.3 million, or 33%, from $40.8 million for the
six months ended June 30, 1998 to $54.1 million for the six months ended June
30, 1999. The increase in net premiums earned is due to the acquisitions of APAC
and Tenere, which added $2.5 million each, additional assumed MPL premium of
$5.3 million, and additional health premium of $2.8 million.
Net Investment Income
Net investment income increased $0.6 million, or 7%, from $8.7 million for the
six months ended June 30, 1998 to $9.3 million for the six months ended June 30,
1999. The increase in net investment income is due to the inclusion of APAC and
Tenere.
Claims Administration and Management Fees and Commission Income
Claims administration and management fees and commission income increased $8.8
million, or 157%, from $5.6 million for the six months ended June 30, 1998 to
$14.4 million for the six months ended June 30, 1999. The increase is
attributable to the purchase of AFP, which added $8.2 million in management fees
and commissions during the six months ended June 30, 1999.
18
<PAGE> 19
Net Losses and Loss Adjustment Expenses
Net losses and LAE increased $0.7 million, or 2%, from $32.7 million for the six
months ended June 30, 1998 to $33.4 million for the six months ended June 30,
1999. The loss and LAE ratios were 80.1% for the six months ended June 30, 1998
and 61.7% for the six months ended June 30, 1999. The lower loss ratio in 1999
reflects a change in the mix of business, assumed reinsurance premium, a rate
increase on FPIC's MPL business, a decline in FPIC's frequency of reported
claims and the release of loss reserves prior to the 1997 report year. These
developments were partially offset by adverse development in the Florida Dental
Association ("FDA") health plan. The Company has exhausted a $2.2 million rate
stabilization fund that was assumed with the FDA health plan. In addition, the
Company has expended an additional $1.0 million to cover adverse development in
the FDA health plan. To offset such adverse development, as of April 1, 1999,
the Company implemented a rate increase of approximately 15% related to the FDA
health plan, and through agreements with the FDA and vendors has reduced related
administrative expenses by 13.0%.
The decline of FPIC's frequency of reported MPL claims, coupled with a rate
increase, has permitted FPIC to record losses in the current year at a loss
ratio of 90%, which is lower than the 92% loss ratio that was recorded in the
prior year. Interlex recorded losses in the current year at a loss ratio of 80%,
which is lower that the 82.5% loss ratio that was recorded in the prior year.
The Company's other insurance subsidiaries, Intermed and APAC, continued to
record losses in the current year at a loss ratio of 90% and 100%, respectively,
which is consistent with the loss ratio that was recorded in the prior year.
FPIC released reserves related to the prior years' experience of approximately
$13.9 million for the six months ended June 30, 1999 and approximately $7.2
million for the six months ended June 30, 1998.
The liability for losses and LAE represents management's best estimate of the
ultimate cost of all losses incurred but unpaid and considers prior loss
experience, loss trends, the Company's loss retention levels and changes in
frequency and severity of claims. The estimated liability is continually
reviewed and any adjustments that become necessary are included in current
operations. Loss experience on the 1996 and prior report years is developing as
expected and, in some instances, better than expected. However, report years
1997 to present are not mature enough to determine the adequacy of management's
estimate.
Other Underwriting Expenses
Other underwriting expenses increased $6.1 million, or 139%, from $4.4 million
for the six months ended June 30, 1998 to $10.5 million for the six months ended
June 30, 1999. The increase is attributable to the acquisitions of APAC and
Tenere, which added $0.9 million and $0.7 million, respectively, additional
ceding commissions of $2.1 million related to assumed premiums and additional
general and administrative expenses of $2.0 million for the six months ended
June 30, 1999.
Claims Administration and Management Expenses
Claims administration and management expenses increased $7.4 million, or 157%,
from $4.7 million for the six months ended June 30, 1998 to $12.1 million for
the six months ended June
19
<PAGE> 20
30, 1999. The increase is primarily related to the purchase of AFP, which added
$7.0 million in management expenses during the six months ended June 30, 1999.
The process of converting the computer system for AFP is taking longer than
anticipated. The delay in conversion prevents additional cost reductions
anticipated for AFP in 1999, which were anticipated to be approximately $2.0
million in annualized expenses.
Net Income
For the reasons stated above, net income increased $4.8 million, or 49%, from
$9.8 million for the six months ended June 30, 1998 to $14.6 million for the six
months ended June 30, 1999. Diluted earnings increased $.40 per share or 40%,
from $1.01 per share for the six months ended June 30, 1998 to $1.41 per share
for the six months ended June 30, 1999.
Liquidity and Capital Resources
The payment of losses, LAE, and operating expenses in the ordinary course of
business is the principal need for the Company's liquid funds. Cash used to pay
these items has been provided by operating activities. Operating cash flows for
the six months ended June 30, 1999 provided cash of $1,864,265. Management
believes these sources will be sufficient to meet the Company's cash needs for
operating purposes for at least the next twelve months. However, a number of
factors could cause increases in the dollar amount of losses and LAE paid and
may, therefore, adversely affect future reserve development and cash flow needs.
Management believes these factors include, among others, inflation, changes in
medical procedures, increasing influence of managed care and adverse legislative
changes.
The Company maintains a $75 million revolving credit facility with five banks to
meet certain non-operating cash needs as they may arise. The credit facility
terminates January 4, 2002. The Company is not required to maintain compensating
balances in connection with this credit facility but is charged a fee on the
unused portion, which ranges from 20 to 30 basis points. As of June 30, 1999,
the Company had borrowed $58,200,000 against the credit facility for
non-operating purposes.
Dividends payable by the Company's insurance subsidiaries are subject to certain
statutory limitations imposed by the laws in the states in which they operate.
In 1999, insurance subsidiaries are permitted, within insurance regulatory
guidelines, to pay dividends to the Company of approximately $18,300,000 without
regulatory approval.
Accounting Pronouncements
No accounting pronouncements were issued or effective during the quarter ending
June 30, 1999 that would materially affect the Company.
Guaranty Fund Assessments
The Company is subject to assessment by the Florida Insurance Guaranty
Association, Inc. (FIGA) as well as similar associations in other states where
it is licensed, for the provision of funds necessary for the settlement of
covered claims under certain policies of insolvent insurers.
20
<PAGE> 21
In addition to the standard FIGA assessments, the Florida Legislature may levy
special assessments to settle claims caused by certain catastrophic losses. The
Company would be assessed on the basis of premium written. At June 30, 1999, the
provision for special assessments is approximately $113,000. However, damages
caused by future catastrophes, such as hurricanes, could subject the Company to
assessments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
conditions, such as changes in interest rates, spreads among various asset
classes, foreign currency exchange rates, and other relevant market rate or
price changes. Market risk is directly influenced by the volatility and
liquidity in the markets in which the related underlying assets are traded. The
following is a discussion of the Company's primary market risk exposures and how
those exposures are currently managed as of June 30, 1999. The Company's market
risk sensitive instruments are entered into for purposes other than trading.
The fair value of the Company's debt and equity investment portfolio as of June
30, 1999 was $344,580,072. Approximately 97% of the portfolio was invested in
fixed maturity securities. The primary risks to the investment portfolio are
interest rate risk and credit risk associated with investments in fixed maturity
securities. The Company's exposure to equity risk is not significant.
The Company does not believe it has any foreign currency exposure. The Company
does not conduct any operations outside of the United States nor does the
Company own any non-U.S. dollar denominated securities.
Generally, the Company does not invest in derivatives and does not currently use
hedging strategies in its investment portfolio. However, the Company has
invested in one interest rate swap contract to fix the interest rate in
connection with its revolving credit facility. As of June 30, 1999, the
Company's investments in Collateral Mortgage Obligations and Asset Backed
Securities represented less than one percent of the investment portfolio. The
Company's investment portfolio is predominately fixed-income with approximately
55% allocated to the municipal sector. The balance is diversified through
investments in Treasuries, agencies, corporates and mortgage-backed securities.
The three market risks that can most directly affect the investment portfolio
are changes in U.S. interest rates, credit risks and legislative changes
impacting the tax-exempt status of municipal securities.
Adverse impacts to the Company resulting from changes in interest rates are
primarily controlled through limiting the duration, or average maturity, of the
overall portfolio. The Company manages the duration of its portfolio relative to
the duration of the anticipated liabilities of the Company. Credit risks are
controlled through investing in securities with above average credit ratings.
Approximately 59% of the portfolio is AAA, 16% is AA, 5% is A and 20% is BBB
rated. From time to time discussion arises in the United States Congress
relative to changing or modifying the tax-exempt status of municipal securities.
While the Company is diligent in its efforts to stay current on legislative acts
that could adversely impact the tax exempt status of municipal securities, and
while it is uncertain as to whether these changes would ultimately affect
valuation of municipal securities currently held in the portfolio, at present
there are no
21
<PAGE> 22
hedging or other strategies being specifically used to minimize this risk. If
interest rates were to rise 100 basis points, the fair value of the Company's
fixed maturity securities would decrease approximately $16,300,000.
There have been no significant changes to the Company's exposure to financial
market risks during the year nor does the Company anticipate any significant
changes in future reporting periods.
YEAR 2000
The Year 2000 ("Y2K") poses significant issues for organizations across the
country and requires consideration of converting or replacing millions of lines
of computer code. The Y2K issue exists due to program developers creating
databases and programs to store and process a year as a two-digit field.
The Company's Information Systems ("IS") management staff has performed a
thorough review of the Company's operations and the operations of each of its
subsidiaries. These reviews considered the readiness of software systems written
internally and those provided by third parties to process data and perform date
calculations correctly using dates beginning January 1, 2000 and beyond.
Hardware, including servers, PC workstations, network routers, and
communications equipments was reviewed to determine that firmware and operating
system software were Y2K compliant.
The Company fully expects its mission critical software and hardware systems to
be fully functional on January 1, 2000 and beyond. Third parties who provide
software and/or hardware to the Company have been requested to provide
statements of Y2K compliance. Any problems that may occur regarding Y2K are
expected to be minor in nature and not have an impact on the Company's ability
to provide services and products to customers. With respect to contingency plans
for mission critical systems, the Company believes that there are viable
alternatives if these systems are non-compliant. However, the Company has
completed an action plan to resolve all known Y2K issues, and all mission
critical systems are Y2K compliant as of June 30, 1999. The Company will
continue to reassess the need for formal contingency plans, based on progress of
Y2K efforts by the Company and third parties.
The most reasonably possible worst-case scenario involving Y2K issues would be
if one or more of the Company's policyholder systems were found to be
non-compliant. In such event, the Company could experience an interruption in
services, although no loss of current data is anticipated. In addition, if a
third party system is not Y2K compliant, the Company could experience an
interruption in services. Should the worst-case scenario occur, it could,
depending on its duration, have a material impact on the Company's results of
operations and financial position.
The cost to convert the Company to Y2K compliance is not expected to exceed
$150,000. The Company estimates that it has expended approximately $113,000
through June 30, 1999 on Y2K compliance. Regarding future acquisitions, the
Company, as a part of its due diligence, will determine Y2K compliance and its
impact on the dynamics of the acquisition.
22
<PAGE> 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds
The Company's Articles of Incorporation were amended on June 8, 1999
resulting in an increase of the Company's authorized capital stock to
50,000,000 shares of common stock and 50,000,000 shares of preferred
stock.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on June 8, 1999. At
the meeting, the following items were passed by the vote shown.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker non-votes
--------- ----------- ----------------
<S> <C> <C> <C>
I Election of Five Directors
Gaston J. Acosta-Rua, M.D 6,164,501 -- 461,198
Curtis E. Gause, D.D.S 6,450,638 -- 175,061
Guy T. Selander, M.D 6,453,138 -- 172,561
David M. Shapiro, M.D 6,453,793 -- 171,906
James G. White, M.D 6,451,958 -- 173,741
II Approve Amendment to Articles
of Incorporation 6,232,417 313,608 79,674
III Approve Amendments to
Director Stock Option Plan 4,299,614 536,223 75,579
IV. Approve Amendments to
Omnibus Incentive Plan 4,326,336 445,961 139,119
</TABLE>
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits
Exhibit 3 - Restated Articles of Incorporation, as amended
Exhibit 10.1 - Director Stock Option Plan, as amended, incorporated by
reference to the Company's definitive proxy statement filed on May 7,
1999.
23
<PAGE> 24
Exhibit 10.2 - Omnibus Incentive Plan, as amended, incorporated by
reference to the Company's definitive proxy statement filed on May 7,
1999.
Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FPIC Insurance Group, Inc.
/s/ Robert B. Finch
-----------------------------------
August 12, 1999 Robert B. Finch, Executive Vice President
and Chief Financial Officer
(a duly authorized officer and the
principal financial officer of the
registrant)
24
<PAGE> 1
EXHIBIT 3.
RESTATED ARTICLES OF INCORPORATION OF
FPIC INSURANCE GROUP, INC.
The following Restated Articles of Incorporation, duly adopted
pursuant to the authority and provisions of Section 607.1003 and 607.1007 of the
Florida Business Corporation Act, supersede and take the place of the existing
Articles of Incorporation and all amendments thereto:
ARTICLE I - NAME
The name of this Corporation is FPIC Insurance Group, Inc.
ARTICLE II - DURATION
This Corporation shall have perpetual existence.
ARTICLE III - PURPOSE
This Corporation is organized for the purpose of transacting any or
all lawful business.
ARTICLE IV - INITIAL PRINCIPAL OFFICE
The street address of the initial principal office of this
Corporation is 1000 Riverside Avenue, Jacksonville, Florida 32204.
ARTICLE V - INITIAL REGISTERED OFFICE AND
INITIAL REGISTERED AGENT
The street address of the initial registered office of this
Corporation is 50 North Laura Street, Suite 2800, Jacksonville, Florida 32202,
and the name of its initial registered agent at such address is John R. Byers.
ARTICLE VI - CAPITAL STOCK
Section 6.1 Authorized Capital Stock
The total number of shares of stock that this Corporation shall have
authority to issue is seventy five million (75,000,000) shares, divided into
twenty five million (25,000,000) shares of Common Stock, par value $0.10 per
share (the "Common Stock"), and fifty million (50,000,000) shares of Preferred
Stock, par value, $0.10 per share ( the "Preferred Stock") (Common Stock and
Preferred Stock are hereinafter collectively referred to as "Stock"). Each
holder of Common Stock shall be entitled to one vote for each share of Common
Stock held by such holder.
<PAGE> 2
Section 6.2 Designation of Terms of Preferred Stock
The Board of Directors of this Corporation (the "Board of
Directors") is authorized, subject to limitations prescribed by law and the
provisions of this Article VI, to provide for the issuance of shares of
Preferred Stock from time to time in one or more classes or series as may be
determined by the Board of Directors and by filing a certificate pursuant to the
applicable laws of the State of Florida, to establish from time to time the
number of shares to be included in each such series or class, and to fix the
designation, powers, preferences and rights of the shares of each such series or
class, and the qualifications, limitations and restrictions thereof.
The authority of the Board of Directors with respect to each such
series or class of shares of Preferred Stock shall include, but not be limited
to, determination of the following:
(a) The distinctive designation of, and the number of
shares of Preferred Stock that shall constitute, such class or
series, which such number may be increased (except where otherwise
provided by the Board of Directors, but in no event exceeding the
shares of Preferred Stock authorized by this Article VI) or
decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the Board of
Directors;
(b) The rate and time at which, and the terms and
conditions upon which, dividends, if any, on Preferred Stock of such
class or series shall be paid, the extent of the preference or
relation, if any, of such dividends to the dividends payable on any
other class or classes or series of the same or other classes of
stock and whether such dividends shall be cumulative or
non-cumulative;
(c) Whether shares of Preferred Stock of such series or
class shall have voting rights, in addition to the voting rights
provided by law, and if so, the terms of such voting rights;
(d) The right, if any, of the holders of Preferred Stock
of such class or series to convert the same into, or exchange the
same for shares of, any other class or classes or of any series of
the same or any other class or classes of stock and the terms and
conditions of such conversion or exchange, including provision for
adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not Preferred Stock of such class or
series shall be subject to redemption, and the redemption price or
prices and the time or times at which, and the terms and conditions
upon which, Preferred Stock of such class or series may be redeemed;
(f) The rights, if any, of the holders of Preferred
Stock of such class or series upon the voluntary or involuntary
liquidation, dissolution, or winding up of this Corporation, and the
relative rights of priority, if any, of payment of shares of that
series or class;
2
<PAGE> 3
(g) Whether Preferred Stock of such series or class
shall have a sinking fund for the redemption or purchase of such
class or series, and if so, the terms and amount of such sinking
fund; and
(h) Any other relative rights, preferences and
limitations.
Section 6.3 Common Stock Transfer Restrictions.
(a) For purposes of this Section 6.3, the following terms shall have
the specified meanings:
(i) "Reorganization" shall mean the initial transaction
in which this Corporation shall become the shareholder of Florida
Physicians Insurance Company and the shareholders of Florida Physicians
Insurance Company shall be issued Common Stock.
(ii) "Subsequent Public Offering" shall mean an initial
public offering of Common Stock by the Corporation subsequent to the
issuance of Common Stock pursuant to the Reorganization.
(iii) "Transfer" of Common Stock shall mean any sale,
transfer, assignment or other disposition of Common Stock, whether voluntary
or involuntary, whether of record or beneficially and whether by operation of
law or otherwise.
(b) Except as approved in advance or otherwise permitted as provided
in this Section 6.3, no shares of Common Stock issued in connection with the
Reorganization may be sold, transferred, assigned or otherwise disposed of (i)
during the period from the date of their issuance until the earlier of the
completion of a Subsequent Public Offering or 180 days following the
consummation of the Reorganization and (ii) unless the Board of Directors
determines otherwise, for a period of 120 days following the completion of a
Subsequent Public Offering. Any attempted Transfer of Common Stock in violation
of this Section 6.3 shall be void ab initio and of no force or effect. If at any
time the Corporation's transfer agent receives a request to make a change in
record ownership of shares of Common Stock
that if effected would appear to the transfer agent on the basis of information
in its possession to constitute a violation of this Section 6.3, then, prior to
registering such change in ownership on the books of the Corporation, the
transfer agent shall notify the Corporation. If the Board of Directors or an
officer of the Corporation designated by the Board of Directors determines that
the proposed change in ownership of shares of Common Stock would violate this
Section 6.3, then the Corporation shall so advise the transfer agent and the
transfer agent shall not make such change in ownership on the books of the
Corporation and shall return the stock certificates representing such shares to
the holder of record thereof.
(c) Notwithstanding any other provisions of this Section 6.3, the
restrictions on Transfers of Common Stock contained in this Section 6.3 shall
not prohibit or otherwise apply to:
3
<PAGE> 4
(i) Transfers of Common Stock by will or the
laws of descent and distribution upon a shareholder's death;
(ii) Transfers of Common Stock ordered or directed by a
court of competent jurisdiction pursuant to bankruptcy or other
judicial proceedings;
(iii) Transfers of Common Stock that constitute a bona
fide pledge to a creditor as security for indebtedness of the holder of such
Common Stock or Transfers of Common Stock by such a creditor pursuant to its
rights as a pledgee of such Common Stock;
(iv) Transfers of Common Stock on terms approved by the
Board of Directors pursuant to, in furtherance of, or otherwise to
facilitate a Subsequent Public Offering; or
(v) Other Transfers of Common Stock approved in advance
and in writing by the Board of Directors or an officer of the Corporation
designated by the Board of Directors, which approval shall be given
only upon a definitive showing by the shareholder desiring to make the Transfer
that disapproval will result in substantial financial hardship to the
shareholder.
(d) Until the lapse of the restrictions on Transfers of Common Stock
contained in this Section 6.3, all certificates representing shares of Common
Stock issued in connection with or subsequent to the Reorganization shall bear
the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 6.3 OF THE CORPORATION'S
ARTICLES OF INCORPORATION. ANY ATTEMPT TO TRANSFER OR
ACQUIRE SUCH COMMON STOCK IN VIOLATION OF SUCH
RESTRICTIONS SHALL BE NULL AND VOID.
ARTICLE VII - BOARD OF DIRECTORS
Section 7.1 General Powers
The business and affairs of this Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors of this
Corporation (exclusive of directors to be elected by the holders of any one or
more series of Preferred Stock voting separately as a class or classes) that
shall constitute the entire Board of Directors shall be thirteen, unless
otherwise determined from time to time by resolution adopted by the affirmative
vote of at least 75% of the members of the entire Board of Directors.
Section 7.2 Classification
4
<PAGE> 5
(a) The Board of Directors shall be divided into three classes:
Class I, Class II and Class III. The number of directors included in each such
class shall be as nearly equal as possible. The initial Class I directors shall
hold office until the annual meeting of this Corporation's shareholders in 1997.
The initial Class II directors shall hold office until the annual meeting of
this Corporation's shareholders in 1998; and the initial Class III directors
shall hold office until the annual meeting of this Corporation's shareholders in
1999 or, in each case, until their successors are elected and qualified and
subject to prior death, resignation or removal from office. Beginning in 1997,
at each annual meeting of this Corporation's shareholders, the directors elected
to succeed those whose terms then expire shall belong to the same class as the
directors they succeed and shall hold office until the third succeeding annual
meeting of shareholders or until their successors are elected and qualified and
subject to prior death, resignation or removal from office. Any increase or
decrease in the number of directors shall be apportioned by the Board of
Directors among the classes so that the number of directors included in each
such class shall continue to be as nearly equal as possible.
(b) Any vacancies in the Board of Directors for any reason, and any
newly created directorships resulting from any increase in the number of
directors, may be filled only by the Board of Directors, acting by vote of 75%
of the directors then in office, even if less than a quorum, and any directors
so chosen shall hold office until the next election of the class for which such
directors shall have been chosen and until their successors shall be elected and
qualified and subject to prior death, resignation or removal from office. No
decrease in the number of directors shall shorten the term of any incumbent
director.
(c) Notwithstanding the foregoing, and except as otherwise required
by law, whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more directors of
this Corporation, the terms of the director or directors elected by such holders
shall expire at the next succeeding annual meeting of shareholders and vacancies
created with respect to any directorship of the directors so elected may be
filled in the manner specified by such Preferred Stock.
Section 7.3 Removal
(a) Notwithstanding any other provisions of the Articles of
Incorporation or the Bylaws of this Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, the Articles of
Incorporation or the Bylaws of this Corporation), any director or the entire
Board of Directors may be removed at any time, but only for cause and only by
the affirmative vote, at a meeting of the shareholders called for that purpose,
by the holders of 75% or more of the voting power of all the then outstanding
shares of this Corporation's capital stock entitled to vote on the election of
directors, voting together as a single class.
(b) Notwithstanding the foregoing, and except as otherwise required
by law, whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more directors of
this Corporation, the provisions of this Section shall not apply with respect to
the director or directors elected by such holders of Preferred Stock.
5
<PAGE> 6
Section 7.4 Amendment
Notwithstanding any other provisions of the Articles of
Incorporation or the Bylaws of this Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, the Articles of
Incorporation or the Bylaws of this Corporation), the provisions of this Article
may be altered, amended or repealed only by the affirmative vote of 75% or more
of the voting power of all the then outstanding shares of this Corporation's
capital stock entitled to vote on the election of directors, voting together as
a single class.
ARTICLE VIII - INITIAL BOARD OF DIRECTORS
The initial Board of Directors shall consist of 13 directors, whose
names, addresses and classes are as follows:
Class I Richard J. Bagby, M.D.
138 Shorecrest Drive
Orlando, Florida 32804
Robert O. Baratta, M.D.
2090 S.E. Ocean Boulevard
Stuart, Florida 34996
Louis C. Murray, M.D.
900 South Dalliance Street
Orlando, Florida 32806
William R. Russell
1000 Riverside Avenue
Jacksonville, Florida 32204
Class II James W. Bridges, M.D.
North Shore Medical Arts Building
1190 N.W. 95th Street, #110
Miami, Florida 33150
J. Stewart Hagen, M.D.
5640 Shaddelee Lane West
Ft. Myers, Florida 33919
D. L. Van Eldik, M.D.
437 North Country Club Drive
Atlantis, Florida 33462
Henry M. Yonge, M.D.
6
<PAGE> 7
14 W. Jordan Street
Pensacola, Florida 32501
Class III Gaston J. Acosta-Rua, M.D.
2545 Riverside Avenue
Jacksonville, Florida 32204
Curtis E. Gause, D.D.S.
7300 4th Street North
St. Petersburg, Florida 33702
David M. Shapiro, M.D.
4035 Evans Avenue
Ft. Myers, Florida 33901
Guy T. Selander, M.D.
2809 Forest Circle
Jacksonville, Florida 32257
James G. White, M.D.
344 John Anderson Drive
Ormond Beach, Florida 32176
ARTICLE IX - BUSINESS COMBINATIONS
Section 9.1 Vote Required for Business Combinations.
The affirmative vote of the holders of not less than 75% of the
outstanding shares of "Voting Stock" held by shareholders other than a "Related
Person" shall be required for the approval or authorization of any "Business
Combination" of the Corporation with any Related Person; provided, however, that
such 75% voting requirement shall not be applicable if:
(a) The "Continuing Directors" of the Corporation, by at least a
two-thirds vote of such Continuing Directors, have expressly approved such
Business Combination either in advance of or subsequent to such Related Person's
having become a Related Person; or
(b) The cash or fair market value (as determined by at least
two-thirds of the Continuing Directors) of the property, securities or other
consideration to be received per share by holders of Voting Stock in the
Business Combination is not less than the "Highest Per Share Price" or the
"Highest Equivalent Price" paid by the Related Person in acquiring any of its
holdings of the Voting Stock.
Section 9.2 Definitions.
7
<PAGE> 8
(a) The term "Business Combination" shall mean (i) any merger or
consolidation of the Corporation or a subsidiary of the Corporation with or into
a Related Person, (ii) any sale, lease, exchange, transfer or other disposition,
including without limitation a mortgage or any other security device, of all or
any "Substantial Part" of the assets either of the Corporation (including
without limitation any voting securities of a subsidiary) or of a subsidiary of
the Corporation to a Related Person, (iii) any merger or consolidation of a
Related Person with or into a Corporation or a subsidiary of the Corporation,
(iv) any sale, lease, exchange, transfer or other security device, of all or any
Substantial Part of the assets of a Related Person to the Corporation or a
subsidiary of the Corporation, (v) the issuance of any securities of the
Corporation or a subsidiary of the Corporation to a Related Person other than
the issuance on a pro rata basis to all holders of shares of the same class
pursuant to a stock split or stock dividend, or a distribution of warrants or
rights, (vi) any recapitalization that would have the effect of increasing the
voting power of a Related Person, or (vii) any agreement, contract or other
arrangement providing for any of the transactions described in this definition
of Business Combination.
(b) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity that, together with its
"Affiliates" and "Associates" becomes the "Beneficial Owner" of an aggregate of
10% or more of the outstanding Voting Stock of the Corporation, and any
Affiliate or Associate of any such individual, corporation, partnership or other
person or entity; provided, however, that the term "Related Person" shall not
include (i) a person or entity whose acquisition of such aggregate percentage of
Voting Stock was approved in advance by two-thirds of the Continuing Directors
or (ii) any trustee or fiduciary when acting in such capacity with respect to
any employee benefit plan of the Corporation or a wholly owned subsidiary of the
Corporation.
(c) The term "Substantial Part" shall mean an amount equal to 10% or
more of the fair market value as determined by two-thirds of the Continuing
Directors of the total consolidated assets of the Corporation and its
subsidiaries taken as a whole as of the end of its most recent fiscal year ended
prior to the time the determination is being made.
(d) A person shall be a "Beneficial Owner" of any Voting Stock:
(i) that such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
(ii) that such person or any of its Affiliates or
Associates has (aa) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise
of conversion rights, exchange rights, warrants or options, or
otherwise, or (bb) the right to vote pursuant to any agreement,
arrangement or understanding; or
(iii) that is beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
8
<PAGE> 9
For the purposes of determining whether a person is a Related Person
pursuant to Section 9.2(b), the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned through application of Section
9.2(d) but shall not include any other shares of Voting Stock that may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(e) For purposes of Section 9.1(b), the term "other consideration to
be received" shall include, without limitation, the value per share of Common
Stock or other capital stock of the Corporation retained by its existing
shareholders as adjusted to give effect to the proposed Business Combination in
the event of any Business Combination in which the Corporation is a surviving
corporation.
(f) The term "Voting Stock" shall mean all of the outstanding shares
of Common Stock and the outstanding shares of Preferred Stock entitled to vote
on each matter on which the holders of record of Common Stock shall be entitled
to vote, and each reference to a proportion of shares of Voting Stock shall
refer to such proportion of the votes entitled to be cast by such shares.
(g) The term "Continuing Director" shall mean a Director who was a
member of the Board of Directors of the Corporation immediately prior to the
time that the Related Person involved in a Business Combination became a Related
Person, and any successor of a Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a Continuing Director by a majority
of the Continuing Directors then on the Board of Directors.
(h) A Related Person shall be deemed to have acquired a share of the
Voting Stock of the Corporation at the time when such Related Person became a
Beneficial Owner thereof. With respect to the shares owned by Affiliates,
Associates or other persons whose ownership is attributed to a Related Person
under the foregoing definition of Related Person, if the price paid by such
Related Person for such shares is not determinable by two-thirds of the
Continuing Directors, the price so paid shall be deemed to be the higher of (i)
the price paid upon the acquisition thereof by the Affiliate, Associate or other
person or (ii) the market price of the shares in question at the time when the
Related Person became the Beneficial Owner thereof.
(i) The terms "Highest Per Share Price" and "Highest Equivalent
Price" as used in this Article shall mean the following: If there is only one
class of capital stock of the Corporation issued and outstanding, the highest
Per Share Price shall mean the highest price that can be determined to have been
paid at any time by the Related Person for any share or shares of that class of
capital stock. If there is more than one class of capital stock of the
Corporation issued and outstanding, the Highest Equivalent Price shall mean,
with respect to each class and series of capital stock of the Corporation, the
amount determined by two-thirds of the Continuing Directors, on whatever basis
they believe is appropriate, to be the highest per share price equivalent of the
highest price that can be determined to have been paid at any time by the
Related Person for any share or shares of any class or series of capital stock
of the Corporation. In determining the Highest Per Share Price and Highest
Equivalent Price, all purchases by the Related Person shall be taken into
account regardless of whether the shares were purchased before or after the
Related
9
<PAGE> 10
Person became a Related Person. Also, the Highest Per Share Price and
the Highest Equivalent Price shall include any brokerage commissions, transfer
taxes and soliciting dealers' fees or other value paid by the Related Person
with respect to the shares of capital stock of the Corporation acquired by the
Related Person.
(j) The terms "Affiliate" and "Associate" shall have the same
respective meanings as ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act of 1934, as amended.
Section 9.3 Fiduciary Obligations
Nothing contained in this Article shall be construed to relieve any
Related Person from any fiduciary obligation imposed by law.
Section 9.4 Amendment
The affirmative vote of shareholders required at any time to alter,
amend or repeal this Article, or to alter, amend or repeal any other Article of
the Articles of Incorporation of this Corporation in any respect that would or
might have the effect, direct or indirect, of modifying, permitting any action
inconsistent with, or permitting circumvention of, this Article, shall be at
least 75% of the total voting power of all of the then outstanding shares of
Voting Stock considered for purposes of this Article as a single class;
provided, however, that if there is a Related Person, such action must also be
approved by the affirmative vote of at least 75% of the total voting power of
all of the then outstanding shares of Voting Stock not held by any Related
Person. Such affirmative vote shall be in addition to the vote required by any
particular class or series of Preferred Stock or otherwise required by law, the
Articles of Incorporation of this Corporation or any special class of Preferred
Stock.
ARTICLE X - INDEMNIFICATION
Section 10.1 Limitation of Liability
To the full extent that the Florida Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors or officers, a director or officer of
this Corporation shall not be liable to this Corporation or its shareholders for
any monetary damages.
Section 10.2 Indemnification
(a) This Corporation shall indemnify a director or officer of this
Corporation who is or was a party to any proceeding by reason of the fact that
he or she is or was such a director or officer or is or was serving at the
request of this Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
profit or non-profit enterprise against all liabilities and expenses incurred in
the proceeding except
10
<PAGE> 11
such liabilities and expenses as are incurred because of his or her willful
misconduct or knowing violation of the criminal law. Unless a determination has
been made that indemnification is not permissible, this Corporation shall make
advances and reimbursements for expenses incurred by a director or officer in a
proceeding upon receipt of an undertaking from him or her to repay the same if
it is ultimately determined that he or she is not entitled to indemnification.
Such undertaking shall be an unlimited, unsecured general obligation of the
director or officer and shall be accepted without reference to his or her
ability to make repayment. The Board of Directors is hereby empowered, by
majority vote of a quorum of disinterested directors, to contract in advance to
indemnify and advance the expenses of any director or officer.
(b) The Board of Directors is hereby empowered, by majority vote of
a quorum of disinterested directors, to cause this Corporation to indemnify or
contract in advance to indemnify any person not specified in Section 10.2(a) who
was or is a party to any proceeding, by reason of the fact that he or she is or
was an employee or agent of this Corporation, or is or was serving at the
request of this Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
profit or non-profit enterprise, to the same extent as if such person were
specified as one to whom indemnification is granted in Section 10.2(a).
Section 10.3 Insurance
This Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any liability asserted
against or incurred by such person in any such capacity or arising from his or
her status as such, whether or not this Corporation would have power to
indemnify him or her against such liability under the provisions of this Article
X.
Section 10.4 Change in Board of Directors
In the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act or omission
with respect to which indemnification is claimed, any determination as to
indemnification and advancement of expenses with respect to any claim for
indemnification made pursuant to Section 10.2(a) shall be made by special legal
counsel agreed upon by the Board of Directors and the proposed indemnitee. If
the Board of Directors and the proposed indemnitee are unable to agree upon such
special legal counsel, the Board of Directors and the proposed indemnitee each
shall select a nominee, and the nominees shall select such special legal
counsel.
11
<PAGE> 12
Section 10.5 Application
The provisions of this Article X shall be applicable to all actions,
claims, suits or proceedings commenced after the adoption hereof, whether
arising from any action taken or failure to act before or after such adoption.
No amendment, modification or repeal of this Article shall diminish the rights
provided hereby or diminish the right to indemnification with respect to any
claim, issue or matter in any then pending or subsequent proceeding that is
based in any material respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
Section 10.6 Covered Persons
Reference herein to directors, officers, employees or agents shall
include former directors, officers, employees and agents and their respective
heirs, executors and administrators.
Section 10.7 Amendment
Notwithstanding any other provisions of the Articles of
Incorporation or the Bylaws of this Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, the Articles of
Incorporation or the Bylaws of this Corporation), the provisions of this Article
may be altered, amended or repealed only by the affirmative vote of 75% or more
of the voting power of all the then outstanding shares of this Corporation's
capital stock entitled to vote on the election of directors, voting together as
a single class.
ARTICLE XI - BYLAWS
The initial bylaws of this Corporation shall be adopted by this
Corporation's initial Board of Directors. The power to amend the bylaws shall be
vested in the Board of Directors and this Corporation's shareholders. Any
amendment to this Corporation's bylaws must be approved by either a majority of
the Board of Directors or the holders of a majority of this Corporation's
outstanding shares of Voting Stock unless otherwise provided in the bylaws.
12
<PAGE> 13
ARTICLE XII - AMENDMENT
Except as otherwise provided herein, this Corporation's Articles of
Incorporation may be altered, amended or repealed only by the affirmative vote
of a majority of the voting power of all the then outstanding shares of this
Corporation's capital stock entitled to vote on the election of directors,
voting together as a single class.
ARTICLE XIII - INCORPORATOR
The name and address of the incorporator of this Corporation is
Michael B. Kirwan, LeBoeuf, Lamb, Greene & MacRae, L.L.P., 50 North Laura
Street, Suite 2800, Jacksonville, Florida 32202.
Pursuant to Section 607.1006(1)(f) of the Florida Business
Corporation Act, the sole shareholder has approved the Restated Articles of
Incorporation this ____ day of May, 1996.
FPIC INSURANCE GROUP, INC.
By /s/ William R. Russell
-----------------------
William R. Russell
President
13
<PAGE> 14
ARTICLES OF MERGER
OF
ANESTHESIOLOGISTS PROFESSIONAL ASSURANCE ASSOCIATION, INC.,
A FLORIDA CORPORATION
INTO
FPIC INSURANCE GROUP, INC.,
A FLORIDA CORPORATION
Pursuant to the provisions of Section 607.1105, Florida Statutes
(1997), the undersigned corporations certify as follows:
FIRST, the names of the corporations that are parties to the merger
are FPIC INSURANCE GROUP, INC., a Florida corporation, and ANESTHESIOLOGISTS
PROFESSIONAL
ASSURANCE ASSOCIATION, INC., a Florida corporation.
SECOND, FPIC Insurance Group, Inc. shall be the surviving
corporation.
THIRD, the Plan of Merger was approved by the boards of directors
of FPIC Insurance Group, Inc. and Anesthesiologists Professional Assurance
Association, Inc. by Written Consents dated May 29, 1998. A copy of the Plan
of Merger is attached hereto as Exhibit A.
FOURTH, the Plan of Merger was approved by the shareholder of
Anesthesiologists Professional Assurance Association, Inc. by Written Consent
dated May 29, 1998.
FIFTH, pursuant to Section 607.1103(7)(a) Florida Statutes (1997),
approval of the shareholders of FPIC Insurance Group, Inc. is not required.
<PAGE> 15
SIXTH, the merger shall become effective upon filing of these
Articles of Merger with the Florida Secretary of State.
DATED: June 26, 1998.
Anesthesiologists Professional Assurance
Association, Inc.
By /s/ Elizabeth Moya
-------------------------------------
Its Vice President
FPIC Insurance Group, Inc.
By /s/ Steven M. Rosenbloom
-------------------------------------
Its Senior Vice President
2
<PAGE> 16
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
April 14, 1998, by and among FPIC Insurance Group, Inc., a Florida corporation
("FIG"), Anesthesiologists Professional Assurance Association, Inc., a Florida
not-for-profit corporation ("APAA"), for itself and on behalf of a Florida for
profit corporation to be formed and named Anesthesiologists Professional
Assurance Association, Inc. ("Newco"), the APAA Liquidating Trust created
pursuant to that certain Liquidating Trust Agreement of even date herewith (the
"Liquidating Trust"), and Anesthesiologists Professional Assurance Company, a
Florida corporation ("APAC") (collectively, APAA, Newco, the Liquidating Trust
and APAC shall be referred to as the "APAA Group" and, each individually, a
member of the APAA Group).
W I T N E S S E T H:
WHEREAS, the Board of Directors of FIG has determined that it is in
the best interest of FIG and its shareholders to effect a merger of FIG and
Newco through the consummation of the business combination transactions provided
for in this Agreement; and
WHEREAS, the Trustees of the Liquidating Trust and the Boards of
Directors of APAA and APAC have determined that it is in the best interests of
their respective members and shareholders to effect a merger of FIG and Newco
through the consummation of the business combination transactions provided for
in this Agreement; and
WHEREAS, it is the intent of the Trustees of the Liquidating Trust
and respective Boards of Directors of APAA and APAC, and of the Board of
Directors of FIG, that FIG and APAC be the surviving corporations in such
business combination transactions; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with, and to prescribe certain
conditions to, such business combination transactions.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Agreement, and
intending to be legally bound by this Agreement, the parties to this Agreement
agree as follows:
ARTICLE 1
THE MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement
and in accordance with the Florida Insurance Code, at the Effective Time, Newco
shall merge with and into FIG (the "Merger"). FIG shall be the surviving
corporation in the Merger, and shall continue its corporate existence under the
laws of the State of Florida. Upon consummation of the Merger, the separate
existence (corporate and otherwise) of Newco shall terminate.
<PAGE> 17
1.2 Effective Time. The Merger shall become effective as set forth
in articles of merger, a form of which is attached as Exhibit A (the "Articles
of Merger"), filed with the appropriate authorities of the State of Florida on
the Closing Date (as defined in Section 9.1 of this Agreement). The effective
date and time of the Merger specified in the Articles of Merger shall be no
earlier than the date and time the Articles of Merger are filed with the
appropriate authorities of the State of Florida and shall be as soon after such
filing as is practicable. The term "Effective Time" shall be the date and time
when the Merger becomes effective, as set forth in the Articles of Merger filed
in accordance with the Florida Insurance Code and the Florida Business
Corporation Act, as amended (the "FBCA").
1.3 Effects of Merger. At and after the Effective Time, the Merger
shall have the effects set forth in this Agreement, the Articles of Merger, the
Florida Insurance Code and the FBCA. At the Effective Time, (i) all rights,
franchises, licenses and interests of Newco in and to every type of property,
real, personal and mixed, and all choses in action of Newco shall continue
unaffected and uninterrupted by the Merger and shall accrue to FIG; (ii) all
obligations and liabilities of Newco then outstanding shall become and be
obligations of FIG and shall continue unaffected and uninterrupted by the
Merger; and (iii) no action or proceeding then pending and to which Newco is a
party shall be abated or discontinued but may be prosecuted to final judgment by
FIG.
1.4 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
security of FIG or Newco:
(i) Conversion of Newco Common Stock. The
aggregate issued and outstanding shares of Newco voting and nonvoting common
stock ("Newco Common Stock"), shall be canceled and converted into the right to
receive $4,800,000 in immediately available funds (the "Cash Consideration") and
an aggregate number of shares of common stock $0.10 par value per share, of FIG
("FIG Common Stock") determined by dividing $9,000,000 by the average (weighted
to reflect daily trading volume) of the daily closing prices per share of FIG
Common Stock on the NASDAQ National Market as reported in the Southeast edition
of the Wall Street Journal for the period of twenty (20) business days ending on
the last business day prior to the Closing Date (the "Average Price") (the
"Stock Consideration"); provided however, (i) that in the event the Average
Price is $27.125 or lower, then the Average Price shall be deemed to be $27.125
(the "Floor Price") and the Stock Consideration shall be divided by the Floor
Price (so that, in such case, the Stock Consideration would be 331,797 shares of
FIG Common Stock), and (ii) that in the event the Average Price is $37.125 or
higher, then the Average Price shall be deemed to be $37.125 (the "Ceiling
Price") and the Stock Consideration shall be divided by the Ceiling Price (so
that, in such case, the Stock Consideration would be 242,424 shares of FIG
Common Stock). At the Closing, FIG shall deliver to the Liquidating Trust (a)
the Cash Consideration and (b) seven-ninths of the shares of FIG Common Stock
comprising the Stock Consideration, (the "Non-Pledged Stock Consideration"). The
remaining shares of FIG Common Stock comprising the Stock Consideration (the
"Pledged Stock Consideration") shall be issued in the name of the Liquidating
Trust and pledged in favor of FIG as provided in Section 2.9.
(ii) Anti-dilution. If, as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in capitalization prior to the Effective Time,
the outstanding shares of FIG Common Stock shall have been increased or
decreased by one (1%) percent or more or changed into or exchanged for a
different number or kind of shares or securities, then an appropriate and
proportionate adjustment shall be made to the Stock Consideration.
2
<PAGE> 18
(iii) No Change to FIG Common Stock. Each issued and
outstanding share of FIG Common Stock shall remain outstanding and shall
continue to represent one fully paid and nonassessable share of FIG Common
Stock.
1.5 FIG Articles of Incorporation. Subject to the terms and
conditions of this Agreement, at the Effective Time, the Articles of
Incorporation of FIG then in effect shall be, and shall continue in effect as,
the Articles of Incorporation of FIG, as the surviving corporation in the
Merger, until thereafter amended in accordance with applicable law.
1.6 FIG Bylaws. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Bylaws of FIG then in effect shall be, and
shall continue in effect as, the Bylaws of FIG, as the surviving corporation in
the Merger, until thereafter amended in accordance with applicable law.
1.7 Merger Tax Consequences. It is intended that (i) the Merger
shall constitute a reorganization within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368(a) of the Code. The parties intend through the Merger to further
their mutual business objectives by obtaining synergies of operation,
concentration of business, acquisition of expertise, reduction of costs, and
pooling of well-trained and efficient personnel to strengthen the operations of
both parties in view of the increasingly more competitive market for the sale of
professional liability insurance to anesthesiologists and other physicians.
ARTICLE 2
OTHER AGREEMENTS
2.1 Note and Lien. At the Closing, but immediately following the
Effective Time, FIG shall pay American Professional Assurance, Ltd., a Cayman
Islands exempted limited company ("APAL"), $2,700,000 in full repayment of the
Renewal and Consolidated Note dated May 31, 1992, made by APAA to APAL (the
"Note"). APAA shall pay all accrued and unpaid interest owing under the Note
prior to Closing so that no accrued interest is owed on the Closing Date. Upon
the payment of the Note as contemplated herein, the Liquidating Trust and FIG
shall obtain a full release of any and all liens or other interests that APAL
may have in the outstanding shares of APAC common stock.
2.2 Contribution of Surplus Note. Prior to the Closing, APAA shall
contribute to the capital of APAC the Surplus Note, in the outstanding principal
amount as of the date hereof of $1,650,000, issued by APAC in favor of APAA (the
"Surplus Note"). Prior to such contribution, and after the date of this
Agreement, APAC shall make no further payments of principal, interest or other
amounts owing under the Surplus Note, except as required to allow APAA to make
regularly scheduled payments of interest under the Note, or except to permit
APAA to recontribute back to APAC the amount so received by APAA in payment of
the Surplus Note as a contribution to the capital APAC.
2.3 Transaction Fee. As of the Closing, but immediately following
the Effective Time, FIG shall pay Consulting Group of APA, Inc., a Florida
corporation ("CGA"), a transaction fee in the amount of $1,150,000 in cash for
its services rendered in connection with the transactions contemplated by this
Agreement.
3
<PAGE> 19
2.4 Registration Rights. At the Closing, but immediately following
the Effective Time, FIG and the Liquidating Trust shall enter into a Stock
Restriction and Registration Rights Agreement substantially in the form attached
as Exhibit B.
2.5 APAC Board of Directors.
(i) The initial Board of Directors of APAC immediately
after the Closing shall be the same as before the Closing except that two
representatives of FIG shall be appointed to the APAC Board at the Closing. As
APAC's sole shareholder after the Closing, FIG shall have the right, in its
discretion, to elect and replace the directors of APAC, but FIG hereby agrees
not to do so as long as the Management Agreement (as defined in Section 2.7)
remains in effect (provided, however, in the event the Management Agreement is
terminated by APAM in accordance with Section Seventeen (C) thereof, until the
date the then current term of the Management Agreement (excluding any automatic
extensions thereof) would have expired had such termination not occurred).
(ii) APAC acknowledges and agrees that the APAC Board
will not have authority to authorize or approve and will not authorize or
approve any action not contemplated by the Management Agreement and that is
outside of the ordinary course of business of APAC, unless at least one of the
FIG representatives consents to such action. APAC acknowledges and agrees that
it has furnished FIG copies of all of APAC's underwriting policies, pricing
policies, and claims handling policies (collectively, the "Management
Policies"). FIG acknowledges and agrees that the Management Policies shall
remain in effect after consummation of the Merger contemplated hereby, subject
to the rights of the APAC Board of Directors to change the same to reflect
changed circumstances; provided, that APAC shall obtain FIG's prior written
consent before materially changing any of the Management Policies.
(iii) The provisions of this Section 2.5 shall
survive the Closing and the consummation of the Merger.
2.6 FIG and FPIC Boards of Directors. FIG shall cause Dr. Frank Moya
to be appointed for a three year term to FIG's Board of Directors and for a one
year term to Florida Physicians Insurance Company, Inc.'s ("FPIC") Board of
Directors concurrently with the Closing. Should Dr. Moya cease serving as a
Director for any reason while the Management Agreement remains in effect, then
FIG shall cause a replacement for Dr. Moya designated by APA Management, Inc., a
Florida corporation ("APAM"), to fill that vacancy on the Board of Directors of
FIG and/or FPIC, as the case may be, so that at all times while the Management
Agreement remains in effect Dr. Moya or such other designee of APAM serves on
such Boards of Directors. After the Closing, FIG's Board of Directors and FPIC's
Board of Directors will also consider in good faith the appointment of Dr. Frank
Moya as a member of their respective Executive Committees.
2.7 Management Agreement. At the Closing, FIG, APAC and APAM shall
enter into a Management Agreement substantially in the form attached as Exhibit
C (the "Management Agreement").
2.8 Investment Management Agreement. At the Closing, FIG, APAM and
APAC shall enter into an Investment Management Agreement substantially in the
form attached as Exhibit D (the "Investment Management Agreement").
4
<PAGE> 20
2.9 Agreements Regarding the Stock Consideration. At the Closing,
FIG and the Liquidating Trust shall enter into (i) an Indemnification and Stock
Pledge Agreement containing substantially the terms specified in Exhibit E and
other mutually agreeable terms typically included in agreements of such type
(the "Pledge Agreement") and (ii) a Stock Retention Agreement containing
substantially the terms specified in Exhibit F and other mutually agreeable
terms typically included in agreements of such type (the "Stock Retention
Agreement").
2.10 Newco. Prior to the Closing, APAA shall cause Newco to be
organized as a Florida for profit corporation. APAA agrees that (i) Newco shall
not have or incur any liabilities of any nature from the time of its
organization through the Effective Time other than (a) the liabilities of APAA
set forth on the balance sheet of APAA as of December 31, 1997, a copy of which
has been provided to FIG, (b) the Newco Expense Obligation (as defined in
Section 9.3), and (c) liabilities disclosed in Section 4.18 of the Disclosure
Schedule which it is anticipated that APAA will incur from and after January 1,
1998, and (ii) the assets of Newco as of the Effective Time shall consist of the
assets of APAA set forth on the balance sheet of APAA as of December 31, 1997.
Newco and the Liquidating Trust shall not engage in any activities or operations
of any nature except as provided in this Agreement. APAA and the Liquidating
Trust shall cause Newco, upon its formation, to be bound by and to comply with
all of the obligations and agreements of or pertaining to Newco contained in
this Agreement.
2.11 Assumed Liability. The parties acknowledge that there has been
accrued but not paid an expense of $1,500,000 in respect of compensation due to
approximately 40 of the respective Directors, Officers, consultants, members of
the Board of Medical Advisors and key employees of APAC and APAM (the
"Compensation Accrual"). Notwithstanding any conflicting or inconsistent
provision of this Agreement, the parties acknowledge that the Compensation
Accrual shall not cause or contribute to any extent to the inaccuracy or breach
of any representation, warranty, covenant or agreement in this Agreement and
shall be completely disregarded in determining whether the conditions precedent
to FIG's obligations to close have been satisfied. At the Closing, and
immediately after the Effective Time, FIG shall pay the Compensation Accrual to
a nominee or paying agent designated by APAC for the approximately 40 persons
among whom the Compensation Accrual shall be distributed.
2.12 Cash Payments. All references to cash payments to be made
concurrently with or immediately after the Closing shall require payment by wire
transfer of immediately available US funds to the account designated by the
party receiving such payment, or otherwise in immediately available funds as
directed by the party receiving such payment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FIG
Except as disclosed in the FIG disclosure schedule delivered to APAA
concurrently herewith (the "FIG Disclosure Schedule"), FIG hereby represents and
warrants to APAA as follows:
3.1 Corporate Organization.
(i) FIG is incorporated and its status is active
under the laws of the State of Florida. FIG has the corporate power and
authority to own or lease all of its properties and assets
5
<PAGE> 21
and to carry on its business as it is now being conducted, and is licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on FIG. As used in this Agreement, the term "Material
Adverse Effect" means, with respect to FIG, APAA, Newco, the Liquidating Trust,
APAC, or the surviving corporation in the Merger, as the case may be, a material
adverse effect on the business, assets, properties, results of operations, or
financial condition of such party and its Subsidiaries taken as a whole,
excluding for this purpose only, however, the payment and/or incurrence of
transactional expenses by FIG, APAA, Newco, or APAC, in connection with the
Merger, as provided in this Agreement, to the extent having or contributing to
any extent to such an effect. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any corporation, association,
partnership, limited liability company, or other organization, whether
incorporated or unincorporated, more than 50% of the outstanding securities or
other equity ownership interests having ordinary voting power of which shall be
owned or controlled, directly or indirectly, by such party or by one or more of
such party's subsidiaries. True and complete copies of the Articles of
Incorporation and Bylaws of FIG, as in effect as of the date of this Agreement,
have previously been made available by FIG to APAA.
(ii) A record of all material corporate action taken by
the shareholders and Board of Directors (including committees thereof)
of FIG and complete and accurate copies of all of its proceedings and actions by
written consent, and all minutes of its meetings, are contained in the minute
books of FIG. The minute books and stock ledgers of FIG contain an accurate and
complete record of all issuances, transfers and cancellations of shares of
capital stock of FIG. APAA has been given access to and an opportunity to review
all such minutes, minute books and stock ledgers.
3.2 Capitalization.
(i) The authorized capital stock of FIG consists
of 50,000,000 shares of preferred stock and 25,000,000 shares of FIG Common
Stock. As of December 31, 1997, no shares of such preferred stock and 9,179,581
shares of FIG Common Stock were issued and outstanding. All of the issued and
outstanding shares of FIG Common Stock have been authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights with no personal
liability attaching to the ownership thereof. The shares of FIG Common Stock to
be issued pursuant to the Merger will be authorized and validly issued and, at
the Effective Time, all such shares will be fully paid, nonassessable and free
of preemptive rights and with no personal liability attaching to the ownership
thereof, and shall be free and clear of any Liens, restrictions, or adverse
claims, except those arising (a) under applicable securities laws, (b) under
this Agreement, or (c) by, through or under any member of the APAA Group
6
<PAGE> 22
3.3 Authority; No Violation.
(i) FIG has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
approved by the Board of Directors of FIG, and does not require the consent or
approval of the shareholders of FIG. This Agreement has been executed and
delivered by FIG and (assuming due authorization, execution and delivery by the
APAA Group and the receipt of all Requisite Regulatory Approvals (as defined in
Section 7.1(iii) of this Agreement) constitutes a valid and binding obligation
of FIG, enforceable against FIG in accordance with its terms.
(ii) Neither the execution and delivery of this
Agreement by FIG nor the consummation by FIG of the transactions contemplated
by this Agreement, nor compliance by FIG with any of the terms or provisions of
this Agreement, will (i) violate any provision of the Articles of Incorporation
or Bylaws of FIG or (ii) assuming that all Requisite Regulatory Approvals and
all of the consents and approvals referred to in Section 3.4 of this Agreement
are duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to FIG or any of its
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
that, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any lien,
charge or encumbrance of any nature (collectively "Lien") upon any of the
properties or assets of FIG under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which FIG is a party, or by which it or any of
its properties or assets may be bound or affected, except (in the case of clause
(y) above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, will not have or be reasonably likely to have
a Material Adverse Effect on FIG.
3.4 Consents and Approvals. Except for (i) the filing of
applications, notices and forms with, and the obtaining of approvals from, the
Department of Insurance of the State of Florida (the "Florida Insurance
Department") under the Florida Insurance Code, with respect to the transactions
contemplated by this Agreement, (ii) the filing of any other required
applications, notices and forms with, and the obtaining of approvals from, any
other Governmental Entity (as defined in this Section 3.4), (iii) the filing of
the Articles of Merger with the appropriate authorities of the State of Florida
pursuant to the Florida Insurance Code and the FBCA, (iv) the filing of a
notification and report form (the "HSR Act Report") with the Pre-Merger
Notification Office of the Federal Trade Commission and with the Antitrust
Division of the Department of Justice (collectively, the "Pre-Merger
Notification Agencies") pursuant to the Hart-Scott- Rodino Anti-Trust
Improvements Act, as amended, and the rules and regulations thereunder
(collectively, the "HSR Act"), (v) any consents, authorizations, orders and
approvals required under the Florida Insurance Code and the HSR Act, (vi) any
consents, authorizations, approvals, filings or exemptions in connection with
compliance with FIG's listing on the Nasdaq National Market, and (vii) such
filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of the shares of FIG Common Stock pursuant to this Agreement, no consents or
approvals of or filings or registrations with any court, administrative agency
or commission or other governmental authority or instrumentality (together with
the SEC, the Pre-Merger Notification Agencies, and the Florida Insurance
7
<PAGE> 23
Department, a "Governmental Entity") or, except as set forth in the FIG
Disclosure Schedule, with any third party are necessary in connection with the
execution and delivery by FIG of this Agreement or the consummation by FIG of
the transactions contemplated by this Agreement.
3.5 Financial Statements. FIG has previously made available to APAA
copies of the consolidated balance sheets of FIG and its Subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the fiscal years 1997 and
1996, inclusive, as reported in FIG's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 filed with the SEC under the Securities Exchange
Act of 1934, as amended and the rules and regulations thereunder (collectively,
the "Exchange Act"), in each case accompanied by the audit reports of KPMG Peat
Marwick LLP (with respect to the years ended December 31, 1997 and 1996),
independent public accountants with respect to FIG. Prior to the Closing, FIG
will deliver to APAA copies of the unaudited consolidated balance sheet of FIG
and its Subsidiaries and the related unaudited consolidated statements of income
and cash flows as reported in FIG's Quarterly Report on Form 10-Q for each
quarter period ended at least 45 days prior to the Closing. The consolidated
balance sheets of FIG as of December 31, 1997 and 1996 (including the related
notes, where applicable) fairly present the consolidated financial position of
FIG and its Subsidiaries as of the dates thereof, and the other financial
statements referred to in this Section 3.5 (including the related notes, where
applicable) fairly present or will fairly present (subject, in the case of the
unaudited statements, to recurring year end and audit adjustments normal in
nature and amount) the results of the consolidated operations and changes in
shareholders' equity and consolidated financial position of FIG and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) comply (or will comply) in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such statements (including the related notes,
where applicable) has been (or will be) prepared in all material respects in
accordance with generally accepted accounting principles consistently applied
("GAAP") during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto (or, in the case of unaudited statements, as
permitted by Form 10-Q). The books and records of FIG and its Subsidiaries have
been, and are being, maintained in all material respects in accordance with GAAP
and any other applicable legal and accounting requirements and reflect only
actual transactions.
3..6 Broker's Fees. Except as described in Section 2.3, neither FIG
nor any Subsidiary of FIG nor any of their respective officers or directors has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement.
3.7 Absence of Certain Changes or Events.
(i) Except as disclosed in the FIG Reports
(as defined in Section 3.9 of this Agreement) filed prior to the date of this
Agreement, since December 31, 1997, (i) FIG and its Subsidiaries taken as a
whole have not incurred any material indebtedness or other liability or
obligation (whether absolute, accrued, contingent or otherwise), other than in
the ordinary course of their business; (ii) FIG has not declared or paid any
dividend or other distribution in respect of the capital stock of FIG, or any
direct or indirect redemption, purchase or other acquisition by FIG of any such
stock; and (iii) no event has occurred which has had, or is likely to have,
individually or in the aggregate, a Material Adverse Effect on FIG.
8
<PAGE> 24
(ii) Except as disclosed in the FIG Reports filed prior
to the date of this Agreement, and except as disclosed in the FIG
Disclosure Schedule, since December 31, 1997, FIG and its Subsidiaries have
carried on their respective businesses in all material respects in the ordinary
and usual course theretofore conducted.
3.8 Legal Proceedings.
(i) Neither FIG nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of their knowledge,
threatened, material legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
(including noncontractual claims, bad faith claims and claims against any
directors or officers of FIG or any Subsidiary of FIG, but excluding coverage
and other claims not alleging bad faith made with respect to insurance policies
issued by any FIG Subsidiary) against FIG or any of its Subsidiaries or
challenging the validity or propriety of the transactions contemplated by this
Agreement as to which there is a reasonable likelihood of an adverse
determination and which, if adversely determined, either individually or in the
aggregate, would have a Material Adverse Effect on FIG.
(ii) There is no injunction, order, judgment, decree, or
regulatory restriction (including noncontractual claims, bad faith claims and
claims against any directors or officers of FIG or any Subsidiary of FIG, but
excluding coverage and other claims not alleging bad faith made with respect to
insurance policies issued by any FIG Subsidiary) imposed upon FIG, any of its
Subsidiaries or the assets of FIG or any of its Subsidiaries which has had, or
might reasonably be expected to have, a Material Adverse Effect on FIG.
3.9 SEC Reports. FIG has previously made available to APAA a
complete copy of each (a) final registration statement, prospectus, report
(including but not limited to reports on Forms 10-K, 8-K and 10-Q), schedule and
definitive proxy statement filed since June 11, 1996 and prior to the date of
this Agreement by FIG with the SEC pursuant to the Securities Act of 1933, as
amended and the rules and regulations thereunder (collectively, the "Securities
Act"), or the Exchange Act (collectively, the "FIG Reports") and (b)
communication mailed by FIG to its shareholders since June 11, 1996 and prior to
the date of this Agreement, and no such registration statement, prospectus,
report, schedule, proxy statement or communication contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading, except that
information as of a later date shall be deemed to modify information as of an
earlier date. Since June 11, 1996, FIG has timely filed all FIG Reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all FIG Reports complied in all
material respects with respect to form, content and otherwise with the published
rules and regulations of the SEC with respect thereto.
3.10 Compliance with Applicable Law. FIG and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to, and have complied in all material respects with and are not in
default in any material respect under any, and have maintained and conducted
their respective businesses in all material respects in compliance with, all
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines of each Governmental Entity relating to FIG or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, either individually
or in the aggregate, have a Material
9
<PAGE> 25
Adverse Effect on FIG. Neither FIG nor any of its Subsidiaries engages in any
activity prohibited by applicable law.
3.11 Agreements with Regulatory Agencies. Neither FIG nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January 1,
1994, has adopted any board resolutions at the request of any Governmental
Entity that currently restricts in any material respect the conduct of its
business or that in any material manner relates to its capital adequacy, its
credit policies, its management or its business (each, whether or not set forth
in the FIG Disclosure Schedule, a "FIG Regulatory Agreement"), nor has FIG or
any of its Subsidiaries been advised since January 1, 1994, by any Governmental
Entity that it is considering issuing or requesting any such FIG Regulatory
Agreement.
3.12 Undisclosed Liabilities. Except for (i) those liabilities that
are fully reflected or reserved against on the consolidated balance sheet of FIG
included in the FIG December 31, 1997 Form 10-K, (ii) those liabilities incurred
in the ordinary course of business consistent with past practice since December
31, 1997, and (iii) coverage and other claims (other than bad faith claims) made
with respect to insurance policies issued by any FIG Subsidiary, neither FIG nor
any of its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due) that, either alone or when combined with all similar liabilities, has had,
or could reasonably be expected to have, a Material Adverse Effect on FIG.
3.13 State Takeover Laws. The Board of Directors of FIG has approved
the transactions contemplated by this Agreement and taken such action such that
the provisions of any state or local "takeover" law applicable to FIG will not
apply to this Agreement or any of the transactions contemplated by this
Agreement.
3.14 No Investment Company. Neither FIG nor any Subsidiary of FIG is
an "investment company," or a company "controlled" by an "investment company,"
within the meaning of either the Investment Company Act of 1940, as amended, or
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
3.15 Full Disclosure. No representation or warranty by FIG in this
Agreement, nor in any certificate, schedule, statement, document or instrument
furnished by FIG to APAA Group pursuant to this Agreement contains or will
contain any untrue statement of a material fact or, taking into account the
scope of such representations and warranties and the context in which they are
made, omits or will omit to state a material fact required to be stated herein
or therein or necessary to make any statement herein or therein not misleading.
3.16 Legal Compliance. Neither FIG nor, to the best knowledge of
FIG, any director, officer, agent, employee or other person associated with or
acting on behalf of FIG has, directly or indirectly, used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment, using corporate funds.
10
<PAGE> 26
3.17 Effective Time of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of FIG set
forth in this Agreement, as updated by any written disclosure schedule delivered
pursuant to Section 6.6 of this Agreement, shall be deemed to be made on and as
of the date of this Agreement, as of the Closing Date, and as of the Effective
Time.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE APAA GROUP
Except as disclosed in the APAA Group disclosure schedule delivered
to FIG concurrently herewith (the "APAA Group Disclosure Schedule"), the APAA
Group (provided that references to Newco in this Section shall be deemed
applicable only from and after the formation of Newco) hereby jointly and
severally represents and warrants to FIG as follows:
4.1 Organization.
(i) APAA is incorporated as a not-for-profit
corporation and its status is active under the laws of the State of Florida.
APAA has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is registered, licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such registration, licensing or qualification necessary, except where the
failure to be so registered, licensed or qualified would not have a Material
Adverse Effect on APAA. True and complete copies of the Articles of
Incorporation and Bylaws of APAA, as in effect as of the date of this
Agreement, have previously been made available by APAA to FIG.
(ii) As of the Closing, (a) Newco will be incorporated
and its status will be active under the laws of the State of Florida, (b) Newco
will have the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is then being
conducted, and (c) Newco will be registered, licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such registration, licensing or qualification necessary, except where
the failure to be so registered, licensed or qualified would not have a Material
Adverse Effect on Newco. True and complete copies of the Articles of
Incorporation and Bylaws of Newco, as in effect as of the Closing, will be made
available to FIG upon Newco's organization. As of the Closing, Newco will be a
wholly owned subsidiary of the Liquidating Trust.
(iii) The Liquidating Trust has been formed and
organized and its status is active under the laws of the State of Florida. The
Liquidating Trust has the legal power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is registered, licensed or qualified to do business in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such registration,
licensing or qualification necessary, except where the failure to be so
registered, licensed or qualified would not have a Material Adverse Effect on
the Liquidating Trust. True and complete copies of the organizational documents
of the Liquidating Trust, as currently in effect, have previously been made
available by the Liquidating Trust to FIG.
(iv) APAC is incorporated and its status is active under
the laws of the State of Florida. APAC has the corporate power and authority to
own or lease all of its properties and
11
<PAGE> 27
assets and to carry on its business as it is now being conducted, and is
registered, licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such registration, licensing
or qualification necessary, except where the failure to be so registered,
licensed or qualified would not have a Material Adverse Effect on APAC. True and
complete copies of the Articles of Incorporation and Bylaws of APAC, as in
effect as of the date of this Agreement, have previously been made available by
APAC to FIG.
(v) A record of all material action taken by the
Trustees of the Liquidating Trust and the Boards of Directors of APAA and
APAC (including committees thereof), and a record of all corporate action taken
by the shareholders of APAC, and complete and accurate copies of all of their
respective proceedings and actions by written consent, and all minutes of their
respective meetings, are contained in the respective minute books of the APAA
Group. The records of APAA and the Liquidating Trust contain an accurate and
complete record of all members of APAA and their membership rights (to the
extent required to be reflected therein). The minute books and stock ledgers of
APAC contain an accurate and complete record of all issuances, transfers and
cancellations of shares of capital stock of APAC. FIG has been given access to
and an opportunity to review all such minutes, minute books, membership records
and stock ledgers.
4.2 Capitalization.
(i) The authorized capital stock of Newco will
consist of 900 shares of nonvoting common stock and 100 shares of voting common
stock. All of the Newco Common Stock, as of the Closing, will have been
authorized and validly issued and will be fully paid, nonassessable and free of
preemptive rights with no personal liability attaching to the ownership thereof.
As of the time immediately prior to the Merger and except as contemplated by
this Agreement, Newco will not have and will not be bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Newco capital
stock or any other equity securities of Newco or any securities representing the
right to purchase or otherwise receive any shares of Newco capital stock or any
other equity securities of Newco, and no shares of Newco capital stock will be
reserved for issuance, nor will Newco have issued any shares of Newco capital
stock or other equity securities of Newco, or any securities convertible into or
exercisable for any shares of Newco capital stock or other equity securities of
Newco, other than as contemplated by this Agreement.
(ii) The authorized capital stock of APAC consists
of 600,000 shares of common stock, $1.00 par value ("APAC Common Stock").
As of December 31, 1997, all of the authorized shares of APAC Common Stock were
issued and outstanding. All of the issued and outstanding shares of APAC Common
Stock have been authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights with no personal liability attaching to the
ownership thereof. As of the date of this Agreement, and except as contemplated
by this Agreement, APAC does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of APAC Common
Stock or any other equity securities of APAC or any securities representing the
right to purchase or otherwise receive any shares of APAC Common Stock or any
other equity securities of APAC, except with respect to the pledge encumbering
the APAC Common Stock and securing the Note. No shares of APAC Common Stock are
reserved for issuance. Since December 31, 1997, APAC has not issued any shares
of APAC Common Stock or other equity securities of
12
<PAGE> 28
APAC, or any securities convertible into or exercisable for any shares of APAC
Common Stock or other equity securities of APAC, other than as contemplated by
this Agreement.
(iii) The APAA Group Disclosure Schedule sets forth a
complete list of the officers and directors of APAA and APAC. The APAA
Group does not have any direct or indirect equity or ownership interest in any
other business or entity, other than (upon formation thereof) Newco and APAC,
and does not have any direct or indirect obligation or any commitment to invest
any funds in any corporation or other business or entity, other than for
investment purposes in the ordinary course of business.
4.3 Authority; No Violation.
(i) Each member of the APAA Group has full power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement have been duly and validly approved by all of the members of APAA who
have the right to vote thereon and have been, or prior to the Closing will be,
duly and validly approved by the Board of Directors of APAA, Newco and APAC, the
Trustees of the Liquidating Trust and the shareholder of APAC. No other
corporate proceedings on the part of the members of the APAA Group are necessary
to approve this Agreement and to consummate the transactions contemplated by
this Agreement. This Agreement has been validly executed and delivered by APAA,
the Liquidating Trust and APAC and (assuming due authorization, execution and
delivery by FIG and the receipt of all Requisite Regulatory Approvals)
constitutes a valid and binding obligation of each member of the APAA Group,
enforceable against each member of the APAA Group in accordance with its terms.
Except for the approval of the voting members of APAA, which has been obtained,
no member of APAA and no beneficiary of the Liquidating Trust has or will have
any right to vote upon or approve or any other rights to affect the consummation
of the transactions contemplated by this Agreement.
(ii) Neither the execution and delivery of this
Agreement by APAA, the Liquidating Trust and APAC nor the consummation by APAA,
the Liquidating Trust, Newco and APAC of the transactions contemplated by this
Agreement, nor compliance by APAA, the Liquidating Trust, Newco and APAC with
any of the terms or provisions of this Agreement, will (i) violate or will
violate any provision of the organizational documents of any member of the APAA
Group or (ii) assuming that the consents and approvals referred to in Section
4.4 of this Agreement are duly obtained, (x) violate or will violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable or that will be applicable to any member of the APAA Group
or any of their properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the properties or assets of any
member of the APAA Group under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which any member of the APAA Group is a party,
or by which it or any of its properties or assets may be bound or affected.
4.4 Consents and Approvals. Except for (i) the filing of
applications, notices and forms with, and the obtaining of approvals from, the
Florida Insurance Department under the Florida
13
<PAGE> 29
Insurance Code, with respect to the transactions contemplated by this Agreement,
(ii) the filing of any other required applications, notices and forms with, and
the obtaining of approvals from any other Governmental Entity, (iii) the filing
of the Articles of Merger with the appropriate authorities of the State of
Florida pursuant to the Florida Insurance Code and the FBCA, (iv) the filing of
the HSR Act Report with the Pre-Merger Notification Agencies pursuant to the HSR
Act, and (v) any consents, authorizations, orders and approvals required under
the Florida Insurance Code and the HSR Act, no consents or approvals of or
filings or registrations with any Governmental Entity or with any third party
are necessary in connection with the execution and delivery by the APAA Group of
this Agreement or the consummation by the APAA Group of the transactions
contemplated by this Agreement.
4.5 Reports. Each member of the APAA Group, as applicable (i) has
timely filed all annual and quarterly statements (including the financial
statements contained therein), reports, registrations and statements, together
with all amendments required to be made with respect thereto, it was required to
file since January 1, 1993 with each Governmental Entity having jurisdiction,
(ii) has timely filed all other reports and statements, together with all
amendments required to be made with respect thereto, that it was required to
file since January 1, 1998 under all applicable laws, rules or regulations
(including any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state, or any other Governmental
Entity), and (iii) has paid all fees and assessments due and payable in
connection therewith, except in each case for such delinquencies and defects in
such filings as did not have any Material Adverse Effect upon any member of the
APAA Group. All such reports, registrations and statements, together with all
such amendments, were in substantial compliance with applicable law when filed
and, as of their respective dates, did not contain any false statements or
material misstatements of fact or (when taken as a whole) omit to state any
material facts required to be disclosed therein and necessary to make the
statements set forth therein not materially misleading in light of the
circumstances in which such statements were made. No deficiencies have been
asserted by any Governmental Entity with respect to such reports, registrations
and statements or any such amendments thereto, that have any Material Adverse
Effect on any member of the APAA Group. The APAA Group has delivered to FIG
complete and accurate copies of all annual and quarterly statements (including
the financial statements contained therein) required to be filed by APAC under
applicable law since January 1, 1993. Except for normal examinations conducted
by a Governmental Entity in the regular course of the business of APAA and APAC,
no Governmental Entity has given any member of the APAA Group notice of the
initiation of any proceeding or investigations into the business or operations
of any member of the APAA Group since January 1, 1993. No member of the APAA
Group has knowledge of or has received any notice of any unresolved violation,
criticism, or exception by any Governmental Entity with respect to any report or
statement relating to any examinations of any member of the APAA Group which,
either individually or in the aggregate, has had or is likely to have a Material
Adverse Effect on any member of the APAA Group.
4.6 Financial Statements.
14
<PAGE> 30
(i) The APAA Group has previously made available to FIG
copies of the balance sheets of the consolidated APAA Group as of December 31,
for the fiscal years 1997 and 1996, and the related statements of income,
changes in capital and surplus and cash flows for the fiscal years 1997, 1996
and 1995, in each case accompanied by the audit reports of KPMG Peat Marwick
LLP, independent public accountants with respect to the consolidated APAA Group.
Prior to the Closing, APAA will deliver to FIG copies of the unaudited balance
sheet of the consolidated APAA Group and the related unaudited statements of
income and cash flows for each quarter period ended at least 45 days prior to
the Closing. The balance sheets of the consolidated APAA Group as of December
31, 1997 and 1996 (including the related notes, where applicable) fairly present
in all material respects the financial position of the consolidated APAA Group
as of the dates thereof, and the other financial statements referred to in this
Section 4.6(i) (including the related notes, where applicable) fairly present in
all material respects (subject, in the case of the unaudited statements, to
recurring year end and audit adjustments normal in nature and amount) the
results of the operations and changes in capital and surplus and financial
position of the consolidated APAA Group for the respective fiscal periods or as
of the respective dates therein set forth; each of such statements (including
the related notes, where applicable) comply in all material respects with
applicable accounting requirements; and each of such statements (including the
related notes, where applicable) has been prepared in all material respects in
accordance with GAAP during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto. For purposes of the
consolidated financial statements of the APAA Group referred to in this Section
4.6(i), the APAA Group shall be deemed not to include Newco. The books and
records of the consolidated APAA Group have been, and are being, maintained in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
(ii) APAC has previously made available to FIG copies of
the annual Statutory Financial Statements for APAC for the years ended December
31, 1997 and 1996 (collectively, the "APAC Statutory Statements").
Prior to the Closing, APAC will deliver to FIG copies of its quarterly Statutory
Financial Statements for each quarter period ended at least 45 days prior to the
Closing (collectively, the "APAC Quarterly Statements"). The APAC Statutory
Statements (i) complied in all material respects with all applicable laws when
filed, (ii) are true and complete in all material respects and (iii) present
fairly in all material respects the financial position of APAC at the end of
each of the years then ended and the results of APAC's operations and changes in
capital and surplus and in cash flow for each such year, in conformity with
accounting practices prescribed or permitted by the applicable state insurance
laws and regulations applied on a consistent basis as and to the extent
described in such annual statements and related statutory financial statements.
The APAC Quarterly Statements (i) will comply in all material respects with all
applicable laws when filed, (ii) will be true and complete in all material
respects and (iii) will present fairly in all material respects the financial
position of APAC at the end of each of the quarters then ended and the results
of APAC's operations and changes in capital and surplus and in cash flow for
each such quarter, in conformity with accounting practices prescribed or
permitted by the applicable state insurance laws and regulations applied on a
consistent basis as and to the extent described in such quarterly statements and
related statutory financial statements. APAC is not aware of and has not
received any notice of the assertion of any deficiency by any insurance
regulatory authority with respect to the APAC Statutory Statements or the APAC
Quarterly Statements that has had or is reasonably likely to have a Material
Adverse Effect on APAC.
4.7 Broker's, Financial Advisory and Transaction Fees. Neither APAA
nor APAC nor any of their respective officers or trustees or directors has
employed any broker or finder or
15
<PAGE> 31
incurred any liability for any broker's fees, financial advisory or transaction,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement, other than the $1,150,000 transaction fee payable to CGA, which
shall be paid by FIG at the Closing as provided in Section 2.3, and the
financial advisory fees payable to Metis Financial, LLC, which shall be paid by
APAA (subject to FIG's agreement to pay the Newco Expense Obligation).
4.8 Absence of Certain Changes or Events. Except for matters
provided for in this Agreement, matters disclosed in the APAA Group Disclosure
Schedule and legal, accounting, actuarial and financial advisory fees incurred
by APAA in connection with the transactions contemplated by this Agreement,
since December 31, 1997 there has not been:
(i) any material adverse change in the financial
condition, business, assets, properties, liabilities, operations, results of
operations or prospects of any member of the APAA Group;
(ii) any declaration, setting aside or payment of any
dividend, or other distribution, in respect of any of the capital stock
of any member of the APAA Group or any direct or indirect redemption, purchase
or other acquisition by any member of the APAA Group of any of its capital
stock;
(iii) any entry into or amendment of any employment or
deferred compensation agreement between any member of the APAA Group and
any of their officers, directors, employees, agents or consultants;
(iv) any issuance or sale by any member of the APAA
Group of any of its capital stock, debentures, bonds, notes or other
corporate securities, or any modification or amendment of the rights of the
holders of any of their outstanding capital stock, debentures, bonds, notes or
other securities;
(v) any creation of any lien of any kind (other than
deposits with state insurance departments and liens for current taxes not
yet due), including, without limitation, any deposit for security made of,
created on or in any asset or property of any member of the APAA Group, or
assumed by any member of the APAA Group with respect to any such asset or
property;
(vi) any material indebtedness or other liability or
obligation (whether absolute, accrued, contingent or otherwise) incurred
or forgiven, or other material transaction engaged in by any member of the APAA
Group, except in the ordinary course of business and consistent with past
practices;
(viii) any sale, transfer or other disposition of any
assets or properties of any member of the APAA Group, or any acquisition by
any member of the APAA Group of any assets or properties, or any agreement to do
any of the foregoing, except in the ordinary course of business;
(ix) any amendment, termination or waiver of any
material right of any member of the APAA Group under any contract, agreement
or governmental license or permit, except for amendments to reinsurance
agreements and other contractual amendments in the ordinary course of business;
(x) any material change in the policies customarily
followed by any member of the APAA Group (including, without limitation,
any underwriting, actuarial, pricing, financial or accounting practices or
policies);
16
<PAGE> 32
(xi) any material increase in APAC's policy lapse ratio,
or any material decrease in the amount of APAC's in-force business or
the premium rates charged by APAC;
(xii) any actual or threatened labor trouble, strike,
loss of employees or agents of any member of the APAA Group;
(xii) any increase in salaries or other compensation of,
or advances (other than travel and other advances in the ordinary
course of business) to, any employees of any member of the APAA Group, other
than increases to non-executive employees in the ordinary course of business and
consistent with past practices;
(xiii) any loss of agents of APAC that has had or could
reasonably be expected to have a Material Adverse Effect on APAC;
(xiv) any transaction between APAC on the one hand, and
APAA or any person or company, corporation or other entity controlled
by, controlling or under common control with APAA, on the other hand, except for
1998 servicing and claims handling agreements with APAM, which shall be
terminated as of the Closing without liability to APAC or APAM;
(xv) any rights or licenses granted under any of the
trade names of any member of the APAA Group or any general agency
arrangements entered into by any member of the APAA Group.
(xvi) any agreement regarding reinsurance, surplus
relief obligations, excess insurance, ceding of insurance, assumption of
insurance or indemnification entered into with respect to insurance or
management of business;
(xvii) any materially adverse change in the operations,
results of operations, business, assets, properties, financial condition,
income or liabilities of any member of the APAA Group;
(xviii) any materially adverse damage, destruction or
loss, whether or not covered by insurance or reinsurance, suffered by any
member of the APAA Group, other than casualties covered by insurance policies
issued by APAC;
(xix) any strike, picketing, boycott or other labor
trouble adversely affecting the business, operations or prospects of any
member of the APAA Group; or
(xx) any transaction that was not in the ordinary course
of business and consistent with past practices.
4.9 Legal Proceedings.
(i) No member of the APAA Group is a party to any,
and there are no pending or, to the best of their knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature (including
noncontractual claims, bad faith claims and claims against any directors or
officers of any member of the APAA Group, but excluding coverage and other
claims not alleging bad faith made with respect to insurance policies issued by
APAC) against any member of the APAA Group or challenging the validity or
propriety of the transactions contemplated by this Agreement.
17
<PAGE> 33
(ii) There is no injunction, order, judgment, decree,
or regulatory restriction (including noncontractual claims, bad faith claims
and claims against any directors or officers of any member of the APAA Group,
but excluding coverage and other claims not alleging bad faith made with
respect to insurance policies issued by APAC) imposed upon any member of the
APAA Group or the assets of any member of the APAA Group.
4.10 Taxes and Tax Returns. None of the Tax matters described below,
individually or in the aggregate, will have or are reasonably likely to have a
Material Adverse Effect on any member of the APAA Group.
(i) Each member of the APAA Group has filed all Tax
Returns required to be filed by it under applicable law, giving effect to
permissible extensions under applicable law. All Tax Returns were in all
material respects (and, as to Tax Returns not filed as of the date hereof, will
be) true, complete and correct and filed on a timely basis.
(ii) Each member of the APAA Group has, within the
time and in the manner described by law, paid (and until the Effective Time
will pay within a time and in the manner prescribed by law) all Taxes that are
currently due and payable except for Taxes for which adequate reserves have
been made on the financial statements described in Section 4.6(i) of this
Agreement.
(iii) Since 1993, no tax returns of any member of the
APAA Group have been examined by the Internal Revenue Service (the "IRS")
or any state, local or foreign Tax authority for state, county, local and
foreign Taxes.
(iv) No audits or other administrative proceedings or
court proceedings are presently pending against any member of the APAA
Group nor has any member of the APAA Group given any currently effective waivers
extending the statutory period of limitation applicable to any Tax Return for
any period.
(v) Proper and accurate amounts have been withheld by
each member of the APAA Group, as applicable, from its employees, if
any, for all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state and local laws. Except for
APAA's and APAC's 1997 Tax Return, as to which APAA and APAC are subject to a
filing extension in accordance with applicable law, Tax Returns that are
accurate and complete in all material respects have been filed by each member of
the APAA Group for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes. The amounts shown on
such Tax Returns (and the amounts that will be shown on APAA's and APAC's 1997
Tax Return) to be due and payable have been paid in full or adequate provision
therefor has been included by each of APAC and APAA in its consolidated
financial statements as of December 31, 1997,
(vi) There are no Tax Liens upon any property or
assets of any member of the APAA Group except Liens for current Taxes not yet
due.
(vii) No member of the APAA Group has been required
to include in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by such entity, and
the IRS has not initiated or proposed any such adjustment or change in
accounting method.
(viii) No member of the APAA Group has entered into a
transaction which is being accounted for as an installment obligation under
Section 453 of the Code.
18
<PAGE> 34
(ix) No member of the APAA Group is a party to or
bound by any tax indemnity, tax sharing or tax allocation agreement, except
with other members of the APAA Group (excluding the Liquidating Trust) and
except for the Pledge Agreement. APAC and its parent entity, APAA, file
consolidated income tax returns and are each liable for the taxes of the other
pursuant to the provisions of Treasury Regulation Section 1.1502-6.
(x) No member of the APAA Group has any liability
for Taxes of any person other than such entity (i) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, (ii) by contract or (iii) otherwise.
(xi) No member of the APAA Group is a party to any
joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income tax purposes.
(xii) Each member of the APAA Group has or had
substantial authority (within the meaning of Section 6661 of the Code for Tax
Returns filed on or before December 31, 1990, and within the meaning of Section
6662 of the Code for Tax Returns filed after December 31, 1990) for all
transactions that could give rise to any understatement of federal income tax
(within the meaning of Section 6661 of the Code for Tax Returns filed on or
before December 31, 1990, and within the meaning of Section 6662 of the Code for
Tax Returns filed after December 31, 1990).
(xiii) No election under Code Section 338
(or any predecessor provision) has been made by or with respect to any member of
the APAA Group or any of their respective assets or properties.
(xiv) No member of the APAA Group has engaged in any
intercompany transactions within the meaning of Treasury Regulations Section
1.1502-13 for which any income or gain will remain unrecognized as of the close
of the last taxable year prior to the Effective Time.
(xv) No power of attorney currently in force has been
granted by any member of the APAA Group concerning any Tax matter.
(xvi) No member of the APAA Group has received a Tax
Ruling or entered into a Closing Agreement with any taxing authority that
would have a continuing effect after the Effective Time.
(xvii) There has been no disallowance of a deduction
under Section 162(m) of the Code by any member of the APAA Group for employee
remuneration of any amount paid or payable by any member of the APAA Group under
any contract, plan, program, arrangement or understanding.
(xviii) As used in this Agreement, (i) the term "Tax" or
"Taxes" means all taxes, charges, fees, levies and other governmental
assessments and impositions of any kind payable to any governmental authority or
agency (including all federal, state, county, local, and foreign income, excise,
gross receipts, gross income, ad valorem, profits, gains, property, capital,
sales, transfer, use, payroll, employment, severance, withholding, duties,
intangibles, franchise, backup withholding, and other taxes, charges, levies or
like assessments together with all penalties and additions to tax and interest
thereon); and (ii) the term "Tax Return" or "Tax Returns" means any and all
returns, reports, information returns and information statements with respect to
Taxes required to be filed by any member of the APAA Group with the IRS or any
other Governmental Entity or tax authority or agency, whether domestic or
foreign (including consolidated, combined and unitary tax returns). "Tax
Ruling," as used in this Agreement, shall mean a written ruling of a
19
<PAGE> 35
Taxing authority relating to Taxes imposed on or incurred by any member of the
APAA Group. "Closing Agreement," as used in this Agreement, shall mean a written
and legally binding agreement with a Tax authority relating to Taxes imposed on
or incurred by any member of the APAA Group.
4.11 Employee Benefit Plans; Labor Matters. Except as contemplated
by this Agreement and with respect to the allocation and distribution of the
Cash Consideration and/or Stock Consideration to and by the Liquidating Trust
and otherwise:
(i) No member of the APAA Group now has or has ever
had any employees. APAC has contracted with APAM for the furnishing of
all administrative services since the inception of APAC in 1987. No member of
the APAA Group has any employee benefit plans (as that term is defined in ERISA
Section 3(3)), agreements, or arrangements that are maintained by any Affiliate
or any other person which might be deemed a 'single employer' within the meaning
of Section 4001 of ERISA.
(ii) No individuals are or would be considered
leased employees (as that term is defined in Code Section 414(n)) of any member
of the APAA Group or their affiliates, except that no such representation is
made with respect to the employees of APAM that are engaged in managing APAC
under the management agreements in effect prior to and after the Effective Time.
(iii) Intentionally Omitted
(iv) Intentionally Omitted.
(v) No person treated as an independent contractor by
any member of the APAA Group is an employee as defined in Section 3401(c) of the
Code, nor has any employee been otherwise improperly classified, as exempt,
nonexempt or otherwise, for purposes of federal or state income tax withholding
or overtime laws, rules, or regulations.
(vi)Except as provided in Item 4.8 (xx) of the
Disclosure Schedule, no member of the APAA Group has any commitment to (i)
create any compensation or benefit plan or (ii) enter into any contract to
provide compensation or benefits to any individual.
4.12 Compliance with Applicable Law. Each member of the APAA Group
holds all licenses, franchises, permits and authorizations necessary for the
lawful conduct of its business under and pursuant to, and has complied in all
respects with and is not in default in any respect under any, and has maintained
and, conducted its business in all respects in compliance with, all applicable
laws, statutes, orders, rules, regulations, policies and/or guidelines of each
Governmental Entity relating to such entity except where the failure to have
such licenses, franchises, permits and authorizations or where the failure to so
conduct its business would not have a Material Adverse Effect on such entity.
4.13 Certain Contracts. The APAA Group Disclosure Schedule contains
a list, as of the date hereof, of each contract, agreement, understanding or
other commitment, other than insurance policies issued by APAC in the ordinary
course of its business, whether written or oral (including any and all
amendments thereto), to which any member of the APAA Group is a party or by
which any member of the APAA Group is bound relating to the business of any
member of the APAA Group (collectively, the "APAA Group Contracts"), of a nature
described below:
(i) any contract with any employee, former employee,
consultant or labor union;
20
<PAGE> 36
(ii) any contract for the future purchase of, or payment
for, supplies or products or services in any single instance exceeding $20,000,
or in the aggregate $50,000, that is not terminable without penalty upon advance
notice of 30 days or less;
(iii) any representative or sales agency contract;
(iv) any contract limiting or restraining any member of
the APAA Group or any of their current or future affiliates from engaging or
competing in any lines of business with any person or entity;
(v) any contract with any customer providing for a
retrospective price adjustment or future premium guarantee;
(vi) any commitment to guarantee the obligations of
others or commitments by others to guarantee the obligations of any member
of the APAA Group;
(vii) any real or personal property lease;
(viii) any mortgage, indenture, note, debenture, bond,
letter of credit agreement, line of credit agreement, surety agreement, loan or
other financing agreement or other commitment for the borrowing or lending of
money relating to any member of the APAA Group;
(ix) any license, franchise, distributorship or other
agreement, including those that relate in whole or in part to any software,
technical assistance or other know-how, to which any member of the APAA Group is
a party or relating to any member of the APAA Group or their businesses or
operations;
(x) any commitment or agreement for any capital
expenditure or leasehold improvement in excess of $10,000;
(xi) any contract regarding reinsurance, excess
insurance, ceding of insurance, assumption of insurance, or indemnification
with respect to insurance currently being provided directly or indirectly by any
member of the APAA Group or regarding the management of any portion of its
business or regarding the sale of any of its products through any other entity
or the sale by any other entity of its products through it;
(xii) any investment in or agreement to invest in
derivative securities;
(xiii) any contracts for the provision of data
processing services;
(xiv) any finder's, franchise, distribution, sales or
brokerage agreements;
(xv) any contracts or options to purchase or sell
real property; or
(xvi) any other material contract, agreement or
commitment of any nature not otherwise disclosed herein as to which any member
of the APAA Group has Knowledge.
True and complete copies of the APAA Group Contracts have been delivered to FIG.
Each APAA Group Contract is a valid and binding obligation and is in full force
and effect. Except as disclosed in the APAA Group Disclosure Schedule, no member
of the APAA Group is in default under any of the APAA Group Contracts; and, to
the best knowledge of the APAA Group, no third party is in default under any of
the APAA Group Contracts. The APAA Group Disclosure Schedule identifies each
APAA Group Contract that requires consent or approval of or notice to any party
in order to consummate the transactions contemplated by this Agreement or action
on behalf of a third party to give FIG all rights under such APAA Group Contract
following the consummation of the
21
<PAGE> 37
transactions contemplated by this Agreement. Except as set forth in the APAA
Group Disclosure Schedule, no member of the APAA Group has any outstanding
powers of attorney.
4.14 Agreements with Regulatory Agencies. No member of the APAA
Group is subject to any cease-and-desist or other order issued by, or is a party
to any written agreement, consent agreement or memorandum of understanding with,
or is a party to any commitment letter or similar undertaking to, or is subject
to any order or directive by, or has been since January 1, 1993, a recipient of
any supervisory letter from, or since January 1, 1993, has adopted any board
resolutions at the request of any Governmental Entity that currently restricts
in any material respect the conduct of its business or that in any material
manner relates to its capital adequacy, its credit policies, its management or
its business (each, whether or not set forth in the APAA Group Disclosure
Schedule, an "APAA Group Regulatory Agreement"), nor has any member of the APAA
Group been advised since January 1, 1993, by any Governmental Entity that it is
considering issuing or requesting any such APAA Group Regulatory Agreement.
4.15 Other Activities of APAA, Newco and APAC. No member of the APAA
Group, directly or indirectly, engages in any activity prohibited by applicable
law.
4.16 Investment Securities. Each member of the APAA Group has good
and marketable title to all securities held by it (except securities sold under
repurchase agreements or held in any fiduciary or agency capacity), free and
clear of any Lien, except (a) to the extent such securities are pledged in the
ordinary course of business consistent with prudent business practices to secure
obligations of such member of the APAA Group, and (b) with respect to the Lien
encumbering the securities of APAC to secure the Note owing to APAL. Such
securities are permissible investments under all applicable laws, such
securities are valued on the books of the applicable member of the APAA Group in
accordance with GAAP, and none of such securities is in default in the payment
of principal, interest, dividends or otherwise.
4.17 Interest Rate Risk Management Instruments. All interest rate
swaps, caps, floors and option agreements and other interest rate risk
management arrangements, whether entered into for the account of any member of
the APAA Group, were entered into in the ordinary course of business and, in
accordance with prudent business practice and applicable rules, regulations and
policies of any Governmental Entity and with counter parties believed to be
financially responsible at the time and are legal, valid and binding obligations
of the applicable member of the APAA Group enforceable in accordance with their
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies), and are in full force and effect. The
applicable member of the APAA Group has performed in all material respects all
of its material obligations thereunder to the extent that such obligations to
perform have accrued; and, to the best knowledge of the APAA Group, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder.
4.18 Undisclosed Liabilities. Except for (i) those liabilities that
are fully reflected or reserved against on the balance sheets of the APAA Group
at December 31, 1997, which have been provided to FIG, (ii) those liabilities
incurred in the ordinary course of business consistent with past practice since
December 31, 1997 or provided for in this Agreement, (iii) coverage and other
claims (other than bad faith claims) made with respect to insurance policies
issued by APAC, (iv) liabilities disclosed in the APAA Group Disclosure Schedule
and (v) legal, accounting, actuarial and financial advisory fees incurred by
APAA in connection with the transactions contemplated by
22
<PAGE> 38
this Agreement, no member of the APAA Group has not incurred any liability of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities, has had, or could reasonably be expected to have, a
Material Adverse Effect on such member of the APAA Group.
4.19 Intellectual Property.
(i) Each member of the APAA Group owns or has the
right to use pursuant to license, sublicense, agreement or permission all
intellectual property necessary for the operation of its business as presently
conducted and as presently proposed to be conducted.
(ii) To the best of the APAA Group's knowledge, no
member of the APAA Group has interfered with, infringed upon, misappropriated or
otherwise come into conflict with any intellectual property rights of third
parties and such member of the APAA Group, nor any of the directors or officers
(and employees with responsibility for intellectual property matters) of any
member of the APAA Group have ever received any charge, complaint, claim or
notice alleging any such interference, infringement, misappropriation or
violation. To the best of the APAA Group's knowledge, no third party has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any intellectual property rights of any member of the APAA Group.
(iii) The APAA Group Disclosure Schedule identifies each
item of intellectual property that any third party owns and that any member of
the APAA Group uses pursuant to license, sublicense, agreement, or permission.
The APAA Group has made correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date) available to FIG.
To the best of the APAA Group's knowledge, with respect to each such item of
such intellectual property: (i) the license, sublicense, agreement or permission
covering the item is legal, valid, binding, enforceable and in full force and
effect; (ii) the license, sublicense, agreement or permission will continue to
be legal, valid, binding and enforceable and in full force and effect on
identical terms on and after the Closing Date; (iii) no party to the license,
sublicense, agreement or permission is in material breach or default, and no
event of default has occurred which with notice or lapse of time, or both, would
constitute a material breach or default or permit termination, modification or
acceleration thereunder; (iv) no party to the license, sublicense, agreement or
permission has repudiated any provision thereof; (v) with respect to each such
sublicense, the representations and warranties set forth in (i) through (iv)
above are true and correct with respect to the underlying license; and (vi) no
member of the APAA Group has granted any sublicense or similar right with
respect to the license, sublicense, agreement or permission other than to APAM.
4.20 Real Property; Environmental Liability.
(i) No member of the APAA Group owns any right,
title or interest in any real property. The APAA Group Disclosure Schedule
sets forth a complete and accurate list and general description of all leases
for real property ("APAA Group Real Property Leases") to which any member of the
APAA Group is a party or by which any of them is bound. Each member of the APAA
Group has valid leasehold interests in each of the APAA Group Real Property
Leases held by any of them, free and clear of all mortgages, options to
purchase, covenants, conditions, restrictions, easements, liens, security
interests, charges, claims, assessments and encumbrances, except for (i) rights
of lessors, co-lessees or sublessees that are reflected in each APAA Group Real
Property Lease, (ii) current taxes not yet due and payable; (iii) Liens or other
instruments of public record; and (iv) such nonmonetary imperfections of title
and encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property.
23
<PAGE> 39
The activities of each member of the APAA Group with respect to all APAA Group
Real Property Leases held by each of them for use in connection with their
respective operations are in all material respects permitted and authorized by
applicable zoning laws, ordinances and regulations and all laws, rules and
regulations of any court, administrative agency or commission or other
governmental authority or instrumentality affecting such properties. Each member
of the APAA Group enjoys peaceful and undisturbed possession under all APAA
Group Real Property Leases to which they are parties, and all of such APAC Real
Property Leases are valid and in full force and effect.
(ii) There are no legal, administrative, arbitral or
other proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose on any member of the APAA Group any liability or
obligation arising under common law relating to environmental matters or under
any local, state or federal environmental statute, regulation or ordinance
(including, CERCLA), pending or threatened against any member of the APAA Group
which liability or obligation will or could reasonably be expected to have a
Material Adverse Effect on any member of the APAA Group. To the best knowledge
of the APAA Group, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any material liability or
obligation that will or could reasonably be expected to have a Material Adverse
Effect on any member of the APAA Group. No member of the APAA Group is subject
to any agreement, order, judgment, decree, letter or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing any
material liability or obligation relating to environmental matters that will or
could reasonably be expected to have a Material Adverse Effect on any member of
the APAA Group.
4.21 State Takeover Laws. The Boards of Directors of APAA and APAC
have approved the transactions contemplated by this Agreement and taken such
action such that the provisions of FBCA and any other provisions of any state or
local "takeover" law applicable to any member of the APAA Group will not apply
to this Agreement or any of the transactions contemplated by this Agreement.
4.22 Insurance Matters.
(i) Each form of insurance policy, policy endorsement or
amendment, reinsurance contract, annuity contract, application form,
sales material and service contract now in use by APAC in any jurisdiction has,
where required, received interim or final approvals from the appropriate
Governmental Entity of such jurisdiction.
(ii) APAC has not issued any participating policies or
any retrospectively rated policies of insurance.
(iii) All premium rates required to be filed with or
approved by any Governmental Entity have been so filed and have received
interim or final approval from each such Governmental Entity, and all premiums
charged by APAC conform with such approvals.
(iv) The APAC Statutory Statements and the APAC
Quarterly Statements set forth all of the reserves of APAC as of the dates of
such statements (collectively, the "APAC Reserves"). The APAC Reserves, gross
and net of the reinsurance thereof, (i) were determined in accordance with
commonly accepted actuarial assumptions consistently applied, (ii) were fairly
stated in all material respects in accordance with sound actuarial principles,
(iii) were based on
24
<PAGE> 40
actuarial assumptions that are in accordance with or stronger than those
specified in the related insurance and the related reinsurance, coinsurance, and
other similar contracts, (iv) met in all material respects the requirements of
the applicable insurance laws and regulations of each applicable jurisdiction,
(v) were computed on the basis of assumptions consistent with those used in
computing the corresponding items in APAC's Statutory Statements for the
immediately preceding comparable period, and (vi) to the best of APAC's
knowledge, made good and sufficient provisions for the total amount of all
matured and actuarially anticipated unmatured benefits, dividends, losses,
claims, expenses, and other obligations and liabilities (whether absolute,
accrued, contingent, or otherwise) of APAC under all outstanding insurance and
reinsurance, coinsurance, and other similar contracts pursuant to which APAC has
or reasonably could have any obligation or liability (whether absolute, accrued,
contingent, or otherwise) as of the date of APAC's Statutory Statements.
Outstanding claims and claims expenses have been opined upon as reasonable and
adequate as of December 31, 1997, by Tillinghast-Towers Perrin, a duly qualified
actuary that is a member in good standing in the American Academy of Actuaries.
APAC has assets that qualify as admitted assets under the insurance laws of the
applicable jurisdictions in an amount at least equal to the sum of all such
reserves and liability amounts and its minimum statutory capital and surplus as
required by such insurance laws.
(v) The APAA Group Disclosure Schedule sets forth a list
and description of all reinsurance agreements or treaties to which APAC is a
party. The consummation of the transactions contemplated by this Agreement will
not result in the termination of any such reinsurance agreements or treaties,
except as expressly provided for herein. APAC has provided FIG true and correct
copies of all such reinsurance agreements or treaties. The reserve for unpaid
losses, loss adjustment expenses and unearned premiums at each of December 31,
1997 and December 31, 1996, as reflected in the balance sheets in the financial
statements of APAC identified in Section 4.6 of this Agreement, are stated net
of reinsurance ceded amounts. APAC has no knowledge of and has received no
notice of any facts that would reasonably cause it to believe that the
reinsurance recoverable amounts reflected in said balance sheets are not
collectible, and APAC has no knowledge of and has received no notice of any
material adverse change in the financial condition of its reinsurers wherein it
has been stated that they will not be able or are likely not to be able to honor
their reinsurance commitments, and no party to any of such reinsurance
agreements or treaties has given notice to APAC that such party intends to
terminate or cancel any of such reinsurance agreements or treaties as a result
of or following consummation of the Merger. Each reinsurance agreement or treaty
to which APAC is a party is valid and binding on APAC, and to the best knowledge
of APAC, each other party thereto and is in full force and effect in accordance
with its terms except as enforceability may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which the
enforcement of any proceeding therefor may be brought. APAC is not in default in
any material respect with respect to any such reinsurance agreement or treaty
and, other than as contemplated herein, no such reinsurance agreement or treaty
contains any provision providing that the other party thereto may terminate the
same by reason of the transactions contemplated by this Agreement, or contains
any other provision that would be altered or otherwise become applicable by
reason of such transactions.
(vi) The APAC Reserves, gross and net of reinsurance
thereof, as set forth in the APAC Statutory Statements and the APAC
Quarterly Statements pertaining to the property and
25
<PAGE> 41
casualty insurance businesses (including medical malpractice) of APAC have been
determined on a consistent basis in accordance with past practices.
(vii) The APAA Disclosure Schedule lists all written
contracts between APAC and each of its agents, managing general agents, and
brokers. To the best of the APAA Group's knowledge, (a) each insurance agent, at
the time such agent offered, wrote, sold or produced business for APAC, was duly
licensed in the relevant jurisdiction as an insurance agent for such business
and (b) no such insurance agent violated any term or provision of any law or any
writ, judgment, decree, injunction or similar order applicable to, or engaged in
any misrepresentation with respect to, the writing, sale or production of
business for APAC.
(viii) No member of the APAA Group owns, beneficially or
of record, any shares of FIG Common Stock or other equity securities of
FIG, or any securities convertible into or exercisable for any shares of FIG
Common Stock or other equity securities of FIG.
(ix) APAC is fully qualified, licensed, registered or
otherwise approved as a risk retention group in each jurisdiction in
which it has issued policies.
4.23 No Investment Company. No member of the APAA Group is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of either the Investment Company Act of 1940, as amended, or
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
4.24 Legal Compliance. No member of the APAA Group nor, to the best
knowledge of the APAA Group, any director, officer, agent, employee or other
person associated with or acting on behalf of any member of the APAA Group has,
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment, using corporate funds.
4.25 Year 2000. The APAA Group's hardware and software systems
include design, performance and functionality so that the APAA Group does not
reasonably expect to experience invalid or incorrect results or abnormal
hardware or software operation related to calendar year 2000. The APAA Group's
hardware and software systems include calendar year 2000 date conversion and
compatibility capabilities, including but not limited to, date data century
recognition, same century and multiple century formula and date value
calculations, and user interface date data values that reflect the century. No
representation or warranty, express or implied, is made hereunder with respect
to the interface between the APAA Group's hardware and software systems and
those of any party with whom any member of the APAA Group or APAM deals from
time to time, with respect to the extent of Year 2000 compliance that any such
party's software or hardware systems might have.
4.26 Full Disclosure. No representation or warranty by any member of
the APAA Group in this Agreement, nor in any certificate, schedule, statement,
document or instrument furnished to FIG pursuant to this Agreement contains or
will contain any untrue statement of a material fact or, taking into account the
scope of such representations and warranties and the context in which they are
made, omits or will omit to state a material fact required to be stated herein
or therein or necessary to make any statement herein or therein not misleading.
26
<PAGE> 42
4.27 Activities, Assets and Liabilities of Newco and the Liquidating
Trust. Newco and the Liquidating Trust have engaged in no activities or
operations of any nature except as provided in this Agreement. Newco shall not
have or incur any liabilities of any nature other than (i) the liabilities of
APAA set forth on the balance sheet of APAA as of December 31, 1997, a copy of
which has been provided to FIG, and (ii) the Newco Expense Obligation, and (iii)
liabilities disclosed in Section 4.18 of the Disclosure Schedule which it is
anticipated that APAA will incur from and after January 1, 1998 . The assets of
Newco as of the Effective Time shall consist of the assets of APAA set forth on
the balance sheet of APAA as of December 31, 1997.
4.28 Effective Time of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of the APAA
Group set forth in this Agreement, as updated by any written disclosure schedule
delivered pursuant to Section 6.6 of this Agreement, shall be deemed to be made
on and as of the date of this Agreement, as of the Closing Date, and as of the
Effective Time.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. During the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement (including the APAA Group
Disclosure Schedule), each member of the APAA Group shall, and shall cause each
of its respective Subsidiaries to, (a) conduct its business in the usual,
regular and ordinary course consistent with past practice, (b) use reasonable
best efforts to maintain and preserve intact its business organization and
advantageous business relationships and retain the services of its key officers
and (c) take no action which would materially adversely affect or materially
delay the ability of any party to this Agreement to obtain any Requisite
Regulatory Approval for the transactions contemplated by this Agreement or to
perform its covenants and agreements under this Agreement.
5.2 APAA Group Forbearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in the APAA Group
Disclosure Schedule, as the case may be, and, except as expressly contemplated
or permitted by this Agreement, no member of the APAA Group shall, and no member
of the APAA Group shall permit any of their respective Subsidiaries to, without
the prior written consent of FIG, not to be unreasonably withheld or delayed:
(i) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
for the obligations of any other individual, corporation or other entity, or
make any loan or advance (it being understood and agreed that incurrence of
indebtedness in the ordinary course of business shall include, without
limitation, entering into repurchase agreements and reverse repurchase
agreements);
(ii) redeem, repay, discharge or defease any surplus
note;
(iii) (a) adjust, split, combine or reclassify any
capital stock; (b) make, declare or pay any dividend or make any other
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock, (c) grant
any stock appreciation rights or grant any individual, corporation or other
entity any right to acquire any shares of its capital stock;
27
<PAGE> 43
(iv) sell, transfer, mortgage, encumber or otherwise
dispose of any of its material properties or assets to any individual,
corporation or other entity, or cancel, release or assign any material
indebtedness to any such person or any claims held by any such person, except in
the ordinary course of business or pursuant to contracts or agreements in force
at the date of this Agreement;
(v) except for transactions in the ordinary course of
business consistent with past practice, or as expressly contemplated or
permitted by this Agreement, make any material investment either by purchase of
stock or securities, contributions to capital, property transfers, or purchase
of any property or assets of any other individual, corporation or other entity
other than a Subsidiary thereof;
(vi) except for transactions in the ordinary course of
business, enter into or terminate any material contract or agreement, or
make any change in any of its material leases or contracts, other than renewals
of contracts and leases without material adverse changes of terms;
(vii) hire any employees or become a party to, or commit
itself to any pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment agreement with or for the benefit of any person;
(viii) settle any claim, action or proceeding involving
money damages, except in the ordinary course of business;
(ix) take any action that would prevent or impede the
Merger from qualifying as a reorganization within the meaning of Section
368 of the Code;
(x) amend their Articles of Incorporation, or their
Bylaws or other organizational documents, except as contemplated by or for
purposes of effectuating this Agreement;
(xi) other than in accordance with its present
investment guidelines, materially restructure or materially change its
investment securities portfolio through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported;
(xii) agree to, or make any commitment to, take any of
the actions prohibited by this Section 5.2.
5.3 FIG Forebearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in the FIG Disclosure
Schedule, as the case may be, and, except as expressly contemplated or permitted
by this Agreement, FIG shall not, and FIG shall not permit any of its
Subsidiaries to (i) insure any of APAC's existing insureds, without the written
consent of APAC or (ii) take any action that would prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368 of the
Code.
ARTICLE 6
ADDITIONAL AGREEMENTS
5.4 Regulatory Matters.
(i) FIG will prepare and file, and the APAA Group will
cooperate with and assist FIG in preparing and filing, all statements,
applications, correspondence or forms required to be filed with appropriate
state securities law regulatory authorities to register or qualify the shares of
FIG Common Stock to be issued upon consummation of the Merger or to establish an
exemption for such registration or qualification (the "Blue Sky Filings").
28
<PAGE> 44
(ii) FIG and the APAA Group will promptly prepare and
file, or cause to be filed, the HSR Act Report with the Pre-Merger
Notification Agencies in respect of the transactions contemplated by this
Agreement, which filing shall comply as to form with all requirements applicable
thereto and all of the data and information reported therein shall be accurate
and complete in all material respects. Each of FIG and the APAA Group will
promptly comply with all requests, if any, of the Pre-Merger Notification
Agencies for additional information or documentation in connection with the HSR
Act Report forms filed by or on behalf of each of such parties pursuant to the
HSR Act, and all such additional information or documentation shall comply as to
form with all requirements applicable thereto and shall be accurate and complete
in all material respects. Each of FIG and APAA will pay one-half (1/2) of the
HSR filing fee.
(iii) Each of FIG and the APAA Group shall make all
other regulatory filings required to be made by each in respect of this
Agreement or the transactions contemplated by this Agreement. Each party shall
use all reasonable efforts to obtain all material permits, approvals and
consents required to be obtained prior to the consummation of the Merger or
necessary to carry out the transactions contemplated by this Agreement under
applicable federal, state, local and foreign laws, rules and regulations,
including any approvals required under applicable state insurance laws. A
representative of each party shall participate in all substantive discussions
with the Pre-Merger Notification Agencies and any other Governmental Entity,
unless such right to participate is waived by such party.
(iv) Each party will furnish all information, including
certificates, consents and opinions of counsel concerning it and its
Subsidiaries reasonably deemed necessary by the other party for the filing or
preparation for filing of the Blue Sky Filings, the HSR Act Report and the
applications for all Requisite Regulatory Approvals. Each party covenants and
agrees that all information furnished by it for inclusion in Blue Sky Filings
and all other documents filed to obtain the Requisite Regulatory Approvals will
comply in all material respects with the provisions of applicable law, including
the Securities Act and the Exchange Act, and will not contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
(v) Each party shall provide to the other, (i) promptly
after filing thereof, copies of all statements, applications, correspondence or
forms filed by such party prior to the Closing Date with state securities law
regulatory authorities, the Pre-Merger Notification Agencies and any other
Governmental Entity in connection with the transactions contemplated by this
Agreement; and (ii) promptly after delivery to, or receipt from, such regulatory
authorities, all written communications, letters, reports or other documents
relating to the transactions contemplated by this Agreement.
(vi) The parties hereto shall cooperate with each other
and use their best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including the Merger), and to comply with the terms and conditions of
all such permits, consents, approvals and authorizations of all such
Governmental Entities. FIG and APAA Group shall have the right to review in
advance, and, to the extent practicable, each will consult the other on, in each
case subject to applicable laws relating to the exchange of information, all the
information relating to FIG or APAA Group, as the
29
<PAGE> 45
case may be, and any of their respective Subsidiaries, which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated by this
Agreement.
(vii) FIG and APAA Group shall, upon request, furnish
each other with all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with any statement, filing, notice or
application made by or on behalf of FIG, APAA Group or any of their respective
Subsidiaries to any Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement.
(viii) FIG and APAA Group shall promptly advise each
other upon receiving any communication from any Governmental Entity whose
consent or approval is required for consummation of the transactions
contemplated by this Agreement which causes such party to believe that there is
a reasonable likelihood that any Requisite Regulatory Approval will not be
obtained or that the receipt of any such approval will be materially delayed.
6.2 Access to Information.
(i) Upon reasonable notice and subject to
applicable laws relating to the exchange of information and to the
Confidentiality Agreement dated December 1, 1997 as amended (the
"Confidentiality Agreement"), among the parties to this Agreement, each of FIG
and APAA Group shall, and shall cause each of their respective Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the other party, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of FIG and APAA Group
shall, and shall cause their respective Subsidiaries to, make available to the
other party (i) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of federal securities laws or state insurance laws (other than
reports or documents which FIG or APAA Group, as the case may be, is not
permitted to disclose under applicable law or by agreement) and (ii) all other
information concerning its business, properties and personnel as such party may
reasonably request. Neither FIG nor APAA Group nor any of their respective
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of FIG's
or APAA Group's, as the case may be, customers, jeopardize the attorney-client
and work product privileges of the entity in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(ii) Each of FIG and APAA Group agrees to keep
confidential, and not divulge to any other party or person (other than employees
of, and attorneys, accountants, financial advisors and other representatives
for, any said party who agree to be bound by the Confidentiality
30
<PAGE> 46
Agreement), all non-public documents, information, records and financial
statements received from the other and, in addition, any and all reports,
information and financial information obtained through audits or other reviews
conducted pursuant to this Agreement (unless readily ascertainable from public
or published information, or trade sources, or already known or subsequently
developed by a party independently of any investigation or received from a third
party not under an obligation to the other party to keep such information
confidential), and to use the same only in connection with the transactions
contemplated by this Agreement; and if the transactions contemplated by this
Agreement are not consummated for any reason, each party agrees to promptly
return to the other party all written materials furnished by the other party,
and all copies thereof, in connection with such investigation, and to destroy
all documents and records in its possession containing extracts or summaries of
any such non-public information.
(iii) No investigation by either of the parties or their
respective representatives shall affect the representations, warranties,
covenants, indemnity obligations or conditions of the other set forth in this
Agreement, provided that if either party has actual knowledge of a matter which
is contrary to a representation or warranty made by the other party, then such
matter shall be deemed to have been included on the other party's Disclosure
Schedule.
(iv) The parties acknowledge that FIG may, as a result
of its due diligence investigations, propose that APAC's loss reserves be
increased prior to the Effective Time. The APAA Group agrees to make any such
increase in loss reserves that FIG may reasonably request, subject to the
approval of APAC's actuaries and accountants (the "Reserve Increase"), provided
that:
(A) The Reserve Increase shall not be deemed to cause or
contribute to any extent to the inaccuracy or breach of
any representation, warranty, covenant or agreement in
this Agreement; and
(B) The Reserve Increase shall be completely disregarded
in determining whether the conditions precedent to FIG's
obligations to close have been satisfied.
6.3 Legal Conditions to Merger. Each of FIG and APAA Group shall,
and shall cause its Subsidiaries to, use their best reasonable efforts (a) to
take, or cause to be taken, all actions necessary, proper or advisable to comply
promptly with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger and, subject to the conditions set forth
in Article VII of this Agreement, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by FIG or APAA Group or any of their respective Subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement.
6.4 Nasdaq National Market Listing. FIG shall cause the shares of
FIG Common Stock to be issued in the Merger to be approved for trading and
reporting on the Nasdaq National Market subject to official notice of issuance,
prior to the Effective Time.
6.5 Additional Agreements.
(i) In case at any time prior to the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including obtaining authorization for APAC to transact business under
the laws of any state in which the parties hereto mutually agree
31
<PAGE> 47
that APAC should obtain authorization) or the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by FIG.
(ii) In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest FIG or any of its Subsidiaries with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to this Agreement or the Merger, the proper officers and directors of
each party to this Agreement and their respective Subsidiaries shall take all
such necessary action, at the expense of FIG, as may be reasonably requested by
FIG.
(iii) Prior to the Effective Time, no member of the APAA
Group shall acquire, directly or indirectly, beneficial or record
ownership of any shares of FIG Common Stock or other equity securities of FIG,
or any securities convertible into or exercisable for any shares of FIG Common
Stock or other equity securities of FIG.
(iv) APAC and FIG shall insure that the officers and
directors of APAC retain their rights to indemnity for corporate
liabilities after the Closing, to the same extent as such rights existed prior
thereto; and shall further assure that such officers and directors become
covered and insured under the Directors and Officers insurance policies
maintained by FIG.
6.6 Advice of Changes. FIG and APAA Group shall give prompt notice
to the other party as soon as practicable after it has actual knowledge of (i)
the occurrence, or failure to occur, of any event which would or would be likely
to cause any party's representations or warranties contained in this Agreement
to be untrue or incorrect in any material respect at any time from the date of
this Agreement to the Effective Time, or (ii) any failure on its part or on the
part of any of its or its Subsidiaries' officers, directors, employees,
representatives or agents (other than persons or entities who are such
employees, representatives or agents only because they are appointed insurance
agents of such parties) to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by such party
under this Agreement. Each party shall have the right to deliver to the other
party a written disclosure schedule as to any matter of which it becomes aware
following execution of this Agreement which would constitute a breach of any
representation, warranty or covenant of this Agreement by such party,
identifying on such disclosure schedule the representation, warranty or covenant
which would be so breached, provided that each such disclosure schedule shall be
delivered as soon as practicable after such party becomes aware of the matter
disclosed therein. If and only if any such new disclosure schedule discloses a
matter which has or is reasonably likely to have a Material Adverse Effect on
the disclosing party, the nondisclosing party shall have five (5) business days
from receipt of such disclosure schedule to notify the disclosing party that (x)
it will close notwithstanding the new disclosure, (y) it will not close based on
such new disclosure, or (z) further investigation or negotiation is required for
it to reach a determination whether or not to close based on such new
disclosure, which determination shall in any event be made within fifteen (15)
business days after delivery of such disclosure schedule. If the parties
thereafter are unable to reach agreement on a mutually satisfactory means of
resolving the matter so disclosed, the nondisclosing party shall have the right
in its discretion, to terminate this Agreement pursuant to Article 8 of this
Agreement. FIG shall update the FIG Disclosure Schedule (the "Closing Date FIG
Disclosure Schedule") to a date that is no earlier than ten (10) business days
prior to the Closing Date and no later than seven (7) business days prior to the
Closing Date and shall deliver the Closing Date FIG Disclosure Schedule to APAA
Group no earlier than six (6) business days prior to the Closing
32
<PAGE> 48
Date. APAA Group shall update the APAA Group Disclosure Schedule (the "Closing
Date APAA Group Disclosure Schedule") to a date that is no earlier than ten (10)
business days prior to the Closing Date and no later than seven (7) business
days prior to the Closing Date and shall deliver the Closing Date APAA Group
Disclosure Schedule to FIG no earlier than six (6) business days prior to the
Closing Date.
6.7 No Solicitations.
(i) So long as this Agreement remains in effect and no
notice of termination has been given under this Agreement APAA Group shall not
authorize or knowingly permit any of its representatives, directly or
indirectly, to initiate, solicit, encourage, engage in, or participate in,
negotiations with any person or entity or any group of persons or entities other
than FIG or any of its affiliates (a "Potential Acquiror") concerning any
Acquisition Proposal (as defined in this Section 6.7) other than pursuant to
this Agreement. APAA Group will promptly inform FIG of any serious, bona fide
inquiry it may receive with respect to any Acquisition Proposal and shall
furnish FIG a copy thereof, if in writing, or a written summary thereof, if
oral. The APAA Group shall immediately cease and cause to be terminated all
existing discussions and negotiations, if any, with any parties conducted
heretofore with respect to any Acquisition Proposal.
(ii) Nothing contained in this Agreement shall prohibit
the Board of Directors of APAA from furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
Acquisition Proposal if: (A) the Board of Directors of APAA, after consultation
with and receiving the advice of its legal counsel, determines in good faith
that such action is necessary or required for the Board of Directors of APAA to
comply with its fiduciary duties to its members under applicable law or its
organizational documents, (B) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity, APAA
Group discloses to FIG that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, which notice shall
describe the terms thereof, (C) prior to furnishing such information to such
person or entity, APAA Group receives from such person or entity an executed
confidentiality agreement with terms not materially more favorable to such
person than the terms contained in the Confidentiality Agreement, (D) APAA Group
keeps FIG informed promptly of the status (including the terms) of any such
discussions or negotiations (provided that, APAA Group shall not be required to
disclose to FIG confidential information concerning the business or operations
of the person or entity making the expression of interest) and (E) the APAA
Group shall give FIG prior notice of at least three (3) business days before
entering into any agreement, other than a confidentiality agreement, with such
person.
(iii) As used in this Agreement, "Acquisition Proposal"
means any (i) proposal pursuant to which any corporation, partnership, person or
other entity or group, other than FIG, would acquire or participate in a merger
or other business combination involving any member of the APAA Group, directly
or indirectly; (ii) proposal by which any corporation, partnership, person or
other entity or group, other than FIG, would acquire the right to vote 10% or
more of the capital stock of any member of the APAA Group, entitled to vote
thereon for the election of directors; (iii) acquisition of 10% or more of the
assets of any member of the APAA Group, other than in the ordinary course of
business; or (iv) acquisition in excess of 10% of the outstanding capital stock
of or equity interest in any member of the APAA Group, other than as
contemplated by this Agreement.
33
<PAGE> 49
6.8 Tax Consistency. The parties hereto mutually agree that each of
the parties shall make and file for the year of the Merger, and for all other
relevant taxable years, federal, state, local and, if relevant, foreign income
tax returns and information returns, and other tax notifications that reflect
the Merger in a manner in all respects consistent with the opinions of counsel
referred to in Section 7.3(vi) hereof and acknowledge that in the event of
failure to comply, damages will include the amount of all reasonable legal,
accounting and expert witness, court and other compliance costs incurred as a
result of any challenge to the income tax-free status of the Merger.
6.9 Termination of Agreements. Prior to the Closing, the APAA Group
shall cause to be terminated the APAA Group agreements marked with an asterisk
on the APAA Group Disclosure Schedule.
6.10 Trust Continuance. From the date of this Agreement and
throughout the effective term of the Pledge Agreement, (a) the Liquidating Trust
shall remain in existence, and (b) the Liquidating Trust's organizational
documents shall not be amended or revised in any manner that has (or is
reasonably likely to have) a material adverse effect on FIG's rights under the
Pledge Agreement or the Stock Retention Agreement.
6.11 Continuation. (a) From and after the Effective Time, FIG will
retain a sufficient amount of APAC stock and APAC will retain a sufficient
amount of its assets and business operations such that FIG and APAC will
continue the historic business of Newco and APAC or use a significant portion of
Newco's and APAC's historic business assets in a business, as provided in
Treasury Regulation Section 1.368-1 (d).
(b) As of the date hereof and the Effective Time, neither FIG nor
any of its affiliates has or will have a plan or intention to acquire any FIG
Common Stock issued in connection with the Merger, except for acquisitions made
in the ordinary course of business, acquisitions effected pursuant to any stock
buy-back or similar plans in effect on the date of this Agreement, or pursuant
to the terms of the Stock Retention Agreement and/or the Pledge Agreement.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(i) The shares of FIG Common Stock which shall be issued
to the Liquidating Trust upon consummation of the Merger shall have been
authorized for trading and reporting on the Nasdaq National Market, subject to
official notice of issuance.
(ii) The Articles of Merger shall have been filed with
the appropriate Governmental Entities immediately prior to the Closing.
(iii) All approvals of Governmental Entities required to
consummate the transactions contemplated by this Agreement shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired, without the imposition of any
condition which in the reasonable judgment of FIG or APAC is materially
burdensome upon FIG or its Subsidiaries or APAC, as the case may be (all such
approvals and the expiration of all such waiting periods being referred to in
this Agreement as the "Requisite
34
<PAGE> 50
Regulatory Approvals"). Without limiting the generality of the foregoing: (i)
all Blue Sky Filings shall have been made, and the sale of FIG Stock resulting
from the Merger shall have been qualified or registered with the appropriate
state securities law regulatory authorities of all states in which qualification
or registration is required under applicable state securities laws, and such
qualifications or registrations shall not have been suspended or revoked, or
shall be exempt from such qualification or registration; (ii) the HSR Act Report
shall have been submitted to the Pre-Merger Notification Agencies, and the
waiting period under the HSR Act shall have expired or notice of early
termination of the waiting period shall have been received; and (iii) the Merger
shall have been approved by the Florida Insurance Department and the insurance
departments of all states in which APAC, FIG and any Subsidiaries of either of
them conduct material business, to the extent such approvals are legally
required.
(iv) No order, injunction or decree issued by any
Governmental Entity of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger or any of the other
transactions contemplated by this Agreement shall be in effect. No statute,
rule, regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, materially
restricts or makes illegal consummation of the Merger.
(v) Immediately prior to the Effective Time, FIG shall
acquire a 9.9% interest in APAL pursuant to a separate agreement between FIG and
APAL being executed and delivered concurrently herewith (the "APAL Stock
Purchase Agreement"). At the Closing (as defined in Section 9.1), APAC shall
enter into a reinsurance agreement with APAL, which will become effective as of
12:01 A.M. on January 1, 1999, in the form attached to the APAL Stock Purchase
Agreement. At the Closing, APAC shall issue and cause to be delivered, as
required under the applicable agreements, to the respective reinsurers involved,
notices of cancellations of all reinsurance agreements or treaties to which APAC
is a party (exclusive of the new reinsurance agreement with APAL as provided
above), which shall provide for cancellation effective at 12:01 A.M. on January
1, 1999.
(vi) FIG, APAC and APAM shall have entered into the
Management Agreement.
(vii) The Consulting Agreement dated the date of this
Agreement between APAC and CGA shall be in full force and effect.
(viii) The Non-Competition Agreements each dated the
date of this Agreement among FPIC and APAC and each of APAM, CGA, Dr. Frank
Moya, Joan McNulty, Elizabeth Moya, Dr. Monte Lichtiger and Gene Witherspoon
shall be in full force and effect.
7.2 Conditions to Obligation of FIG. The obligation of FIG to effect
the Merger is also subject to the satisfaction or waiver by FIG at or prior to
the Effective Time of the following conditions:
(i) The representations and warranties of APAA
Group to the extent that the same are not qualified by a materiality standard
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and (except (a) to the extent such
representations and warranties speak as of an earlier date and (b) for any
changes to the APAC Disclosure Schedule that are disclosed to FIG by the APAA
Group in the Closing Date APAC Disclosure Schedule) as of the Closing Date as
though made on and as of the Closing Date. The representations and warranties of
APAA Group to the extent that the same are qualified by a materiality standard
set forth in this Agreement shall be true and correct in all respects as of the
date of this Agreement and (except (a) to the extent such representations and
warranties speak as
35
<PAGE> 51
of an earlier date and (b) for any changes to the APAC Disclosure Schedule that
are disclosed to FIG by the APAA Group in the Closing Date APAC Disclosure
Schedule) as of the Closing Date as though made on and as of the Closing Date.
FIG shall have received a certificate signed on behalf of APAA Group by the
Chairman of the Board and the Chief Executive Officer of APAA and the Chief
Executive Officers and the Chief Financial Officers of Newco and APAC to the
foregoing effect, and to which any Closing Date APAA Group Disclosure Schedule
shall be appended.
(ii) APAA Group shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and FIG shall have received a certificate signed
on behalf of APAA Group by the Chairman of the Board and the Chief Executive
Officer of APAA and the Chief Executive Officers and the Chief Financial
Officers of Newco and APAC to such effect.
(iii) No member of the APAA Group shall have suffered a
material adverse change in its business, assets, properties, results of
operations or condition (financial or otherwise); and no event or circumstance
shall have occurred which has, or is likely to have, a Material Adverse Effect
on any member of the APAA Group, or upon the right of any member of the APAA
Group to conduct its respective businesses as presently conducted.
(iv) APAA Group shall have delivered to FIG an opinion,
dated the Closing Date, of counsel for APAA Group, reasonably satisfactory to
FIG and its counsel as to such matters as FIG may reasonably request (which
shall not include tax matters). In rendering their opinion, counsel to APAA
Group may rely on certificates of officers of APAA Group, opinions of other
counsel reasonably acceptable to FIG, the authenticity of all signatures on
documents believed to be genuine and such other evidence as they may deem
necessary or desirable. Such opinion may contain such assumptions, limitations
and qualifications as are normally included in similar opinions.
(v) APAL shall have released any and all liens and
interest that APAL may have in the outstanding shares of APAC Common Stock.
(vi) FIG and APAC shall have entered into the Investment
Management Agreement.
(vii) Intentionally Omitted.
(viii) FIG, the Liquidating Trust and a collateral agent
mutually acceptable to FIG and the Liquidating Trust shall have entered into the
Pledge Agreement and FIG and the Liquidating Trust shall have entered into the
Stock Retention Agreement.
(ix) As of and immediately following the Effective Time,
APAC shall continue as a Florida domiciled insurance company, duly licensed in
Florida to write the lines of insurance that it is currently writing.
(x) FIG shall have reasonably determined, based on
advice of its tax counsel, that the formation of Newco, the transfer of the
assets and liabilities of APAA to Newco, the dissolution of APAA and the related
transactions and the Merger will constitute and qualify as tax free
reorganizations under Sections 368(a)(1) of the Code and no gain or loss will be
recognized and no taxes will be incurred by APAC, FIG or any affiliate of FIG as
the result thereof.
(xi) The APAA Group shall have provided to FIG a letter
from KPMG Peat Marwick LLP, in form and content reasonably acceptable to FIG, or
other evidence that is reasonably satisfactory to FIG, certifying that (A) as of
December 31, 1997, APAA's tax basis in
36
<PAGE> 52
the APAC stock owned by APAA (the " APAA Basis") was not materially less than
$10,987,000, and (B) as of December 31, 1997, the pro forma APAA Basis as
adjusted to reflect APAA's contribution of the Surplus Note to the capital of
APAC (or, alternatively, as adjusted to reflect the repayment of the Surplus
Note by APAC to APAA and APAA's contribution of the amount so repaid to the
capital of APAC) was not materially less than $12,637,000.
(xii) APAA Group shall have delivered to FIG such other
certificates and instruments as FIG and its counsel may reasonably request. The
form and substance of all certificates, instruments, opinions and other
documentation delivered to FIG under this Agreement shall be reasonably
satisfactory to FIG and its counsel.
7.3 Conditions to Obligation of APAA Group. The obligation of APAA
Group to effect the Merger is also subject to the satisfaction or waiver by APAA
Group at or prior to the Effective Time of the following conditions:
(i) The representations and warranties of FIG set
forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and (except (i) to the extent such
representations and warranties speak as of an earlier date and (ii) for any
changes to the FIG Disclosure Schedule that are disclosed by FIG to APAA Group
in the Closing Date FIG Disclosure Schedule) as of the Closing Date as though
made on and as of the Closing Date. APAA Group shall have received a certificate
signed on behalf of FIG by the President and Chief Executive Officer and the
Senior Vice President and Chief Financial Officer of FIG to the foregoing
effect, and to which any Closing Date FIG Disclosure Schedule shall be appended.
(ii) FIG shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and APAA Group shall have received a certificate signed on
behalf of FIG by the President and Chief Executive Officer and the Senior Vice
President and Chief Financial Officer of FIG to such effect.
(iii) FIG and its Subsidiaries, taken as a whole, shall
not have suffered a material adverse change in their financial condition,
operations or assets and no event or circumstance shall have occurred which has
a Material Adverse Effect on FIG or upon the right of FIG or any of the FIG
Subsidiaries to conduct their respective businesses as presently conducted.
(iv) FIG shall have delivered to APAA Group an opinion,
dated the Closing Date, of counsel for FIG, reasonably satisfactory to
APAA Group and its counsel as to such matters as APAA may reasonably request
(which shall not include tax matters). In rendering their opinion, counsel to
FIG may rely on certificates of officers of FIG, opinions of other counsel
reasonably acceptable to APAA Group, the authenticity of all signatures on
documents believed to be genuine and such other evidence as they may deem
necessary or desirable. Such opinion may contain such assumptions, limitations
and qualifications as are normally included in similar opinions.
(v) APAA Group shall have received the favorable opinion
from Metis Financial LLC, in form and substance reasonably satisfactory to the
APAA Group, that consummation of the Merger and the other transactions
contemplated by this Agreement upon the terms and conditions provided in this
Agreement and in the other agreements referred to in this Agreement is fair to
APAA Group and the members of APAA from a financial point of view.
(vi) APAA Group shall have received an opinion of their
tax counsel, addressed to APAA Group, in form and substance reasonably
satisfactory to APAA Group, dated as of the Effective Time, substantially to the
effect that, on the basis of facts, representations and
37
<PAGE> 53
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time:
The Merger should constitute a tax free
reorganization under Section 368(a)(1)(A) of the Code and FIG and
Newco will each be a party to the reorganization;
No gain or loss should be recognized by FIG or
Newco as a result of the Merger; and
No gain or loss should be recognized by the
Liquidating Trust (except with respect to cash received from FIG).
In rendering such opinion, counsel may require and rely upon representations
contained in certificates of officers of FIG, APAA Group and others.
(vii) FIG shall have delivered to APAA Group such other
certificates and instruments as APAA Group and its counsel may reasonably
request. The form and substance of all certificates, instruments and other
documentation delivered to APAA Group under this Agreement shall be reasonably
satisfactory to APAA Group and its counsel.
(viii) FIG shall not have experienced a Change of
Control as defined herein. For the purpose of this Agreement, a "Change of
Control" shall mean (a) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 33_% or more of the then outstanding shares of FIG Common Stock; provided,
however, that the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from FIG, (ii) any acquisition by FIG,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by FIG or any corporation controlled by FIG or (iv) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, (a)
more than 33_% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, of the outstanding FIG
Common Stock immediately prior to such reorganization, merger or consolidation
in substantially the same proportions as their ownership, immediately prior to
such reorganization, merger or consolidation, of the outstanding FIG Common
Stock, or (b) no Person (excluding FIG, any employee benefit plan (or related
trust) of FIG or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 33_% or more of
the outstanding FIG Common Stock) beneficially owns, directly or indirectly 33_%
or more of, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation.
(ix) The payment due under the Non-Competition Agreement
with CGA in the amount of $2,000,000 shall have been paid.
ARTICLE 8
TERMINATION AND AMENDMENT
38
<PAGE> 54
8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the Boards of Directors of FIG, APAA or Newco:
(i) by mutual consent of FIG and APAA Group in a
written instrument, if the Boards of Directors of FIG, APAA and Newco so
determine, in each case by an affirmative vote of a majority of the members of
their respective entire Boards;
(ii) by either FIG or APAA Group if (i) any Governmental
Entity that must grant a Requisite Regulatory Approval has denied approval of
the Merger and such denial has become final and nonappealable or any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement, and (ii) the
Board of Directors of FIG or the Boards of Directors of APAA or Newco, as the
case may be, so determines by an affirmative vote of a majority of the members
of its entire Board;
(iii) by either FIG or APAA Group if (i) the Merger
shall not have been consummated on or before October 1, 1998, unless the
failure of the Merger to be consummated by such date shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth in this Agreement, and (ii) the
Board of Directors of FIG or the Boards of Directors of APAA or Newco, as the
case may be, so determines by an affirmative vote of a majority of the members
of its entire Board;
(iv) by either FIG or APAA Group (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in this Agreement) if there
shall have been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of the other party;
(v) by either FIG or APAA Group (providing that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in this Agreement) if (i) any
representation or warranty of the other party contained in this Agreement that
is not qualified by a materiality standard shall be inaccurate in any material
respect or any representation or warranty of the other party contained in this
Agreement that is qualified by a materiality standard shall be inaccurate in any
respect, and such inaccuracy is not cured within forty-five days following
written notice to the party making the representation or warranty, or such
inaccuracy, by its nature or timing, cannot be cured prior to the Closing Date,
and (ii) the Board or Boards of Directors of the non-breaching party so
determines by an affirmative vote of a majority of the members of its entire
Board;
(vi) by FIG upon written notice to APAA or Newco if any
members of the APAA Group shall have authorized, recommended, publicly
proposed or publicly announced an intention to authorize, recommend or propose,
or entered into an agreement with any person or entity other than FIG to effect
an Acquisition Proposal; provided, however, that notwithstanding anything in
this Section 8.1(vi) to the contrary, FIG and APAA Group intend this Agreement
to be an exclusive agreement and, accordingly, nothing in this Agreement is
intended to constitute a solicitation of an Acquisition Proposal, it being
acknowledged and agreed that any such proposal would interfere with the
strategic advantages and benefits that FIG and APAA Group expect to derive from
this Agreement and the transactions contemplated hereby; or
(vii) by FIG if the Closing Date APAA Group Disclosure
Schedule discloses any change from the APAA Group Disclosure Schedule which has,
or is reasonably likely to have, a Material Adverse Effect on any member of the
APAA Group; or by APAA or Newco if the Closing
39
<PAGE> 55
Date FIG Disclosure Schedule discloses any change from the FIG Disclosure
Schedule which has, or is reasonably likely to have, a Material Adverse Effect
on FIG.
8.2 Effect of Termination. In the event of termination of this
Agreement by either FIG or APAA or Newco as provided in Section 8.1 of this
Agreement, (i) this Agreement shall forthwith become void and have no effect,
except that Sections 6.2(ii), 8.2, 8.5, 9.3, 9.4, 9.5, 9.6, 9.13, 9.14, 9.16 and
9.18 of this Agreement shall survive any termination of this Agreement, and (ii)
none of FIG, APAA, Newco or APAC, any of their respective Subsidiaries or any of
the officers or directors of any of them shall have any liability of any nature
whatsoever under this Agreement, or in connection with the transactions
contemplated by this Agreement, except as otherwise provided in Section 8.5 of
this Agreement; provided, however, that notwithstanding anything to the contrary
contained in this Agreement, neither FIG nor APAA or Newco or APAC shall be
relieved or released from any liabilities or damages arising out of the
inaccuracy or breach of any representation, warranty, covenant or other
provision of this Agreement.
8.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
the Board of Directors of FIG and the Boards of Directors of APAA or Newco, at
any time before the Merger. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties to this Agreement may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts of the other
parties to this Agreement, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant
hereto and (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to this
Agreement to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
8.5 Liquidated Damages; Termination Fee. Notwithstanding anything to
the contrary contained in this Agreement, in the event that any of the following
events or circumstances shall occur, APAA Group shall, within ten (10) days
after notice of the occurrence thereof by FIG, pay to FIG the sum equal to
$600,000 plus all reasonable out-of-pocket expenses for outside legal counsel
and outside consultants and professionals of FIG, which the parties agree and
stipulate as reasonable and full liquidated damages and reasonable compensation
for the involvement of FIG in the transactions contemplated in this Agreement,
is not a penalty or forfeiture, and will not affect the provisions of this
Section 8.5: (i) at any time prior to termination of this Agreement an APAC
Acquisition Event (as defined in this Section 8.5) shall occur; or (ii) FIG
shall terminate this Agreement pursuant to Section 8.1(vi). For purposes of this
Agreement an "APAC Acquisition Event" shall mean that any member of APAA Group
or an authorized representative thereof shall have authorized, recommended,
publicly proposed or publicly announced an intention to authorize, recommend or
propose, or entered into an agreement with any person (other than FIG or an
affiliate of FIG) to effect an Acquisition Proposal. Upon the making and receipt
of such payment under this Section 8.5, APAA Group shall have no further
obligation of any kind under this Agreement and FIG shall not have any further
obligation of any kind under this Agreement, except in each case under Section
8.2 of this Agreement, and no party shall have any liability for any breach or
alleged breach by such party of any provision of this Agreement.
40
<PAGE> 56
ARTICLE 9
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a
date and at a place to be specified by the parties, which shall be on the later
of June 30, 1998 or five (5) business days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article 7 of this Agreement, unless extended or changed by mutual agreement
of the parties (the "Closing Date").
9.2 Survival of Representations and Warranties. All statements of
fact contained in any schedule, certificate or other instrument delivered by or
on behalf of FIG, APAA, Newco or APAC pursuant hereto, as well as the warranties
and representations contained herein, shall be deemed representations and
warranties by such party. The representations and warranties made by the parties
herein with regard to any and all tax matters, employee benefit plans or labor
matters and the right to make claims for the breach thereof, shall survive until
all applicable statutes of limitations expire. All other representations and
warranties made by the parties herein, and the right to make claims for the
breach thereof, including but not limited to claims for indemnification under
Section 9.4, below shall survive the Closing for 12 months following the
Closing. Any claim for indemnification for which notice has been given within
the prescribed period (which notice shall be given to the party against which
indemnity is being sought, and shall describe in reasonable detail the basis for
the claim that has arisen and is being asserted) may be prosecuted to conclusion
notwithstanding the subsequent expiration of the period.
9.3 Expenses. Except as otherwise expressly provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated by this Agreement shall be paid by FIG, to the
extent FIG incurs such costs or expenses, or the Liquidating Trust, to the
extent any member of the APAA Group incurs such costs or expenses; provided,
however, at the Closing, by virtue of the merger of Newco into FIG, FIG will
assume and become obligated to pay the lesser of (i) $200,000, or (ii) 50% of
all expenses of the transaction incurred by APAA, including legal, accounting,
financial advisory and other transaction fees, but excluding fees for a fairness
opinion and the CGA transaction fee (such amount to which FIG will become
obligated to pay being herein referred to as the "Newco Expense Obligation").
Payment of the Newco Expense Obligation by Newco, APAA or APAC shall be deemed
the payment thereof by FIG. To the extent that any member of the APAA Group pays
(other than from the proceeds of the Cash Consideration) legal, accounting,
financial advisory or other costs or expenses attributable to the transactions
contemplated by this Agreement which is in excess of the Newco Expense
Obligation, the Liquidating Trust shall reimburse at Closing such excess expense
payments to the party that paid the same. All costs and expenses associated with
obtaining for APAC "admitted carrier" status in any State shall be an APAC
expense, which shall be borne by APAC. The parties acknowledge, consent and
agree that APAA and/or APAC have paid, and shall continue to pay through the
Closing ( including but not limited to payment from the proceeds of the Cash
Consideration) legal, actuarial, accounting, financial advisory and other
transaction fees, costs and expenses incurred by the members of the APAA Group,
including without limitation, fees, costs and expenses for a fairness opinion.
Notwithstanding any conflicting provisions of this Agreement, the incurrence,
accrual and payment of the foregoing fees, costs and expenses shall not
constitute or contribute to the inaccuracy, violation or breach of any
representation, warranty, covenant or agreement herein.
41
<PAGE> 57
9.4 Indemnification and Reimbursement.
(i) APAA's and the Liquidating Trust's
Indemnification. APAA and the Liquidating Trust agree to indemnify FIG, Newco
and APAC and to hold FIG, Newco and APAC harmless from and against all losses,
claims, damages, liabilities, penalties, judgments, awards, or other costs or
expenses of any nature (including reasonable attorneys' fees and costs)
(collectively, "Losses") incurred or sustained by FIG, Newco or APAC resulting
from or arising out of (i) any material breach or material inaccuracy of any
representation or warranty to that is not qualified by a materiality standard
made by any member of the APAA Group contained in this Agreement or in any
schedule, certificate, or exhibit delivered by the APAA Group pursuant to this
Agreement, (ii) any breach or inaccuracy of any representation or warranty that
is qualified by a materiality standard made by any member of the APAA Group
contained in this Agreement or in any schedule, certificate or exhibit delivered
by the APAA Group pursuant to this Agreement or (iii) any failure by any member
of the APAA Group to perform or otherwise fulfill in any material respect any of
their agreements, covenants or obligations hereunder or any material breach by
the APAA Group of any of their agreements, covenants or obligations hereunder.
Notwithstanding any conflicting or inconsistent provisions in this Agreement,
APAA and the Liquidating Trust shall not be obligated to provide
indemnification, and shall not otherwise be liable in damages, until aggregate
Losses for which indemnity or damages would otherwise be available hereunder
exceed $153,000, at which time APAA and the Liquidating Trust shall then be
obligated to provide indemnification for all Losses from the first dollar
thereof.
(ii) FIG's Indemnification. FIG agrees to indemnify APAA
and the Liquidating Trust and hold APAA and the Liquidating Trust harmless from
and against any Losses incurred or sustained by APAA resulting from or arising
out of (i) any breach or inaccuracy of any representation or warranty made by
FIG contained in this Agreement or in any schedule, certificate or exhibit
delivered by FIG pursuant to this Agreement or (ii) any failure of FIG to
perform or otherwise fulfill in any material respect any of its covenants,
agreements or obligations hereunder or any material breach by FIG of any of its
agreements, covenants or obligations hereunder. Notwithstanding any conflicting
or inconsistent provisions in this Agreement, FIG shall not be obligated to
provide indemnification, and shall not otherwise be liable in damages, until
Losses for which indemnity or damages would otherwise be available hereunder
exceed $153,000, at which time FIG shall then be obligated to provide
indemnification for all Losses from the first dollar thereof.
(iii) Indemnification Procedures.
In the event that any claim is asserted against any party hereto, or any
party hereto is made a party defendant in any action or proceeding, and
such claim, action or proceeding involves a matter which is the subject of
this indemnification, then such party (an "Indemnified Party") shall give
written notice to the other party hereto (the "Indemnifying Party") of such
claim, action or proceeding, and such Indemnifying Party shall have the
right to join in and (prior to the time an answer is filed in a litigated
proceeding) control the defense and settlement of such claim, action or
proceeding at such Indemnifying Party's own cost and expense and through
counsel reasonably acceptable to the Indemnified Party (the parties agree
that any law firm identified in the notice section of this Agreement shall
be acceptable for such purposes), except that, in such case, the
Indemnified Party shall have the right to join in the defense of said
claim, action or proceeding at its own cost and expense.
42
<PAGE> 58
9.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied or by facsimile transmission (with confirmation), mailed by
registered or certified mail (return receipt requested) or delivered by an
express courier (with confirmation) to the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice):
(i) if to FIG:
FPIC Insurance Group Inc.
1000 Riverside Avenue, Suite 800
Jacksonville, Florida 32204
Attention: William R. Russell
Fax: (904) 350-1049
with copies to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
50 N. Laura Street, Suite 2800
Jacksonville, Florida 32202
Attention: John R. Byers, Esq.
Fax: (904) 353-1673
and
(ii) if to APAA, Newco or APAC, to:
Anesthesiologists Professional Assurance
Association, Inc.
801 Arthur Godfrey Road, Suite 400
Miami Beach, Florida 33140
Attention: Gene Witherspoon
Fax: (305) 672-7344
with copies to:
Daniel Lampert, Esq.
Berger Davis & Singerman
100 NE Third Avenue, Suite 400
Fort Lauderdale, Florida 33301
Fax: (954) 523-2872
and
Karp & Genauer, P.A.
2 Alhambra Plaza, Suite 1202
Coral Gables, Florida 33134
Attention: Joel J. Karp, Esq.
Fax: (305) 461-3545
Daniel Lampert, Esq.
43
<PAGE> 59
9.6 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the
jurisdiction in which the defendant's principal place of business is located
(i.e., the State of Florida, County of Duval or the United States District Court
for the Middle District of Florida for FIG, and the State of Florida, County of
Dade or the United States District Court for the Southern District of Florida
for APAA Group), and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
9.7 Further Assurances. At the request of any party to this
Agreement, the other parties shall execute, acknowledge and deliver such other
documents and/or instruments as may be reasonably required by the requesting
party to carry out the purposes of this Agreement. In the event any party to
this Agreement shall be involved in litigation, threatened litigation or
government inquiries with respect to a matter covered by this Agreement, every
other party to this Agreement shall also make available to such party, at
reasonable times and subject to the reasonable requirements of its own
businesses, such of its personnel as may have information relevant to such
matters, provided that such party shall reimburse the providing party for its
reasonable costs for employee time incurred in connection therewith if more than
one business day is required. Following the Closing, the parties will cooperate
with each other in connection with tax audits and in the defense of any legal
proceedings.
9.8 Remedies Cumulative. Unless expressly made the exclusive remedy
by the terms of this Agreement, all remedies provided for in this Agreement are
cumulative and shall be in addition to any and all other rights and remedies
provided by law and by any other agreements between the parties.
9.9 Presumptions. It is expressly acknowledged and agreed that all
parties have been represented by counsel and have participated in the
negotiation and drafting of this Agreement, and that there shall be no
presumption against any party on the ground that such party was responsible for
preparing this Agreement or any part of it.
9.10 Exhibits and Schedules. Each of the exhibits and schedules
referred to in, and/or attached to, this Agreement is an integral part of this
Agreement and is incorporated in this Agreement by this reference.
9.11 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an Article
of, a Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require FIG,
APAA Group or any of their respective Subsidiaries or affiliates to take any
action which would violate any applicable law, rule or regulation.
9.12 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood
44
<PAGE> 60
that all parties need not sign the same counterpart. This Agreement may be
executed by facsimile with the same force and effect as an original.
9.13 Entire Agreement. This Agreement (including the documents and
the instruments referred to in this Agreement) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement.
9.14 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Florida, without regard to any
applicable conflicts of law principles.
9.15 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.16 Publicity. Except as otherwise required by applicable law or
the rules of the NASD and the Nasdaq National Market, neither FIG nor APAA Group
shall, or shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
9.17 Assignment; Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations shall be assigned by any of the
parties to this Agreement (whether by operation of law or otherwise) without the
prior written consent of the other parties to this Agreement. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
This Agreement (including the documents and instruments referred to in this
Agreement) is not intended to confer upon any person other than the parties to
this Agreement any rights or remedies under this Agreement.
9.18 Attorney Fees. If litigation is brought concerning this
Agreement, the prevailing party shall be entitled to receive from the
non-prevailing party, and the non-prevailing party shall upon final judgment and
expiration of all appeals immediately pay upon demand all reasonable attorneys'
fees and expenses of the prevailing party.
9.19 Single Disclosure Sufficient; "Knowledge" Defined.
Notwithstanding any conflicting or inconsistent provisions of this Agreement,
disclosure of any matter by a party on any one of the Exhibits or Schedules to
this Agreement shall be sufficient to qualify (to the extent of the disclosure)
all representations and warranties made in any relevant provisions of this
Agreement. References in this Agreement to "Knowledge" (whether or not such term
is capitalized) (i) of FIG shall mean the actual (and not the constructive)
knowledge after due inquiry of William R. Russell, Steven R. Smith or Robert B.
Finch and (ii) of any member of the APAA Group shall mean the actual (and not
the constructive) knowledge after due inquiry of Dr. Frank Moya, Joan McNulty,
Elizabeth Moya, Dr. Monte Lichtiger or Gene Witherspoon
9.20 Domicile of Newco; Subsidiary Merger. Notwithstanding any
conflicting or inconsistent provisions of this Agreement, in the event that the
parties shall mutually agree: (a)
45
<PAGE> 61
the domicile of Newco may be changed from Florida (as contemplated herein) to
Delaware; and/or (b) Newco may be merged into a subsidiary of FIG rather than
into FIG (as contemplated herein), provided that in such event FIG shall
guaranty or remain liable for all of the obligations of such subsidiary
hereunder. In either such event as described in this Section, the parties shall
negotiate, execute and deliver such documents and instruments as are necessary
to include the foregoing and such additional non-substantive revisions to the
terms hereof as may be required to reflect the applicable changes.
9.21 No Personal Liability. The persons executing and delivering
this Agreement do so only in a representative or corporate capacity, and no
individual liability shall attach to any such person thereby.
IN WITNESS WHEREOF, FIG, APAA, the Liquidating Trust and APAC have
caused this Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
FPIC INSURANCE GROUP, INC.,
a Florida corporation
By: /s/ William R. Russell
-----------------------------------
William R. Russell
President and Chief Executive Officer
ANESTHESIOLOGISTS PROFESSIONAL
ASSURANCE ASSOCIATION, INC.,
a Florida not-for-profit corporation
By: /s/ Frank Moya
----------------------------------
Frank Moya, M.D.
Chairman
ANESTHESIOLOGISTS PROFESSIONAL
ASSURANCE COMPANY,
a Florida corporation
By: /s/ Frank Moya
---------------------------------
Frank Moya, M.D., Chairman
APAA Liquidating Trust
a Florida Trust
By: /s/ Frank Moya
---------------------------------
Frank Moya, M.D., Chairman
46
<PAGE> 62
SCHEDULE OF EXHIBITS
Exhibit A - Articles of Merger
Exhibit B - Form of Stock Restriction and Registration Rights Agreement
Exhibit C - Form of Management Agreement
Exhibit D - Form of Investment Management Agreement
Exhibit E - Terms of Pledge Agreement
Exhibit F - Terms of Stock Retention Agreement
47
<PAGE> 63
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
FPIC INSURANCE GROUP, INC.
1. The name of this Corporation is FPIC INSURANCE GROUP, INC.
2. Section 6.1 of Article VI of the Restated Articles of
Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
"Section 6.1 Authorized Capital Stock
The total number of shares of stock that this Corporation shall have
authority to issue is one hundred million (100,000,000) shares, divided into
fifty million (50,000,000) shares of Common Stock, par value $0.10 per share
(the "Common Stock"), and fifty million (50,000,000) shares of Preferred Stock,
par value $0.10 per share (the "Preferred Stock") (Common Stock and Preferred
Stock are hereinafter collectively referred to as "Stock"). Each holder of
Common Stock shall be entitled to one vote for each share of Common Stock held
by such holder."
3. A meeting of the Board of Directors of the Corporation was held
on March 27, 1999, at which this Amendment to the Corporation's Restated
Articles of Incorporation (the "Amendment") was approved and it was recommended
that the Amendment be presented to the Corporation's Shareholders for adoption
at the annual meeting of Shareholders.
4. The annual meeting of Shareholders of the Corporation was held on
June 8, 1999, at which the Amendment was adopted by a number of votes sufficient
for approval.
IN WITNESS WHEREOF, FPIC INSURANCE GROUP, INC. has caused the
Amendment to be executed in its name by its President this 8th day of June,
1999.
FPIC INSURANCE GROUP, INC.
By: /s/ William R. Russell
----------------------
William R. Russell
President
129257.1
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCAIL STATEMENTS OF FPIC INSURANCE GROUP, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 334,282
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 10,298
<MORTGAGE> 0
<REAL-ESTATE> 5,108
<TOTAL-INVEST> 354,270
<CASH> 1,918
<RECOVER-REINSURE> 1,997
<DEFERRED-ACQUISITION> 2,228
<TOTAL-ASSETS> 576,070
<POLICY-LOSSES> 266,989
<UNEARNED-PREMIUMS> 62,986
<POLICY-OTHER> 2,931
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 58,178
0
0
<COMMON> 987
<OTHER-SE> 172,070
<TOTAL-LIABILITY-AND-EQUITY> 576,070
54,133
<INVESTMENT-INCOME> 9,333
<INVESTMENT-GAINS> 313
<OTHER-INCOME> 15,587
<BENEFITS> 33,375
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 10,494
<INCOME-PRETAX> 19,530
<INCOME-TAX> 4,893
<INCOME-CONTINUING> 14,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,637
<EPS-BASIC> 1.50
<EPS-DILUTED> 1.41
<RESERVE-OPEN> 279,677
<PROVISION-CURRENT> 54,628
<PROVISION-PRIOR> (23,693)
<PAYMENTS-CURRENT> 8,084
<PAYMENTS-PRIOR> 35,539
<RESERVE-CLOSE> 266,989
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
