<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 14, 1997
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
(Exact Name of Registrant as Specified in its Charter)
Michigan 0-21223 38-3273911
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
4295 Okemos Road, Okemos, Michigan 48805
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (517) 349-6500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On August 14, 1997, Professionals Insurance Company Management Group, a
Michigan business corporation ("Professionals Group"), PICOM Insurance Company,
a Michigan stock insurance company and a wholly-owned subsidiary of
Professionals Group ("PICOM"), and Physicians Protective Trust Fund, a medical
malpractice self-insurance trust fund organized under Florida Statutes Section
627.357 ("PPTF"), entered into an Agreement and Plan of Merger (the
"Agreement") providing for a pooling of interests of Professionals Group and
PPTF. (A conformed copy of the Agreement is being filed with this Current
Report on Form 8-K as Exhibit 2. Capitalized terms not otherwise defined in
this Report shall have the meanings given to them in the Agreement. The
following description and summary of certain provisions of the Agreement is
qualified in its entirety by the Agreement, which is incorporated herein by
this reference.)
Professionals Group is the holding company for PICOM and its affiliates.
At June 30, 1997, Professionals Group had total shareholders' equity of $93.3
million and total assets of $391.2 million. PICOM, which was founded in 1980,
provides professional liability insurance and reinsurance for over 7,500
professionals and institutions in the Midwest (including physicians,
dentists, hospitals and other health care providers, lawyers and law firms).
Professionals Group and its subsidiaries, which (in terms of market share)
constitute the second largest provider of medical malpractice insurance in
Michigan and the fifth largest provider of medical malpractice insurance in
each of Illinois and Indiana, have approximately $62 million of direct written
annual medical malpractice premiums.
Physicians Protective Trust Fund, which was formed in 1975,
is the largest provider of medical malpractice insurance for physicians and
physician corporations in Florida. PPTF currently provides medical malpractice
insurance to over 3,900 physicians and health care providers representing over
25% of the physician professional liability premiums written in Florida.
PPTF has approximately $64 million of direct written annual premiums, and at
June 30, 1997 had a total fund balance (e.g., shareholders' equity) of $105.8
million and total assets of $434.7 million.
The pooling of interests of Professionals Group and PPTF contemplated by
the Agreement will be accomplished through the merger of PPTF with and into a
newly-formed wholly-owned insurance subsidiary of Professionals Group ("INSCO")
followed immediately by the merger of INSCO with and into PICOM, with PICOM
continuing on as the surviving insurance corporation. Upon consummation of
these transactions, PICOM (i) will be renamed to reflect the combined insurance
operations of PPTF and PICOM and (ii) will maintain regional executive offices
in Okemos, Michigan and Coral Gables, Florida and local sales and service
offices in Ft. Lauderdale, Orlando, Tampa and Jacksonville, Florida; Oak Brook,
Illinois; Indianapolis, Indiana; and Columbus, Ohio.
Upon the merger of PPTF with and into INSCO, and except as otherwise
provided in the Agreement, the aggregate rights of Eligible Members of PPTF (the
"Membership Rights") will be converted into an aggregate number of shares (the
"Aggregate Merger Shares") of common stock, no par value per share, of
Professionals Group ("Professionals Group Common Stock") determined by dividing
$116,091,248 (the "Exchange Value") by the average of the daily closing prices
per share of Professionals Group Common Stock as reported by the Nasdaq
National Market for the period of twenty (20) business days ending on the fifth
(5th) business day prior to the Closing Date (the "Average Price"); provided,
however, (i) that in the event the Average Price as determined under the
foregoing provision is $31.00 or higher, then the Average Price will be deemed
to be $31.00 and the Exchange Value will be divided by $31.00 (so that, in such
case, the number of Aggregate Merger Shares issuable would be 3,744,879 shares
of Professionals Group Common Stock), and (ii) that in the event the Average
Price as determined under the foregoing provision is $27.00 or lower, then the
Average Price will be deemed to be $27.00 and the Exchange Value will be
divided by $27.00 (so that, in such case, the number of Aggregate Merger Shares
issuable would be 4,299,676 shares of Professionals Group Common Stock). In
consideration for his or her Membership Right, each Eligible Member of PPTF
will be allocated and will
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<PAGE> 3
be entitled to receive a portion of the Aggregate Merger Shares in accordance
with an allocation formula determined by PPTF and then approved by the
appropriate regulatory authorities of the State of Florida. No fractional
shares of Professionals Group Common Stock will be issued to any Eligible
Member and, in lieu thereof, all of said fractional shares shall be paid the
cash equivalent value thereof based on the applicable Average Price.
The transactions contemplated by the Agreement, which are expected to be
completed early in the first quarter of 1998, are subject to certain regulatory
approvals (including the approvals of the Insurance Commissioners of Florida
and Michigan), and to the approval of the Eligible Members of PPTF and of the
shareholders of Professionals Group.
After consummation of the transactions contemplated by the Agreement:
W. Peter McCabe, M.D. will continue as the Chairman of the Board of Directors
of Professionals Group, Eliot H. Berg, M.D. (currently the Chairman of the
Board of Trustees of PPTF) will become the Vice-Chairman of the Board of
Directors of Professionals Group, Mr. Victor T. Adamo will continue as the
President and Chief Executive Officer of Professionals Group, and Mr. Steven L.
Salman (currently the President and Chief Executive Officer of PPTF) will
become the Chief Operating Officer of Professionals Group. The Board of
Directors of Professionals Group will consist of sixteen (16) persons;
including all ten (10) of the persons who are directors of Professionals Group
(including Dr. McCabe and Mr. Adamo) immediately prior to the consummation of
such transactions (the "Professionals Group Representatives"), R. Kevin
Clinton, FCAS, MAAA, who is the President of Michigan Educational Employees
Mutual Insurance Company, and Dr. Berg, Mr. Salman and three (3) other persons
named as directors of Professionals Group by the Board of Trustees of PPTF (the
"PPTF Representatives"). The PPTF Representatives will be divided as equally
as practicable among the three classes of directors of Professionals Group.
The headquarters and principal executive offices of Professionals Group shall
be located in Okemos, Michigan.
After consummation of the transactions contemplated by the Agreement:
Dr. Berg will be the Chairman of the Board of Directors of PICOM, Dr. McCabe
will be the Vice-Chairman of the Board of Directors of PICOM, and Mr.
Salman will be the President and Chief Executive Officer of PICOM. The Board
of Directors of PICOM will consist of ten (10) persons; including Dr. McCabe,
Mr. Adamo, and three (3) other persons named as directors of PICOM by the Board
of Directors of Professionals Group (the "PG PICOM Directors"), and Dr. Berg
and Mr. Salman, and three (3) other persons named as directors of PICOM by the
Board of Trustees of PPTF (the "PPTF PICOM Directors"). The PG PICOM Directors
and the PPTF PICOM Directors will be divided as equally as practicable among
the three classes of directors of PICOM in proportion to the aggregate
representation set forth in the preceding sentence.
The transactions contemplated by the Agreement are an extension of the
business strategies of Professionals Group and PPTF, each of which is seeking
growth through consolidation and through product diversification and
geographical diversification. The combined entity, which will be one of the
leading medical malpractice companies in the United States, will be licensed in
Florida, Michigan, Ohio, Indiana, Iowa, Illinois, Kentucky and Pennsylvania and
will pursue additional licenses in the Eastern half of the United States. It
is anticipated that the merger of PPTF's insurance operations with those of
PICOM will result in a stronger capital position that should (i) enable the
combined entity to bid more effectively for larger health care accounts and to
compete more effectively in its current insurance markets, and (ii) facilitate
further product diversification and geographical diversification. It is also
anticipated that recent changes in PPTF's underwriting practices and rate
structure, when combined with PICOM's marketing experience, will enable the
combined entity, over time, to attain a loss ratio comparable to that of PICOM
and industry averages. It is expected that the combining of such insurance
operations will produce cost savings and revenue enhancements.
Cochran, Caronia & Co. and McDonald & Company are serving as financial
advisors to Professionals Group with respect to the transactions contemplated
by the Agreement and each of them has rendered a fairness opinion to the Board
of Directors of Professionals Group to the effect that the consideration to be
paid by Professionals Group to the Eligible Members of PPTF in respect of
their Membership Rights is fair, from a financial point of view, to the
shareholders of Professionals Group. Donaldson, Lufkin & Jenrette Securities
Corporation is serving as financial advisor to PPTF with respect to the
transactions contemplated by the Agreement and it has rendered a separate
fairness opinion to the Board of Trustees of PPTF to the effect that the
Aggregate Merger Shares to be received by the Eligible Members of PPTF is fair
to those Eligible Members, as a group, from a financial point of view.
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The following table sets forth certain additional information regarding
Professionals Group and PPTF.
<TABLE>
<CAPTION>
Physicians Protective
Professionals Group Trust Fund
------------------- ---------------------
<S> <C> <C>
Mailing Address: 4295 Okemos Road 2121 Ponce de Leon Blvd.
P.O. Box 2510 P.O. Box 149001
Okemos, MI 48805-9510 Coral Gables, FL 33114-9001
Telephone Numbers: (800) 292-1036 (800) 222-5115
(517) 349-6500 (305) 442-8119
Facsimile Number: (517) 349-8977 (305) 448-8236
Number of Employees: 96 96
Current States of Licensure: Michigan, Illinois, Ohio Florida
Indiana, Iowa, Kentucky,
Pennsylvania
Number of Policyholders: 7,500 3,900
Active Subsidiaries and
Affiliates: PICOM Insurance Company Physicians Protective Plan, Inc.
PICOM Insurance Company of Illinois
American Insurance Management Corp.
(attorney-in-fact for American
Medical Insurance Exchange)
PICOM Claims Services Corporation
</TABLE>
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PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
At, and for the year ending, December 31, 1996
<TABLE>
<CAPTION>
Professionals
Group PPTF Pro Forma
--------------- ------------ ---------
<S> <C> <C> <C>
Total investments $ 300,132,000 $ 342,127,000 $ 642,259,000
Total assets 357,382,000 422,241,000 779,623,000
Loss and loss adjustment expense reserves 219,919,000 281,593,000 501,512,000
Total liabilities 269,424,000 320,041,000 589,465,000
Total shareholders' equity 87,958,000 102,200,000 190,158,000
Book value per common share 25.09 -- --
Premiums earned, net 56,687,000 68,028,000 124,715,000
Net income 9,585,000 9,376,000 18,961,000
GAAP Ratios:
Loss ratio 86.6% 112.3% 100.6%
Expense ratio 19.6% 10.9% 14.9%
---------- ----------- -----------
Combined ratio 106.2% 123.2% 115.5%
=========== =========== ===========
Statutory Ratios:
Loss ratio 85.4% 112.3% 99.6%
Expense ratio 15.9% 9.5% 12.5%
----------- ----------- -----------
Combined ratio 101.3% 121.8% 112.1%
=========== =========== ===========
</TABLE>
Except as otherwise indicated above, the foregoing unaudited pro forma
financial information has been prepared in accordance with generally accepted
accounting principles and gives effect to the transactions contemplated by the
Agreement as a "pooling of interests" and as if those transactions had been
effective on December 31, 1996. The pro forma combined financial data do not
give effect to any anticipated cost savings or revenue enhancements in
connection with those transactions and are not necessarily indicative of either
the results that actually would have occurred had those transactions been
consummated on or before December 31, 1996 or the results that may be obtained
in the future. All financial information contained herein with respect to PPTF
was supplied by PPTF.
A registration statement relating to the shares of Professionals Group
Common Stock to be exchanged in the transactions contemplated by the Agreement
will be filed with the Securities and Exchange Commission. Such shares of
Professionals Group Common Stock may not be exchanged, nor may offers to
exchange be accepted, prior to the time the registration statement becomes
effective. The above information, together with the other portions of this
Current Report on Form 8-K, shall not constitute an offer to exchange or the
solicitation of an offer to exchange nor shall there be any exchange of shares
of Professionals Group Common Stock in any state in which such offer,
solicitation or exchange would be unlawful prior to registration or
qualification under the securities laws of any such state. The shares of
Professionals Group Common Stock to be exchanged in the transactions
contemplated by the Agreement will be offered only by means of a prospectus
filed with the Securities and Exchange Commission.
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PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
At, and for the six-month period ending, June 30, 1997
<TABLE>
<CAPTION>
Professionals
Group PPTF Pro Forma
--------------- ------------ ---------
<S> <C> <C> <C>
Total investments $ 324,099,000 $ 317,685,000 $ 641,784,000
Total assets 391,236,000 434,666,000 825,902,000
Loss and loss adjustment expense reserves 226,728,000 270,055,000 496,783,000
Total liabilities 297,927,000 328,845,000 626,772,000
Total shareholders' equity 93,309,000 105,821,000 199,130,000
Book value per common share 26.62 -- --
Premiums earned, net 25,480,000 30,926,000 56,406,000
Net income 5,298,000 4,154,000 9,452,000
GAAP Ratios:
Loss ratio 85.7% 118.6% 103.7%
Expense ratio 20.7% 4.8% 12.0%
---------- ----------- -----------
Combined ratio 106.4% 123.4% 115.7%
=========== =========== ===========
Statutory Ratios:
Loss ratio 85.7% 118.6% 103.7%
Expense ratio 17.8% 3.4% 9.8%
----------- ----------- -----------
Combined ratio 103.5% 122.0% 113.5%
=========== =========== ===========
</TABLE>
Except as otherwise indicated above, the foregoing unaudited pro forma
financial information has been prepared in accordance with generally accepted
accounting principles and gives effect to the transactions contemplated by the
Agreement as a "pooling of interests" and as if those transactions had been
effective on June 30, 1997. The pro forma combined financial data do not give
effect to any anticipated cost savings or revenue enhancements in connection
with those transactions and are not necessarily indicative of either the
results that actually would have occurred had those transactions been
consummated on or before June 30, 1997 or the results that may be obtained in
the future. All financial information contained herein with respect to PPTF was
supplied by PPTF.
A registration statement relating to the shares of Professionals Group
Common Stock to be exchanged in the transactions contemplated by the Agreement
will be filed with the Securities and Exchange Commission. Such shares of
Professionals Group Common Stock may not be exchanged, nor may offers to
exchange be accepted, prior to the time the registration statement becomes
effective. The above information, together with the other portions of this
Current Report on Form 8-K, shall not constitute an offer to exchange or the
solicitation of an offer to exchange nor shall there be any exchange of shares
of Professionals Group Common Stock in any state in which such offer,
solicitation or exchange would be unlawful prior to registration or
qualification under the securities laws of any such state. The shares of
Professionals Group Common Stock to be exchanged in the transactions
contemplated by the Agreement will be offered only by means of a prospectus
filed with the Securities and Exchange Commission.
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<PAGE> 7
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired. Not applicable.
(b) Pro Forma Financial Information. Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
----------------- -------------------
<S> <C>
(2) Agreement and Plan of Merger dated as of August 14, 1997, by and among
Professionals Insurance Company Management Group, PICOM Insurance Company and
Physicians Protective Trust Fund.
(99) Joint Press Release of Professionals Insurance Company Management Group,
PICOM Insurance Company and Physicians Protective Trust Fund issued August
15, 1997.
</TABLE>
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<PAGE> 8
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 hereunto duly authorized.
PROFESSIONALS INSURANCE COMPANY
MANAGEMENT GROUP
Date: August 25, 1997 By: /s/ Victor T. Adamo
---------------------------------
Victor T. Adamo
President and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
<PAGE> 2
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of August
14, 1997, by and among PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP, a
Michigan business corporation ("Professionals Group"), PICOM INSURANCE COMPANY,
a Michigan stock insurance company ("PICOM"), and PHYSICIANS PROTECTIVE TRUST
FUND, a medical malpractice self-insurance trust fund organized under Florida
Statutes Section 627.357 ("PPTF").
WITNESSETH:
WHEREAS, the Boards of Directors of Professionals Group and PICOM have
determined that it is in the best interests of their respective companies and
their stockholders to effect a "merger of equals" of Professionals Group and
PPTF through the consummation of the business combination transactions provided
for in this Agreement; and
WHEREAS, the Board of Trustees of PPTF has determined that it is in the
best interests of its members to effect a "merger of equals" of Professionals
Group and PPTF through the consummation of the business combination
transactions provided for in this Agreement; and
WHEREAS, it is the intent of the respective Boards of Directors of
Professionals Group and PICOM, and of the Board of Trustees of PPTF, that
Professionals Group and PICOM be the surviving corporations in such business
combination transactions, and that following the consummation of such business
combination transactions, Professionals Group and PICOM be governed and
operated on the basis of a "merger of equals" of Professionals Group and PPTF;
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 I
THE MERGERS
1.1 Formation of INSCO. Subject to the terms and conditions of this
Agreement, and for the sole purpose of facilitating the consummation of the
transactions contemplated by this Agreement by merging with and into PPTF,
Professionals Group and PICOM shall cause a stock insurance company ("INSCO")
to be incorporated as a wholly-owned subsidiary of Professionals Group under
and pursuant to Title XXXVII, Florida Statutes, as amended (the "Florida
Insurance Code"), and to become authorized to transact business in the State of
Michigan under and pursuant to the Michigan Insurance Code of 1956, as amended
(the "Michigan Insurance Code"), and in the State of Florida under and pursuant
to the Florida Insurance Code. Prior to the INSCO Effective Time (as defined
in Section 1.3 of this Agreement), INSCO shall not write or underwrite any
lines of insurance and INSCO shall not engage in any business activities other
than those business activities as are expressly provided for or contemplated by
this Agreement.
<PAGE> 3
1.2 INSCO Merger. Subject to the terms and conditions of this Agreement
and in accordance with the Florida Insurance Code, at the INSCO Effective Time,
PPTF shall merge with and into INSCO (the "INSCO Merger"). INSCO shall be the
surviving corporation in the INSCO Merger, and shall continue its corporate
existence under the laws of the State of Florida. Upon consummation of the
INSCO Merger, the separate existence (corporate and otherwise) of PPTF shall
terminate.
1.3 INSCO Effective Time. The INSCO Merger shall become effective as
set forth in articles of merger (the "INSCO Certificate 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
INSCO Merger specified in the INSCO Certificate of Merger shall be no earlier
than the date and time the INSCO Certificate of Merger is filed with the
appropriate authorities of the State of Florida and shall be as soon after such
filing as is practicable. The term "INSCO Effective Time" shall be the date
and time when the INSCO Merger becomes effective, as set forth in the INSCO
Certificate of Merger filed in accordance with the Florida Insurance Code and
the Florida Business Corporation Act, as amended (the "FBCA").
1.4 Effects of INSCO Merger. At and after the INSCO Effective Time, the
INSCO Merger shall have the effects set forth in this Agreement, the INSCO
Certificate of Merger, the Florida Insurance Code and the FBCA. At the INSCO
Effective Time, (i) the insurance policies and indemnity agreements previously
issued by PPTF and then in effect (collectively, the "PPTF Indemnity
Agreements") will become and be insurance policies issued by INSCO and will be
converted from assessable insurance policies to nonassessable insurance
policies, without any endorsement or modification thereto, and the coverages
and benefits under such PPTF Indemnity Agreements will continue unaffected by
the INSCO Merger; (ii) all rights, franchises, licenses and interests of PPTF
in and to every type of property, real, personal and mixed, and all choses in
action of PPTF shall continue unaffected and uninterrupted by the INSCO Merger
and shall accrue to INSCO; (iii) all obligations and liabilities of PPTF
(including all surplus notes previously issued by PPTF (the "PPTF Surplus
Notes")) then outstanding shall become and be obligations of INSCO and shall
continue unaffected and uninterrupted by the INSCO Merger; and (iv) no action
or proceeding then pending and to which PPTF is a party shall be abated or
discontinued but may be prosecuted to final judgment by INSCO. If the INSCO
Merger is not consummated, then PPTF will remain a medical malpractice
self-insurance trust fund organized under Florida Statutes Section 627.357.
1.5 Conversion of Membership Rights.
(a) At the INSCO Effective Time, and except as otherwise provided
in this Agreement, by virtue of the INSCO Merger and without any action on the
part of Professionals Group, PICOM, INSCO, PPTF or any Eligible Member (as
defined in Exhibit A to this Agreement), all Membership Rights (as defined in
Exhibit A to this Agreement) shall be converted into an aggregate number of
shares (the "Aggregate Merger Shares") of common stock, no par value per share,
of Professionals Group ("Professionals Group Common Stock") determined by
dividing $116,091,248 (the "Exchange Value") by the average of the daily
closing prices per share of Professionals Group Common Stock as reported by the
Nasdaq National Market for the period of twenty (20) business days ending on
the fifth (5th) business day prior to the Closing Date (the "Average Price");
provided, however, (i) that in the event the Average Price as determined under
the foregoing provision is $31.00 or higher, then the Average Price shall be
deemed to be $31.00 and the Exchange Value shall be divided by $31.00 (so that,
in such case, the number of Aggregate Merger Shares issuable as a result of the
INSCO Merger would be 3,744,879 shares of Professionals Group Common Stock),
and (ii) that in the event the Average Price as determined under the foregoing
provision is $27.00 or lower, then the Average Price shall be deemed
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<PAGE> 4
to be $27.00 and the Exchange Value shall be divided by $27.00 (so that, in
such case, the number of Aggregate Merger Shares issuable as a result of the
INSCO Merger would be 4,299,676 shares of Professionals Group Common Stock).
Notwithstanding anything express or implied to the contrary in this Agreement
or the Allocation Formula (as defined in this Section 1.5): (w) the aggregate
number of shares of Professionals Group Common Stock issuable as a result of
the INSCO Merger shall be not less than 3,744,879 shares of Professionals Group
Common Stock and not more than 4,299,676 shares of Professionals Group Common
Stock; (x) no fractional shares of Professionals Group Common Stock shall be
issued to any Eligible Member and, in lieu thereof, all of said fractional
shares shall be paid the cash equivalent value thereof based on the applicable
Average Price; (y) if the calculation of the number of Aggregate Merger Shares
results in a fractional share, then the number of Aggregate Merger Shares
resulting from such calculation shall be rounded upwards to the next whole
number; and (z) except as otherwise expressly provided in Section 1.28 of this
Agreement, no shares of Professionals Group Common Stock shall be issuable or
issued to any person or entity other than an Eligible Member in connection with
the INSCO Merger.
(b) At the INSCO Effective Time, and except as otherwise provided
in this Agreement, by virtue of the INSCO Merger and without any action on the
part of Professionals Group, PICOM, INSCO, PPTF or any Eligible Member: (i)
all Eligible Members shall cease to have any rights as Eligible Members of PPTF
(including the right to elect trustees, the right to vote as to other matters,
and any rights with respect to the distribution of surplus in liquidation); and
(ii) all Membership Rights shall no longer be outstanding, and shall
automatically be cancelled and shall cease to exist; provided, however, that at
and after the INSCO Effective Time, each individual Membership Right shall
represent the right to receive, in accordance with the Allocation Formula (as
defined in this Section 1.5), a certificate representing the number of whole
shares of Professionals Group Common Stock and cash in lieu of any fractional
share of Professionals Group Common Stock into which such Membership Right has
been converted pursuant to this Agreement.
(c) In consideration for his or her Membership Right, each
Eligible Member shall be allocated and shall be entitled to receive a portion
of the Aggregate Merger Shares determined in accordance with an allocation
formula (the "Allocation Formula"). The Allocation Formula shall be determined
by PPTF and then approved by the appropriate authorities of the State of
Florida. Once the Allocation Formula is so approved by such authorities, the
parties to this Agreement shall prepare and execute an amendment to this
Agreement that amends and restates Exhibit A to this Agreement so as to include
the Allocation Formula as approved by such authorities. Each Membership Right
shall be exchanged for certificates representing whole shares, and cash in lieu
of any fractional share, of Professionals Group Common Stock in accordance with
Article II of this Agreement.
(d) If, prior to the INSCO Effective Time, the outstanding shares
of Professionals Group Common Stock shall have been increased, decreased,
changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other similar change in
capitalization, then an appropriate and proportionate adjustment shall be made
to the number of Aggregate Merger Shares.
(e) Membership Rights to which dissenters' rights are perfected
under applicable law shall not be converted into or represent the right to
receive any shares, or any cash payment in lieu of any fractional shares of
Professionals Group Common Stock; provided, however, that if any holder of the
dissenting Membership Right shall withdraw his or her demand for payment of the
fair value of his or her Membership Right or shall fail to perfect his or her
dissenters' rights in accordance with applicable law, then such holder's
dissenting Membership Right shall cease to be a dissenting Membership Right
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<PAGE> 5
and shall, subject to the terms of this Agreement, be converted into and
represent the right to receive a certificate representing the number of whole
shares of Professionals Group Common Stock and cash in lieu of any fractional
share of Professionals Group Common Stock into which such Membership Right has
been converted pursuant to this Agreement.
1.6 INSCO Common Stock. At the INSCO Effective Time, each share of
common stock of INSCO issued and outstanding immediately prior to the INSCO
Effective Time shall remain an issued and outstanding share of common stock of
INSCO, as the surviving corporation in the INSCO Merger, and shall not be
affected by the INSCO Merger.
1.7 INSCO Articles of Incorporation. Subject to the terms and
conditions of this Agreement, at the INSCO Effective Time, the Articles of
Incorporation of INSCO then in effect shall be, and shall continue in effect
as, the Articles of Incorporation of INSCO, as the surviving corporation in the
INSCO Merger, until thereafter amended in accordance with this Agreement and
applicable law.
1.8 INSCO Bylaws. Subject to the terms and conditions of this
Agreement, at the INSCO Effective Time, the Bylaws of INSCO then in effect
shall be, and shall continue in effect as, the Bylaws of INSCO, as the
surviving corporation in the INSCO Merger, until thereafter amended in
accordance with this Agreement and applicable law.
1.9 INSCO Merger Tax Consequences and Accounting Treatment. It is
intended that (i) the INSCO 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"), (ii) this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (iii) the
INSCO Merger shall qualify for "pooling of interests" accounting treatment
under Accounting Principles Board Opinion No. 16 and SEC Accounting Series
Releases 130 and 135, as amended.
1.10 PICOM Merger. Subject to the terms and conditions of this Agreement
and in accordance with the Michigan Insurance Code and the Florida Insurance
Code, at the PICOM Effective Time (as defined in Section 1.11 of this
Agreement), INSCO shall merge with and into PICOM (the "PICOM Merger," and
together with the INSCO Merger, the "Mergers"). PICOM shall be the surviving
corporation in the PICOM Merger, and shall continue its corporate existence
under the laws of the State of Michigan. Upon consummation of the PICOM Merger,
the separate corporate existence of INSCO shall terminate.
1.11 PICOM Effective Time. The PICOM Merger shall become effective as
set forth in certificates of merger or articles of merger (each, a "PICOM
Certificate of Merger") filed with the appropriate authorities of the State of
Michigan and the State of Florida on the Closing Date. The effective date and
time of the PICOM Merger specified in the PICOM Certificates of Merger shall be
no earlier than the date and time the PICOM Certificates of Merger are filed
with the appropriate authorities of the State of Michigan and the State of
Florida and shall be as soon after such filings as is practicable. The term
"PICOM Effective Time" shall be the date and time when the PICOM Merger becomes
effective, as set forth in the PICOM Certificates of Merger filed in accordance
with the Michigan Insurance Code, the Florida Insurance Code and the FBCA.
1.12 Effects of PICOM Merger. At and after the PICOM Effective Time,
the PICOM Merger shall have the effects set forth in this Agreement, the PICOM
Certificates of Merger, the Michigan Insurance Code, the Florida Insurance Code
and the FBCA. At the PICOM Effective Time, (i) the insurance policies
previously issued, or assumed by INSCO (including any PPTF Indemnity Agreements
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assumed by INSCO in, or as a result of, the INSCO Merger) and then in effect
will become and be insurance policies issued by PICOM, without any endorsement
or modification thereto, and the coverages and benefits under such insurance
policies will continue unaffected by the PICOM Merger; (ii) all rights,
franchises, licenses and interests of INSCO in and to every type of property,
real, personal and mixed, and all choses in action of INSCO shall continue
unaffected and uninterrupted by the PICOM Merger and shall accrue to PICOM;
(iii) all obligations and liabilities of INSCO (including all PPTF Surplus
Notes) then outstanding shall become and be obligations of PICOM and shall
continue unaffected and uninterrupted by the PICOM Merger; and (iv) no action
or proceeding then pending and to which INSCO is a party shall be abated or
discontinued but may be prosecuted to final judgment by PICOM.
1.13 Conversion of INSCO Common Stock. At the PICOM Effective Time, and
except as otherwise provided in this Agreement, by virtue of the PICOM Merger
and without any action on the part of Professionals Group, PICOM, INSCO, PPTF
or the holder of any securities of any of them, each share of common stock of
INSCO issued and outstanding immediately prior to the PICOM Effective Time
shall be converted into the number of duly authorized, validly issued, fully
paid and nonassessable shares of common stock, $1.00 par value per share, of
PICOM, as the surviving corporation in the PICOM Merger, that is provided for
in the PICOM Certificates of Merger. At and after the PICOM Effective Time
each outstanding stock certificate which prior to the PICOM Effective Time
represented shares of common stock of INSCO automatically and for all purposes
shall be deemed to represent the number of shares of common stock of PICOM into
which the shares of common stock of INSCO represented by such certificate have
been converted pursuant to this Section 1.13.
1.14 PICOM Articles of Incorporation. Subject to the terms and
conditions of this Agreement, at the PICOM Effective Time, the Articles of
Incorporation of PICOM then in effect shall be, and shall continue in effect
as, the Articles of Incorporation of PICOM, as the surviving corporation in the
PICOM Merger, until amended in accordance with applicable law; provided,
however, that in connection with and as a result of the consummation of the
PICOM Merger, Article II of the Articles of Incorporation of PICOM then in
effect shall be amended so as to change the name of PICOM to a name that is
mutually agreed upon by Professionals Group and PPTF.
1.15 PICOM Bylaws. Subject to the terms and conditions of this
Agreement, at the PICOM Effective Time, the Bylaws of PICOM then in effect
shall be, and shall continue in effect as, the Bylaws of PICOM, as the
surviving corporation in the PICOM Merger, until amended in accordance with
applicable law.
1.16 PICOM Merger Tax Consequences; Accounting Treatment. It is intended
that (i) the PICOM Merger shall constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the Code, (ii) this Agreement shall constitute a
"plan of reorganization" for the purposes of Section 368 of the Code, and (iii)
the PICOM Merger shall qualify for "pooling of interests" accounting treatment
under Accounting Principles Board Opinion No. 16 and SEC Accounting Series
Releases 130 and 135, as amended.
1.17 PICOM Management. At the PICOM Effective Time, Eliot H. Berg, M.D.,
shall be the Chairman of the Board of PICOM, as the surviving corporation in
the PICOM Merger; W. Peter McCabe, M.D., shall be the Vice-Chairman of the
Board of PICOM, as the surviving corporation in the PICOM Merger; and Mr.
Steven L. Salman (consistent with his legal obligations) shall be the President
and Chief Executive Officer of PICOM, as the surviving corporation in the PICOM
Merger.
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1.18 PICOM Board of Directors. At the PICOM Effective Time, the Board of
Directors of PICOM, as the surviving corporation in the PICOM Merger, shall
consist of ten (10) persons; including Dr. McCabe, Mr. Adamo, and three (3)
other persons named as directors of PICOM, as the surviving corporation in the
PICOM Merger, by the Board of Directors of Professionals Group (the "PG PICOM
Directors"), and Dr. Berg and Mr. Salman (consistent with his legal
obligations), and three (3) other persons named as directors of PICOM, as the
surviving corporation in the PICOM Merger, by the Board of Trustees of PPTF
(the "PPTF PICOM Directors"). The PG PICOM Directors and the PPTF PICOM
Directors shall be divided as equally as practicable among the three classes of
directors of PICOM, as the surviving corporation in the PICOM Merger, in
proportion to the aggregate representation set forth in the preceding sentence;
provided, however, (i) that Dr. McCabe shall not be in the same class of
directors as Dr. Berg, (ii) that Mr. Adamo shall not be in the same class of
directors as Mr. Salman, and (iii) that Mr. Salman shall not be in the same
class of directors as Dr. Berg.
1.19 PICOM Headquarters. At the PICOM Effective Time, the registered
office of PICOM, as the surviving corporation in the PICOM Merger, shall be
located in Okemos, Michigan, provided, however, that PICOM shall conduct
significant corporate activities from regional executive offices located in
Coral Gables, Florida and in Okemos, Michigan.
1.20 Offer of Insurance. On the first renewal date occurring after the
Closing Date with respect to each person or entity who was insured by PPTF,
INSCO or PICOM at the PICOM Effective Time, PICOM will offer insurance to such
person or entity (subject in each case to the underwriting standards of PICOM
then in effect).
1.21 Professionals Group Common Stock. At and after each of the INSCO
Effective Time and the PICOM Effective Time, each share of Professionals Group
Common Stock issued and outstanding immediately prior thereto shall remain an
issued and outstanding share of common stock of Professionals Group and shall
not be affected by either one or both of the Mergers.
1.22 Professionals Group Warrants and Stock Options. At and after each
of the INSCO Effective Time and the PICOM Effective Time, each option granted
by Professionals Group to purchase shares of Professionals Group Common Stock
which is outstanding and unexercised immediately prior thereto shall continue
to represent a right to acquire shares of Professionals Group Common Stock and
shall remain an issued and outstanding option to purchase from Professionals
Group shares of Professionals Group Common Stock in the same amount and at the
same exercise price subject to the terms of the Professionals Group Benefit
Plans (as defined in Section 3.11 of this Agreement) under which they were
issued and the agreements evidencing grants thereunder, and shall not be
affected by either one or both of the Mergers.
1.23 Professionals Group Articles of Incorporation. Subject to the terms
and conditions of this Agreement, at each of the INSCO Effective Time and the
PICOM Effective Time, the Articles of Incorporation of Professionals Group then
in effect shall be, and shall continue in effect as, the Articles of
Incorporation of Professionals Group until thereafter amended in accordance
with applicable law.
1.24 Professionals Group Bylaws. Subject to the terms and conditions of
this Agreement, at each of the INSCO Effective Time and the PICOM Effective
Time, the Bylaws of Professionals Group then in effect shall be, and shall
continue in effect as, the Bylaws of Professionals Group until thereafter
amended in accordance with applicable law.
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<PAGE> 8
1.25 Professionals Group Management. At and after each of the INSCO
Effective Time and the PICOM Effective Time, Dr. McCabe shall be the Chairman
of the Board of Professionals Group, Dr. Berg shall be the Vice-Chairman of the
Board of Professionals Group, Mr. Adamo shall be the President and Chief
Executive Officer of Professionals Group, and Mr. Salman (consistent with his
legal obligations) shall be the Chief Operating Officer of Professionals Group.
1.26 Professionals Group Board of Directors.
(a) At each of the INSCO Effective Time and the PICOM Effective
Time, the Board of Directors of Professionals Group shall consist of sixteen
(16) persons; including all ten (10) of the persons who are directors of
Professionals Group at the PICOM Effective Time (including Dr. McCabe and Mr.
Adamo) (the "Professionals Group Representatives"), R. Kevin Clinton, FCAS,
MAAA, who is the President of Michigan Educational Employees Mutual Insurance
Company ("MEEMIC"), and Dr. Berg, Mr. Salman (consistent with his legal
obligations) and three (3) other persons named as directors of Professionals
Group by the Board of Trustees of PPTF (the "PPTF Representatives"). The PPTF
Representatives shall be divided as equally as practicable among the three
classes of directors of Professionals Group; provided, however, (i) that Dr.
McCabe shall not be in the same class as Dr. Berg, (ii) that Mr. Adamo shall
not be in the same class as either Mr. Salman or Mr. Clinton, and (iii) that
Mr. Salman shall not be in the same class as Mr. Clinton.
(b) At each of the INSCO Effective Time and the PICOM Effective
Time there shall be a committee of the Board of Directors of Professionals
Group known as the "Nominating Committee." Said committee (i) shall be
comprised of four (4) members of the Board of Directors of Professionals Group,
with two (2) members being selected from the Professionals Group
Representatives and two (2) members being selected from the PPTF
Representatives, and (ii) to the fullest extent permitted under the Articles of
Incorporation and Bylaws of Professionals Group, shall be delegated and
authorized to exercise the full power and authority of the Board of Directors
of Professionals Group with respect to recommending nominees for election to
the Board of Directors of Professionals Group. Action of this Nominating
Committee of the Board of Directors of Professionals Group within the meaning
of Section 523 of the Michigan Business Corporation Act, as amended, shall
require the favorable vote of at least 75% of the members of this Nominating
Committee.
1.27 Professionals Group Headquarters. At each of the INSCO Effective
Time and the PICOM Effective Time, the headquarters and principal executive
offices of Professionals Group shall be located in Okemos, Michigan.
1.28 PPTF Consulting and Other Arrangements.
(a) On the date Professionals Group publishes financial results
covering a period of at least thirty (30) days of combined operations of PPTF,
PICOM and Professionals Group following the INSCO Effective Time (the
"Publication Date"), Professionals Group shall issue and deliver to each person
identified on Exhibit B to this Agreement as a "PPTF Trustee Participant"
(each, a "PPTF Trustee Participant") a number of shares of Professionals Group
Common Stock that is equal to 20% of the number that is set forth opposite the
name of such PPTF Trustee Participant on Exhibit B to this Agreement. Upon and
pursuant to the terms and conditions of a PPTF Trustee Participant's Consulting
Agreement (as defined in this Section 1.28) Professionals Group shall issue and
deliver Trustee Participant a number of shares of Professionals Group Common
Stock that is equal to 80% of the number that is set forth opposite the name of
such PPTF Trustee Participant on Exhibit B to this Agreement.
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(b) On the Publication Date, Professionals Group shall issue and
deliver to each person identified on Exhibit B to this Agreement as a "PPTF
Officer" (each, a "PPTF Officer") a number of shares of Professionals Group
Common Stock that is equal to 20% of the number that is set forth opposite the
name of such PPTF Officer on Exhibit B to this Agreement. Upon and pursuant to
the terms and conditions of a PPTF Officer's Stock Grant Agreement (as defined
in this Section 1.28), Professionals Group shall issue and deliver to such PPTF
Officer a number of shares of Professionals Group Common Stock that is equal to
80% of the number that is set forth opposite the name of such PPTF Officer on
Exhibit B to this Agreement.
(c) Notwithstanding anything express or implied to the contrary in
this Agreement: (i) no shares of Professionals Group Common Stock shall be
issuable or issued or delivered to a PPTF Trustee Participant pursuant to this
Section 1.28 unless such PPTF Trustee Participant shall have executed and
delivered to Professionals Group a Consulting, Confidentiality and
Noncompetition Agreement in form and substance reasonably acceptable to
Professionals Group and PPTF (each a "Consulting Agreement"); (ii) no shares of
Professionals Group Common Stock shall be issuable or issued or delivered to a
PPTF Officer pursuant to this Section 1.28 unless such PPTF Officer shall have
executed and delivered to Professionals Group a Confidentiality, Noncompetition
and Stock Grant Agreement in form and substance reasonably acceptable to
Professionals Group and PPTF (each, a "Stock Grant Agreement"); (iv)
Professionals Group and PICOM shall execute and deliver the Assignment and
Assumption Agreement attached to this Agreement as Exhibit C (the "Assignment
and Assumption Agreement"); and (v) if, prior to the INSCO Effective Time, the
outstanding shares of Professionals Group Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, then an appropriate and proportionate
adjustment shall be made to the number of shares of Professionals Group Common
Stock to be issued to each PPTF Trustee Participant and each PPTF Officer
pursuant to this Section 1.28.
ARTICLE II
EXCHANGE OF MEMBERSHIP RIGHTS
2.1 Professionals Group to Make Shares Available. At or prior to the
INSCO Effective Time, Professionals Group shall deposit, or shall cause to be
deposited, with ChaseMellon Shareholder Services, L.L.C., or another bank or
trust company reasonably acceptable to each of Professionals Group and PPTF
(the "Exchange Agent"), for the benefit of the Eligible Members of PPTF and for
exchange in accordance with this Article II, certificates representing the
whole shares of Professionals Group Common Stock and cash for payment of
consideration in lieu of fractional shares (such certificates for whole shares
of Professionals Group Common Stock, together with any such cash for payment of
consideration in lieu of fractional shares and any dividends or distributions
with respect to such whole shares of Professionals Group Common Stock are
sometimes referred to as the "Exchange Fund") to be issued and paid in exchange
for the Membership Rights pursuant to this Agreement.
2.2 Exchange of Membership Rights.
(a) As soon as practicable prior to the INSCO Effective Time, and
in no event later than thirty (30) days prior to the INSCO Effective Time, (i)
PPTF shall prepare a list (which list shall be certified to Professionals Group
by the Chairman of PPTF and the President and Chief Executive Officer of PPTF)
identifying each Eligible Member of PPTF and setting forth the number of whole
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shares, and cash in lieu of any fractional shares, of Professionals Group
Common Stock that each Eligible Member of PPTF is entitled to receive by virtue
of the consummation of the INSCO Merger, and (ii) PPTF shall deliver to
Professionals Group such list, as certified by the Chairman of PPTF and the
President and Chief Executive Officer of PPTF, and such other information as
shall enable Professionals Group to verify the information contained in such
list.
(b) As soon as reasonably practicable after receiving from PPTF
the list and other information required to be delivered to it by this Section
2.2, Professionals Group may verify the information contained in such list and
shall cause the Exchange Agent to send to each Eligible Member of PPTF, by
first class mail, a notice (the "Notice") that, among other things, (i) sets
forth the number of whole shares, and cash in lieu of any fractional shares, of
Professionals Group Common Stock that such Eligible Member has been credited
with, and the calculation by which such numbers were obtained, and (ii) states
that the Membership Rights in PPTF of all Eligible Members were extinguished
upon consummation of the INSCO Merger. Said notice shall be accompanied by a
letter of transmittal stating instructions for obtaining certificates
representing the whole shares of Professionals Group Common Stock and any cash
in lieu of fractional shares into which the Membership Rights shall have been
converted pursuant to this Agreement. Upon receipt by the Exchange Agent of a
copy of the Notice (or such other document as the Exchange Agent may require)
duly executed by the Eligible Member, such Eligible Member shall be entitled to
receive in exchange therefor (i) a certificate representing that number of
whole shares of Professionals Group Common Stock, and (ii) a check representing
the amount of cash in lieu of fractional shares, to which such Eligible Member
shall have become entitled pursuant to this Agreement. No interest will be
paid or accrued on any cash in lieu of fractional shares or on any unpaid
dividends and distributions payable with respect to any Membership Rights.
(c) No dividends or other distributions declared with respect to
Professionals Group Common Stock with a record date following the INSCO
Effective Time shall be paid to an Eligible Member until such Eligible Member
shall return the Notice (or such other documentation as the Exchange Agent may
require) to the Exchange Agent in accordance with this Article II.
(d) After the INSCO Effective Time, there shall be no transfers on
the records of PPTF of Membership Rights, except as expressly required under
PPTF Indemnity Agreements issued and outstanding immediately prior to the INSCO
Effective Time. After the INSCO Effective Time, and as Notices (or such other
documentation as the Exchange Agent may require) are presented to the Exchange
Agent, the Exchange Agent shall issue certificates representing whole shares of
Professionals Group Common Stock and cash in lieu of fractional shares in
accordance with this Agreement.
(e) Notwithstanding anything to the contrary contained in this
Agreement, no certificates or scrip representing fractional shares of
Professionals Group Common Stock shall be issued upon the presentation of a
Notice (or such other documentation as the Exchange Agent may require), no
dividend or distribution with respect to Professionals Group Common Stock shall
be payable on or with respect to any such fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder of Professionals Group or an Eligible Member of PPTF.
In lieu of the issuance of any such fractional share, Professionals Group shall
pay to each Eligible Member of PPTF who otherwise would be entitled to receive
such fractional share an amount in cash determined in accordance with this
Agreement.
(f) Any portion of the Exchange Fund that remains unclaimed by the
Eligible Members for 12 months after the INSCO Effective Time shall be paid to
Professionals Group. Any Eligible Members who have not theretofore complied
with this Article II shall thereafter look only to
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Professionals Group for payment of the whole shares of Professionals Group
Common Stock, any cash in lieu of fractional shares, and any unpaid dividends
and distributions on such whole shares of Professionals Group Common Stock
deliverable in respect of each Membership Right such Eligible Member holds as
determined pursuant to this Agreement, in each case, without any interest
thereon. Notwithstanding the foregoing, none of PPTF, Professionals Group, the
Exchange Agent or any other person shall be liable to any former Eligible
Member of PPTF for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PROFESSIONALS GROUP
Except as disclosed in the Professionals Group disclosure schedule
delivered to PPTF concurrently herewith (the "Professionals Group Disclosure
Schedule"), Professionals Group hereby represents and warrants to PPTF as
follows:
3.1 Corporate Organization.
(a) Professionals Group is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan.
Professionals Group has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Professionals
Group. As used in this Agreement, the term "Material Adverse Effect" means,
with respect to PPTF, Professionals Group, PICOM, INSCO, or the surviving
corporation in each of the Mergers, as the case may be, a material adverse
effect on the business, assets, properties, operations, condition (financial or
otherwise), or (insofar as they can reasonably be foreseen) prospects 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 PPTF,
Professionals Group, PICOM , or INSCO in connection with the Mergers, to the
extent having 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, which is consolidated with such party for
financial reporting purposes. True and complete copies of the Articles of
Incorporation and Bylaws of Professionals Group, as in effect as of the date of
this Agreement, have previously been made available by Professionals Group to
PPTF.
(b) The only direct and indirect Subsidiaries of Professionals
Group are PICOM, PICOM Insurance Company of Illinois, an Illinois stock
insurance company and wholly-owned subsidiary of PICOM ("PICOM-Illinois," and
together with PICOM, the "Professionals Group Insurance Subsidiaries"), PICOM
Claims Services Corporation, a Michigan business corporation and wholly-owned
subsidiary of PICOM, PICOM Financial Services Corporation, a Michigan business
corporation, PICOM Insurance Agency, a Michigan business corporation, and
American Insurance Management Corporation, an Indiana corporation. Each
Subsidiary of Professionals Group (i) is duly organized and validly existing as
a corporation under the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on
Professionals Group, and (iii) has all requisite corporate power and authority
to own or lease its properties and assets and to carry on its business as now
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conducted. True and complete copies of the Articles of Incorporation and
Bylaws of each Subsidiary of Professionals Group, as in effect on the date of
this Agreement, have previously been made available by Professionals Group to
PPTF.
(c) A record of all corporate action taken by the stockholders and
Board of Directors (including committees thereof) of Professionals Group and
each Subsidiary of Professionals Group, 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
Professionals Group and each Subsidiary of Professionals Group. The minute
books and stock ledgers of Professionals Group contain an accurate and complete
record of all issuances, transfers and cancellations of shares of capital stock
of Professionals Group. The minute books and stock ledgers of each Subsidiary
of Professionals Group contain an accurate and complete record of all
issuances, transfers and cancellations of shares of capital stock of such
Subsidiary of Professionals Group. PPTF has been given access to and an
opportunity to review all such minutes, minute books and stock ledgers.
3.2 Capitalization.
(a) The authorized capital stock of Professionals Group consists
of 30,000,000 shares, with said shares divided into two classes. One class of
said shares consists of 5,000,000 shares of preferred stock and the other class
of said shares consists of 25,000,000 shares of Professionals Group Common
Stock. As of June 30, 1997, no shares of such preferred stock and 3,505,750
shares of Professionals Group Common Stock were issued and outstanding and no
shares of either such preferred stock or Professionals Group Common Stock were
held in treasury. All of the issued and outstanding shares of Professionals
Group Common Stock have been duly 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 pursuant to the terms of this Agreement, the Professionals Insurance
Company Management Group 1996 Non-Employee Directors Stock Option Plan (the
"Professionals Group Director Option Plan"), the Professionals Insurance
Company Management Group 1996 Long Term Stock Incentive Plan (the
"Professionals Group LTIP"), and stock options issued pursuant to the
Professionals Group Director Option Plan, Professionals Group 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 Professionals Group Common Stock or any other equity
securities of Professionals Group or any securities representing the right to
purchase or otherwise receive any shares of Professionals Group Common Stock or
any other equity securities of Professionals Group. As of June 30, 1997, no
shares of Professionals Group Common Stock were reserved for issuance, except
for (i) 50,000 shares reserved for issuance upon the exercise of stock options
issued pursuant to the Professionals Group Director Option Plan (of which
options representing 9,450 shares of Professionals Group Common Stock have been
granted and are outstanding) and (ii) 300,000 shares reserved for issuance
pursuant to awards under the Professionals Group LTIP (of which there are none
as of the date of this Agreement). Since January 1, 1997, Professionals Group
has not issued any shares of Professionals Group Common Stock or other equity
securities of Professionals Group, or any securities convertible into or
exercisable for any shares of Professionals Group Common Stock or other equity
securities of Professionals Group, other than (x) as contemplated by this
Agreement or (y) stock options issued under the Professionals Group Director
Option Plan or (z) pursuant to the exercise of stock options issued under the
Professionals Group Director Option Plan or employee stock options granted
prior to such date. The shares of Professionals Group Common Stock to be
issued pursuant to the INSCO Merger will be duly authorized and validly issued
and, at the INSCO Effective Time, all such shares will be fully paid,
nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof.
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(b) The authorized capital stock of PICOM consists of 10,000,000
shares, $1.00 par value per share, of common stock ("PICOM Common Stock"). As
of June 30, 1997, 3,188,145 shares of PICOM Common Stock were issued and
outstanding and no shares of PICOM Common Stock were held in treasury. As of
June 30, 1997, no shares of PICOM Common Stock were reserved for issuance.
Since January 1, 1997, PICOM has not issued any shares of PICOM Common Stock or
other equity securities of PICOM, or any securities convertible into or
exercisable for any shares of PICOM Common Stock or other equity securities of
PICOM. Professionals Group owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Subsidiaries of
Professionals Group, free and clear of all liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"), and all of such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights with no personal liability attaching to the
ownership thereof. No Subsidiary of Professionals Group has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of capital
stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
(c) The Professionals Group Disclosure Schedule sets forth a
complete list of (i) the officers and directors of Professionals Group and each
Subsidiary of Professionals Group, (ii) the percentage of the outstanding
voting stock of such Subsidiary owned or controlled, directly or indirectly, by
Professionals Group, and (iii) the percentage of the outstanding voting stock
of such Subsidiary owned or controlled, directly or indirectly, by one or more
of Professionals Group's other Subsidiaries. Professionals Group does not have
any direct or indirect equity or ownership interest in any other business or
entity 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 in accordance with past
practices.
3.3 Authority; No Violation.
(a) Professionals Group has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement have
been duly and validly approved by the Board of Directors of Professionals
Group. The Board of Directors of Professionals Group has directed that this
Agreement and the transactions contemplated by this Agreement be submitted to
the stockholders of Professionals Group for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of Professionals
Group Common Stock, no other corporate proceedings on the part of Professionals
Group are necessary to approve this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement has been duly and
validly executed and delivered by Professionals Group and (assuming due
authorization, execution and delivery by PICOM and PPTF and the receipt of all
Requisite Regulatory Approvals (as defined in Section 7.1(e) of this Agreement)
constitutes a valid and binding obligation of Professionals Group, enforceable
against Professionals Group in accordance with its terms.
(b) PICOM has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly and validly
approved by the Board of Directors of PICOM. The Board of Directors of PICOM
has directed that this Agreement and the transactions contemplated by this
Agreement be submitted to the stockholders of PICOM for approval at a meeting
of such stockholders and, except for
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the adoption of this Agreement by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of PICOM, no other
corporate proceedings on the part of PICOM are necessary to approve this
Agreement and to consummate the transactions contemplated by this Agreement.
This Agreement has been duly and validly executed and delivered by PICOM and
(assuming due authorization, execution and delivery by PPTF and Professionals
Group and the receipt of all Requisite Regulatory Approvals) constitutes a
valid and binding obligation of PICOM, enforceable against PICOM in accordance
with its terms.
(c) Neither the execution and delivery of this Agreement by
Professionals Group nor the consummation by Professionals Group of the
transactions contemplated by this Agreement, nor compliance by Professionals
Group with any of the terms or provisions of this Agreement, will (i) violate
any provision of the Articles of Incorporation or Bylaws of Professionals Group
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 Professionals Group or any of
its properties or assets, or (y) violate, conflict with, result in a breach of
any provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
Lien upon any of the properties or assets of Professionals 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 Professionals Group 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 Professionals Group.
(d) Neither the execution and delivery of this Agreement by PICOM
nor the consummation by PICOM of the transactions contemplated by this
Agreement, nor compliance by PICOM with any of the terms or provisions of this
Agreement, will (i) violate any provision of the Articles of Incorporation or
Bylaws of PICOM 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 PICOM or any of its
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
Lien upon any of the respective properties or assets of PICOM 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
PICOM 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 PICOM.
3.4 Consents and Approvals. Except for (i) the filing of applications,
notices and forms with, and the obtaining of approvals from, the Commissioner
of Insurance of the State of Michigan (the "Michigan Insurance Commissioner")
under the Michigan Insurance Code, the Department of Insurance of the State of
Florida (the "Florida Insurance Department") under the Florida Insurance Code,
and the Director of Insurance of the State of Illinois (the "Illinois Insurance
Director") under the Illinois Insurance Code, as amended (the "Illinois
Insurance Code"), with respect to the transactions contemplated by this
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<PAGE> 15
Agreement (including the incorporation of INSCO and its authorization to do
business in the State of Michigan and the State of Florida), (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 with the Securities and Exchange Commission (the "SEC") of a
joint proxy statement in definitive form relating to the meeting of
stockholders of Professionals Group and the meeting of Members of PPTF to be
held in connection with this Agreement and the transactions contemplated by
this Agreement (the "Joint Proxy Statement") and the registration statement on
Form S-4 in which the Joint Proxy Statement will be included as a prospectus
(the "S-4"), (iv) the filing of the INSCO Certificate of Merger and the PICOM
Certificates of Merger with the appropriate authorities of the State of
Michigan pursuant to the Michigan Insurance Code and with the appropriate
authorities of the State of Florida pursuant to the Florida Insurance Code and
the FBCA, (v) 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"), (vi) any consents,
authorizations, orders and approvals required under (A) the Michigan Insurance
Code, (B) the Florida Insurance Code, (C) the Illinois Insurance Code, (D) the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Securities Act"), (E) the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder (collectively, the
"Exchange Act"), and (F) the HSR Act, (vii) any consents, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry self-regulatory
organization (including the National Association of Insurance Commissioners
(the "NAIC"), the National Association of Securities Dealers, Inc. (the "NASD")
and the Nasdaq National Market) (each, an "SRO"), or which are required under
insurance and other similar laws, (viii) 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 Professionals
Group Common Stock pursuant to this Agreement, and (ix) the approval of this
Agreement by the requisite votes of the stockholders of Professionals Group,
the stockholders of PICOM, the stockholders of INSCO, and the Voting Members of
PPTF, 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,
the Michigan Insurance Commissioner, the Florida Insurance Department and the
Illinois Insurance Director, a "Governmental Entity") or with any third party
are necessary in connection with the execution and delivery by Professionals
Group and PICOM of this Agreement or the consummation by Professionals Group or
any of its Subsidiaries of the transactions contemplated by this Agreement.
3.5 Reports. The Professionals Group Insurance Subsidiaries (i) have
timely filed all annual and quarterly convention statements (including the
financial statements contained therein), reports, registrations and statements,
together with all amendments required to be made with respect thereto, that
they were required to file since January 1, 1994 with each Governmental Entity
having jurisdiction, (ii) have timely filed all other reports and statements,
together with all amendments required to be made with respect thereto, that
they were required to file since January 1, 1997 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) have paid all fees and assessments
due and payable in connection therewith, except where the failure to file such
convention statements, reports, registrations or statements, or to file any of
such other reports, or to pay such fees and assessments, either individually or
in the aggregate, will not have a Material Adverse Effect on Professionals
Group. All such convention statements, reports, registrations and statements,
together with
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<PAGE> 16
all such amendments, were in substantial compliance with applicable law when
filed and, as of their respective dates, to the best knowledge of Professionals
Group, did not contain any false statements or material misstatements of fact
or omit to state any material facts necessary to make the statements set forth
therein not materially misleading in light of the circumstances in which such
statements were made. No material deficiencies have been asserted by any
Governmental Entity with respect to such convention statements, reports,
registrations and statements or any such amendments thereto. Professionals
Group has delivered to PPTF complete and accurate copies of all annual and
quarterly convention statements (including the financial statements contained
therein) filed by the Professionals Group Insurance Subsidiaries since January
1, 1994. Except for normal examinations conducted by a Governmental Entity in
the regular course of the business of Professionals Group and its Subsidiaries,
no Governmental Entity has initiated any proceeding or, to the best knowledge
of Professionals Group, investigation into the business or operations of
Professionals Group or any of its Subsidiaries since January 1, 1994, except
where such proceedings or investigations are not likely, either individually or
in the aggregate, to have a Material Adverse Effect on Professionals Group.
There is no unresolved violation, criticism, or exception by any Governmental
Entity with respect to any report or statement relating to any examinations of
Professionals Group or any of its Subsidiaries which, in the reasonable
judgment of Professionals Group, is likely, either individually or in the
aggregate, to have a Material Adverse Effect on Professionals Group.
3.6 Financial Statements.
(a) Professionals Group has previously made available to PPTF
copies of (i) the consolidated balance sheets of Professionals Group and its
Subsidiaries as of December 31, for the fiscal years 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1996, 1995 and 1994, inclusive, as reported in
Professionals Group's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 filed with the SEC under the Exchange Act, in each case
accompanied by the audit reports of KPMG Peat Marwick LLP (with respect to the
years ended December 31, 1996 and 1995) and Coopers & Lybrand L.L.P. (with
respect to the year ended December 31, 1994), both independent public
accountants with respect to Professionals Group, and (ii) the unaudited
consolidated balance sheet of Professionals Group and its Subsidiaries as of
June 30, 1997 and the related unaudited consolidated statements of income and
cash flows for the six-month period then ended as reported in Professionals
Group's Quarterly Report on Form 10-Q for the period ended June 30, 1997 filed
with the SEC under the Exchange Act (the "Professionals Group June 30, 1997
Form 10-Q"). The consolidated balance sheets of Professionals Group as of
December 31, 1996 and 1995 (including the related notes, where applicable)
fairly present the consolidated financial position of Professionals Group and
its Subsidiaries as of the dates thereof, and the other financial statements
referred to in this Section 3.6(a) (including the related notes, where
applicable) fairly present (subject, in the case of the unaudited statements,
to recurring audit adjustments normal in nature and amount) the results of the
consolidated operations and changes in stockholders' equity and consolidated
financial position of Professionals Group 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 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
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 Professionals Group 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.
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<PAGE> 17
(b) Professionals Group has previously made available to PPTF
copies of the Statutory Annual Statements for each of the Professionals Group
Insurance Subsidiaries for the years ended December 31, 1996, 1995 and 1994
(collectively, the "Professionals Group Insurance Subsidiary Statutory
Statements"). The Professionals Group Insurance Subsidiary Statutory
Statements (i) have been prepared in accordance with the books and records of
the Professionals Group Insurance Subsidiaries, (ii) have been prepared in
accordance with the statutory accounting practices and principles prescribed by
or permitted under the insurance laws of the applicable jurisdictions, and
(iii) are consistent with prior periods, except as provided for therein and
except for any changes required by applicable law or the accounting practices
and principles referred to in clause (ii) of this sentence. The Professionals
Group Insurance Subsidiary Statutory Statements, when read in conjunction with
the notes thereto and any statutory audit reports relating thereto, present
fairly in all material respects the statutory financial condition of the
Professionals Group Insurance Subsidiaries at December 31, 1996, 1995 and 1994,
respectively, and the statutory results of their respective operations for the
period then ended.
3.7 Broker's Fees. Neither Professionals Group nor any Subsidiary of
Professionals Group 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, other than Cochran, Caronia & Co. and McDonald & Company
Securities, Inc. (copies of which engagement agreements have been disclosed by
Professionals Group to PPTF) whose fees, commissions and expenses shall be paid
by Professionals Group.
3.8 Absence of Certain Changes or Events.
(a) Except as disclosed in the Professionals Group Reports (as
defined in Section 3.12 of this Agreement) filed prior to the date of this
Agreement, since December 31, 1996, (i) Professionals Group 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 or in
connection with the incorporation of, and for the purpose of incorporating,
INSCO, (ii) neither Professionals Group nor any Subsidiary of Professionals
Group has declared or paid any dividend or other distribution in respect of the
capital stock of Professionals Group or any Professionals Group Subsidiary, or
any direct or indirect redemption, purchase or other acquisition by
Professionals Group or such Professionals Group Subsidiary of any such stock;
(iii) to the best knowledge of Professionals Group, there has been no material
adverse change in the business, assets, properties, operations, or condition
(financial or otherwise) of Professionals Group or any Subsidiary of
Professionals Group, and (iv) no event has occurred which has had, or is likely
to have, individually or in the aggregate, a Material Adverse Effect on
Professionals Group.
(b) Except as disclosed in the Professionals Group Reports filed
prior to the date of this Agreement, since December 31, 1996, Professionals
Group and its Subsidiaries have carried on their respective businesses in all
material respects in the ordinary and usual course theretofore conducted.
(c) Since December 31, 1996, neither Professionals Group nor any
of its Subsidiaries has (i) except for such actions as are in the ordinary
course of business consistent with past practice or except as required by
applicable law, (A) increased the wages, salaries, compensation, pension, or
other fringe benefits or perquisites payable to any executive officer,
employee, or director from the amount thereof in effect as of December 31,
1996, or (B) granted any severance or termination pay, entered into any
contract to make or grant any severance or termination pay, or paid any bonuses
in excess of its 1996 salary and employee benefits expenses, or (ii) suffered
any strike, work stoppage, slowdown, or other
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<PAGE> 18
labor disturbance which, in its reasonable judgment, is likely, either
individually or in the aggregate, to have a Material Adverse Effect on
Professionals Group.
3.9 Legal Proceedings.
(a) Neither Professionals Group 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 Professionals Group or any Subsidiary of Professionals
Group, but excluding coverage and other claims made with respect to insurance
policies issued by any Professionals Group Insurance Subsidiary) against
Professionals Group 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 Professionals Group.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (including noncontractual claims, bad faith claims and claims
against any directors or officers of Professionals Group or any Subsidiary of
Professionals Group, but excluding coverage and other claims made with respect
to insurance policies issued by any Professionals Group Insurance Subsidiary)
imposed upon Professionals Group, any of its Subsidiaries or the assets of
Professionals Group or any of its Subsidiaries which has had, or might
reasonably be expected to have, a Material Adverse Effect on Professionals
Group.
3.10 Taxes and Tax Returns.
(a) Each of Professionals Group and its Subsidiaries has duly
filed all Tax Returns (as defined in Section 3.10(b) of this Agreement)
required to be filed by them on or prior to the date of this Agreement (all
such Tax Returns being accurate and complete in all material respects) and has
duly paid or made provisions for the payment of all Taxes (as defined in
Section 3.10(b) of this Agreement) which have been incurred or are due or
claimed to be due from it by federal, state, county, foreign or local taxing
authorities on or prior to the date of this Agreement (including, if and to the
extent applicable, those due in respect of its properties, income, business,
capital stock, premiums, franchises, licenses, sales and payrolls) other than
(i) Taxes or other charges which are not yet delinquent or are being contested
in good faith and have not been finally determined for which adequate reserves
have been made on the financial statements described in Section 3.6(a) of this
Agreement, or (ii) Tax Returns or Taxes the failure to file, pay or make
provision for, either individually or in the aggregate, are not likely, in the
reasonable judgment of Professionals Group, to have a Material Adverse Effect
on Professionals Group. The Tax Returns of Professionals Group and its
Subsidiaries have been examined by the Internal Revenue Service (the "IRS") and
the corresponding Governmental Entities for state, county and local Taxes and
any liability with respect thereto has been satisfied for all years to and
including 1994, and either no material deficiencies were asserted as a result
of such examination for which Professionals Group does not have adequate
reserves or all such deficiencies were satisfied. There are no material
disputes pending, or claims asserted for, Taxes or assessments upon
Professionals Group or any of its Subsidiaries for which Professionals Group
does not have adequate reserves, nor has Professionals Group or any of its
Subsidiaries given any currently effective waivers extending the statutory
period of limitation applicable to any Tax Return for any period. In addition,
(A) proper and accurate amounts have been withheld by Professionals Group and
its Subsidiaries from their employees for all prior periods in compliance in
all material respects with the tax withholding provisions of applicable
federal, state and
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local laws, except where failure to do so would not have a Material Adverse
Effect on Professionals Group, (B) Tax Returns which are accurate and complete
in all material respects have been filed by Professionals Group and its
Subsidiaries for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes, except where failure
to do so would not have a Material Adverse Effect on Professionals Group, (C)
the amounts shown on such Tax Returns to be due and payable have been paid in
full or adequate provision therefor has been included by Professionals Group in
its consolidated financial statements as of December 31, 1996, except where
failure to do so would not have a Material Adverse Effect on Professionals
Group and (D) there are no Tax Liens upon any property or assets of
Professionals Group or its Subsidiaries except Liens for current Taxes not yet
due or Liens that would not have a Material Adverse Effect on Professionals
Group. Neither Professionals Group nor any of its Subsidiaries 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
Professionals Group or any of its Subsidiaries, and the IRS has not initiated
or proposed any such adjustment or change in accounting method, in either case
which has had or is reasonably likely to have a Material Adverse Effect on
Professionals Group. Except as set forth in the financial statements described
in Section 3.6(a) of this Agreement, neither Professionals Group nor any of its
Subsidiaries has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code, which would be reasonably
likely to have a Material Adverse Effect on Professionals Group. Neither
Professionals Group nor any of its Subsidiaries is a party to or bound by any
tax indemnity, tax sharing or tax allocation agreement (other than such
agreements as exist by and among themselves). Neither Professionals Group nor
any of its Subsidiaries has ever been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code other than as a
common parent corporation. Neither Professionals Group nor any of its
Subsidiaries is liable for the Taxes of any person under Section 1.1502-6 of
the Treasury Regulations (or any similar provision of state, local or foreign
Tax law) or by contract, as a successor or otherwise. Neither Professionals
Group nor any of its Subsidiaries 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. Professionals Group's basis and excess loss
account, if any, in each of its Subsidiaries is set forth in the Professionals
Group Disclosure Schedule.
(b) 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 Professionals Group or any of its Subsidiaries
with the IRS or any other Governmental Entity or tax authority or agency,
whether domestic or foreign (including consolidated, combined and unitary tax
returns).
(c) Any amount that is reasonably likely to be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of Professionals Group or any of its affiliates who is a "Disqualified
Individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Professionals Group Benefit Plan (as defined in
Section 3.11(a) of this Agreement) currently in effect will not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
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(d) No disallowance of a deduction under Section 162(m) of the
Code for employee remuneration of any amount paid or payable by Professionals
Group or any Professionals Group Subsidiary under any contract, plan, program,
arrangement or understanding will have a Material Adverse Effect on
Professionals Group.
3.11 Employee Benefit Plans; Labor Matters.
(a) The Professionals Group Disclosure Schedule sets forth a true
and complete list of each material employee benefit plan, arrangement or
agreement that is maintained as of the date of this Agreement (the
"Professionals Group Benefit Plans") by Professionals Group or any of its
Subsidiaries or by any affiliated trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with Professionals
Group would be deemed a "single employer" within the meaning of Section 4001 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Professionals Group has heretofore delivered or made available
to PPTF true and complete copies of each of the Professionals Group Benefit
Plans and certain related documents, including (i) the actuarial report for
such Professionals Group Benefit Plan (if applicable) for each of the last two
years, and (ii) the most recent determination letter from the IRS (if
applicable) for such Professionals Group Benefit Plan.
(c) (i) Each of the Professionals Group Benefit Plans has been
operated and administered in all material respects in compliance with
applicable laws, including, but not limited to, ERISA and the Code, (ii) each
of the Professionals Group Benefit Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code has received a determination letter from
the IRS that it is so qualified and no event has occurred that will or is
likely to give rise to disqualification of any such plan or trust created
thereunder, (iii) with respect to each Professionals Group Benefit Plan which
is subject to Title IV of ERISA, the present value of accrued benefits under
such Professionals Group Benefit Plan, based upon the actuarial assumptions
used for funding purposes in the most recent actuarial report prepared by the
actuary for such Professionals Group Benefit Plan with respect to such
Professionals Group Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Professionals Group Benefit
Plan allocable to such accrued benefits, (iv) no Professionals Group Benefit
Plan provides benefits, including death or medical benefits (whether or not
insured), with respect to current or former employees of Professionals Group,
its Subsidiaries or any ERISA Affiliate beyond their retirement or other
termination of service, other than (A) coverage mandated by applicable law, (B)
death benefits or retirement benefits under any "employee pension plan" (as
such term is defined in Section 3(2) of ERISA), (C) deferred compensation
benefits accrued as liabilities on the books of Professionals Group, its
Subsidiaries or the ERISA Affiliates, (D) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary), or (E)
disability or severance plans identified on the Professionals Group Disclosure
Schedule, (v) no material liability under Title IV of ERISA has been incurred
by Professionals Group, its Subsidiaries or any ERISA Affiliate (other than
liability for premiums to the Pension Benefit Guaranty Corporation (the "PBGC")
arising in the ordinary course) that has not been satisfied in full, and no
condition exists that presents a material risk to Professionals Group, its
Subsidiaries or any ERISA Affiliate of incurring a material liability
thereunder, (vi) no Professionals Group Benefit Plan is a "multiemployer
pension plan" (as such term is defined in Section 3(37) of ERISA), (vii) all
required contributions or other amounts payable by Professionals Group or its
Subsidiaries as of the INSCO Effective Time with respect to each Professionals
Group Benefit Plan in respect of current or prior plan years have been timely
paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) to
the best knowledge of Professionals Group neither Professionals Group, its
Subsidiaries nor any ERISA Affiliate has engaged in a transaction in connection
with which
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Professionals Group, its Subsidiaries or any ERISA Affiliate reasonably could
be subject to either a material civil penalty assessed pursuant to Section 409
or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976
of the Code, and (ix) there are no pending, or to the best knowledge of
Professionals Group, threatened or anticipated claims (other than routine
claims for benefits and administrative expenses payable in the ordinary course)
by, on behalf of or against any of the Professionals Group Benefit Plans or any
trusts related thereto which are, in the reasonable judgment of Professionals
Group, likely to have a Material Adverse Effect on Professionals Group.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will (i) result
in any material payment (including severance, unemployment compensation, golden
parachute or otherwise) becoming due to any director or employee of
Professionals Group or any of its affiliates from Professionals Group or any of
its affiliates under any Professionals Group Benefit Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Professionals
Group Benefit Plan or (iii) result in any acceleration of the time of payment
or vesting of any such benefits to any material extent.
(e) To the best knowledge of Professionals Group, Professionals
Group and each Subsidiary of Professionals Group is in compliance in all
material respects with all currently applicable laws and regulations respecting
employment and employment matters, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices (including federal and state wage and hour laws, workplace
safety laws, workers' compensation laws, equal employment opportunity laws,
equal pay laws, civil rights laws, the Americans With Disabilities Act and the
Fair Labor Standards Act of 1938, as amended), and is not engaged in any unfair
labor practice. Professionals Group and each Subsidiary of Professionals Group
has complied with all applicable notice provisions of and has no material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There is no action, claim, cause of action, suit or
proceeding pending or, to the best knowledge of Professionals Group,
threatened, on the part of any employee, independent contractor or applicant
for employment, including any such action, claim, cause of action, suit or
proceeding based on allegations of wrongful termination or discrimination on
the basis of age, race, religion, sex, sexual preference, or mental or physical
handicap or disability that could, or could reasonably be expected to, have a
Material Adverse Effect on Professionals Group. Neither Professionals Group
nor any Subsidiary of Professionals Group is a party to any collective
bargaining agreement or other labor union contract nor does Professionals Group
know of any activities or proceedings of any labor union to organize any
employees of Professionals Group or any Subsidiary of Professionals Group.
Professionals Group and each Subsidiary of Professionals Group has provided all
employees with all relocation benefits, stock options, bonuses and incentives,
and all other compensation that such employee has earned up through the date of
this Agreement or that such employee was otherwise promised in his or her
employment agreement(s) with Professionals Group or the relevant Subsidiary of
Professionals Group, as the case may be.
(f) Except as disclosed in the Professionals Group Reports, all
material sums due for employee compensation have been paid, accrued or
otherwise provided for, and all employer contributions for employee benefits,
including deferred compensation obligations, and all benefits under any
Professionals Group Benefit Plan have been duly and adequately paid or provided
for in accordance with plan documents. To the best knowledge of Professionals
Group, no person treated as an independent contractor by Professionals Group or
any Subsidiary of Professionals 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. To the best knowledge of
Professionals Group, no executive or key employee or group
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of employees of Professionals Group or any Subsidiary of Professionals Group
has any plans to terminate his, her or their employment.
(g) Neither Professionals Group nor any of its Subsidiaries has
any commitment to (i) create any additional plan or modify or change any
existing Professionals Group Benefit Plan or (ii) enter into any contract to
provide compensation or benefits to any individual.
3.12 SEC Reports. Professionals Group has previously made available to
PPTF a complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since April 1, 1996 by
Professionals Group with the SEC pursuant to the Securities Act or the Exchange
Act (the "Professionals Group Reports") and prior to the date of this Agreement
and (b) communication mailed by Professionals Group to its stockholders since
April 1, 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 April 1, 1996, Professionals
Group has timely filed all Professionals Group 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 Professionals Group Reports complied in all
material respects with the published rules and regulations of the SEC with
respect thereto.
3.13 Compliance with Applicable Law. Professionals Group 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 Professionals Group 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 Adverse Effect on
Professionals Group.
3.14 Certain Contracts.
(a) Neither Professionals Group nor any of its Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers or employees other than in the ordinary course of business consistent
with past practice, (ii) which, upon the consummation of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of any
additional acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from PPTF, Professionals Group, PICOM, INSCO, or any of
their respective Subsidiaries to any director, officer or employee thereof,
(iii) which is a "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the
Professionals Group Reports, (iv) which materially restricts the conduct of any
line of business by Professionals Group, (v) with or to a labor union or guild
(including any collective bargaining agreement) or (vi) (including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan) any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. Professionals Group has previously made
available to PPTF true and correct copies of
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all employment and deferred compensation agreements which are in writing and to
which Professionals Group or any of its Subsidiaries is a party. Each
contract, arrangement, commitment or understanding of the type described in
this Section 3.14(a), whether or not set forth in the Professionals Group
Disclosure Schedule, is referred to in this Agreement as a "Professionals Group
Contract", and neither Professionals Group nor any of its Subsidiaries knows
of, or has received notice of, any violation of the above by any of the other
parties thereto which, either individually or in the aggregate, would have a
Material Adverse Effect on Professionals Group.
(b) Each Professionals Group Contract is valid and binding on
Professionals Group or any of its Subsidiaries, as applicable, and in full
force and effect. Professionals Group and its Subsidiaries have in all
material respects performed all obligations required to be performed by them to
date under each Professionals Group Contract, except where such noncompliance,
either individually or in the aggregate, would not have a Material Adverse
Effect on Professionals Group. No event or condition exists which constitutes
or, after notice or lapse of time or both, would constitute, a material default
on the part of Professionals Group or any of its Subsidiaries under any such
Professionals Group Contract, except where such default, either individually or
in the aggregate, would not have a Material Adverse Effect on Professionals
Group.
3.15 Agreements with Regulatory Agencies. Neither Professionals Group
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, 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 Professionals Group Disclosure Schedule, a "Professionals
Group Regulatory Agreement"), nor has Professionals Group or any of its
Subsidiaries been advised since January 1, 1993, by any Governmental Entity
that it is considering issuing or requesting any such Professionals Group
Regulatory Agreement.
3.16 Other Activities of Professionals Group and its Subsidiaries.
Neither Professionals Group nor any of the Professionals Group Insurance
Subsidiaries, directly or indirectly, engages in any activity prohibited by
applicable law.
3.17 Investment Securities. Each of Professionals Group and its
Subsidiaries 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 to the extent such securities are
pledged in the ordinary course of business consistent with prudent business
practices to secure obligations of Professionals Group or any of its
Subsidiaries. Such securities are permissible investments under all applicable
laws, such securities are valued on the books of Professionals Group in
accordance with GAAP, and none of such securities is in default in the payment
of principal, interest or dividends or is impaired to any extent.
3.18 Interest Rate Risk Management Instruments. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements entered into for the account of Professionals Group or its
Subsidiaries were entered into in the ordinary course of business and, to the
best knowledge of Professionals Group, in accordance with prudent business
practice and applicable rules, regulations and policies of any Governmental
Entity and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations of Professionals Group or its
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<PAGE> 24
Subsidiaries 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. Professionals Group and each of
its Subsidiaries have duly performed in all material respects all of their
material obligations thereunder to the extent that such obligations to perform
have accrued; and, to the best knowledge of Professionals Group, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder.
3.19 Undisclosed Liabilities. Except for (i) those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of
Professionals Group included in the Professionals Group June 30, 1997 Form
10-Q, (ii) those liabilities incurred in the ordinary course of business
consistent with past practice since June 30, 1997, and (iii) coverage and other
claims (other than bad faith claims) made with respect to insurance policies
issued by any Professionals Group Insurance Subsidiary, neither Professionals
Group 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 Professionals Group.
3.20 Intellectual Property.
(a) Professionals 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. The term "intellectual property" means all
trademarks, service marks, logos, trade names and corporate names and
registrations and applications for registration thereof, copyrights and
registrations and applications for registration thereof, computer software,
data and documentation, trade secrets and confidential business information
(including financial, marketing and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), other proprietary rights, and copies and tangible embodiments
thereof (in whatever form or medium).
(b) To the best knowledge of Professionals Group, Professionals
Group has not interfered with, infringed upon, misappropriated or otherwise
come into conflict with any intellectual property rights of third parties and
neither Professionals Group, nor any of the directors or officers (and
employees with responsibility for intellectual property matters) of
Professionals Group has ever received any charge, complaint, claim or notice
alleging any such interference, infringement, misappropriation or violation.
To the knowledge of Professionals Group, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
intellectual property rights of Professionals Group.
(c) The Professionals Group Disclosure Schedule identifies each
item of intellectual property that any third party owns and that Professionals
Group uses pursuant to license, sublicense, agreement, or permission.
Professionals Group has made correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date) available to PPTF.
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 breach or default, and no event of default has occurred which
with notice or lapse of time, or both, would constitute a breach or default or
permit termination, modification or
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acceleration thereunder; (iv) no party to the license, sublicense, agreement or
permission has repudiated any provision thereof; (v) with respect to 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)
Professionals Group has not granted any sublicense or similar right with
respect to the license, sublicense, agreement or permission.
3.21 Real Property; Environmental Liability.
(a) Neither Professionals Group nor any Subsidiary of
Professionals Group owns any right, title or interest in any real property
except as described on the Professionals Group Disclosure Schedule
(collectively, the "Professionals Group Real Property"). The Professionals
Group Disclosure Schedule sets forth a complete and accurate list and general
description of all material leases for real property ("Professionals Group Real
Property Leases") to which Professionals Group or any Subsidiary of
Professionals Group is a party or by which any of them are bound.
Professionals Group or a Subsidiary of Professionals Group owns all right,
title and interest in, and has good and marketable title to, the Professionals
Group Real Property and Professionals Group and each Subsidiary of
Professionals Group have valid leasehold interests in each of the Professionals
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 Professionals Group Real Property Lease, (ii) current taxes not yet due
and payable; (iii) Liens 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. To the best knowledge of Professionals Group, the activities of
Professionals Group and its Subsidiaries with respect to all real property and
Professionals Group Real Property Leases owned or 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. Professionals Group and its Subsidiaries enjoy peaceful and
undisturbed possession under all material Professionals Group Real Property
Leases to which they are parties, and all of such Professionals Group Real
Property Leases are valid and in full force and effect.
(b) 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, or that could reasonably be expected to result in the
imposition, on Professionals Group or any of its Subsidiaries of any liability
or obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance (including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA")), pending or threatened against Professionals Group or any of its
Subsidiaries, which liability or obligation could reasonably be expected to
have a Material Adverse Effect on Professionals Group. To the knowledge of
Professionals Group, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any material
liability or obligation that could reasonably be expected to have a Material
Adverse Effect on Professionals Group. Neither Professionals Group nor any of
its Subsidiaries 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 that could
reasonably be expected to have a Material Adverse Effect on Professionals
Group.
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3.22 State Takeover Laws. The Board of Directors of Professionals Group
has approved the transactions contemplated by this Agreement and taken such
action such that the provisions of Chapter 7A of the MBCA and any other
provisions of any state or local "takeover" law applicable to Professionals
Group will not apply to this Agreement or any of the transactions contemplated
by this Agreement.
3.23 Pooling of Interests. Professionals Group has no reason to believe
that the Mergers will not qualify as a "pooling of interests" for accounting
purposes.
3.24 Insurance Matters.
(a) Each form of insurance policy, policy endorsement or
amendment, reinsurance contract, application form, sales material and service
contract now in use by any Professionals Group Insurance Subsidiary in any
jurisdiction has, where required, received interim or final approvals from the
appropriate Governmental Entity of such jurisdiction except for those approvals
which, if not obtained, would not result in a Material Adverse Effect on
Professionals Group.
(b) Neither Professionals Group nor any Professionals Group
Insurance Subsidiary has issued any participating policies or any
retrospectively rated policies of insurance, other than policies with final
premiums subject to audit.
(c) 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 the
Professionals Group Insurance Subsidiaries conform with such approvals, except
for those filings or approvals which, if not obtained, would not result in a
Material Adverse Effect on Professionals Group.
(d) The Professionals Group Insurance Subsidiaries Statutory
Statements for the year ended December 31, 1996 set forth all of the reserves
of the Professionals Group Insurance Subsidiaries as of December 31, 1996
(collectively, the "Professionals Group Reserves"). The Professionals Group
Reserves, gross and net of the reinsurance thereof, were prepared in accordance
with the statutory accounting practices and principles prescribed by or
permitted under the insurance laws of the applicable jurisdictions and make
good and sufficient provisions for all insurance obligations of the
Professionals Group Insurance Subsidiaries. Outstanding claims and claims
expenses of the Professionals Group Insurance Subsidiaries have been opined
upon as reasonable and adequate as of December 31, 1996, by Mr. R. Kevin
Clinton, the Chief Financial Officer of Professionals Group and PICOM, a duly
qualified actuary who is a member in good standing in the American Academy of
Actuaries, and a Fellow of the Casualty Actuarial Society. Each of the
Professionals Group Insurance Subsidiaries 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.
(e) The Professionals Group Disclosure Schedule sets forth a list
and description of all reinsurance agreements or treaties to which
Professionals Group or any Professionals Group Insurance Subsidiary 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.
Professionals Group has provided PPTF 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, 1996 and
December 31, 1995, as reflected in the Professionals Group Insurance
Subsidiaries Statutory Statements, are stated net of reinsurance ceded amounts.
Professionals Group has no knowledge of any facts that
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would cause it to believe that the reinsurance recoverable amounts reflected in
said balance sheets are not collectible, and Professionals Group is unaware of
any material adverse change in the financial condition of its reinsurers that
might raise concern regarding their ability to honor their reinsurance
commitments, and no party to any of such reinsurance agreements or treaties has
given notice to Professionals Group or any of the Professionals Group Insurance
Subsidiaries that such party intends to terminate or cancel any of such
reinsurance agreements or treaties as a result of or following consummation of
the Mergers. Each reinsurance agreement or treaty to which any Professionals
Group Insurance Subsidiary is a party is valid and binding on such
Professionals Group Insurance Subsidiary 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.
None of the Professionals Group Insurance Subsidiaries is in default in any
material respect with respect to any such reinsurance agreement or treaty, and
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 which would be
altered or otherwise become applicable by reason of such transactions.
(f) The Professionals Group Reserves, gross and net of reinsurance
thereof, as of December 31, 1996, pertaining to the property and casualty
insurance businesses (including medical malpractice) of the Professionals Group
Insurance Subsidiaries have been determined on a consistent basis in accordance
with past practices.
(g) The Professionals Group Disclosure Schedule lists all written
contracts between Professionals Group and its Subsidiaries and each of their
respective agents, managing general agents, and brokers.
3.25 No Investment Company. Neither Professionals Group nor any
Subsidiary of Professionals Group is an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
3.26 Accuracy of Information Supplied.
(a) To the best knowledge of Professionals Group, none of the
information supplied or to be supplied by Professionals Group or any
Professionals Group Subsidiary to PPTF pursuant to this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
(b) The S-4 and the Joint Proxy Statement used for the
registration and qualification of shares of Professionals Group Common Stock to
be issued upon consummation of the INSCO Merger and used to solicit approval of
the Mergers by the stockholders of Professionals Group and the Voting Members
of PPTF, and all other documents to be filed with the SEC or any applicable
state securities law regulatory authorities relating to this Agreement or the
transactions contemplated by this Agreement (including the Mergers), at the
respective times such documents are filed or become effective, and with respect
to the Joint Proxy Statement, from the time of mailing to the stockholders of
Professionals Group and the Voting Members of PPTF through the period required
for the Voting Members of PPTF to perfect dissenters' rights under applicable
law, shall, as to all information provided by Professionals Group: (i) comply
in all material respects with the provisions of all applicable regulations
issued by the SEC pursuant to the Securities Act and the Exchange Act and all
other applicable laws and regulations;
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and (ii) not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to
any material fact and not omit to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which have become false or
misleading.
3.27 Effective Time of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of
Professionals Group set forth in this Agreement, as updated by any written
disclosure schedule delivered pursuant to Section 6.11 of this Agreement, shall
be deemed to be made on and as of the date of this Agreement, as of the
effective date of the S-4, as of the Closing Date, as of the INSCO Effective
Time, and as of the PICOM Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PPTF
Except as disclosed in the PPTF disclosure schedule delivered to
Professionals Group concurrently herewith (the "PPTF Disclosure Schedule") PPTF
hereby represents and warrants to Professionals Group as follows:
4.1 Corporate Organization.
(a) PPTF is a medical malpractice self-insurance trust fund duly
organized pursuant to an Amended Trust Agreement dated January 1, 1987, its
Bylaws (said Amended Trust Agreement and said Bylaws being the "PPTF Charter
Documents") and Florida Statutes Section 627.357, and is validly existing and
in good standing under the laws of the State of Florida. PPTF has the power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business (as a medical malpractice self-insurance trust fund or otherwise)
only in the State of Florida. PPTF does not carry on or conduct any business
(as a medical malpractice self-insurance trust fund or otherwise) in any
jurisdiction other than the State of Florida. True and complete copies of the
PPTF Charter Documents, as in effect as of the date of this Agreement, have
previously been made available by PPTF to Professionals Group.
(b) The only Subsidiary of PPTF is Physicians Protective Plan,
Inc., a Florida corporation formerly known as "Parkway Medical & Dental
Building, Inc." (the "PPTF Subsidiary"). The PPTF Subsidiary (i) is duly
organized and validly existing as a corporation under the laws of the State of
Florida, (ii) is duly qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have a Material
Adverse Effect on PPTF, and (iii) has all requisite corporate power and
authority to own or lease its properties and assets and to carry on its
business as now conducted. True and complete copies of the Articles of
Incorporation and Bylaws of the PPTF Subsidiary, as in effect on the date of
this Agreement, have previously been made available by PPTF to Professionals
Group.
(c) A record of all action taken by the Voting Members and the
Board of Trustees of PPTF (including committees thereof), and a record of all
corporate action taken by the stockholders and Board of Directors (including
committees thereof) of the PPTF Subsidiary, 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 PPTF and the PPTF Subsidiary.
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The records of PPTF contain an accurate and complete record of all Eligible
Members of PPTF and their Membership Rights. The minute books and stock
ledgers of the PPTF Subsidiary taken together contain an accurate and complete
record of all issuances, transfers and cancellations of shares of capital stock
of the PPTF Subsidiary. Professionals Group has been given access to and an
opportunity to review all such minutes, minute books, membership records and
stock ledgers.
4.2 Capitalization.
(a) The Voting Members of PPTF have the full and complete power
and authority to approve and authorize this Agreement and the consummation of
all of the transactions contemplated by this Agreement. The Eligible Members
are the only persons and entities entitled to receive shares of Professionals
Group Common Stock, and cash in lieu of fractional shares of Professionals
Group Common Stock, upon consummation of the INSCO Merger, in exchange for
Membership Rights. As of June 30, 1997, PPTF had 3,338 Voting Members. PPTF
has no authorized, issued or outstanding shares of capital stock and 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 capital stock or any other equity securities of PPTF
or any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity securities of PPTF.
(b) The authorized capital stock of the PPTF Subsidiary consists
of 20,000 shares, $1.00 par value per share, of stock ("PPTF Subsidiary
Stock"). As of June 30, 1997, 20,000 shares of PPTF Subsidiary Stock were
issued and outstanding and no shares of PPTF Subsidiary Stock were held in
treasury. As of June 30, 1997, no shares of PPTF Subsidiary Stock were
reserved for issuance. Other than the shares of PPTF Subsidiary Stock
described in the preceding sentence, the PPTF Subsidiary has not issued any
shares of PPTF Subsidiary Stock or other equity securities of the PPTF
Subsidiary, or any securities convertible into or exercisable for any shares of
PPTF Subsidiary Stock or other equity securities of the PPTF Subsidiary. PPTF
owns directly all of the issued and outstanding shares of PPTF Subsidiary
Stock, free and clear of all Liens, and all of such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights with no personal liability attaching to the ownership thereof. The PPTF
Subsidiary 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 capital stock or any other equity
security of the PPTF Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of the PPTF Subsidiary. The Voting Trust Agreement dated May 12, 1975
among the PPTF Subsidiary, William L. Gray, III, Eliot H. Berg and Leon Termin,
as amended, and encumbering the PPTF Subsidiary Stock has been terminated and
is of no force or effect.
(c) The PPTF Disclosure Schedule sets forth a complete list of (i)
the officers and trustees of PPTF, (ii) the officers and directors of the PPTF
Subsidiary, and (iii) the percentage of the outstanding voting stock of the
PPTF Subsidiary owned or controlled, directly or indirectly, by PPTF. PPTF
does not have any direct or indirect equity or ownership interest in any other
business or entity 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 in
accordance with past practices.
4.3 Authority; No Violation.
(a) PPTF 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
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Agreement and the consummation of the transactions contemplated by this
Agreement have been duly and validly approved by the Board of Trustees of PPTF.
The Board of Trustees of PPTF has directed that this Agreement and the
transactions contemplated by this Agreement be submitted to the Voting Members
of PPTF for approval at a meeting of such Voting Members and, except for the
adoption of this Agreement by the requisite affirmative vote of the holders of
the outstanding PPTF Membership Rights, no other proceedings on the part of
PPTF are necessary to approve this Agreement and to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by PPTF and (assuming due authorization, execution and
delivery by Professionals Group and PICOM and the receipt of all Requisite
Regulatory Approvals) constitutes a valid and binding obligation of PPTF,
enforceable against PPTF in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by PPTF
nor the consummation by PPTF of the transactions contemplated by this
Agreement, nor compliance by PPTF with any of the terms or provisions of this
Agreement, will (i) violate any provision of the PPTF Charter Documents, or
(ii) assuming that the consents and approvals referred to in Section 4.4 of
this Agreement are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
PPTF or any of its properties or assets, or (y) violate, conflict with, result
in a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the properties or assets of PPTF
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 PPTF 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 PPTF.
4.4 Consents and Approvals. Except for (i) the filing of applications,
notices and forms with, and the obtaining of approvals from, the Michigan
Insurance Commissioner under the Michigan Insurance Code, the Florida Insurance
Department under the Florida Insurance Code, and the Illinois Insurance
Director under the Illinois Insurance Code with respect to the transactions
contemplated by this Agreement (including the incorporation of INSCO and its
authorization to do business in the State of Michigan and the State of
Florida), (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 with the SEC of the Joint Proxy Statement and the S-4, (iv) the
filing of the INSCO Certificate of Merger and the PICOM Certificates of Merger
with the appropriate authorities of the State of Michigan pursuant to the
Michigan Insurance Code and with the appropriate authorities of the State of
Florida pursuant to the Florida Insurance Code and the FBCA, (v) the filing of
the HSR Act Report with the Pre-Merger Notification Agencies pursuant to the
HSR Act, (vi) any consents, authorizations, orders and approvals required under
(A) the Michigan Insurance Code, (B) the Florida Insurance Code, (C) the
Illinois Insurance Code, (D) the Securities Act, (E) the Exchange Act, and (F)
the HSR Act, (vii) any consents, authorizations, approvals, filings or
exemptions in connection with compliance with the applicable provisions of any
SRO, or which are required under insurance or other similar laws, and (viii)
the approval of this Agreement by the requisite votes of the stockholders of
Professionals Group, the stockholders of PICOM, the stockholders of INSCO, and
the Voting Members of PPTF, 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 PPTF of this
Agreement or the consummation by PPTF of the transactions contemplated by this
Agreement.
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4.5 Reports. PPTF and the PPTF Subsidiary (i) have 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, that they were required to file since
January 1, 1994 with each Governmental Entity having jurisdiction, (ii) have
timely filed all other reports and statements, together with all amendments
required to be made with respect thereto, that they were required to file since
January 1, 1997 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) have paid all fees and assessments due and payable in connection
therewith, except where the failure to file such reports, registrations or
statements, or to file any of such other reports, or to pay such fees and
assessments, either individually or in the aggregate, will not have a Material
Adverse Effect on PPTF. 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, to the best
knowledge of PPTF, did not contain any false statements or material
misstatements of fact or omit to state any material facts necessary to make the
statements set forth therein not materially misleading in light of the
circumstances in which such statements were made. No material deficiencies
have been asserted by any Governmental Entity with respect to such reports,
registrations and statements or any such amendments thereto. PPTF has
delivered to Professionals Group complete and accurate copies of all annual and
quarterly statements (including the financial statements contained therein)
required to be filed by PPTF under applicable law since January 1, 1994.
Except for normal examinations conducted by a Governmental Entity in the
regular course of the business of PPTF and the PPTF Subsidiary, no Governmental
Entity has initiated any proceeding or, to the best knowledge of PPTF,
investigations into the business or operations of PPTF or the PPTF Subsidiary
since January 1, 1994, except where such proceedings or investigation are not
likely, either individually or in the aggregate, to have a Material Adverse
Effect on PPTF. There is no unresolved violation, criticism, or exception by
any Governmental Entity with respect to any report or statement relating to any
examinations of PPTF or the PPTF Subsidiary which, in the reasonable judgment
of PPTF, is likely, either individually or in the aggregate, to have a Material
Adverse Effect on PPTF.
4.6 Financial Statements.
(a) PPTF has previously made available to Professionals Group
copies of (i) the consolidated balance sheets of PPTF and the PPTF Subsidiary
as of December 31, for the fiscal years 1996 and 1995, and the related
consolidated statements of income, changes in capital and surplus and cash
flows for the fiscal years 1996, 1995 and 1994, inclusive, in each case
accompanied by the audit reports of KPMG Peat Marwick LLP, independent public
accountants with respect to PPTF, and (ii) the unaudited consolidated balance
sheet of PPTF and its Subsidiaries as of June 30, 1997 and the related
unaudited consolidated statements of income, cash flows and changes in capital
and surplus for the six-month period then ended. The consolidated balance
sheets of PPTF as of December 31, 1996 and 1995 (including the related notes,
where applicable) fairly present the consolidated financial position of PPTF
and the PPTF Subsidiary as of the dates thereof, and the other financial
statements referred to in this Section 4.6(a) (including the related notes,
where applicable) fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
results of the consolidated operations and changes in capital and surplus and
consolidated financial position of PPTF and the PPTF Subsidiary 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.
The books and records of PPTF and the PPTF Subsidiary have been, and are being,
maintained in all material respects
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in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
(b) PPTF has previously made available to Professionals Group
copies of the annual Statutory Financial Statements for PPTF and its Subsidiary
for the years ended December 31, 1996, 1995 and 1994 (collectively, the "PPTF
Statutory Statements"). The PPTF Statutory Statements (i) have been prepared
in accordance with the books and records of PPTF and the PPTF Subsidiary, (ii)
have been prepared in accordance with the statutory accounting practices and
principles prescribed by or permitted under the Florida Insurance Code, and
(iii) are consistent with prior periods, except as provided for therein and
except for any changes required by applicable law or the accounting practices
and principles referred to in clause (ii) of this sentence. The PPTF Statutory
Statements, when read in conjunction with the notes thereto and any statutory
audit reports relating thereto, present fairly in all material respects the
statutory financial condition of PPTF and the PPTF Subsidiary at December 31,
1996, 1995 and 1994, respectively, and the statutory results of their
respective operations for the period then ended.
4.7 Broker's Fees. Neither PPTF nor the PPTF Subsidiary nor any of
their respective officers or trustees 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, other
than Donaldson, Lufkin & Jenrette Securities Corporation (a copy of which
engagement agreement has been disclosed by PPTF to Professionals Group) whose
fees, commissions and expenses shall be paid by PPTF.
4.8 Absence of Certain Changes or Events.
(a) Since December 31, 1996, (i) PPTF and the PPTF Subsidiary
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) neither PPTF nor the PPTF
Subsidiary has declared or paid any dividend or other distribution in respect
of the Membership Rights of PPTF or the capital stock of the PPTF Subsidiary,
or any direct or indirect redemption, purchase or other acquisition by PPTF or
the PPTF Subsidiary of any such Membership Rights or stock; (iii) to the best
knowledge of PPTF, there has been no material adverse change in the business,
assets, properties, operations, or condition (financial or otherwise) of PPTF
or the PPTF Subsidiary, and (iv) no event has occurred which has had, or is
likely to have, individually or in the aggregate, a Material Adverse Effect on
PPTF.
(b) Since December 31, 1996, PPTF and the PPTF Subsidiary have
carried on their respective businesses in all material respects in the ordinary
and usual course theretofore conducted.
(c) Since December 31, 1996, neither PPTF nor the PPTF Subsidiary
has (i) except for such actions as are in the ordinary course of business
consistent with past practice or except as required by applicable law, (A)
increased the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee, director, or trustee
from the amount thereof in effect as of December 31, 1996, or (B) granted any
severance or termination pay, entered into any contract to make or grant any
severance or termination pay, or paid any bonuses in excess of its 1996 salary
and employee benefits expenses, or (ii) suffered any strike, work stoppage,
slowdown, or other labor disturbance which, in its reasonable judgment, is
likely, either individually or in the aggregate, to have a Material Adverse
Effect on PPTF.
4.9 Legal Proceedings.
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(a) Neither PPTF nor the PPTF Subsidiary 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 trustees or
directors or officers of PPTF or the PPTF Subsidiary, but excluding coverage
and other claims made with respect to insurance policies issued by PPTF or the
PPTF Subsidiary) against PPTF or the PPTF Subsidiary 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, would, individually or in the aggregate, have a
Material Adverse Effect on PPTF.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (including noncontractual claims, bad faith claims and claims
against any trustees or directors or officers of PPTF or the PPTF Subsidiary,
but excluding coverage and other claims made with respect to insurance policies
issued by PPTF or the PPTF Subsidiary) imposed upon PPTF or the PPTF Subsidiary
or the assets of PPTF or the PPTF Subsidiary which has had, or might reasonably
be expected to have, a Material Adverse Effect on PPTF.
4.10 Taxes and Tax Returns.
(a) Each of PPTF and the PPTF Subsidiary has duly filed all Tax
Returns required to be filed by them on or prior to the date of this Agreement
(all such returns being accurate and complete in all material respects) and has
duly paid or made provisions for the payment of all Taxes which have been
incurred or are due or claimed to be due from it by federal, state, county,
foreign or local taxing authorities on or prior to the date of this Agreement
(including, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, premiums, franchises, licenses,
sales and payrolls) other than (i) Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been finally
determined for which adequate reserves have been made on the financial
statements described in Section 4.6(a) of this Agreement, or (ii) Tax Returns
or Taxes the failure to file, pay or make provision for, either individually or
in the aggregate, are not likely, in the reasonable judgment of PPTF, to have a
Material Adverse Effect on PPTF. The Tax Returns of PPTF and the PPTF
Subsidiary have been examined by the IRS and the corresponding Governmental
Entities for state, county and local Taxes and any liability with respect
thereto has been satisfied for all years to and including 1994, and either no
material deficiencies were asserted as a result of such examination for which
PPTF does not have adequate reserves or all such deficiencies were satisfied.
There are no material disputes pending, or claims asserted for, Taxes upon PPTF
or the PPTF Subsidiary for which PPTF does not have adequate reserves, nor has
PPTF or the PPTF Subsidiary given any currently effective waivers extending the
statutory period of limitation applicable to any Tax Return for any period. In
addition, (A) proper and accurate amounts have been withheld by PPTF and the
PPTF Subsidiary from their employees for all prior periods in compliance in all
material respects with the tax withholding provisions of applicable federal,
state and local laws, except where failure to do so would not have a Material
Adverse Effect on PPTF, (B) Tax Returns which are accurate and complete in all
material respects have been filed by PPTF and the PPTF Subsidiary for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes, except where failure to do so would not
have a Material Adverse Effect on PPTF, (C) the amounts shown on such Tax
Returns to be due and payable have been paid in full or adequate provision
therefor has been included by PPTF in its consolidated financial statements as
of December 31, 1996, except where failure to do so would not have a Material
Adverse Effect on PPTF and (D) there are no Tax Liens upon any property or
assets of PPTF or the PPTF Subsidiary except Liens for current Taxes not yet
due or Liens that would not have a Material Adverse Effect on PPTF. Neither
PPTF nor the PPTF Subsidiary has been required
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to include in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by PPTF or the PPTF
Subsidiary, and the IRS has not initiated or proposed any such adjustment or
change in accounting method, in either case which has had or is reasonably
likely to have a Material Adverse Effect on PPTF. Except as set forth in the
financial statements described in Section 4.6 of this Agreement, neither PPTF
nor the PPTF Subsidiary has entered into a transaction which is being accounted
for as an installment obligation under Section 453 of the Code, which would be
reasonably likely to have a Material Adverse Effect on PPTF. Neither PPTF nor
the PPTF Subsidiary is a party to or bound by any tax indemnity, tax sharing or
tax allocation agreement. Neither PPTF nor the PPTF Subsidiary has ever been a
member of an affiliated group of corporations within the meaning of Section
1504 of the Code other than as a common parent corporation. Neither PPTF nor
the PPTF Subsidiary is liable for the Taxes of any person under Section
1.1502-6 of the Treasury Regulations (or any similar provision of state, local
or foreign Tax law) or by contract, as a successor or otherwise. Neither PPTF
nor the PPTF Subsidiary is a party to any joint venture, partnership or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes. PPTF's basis and excess loss account, if any, in the PPTF
Subsidiary is set forth in the PPTF Disclosure Schedule.
(b) Any amount that is reasonably likely to be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer, director
or trustee of PPTF or any of its affiliates who is a "Disqualified Individual"
(as such term is defined in proposed Treasury Regulation Section 1.280G-1)
under any employment, severance or termination agreement, other compensation
arrangement or PPTF Benefit Plan (as defined in Section 4.11(a) of this
Agreement) currently in effect will not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
(c) No disallowance of a deduction under Section 162(m) of the
Code for employee remuneration of any amount paid or payable by PPTF or the
PPTF Subsidiary under any contract, plan, program, arrangement or understanding
will have a Material Adverse Effect on PPTF.
4.11 Employee Benefit Plans; Labor Matters.
(a) The PPTF Disclosure Schedule sets forth a true and complete
list of each material employee benefit plan, arrangement or agreement that is
maintained as of the date of this Agreement (the "PPTF Benefit Plans") by PPTF
or its Subsidiary or by any ERISA Affiliate, all of which together with PPTF
would be deemed a "single employer" within the meaning of Section 4001 of
ERISA.
(b) PPTF has heretofore delivered or made available to
Professionals Group true and complete copies of each of the PPTF Benefit Plans
and certain related documents, including (i) the actuarial report for such PPTF
Benefit Plan (if applicable) for each of the last two years, and (ii) the most
recent determination letter from the IRS (if applicable) for such PPTF Benefit
Plan.
(c) (i) Each of the PPTF Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the PPTF
Benefit Plans intended to be "qualified" within the meaning of Section 401(a)
of the Code has received a determination letter from the IRS that it is so
qualified and no event has occurred that will or is likely to give rise to
disqualification of any such plan or trust created thereunder, (iii) with
respect to each PPTF Benefit Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such PPTF Benefit Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by the actuary for such PPTF Benefit Plan with respect to
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such PPTF Benefit Plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such PPTF Benefit Plan allocable to such
accrued benefits, (iv) no PPTF Benefit Plan provides benefits, including death
or medical benefits (whether or not insured), with respect to current or former
employees of PPTF, the PPTF Subsidiary or any ERISA Affiliate beyond their
retirement or other termination of service, other than (A) coverage mandated by
applicable law, (B) death benefits or retirement benefits under any "employee
pension plan" (as such term is defined in Section 3(2) of ERISA), (C) deferred
compensation benefits accrued as liabilities on the books of PPTF, the PPTF
Subsidiary or the ERISA Affiliates, (D) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary), or (E)
disability or severance plans identified on the PPTF Disclosure Schedule, (v)
no material liability under Title IV of ERISA has been incurred by PPTF, the
PPTF Subsidiary or any ERISA Affiliate (other than liability for premiums to
the PBGC arising in the ordinary course) that has not been satisfied in full,
and no condition exists that presents a material risk to PPTF, the PPTF
Subsidiary or any ERISA Affiliate of incurring a material liability thereunder,
(vi) no PPTF Benefit Plan is a "multiemployer pension plan" (as such term is
defined in Section 3(37) of ERISA), (vii) all required contributions or other
amounts payable by PPTF or the PPTF Subsidiary as of the INSCO Effective Time
with respect to each PPTF Benefit Plan in respect of current or prior plan
years have been timely paid or accrued in accordance with GAAP and Section 412
of the Code, (viii) to the best knowledge of PPTF neither PPTF, the PPTF
Subsidiary nor any ERISA Affiliate has engaged in a transaction in connection
with which PPTF, the PPTF Subsidiary or any ERISA Affiliate reasonably could be
subject to either a material civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of
the Code, and (ix) there are no pending, or to the best knowledge of PPTF,
threatened or anticipated claims (other than routine claims for benefits and
administrative expenses payable in the ordinary course) by, on behalf of or
against any of the PPTF Benefit Plans or any trusts related thereto which are,
in the reasonable judgment of PPTF, likely, either individually or in the
aggregate, to have a Material Adverse Effect on PPTF.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will (i) result
in any material payment (including severance, unemployment compensation, golden
parachute or otherwise) becoming due to any trustee or director or employee of
PPTF or any of its affiliates from PPTF or any of its affiliates under any PPTF
Benefit Plan or otherwise, (ii) materially increase any benefits otherwise
payable under any PPTF Benefit Plan, or (iii) result in any acceleration of the
time of payment or vesting of any such benefits to any material extent.
(e) To the best knowledge of PPTF, PPTF and the PPTF Subsidiary
are in compliance in all material respects with all currently applicable laws
and regulations respecting employment and employment matters, discrimination in
employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices (including federal and state wage
and hour laws, workplace safety laws, workers' compensation laws, equal
employment opportunity laws, equal pay laws, civil rights laws, the Americans
With Disabilities Act and the Fair Labor Standards Act of 1938, as amended),
and are not engaged in any unfair labor practice. PPTF and the PPTF Subsidiary
has complied with all applicable notice provisions of and has no material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There is no action, claim, cause of action, suit or
proceeding pending or, to the best knowledge of PPTF, threatened, on the part
of any employee, independent contractor or applicant for employment, including
any such action, claim, cause of action, suit or proceeding based on
allegations of wrongful termination or discrimination on the basis of age,
race, religion, sex, sexual preference, or mental or physical handicap or
disability that could, or could reasonably be expected to, have a Material
Adverse Effect on PPTF. Neither PPTF nor the PPTF Subsidiary is a party to any
collective bargaining agreement or other
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labor union contract nor does PPTF know of any activities or proceedings of any
labor union to organize any employees of PPTF or the PPTF Subsidiary. PPTF and
the PPTF Subsidiary have provided all employees with all relocation benefits,
stock options, bonuses and incentives, and all other compensation that such
employee has earned up through the date of this Agreement or that such employee
was otherwise promised in his or her employment agreement(s) with PPTF or the
PPTF Subsidiary, as the case may be.
(f) All material sums due for employee compensation have been
paid, accrued or otherwise provided for, and all employer contributions for
employee benefits, including deferred compensation obligations, and all
benefits under any PPTF Benefit Plan have been duly and adequately paid or
provided for in accordance with plan documents. To the best knowledge of PPTF,
no person treated as an independent contractor by PPTF or the PPTF Subsidiary
is an employee as defined in Section 3401(c) of the Code, nor has any employee
been otherwise improperly classified, as exempt, nonexempt or otherwise, for
purposes of federal or state income tax withholding or overtime laws, rules, or
regulations. To the best knowledge of PPTF, no executive or key employee or
group of employees of PPTF or the PPTF Subsidiary has any plans to terminate
his, her or their employment.
(g) Neither PPTF nor the PPTF Subsidiary has any commitment to (i)
create any additional plan or modify or change any existing PPTF Benefit Plan
or (ii) enter into any contract to provide compensation or benefits to any
individual.
4.12 Compliance with Applicable Law. PPTF and the PPTF Subsidiary 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 PPTF or the PPTF Subsidiary, except where the
failure to hold such license, franchise, permit or authorization or such
noncompliance or default would not, individually or in the aggregate, have a
Material Adverse Effect on PPTF.
4.13 Certain Contracts.
(a) Neither PPTF nor the PPTF Subsidiary is a party to or bound by
any contract, arrangement, commitment or understanding (whether written or
oral) (i) with respect to the employment of any trustees, directors, officers
or employees other than in the ordinary course of business consistent with past
practice, (ii) which, upon the consummation of the transactions contemplated by
this Agreement will (either alone or upon the occurrence of any additional acts
or events) result in any payment (whether of severance pay or otherwise)
becoming due from Professionals Group, PPTF, PICOM, INSCO, or any of their
respective Subsidiaries to any trustee, director, officer or employee thereof,
(iii) which is a "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the
Professionals Group Reports, (iv) which materially restricts the conduct of any
line of business by PPTF, (v) with or to a labor union or guild (including any
collective bargaining agreement) or (vi) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. PPTF has previously made
available to Professionals Group true and correct copies of all employment and
deferred compensation agreements which are in writing and to which PPTF or the
PPTF Subsidiary is a party. Each contract, arrangement, commitment or
understanding of the type described in this Section
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4.13(a), whether or not set forth in the PPTF Disclosure Schedule, is referred
to in this Agreement as a "PPTF Contract", and neither PPTF nor the PPTF
Subsidiary knows of, or has received notice of, any violation of the above by
any of the other parties thereto which, individually or in the aggregate, would
have a Material Adverse Effect on PPTF.
(b) Each PPTF Contract is valid and binding on PPTF or the PPTF
Subsidiary, as applicable, and in full force and effect. PPTF and the PPTF
Subsidiary have in all material respects performed all obligations required to
be performed by them to date under each PPTF Contract, except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on PPTF. No event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a material default on
the part of PPTF or the PPTF Subsidiary under any such PPTF Contract, except
where such default, individually or in the aggregate, would not have a Material
Adverse Effect on PPTF.
4.14 Agreements with Regulatory Agencies. Neither PPTF nor the PPTF
Subsidiary is subject to any cease-and-desist or other order issued by, or is a
party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
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 PPTF Disclosure Schedule, a "PPTF Regulatory Agreement"), nor has PPTF
or the PPTF Subsidiary been advised since January 1, 1996, by any Governmental
Entity that it is considering issuing or requesting any such PPTF Regulatory
Agreement.
4.15 Other Activities of PPTF and the PPTF Subsidiary. Neither PPTF nor
the PPTF Subsidiary, directly or indirectly, engages in any activity prohibited
by applicable law.
4.16 Investment Securities. Each of PPTF and the PPTF Subsidiary 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 to the extent such securities are pledged in the
ordinary course of business consistent with prudent business practices to
secure obligations of PPTF or the PPTF Subsidiary. Such securities are
permissible investments under all applicable laws, such securities are valued
on the books of PPTF in accordance with GAAP, and none of such securities is in
default in the payment of principal, interest or dividends or is impaired to
any extent.
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 PPTF or the PPTF
Subsidiary, were entered into in the ordinary course of business and, to the
best knowledge of PPTF, in accordance with prudent business practice and
applicable rules, regulations and policies of any Governmental Entity and with
counterparties believed to be financially responsible at the time and are
legal, valid and binding obligations of PPTF or the PPTF Subsidiary 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. PPTF and the PPTF Subsidiary have duly performed in all
material respects all of their material obligations thereunder to the extent
that such obligations to perform have accrued; and, to the best knowledge of
PPTF, there are no material breaches, violations or defaults or allegations or
assertions of such by any party thereunder.
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4.18 Undisclosed Liabilities. Except for (i) those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of PPTF
at December 31, 1996, (ii) those liabilities incurred in the ordinary course of
business consistent with past practice since December 31, 1996, and (iii)
coverage and other claims (other than bad faith claims) made with respect to
insurance policies issued by PPTF or the PPTF Subsidiary, neither PPTF nor the
PPTF Subsidiary 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 PPTF.
4.19 Intellectual Property.
(a) PPTF 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.
(b) To the best knowledge of PPTF, PPTF has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
intellectual property rights of third parties and neither PPTF, nor any of the
directors or officers (and employees with responsibility for intellectual
property matters) of PPTF has ever received any charge, complaint, claim or
notice alleging any such interference, infringement, misappropriation or
violation. To the knowledge of PPTF, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
intellectual property rights of PPTF.
(c) The PPTF Disclosure Schedule identifies each item of
intellectual property that any third party owns and that PPTF uses pursuant to
license, sublicense, agreement, or permission. PPTF has made correct and
complete copies of all such licenses, sublicenses, agreements and permissions
(as amended to date) available to Professionals Group. 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 breach or
default, and no event of default has occurred which with notice or lapse of
time, or both, would constitute a breach or default or permit termination,
modification or acceleration thereunder; (iv) no party to the license,
sublicense, agreement or permission has repudiated any provision thereof; (v)
with respect to 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) PPTF has not granted any sublicense or similar right with
respect to the license, sublicense, agreement or permission.
4.20 Real Property; Environmental Liability.
(a) Neither PPTF nor the PPTF Subsidiary owns any right, title or
interest in any real property. The PPTF Disclosure Schedule sets forth a
complete and accurate list and general description of all material leases for
real property ("PPTF Real Property Leases") to which PPTF or the PPTF
Subsidiary is a party or by which either of them is bound. PPTF and the PPTF
Subsidiary have valid leasehold interests in each of the PPTF 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 PPTF Real
Property Lease, (ii) current taxes not yet due and payable; (iii) Liens of
public record; and (iv) such nonmonetary imperfections of title and
encumbrances, if any,
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as do not materially detract from the value of or materially interfere with the
present use of such property. To the best knowledge of PPTF, the activities of
PPTF and the PPTF Subsidiary with respect to all real property and PPTF Real
Property Leases owned or 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. PPTF and
the PPTF Subsidiary enjoy peaceful and undisturbed possession under all
material PPTF Real Property Leases to which they are parties, and all of such
PPTF Real Property Leases are valid and in full force and effect.
(b) 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, or that could reasonably be expected to result in the
imposition, on PPTF or the PPTF Subsidiary of any liability or obligation
arising under common law or under any local, state or federal environmental
statute, regulation or ordinance (including, CERCLA), pending or threatened
against PPTF or the PPTF Subsidiary, which liability or obligation could
reasonably be expected to have a Material Adverse Effect on PPTF. To the
knowledge of PPTF, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any material liability
or obligation that could reasonably be expected to have a Material Adverse
Effect on PPTF. Neither PPTF nor the PPTF Subsidiary 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 that could reasonably be expected to have a Material
Adverse Effect on PPTF.
4.21 Pooling of Interests. PPTF has no reason to believe that the
Mergers will not qualify as a "pooling of interests" for accounting purposes.
4.22 Insurance Matters.
(a) Each form of insurance policy, policy endorsement or
amendment, reinsurance contract, annuity contract, application form, sales
material and service contract now in use by PPTF or the PPTF Subsidiary in any
jurisdiction has, where required, received interim or final approvals from the
appropriate Governmental Entity of such jurisdiction, except for those
approvals which, if not obtained, would not result in a Material Adverse Effect
on PPTF.
(b) Neither PPTF nor its Subsidiary has issued any participating
policies or any retrospectively rated policies of insurance, other than
policies with final premiums subject to audit.
(c) 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 PPTF
or the PPTF Subsidiary conform with such approvals, except for those filings or
approvals which, if not obtained, would not result in a Material Adverse Effect
on PPTF.
(d) The PPTF Disclosure Schedule sets forth all of the reserves of
PPTF and the PPTF Subsidiary as of December 31, 1996 (collectively, the "PPTF
Reserves"). The PPTF Reserves, gross and net of the reinsurance thereof, were
prepared in accordance with the statutory accounting practices and principles
prescribed by or permitted under the Florida Insurance Code and make good and
sufficient provisions for all insurance obligations of PPTF and the PPTF
Subsidiary. Outstanding claims
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and claims expenses have been opined upon as reasonable and adequate as of
December 31, 1996, by Tillinghast-Towers Perrin, a duly qualified actuary who
is a member in good standing in the American Academy of Actuaries. Each of
PPTF and the PPTF Subsidiary 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.
(e) The PPTF Disclosure Schedule sets forth a list and description
of all reinsurance agreements or treaties to which PPTF or the PPTF Subsidiary
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. PPTF has provided Professionals Group 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, 1996 and
December 31, 1995, as reflected in the balance sheets in the financial
statements of PPTF identified in Section 4.6 of this Agreement, are stated net
of reinsurance ceded amounts. PPTF has no knowledge of any facts that would
cause it to believe that the reinsurance recoverable amounts reflected in said
balance sheets are not collectible, and PPTF is unaware of any material adverse
change in the financial condition of its reinsurers that might raise concern
regarding their ability to honor their reinsurance commitments, and no party to
any of such reinsurance agreements or treaties has given notice to PPTF or the
PPTF Subsidiary that such party intends to terminate or cancel any of such
reinsurance agreements or treaties as a result of or following consummation of
the Mergers. Each reinsurance agreement or treaty to which PPTF or the PPTF
Subsidiary is a party is valid and binding on such entity 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.
Neither PPTF nor the PPTF Subsidiary is in default in any material respect with
respect to any such reinsurance agreement or treaty, and 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 which would be altered or
otherwise become applicable by reason of such transactions.
(f) The PPTF Reserves, gross and net of reinsurance thereof, as of
December 31, 1996, pertaining to the property and casualty insurance businesses
(including medical malpractice) of PPTF and the PPTF Subsidiary have been
determined on a consistent basis in accordance with past practices.
(g) The PPTF Disclosure Schedule lists all written contracts
between PPTF and its Subsidiary and each of their respective agents, managing
general agents, and brokers.
(h) Neither PPTF nor the PPTF Subsidiary owns, beneficially or of
record, any shares of Professionals Group Common Stock or other equity
securities of Professionals Group, or any securities convertible into or
exercisable for any shares of Professionals Group Common Stock or other equity
securities of Professionals Group. Upon consummation of the INSCO Merger, no
Eligible Member of PPTF will, by virtue of his or her Membership Rights,
receive more than 3% of the aggregate number of shares of Professionals Group
Common Stock issued in the INSCO Merger to PPTF Eligible Members.
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4.23 No Investment Company. Neither PPTF nor the PPTF Subsidiary is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
4.24 Accuracy of Information Supplied.
(a) To the best knowledge of PPTF, none of the information
supplied or to be supplied by PPTF or the PPTF Subsidiary to Professionals
Group pursuant to this Agreement contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
(b) The S-4 and the Joint Proxy Statement used for the
registration and qualification of shares of Professionals Group Common Stock to
be issued upon consummation of the INSCO Merger and used to solicit approval of
the Mergers by the stockholders of Professionals Group and the Voting Members
of PPTF, and all other documents to be filed with the SEC or any applicable
state securities law regulatory authorities relating to this Agreement or the
transactions contemplated by this Agreement (including the Mergers), at the
respective times such documents are filed or become effective, and with respect
to the Joint Proxy Statement, from the time of mailing to the stockholders of
Professionals Group and the Voting Members of PPTF through the period required
for the Voting Members of PPTF to perfect dissenters' rights under applicable
law, shall, as to all information provided by PPTF: (i) comply in all material
respects with the provisions of all applicable regulations issued by the SEC
pursuant to the Securities Act and the Exchange Act and all other applicable
laws and regulations; and (ii) not contain any statement which, at the time and
in light of the circumstances under which it is made, is false or misleading
with respect to any material fact and not omit to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of a proxy for the same meeting or subject matter which have
become false or misleading.
4.25 Effective Time of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of PPTF set
forth in this Agreement, as updated by any written disclosure schedule
delivered pursuant to Section 6.11 of this Agreement, shall be deemed to be
made on and as of the date of this Agreement, as of the effective date of the
S-4, as of the Closing Date, as of the INSCO Effective Time, and as of the
PICOM Effective Time.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Times. During the
period from the date of this Agreement to the INSCO Effective Time, except as
expressly contemplated or permitted by this Agreement (including the
Professionals Group Disclosure Schedule and the PPTF Disclosure Schedule), each
of Professionals Group and PPTF shall, and shall cause each of their 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, employees and
advantageous business relationships and retain the services of its key officers
and key employees and (c) take no action which would adversely affect or 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.
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5.2 Forbearances. During the period from the date of this Agreement to
the INSCO Effective Time, except as set forth in the Professionals Group
Disclosure Schedule or the PPTF Disclosure Schedule, as the case may be, and,
except as expressly contemplated or permitted by this Agreement, neither
Professionals Group nor PPTF shall, and neither Professionals Group nor PPTF
shall permit any of their respective Subsidiaries to, without the prior written
consent of the other:
(a) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money (other than (i)
indebtedness incurred in connection with the incorporation of, and for the
purpose of incorporating, INSCO, and (ii) short-term indebtedness incurred to
refinance short-term indebtedness and indebtedness of Professionals Group or
any of its Subsidiaries to Professionals Group or any of its Subsidiaries, on
the one hand, or of PPTF or the PPTF Subsidiary to PPTF or any of its
Subsidiaries, on the other hand), 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 entering into repurchase agreements and reverse repurchase
agreements);
(b) redeem, repay, discharge or defease any surplus note
(including the PPTF Surplus Notes), unless such redemption, repayment,
discharge or defeasance is an express condition of any Requisite Regulatory
Approval;
(c) (i) adjust, split, combine or reclassify any capital stock;
(ii) 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 (except (A) in the case of Professionals
Group, a stock dividend not exceeding 10% of the shares of Professionals Group
Common Stock outstanding as of the date such stock dividend is declared may be
made, declared or paid at any time prior to the INSCO Effective Time, and (B)
dividends paid by any of the Subsidiaries of each of Professionals Group and
PPTF to Professionals Group or PPTF or any of their Subsidiaries,
respectively), (iii) grant any stock appreciation rights or grant any
individual, corporation or other entity any right to acquire any shares of its
capital stock (and no such rights or options shall be granted, (A) except that
at any time prior to the Closing Date, and pursuant to the terms of the
Professionals Group LTIP, Professionals Group may make Awards (defined in this
Agreement as in the Professionals Group LTIP) to Participants (defined in this
Agreement as in the Professionals Group LTIP) covering up to 150,000 shares of
Professionals Group Common Stock in the aggregate, and (B) except as otherwise
agreed in writing by Professionals Group and PPTF), or (iv) issue any
additional shares of capital stock except pursuant to (A) the exercise of stock
options or warrants outstanding as of the date of this Agreement, or (B) as
permitted under clause (ii) or clause (iii) of this sentence;
(d) sell, transfer, mortgage, encumber or otherwise dispose of any
of its properties or assets to any individual, corporation or other entity
other than a Subsidiary, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except in the ordinary
course of business consistent with past practice or pursuant to contracts or
agreements in force at the date of this Agreement;
(e) except for transactions in the ordinary course of business
consistent with past practice, or in connection with the incorporation of, and
for the purpose of incorporating, INSCO, or pursuant to contracts or agreements
in force at the date of this Agreement, make any material investment
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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;
(f) except for transactions in the ordinary course of business
consistent with past practice, 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;
(g) increase in any manner the compensation or fringe benefits of
any of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of
any employee other than in the ordinary course of business consistent with past
practice or accelerate the vesting of any stock options or other stock-based
compensation;
(h) settle any claim, action or proceeding involving money
damages, except in the ordinary course of business consistent with past
practice;
(i) take any action that would prevent or impede the Mergers from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code;
(j) in the case of Professionals Group, each of its Subsidiaries
and the PPTF Subsidiary, amend its Articles of Incorporation, or its Bylaws,
except as contemplated by this Agreement;
(k) in the case of PPTF, amend any of the PPTF Charter Documents
except as contemplated by this Agreement;
(l) other than in accordance with its investment guidelines and
prior consultation with every other party to this Agreement, restructure or
materially change its investment securities portfolio through purchases, sales
or otherwise, or the manner in which the portfolio is classified or reported;
(m) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time prior to
the INSCO Effective Time, or in any of the conditions to the Mergers set forth
in Article VII of this Agreement not being satisfied or in a violation of any
provision of this Agreement, except, in every case, as may be required by
applicable law; or
(n) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.
(a) In connection with the solicitation of approval of the
principal terms of the Mergers by the stockholders of Professionals Group and
the Voting Members of PPTF and the
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registration of the shares of Professionals Group Common Stock to be issued
upon consummation of the INSCO Merger, the parties will prepare, and
Professionals Group will file, the S-4 and the Joint Proxy Statement with the
SEC which shall comply as to form, in all material respects, with the
provisions of the Securities Act, the Exchange Act and other applicable law.
Professionals Group will use all reasonable effects to respond to the comments
of the SEC staff with respect to the S-4 and the Joint Proxy Statement and to
have the S-4 and the Joint Proxy Statement declared effective by the SEC as
soon as practicable, and Professionals Group shall thereafter mail or deliver
the Joint Proxy Statement to its stockholders and PPTF shall thereafter mail or
deliver the Joint Proxy Statement to its Voting Members. The information
provided and to be provided by Professionals Group and PPTF for use in the S-4
and the Joint Proxy Statement will not, in the case of the S-4 on the date it
becomes effective, and in the case of Joint Proxy Statement on such date and on
the date on which approval of the Mergers by the stockholders of Professionals
Group and the Voting Members of PPTF is obtained, contain any untrue statement
of material fact or omit to state any material fact required to be stated in
this Agreement or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. Each of Professionals
Group and PPTF agree promptly to correct any such information provided by it
which shall have become false or misleading in any material respect and to take
all steps necessary to file with the SEC and have declared effective or cleared
by the SEC any amendment or supplement to the S-4 or the Joint Proxy Statement
so as to correct the same and to cause the Joint Proxy Statement so corrected
to be distributed to the stockholders of Professionals Group and the Voting
Members of PPTF to the extent required by applicable law. To the extent that
any opinion regarding the tax consequences of the Mergers is required with
respect to the S-4 or the Joint Proxy Statement, Professionals Group and PPTF
will both cause each of their respective tax counsel to issue substantially
similar opinions.
(b) Professionals Group will prepare and file, and PPTF will
cooperate with and assist Professionals Group 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 Professionals Group Common Stock to be issued upon consummation
of the INSCO Merger or to establish an exemption from such registration or
qualification (the "Blue Sky Filings").
(c) Pursuant to the HSR Act, Professionals Group and PPTF 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 Professionals Group
and PPTF 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.
(d) Each of Professionals Group and PPTF shall duly 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 each of the Mergers 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 SEC, the Pre- Merger Notification Agencies and any other Governmental
Entity, unless such right to participate is waived by such party.
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(e) 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 S-4 and Joint Proxy Statement, 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 the S-4 and the Joint Proxy Statement, 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.
(f) 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 SEC, 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.
(g) Professionals Group shall deliver to PPTF letters from KPMG
Peat Marwick LLP, dated the effective date of the S-4 and the Closing Date,
addressed to PPTF and satisfactory to PPTF, to the effect that (x) they are the
independent public accountants with respect to Professionals Group within the
meaning of the Securities Act and the rules and regulations promulgated
thereunder, and (y) they have carried out certain procedures specified in the
letter and reasonably acceptable to PPTF, not constituting an audit, with
respect to the unaudited financial statements and certain amounts, percentages
and financial information which are derived from the general accounting records
of Professionals Group and the Professionals Group Subsidiaries; and are
included in the S-4 and the Joint Proxy Statement or in the documents filed
with the SEC pursuant to the Exchange Act and incorporated by reference in the
S-4 and the Joint Proxy Statement, and on the basis of such procedures: (i)
nothing came to their attention that caused them to believe that the unaudited
financial statements included in the S-4 and the Joint Proxy Statement are not
stated on a basis substantially consistent with that of the audited financial
statements of Professionals Group included in the S-4 and the Joint Proxy
Statement or in the documents filed with the SEC pursuant to the Exchange Act
and incorporated by reference in the S-4 and the Joint Proxy Statement; and
(ii) they have compared such amounts, percentages, and financial information
with such general accounting records of Professionals Group and the
Professionals Group Subsidiaries and with information derived from such records
and have found them to be in agreement, excluding any questions of legal
interpretation.
(h) PPTF shall deliver to Professionals Group letters from KPMG
Peat Marwick LLP, dated the effective date of the S-4 and the Closing Date,
addressed to Professionals Group and satisfactory to Professionals Group, to
the effect that (x) they are the independent public accountants with respect to
PPTF within the meaning of the Securities Act and the rules and regulations
promulgated thereunder; and (y) they have carried out certain procedures
specified in the letter and reasonably acceptable to Professionals Group, not
constituting an audit, with respect to the unaudited financial statements and
certain amounts, percentages and financial information which are derived from
the general accounting records of PPTF and the PPTF Subsidiary and are included
in the S-4 and the Joint Proxy Statement and on the basis of such procedures:
(i) nothing came to their attention that caused them to believe that the
unaudited financial statements included in the S-4 and the Joint Proxy
Statement are not stated on a basis substantially consistent with that of the
audited financial statements of PPTF included in the S-4 and the Joint Proxy
Statement; and (ii) they have compared such amounts, percentages and
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financial information with such general accounting records of PPTF and the PPTF
Subsidiary and with information derived from such records and have found them
to be in agreement, excluding any questions of legal interpretation.
(i) 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
Mergers), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities.
Professionals Group and PPTF 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 Professionals Group or PPTF, as the case may be, and any of their
respective Subsidiaries, which appear in any filing made with, or written
materials submitted to, any third party or any Governmental 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.
(j) Professionals Group and PPTF shall, upon request, furnish each
other with all information concerning themselves, their Subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Joint Proxy Statement,
the S-4 or any other statement, filing, notice or application made by or on
behalf of Professionals Group, PPTF or any of their respective Subsidiaries to
any Governmental Entity in connection with the Mergers and the other
transactions contemplated by this Agreement.
(k) Professionals Group and PPTF 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.
(a) Upon reasonable notice and subject to applicable laws relating
to the exchange of information and to the Confidentiality Agreement dated
February 27, 1996, as amended (the "Confidentiality Agreement"), among the
parties to this Agreement, each of Professionals Group and PPTF 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 INSCO
Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, each of Professionals Group and PPTF 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 Professionals Group or PPTF, 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
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party may reasonably request. Neither Professionals Group nor PPTF 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 Professionals Group's or PPTF's, as the case may be, customers,
jeopardize the attorney-client and work product privileges of the entity in
possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each of Professionals Group and PPTF 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 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.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
conditions of the other set forth in this Agreement.
6.3 Professionals Group Stockholder Approval. Professionals Group shall
call a meeting of its stockholders to be held as soon as reasonably practicable
for the purpose of obtaining the requisite stockholder approval required in
connection with this Agreement and the Mergers, and shall use its best efforts
to cause such meeting to occur on the same date as the meeting of the Voting
Members of PPTF called for the purpose of obtaining the requisite Voting Member
approval required in connection with this Agreement and the Mergers.
Professionals Group will, through its Board of Directors, subject to its
fiduciary obligations as determined by its Board of Directors, recommend to its
stockholders approval of this Agreement and the Mergers.
6.4 PPTF Member Approval. PPTF shall call a meeting of its members to
be held as soon as reasonably practicable for the purpose of obtaining the
requisite Voting Member approval required in connection with this Agreement and
the Mergers, and shall use its best efforts to cause such meeting to occur on
the same date as the meeting of the stockholders of Professionals Group called
for the purpose of obtaining the requisite Professionals Group stockholder
approval required in connection with this Agreement and the Mergers. PPTF
will, through its Board of Trustees, subject to its fiduciary obligations as
determined by its Board of Trustees, recommend to its Voting Members approval
of this Agreement and the Mergers.
6.5 Legal Conditions to Mergers. Each of Professionals Group and PPTF
shall, and shall cause its Subsidiaries to, use their best 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 Mergers and, subject to the conditions set
forth in Article VII of
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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 Professionals Group or PPTF or any of their respective Subsidiaries in
connection with the Mergers and the other transactions contemplated by this
Agreement.
6.6 Affiliates; Publication of Combined Financial Results.
(a) Each of Professionals Group, PICOM, and PPTF shall use its
best efforts to cause each director, trustee, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities Act
and for purposes of qualifying the Mergers for "pooling of interests"
accounting treatment) of such party to deliver to the other party hereto, as
soon as practicable after the date of this Agreement, and prior to the earlier
of the date of the meeting of stockholders called by Professionals Group and
the date of the meeting of Voting Members called by PPTF to approve this
Agreement, a written agreement, in the form of Exhibit D to this Agreement,
providing that such person will not sell, pledge, transfer or otherwise dispose
of any shares of Professionals Group Common Stock or PPTF Membership Rights
held by such "affiliate" and, in the case of the "affiliates" of PPTF, the
shares of Professionals Group Common Stock to be received by such "affiliate"
in the INSCO Merger: (i) in the case of shares of Professionals Group Common
Stock to be received by "affiliates" of PPTF in the INSCO Merger, except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder; and (ii) except to the extent and under the
conditions permitted therein, during the period commencing thirty (30) days
prior to the INSCO Merger and ending at the time of the publication of
financial results covering at least thirty (30) days of combined operations of
PICOM and PPTF.
(b) Professionals Group shall use its best efforts to publish as
promptly as reasonably practical but in no event later than forty- five (45)
days after the end of the first month after the later of the INSCO Effective
Time and the PICOM Effective Time in which there are at least thirty (30) days
of post-merger combined operations (which month may be the month in which the
later of the INSCO Effective Time and the PICOM Effective Time occurs),
combined sales and net income figures as contemplated by and in accordance with
the terms of SEC Accounting Series Release No. 135.
6.7 Nasdaq National Market Listing. Professionals Group shall cause the
shares of Professionals Group Common Stock to be issued in the INSCO Merger to
be approved for trading and reporting on the Nasdaq National Market subject to
official notice of issuance, prior to the INSCO Effective Time.
6.8 Employee Benefit Plans.
(a) Prior to the Closing Date, Professionals Group and PPTF shall
cooperate in reviewing, evaluating and analyzing the Professionals Group
Benefit Plans and PPTF Benefit Plans with a view towards developing appropriate
new benefit plans for the employees covered thereby subsequent to the Mergers
in substantial conformance with the Professionals Group Benefit Plans in effect
as of the later of the INSCO Effective Time and the PICOM Effective Time, in
replacement and substitution for the PPTF Benefit Plans which shall be
cancelled, terminated or frozen to the extent permitted by applicable law. It
is the intention of Professionals Group and PPTF to develop such new benefit
plans, effective as of the later of the INSCO Effective Time and the PICOM
Effective Time, which, among other things, (i) treat similarly situated
employees on a substantially equivalent basis, taking into account all relevant
factors, including duties, geographic location, tenure, qualifications and
abilities, and (ii) do
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not discriminate between employees who were covered by Professionals Group
Benefit Plans, on the one hand, and those covered by PPTF Benefit Plans, on the
other, prior to the later of the INSCO Effective Time and the PICOM Effective
Time, but (iii) with the overall view that the PPTF Benefit Plans would be
cancelled, terminated or frozen, and replaced by the Professionals Group
Benefit Plans for times following the later of the INSCO Effective Time and the
PICOM Effective Time to the extent permitted by applicable law.
(b) Nothing in this Section 6.8 shall be interpreted as preventing
Professionals Group from amending, modifying or terminating any Professionals
Group Benefit Plans, PPTF Benefit Plans, or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
6.9 Indemnification; Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including any such claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the later of the INSCO Effective Time and
the PICOM Effective Time, a director or trustee or officer or employee
Professionals Group or any Subsidiary of Professionals Group or of PPTF or the
PPTF Subsidiary, including any entity specified in the Professionals Group
Disclosure Schedule or the PPTF Disclosure Schedule (the "Indemnified
Parties"), is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that
he is or was a director, trustee, officer or employee of Professionals Group or
any Subsidiary of Professionals Group or PPTF, the PPTF Subsidiary or any
entity specified in the Professionals Group Disclosure Schedule or the PPTF
Disclosure Schedule, or any of their respective predecessors or (ii) this
Agreement or any of the transactions contemplated by this Agreement or thereby,
whether in any case asserted or arising before or after the INSCO Effective
Time, the parties hereto agree to cooperate and use their best efforts to
defend against and respond thereto. It is understood and agreed that after the
INSCO Effective Time, Professionals Group shall indemnify and hold harmless, as
and to the fullest extent permitted by law (and, as relates to acts or times
prior to the Effective Time, to the fullest extent permitted under applicable
law at such time, including the provisions of Section 5(k) of PPTF's Amended
Trust Agreement dated January 1, 1987), each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorney's fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law upon receipt of any undertaking required by applicable
law), judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or investigation, and
in the event of any such threatened or actual claim, action, suit, proceeding
or investigation (whether asserted of arising before or after the INSCO
Effective Time), the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Professionals Group; provided,
however, that (A) Professionals Group shall have the right to assume the
defense thereof and upon such assumption Professionals Group shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection
with the defense thereof, except that if Professionals Group elects not to
assume such defense the Indemnified Party may retain counsel reasonably
satisfactory to him after consultation with Professionals Group, and
Professionals Group shall pay the reasonable fees and expenses of such counsel
for the Indemnified Party, (B) Professionals Group shall be obligated pursuant
to this paragraph to pay for only one firm of counsel for all Indemnified
Parties except to the extent representation by a single firm or attorney is, in
the absence of an informed consent by the Indemnified Party, prohibited by
ethical rules relating to lawyers' conflicts of interest, (C) Professionals
Group shall
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not be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld), (D) Professionals Group
shall have no obligation hereunder to any Indemnified Party when and if a court
of competent jurisdiction shall ultimately determine, and such determination
shall have become final and nonappealable, that indemnification of such
Indemnified Party in the manner contemplated by this Agreement is prohibited by
applicable law and (E) Professionals Group shall have no obligation hereunder
to any Indemnified Party for which and to the extent payment is actually and
unqualifiedly made to such Indemnified Party under any insurance policy, any
other agreement for indemnification or otherwise. Any Indemnified Party
wishing to claim Indemnification under this Section 6.9, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify
Professionals Group thereof, provided that the failure to so notify shall not
affect the obligations of Professionals Group under this Section 6.9 except to
the extent such failure to notify materially prejudices Professionals Group.
Professionals Group's obligations under this Section 6.9 continue in full force
and effect for a period of six (6) years from the later of the INSCO Effective
Time and the PICOM Effective Time (or the period of the applicable statute of
limitations, if longer); provided, however, that all rights to indemnification
in respect of any claim (a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim.
(b) Professionals Group shall use its best efforts to cause the
individuals serving as officers and directors of PPTF, the PPTF Subsidiary or
any entity specified in the PPTF Disclosure Schedule immediately prior to the
INSCO Effective Time to be covered for a period of six (6) years from the later
of the INSCO Effective Time and the PICOM Effective Time (or the period of the
applicable statute of limitations, if longer) by the directors' and officers'
liability insurance policy maintained by PPTF or the PPTF Subsidiary (provided
that Professionals Group may substitute therefor policies of the same or
substantially similar coverage and amounts containing terms and conditions
which are not less advantageous in any material respect than such policy) with
respect to acts or omissions occurring prior to the INSCO Effective Time which
were committed by such officers and directors in their capacity as such;
provided, however, that in no event shall Professionals Group be required to
expend more than 200% of the current amount expended by PPTF or the PPTF
Subsidiary (the "Insurance Premium Amount") to maintain or procure insurance
coverage pursuant hereto; and provided, further, that if Professionals Group is
unable to maintain or obtain the insurance called for by this Section 6.9(b),
Professionals Group shall use its best efforts to obtain as much comparable
insurance as available for the Insurance Premium Amount.
(c) In the event Professionals Group or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of
Professionals Group assume the obligations set forth in this Section 6.9.
(d) The provisions of this Section 6.9 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
6.10 Additional Agreements.
(a) In case at any time prior to the INSCO Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement (including the incorporation of INSCO and obtaining authorization for
INSCO to transact business under the Michigan Insurance Code and the Florida
Insurance Code) or the Mergers, the proper officers and directors of each
party to this
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Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by, and at the sole expense of,
Professionals Group.
(b) In case at any time after the INSCO Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement
(including any merger between a Subsidiary of Professionals Group and a
Subsidiary of PPTF) or to vest Professionals Group 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 Mergers, 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, and at the sole expense of, Professionals Group.
(c) Prior to the INSCO Effective Time, neither PPTF nor the PPTF
Subsidiary shall acquire, directly or indirectly, beneficial or record
ownership of any shares of Professionals Group Common Stock or other equity
securities of Professionals Group, or any securities convertible into or
exercisable for any shares of Professionals Group Common Stock or other equity
securities of Professionals Group.
6.11 Advice of Changes. Professionals Group and PPTF 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 INSCO 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. 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. 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 Section 8 of this Agreement.
Professionals Group shall update the Professionals Group Disclosure Schedule
(the "Closing Date Professionals 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 Professionals Group Disclosure Schedule to PPTF no earlier than
six (6) business days prior to the Closing Date. PPTF shall update the PPTF
Disclosure Schedule (the "Closing Date PPTF 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 PPTF Disclosure Schedule to Professionals Group no earlier
than six (6) business days prior to the Closing Date.
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6.12 Professionals Group LTIP Awards. At any time prior to the Closing
Date, and pursuant to the terms of the Professionals Group LTIP, Professionals
Group may make Awards to Participants covering up to 150,000 shares of
Professionals Group Common Stock in the aggregate.
6.13 Negotiations with Other Parties.
(a) So long as this Agreement remains in effect and no notice of
termination has been given under this Agreement, neither Professionals Group,
on the one hand, nor PPTF, on the other hand, shall authorize or knowingly
permit any of its representatives, directly or indirectly, to initiate,
entertain, solicit, encourage, engage in, or participate in, negotiations with
any person or entity or any group of persons or entities other than the other
party to this Agreement or any of its affiliates (a "Potential Acquiror")
concerning any Acquisition Proposal (as defined in this Section 6.13) other
than pursuant to this Agreement. PPTF will promptly inform Professionals
Group, and Professionals Group will promptly inform PPTF, of any serious, bona
fide inquiry it may receive with respect to any Acquisition Proposal and each
shall furnish to the other a copy thereof.
(b) Nothing contained in this Agreement shall prohibit
Professionals Group or its Board of Directors from making such disclosures to
its stockholders as are required under applicable law or the rules of the NASD
or the Nasdaq National Market. Nothing contained in this Agreement shall
prohibit the Board of Directors of Professionals Group from furnishing
information to, or entering into discussions or negotiations with, any person
or entity that makes a Acquisition Proposal if: (A) the Board of Directors of
Professionals Group, after consultation with and receiving the advice of its
legal counsel and financial advisors, determines in good faith that such action
is necessary or required for the Board of Directors of Professionals Group to
comply with its fiduciary duties to its stockholders under applicable law or
its Articles of Incorporation or Bylaws, (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, Professionals Group discloses to PPTF that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, which notice shall describe the terms thereof (but need not identify
the person or entity making the offer), (C) prior to furnishing such
information to such person or entity, Professionals Group receives from such
person or entity an executed confidentiality agreement, and (D) Professionals
Group keeps PPTF informed promptly of the status (including the terms, but any
disclosure of terms shall be covered by a confidentiality agreement) of any
such discussions or negotiations (provided that, Professionals Group shall not
be required to disclose to PPTF confidential information concerning the
business or operations of the person or entity making the expression of
interest). Subject to the preceding sentence, the Board of Directors of
Professionals Group may approve and recommend to the stockholders of
Professionals Group an Acquisition Proposal from a Potential Acquiror.
(c) Nothing contained in this Agreement shall prohibit PPTF or its
Board of Trustees from making such disclosures to its Eligible Members as are
required under the Florida Insurance Code and the FBCA. Nothing contained in
this Agreement shall prohibit the Board of Trustees of PPTF from furnishing
information to, or entering into discussions or negotiations with, any person
or entity that makes a Acquisition Proposal if: (A) the Board of Trustees of
PPTF, after consultation with and receiving the advice of its legal counsel and
financial advisors, determines in good faith that such action is necessary or
required for the Board of Trustees of PPTF to comply with its fiduciary duties
to its Eligible Members under applicable law or the PPTF Charter Documents, (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, PPTF discloses to Professionals Group
that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity, which notice shall describe the terms
thereof (but need not identify the person or entity making the offer), (C)
prior to furnishing such information to such person or entity, PPTF
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receives from such person or entity an executed confidentiality agreement, and
(D) PPTF keeps Professionals Group informed promptly of the status (including
the terms, but any disclosure of terms shall be covered by a confidentiality
agreement) of any such discussions or negotiations (provided that, PPTF shall
not be required to disclose to Professionals Group confidential information
concerning the business or operations of the person or entity making the
expression of interest). Subject to the preceding sentence, the Board of
Trustees of PPTF may approve and recommend to the Voting Members of PPTF an
Acquisition Proposal from a Potential Acquiror.
(d) 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 Professionals Group or PPTF, would acquire or
participate in a merger or other business combination involving Professionals
Group or any of the Professionals Group Subsidiaries, on the one hand, or PPTF
or the PPTF Subsidiary, on the other hand, directly or indirectly; (ii)
proposal by which any corporation, partnership, person or other entity or
group, other than Professionals Group or PPTF, would acquire the right to vote
10% or more of the capital stock of Professionals Group or any of the
Professionals Group Subsidiaries, on the one hand, or PPTF or the PPTF
Subsidiary, on the other hand, entitled to vote thereon for the election of
directors; (iii) acquisition of 10% or more of the assets of Professionals
Group or any of the Professionals Group Subsidiaries, on the one hand, or PPTF
or the PPTF Subsidiary, on the other hand, other than in the ordinary course of
business; or (iv) acquisition in excess of 10% of the outstanding capital stock
of Professionals Group or any of the Professionals Group Subsidiaries, on the
one hand, or PPTF or the PPTF Subsidiary, on the other hand, other than as
contemplated by this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Mergers. The
respective obligation of each party to effect the Mergers shall be subject to
the satisfaction at or prior to each of the INSCO Effective Time and the PICOM
Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated by this
Agreement shall have been approved and adopted by the requisite affirmative
vote of the holders of Professionals Group Common Stock entitled to vote
thereon.
(b) This Agreement and the transactions contemplated by this
Agreement shall have been approved and adopted by the requisite affirmative
vote of the Voting Members of PPTF entitled to vote thereon.
(c) The shares of Professionals Group Common Stock which shall be
issued to the Eligible Members of PPTF upon consummation of the INSCO Merger
shall have been authorized for trading and reporting on the Nasdaq National
Market, subject to official notice of issuance.
(d) The INSCO Certificate of Merger and the PICOM Certificates of
Merger shall have been filed with the appropriate Governmental Entities
immediately prior to the Closing.
(e) 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
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which in the reasonable judgment of Professionals Group is materially
burdensome upon Professionals Group or its Subsidiaries (all such approvals and
the expiration of all such waiting periods being referred to in this Agreement
as the "Requisite Regulatory Approvals"). Without limiting the generality of
the foregoing: (i) the S-4 shall have become effective under the Securities
Act, and no stop order suspending the effectiveness of the S-4 shall have been
issued and shall remain in effect and no proceedings for that purpose shall
have been initiated or threatened by the SEC; (ii) all Blue Sky Filings shall
have been made, and the sale of Professionals Group Stock resulting from the
INSCO 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; (iii) 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 (iv) the
Mergers and the transfer of ownership of PPTF and the PPTF Subsidiary shall
have been approved by the Michigan Insurance Commissioner, the Florida
Insurance Department, and the insurance departments of all states in which
PPTF, Professionals Group and any Subsidiaries of either of them conduct
business, to the extent such approvals are required.
(f) No order, injunction or decree issued by any Governmental
Entity of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers 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 Mergers.
(g) Professionals Group and PPTF each shall have received an
opinion of their respective tax counsel, addressed to Professionals Group or
PPTF, as the case may be, in form and substance reasonably satisfactory to
Professionals Group and PPTF, dated as of the INSCO Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the INSCO Effective Time:
(i) The Mergers will constitute a tax free reorganization
under Section 368(a)(1)(A) of the Code and Professionals Group and PPTF
will each be a party to the reorganization;
(ii) No gain or loss will be recognized by Professionals Group
or PPTF as a result of the Mergers; and
(iii) No gain or loss will be recognized by the Eligible
Members of PPTF who exchange their PPTF Membership Rights solely for
Professionals Group Common Stock pursuant to the INSCO Merger (except
with respect to cash received in lieu of a fractional share interest in
Professionals Group Common Stock).
In rendering such opinion, counsel may require and rely upon representations
contained in certificates of officers of Professionals Group, PPTF and others.
(h) Professionals Group and PPTF shall each have received letters,
effective as of the INSCO Effective Time and the PICOM Effective Time, from
their respective independent accountants addressed to Professionals Group or
PPTF, as the case may be, to the effect that each of the Mergers will qualify
for "pooling of interests" accounting treatment.
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(i) INSCO shall have been duly incorporated under the Florida
Insurance Code and shall be authorized to transact business in the State of
Michigan under and pursuant to the Michigan Insurance Code and in the State of
Florida under and pursuant to the Florida Insurance Code.
(j) The percentage interests of those PPTF Voting Members
perfecting their dissenters' rights under applicable law, when aggregated,
shall not exceed 10% of the percentage interests of all PPTF Eligible Members
as a whole.
7.2 Conditions to Obligation of Professionals Group. The obligation of
Professionals Group to effect the Mergers is also subject to the satisfaction
or waiver by Professionals Group at or prior to the INSCO Effective Time of the
following conditions:
(a) The representations and warranties of PPTF 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 PPTF
Disclosure Schedule that are disclosed by PPTF to Professionals Group in the
Closing Date PPTF Disclosure Schedule) as of the Closing Date as though made on
and as of the Closing Date. Professionals Group shall have received a
certificate signed on behalf of PPTF by the Chief Executive Officer and the
Chief Financial Officer of PPTF to the foregoing effect, and to which any
Closing Date PPTF Disclosure Schedule shall be appended.
(b) PPTF 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 Professionals Group shall have received a certificate
signed on behalf of PPTF by the Chief Executive Officer and the Chief Financial
Officer of PPTF to such effect.
(c) Professionals Group shall have received from KPMG Peat Marwick
LLP, accountants to PPTF, a letter, dated the Closing Date, addressed to
Professionals Group and satisfactory to Professionals Group, to the effect that
(i) they are the independent public accountants with respect to PPTF within the
meaning of the Securities Act and the rules and regulations promulgated
thereunder; (ii) on the basis of certain procedures specified in the letter and
reasonably acceptable to Professionals Group, not constituting an audit,
nothing came to their attention that caused them to believe that: (A) the
unaudited most recent financial statements of PPTF delivered to Professionals
Group pursuant to Section 4.6(a) of this Agreement are not stated on a basis
substantially consistent with that of the audited most recent financial
statements of PPTF delivered to Professionals Group pursuant to Section 4.6 of
this Agreement; and (B) as of a specified date not more than five (5) days
prior to the date of such letter, there has been no increase in the long-term
debt of PPTF or the PPTF Subsidiary of greater than 10%, as compared with the
long-term debt of PPTF or the PPTF Subsidiary at December 31, 1996, or any
increase in the outstanding equity interests of the PPTF Subsidiary, or any
decrease in PPTF's capital and surplus of greater than 10%, as compared with
capital and surplus at December 31, 1996 (all as calculated in accordance with
GAAP). Professionals Group shall have no obligation to PPTF or any other
person or entity to waive, in whole or in part, delivery of any such letter or
the request that it contain any given information.
(d) PPTF and the PPTF Subsidiary, taken as a whole, shall not have
suffered a material adverse change in their businesses, assets, properties,
operations or condition (financial or otherwise); and no event or circumstance
shall have occurred which has, or is likely to have, a Materially Adverse
Effect on PPTF or upon the right of PPTF or the PPTF Subsidiary to conduct
their respective businesses as presently conducted.
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(e) PPTF shall have delivered to Professionals Group an opinion,
dated the Closing Date, of counsel for PPTF, satisfactory to Professionals
Group and its counsel, to the effect set forth on Exhibit E to this Agreement.
Such opinion shall also cover such other matters incident to the transactions
herein contemplated as Professionals Group and its counsel may reasonably
request. In rendering their opinion, counsel to PPTF may rely on certificates
of officers of PPTF, opinions of other counsel, the authenticity of all
signatures on documents believed to be genuine and such other evidence as they
may deem necessary or desirable.
(f) Professionals Group shall have received favorable opinions
from Cochran, Caronia & Co. and McDonald & Company Securities, Inc. in
connection with the deliberations of its Board of Directors approving this
Agreement and confirmed at or about the time the S-4 is declared effective and
the Joint Proxy Statement is distributed that consummation of the Mergers and
the other transactions contemplated by this Agreement upon the terms and
conditions provided in this Agreement is fair to the stockholders of
Professionals Group from a financial point of view.
(g) The capital and surplus of PPTF as of the last day of the
calendar month immediately preceding the Closing Date (the "PPTF Determination
Date") shall be not less than $91,979,603. Said capital and surplus shall be
calculated in accordance with GAAP; provided, however, that investments shall
be valued at their amortized cost on the PPTF Determination Date.
Professionals Group shall receive a certificate to said effect executed by the
President and Chief Executive Officer of PPTF.
(h) PPTF shall have delivered to Professionals Group such other
certificates and instruments as Professionals Group and its counsel may
reasonably request. The form and substance of all certificates, instruments,
opinions and other documentation delivered to Professionals Group under this
Agreement shall be reasonably satisfactory to Professionals Group and its
counsel.
7.3 Conditions to Obligation of PPTF. The obligation of PPTF to effect
the Mergers is also subject to the satisfaction or waiver by PPTF at or prior
to the INSCO Effective Time of the following conditions:
(a) The representations and warranties of Professionals Group 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 Professionals Group Disclosure Schedule that are disclosed by
Professionals Group to PPTF in the Closing Date Professionals Group Disclosure
Schedule) as of the Closing Date as though made on and as of the Closing Date.
PPTF shall have received a certificate signed on behalf of Professionals Group
by the Chief Executive Officer and the Chief Financial Officer of Professionals
Group to the foregoing effect, and to which any Closing Date Professionals
Group Disclosure Schedule shall be appended.
(b) Professionals 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 PPTF shall have received a certificate signed
on behalf of Professionals Group by the Chief Executive Officer and the Chief
Financial Officer of Professionals Group to such effect.
(c) PPTF shall have received from KPMG Peat Marwick LLP,
accountants to Professionals Group, a letter, dated the Closing Date, addressed
to PPTF and satisfactory to PPTF, to the effect that (i) they are the
independent public accountants with respect to Professionals Group within the
meaning of the Securities Act and the rules and regulations promulgated
thereunder; (ii) on the basis
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of certain procedures specified in the letter and reasonably acceptable to
PPTF, not constituting an audit, nothing came to their attention that caused
them to believe that: (A) the unaudited most recent financial statements of
Professionals Group delivered to PPTF pursuant to Section 3.6(a) of this
Agreement are not stated on a basis substantially consistent with that of the
audited most recent financial statements of Professionals Group delivered to
PPTF pursuant to Section 3.6(a) of this Agreement; and (B) as of a specified
date not more than five (5) days prior to the date of such letter, there has
been no increase in the consolidated long-term debt of Professionals Group, as
compared with the consolidated long-term debt of Professionals Group at
December 31, 1996 (other than indebtedness incurred under and pursuant to the
U.S. $22,500,000 Credit Agreement dated as of April 4, 1997 between
Professionals Group and LaSalle National Bank), or any increase in the
outstanding capital stock of Professionals Group or any Professionals Group
Subsidiary (other than as contemplated by this Agreement) as compared with
capital stock of Professionals Group at December 31, 1996, or any decrease in
Professional Group's consolidated stockholders' equity of greater than 10%, as
compared with consolidated stockholders' equity at December 31, 1996 (all as
calculated in accordance with GAAP. PPTF shall have no obligation to
Professionals Group or any other person to waive, in whole or in part, delivery
of any such letter or the request that it contain any given information.
(d) Professionals Group and its Subsidiaries, taken as a whole,
shall not have suffered a material adverse change in their financial condition,
operations, assets, or business prospects; and no event or circumstance shall
have occurred which has, or is likely to have, a Materially Adverse Effect on
Professionals Group or upon the right of Professionals Group or any of the
Professionals Group Subsidiaries to conduct their respective businesses as
presently conducted.
(e) Professionals Group shall have delivered to PPTF an opinion,
dated the Closing Date, of counsel for Professionals Group, satisfactory to
PPTF and its counsel, to the effect set forth on Exhibit F to this Agreement.
Such opinion shall also cover such other matters incident to the transactions
herein contemplated as PPTF and its counsel may reasonably request. In
rendering their opinion, counsel to Professionals Group may rely on
certificates of officers of Professionals Group, opinions of other counsel, the
authenticity of all signatures on documents believed to be genuine and such
other evidence as they may deem necessary or desirable.
(f) PPTF shall have received the favorable opinion from Donaldson,
Lufkin & Jenrette Securities Corporation in connection with the deliberations
of its Board of Trustees approving this Agreement and confirmed at or about the
time the S-4 is declared effective and the Joint Proxy Statement is distributed
that consummation of the Mergers and the other transactions contemplated by
this Agreement upon the terms and conditions provided in this Agreement is fair
to the Eligible Members of PPTF from a financial point of view.
(g) The book value of Professionals Group as of the last day of
the calendar month immediately preceding the Closing Date (the "Professionals
Group Determination Date") shall be not less than $79,162,000. Said capital
and surplus shall be calculated in accordance with GAAP; provided, however,
that investments shall be valued at their amortized cost on the Professionals
Group Determination Date. PPTF shall receive a certificate to said effect
executed by the President and Chief Executive Officer of Professionals Group.
(h) Professionals Group and PICOM shall have executed the
Assignment and Assumption Agreement.
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(i) Professionals Group shall have delivered to PPTF such other
certificates and instruments as PPTF and its counsel may reasonably request.
The form and substance of all certificates, instruments and other documentation
delivered to PPTF under this Agreement shall be reasonably satisfactory to PPTF
and its counsel.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the INSCO Effective Time, whether before or after approval of the matters
presented in connection with the Mergers by the stockholders of Professionals
Group and the Voting Members of PPTF:
(a) by mutual consent of Professionals Group and PPTF in a written
instrument, if the Board of Directors of Professionals Group and the Board of
Trustees of PPTF so determines by an affirmative vote of a majority of the
members of its entire Board;
(b) by either Professionals Group or PPTF if (i) any Governmental
Entity which must grant a Requisite Regulatory Approval has denied approval of
either one or both of the Mergers 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 Professionals Group or the Board
of Trustees of PPTF, as the case may be, so determines by an affirmative vote
of a majority of the members of its entire Board;
(c) by either Professionals Group or PPTF if (i) the INSCO Merger
shall not have been consummated on or before April 1, 1998, unless the failure
of the INSCO 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 Professionals Group or the Board of Trustees of PPTF,
as the case may be, so determines by an affirmative vote of a majority of the
members of its entire Board;
(d) by either Professionals Group or PPTF (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in this Agreement) if (i) there
shall have been a material breach of any of the covenants or agreements or any
of the representations or warranties set forth in this Agreement on the part of
the other party, which breach is not cured within forty-five (45) days
following written notice to the party committing such breach, or which breach,
by its nature or timing, cannot be cured prior to the Closing Date, and (ii)
the Board of Directors of Professionals Group or the Board of Trustees of PPTF,
as the case may be, so determines by an affirmative vote of a majority of the
members of its entire Board;
(e) by Professionals Group upon written notice to PPTF if the
Board of Trustees of PPTF does not, or shall indicate to Professionals Group
that it is unwilling or unable to, publicly recommend in the Joint Proxy
Statement that its Voting Members approve and adopt this Agreement, or if after
recommending in the Joint Proxy Statement that its Voting Members approve and
adopt this Agreement, the Board of Trustees of PPTF shall have withdrawn,
modified or amended such recommendation in any respect materially adverse to
Professionals Group, provided that any such notice of termination must be given
not later than 45 days after the later of the date Professionals Group shall
have been advised by PPTF in writing that it is unable or unwilling to so
recommend in the Joint Proxy
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Statement or that it has withdrawn, modified or amended such recommendation, or
such later date as may be agreed upon by Professionals Group and PPTF;
(f) by PPTF upon written notice to Professionals Group if the
Board of Directors of Professionals Group does not, or shall indicate to PPTF
that it is unwilling or unable to, publicly recommend in the Joint Proxy
Statement that its stockholders approve and adopt this Agreement, or if after
recommending in the Joint Proxy Statement that its stockholders approve and
adopt this Agreement, the Board of Directors of Professionals Group shall have
withdrawn, modified or amended such recommendation in any respect materially
adverse to PPTF, provided that any such notice of termination must be given not
later than 45 days after the later of the date PPTF shall have been advised by
Professionals Group in writing that it is unable or unwilling to so recommend
in the Joint Proxy Statement or that it has withdrawn, modified or amended such
recommendation, or such later date as may be agreed upon by Professionals Group
and PPTF;
(g) by Professionals Group upon written notice to PPTF if PPTF
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 Professionals Group or PICOM to effect an
Acquisition Proposal or shall fail to publicly oppose a tender offer or
exchange offer by another person or entity based on an Acquisition Proposal;
(h) by PPTF upon written notice to Professionals Group if
Professionals 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 PPTF to effect an
Acquisition Proposal or shall fail to publicly oppose a tender offer or
exchange offer by another person or entity based on an Acquisition Proposal;
(i) by either Professionals Group or PPTF if any approval of the
stockholders of Professionals Group or any approval of the Voting Members of
PPTF required for the consummation of the Mergers shall not have been obtained
by reason of the failure to obtain the required vote at a duly held meeting of
stockholders or Voting Members or at any adjournment or postponement thereof;
(j) by either Professionals Group or PPTF if any of the conditions
specified by Article VII of this Agreement to the obligation of the terminating
party have not been satisfied on the Closing Date; or
(k) by Professionals Group if the Closing Date PPTF Disclosure
Schedule discloses any change from the PPTF Disclosure Schedule which has, or
is likely to have, a Material Adverse Effect on PPTF; or by PPTF if the Closing
Date Professionals Group Disclosure Schedule discloses any change from the
Professionals Group Disclosure Schedule which has, or is likely to have, a
Material Adverse Effect on Professionals Group.
8.2 Effect of Termination. In the event of termination of this Agreement
by either Professionals Group or PPTF 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(b), 8.2, 8.5, 9.2, 9.3, 9.5, 9.13 and 9.16 of this
Agreement shall survive any termination of this Agreement, and (ii) none of
Professionals Group, PICOM, INSCO, PPTF, any of their respective Subsidiaries
or any of the officers or directors or trustees 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
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contained in this Agreement, neither Professionals Group nor PPTF shall be
relieved or released from any liabilities or damages arising out of its willful
breach of any 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 Professionals Group and the Board of Trustees of
PPTF, at any time before or after approval of the matters presented in
connection with the Mergers by the stockholders of Professionals Group or the
Voting Members of PPTF; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of
Professionals Group or the Voting Members of PPTF, there may not be, without
further approval of such stockholders or Voting Members, any amendment of this
Agreement which changes the amount or the form of the consideration to be
delivered to the Eligible Members of PPTF under this Agreement other than as
contemplated by this Agreement. 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 INSCO 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; provided, however, that after any
approval of the transactions contemplated by this Agreement by the stockholders
of Professionals Group or the Voting Members of PPTF, there may not be, without
further approval of such stockholders or Voting Members, as applicable, any
extension or waiver of this Agreement or any portion thereof which reduces the
amount or changes the form of the consideration to be delivered to the Eligible
Members of PPTF under this Agreement other than as contemplated by 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.
(a) Notwithstanding anything to the contrary contained in this
Agreement, in the event that any of the following events or circumstances shall
occur, PPTF shall, within ten (10) days after notice of the occurrence thereof
by Professionals Group, pay to Professionals Group the sum equal to $3,000,000
plus all out-of-pocket expenses of Professionals Group, which the parties agree
and stipulate as reasonable and full liquidated damages and reasonable
compensation for the involvement of Professionals Group 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 a PPTF Acquisition Event (as defined in this
Section 8.5(a)) shall occur; or (ii) PPTF shall terminate this Agreement
pursuant to Section 8.1(e) or (g) or if PPTF fails to call and hold the meeting
of its Voting Members as required by Section 6.4 of this Agreement. For
purposes of this Agreement a "PPTF Acquisition Event" shall mean that PPTF
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 any of the parties to this Agreement) to effect an
Acquisition Proposal or shall fail to publicly oppose a tender offer or
exchange offer by another person based on an Acquisition Proposal. Upon the
making and receipt of such payment under this Section 8.5, PPTF shall have no
further obligation of any kind under this Agreement and neither Professionals
Group nor PICOM shall have any further obligation of any kind under this
Agreement, except in each case under Section 8.2
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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.
(b) Notwithstanding anything to the contrary contained in this
Agreement, in the event that any of the following events or circumstances shall
occur, Professionals Group shall, within ten (10) days after notice of the
occurrence thereof by PPTF, pay to PPTF the sum equal to $3,000,000 plus all
out-of-pocket expenses of PPTF, which the parties agree and stipulate as
reasonable and full liquidated damages and reasonable compensation for the
involvement of PPTF 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 a Professionals
Group Acquisition Event (as defined in this Section 8.5(b)) shall occur; or
(ii) Professionals Group shall terminate this Agreement pursuant to Section
8.1(f) or (h) or if Professionals Group fails to call and hold the meeting of
its stockholders as required by Section 6.3 of this Agreement. For purposes of
this Agreement a "Professionals Group Acquisition Event" shall mean that
Professionals 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 (other than any of the parties to this
Agreement) to effect an Acquisition Proposal or shall fail to publicly oppose a
tender offer or exchange offer by another person based on an Acquisition
Proposal. Upon the making and receipt of such payment under this Section 8.5,
Professionals Group shall have no further obligation of any kind under this
Agreement and PPTF 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.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Mergers (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
January 1, 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 VII of this Agreement, unless extended by mutual agreement of the
parties (the "Closing Date").
9.2 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the INSCO
Effective Time, except as otherwise provided in Section 8.2 of this Agreement
and except for those covenants and agreements contained in this Agreement and
in any such instrument which by their terms apply in whole or in part after the
INSCO Effective Time.
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 the party
incurring such expense; provided, however, (i) that the costs and expenses of
printing and mailing the Joint Proxy Statement, and all filing and other fees
paid to the SEC in connection with the Mergers, shall be borne equally by
Professionals Group and PPTF, and (ii) that Professionals Group will pay
one-half and PPTF will pay one-half of the HSR Act filing fee.
9.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified
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mail (return receipt requested) or delivered by an express courier (with
confirmation) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Professionals Group, or PICOM and/or INSCO to:
Professionals Insurance Company Management Group
4295 Okemos Road
Okemos, Michigan 48805
Attention: Victor T. Adamo
Fax: (517) 349-3127
with copies to:
Miller, Canfield, Paddock and Stone, P.L.C.
1400 N. Woodward Ave., Suite 100
Bloomfield Hills, Michigan 48304
Attention: Brad B. Arbuckle, Esq.
Fax: (248) 258-3036
and
(b) if to PPTF, to:
Physicians Protective Trust Fund
2121 Ponce de Leon Boulevard
Coral Gables, Florida 33114
Attention: Steven L. Salman
Fax: (305) 442-7431
with copies to:
Steel Hector & Davis LLP
1900 Phillips Point West
777 South Flagler Drive
West Palm Beach, Florida 33401
Attention: Thomas G. O'Brien III, Esq.
Fax: (561) 655-1509
9.5 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 Michigan, County of Ingham or the United States District
Court for the Western District of Michigan for Professionals Group and PICOM,
and the State of Florida, County of Dade or the United States District Court
for the Southern District of Florida for PPTF), 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.
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<PAGE> 63
9.6 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.
9.7 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.
9.8 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.
9.9 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.
9.10 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". No provision
of this Agreement shall be construed to require Professionals Group, PPTF or
any of their respective Subsidiaries or affiliates to take any action which
would violate any applicable law, rule or regulation.
9.11 Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.12 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.
9.13 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Michigan, without regard to any
applicable conflicts of law principles.
9.14 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
-71-
<PAGE> 64
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.
9.15 Publicity. Except as otherwise required by applicable law or the
rules of the NASD and the Nasdaq National Market, neither Professionals Group
nor PPTF 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.
9.16 Assignment; Third Party Beneficiaries. Neither this Agreement nor
any of the rights, interests or obligations shall be assigned by any of the
parties to this Agreement (whether by operation of law or otherwise) without
the prior written consent of the other parties to this Agreement. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns. Except as otherwise specifically provided in Section 6.9, 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.
9.17 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE> 65
IN WITNESS WHEREOF, Professionals Group, PICOM, and PPTF have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
PROFESSIONALS INSURANCE COMPANY
MANAGEMENT GROUP, a Michigan
business corporation
By: /s/ W. Peter McCabe
---------------------------------
W. Peter McCabe, M.D.
Chairman
and: /s/ Victor T. Adamo
---------------------------------
Victor T. Adamo, Esq.
President and Chief Executive
Officer
PICOM INSURANCE COMPANY, a Michigan
stock insurance company
By: /s/ W. Peter McCabe
---------------------------------
W. Peter McCabe, M.D.
Chairman
and: /s/ Victor T. Adamo
---------------------------------
Victor T. Adamo, Esq.
President and Chief Executive
Officer
PHYSICIANS PROTECTIVE TRUST FUND,
a medical malpractice self-
insurance trust fund organized
under Florida Statutes Section 627.357
By: /s/ Eliot H. Berg
---------------------------------
Eliot H. Berg, M.D.
Chairman
and: /s/ Steven L. Salman
---------------------------------
Steven L. Salman, Esq.
President and Chief Executive
Officer
-73-
<PAGE> 66
SCHEDULE OF EXHIBITS
--------------------
Exhibit A - Certain Definitions, Allocation Formula and Related
Provisions
Exhibit B - Lists of PPTF Trustee Participants and PPTF
Officers
Exhibit C - Assignment and Assumption Agreement
Exhibit D - Affiliate Letter Agreement
Exhibit E - Opinion of PPTF Counsel
Exhibit F - Opinion of Professionals Group Counsel
<PAGE> 67
EXHIBIT A
CERTAIN DEFINITIONS,
ALLOCATION FORMULA AND RELATED PROVISIONS
CERTAIN DEFINITIONS:
As used in this Agreement, the words and phrases that follow, wherever
capitalized in this Agreement, shall have the respective meanings that follow:
"Eligible Member" means an owner of an insurance policy or indemnity
agreement issued by PPTF who owned such insurance policy or indemnity
agreement during the period beginning August 14, 1994 (three years prior
the date of this Agreement) and ending on the record date for the meeting
of Voting Members of PPTF to be called pursuant to Section 6.4 of this
Agreement.
"Membership Rights" shall mean the rights of Eligible Members of
PPTF arising under the organizational documents thereof, the Florida
Insurance Code and otherwise (including the right to vote for trustees
and on other matters and to participate in any distribution of surplus on
liquidation, but not necessarily including contractual rights (including
the rights to be paid insurance benefits) arising under insurance
policies or indemnity agreements issued by PPTF).
"Voting Member" means a member of PPTF (as such term is used in the
Florida Insurance Code in reference to members of a medical malpractice
self-insurance trust fund).
ALLOCATION FORMULA:
A-1
<PAGE> 68
EXHIBIT B
LISTS OF PPTF TRUSTEE PARTICIPANTS AND PPTF OFFICERS
<TABLE>
<CAPTION>
Number of Shares of
Professionals Group
PPTF Trustee Participants Common Stock
- ------------------------- -------------------
<S> <C>
Eliot H. Berg, M.D. 13,597
Louis P. Brady, M.D. 9,159
Richard G. Alper, M.D. 8,806
Kerry M. Schwartz, M.D. 8,806
Hubert G. Marinez, M.D. 8,806
George A. Segal, M.D. 8,806
Robert S. Tolmach, M.D. 8,806
Joseph C. Cauthen, M.D. 8,806
Edward S. Truppman, M.D. 8,806
Jack Wolfsdorf, M.D. 8,806
</TABLE>
<TABLE>
<CAPTION>
Number of Shares of
Professionals Group
PPTF Officers Common Stock
- ------------- -------------------
<S> <C>
Steven Salman 35,224
Bob White 8,806
Bill Baxter 7,486
Peggy Schemenauer 3,523
Gregg Hanson 3,523
John Hastie 881
David Goss 353
</TABLE>
B-1
<PAGE> 69
EXHIBIT C
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (the "Agreement") among
Physicians Protective Trust Fund (the "Company"), Professionals Insurance
Company Management Group ("Professionals Group"), PICOM Insurance Company
("PICOM") and Steven L. Salman (the "Executive") is effective as of
_____________, 199__.
WITNESSETH:
WHEREAS, the Company and the Executive entered into an Employment
Agreement effective as of October 1, 1996 (the "Executive Agreement"); and
WHEREAS, on the Effective Date of this Agreement, the Company is being
merged with and into PICOM, a wholly-owned subsidiary of Professionals Group;
and
WHEREAS, capitalized terms not otherwise defined in this Agreement shall
have the meanings given to them in the Agreement and Plan of Merger dated
August 14, 1997 among Professionals Group, PICOM and the Company.
NOW, THEREFORE, for other good and valuable consideration (the receipt and
sufficiency of which is hereby acknowledged), the parties hereto agree as
follows:
1. The term of the Executive's employment under the Executive Agreement
is hereby extended from September 30, 2001 to January 31, 2002.
2. Professionals Group hereby expressly assumes the obligations of the
Company under the Executive Agreement. Professionals Group hereby guarantees
the performance of all obligations of the Company under the Executive
Agreement. To the fullest extent permitted under the Michigan Insurance Code
of 1956, as amended (the "Michigan Insurance Code"), PICOM hereby expressly
assumes the obligations of the Company under the Executive Agreement; provided,
however, that to the extent that PICOM is prohibited under the Michigan
Insurance Code from assuming or performing the obligations of the Company under
the Michigan Insurance Code, PICOM shall not be bound or obligated under the
Executive Agreement.
3. The Executive's job title will be President and Chief Executive
Officer of PICOM. The Executive shall be a member of the Board of Directors of
PICOM. The Executive will report directly to, and work at the direction of,
the Board of Directors of PICOM. The Executive's duties (a) generally will
include management of and strategic planning for PICOM, and other duties
assigned to the Executive by the Board of Directors of PICOM, and (b) may
change from time to time on reasonable notice based on the needs of PICOM and
the Executive's skills, consistent with the Executive's background and
experience, as determined by the Board of Directors of PICOM. Upon execution
of this Agreement, Executive shall be appointed to the Board of Directors of
Professionals Group and to the position of Chief Operating Officer of
Professionals Group. Notwithstanding anything to the contrary express or
implied in this Agreement or the Executive Agreement, in the event that any of
the Executive's duties, positions or activities at Professionals Group or PICOM
are inconsistent with any legal obligations of Executive under prior
non-competition agreements of Executive, then such duties, positions or
activities shall be
C-1
<PAGE> 70
modified so as to eliminate any such inconsistency; provided, however, that
there shall be no reduction in Executive's compensation under this Agreement or
the Executive Agreement.
4. In consideration of the Executive's covenants in the Executive
Agreement and in this Assignment and Assumption Agreement, Professionals Group
agrees to issue and deliver to the Executive 28,180 shares of Professionals
Group Common Stock in four equal and annual installments. Annual delivery of
shares of Professionals Group Common Stock shall be made to the Executive on
each of the next four anniversaries of this Agreement. The stock shall be
[fully/not] registered with the Securities and Exchange Commission and shall
[not] be freely tradeable by the Executive. The Executive agrees to comply
with all securities laws in connection with the retention, sale or disposition
of Professionals Group Common Stock received pursuant to this Agreement.
5. In all other respects, the Executive Agreement is ratified and
confirmed.
PHYSICIANS PROTECTIVE
TRUST FUND
By _____________________________ _______________________________
Eliot H. Berg, M.D. Steven L. Salman, individually
Chairman of the Board
PROFESSIONALS INSURANCE COMPANY
MANAGEMENT GROUP
By _____________________________
Victor T. Adamo
President and Chief
Executive Officer
PICOM INSURANCE COMPANY
By _____________________________
Victor T. Adamo
President and
Chief Executive Officer
C-2
<PAGE> 71
EXHIBIT D
FORM OF AFFILIATE LETTER AGREEMENT
Professionals Insurance Company Management Group
PICOM Insurance Company
c/o PICOM Insurance Company
4295 Okemos Road
Okemos, Michigan 48805
Attention: Victor T. Adamo
and
Physicians Protective Trust Fund
2121 Ponce de Leon Boulevard
Coral Gables, Florida 33114
Attention: Steven L. Salman
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger dated as of August
14, 1997 (the "Merger Agreement"), by and among Professionals Insurance Company
Management Group, a Michigan business corporation ("Professionals Group"),
PICOM Insurance Company, a Michigan stock insurance company and wholly-owned
subsidiary of Professionals Group ("PICOM"), and Physicians Protective Trust
Fund, a medical malpractice self-insurance trust fund organized under Florida
statutes Section 627.357 ("PPTF") (All capitalized terms not otherwise defined
in this letter are defined in this instrument as in the Merger Agreement.)
The undersigned has been informed (i) that pursuant to the Merger
Agreement and upon consummation of the INSCO Merger, among other things, the
undersigned's Membership Rights in PPTF will be converted into shares of
Professionals Group Common Stock; (ii) that the INSCO Merger constitutes a
transaction covered by Rule 145 under the Securities Act of 1933, as amended
(the "Securities Act"); (iii) that the undersigned may be deemed to be an
"affiliate" of Professionals Group, PICOM and/or PPTF within the meaning of
Rule 145; and (iv) that the Membership Rights in PPTF and the shares of
Professionals Group Common Stock held by the undersigned, as well as the shares
of Professionals Group Common Stock which the undersigned may acquire in
connection with the INSCO Merger, may only be disposed of in conformity with
the provisions of this letter. In addition, the undersigned has been informed
that the treatment of each of the Mergers as a pooling-of-interests for
financial accounting purposes is dependent upon the accuracy of certain of the
representations and the compliance with certain of the agreements set forth in
this letter.
1. The undersigned, after inquiry of any agent with discretionary power
to transfer either the undersigned's Membership Rights in PPTF or the
undersigned's shares of Professionals Group Common Stock, represents, warrants
and covenants to Professionals Group, PICOM and PPTF, jointly and severally, as
follows:
D-1
<PAGE> 72
(a) The undersigned has full power to execute this letter and to
make the representations, warranties and covenants contained in this
letter, and to perform his or her obligations under this letter.
(b) The undersigned is currently the owner of the Membership Rights
in PPTF described in Schedule 1 hereto and has held such Membership Rights
at all times since __________, 199___, unless otherwise set forth in
Schedule 1.
(c) The undersigned is currently the owner of the number of shares
of Professionals Group Common Stock set forth in Schedule 2 hereto (the
"Professionals Group Shares") and has held the Professionals Group Shares
at all times since ___________, 199___, unless otherwise set forth in
Schedule 2.
(d) The undersigned, for a period beginning not less than thirty
(30) days prior to the INSCO Effective Time and ending on the date
Professionals Group publishes financial results covering a period of at
least thirty (30) days of combined operations of PPTF, PICOM and
Professionals Group following the INSCO Effective Time, shall not sell,
transfer or otherwise dispose of, or reduce the undersigned's risk of
ownership or investment in, (i) PPTF, (ii) any of the Professionals Group
Shares, or (iii) any shares of Professionals Group Common Stock received
or acquired by the undersigned pursuant to, or in connection with, the
INSCO Merger, or pursuant to, or in connection with, the exercise of any
option, warrant or other instrument (collectively, the "Additional
Professionals Group Shares"); provided, however, that the undersigned may
(i) exchange the undersigned's Membership Rights in PPTF for shares of
Professionals Group Common Stock in the INSCO Merger, and (ii) may make
bona fide gifts or other dispositions without consideration of such
Membership Rights or such shares of Professionals Group Common Stock so
long as the recipients thereof agree not to sell, transfer or otherwise
dispose of such Membership Rights in PPTF or such shares of Professionals
Group Common Stock, as the case may be, except as provided in this letter.
(e) The undersigned will not sell, transfer or dispose of any shares
of Professionals Group Common Stock which the undersigned may receive or
acquire in connection with the INSCO Merger or any securities which may be
paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefor (all
such shares and other securities being the "Restricted Securities"), or
any option, right or other interest with respect to the Restricted
Securities, unless such sale, transfer or disposition is effected (i)
pursuant to an exemption from the registration requirements of the
Securities Act as provided in Section 3 of this letter, or (ii) pursuant
to an effective registration statement under, and in compliance with, the
Securities Act; provided, however, that the undersigned may make bona fide
gifts or distributions without consideration so long as the recipients
thereof agree not to sell, transfer or otherwise dispose of such shares of
Professionals Group Common Stock except as provided in this letter.
(f) The undersigned has not engaged in a Sale of any shares of
Professionals Group Common Stock at any time since ___________, 1997,
unless otherwise set forth in Schedule 2.
(g) The undersigned is not aware of or participating in any plan or
intention on the part of the Eligible Members of PPTF (a "Plan") to engage
in a sale, exchange, transfer, redemption or reduction in any way of the
undersigned's risk of ownership (by short sale or other disposition,
directly or indirectly) (a "Sale"), of any shares of Professionals Group
Common
D-2
<PAGE> 73
Stock to be received by Eligible Members of PPTF in connection with the
INSCO Merger that will reduce ownership of Professionals Group Common
Stock by such Eligible Members of PPTF to a number of shares having, in
the aggregate, a value at the INSCO Effective Time of less than 50% of the
total fair market value of the Membership Rights in PPTF outstanding
immediately prior to the INSCO Merger. For purposes of this
representation, Membership Rights disposed of in a Sale prior to the INSCO
Merger and in contemplation of the INSCO Merger will be considered to be
outstanding Membership Rights in PPTF immediately prior to the INSCO
Merger that were exchanged for shares of Professionals Group Common Stock
in the INSCO Merger and then disposed of pursuant to a Plan.
2. Professionals Group agrees to use its best efforts to file all
reports and data with the Securities and Exchange Commission (the "Commission)
necessary to permit the undersigned to sell Restricted Securities pursuant to,
and otherwise in conformity with, Rule 145(d) under the Securities Act.
3. Professionals Group, PICOM and PPTF acknowledges that the provisions
of Section 1(e) of this Affiliate's Agreement will be satisfied as to any Sale
by the undersigned of Restricted Securities pursuant to Rule 145(d) under the
Securities Act, as evidenced by a broker's letter stating that the requirements
of Rule 145 have been met; provided, however, that if counsel for Professionals
Group, PICOM or PPTF reasonably believes that the provisions of Rule 145 have
not been complied with, or if requested by Professionals Group, PICOM and/or
PPTF in connection with a proposed disposition, the undersigned shall furnish
to Professionals Group, PICOM and PPTF a copy of a "no action" letter or other
communication from the Commission or an opinion of counsel in form and
substance satisfactory to Professionals Group, PICOM and PPTF, and their
counsel, to the effect that the applicable provisions of paragraphs (c), (e),
(f) and (g) of Rule 144 under the Securities Act have been complied with or
that the disposition may be otherwise effected in the manner requested in
compliance with the Securities Act.
4. The undersigned understands that stop transfer instructions may be
given to the transfer agent for Professionals Group with respect to the
Restricted Securities, and that there may be placed on the certificates
evidencing the Restricted Securities, or any substitutions therefor, a legend
stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MUST BE SOLD PURSUANT
TO RULE 145(d) PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER
THE PROVISIONS OF THE SECURITIES ACT OF 1933, OR UNDER SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933, INASMUCH AS THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED IN A TRANSACTION DESCRIBED IN RULE 145 BY PERSONS WHO MAY BE
DEEMED TO BE "AFFILIATES" OF A PARTY TO THE TRANSACTION AND THE RESALE OF
THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. CURRENTLY, UNDER RULE 145(d)(2), THIS
RESTRICTION LAPSES ON __________________, 199__ (ONE (1) YEAR FROM
CLOSING) UNLESS THE HOLDER OF THIS CERTIFICATE IS AN "AFFILIATE" OF THE
ISSUER AT THE TIME OF SUCH SALE. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE REGISTERED HOLDER
HEREOF AND PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP, A
D-3
<PAGE> 74
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP."
Professionals Group agrees that such stop transfer instructions and legend
will be promptly removed if the provisions of Section 3 are complied with, or
if the undersigned causes to be delivered to Professionals Group a letter from
the staff of the Commission or an opinion of counsel in form and substance
satisfactory to Professionals Group, and its counsel, to the effect that such
legend is not required for purposes of the Securities Act.
5. This letter shall be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees and devisees of the
undersigned and any pledgee holding any Restricted Securities of the
undersigned as collateral.
D-4
<PAGE> 75
IN WITNESS WHEREOF, the undersigned has executed the foregoing letter as
of the _________ day of _________________, 199___.
Very truly yours,
___________________________________
AGREED TO AND ACCEPTED:
Professionals Insurance Company
Management Group
_________________________________
By: Victor T. Adamo, Esq.
Title: President and
Chief Executive Officer
PICOM Insurance Company
_________________________________
By: Victor T. Adamo, Esq.
Title: President and
Chief Executive Officer
Physicians Protective Trust Fund
_________________________________
By: Steven L. Salman, Esq.
Title: President and
Chief Executive Officer
D-5
<PAGE> 76
SCHEDULE 1
Membership Rights Owned:
<PAGE> 77
SCHEDULE 2
Number of Professionals Group Shares Owned:
Description of Sales of Professionals Group Shares since ___________, 199___
(Description of each transaction should include date of sale, number of shares
sold and sale price.):
<PAGE> 78
EXHIBIT E
FORM OF OPINION OF COUNSEL TO PPTF
____________, 199___
Professionals Insurance Company
Management Group
4295 Okemos Road
Okemos, Michigan 48864
Re: Physicians Protective Trust Fund ("PPTF")
Ladies and Gentlemen:
We have acted as counsel to Physicians Protective Trust Fund, a medical
malpractice self-insurance trust fund organized under Florida Statutes Section
627.357 ("PPTF"), in connection with the transactions contemplated by that
certain Agreement and Plan of Merger dated as of August 14, 1997 among
Professionals Insurance Company Management Group, a Michigan business
corporation ("Professionals Group"), PICOM Insurance Company, a Michigan stock
insurance company and a wholly-owned subsidiary of Professionals Group, and
PPTF (the "Agreement"). This opinion is being rendered pursuant to Section
7.2(e) of the Agreement. (Capitalized terms not otherwise defined herein shall
be defined herein as in the Agreement or in the Accord (as defined below) as
the case may be.)
Except as otherwise expressly modified herein to the contrary, this
Opinion Letter is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord and commentary thereto (the "Accord") of the ABA Section
of Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction with the Accord.
In rendering the opinions given below, we have relied, with your
permission, on the Certificate of Steven L. Salman, President and Chief
Executive Officer of PPTF, attached to this Opinion Letter as Attachment A.
In our capacity as counsel to PPTF, we have examined the S-4 filed with
the Securities and Exchange Commission (the "Commission") in connection with
the transactions contemplated by the Agreement and the Joint Proxy Statement
included in the S-4. We have also examined signed copies of the Agreement.
With respect to various questions of fact material to this opinion, we have
relied upon (i) the representations and warranties made by the several parties
in the Agreement and the documents referred to therein and (ii) certificates of
officers of PPTF. We have also examined such certificates of public officials,
documents and records of PPTF and other certificates, opinions and instruments
and have made such other investigations as we have deemed necessary in
connection with the opinions hereinafter set forth. In the course of our
examinations and investigations, we have assumed the legal capacity of natural
persons. We have further assumed that each party to the Agreement has taken
all steps necessary
E-1
<PAGE> 79
to comply with all laws, rules, orders, rulings and regulations applicable to
it to permit such party to enter into and perform its obligations. Our
conclusions hereunder are specifically qualified by reference to, and are based
solely upon, laws, rulings and regulations in effect on the date hereof and are
subject to modification to the extent such laws, rulings and regulations are
changed in the future.
Based upon and subject to the foregoing, and subject to the
qualifications, if any, that follow, it is our opinion that:
A. PPTF is a medical malpractice self-insurance trust fund duly
organized pursuant to the PPTF Charter Documents and Florida Statutes Section
627.357, and is validly existing and in good standing under the laws of the
State of Florida. PPTF has the power and authority to own or lease all of its
properties and assets and to carry on its business substantially as described
in the Joint Proxy Statement. PPTF is duly licensed or qualified to do
business (as a medical malpractice self-insurance trust fund or otherwise) only
in the State of Florida. PPTF does not carry on or conduct any business (as a
medical malpractice self-insurance trust fund or otherwise) in any jurisdiction
other than the State of Florida. Based upon our review of the records of PPTF
and certificates of public officials and officers of PPTF, and except as
otherwise disclosed in the Agreement, to our Actual Knowledge, PPTF has no
authorized, issued or outstanding shares of capital stock and 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 Membership Rights or any shares of capital stock or any other equity
securities of PPTF or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity securities of
PPTF.
B. The only Subsidiary of PPTF is Physicians Protective Plan, Inc., a
Florida corporation formerly known as "Parkway Medical & Dental Building, Inc."
(the "PPTF Subsidiary"). The PPTF Subsidiary (i) is duly organized and validly
existing as a corporation under the laws of the State of Florida, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on PPTF, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted. PPTF owns
directly all of the issued and outstanding shares of PPTF Subsidiary stock.
C. The execution, delivery and performance of the Agreement have been
duly authorized and approved by all necessary trust action on the part of PPTF,
and the Agreement has been duly executed and delivered by PPTF and constitutes
the valid and binding obligation of PPTF. To our Actual Knowledge, the
consummation by PPTF of the transactions contemplated by the Agreement will not
result in any breach or violation of, or default of a material nature under any
judgment, decree, mortgage, agreement, indenture or other instrument known to
us applicable to PPTF.
D. To our Actual Knowledge, based upon receipt of approvals from
Governmental Entities, certificates of public officials and officers of PPTF,
all approvals of Governmental Entities required to permit the performance by
PPTF of its obligations under the Agreement have been obtained and all
statutory waiting periods in respect thereof have expired.
E. Except as set forth in the PPTF Disclosure Schedule and the Closing
Date PPTF Disclosure Schedule to the Agreement, to our Actual Knowledge, there
is no material litigation, proceeding or governmental investigation pending
against or relating to PPTF or any of its subsidiaries,
E-2
<PAGE> 80
its properties or businesses, or the transactions contemplated by the Agreement
which will result in any material liability to PPTF or any of its subsidiaries.
F. The INSCO Merger constitutes a statutory merger under Section[S]
607.1101 and 628.451, Florida Statutes.
The opinions set forth above are limited to the Federal law of the United
States of America and the laws of the State of Florida.
Our opinions are also subject to generally applicable rules of law which
provide that agreements to indemnify a party for violations of securities laws
are unenforceable.
Pursuant to Section 21 of the Accord, the phrase "Primary Lawyer Group,"
as used in the Accord is hereby modified. For purposes of applying the Accord
to this Opinion Letter, the Primary Lawyer Group means the lawyers of this form
who have given substantive legal attention to the representation of PPTF in
connection with the Agreement and the transactions contemplated by it.
This Opinion Letter may be relied upon by Miller, Canfield, Paddock and
Stone, P.L.C. for purposes of the tax opinion rendered by it to Professionals
Group in connection with the transactions contemplated by the Agreement.
Subject to the foregoing, this Opinion Letter may be relied upon by you only in
connection with the Agreement and the transactions contemplated by the
Agreement and may not be used or relied upon by you or any other person for any
purpose whatsoever, except to the extent authorized in the Accord, without our
prior written consent in each such instance.
We express no opinion as to any matter not addressed herein and no opinion
as to matters addressed herein other than as expressly set forth herein.
Sincerely,
STEEL HECTOR & DAVIS LLP
E-3
<PAGE> 81
ATTACHMENT A
CERTIFICATE OF STEVEN L. SALMAN
AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
PHYSICIANS PROTECTIVE TRUST FUND
I am the President and Chief Executive Officer of Physicians Protective
Trust Fund, a self-insurance trust fund organized under Florida Statutes
Section 627.357 (the "Company"). I give this Certificate as support for
factual matters contained in the opinion letter of Steel Hector & Davis LLP
delivered to Professionals Insurance Company Management Group ("Professionals
Group") in connection with the Agreement and Plan of Merger dated as of August
14, 1997 among Professionals Insurance Company Management Group, PICOM
Insurance Company and the Company (the "Agreement"). All information in this
Certificate is given as of today.
1. The Company's Amended Trust Agreement dated January 1, 1987 attached
to this Certificate as Exhibit A is true and correct and has not been rescinded
or repealed.
2. The Company's bylaws attached to this Certificate as Exhibit B are
true and correct and have not been rescinded or repealed.
3. The Company (a) owns, leases or manages property or (b) has employees
in or (c) performs services in or (d) holds licenses issued by the State of
Florida.
4. The Company does not carry on or conduct any business (as a medical
malpractice self-insurance trust fund or otherwise) in any jurisdiction other
than the State of Florida.
5. The Company has not approved dissolution and has not taken any other
steps leading to its dissolution.
6. The Company has delivered to Steel Hector & Davis LLP all of the
documents that may affect the authorization of the Agreement. All of the
documents delivered are true and correct and have not been rescinded or
repealed.
7. Except as previously disclosed to Professionals Group, the Company is
not a party to any agreement or instrument that may adversely affect the
Agreement and is not subject to any restrictions, judgments, orders, decrees,
actions, claims, investigations or other proceedings that may adversely affect
the transactions contemplated by the Agreement.
8. The Company's books and records are complete.
9. There are no agreements or rights to purchase the Company's assets.
10. The Company has no authorized, issued or outstanding shares of
capital stock and 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 Membership Rights or any
shares
E-4
<PAGE> 82
of capital stock or any other equity securities of the Company or any
securities representing the right to purchase or otherwise receive any shares
of capital stock or any other equity securities of the Company.
Dated: ________________, 199___ _______________________________________
Steven L. Salman
President and
Chief Executive Officer
E-5
<PAGE> 83
EXHIBIT F
FORM OF OPINION OF COUNSEL TO PROFESSIONALS GROUP
____________, 199___
Physicians Protective Trust Fund
2121 Ponce de Leon Boulevard
Coral Gables, Florida 33134
Re: Professionals Insurance Company Management Group
Ladies and Gentlemen:
We have acted as counsel to Professionals Insurance Company Management
Group, a Michigan business corporation ("Professionals Group"), and PICOM
Insurance Company, a Michigan stock insurance company and wholly-owned
subsidiary of Professionals Group ("PICOM"), in connection with the
transactions contemplated by that certain Agreement and Plan of Merger dated as
of August 14, 1997 among Physicians Protective Trust Fund, a medical
malpractice self-insurance trust fund organized under Florida Statutes Section
627.357 ("PPTF"), Professionals Group, and PICOM (the "Agreement"). This
opinion is being rendered pursuant to Section 7.3(e) of the Agreement.
(Capitalized terms not otherwise defined herein shall be defined herein as in
the Agreement or in the Accord (as defined below) as the case may be.)
Except as otherwise expressly modified herein to the contrary, this
Opinion Letter is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord and commentary thereto (the "Accord") of the ABA Section
of Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction with the Accord.
In rendering the opinions given below, we have relied, with your
permission, on the Certificate of Victor T. Adamo, President and Chief
Executive Officer of Professionals Group, of PICOM and of [INSCO], attached to
this Opinion Letter as Attachment A.
In our capacity as counsel to Professionals Group and PICOM, we have
examined the S-4 filed with the Securities and Exchange Commission (the
"Commission") in connection with the transactions contemplated by the Agreement
and the Joint Proxy Statement included in the S-4. We have also examined
signed copies of the Agreement. With respect to various questions of fact
material to this opinion, we have relied upon (i) the representations and
warranties made by the several parties in the Agreement and the documents
referred to therein and (ii) certificates of officers of Professionals Group,
PICOM and [INSCO]. We have also examined such certificates of public
officials, documents and records of Professionals Group, PICOM and [INSCO], and
other certificates, opinions and instruments and have made such other
investigations as we have deemed necessary in connection with the opinions
hereinafter set forth. In the course of our examinations and investigations,
we have assumed the legal
F-1
<PAGE> 84
capacity of natural persons. We have further assumed that each party to the
Agreement has taken all steps necessary to comply with all laws, rules, orders,
rulings and regulations applicable to it to permit such party to enter into and
perform its obligations. Our conclusions hereunder are specifically qualified
by reference to, and are based solely upon, laws, rulings and regulations in
effect on the date hereof and are subject to modification to the extent such
laws, rulings and regulations are changed in the future.
Based upon and subject to the foregoing, and subject to the
qualifications, if any, that follow, it is our opinion that:
A. Professionals Group is a corporation duly organized, validly existing
and in good standing under the laws of the State of Michigan. Professionals
Group has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business substantially as described
in the Joint Proxy Statement. Professionals Group is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Professionals Group. Based upon review of
corporate records of Professionals Group and certificates of public officials
and officers of Professionals Group, Professionals Group's authorized and
outstanding capital stock is as set forth in the Agreement and the
Professionals Group Disclosure Schedule and the Closing Date Professionals
Group Disclosure Schedule, and all of the shares of its outstanding capital
stock are duly and validly authorized and issued, and, except as otherwise
disclosed in the Agreement, to our Actual Knowledge, there are no outstanding
options, warrants, agreements, contracts, calls, commitments or demands of any
character to which Professionals Group is a party relating to the capital stock
of Professionals Group.
B. PICOM is a stock insurance corporation validly existing and in good
standing under the laws of the State of Michigan, and has corporate power to
carry on its business in the State of Michigan. The only direct and indirect
Subsidiaries of Professionals Group are PICOM, PICOM Insurance Company of
Illinois, an Illinois stock insurance company and wholly-owned subsidiary of
PICOM, PICOM Claims Services Corporation, a Michigan business corporation and
wholly-owned subsidiary of PICOM, PICOM Financial Services Corporation, a
Michigan business corporation, PICOM Insurance Agency, Inc., a Michigan
business corporation, American Insurance Management Corporation, an Indiana
corporation, and [INSCO], a Florida stock insurance corporation. Each
Subsidiary of Professionals Group (i) is duly organized and validly existing as
a corporation under the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on
Professionals Group, and (iii) has all requisite corporate power and authority
to own or lease its properties and assets and to carry on its business
substantially as described in the Joint Proxy Statement.
C. The execution, delivery and performance of the Agreement have been
duly authorized and approved by all necessary corporate action on the part of
each of Professionals Group and PICOM, and the Agreement has been duly executed
and delivered by each of Professionals Group and PICOM and constitutes the
valid and binding obligations of each of Professionals Group and PICOM. To our
Actual Knowledge, the consummation by each of Professionals Group and PICOM of
the transactions contemplated by the Agreement will not result in any breach or
violation of, or default of a material nature under any judgment, decree,
mortgage, agreement, indenture or other instrument known to us applicable to
Professionals Group or PICOM.
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<PAGE> 85
D. To our Actual Knowledge, based upon receipt of approvals from
Governmental Entities, certificates of public officials and officers of
Professionals Group, PICOM and INSCO, all approvals of Governmental Entities
required to permit the performance by Professionals Group, PICOM and INSCO, of
their respective obligations under the Agreement have been obtained and all
statutory waiting periods in respect thereof have expired.
E. Except as set forth in the Professionals Group Disclosure Schedule
and the Closing Date Professionals Group Disclosure Schedule to the Agreement,
to our Actual Knowledge, there is no material litigation, proceeding or
governmental investigation pending against or relating to Professionals Group
or any of its subsidiaries, its properties or businesses, or the transactions
contemplated by the Agreement which will result in any material liability to
Professionals Group or any of its subsidiaries.
F. The PICOM Merger constitutes a statutory merger under the Michigan
Insurance Code.
The opinions set forth above are limited to the Federal law of the United
States of America and the laws of the State of Michigan.
Our opinions are also subject to generally applicable rules of law which
provide that agreements to indemnify a party for violations of securities laws
are unenforceable.
Pursuant to Section 21 of the Accord, the phrase "Primary Lawyer Group,"
as used in the Accord is hereby modified. For purposes of applying the Accord
to this Opinion Letter, the Primary Lawyer Group means the lawyers of this form
who have given substantive legal attention to the representation of
Professionals Group, PICOM and/or [INSCO] in connection with the Agreement and
the transactions contemplated by it.
This Opinion Letter may be relied upon by Steel Hector & Davis LLP for
purposes of the tax opinion rendered by it to PPTF in connection with the
transactions contemplated by the Agreement. Subject to the foregoing, this
Opinion Letter may be relied upon by you only in connection with the Agreement
and the transactions contemplated by the Agreement and may not be used or
relied upon by you or any other person for any purpose whatsoever, except to
the extent authorized in the Accord, without our prior written consent in each
such instance.
We express no opinion as to any matter not addressed herein and no opinion
as to matters addressed herein other than as expressly set forth herein.
Sincerely,
MILLER, CANFIELD, PADDOCK AND
STONE, P.L.C.
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<PAGE> 86
ATTACHMENT A
CERTIFICATE OF VICTOR T. ADAMO
AS PRESIDENT AND CHIEF EXECUTIVE OFFICER
OF EACH OF
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP,
PICOM INSURANCE COMPANY
AND [INSCO]
I am the President and Chief Executive Officer of each of Professionals
Insurance Company Management Group, a Michigan business corporation
("Professionals Group"), PICOM Insurance Company, a Michigan stock insurance
company ("PICOM"), and [INSCO]. I give this Certificate as support for factual
matters contained in the opinion letter of Miller, Canfield, Paddock and Stone,
P.L.C. delivered to Physicians Protective Trust Fund ("PPTF") in connection
with the Agreement and Plan of Merger dated as of August 14, 1997 among
Professionals Group, PICOM and PPTF (the "Agreement"). All information in this
Certificate is given as of today.
1. The Articles of Incorporation of Professionals Group attached to this
Certificate as Exhibit A are true and correct and have not been rescinded or
repealed.
2. The Articles of Incorporation of PICOM attached to this Certificate
as Exhibit B are true and correct and have not been rescinded or repealed.
3. The Articles of Incorporation of [INSCO] attached to this Certificate
as Exhibit C are true and correct and have not been rescinded or repealed.
4. The bylaws of Professionals Group attached to this Certificate as
Exhibit D are true and correct and have not been rescinded or repealed.
5. The bylaws of PICOM attached to this Certificate as Exhibit E are
true and correct and have not been rescinded or repealed.
6. The bylaws of [INSCO] attached to this Certificate as Exhibit F are
true and correct and have not been rescinded or repealed.
7. Professionals Group (a) owns, leases or manages property or (b) has
employees in or (c) performs services in or (d) holds licenses issued by the
State of Michigan.
8. PICOM (a) owns, leases or manages property in Michigan, Illinois,
Indiana and Ohio, or (b) has employees in Michigan, Illinois, Indiana and Ohio,
or (c) performs services in Michigan, Illinois, Indiana and Ohio, or (d) holds
licenses issued by 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 necessary.
9. [INSCO] (a) owns, leases or manages property or (b) has employees in
or (c) performs services in or (d) holds licenses issued by the State of
Florida and the State of Michigan.
10. None of Professionals Group, PICOM and [INSCO] has approved
dissolution and none of them has taken any other steps leading to its
dissolution.
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<PAGE> 87
11. Each of Professionals Group, PICOM and [INSCO] has delivered to
Miller, Canfield, Paddock and Stone, P.L.C. all of the documents that may
affect the authorization of the Agreement. All of the documents delivered are
true and correct and have not been rescinded or repealed.
12. Except as previously disclosed to PPTF, none of Professionals Group,
PICOM and [INSCO] is a party to any agreement or instrument that may adversely
affect the Agreement and is not subject to any restrictions, judgments, orders,
decrees, actions, claims, investigations or other proceedings that may
adversely affect the transactions contemplated by the Agreement.
13. The books and records of each of Professionals Group, PICOM and
[INSCO] are complete.
14. Except as disclosed in the Agreement, there are no outstanding
options, warrants, agreements, contracts, calls, commitments or demands of any
character to which Professionals Group is a party relating to the capital stock
of Professionals Group.
15. Except as disclosed in the Agreement, there are no outstanding
options, warrants, agreements, contracts, calls, commitments or demands of any
character to which PICOM is a party relating to the capital stock of PICOM.
16. There are no agreements or rights to purchase the assets of
Professionals Group, PICOM or [INSCO].
Dated: ________________, 199___ _______________________________________
Victor T. Adamo
President and
Chief Executive Officer
Professionals Insurance Company
Management Group
PICOM Insurance Company
[INSCO]
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<PAGE> 88
SCHEDULES
Professionals Group Disclosure Schedule
PPTF Disclosure Schedule
<PAGE> 1
NEWS RELEASE
FOR IMMEDIATE RELEASE
CONTACT:
John Lang, PICOM
(517) 347-6207
Mike Marcotte, Marcotte Public
Relations Counselors
(248) 656-3873
Steve Salman, PPTF
(305) 442-8119
John Hastie, PPTF
(305) 442-8119
PROFESSIONALS GROUP ANNOUNCES MERGER
Okemos, Michigan, August 15, 1997 - Professionals Insurance Company
Management Group ("Professionals Group") (Nasdaq: PICM) announced today that
it has signed a definitive agreement to merge its PICOM Insurance Company
subsidiary with Physicians protective Trust Fund ("PPTF") of Coral Gables,
Florida. PPTF is the largest provider of medical malpractice insurance for
physicians and physician corporations in the State of Florida.
Pursuant to the terms of the agreement, Professionals Group will issue
shares of common stock to eligible members of PPTF in exchange for the assets
and liabilities of PPTF. The number of shares to be issued will range from a
minimum of 3,744,897 to a maximum of 4,299,676 based upon an average of
Professionals Group common stock prior to the closing, which is expected to
occur on or about January 1, 1998. As of December 31, 1996, PPTF had a GAAP
book value of $102 million.
After closing, PICOM will be renamed to reflect the combined insurance
operations of PPTF and PICOM. Divisional offices will be maintained in Okemos,
Michigan and Coral Gables, Florida with local sales and service offices located
in Ft. Lauderdale, Orlando, Tampa and Jacksonville, Florida; Oak Brook,
Illinois; Indianapolis, Indiana; and Columbus, Ohio.
Victor T. Adamo, President and CEO of Professionals Group and PICOM
stated: "The proposed merger will more than double the size of our
organization and better position the company to compete in the medical
malpractice insurance market of the future. Together, Professionals Group and
PPTF had $800 million in assets and more than $190 million in equity at
December 31, 1996. Both companies have a strong customer- oriented cultureand,
with current writings in excess of $130 million, will become one of the
nation's largest medical malpractice insurers."
Adamo continued: "The addition of a large book of business in Florida and
the talents of the PPTF staff will provide further geographic diversification
for Professionals Group and a platform for growth in one of today's most
important health care markets. The increased financial and market
<PAGE> 2
presence flowing from the combined operations present an exciting and positive
development for our shareholders. From a policyholders' perspective, the
proposed merger illustrates Professionals Group's continued commitment to
meeting the insurance needs of the health care community."
Steven L. Salman, President and CEO of PPTF stated: "The merger with
Professionals Group will allow PPTF to continue to build on PPTF's long
standing reputation in the Florida physician market while developing new
products and services on a regional basis. This agreement will lead to the
largest merger to date among physician-formed malpractice insurers. The
combined insurance company will set the standard for our industry as it
consolidates through further mergers and acquisitions. We certainly intend to
be an important force in that consolidation."
The agreement is subject to certain regulatory approvals including the
approvals of the Insurance Commissioners of Florida and Michigan, and a vote of
the eligible members of PPTF and a vote of the shareholders of Professionals
Group.
Professionals Insurance Company Management Group is the holding company
for PICOM Insurance Company and related subsidiaries. Founded in 1980, PICOM
provides professional liability insurance and reinsurance for over 7,500
professionals and institutions in the midwest including physicians, dentists,
hospitals and other health care providers, lawyers and law firms.
Physicians Protective Trust Fund, formed in 1975, is the largest writer of
medical malpractice insurance for physicians and physician corporations in
Florida. PPTF currently insures over 3,800 physicians throughout the State of
Florida.
