<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PROTECTIVE LIFE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6355 95-2492236
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or organization)
</TABLE>
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(205) 879-9230
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DEBORAH J. LONG
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
PROTECTIVE LIFE CORPORATION
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(205) 879-9230
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
Upon the effective date of the Merger described in this Registration Statement.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER UNIT (2) OFFERING PRICE (3) FEE (3)
<S> <C> <C> <C> <C>
Common Stock $0.50 Par Value........... 800,000 $5.83 $4,665,853 $1,609
</TABLE>
(1) The amount to be registered and offering price per unit will not be
determined until, at the earliest, the second business day prior to the
Effective Time. For the purpose of calculating the amount to be registered,
it is estimated that the number of common shares to be issued will not
exceed 800,000.
(2) For the purpose of calculating the proposed maximum offering price per unit,
the proposed maximum aggregate offering price is divided by the amount to be
registered.
(3) The proposed maximum aggregate offering price is calculated based on the
book value of the common and preferred stock of National Health Care Systems
of Florida, Inc. as of September 30, 1994. Since there is no market for such
securities, the registration fee has been calculated in accordance with Rule
457(f)(2) under the Securities Act of 1933.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
SHALL DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B))
<TABLE>
<CAPTION>
ITEMS IN PART I OF FORM S-4 PROSPECTUS HEADING IN PROXY STATEMENT-PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus Front Cover Page
Inside Front and Outside Back Cover Pages of
2. Prospectus Available Information; Information Incorporated by
Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information Summary; Certain Considerations
4. Terms of the Transaction Summary; Certain Considerations; The Special Meeting;
The Merger
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the Company Being Acquired Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters Not Applicable
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities Not Applicable
10. Information with Respect to S-3 Registrants Information Incorporated by Reference
11. Incorporation of Certain Information by Reference Information Incorporated by Reference
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants other than
S-2 or S-3 Registrants Not Applicable
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
Business of NHCS; Management's Discussion and
Analysis of Operations of NHCS; Principal
Shareholders of NHCS; Consolidated Financial
Statements -- NHCS; Changes in and Disagreements
with Accountants on Accounting and Financial
17. Information with Respect to Companies other than S-2 Disclosure
or S-3 Companies of Financial Condition and Results
18. Information if Proxies, Consents or Authorizations
are to be Solicited Summary; Certain Considerations; The Special Meeting;
The Merger; Federal Income Tax Consequences of the
Merger
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer Not Applicable
</TABLE>
<PAGE>
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
, 1995
DEAR SHAREHOLDER:
Shareholders of National Health Care Systems of Florida, Inc. ("NHCS") are
invited to attend a Special Meeting of Shareholders (the "Special Meeting") to
be held at , Jacksonville, Florida on [DAY OF WEEK], [DATE],
1995, at :00 .m., local time.
At the Special Meeting, NHCS shareholders will be asked to consider and vote
upon an Agreement and Plan of Merger dated as of November 11, 1994 (the "Merger
Agreement"), between NHCS and Protective Life Corporation ("Protective"),
pursuant to which a wholly-owned subsidiary of Protective will be merged with
and into NHCS (the "Merger"). As a result of the Merger, NHCS will become a
wholly-owned subsidiary of Protective.
The Merger Agreement described above generally provides that NHCS
shareholders will receive a combination of cash and Protective common stock in
exchange for each share of NHCS common or preferred stock held by them, all as
more particularly described in the attached Proxy Statement-Prospectus. The
Merger Agreement has been unanimously approved by the Board of Directors of
NHCS. The NHCS Board of Directors believes the Merger Agreement is fair to, and
in the best interests of, NHCS and its shareholders and unanimously recommends
its approval by the shareholders of NHCS.
The enclosed Notice of Special Meeting and Proxy Statement-Prospectus
describe the proposed transaction and provide specific information relating to
the Special Meeting. Because of the importance of the proposed transaction, I
urge you to carefully read these materials and thoughtfully consider the
information contained in them. Your vote is of great importance. The Merger is
conditioned upon, among other things, the approval of holders of NHCS Common
Stock and of NHCS Preferred Stock, voting as separate classes, as well as the
receipt of all required regulatory approvals.
Shareholders are entitled to vote all of the shares of NHCS Common Stock or
Preferred Stock held by them on , 1995, the record date for the
Special Meeting.
Whether or not you plan to attend the Special Meeting, I encourage you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. The transactions are an important step for
NHCS and its shareholders. On behalf of the Board of Directors of NHCS, I urge
you to vote FOR approval of the Merger Agreement.
Sincerely,
Thomas V. Bruns
CHAIRMAN OF THE BOARD
<PAGE>
PRELIMINARY COPY -- FOR THE INFORMATION OF THE SECURITIES AND EXCHANGE
COMMISSION ONLY
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
8130 BAYMEADOWS WAY WEST
SUITE 200
JACKSONVILLE, FLORIDA 32245
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1995
--------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of National
Health Care Systems of Florida, Inc. ("NHCS") has been called by the Board of
Directors of NHCS and will be held at , Jacksonville,
Florida on [DAY OF WEEK], [DATE], 1995, at :00 .m., local time, for the
following purposes:
(a)To consider and vote upon approve the Agreement and Plan of Merger
(the "Merger Agreement") dated as of November 11, 1994, by and between
NHCS and Protective Life Corporation ("Protective") pursuant to which a
wholly-owned subsidiary of Protective will be merged with and into NHCS (the
"Merger"). As a result of the Merger, NHCS will become a wholly-owned
subsidiary of Protective; and
(b)To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournments or postponements
thereof.
Only shareholders of record of NHCS at the close of business on ,
1995, will be entitled to receive notice of, and to vote at, the Special Meeting
and any adjournments or postponements thereof.
Approval of the matters to be voted upon in connection with the Merger
Agreement by the shareholders of NHCS requires the affirmative vote of both (a)
a majority of the shares voted by holders of record of NHCS common stock and (b)
a majority of the shares voted by holders of record of NHCS preferred stock, in
each case voting as a class; provided, however, that the total number of shares
voted on the matters by each class must represent over fifty percent (50%) of
all shares entitled to vote, as a class, on such matters.
Any holder of NHCS common or preferred stock will have the right to dissent
from the Merger and to receive payment of the value of his or her shares of NHCS
common stock if (1) he or she notifies NHCS in writing before the Special
Meeting of his or her intent to demand payment if the Merger is effectuated and
(2) he or she does not vote in favor of the Merger Agreement at the Special
Meeting. A proxy or vote against the Merger Agreement does not constitute notice
of intent to demand payment. In addition, such shareholder must file a notice of
election to dissent with NHCS within 20 days after he or she is notified by NHCS
of the authorization of the Merger Agreement by the shareholders. A summary of
dissenters' rights under applicable statutes is provided under "THE MERGER --
Terms of the Merger Agreement -- DISSENTERS' RIGHTS OF APPRAISAL" in the
accompanying Proxy Statement-Prospectus and the full text of such statutes is
set forth in Appendix B to the Proxy Statement-Prospectus and is incorporated
herein by reference. Shareholders of NHCS are urged to read this material
carefully, since strict compliance with these provisions is required in order to
perfect dissenters' rights.
Whether or not you plan to attend the Special Meeting of Shareholders,
please complete and sign the enclosed proxy and mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the meeting in
person.
By order of the Board of Directors
Mark Cook
SECRETARY
Jacksonville, Florida
Dated: 1995
THE BOARD OF DIRECTORS OF NHCS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
NHCS COMMON STOCK AND PREFERRED STOCK VOTE TO APPROVE THE MERGER AGREEMENT.
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE NHCS THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. AN ADDRESSED ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE EXCHANGED NOR
MAY OFFERS TO EXCHANGE BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO EXCHANGE OR
THE SOLICITATION OF AN OFFER TO EXCHANGE NOR SHALL THERE BE ANY EXCHANGE OF
THESE SECURITIES 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.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1994
PROXY STATEMENT-PROSPECTUS
------------------
PROXY STATEMENT
NATIONAL HEALTH CARE
SYSTEMS OF FLORIDA, INC.
FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1995
------------------------
PROSPECTUS
PROTECTIVE LIFE CORPORATION
------------------
This Proxy Statement-Prospectus is being furnished to the shareholders of
National Health Care Systems of Florida, Inc., a Florida corporation ("NHCS"),
in connection with the solicitation of proxies by the Board of Directors of
NHCS, from holders of issued and outstanding shares of (a) common stock, par
value $0.01 per share (the "NHCS Common Stock"), and (b) 8% Cumulative
Convertible Series A Preferred Stock, $0.01 par value (the "NHCS Preferred
Stock" and, collectively with the NHCS Common Stock, the "NHCS Capital Stock")
for use at a Special Meeting of Shareholders of NHCS to be held on ,
1995, and at any and all adjournments or postponements thereof (the "NHCS
Special Meeting"). See "THE NHCS SPECIAL MEETING."
Protective Life Corporation, a Delaware Corporation ("Protective"), has
filed a Registration Statement on Form S-4 (the "Registration Statement") with
the Securities and Exchange Commission (the "SEC") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering up to 800,000 shares of
common stock of Protective, par value $0.50 per share (the "Protective Common
Stock"), to be issued in connection with the merger (the "Merger") of a
wholly-owned subsidiary of Protective ("Sub"), with and into NHCS. This Proxy
Statement-Prospectus also constitutes the prospectus of Protective filed as part
of the Registration Statement.
All information contained herein with respect to NHCS and its subsidiaries
has been provided by NHCS and all information contained or incorporated by
reference herein with respect to Protective and its subsidiaries has been
provided by Protective. See "AVAILABLE INFORMATION."
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED WHEN
EVALUATING THE TRANSACTION CONTEMPLATED BY THIS PROXY STATEMENT-PROSPECTUS, SEE
"CERTAIN CONSIDERATIONS."
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement-Prospectus, and, if given
or made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement-Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase the securities offered by this
Proxy Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction
in which, or to or from any person to or from whom, it is unlawful to make such
an offer, or solicitation of an offer, or proxy solicitation. Neither the
delivery of this Proxy Statement-Prospectus nor any distribution of the
securities offered pursuant to this Proxy Statement-Prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth in this Proxy Statement-Prospectus, or the documents
incorporated herein by reference or in the affairs of either Protective or NHCS
since the date of this Proxy Statement-Prospectus.
This Proxy Statement-Prospectus and the form of proxy are first being mailed
to NHCS stockholders on or about , 1995.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR NORTH CAROLINA INVESTORS: THE SECURITIES TO BE ISSUED IN THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE
OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY
OR ADEQUACY OF THIS DOCUMENT.
------------------------
The date of this Proxy Statement-Prospectus is , 1995
<PAGE>
PROXY STATEMENT -- PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION..................................................................................... iv
INFORMATION INCORPORATED BY REFERENCE..................................................................... iv
SUMMARY................................................................................................... vi
The Companies........................................................................................... vi
The NHCS Special Meeting................................................................................ vi
The Merger.............................................................................................. vii
Opinion of Financial Advisor............................................................................ viii
Recommendation of the NHCS Board of Directors........................................................... ix
Interests of Certain Persons in the Merger; Management of NHCS after the Merger......................... ix
Accounting Treatment.................................................................................... ix
Federal Income Tax Consequences to Persons Receiving Protective Common Stock in the Merger.............. ix
Comparison of Rights of NHCS Shareholders and Protective Stockholders................................... x
Dissenters' Rights of Appraisal......................................................................... x
Fees and Expenses....................................................................................... x
Resales of Protective Common Stock...................................................................... x
Certain Considerations.................................................................................. x
Market Prices and Dividend Data......................................................................... xi
Selected Historical Financial Data...................................................................... xii
INTRODUCTION.............................................................................................. 1
CERTAIN CONSIDERATIONS.................................................................................... 2
Ratings................................................................................................. 2
Interest Rate Fluctuations.............................................................................. 2
Continuing Success of Acquisition Strategy.............................................................. 2
Regulation and Taxation................................................................................. 2
Restrictions on Ability to Pay Dividends................................................................ 3
Issuance of Shares of Protective Common Stock in the Merger............................................. 3
THE NHCS SPECIAL MEETING.................................................................................. 3
Date, Time, Place and Purpose........................................................................... 3
Record Date............................................................................................. 3
Vote Required........................................................................................... 4
Proxies................................................................................................. 4
Solicitation of Proxies................................................................................. 4
THE MERGER................................................................................................ 4
Background of the Merger................................................................................ 4
Reasons for the Merger; Recommendation of the NHCS Board of Directors................................... 6
Opinion of Financial Advisor............................................................................ 7
Terms of the Merger Agreement........................................................................... 11
Conversion of NHCS Capital Stock and NHCS Stock Options into Protective Common Stock.................. 11
Effective Time........................................................................................ 13
Termination........................................................................................... 13
Conditions to Consummation of the Merger.............................................................. 14
Acquisition Proposals................................................................................. 15
Fees and Expenses..................................................................................... 15
Exchange of Certificates Formerly Representing NHCS Capital Stock..................................... 15
Conduct of Business of NHCS Prior to the Effective Time; Certain Covenants............................ 15
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Agreements to Vote in Favor of the Merger............................................................. 17
Interests of Certain Persons in the Merger............................................................ 17
Stock Options of NHCS................................................................................. 17
Indemnification of Officers and Directors of NHCS..................................................... 17
Resale of Protective Common Stock Issued as a Result of the Merger.................................... 18
Accounting Treatment of the Merger.................................................................... 18
NYSE Listing of Protective Common Stock Issued Under the Merger....................................... 18
Dissenters' Rights of Appraisal....................................................................... 18
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER............................................................. 19
COMPARISON OF RIGHTS OF NHCS SHAREHOLDERS AND PROTECTIVE STOCKHOLDERS..................................... 21
Liability of Directors.................................................................................. 20
Indemnification......................................................................................... 21
Derivative Actions...................................................................................... 22
Distributions and Redemptions........................................................................... 22
Shareholder Inspection of Books and Records............................................................. 23
Dissenters' Rights...................................................................................... 23
Quorum for Shareholder Meetings......................................................................... 24
Shareholder Voting Requirements; Action by Consent...................................................... 24
Treasury Stock.......................................................................................... 25
Preferred Stock......................................................................................... 25
Board Vacancies......................................................................................... 25
Removal of Directors.................................................................................... 26
Amendments to Charter................................................................................... 26
Special Meetings of Shareholders........................................................................ 26
Affiliated Transactions................................................................................. 26
Control Share Acquisition............................................................................... 27
Other Constituencies.................................................................................... 28
Shareholder Rights Plans................................................................................ 28
BUSINESS OF NHCS.......................................................................................... 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NHCS............. 32
PRINCIPAL SHAREHOLDERS OF NHCS............................................................................ 36
REGULATORY APPROVALS...................................................................................... 36
LEGAL MATTERS............................................................................................. 37
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -- NHCS.......................................................... 37
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -- NHCS.............. 37
EXPERTS................................................................................................... 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS -- NHCS........................................................ F-1
APPENDICES:
Appendix A -- Agreement and Plan of Merger.............................................................. A-1
Appendix B -- Text of Fla. Stat. Section607.1301 -- Dissenters' rights; definitions, Section607.1302
Right of shareholders to dissent, and Section607.1320 -- Procedures for exercise of
dissenters' rights........................................................................ B-1
Appendix C -- Opinion of A. G. Edwards & Sons, Inc..................................................... C-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Protective is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and copied
at the public reference facilities of the SEC at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
SEC located at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material can also be obtained at prescribed rates by writing to the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information concerning Protective can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Protective has filed with the SEC the Registration Statement under the
Securities Act covering the shares of Protective Common Stock to be issued in
connection with the Merger. This Proxy Statement-Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. The Registration Statement and any amendments thereto,
including exhibits filed as a part thereof, are available for inspection and
copying as set forth above. Statements contained in this Proxy
Statement-Prospectus or in any document incorporated in this Proxy
Statement-Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
NHCS is not subject to the informational requirements of the Exchange Act.
INFORMATION INCORPORATED BY REFERENCE
The following Protective documents, heretofore filed with the SEC pursuant
to the Exchange Act, are incorporated by reference herein:
(1) Protective's Annual Report on Form 10-K for the year ended December
31, 1993
(2) Protective's Annual Report on Form 10-K/A for the year ended
December 31, 1993
(3) Protective's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994
(4) Protective's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994
(5) Protective's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994
(6) Protective's Current Report on Form 8-K, dated August 4, 1993
(7) Protective's Current Report on Form 8-K, dated February 14, 1994
(8) Protective's Current Report on Form 8-K, dated April 26, 1994
(9) Protective's Current Report on Form 8-K, dated June 17, 1994
(10) Protective's Current Report on Form 8-K/A, dated June 20, 1994
(11) Protective's Current Report on Form 8-K, dated July 1, 1994
(12) Protective's Current Report on Form 8-K, dated July 27, 1994
(13) Protective's Current Report on Form 8-K, dated October 25, 1994
(14) Protective's Current Report on Form 8-K, dated November 14, 1994
(15) Protective's Registration Statements on Form 8-A, dated September 7,
1993 for common stock of the same class registered hereunder, and
for junior participating cumulative preferred stock
All documents filed by Protective pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
before the date of the NHCS Special Meeting shall be deemed to be incorporated
by reference herein and made a part hereof from the date any such document is
filed. Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
which also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
iv
<PAGE>
NHCS is not required to file any documents with the SEC under the Securities
Act or the Exchange Act and, accordingly, no information or documents relating
to NHCS are incorporated herein by reference.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO PROTECTIVE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF
ANY SUCH DOCUMENTS, OTHER THAN APPENDICES OR EXHIBITS TO SUCH DOCUMENTS UNLESS
SPECIFICALLY INCORPORATED HEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT-PROSPECTUS IS
DELIVERED UPON WRITTEN OR ORAL REQUEST TO DEBORAH J. LONG, SENIOR VICE PRESIDENT
AND GENERAL COUNSEL, PROTECTIVE LIFE CORPORATION: PROSPECTUS MATERIAL REQUESTED,
2801 HIGHWAY 280 SOUTH, BIRMINGHAM, ALABAMA 35223, TELEPHONE: (205) 879-9230. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE AT
LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE NHCS SPECIAL MEETING.
v
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS, THE APPENDICES HERETO
AND IN THE DOCUMENTS AND FINANCIAL STATEMENTS INCORPORATED INTO THIS PROXY
STATEMENT-PROSPECTUS BY REFERENCE. STOCKHOLDERS OF NHCS ARE URGED TO READ
CAREFULLY THE ENTIRE PROXY STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES.
UNLESS THE CONTEXT INDICATES OTHERWISE, "PROTECTIVE" REFERS TO PROTECTIVE LIFE
CORPORATION, A DELAWARE CORPORATION, AND ITS SUBSIDIARIES AND "NHCS" REFERS TO
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC., A FLORIDA CORPORATION, AND ITS
SUBSIDIARIES. ALL INFORMATION CONCERNING PROTECTIVE INCLUDED IN THIS PROXY
STATEMENT-PROSPECTUS HAS BEEN FURNISHED BY PROTECTIVE; AND ALL INFORMATION
CONCERNING NHCS INCLUDED IN THIS PROXY STATEMENT-PROSPECTUS HAS BEEN FURNISHED
BY NHCS. NEITHER PROTECTIVE NOR NHCS WARRANTS THE ACCURACY OR COMPLETENESS OF
INFORMATION RELATING TO ANY OTHER PARTY.
THE COMPANIES
PROTECTIVE. Protective, a Delaware corporation incorporated in 1981, is an
insurance holding company that owns a group of life insurance companies that
provide financial services through the production, distribution and
administration of insurance and investment products. Protective Life Insurance
Company, founded in 1907, is Protective's principal operating subsidiary.
Protective's principal executive offices are located at 2801 Highway 280
South, Birmingham, Alabama 35223, and its telephone number is (205) 879-9230.
For further information about the business and operations of Protective,
reference is made to Protective's Annual Report on Form 10-K for the year ended
December 31, 1993 and Protective's other reports incorporated herein by
reference. See "INFORMATION INCORPORATED BY REFERENCE."
NHCS. NHCS, a Florida corporation incorporated in 1975, is a holding
company for several subsidiaries that operate pre-paid dental plans under the
name "DentiCare" in the States of Florida, Kentucky, Alabama and Georgia. In
addition, NHCS offers pre-paid dental plans through "fronting" arrangements in
the States of Mississippi, Tennessee, North Carolina and South Carolina. For
additional information regarding the business of NHCS, see "BUSINESS OF NHCS".
The principal executive offices of NHCS are located at 8120 Baymeadows Way
West, Suite 200, Jacksonville, Florida 32245, and its telephone number is (904)
731-1870.
THE NHCS SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE. The NHCS Special Meeting will be held at
, local time, on , 1995, at , Jacksonville, Florida.
At the NHCS Special Meeting, the holders of NHCS Capital Stock will be asked to
consider and vote upon: (i) a proposal to adopt and approve an Agreement and
Plan of Merger, dated November 11, 1994, between Protective and NHCS (the
"Merger Agreement"), pursuant to which, among other things, a wholly-owned
subsidiary of Protective ("Sub") will be merged with and into NHCS (the
"Merger"), with NHCS being the surviving corporation in the Merger, and, as a
result of which, NHCS will become a wholly-owned subsidiary of Protective and
(ii) such other business as may properly come before the NHCS Special Meeting.
The text of the Merger Agreement is attached as Appendix A to this Proxy
Statement-Prospectus. See "THE NHCS SPECIAL MEETING -- Date, Time, Place and
Purpose" and "-- Vote Required."
RECORD DATE. Only holders of record of shares of NHCS Capital Stock at the
close of business on , 1995, will be entitled to vote at the NHCS
Special Meeting. As of such date, there were outstanding and entitled to vote
shares of NHCS Common Stock and shares of NHCS Preferred Stock.
Each share of NHCS Common Stock and NHCS Preferred Stock is entitled to one
vote.
vi
<PAGE>
VOTE REQUIRED. Approval of the matters to be voted upon in connection with
the Merger Agreement by the shareholders of NHCS requires the affirmative vote
of both (a) a majority of the shares voted by holders of record of NHCS Common
Stock and (b) a majority of the shares voted by holders of record of NHCS
Preferred Stock, in each case voting as a class; provided, however, that the
total number of shares voted on the matters by each class must represent over
fifty percent (50%) of all shares entitled to vote, as a class, on such matters.
As of the record date for the NHCS Special Meeting, NHCS directors and
executive officers and their affiliates held approximately 61% of the shares of
the outstanding NHCS Common Stock (excluding shares that may be received upon
exercise of options) and 71% of the shares of the outstanding NHCS Preferred
Stock entitled to vote. None of such directors or executive officers has
indicated to NHCS that he intends to vote against the Merger Agreement.
See "THE NHCS SPECIAL MEETING -- Vote Required" and "THE MERGER -- Terms of
the Merger Agreement -- CONDITIONS TO CONSUMMATION OF THE MERGER."
THE MERGER
CERTAIN EFFECTS OF THE MERGER. If the Merger Agreement is adopted and
approved by the NHCS shareholders and certain other conditions set forth in the
Merger Agreement are satisfied or waived, at the Effective Time (as defined in
"SUMMARY -- The Merger -- EFFECTIVE TIME"), Sub will be merged with and into
NHCS with NHCS being the surviving corporation in the Merger (the "Surviving
Corporation") and, as a result thereof, NHCS will become a wholly-owned
subsidiary of Protective. In the Merger, each share of NHCS Common Stock and
NHCS Preferred Stock outstanding immediately prior to the Effective Time will be
converted into and become exchangeable for a combination of cash, without
interest, and shares of Protective Common Stock as described below. Each stock
option to purchase shares of NHCS Common Stock (individually, an "NHCS Stock
Option" and collectively, the "NHCS Stock Options") that is issued and
outstanding immediately prior to the Effective Time, whether or not then vested
or exercisable, shall, without action on the part of the holder thereof, become
exercisable in full, shall be cancelled and converted into and become the right
to receive a combination of cash, without interest, and shares of Protective
Common Stock as described below.
Under the terms of the Merger Agreement, the purchase price (the "Purchase
Price") to be paid by Protective for NHCS through a combination of cash and
Protective Common Stock will be equal to $33.15 million, increased by NHCS's
consolidated net worth as of the month's end prior to the Effective Time of the
Merger, subject to certain adjustments thereto. If the Merger were to have been
consummated based upon the net worth of NHCS on September 30, 1994 (on an
unaudited basis and after giving effect to the appropriate reductions), the
Purchase Price would have been approximately $38.4 million. See "THE MERGER --
Terms of the Merger Agreement."
Except as described under "THE MERGER -- Terms of the Merger," upon
consummation of the Merger, each outstanding share of NHCS Capital Stock (other
than shares of NHCS Capital Stock held by NHCS as treasury stock and shares of
NHCS Capital Stock that are outstanding immediately prior to the Effective Time
and that are held by shareholders who validly perfect their rights to dissent
from the Merger under applicable Florida statutes (the "Dissenting Shares"))
will be converted into a combination of cash (the "Cash Portion") and Protective
Common Stock (the "Stock Portion"), the amount of which cash and stock is
dependent upon several factors, including, the amount of the Purchase Price, the
number of Dissenting Shares and the average closing price of Protective Common
Stock for the twenty (20) trading days immediately preceding the second business
day prior to the Closing Date (the "Protective Trading Average"). If the Merger
were to have been consummated on September 30, 1994, and assuming that there
were no Dissenting Shares, holders of NHCS Capital Stock would have received
approximately $7.6 million in cash and between 615,000 and 768,000 shares of
Protective Common Stock (if the Protective Trading Average was $50.00 and
$40.00, respectively). See "THE MERGER -- Terms of the Merger Agreement."
vii
<PAGE>
EFFECTIVE TIME. The Merger shall become effective on the date and at the
time on which articles of merger containing the provisions required by, and
executed in accordance with, Section 607.1105 of the Florida Business
Corporation Act (the "Articles of Merger") shall have been accepted for filing
by the Secretary of State of the State of Florida, or such later date and time
as may be specified in the Articles of Merger (the "Effective Time"). See "THE
MERGER -- Terms of the Merger Agreement -- EFFECTIVE TIME."
TERMINATION. The Merger Agreement may be terminated and the transaction
contemplated hereby abandoned at any time at or prior to Closing:
(a) by the mutual consent of NHCS and Protective;
(b) by either NHCS or Protective, if there shall have been any material
breach by the other party of any of its covenants or agreements contained in
the Merger Agreement and such breach shall not have been remedied, or cannot
be remedied, within 30 days after written notice specifying the nature of
such breach and requesting that it be remedied has been delivered to the
breaching party;
(c) by either NHCS or Protective, if the closing date shall not have
occurred on or prior to June 15, 1995, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this Agreement
to perform or observe its or their agreements as set forth in the Merger
Agreement required to be performed or observed by such party on or before
the closing date;
(d) by either NHCS or Protective upon written notice to the other party
that (i) any regulatory approval shall have been denied, or (ii) any
governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by the Merger Agreement;
(e) by either NHCS or Protective (provided that the terminating party is
not then in material breach of any of its representation, warranty, covenant
or other agreement contained in the Merger Agreement), if the shareholders
of NHCS fail to approve the Merger at the NHCS Special Meeting; and
(f) by NHCS, if the Board of Directors shall have withdrawn or modified
in a manner adverse to Protective its approval or recommendation of the
Merger in order to approve the execution by NHCS of a definitive agreement
providing for the acquisition of NHCS or its assets by merger or other
business combination or in order to approve a tender offer for the NHCS
Capital Stock by a third party, in either case, as determined by the NHCS's
Board of Directors, on terms more favorable to the NHCS's shareholders than
the Merger.
See "THE MERGER -- Terms of the Merger Agreement -- TERMINATION."
CONDITIONS TO CONSUMMATION OF THE MERGER. In addition to the required
shareholder approvals the consummation of the Merger is subject to: (i) all
consents of a governmental entity that are prescribed by law as necessary for
the consummation of the Merger are obtained; and (ii) certain other conditions
which are set forth in the Merger Agreement. For further information regarding
the conditions to the Merger, see "THE MERGER -- Terms of the Merger Agreement
- -- Conditions to Consummation of the Merger."
OPINION OF FINANCIAL ADVISOR
NHCS's financial advisor, A.G. Edwards & Sons, Inc., has rendered its
opinion to NHCS's Board of Directors that the Purchase Price, and the resulting
NHCS Exchange Ratio, is fair from a financial point of view to the holders of
NHCS Capital Stock. A copy of such opinion, updated to the date hereof, is set
forth as Appendix C and should be read in its entirety with respect to the
assumptions made, other matters considered and limitations on the reviews
undertaken. See "THE MERGER -- Opinion of Financial Advisor."
viii
<PAGE>
RECOMMENDATION OF THE NHCS BOARD OF DIRECTORS
The NHCS Board of Directors believes that the Merger is fair to, and in the
best interests of, NHCS and its shareholders. The Board of Directors of NHCS has
unanimously approved the Merger Agreement and the Merger and recommends that
NHCS shareholders vote in favor of the proposal to adopt and approve the Merger
Agreement. For a further discussion of these recommendations and the reasons
therefor, see "THE MERGER -- Reasons for the Merger; Recommendation of the NHCS
Board of Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; MANAGEMENT OF NHCS AFTER THE MERGER
Upon consummation of the Merger, the Surviving Corporation will become a
wholly-owned subsidiary of Protective. The directors of Sub immediately prior to
the Effective Time (which will not include any of the current directors of NHCS)
will be the initial directors of the Surviving Corporation, and the executive
officers of NHCS immediately prior to the Effective Time will be the initial
officers of the Surviving Corporation. Following the Merger, such officers will
own a maximum of approximately shares of Protective Common Stock,
representing in each instance less than 1% of the total shares of Protective
Common Stock to be outstanding following consummation of the Merger.
As a condition to Protective's obligations to consummate the Merger,
Protective and Mr. Alekna, NHCS's Chief Executive Officer, shall have entered
into an employment agreement, having a term of three years or lesser period as
may be acceptable to Protective. See "THE MERGER -- Terms of the Merger
Agreement -- INTERESTS OF CERTAIN PERSONS IN THE MERGER."
ACCOUNTING TREATMENT OF THE MERGER
Protective intends to account for the Merger as a purchase.
FEDERAL INCOME TAX CONSEQUENCES TO PERSONS RECEIVING PROTECTIVE COMMON STOCK IN
THE MERGER
Protective and NHCS intend to treat the Merger as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). However, it is not a condition to the consummation of the Merger
that the Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code and no assurances can be given by Protective, Sub or NHCS
that the Merger will so qualify. Assuming the Merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code, no gain or loss
will be recognized by shareholders of NHCS who exchange all of their NHCS
Capital Stock for Protective Common Stock pursuant to the Merger, except with
respect to the Cash Portion received by such shareholder and the cash received
in lieu of a fractional share interest in Protective Common Stock. Although it
is not a condition to the consummation of the Merger, assuming that the required
conditions are satisfied, Mahoney Adams & Criser, P.A., counsel to NHCS, intends
to deliver an opinion to NHCS substantially to the effect that for federal
income tax purposes the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and that, accordingly (i) no gain or loss
will be recognized by shareholders of NHCS who exchange all of their NHCS
Capital Stock for Protective Common Stock pursuant to the Merger, except with
respect to the Cash Portion received by such shareholder and the cash received
in lieu of a fractional share interest in Protective Common Stock, and (ii) the
tax basis of Protective Common Stock received by shareholders who exchange all
of their NHCS Capital Stock for Protective Common Stock in the Merger will be
the same as the tax basis of the NHCS Capital Stock surrendered in exchange
therefor (reduced by the amount of the Cash Portion and cash received in lieu of
a fractional share interest in Protective Common Stock and increased by the
amount of gain, if any, recognized in connection with the receipt of such cash
amount). For a more complete description of the principal federal income tax
consequences of the Merger, see "THE MERGER -- Certain Federal Income Tax
Consequences." Due to, among other reasons, the individual nature of the tax
consequences of the Merger, it is recommended that each NHCS shareholder consult
his or her own tax advisor concerning the tax consequences of the Merger.
ix
<PAGE>
COMPARISON OF RIGHTS OF NHCS SHAREHOLDERS AND PROTECTIVE STOCKHOLDERS
If the Merger Agreement is consummated, the NHCS shareholders will become
Protective stockholders. Accordingly, their rights will be governed by Delaware
law, which differs in many respects from Florida law, and by Protective's 1985
Restated Certificate of Incorporation, and any amendments thereto, and By-Laws,
which differ in a number of respects from NHCS's Certificate of Incorporation
and Bylaws. For a description of some of the material differences, see
"COMPARISON OF RIGHTS OF NHCS SHAREHOLDERS AND PROTECTIVE STOCKHOLDERS."
DISSENTERS' RIGHTS OF APPRAISAL
Generally, any holder of NHCS Capital Stock will have the right to dissent
from the Merger and to receive payment of the fair value of his or her shares of
NHCS Capital Stock stock if (1) he or she notifies NHCS in writing before the
NHCS Special Meeting of his or her intent to demand payment if the Merger is
effectuated and (2) he or she does not vote in favor of the Merger Agreement at
the NHCS Special Meeting. A proxy or vote against the Merger Agreement does not
constitute notice of intent to demand payment. In addition, such shareholder
must file a notice of election to dissent with NHCS within 20 days after he or
she is notified by NHCS of the authorization of the Merger Agreement by the
shareholders. Strict compliance with the provisions Sections 607.1301, 607.1302
and 607.1320 of the Florida Business Corporation Act is required in order to
perfect dissenters' rights. See "THE MERGER -- Terms of the Merger Agreement --
DISSENTERS' RIGHTS OF APPRAISAL" and "FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
FEES AND EXPENSES
NHCS and Protective have agreed to bear their own expenses incurred in
connection with the Merger. Each Party shall pay all expenses incurred by it in
connection with the negotiation, execution and performance of the Merger,
whether or not the transactions contemplated herein are consummated, including
the fees and expenses of the counsel and accountants of each; PROVIDED, HOWEVER,
that (a) the expenses, fees and costs necessary for obtaining any consents or
requisite regulatory approvals (other than the fees and expenses of the NHCS's
attorneys, accountants or other consultants) rendered in connection therewith)
shall be borne by Protective and (b) nothing contained in the Merger Agreement
shall limit any party's liability arising out of any willful and intentional
breach of any provision of the Merger Agreement. Any and all expenses
attributable to or relating to the Merger, and the transactions contemplated
thereby, shall be fully expensed or accrued on NHCS's closing balance sheet that
is used to calculate the Purchase Price. See "THE MERGER -- Terms of the Merger
Agreement -- FEES AND EXPENSES."
RESALES OF PROTECTIVE COMMON STOCK
The Protective Common Stock to be issued to shareholders of NHCS in
connection with the Merger has been registered under the Securities Act. All
shares of Protective Common Stock received by holders of NHCS Capital Stock and
NHCS Stock Options upon consummation of the Merger will be freely transferable
by those shareholders of NHCS not deemed to be "Affiliates" of NHCS.
"Affiliates" are generally defined as persons who control, are controlled by, or
are under common control with, NHCS at the time of the NHCS Special Meeting
(generally, certain executive officers and directors). See "THE MERGER -- Terms
of the Merger Agreement -- RESALE OF PROTECTIVE COMMON STOCK ISSUED AS A RESULT
OF THE MERGER."
CERTAIN CONSIDERATIONS
Protective and NHCS are subject to a number of factors which may affect
their future results. These factors include, among others, increasing
competition, general economic conditions, and government regulations. In
considering whether to approve the proposals concerning the Merger described in
this Proxy Statement-Prospectus, NHCS stockholders should evaluate these
factors. See "CERTAIN CONSIDERATIONS."
x
<PAGE>
MARKET PRICES AND DIVIDEND DATA
PROTECTIVE. Protective Common Stock is listed and principally traded on the
New York Stock Exchange (the "NYSE") (NYSE symbol: PL). Through October 1, 1993,
Protective Common Stock was traded on the over-the-counter market and was quoted
on the NASDAQ National Market System (NASDAQ symbol: PROT). NHCS Common Stock is
not publicly traded. The following table sets forth, for the periods indicated,
the range of high and low closing sale prices per share of Protective Common
Stock, as reported on the NYSE and NASDAQ National Market System, and the
dividend history of Protective for the periods indicated.
The declaration and payment of cash dividends by Protective is made at the
discretion of Protective's Board of Directors. Protective (or its predecessor)
has paid cash dividends each year since 1926 and each quarter since 1934.
MARKET PRICES AND DIVIDEND DATA -- PROTECTIVE
<TABLE>
<CAPTION>
PROTECTIVE COMMON STOCK
-------------------------------------
HIGH LOW CASH DIVIDENDS
--------- --------- ---------------
<S> <C> <C> <C>
Year Ended December 31, 1993:
First Quarter.............................................................. $ 33.50 $ 27.50 $ 0.23
Second Quarter............................................................. 37.00 30.75 0.26
Third Quarter.............................................................. 50.50 34.50 0.26
Fourth Quarter............................................................. 52.38 41.88 0.26
Year Ended December 31, 1994:
First Quarter.............................................................. $ 46.13 $ 40.50 $ 0.26
Second Quarter............................................................. 46.88 36.88 0.28
Third Quarter.............................................................. 44.25 39.75 0.28
Fourth Quarter (through December 21)....................................... 45.38 39.88 0.28
</TABLE>
On , 1995, the last full trading day prior to the date of this
Proxy Statement-Prospectus, the last reported sales price for Protective Common
Stock was per share. NHCS shareholders are urged to obtain current market
quotations for Protective Common Stock. See "THE MERGER -- Terms of the Merger
Agreement -- CONVERSION OF NHCS CAPITAL STOCK AND NHCS STOCK OPTIONS INTO
PROTECTIVE COMMON STOCK."
NHCS. NHCS has not paid any dividends to its holders of NHCS Common Stock.
Holders of NHCS Preferred Stock are paid quarterly dividends at a rate equal to
eight percent (8.0%) per annum.
xi
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
PROTECTIVE. The following table sets forth certain historical financial
information of Protective as of September 30, 1994 and for the nine months ended
September 30, 1994 and 1993 and as of and for each of the fiscal years in the
five year period ended December 31, 1993. This selected historical financial
information is, in part, based upon, derived from, and should be read in
conjunction with, and is qualified in its entirety by reference to, the
historical consolidated financial statements of Protective, and the related
notes therein, incorporated in this Proxy Statement-Prospectus by reference. See
"INFORMATION INCORPORATED BY REFERENCE." Interim unaudited information for
Protective for the nine months ended September 30, 1994, and September 30, 1993,
reflect, in the opinion of the management of Protective, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation.
Results for the nine months ended September 30, 1994, are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- PROTECTIVE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------------ ---------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy fees........ $ 289,362 $ 273,609 $ 370,758 $ 323,136 $ 273,975 $ 248,448 $ 236,830
Net investment income........... 304,647 262,073 362,130 284,069 233,502 136,995 82,453
Realized investment gains
(losses)....................... 4,855 763 5,054 (14) (3,085) (3,154) 209
Other income.................... 13,394 16,929 21,695 18,835 11,556 8,197 5,231
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues................ $ 612,258 $ 553,374 $ 759,637 $ 626,026 $ 515,948 $ 390,486 $ 324,723
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Benefits and expenses........... $ 534,792 $ 495,942 $ 674,593 $ 566,079 $ 464,245 $ 350,204 $ 292,437
Income tax expense.............. $ 24,789 $ 19,639 $ 28,475 $ 17,384 $ 14,477 $ 11,279 $ 10,493
Minority interest............... $ 992 $ 19 $ 19 $ 90 $ 1,437 $ 870 $ 0
Net income...................... $ 51,685 $ 37,774 $ 56,550(1) $ 41,420(2) $ 35,789 $ 28,133 $ 21,793
PER SHARE DATA
Net income (3).................. $3.77 $2.76 $4.13 (1) $3.03 (2) $2.62 $2.07 $1.58
Cash dividends.................. $0.82 $0.75 $1.01 $0.90 $0.82 $0.73 $0.70
Weighted average number of
shares outstanding............. 13,694,114 13,689,961 13,690,789 13,657,993 13,649,031 13,611,646 13,803,885
Stockholders' equity............ $19.87 $22.67 $26.34 $20.56 $18.44 $16.29 $15.50
Stockholders' equity excluding
unrealized gains and losses on
investments.................... $26.48 $22.36 $23.48 $20.32 $18.15 $16.33 $15.49
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------
1993 1992 1991 1990 1989
SEPTEMBER 30 ------------- ---------- ---------- ---------- ----------
1994
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets........................... $5,846,567 $ 5,316,005 $4,006,667 $3,120,290 $2,331,197 $1,232,280
Long-term debt......................... $ 102,046 $ 137,598 $ 31,014 $ 23,548 $ 2,079 $ 2,106
Total debt............................. $ 102,046(4) $ 147,118 $ 88,248 $ 57,579 $ 81,145 $ 27,831
Stockholders' equity................... $ 272,126 $ 360,733 $ 281,400 $ 251,745 $ 222,326 $ 211,669
Stockholders' equity excluding
unrealized gains and losses on
investments........................... $ 362,557 $ 321,449 $ 278,244 $ 247,764 $ 222,812 $ 211,615
<FN>
- ------------------------------
(1) Reduced by $1,261 or $.09 per share representing a one-time adjustment to
income tax expense due to the change in the corporate income tax rate from
34% to 35%.
(2) Reduced by $1,053 or $.08 per share representing the cumulative effect of a
change in accounting principle for the adoption of SFAS No. 106.
(3) Net income per share is computed using the weighted average number of
shares outstanding during each period.
(4) Excludes $55 million of Monthly Income Preferred Securities reported as
"Minority interest in consolidated subsidiaries."
</TABLE>
xii
<PAGE>
NHCS. The following table sets forth certain historical financial
information of NHCS as of September 30, 1994 and for the nine months ended
September 30, 1994 and 1993 and as of and for each of the fiscal years in the
five year period ended December 31, 1993. This selected historical financial
information is, in part, based upon, derived from, and should be read in
conjunction with the historical consolidated financial statements of NHCS
included elsewhere in the Proxy Statement-Prospectus. Interim unaudited
information for NHCS for the nine months ended September 30, 1994, and September
30, 1993, reflect, in the opinion of the management of NHCS, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation.
Results for the nine months ended September 30, 1994, are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- NHCS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------------ --------------------------------------------------
1994 1993 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums................................... $ 16,276 $ 14,373 $ 19,444 $ 16,050 $ 12,176 $ 9,316
Net investment income...................... 143 130 222 87 94 102
----------- ----------- ----------- ----------- ----------- -----------
Total revenues......................... $ 16,419 $ 14,503 $ 19,666 $ 16,137 $ 12,270 $ 9,418
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Benefits and expenses...................... $ 13,929 $ 12,611 $ 17,119 $ 14,415 $ 11,201 $ 8,703
Income tax expense......................... $ 965 $ 711 $ 946 $ 645 $ 385 $ 250
Net income................................. $ 1,524 $ 1,181 $ 1,601 $ 1,077 $ 684 $ 465
PER SHARE DATA
Net income -- primary...................... $0.38 $0.32 $0.46 $0.37 $0.23 $0.14
Net income -- fully diluted................ $0.33 $0.25 $0.34 $0.23 $0.14 $0.10
Weighted average number of shares
outstanding -- primary.................... 3,963,242 3,565,353 3,346,251 2,641,128 2,454,533 2,512,868
Weighted average number of shares
outstanding -- fully diluted.............. 4,676,201 4,732,017 4,739,767 4,780,017 4,787,867 4,846,202
Stockholders' equity -- primary............ $1.12 $0.69 $0.84 $0.42 $(0.07 ) $(0.29)
Stockholders' equity -- fully diluted...... $0.95 $0.52 $0.59 $0.23 $(0.03 ) $(0.15)
<CAPTION>
1989
-----------
<S> <C>
INCOME STATEMENT DATA
Premiums................................... $ 7,334
Net investment income...................... 110
-----------
Total revenues......................... $ 7,444
-----------
-----------
Benefits and expenses...................... $ 7,159
Income tax expense......................... $ 118
Net income................................. $ 167
PER SHARE DATA
Net income -- primary...................... $0.02
Net income -- fully diluted................ $0.03
Weighted average number of shares
outstanding -- primary.................... 2,589,024
Weighted average number of shares
outstanding -- fully diluted.............. 4,922,358
Stockholders' equity -- primary............ $(0.40 )
Stockholders' equity -- fully diluted...... $(0.21 )
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1993 1992 1991 1990 1989
SEPTEMBER 30 --------- --------- --------- --------- ---------
1994
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.......................................... $ 8,376 $ 6,495 $ 4,742 $ 3,888 $ 2,996 $ 2,297
Long-term debt........................................ $ 0 $ 0 $ 0 $ 0 $ 3 $ 15
Total debt............................................ $ 0 $ 0 $ 0 $ 3 $ 46 $ 73
Redeemable preferred stock............................ $ 233 $ 583 $ 1,050 $ 1,400 $ 1,400 $ 1,400
Stockholders' equity.................................. $ 4,433 $ 2,804 $ 1,119 $ (161) $ (733) $ (1,039)
</TABLE>
xiii
<PAGE>
NATIONAL HEALTHCARE SYSTEMS OF FLORIDA, INC.
AND
PROTECTIVE LIFE CORPORATION
----------------
PROXY STATEMENT-PROSPECTUS
------------------
INTRODUCTION
This Proxy Statement-Prospectus is being furnished to the shareholders of
National Health Care Systems of Florida, Inc., a Florida corporation ("NHCS"),
in connection with the solicitation of proxies by the Board of Directors of
NHCS, from holders of issued and outstanding shares of common stock of NHCS, par
value $0.01 per share (the "NHCS Common Stock"), 8% cumulative convertible
Series A preferred stock, $0.01 par value (the "NHCS Preferred Stock" and,
collectively with the NHCS Common Stock, the "NHCS Capital Stock") for use at a
Special Meeting of Shareholders of NHCS to be held on , 1995, and at
any and all adjournments and postponements thereof (the "NHCS Special Meeting").
This Proxy Statement-Prospectus also constitutes the prospectus of Protective
Life Corporation, a Delaware Corporation ("Protective"), for the issuance of
Protective common stock, par value $0.50 per share (the "Protective Common
Stock") in connection with the Merger.
At the NHCS Special Meeting, the holders of NHCS Capital Stock will be asked
to consider and vote upon a proposal to adopt and approve an Agreement and Plan
of Merger (the "Merger Agreement"), dated November 11, 1994, between Protective
and NHCS, pursuant to which, among other things: (i) a wholly-owned subsidiary
of Protective ("Sub") will be merged with and into NHCS (the "Merger") with NHCS
being the surviving corporation; (ii) NHCS will become a wholly-owned subsidiary
of Protective; and (iii) all of the issued and outstanding shares of NHCS
Capital Stock will be converted into and become exchangeable for a combination
of cash, without interest, and shares of Protective Common Stock. Each stock
option to purchase shares of NHCS Common Stock (individually, a "NHCS Stock
Option" and collectively, the "NHCS Stock Options") that is issued and
outstanding immediately prior to the Effective Time, whether or not then vested
or exercisable, will, without action on the part of the holder thereof, become
exercisable in full, will be cancelled and converted into and become the right
to receive, without interest, a combination of cash and shares of Protective
Common Stock. The text of the agreement that constitutes the Merger Agreement is
attached as Appendix A to this Proxy Statement-Prospectus and is incorporated
herein by reference, and any description thereof set forth herein is qualified
in its entirety for reference thereto.
Pursuant to the Merger Agreement, as more fully described herein, at the
Effective Time (as hereinafter defined), (i) Sub will be merged with and into
NHCS, with NHCS to be the surviving corporation in the Merger (the "Surviving
Corporation"); (ii) NHCS will become a wholly-owned subsidiary of Protective;
(iii) the executive officers of NHCS immediately prior to the Effective Time
will, at the Effective Time, be the officers of the Surviving Corporation, and
the directors of Sub (which do not include any of the directors of NHCS) will,
after the Effective Time, be the directors of the Surviving Corporation, in each
case until their respective successors are duly appointed or elected and
qualified; and (iv) each then outstanding share of NHCS Capital Stock and NHCS
Stock Options will be converted into and become exchangeable for a combination
of cash, without interest, and shares of Protective Common Stock.
The Boards of Directors of NHCS and Protective have each approved the Merger
Agreement and the transactions contemplated thereby and the NHCS Board of
Directors unanimously recommends that NHCS shareholders vote FOR the proposals
concerning the Merger described in this Proxy
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Statement-Prospectus. For a discussion of the factors considered by NHCS's Board
of Directors in approving the Merger, the Merger Agreement and the transactions
contemplated thereby, see "THE MERGER -- Reasons for the Merger; Recommendation
of the NHCS Board of Directors" and "-- Opinion of Financial Advisor."
The Board of Directors of NHCS knows of no business that will be presented
for consideration at the NHCS Special Meeting other than the matters described
in this Proxy Statement-Prospectus. If any other matters are properly presented
at such meeting, proxies will be voted in accordance with the best judgment of
the proxy holders.
CERTAIN CONSIDERATIONS
In addition to the other information contained or incorporated by reference
herein, the following considerations should be considered carefully in
evaluating the transactions contemplated by this Proxy Statement-Prospectus.
RATINGS. Ratings have become an increasingly important factor in
establishing the competitive position of insurance companies. Rating
organizations continue to review the financial performance and condition of
insurers, including Protective's insurance subsidiaries. A downgrade in
Protective's claims-paying-ability ratings could materially adversely affect its
business operations, particularly its ability to attract annuity and guaranteed
investment contract ("GIC") deposits and its ability to compete for attractive
acquisition opportunities.
INTEREST RATE FLUCTUATIONS. Protective's current investment policy with
regard to fixed income investments, which is not expected to change, is
generally to buy primarily investment grade securities that match future
cash-flow needs and to hold them to maturity.
Rising interest rates could cause disintermediation of GIC and annuity
deposits and ordinary life policy cash values; in addition, the market value of
Protective's fixed rate long-term investments would generally decrease, and
Protective may be unable to fully enforce the call provisions of its mortgage
loans. The difference between the interest rate earned on investments and the
interest rate credited to interest sensitive products may also be adversely
affected by rising interest rates.
Falling interest rates could cause some of Protective's corporate bonds that
have call features to be called, which could cause Protective to have to
reinvest the proceeds at lower interest rates.
Protective's mortgage loans are entered into and mortgage-backed securities
are purchased, based on assumptions regarding rates of pre-payments. To the
extent that actual pre-payments are earlier or later than anticipated due to
falling or rising interest rates, Protective may not receive cash flows when
expected. Most of Protective's mortgage loans, however, have significant
pre-payment penalties.
CONTINUING SUCCESS OF ACQUISITION STRATEGY. Protective has actively pursued
a strategy of acquiring "closed" blocks of insurance policies. This acquisition
strategy has increased Protective's earnings in part by allowing Protective to
position itself to realize certain unit cost reductions and operating
efficiencies associated with economies of scale. There can be no assurance,
however, that suitable acquisitions, presenting opportunities for continued
growth and operating efficiencies, will continue to be available to Protective,
or that Protective will realize the anticipated level of financial performance
from its recently completed acquisitions.
REGULATION AND TAXATION. Protective's insurance subsidiaries are subject to
government regulation in each of the states in which they conduct business. Such
regulation is vested in state agencies having broad administrative power dealing
with all aspects of the insurance business, including rates, policy forms and
capital adequacy, and is concerned primarily with the protection of
policyholders rather than shareholders. Protective's management does not believe
that the regulatory initiatives currently under consideration would have a
material adverse impact on Protective or its insurance subsidiaries; however,
Protective cannot predict the form of any future proposals or regulation.
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Individual state guaranty associations assess insurance companies to pay
benefits to policyholders of insolvent or failed insurance companies.
Protective's insurance subsidiaries were assessed immaterial amounts in 1994,
which will be partially offset by credits against future state premium taxes.
Protective cannot predict the amount of any future assessments; however, most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength.
Under the Internal Revenue Code of 1986, as amended (the "Code"), income tax
payable by policyholders on investment earnings is deferred during the
accumulation period of certain life insurance and annuity products. This
favorable tax treatment may give certain of Protective's products a competitive
advantage over other retirement products that do not offer this benefit. To the
extent that the Code is revised to reduce the tax deferred status of life
insurance and annuity products, or to increase the tax deferred status of
competing products, Protective's competitive position may be adversely affected.
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS. Protective is an insurance
holding company; the significant sources of Protective's income are dividends on
the stock of its insurance subsidiaries and management fees. The payment of
dividends to Protective by its principal insurance subsidiary is subject to
limitations imposed by the Tennessee Insurance Code. For 1994, the maximum
amount available for payment of dividends by the subsidiary without providing
notice to the Tennessee Insurance Commissioner is approximately $44 million.
ISSUANCE OF SHARES OF PROTECTIVE COMMON STOCK IN THE MERGER. Pursuant to
the Merger Agreement, holders of NHCS Capital Stock and NHCS Stock Options will
receive a combination of cash, without interest, and shares of Protective Common
Stock. See "INTRODUCTION" and "THE MERGER -- Terms of the Merger." The actual
number of shares of Protective Common Stock issuable in the Merger will not be
determined until, at the earliest, the second business day prior to the
Effective Time. The Merger Agreement provides for a minimum or maximum average
price for Protective Common Stock of $40.00 and $50.00 per share respectively,
which may be utilized in determining the Stock Portion -- Exchange Ratio.
Accordingly, the aggregate number of shares of Protective Common Stock which may
be issued in the Merger will vary depending upon the price range of Protective
Common Stock over the specified time period and could be significantly greater
or less than any estimates provided in this Proxy Statement-Prospectus. See
"INTRODUCTION" and "THE MERGER -- Terms of the Merger Agreement -- CONVERSION OF
NHCS CAPITAL STOCK AND NHCS STOCK OPTIONS INTO PROTECTIVE COMMON STOCK."
THE NHCS SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE. The NHCS Special Meeting will be held at
, local time, on , 1995, at , Jacksonville,
Florida. At the NHCS Special Meeting, the holders of NHCS Capital Stock will be
asked to consider and vote upon (i) a proposal to adopt and approve the Merger
Agreement, pursuant to which, among other things, a wholly-owned subsidiary of
Protective will be merged with and into NHCS, with NHCS being the surviving
corporation, and subsequently NHCS will become a wholly-owned subsidiary of
Protective and (ii) such other business as may properly come before the NHCS
Special Meeting. The text of the agreement that constitutes the Merger Agreement
is attached hereto as Appendix A. See "THE NHCS SPECIAL MEETING -- Vote
Required" and "THE MERGER -- Terms of the Merger Agreement."
RECORD DATE. The Board of Directors of NHCS has fixed the close of business
on , 1995, as the record date (the "NHCS Record Date") for the NHCS
Special Meeting, and only holders of record of NHCS Capital Stock at the close
of business on the NHCS Record Date will be entitled to notice of, and to vote
at, the NHCS Special Meeting. As of the NHCS Record Date, there were
shares of NHCS Common Stock and shares of NHCS Preferred Stock
outstanding and entitled to vote which were held by approximately and two (2)
holders of record, respectively.
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VOTE REQUIRED. Approval of the matters to be voted upon in connection with
the Merger by the shareholders of NHCS requires the affirmative vote of both (a)
a majority of the shares voted by holders of record of NHCS Common Stock and (b)
a majority of the shares voted by holders of record of NHCS Preferred Stock, in
each case voting as a class; provided, however, that the total number of shares
voted on the matters by each class must represent over fifty percent (50%) of
all shares entitled to vote, as a class, on the matters.
As of the record date for the Special Meeting, NHCS directors and executive
officers and their affiliates held approximately 61% of the shares of the
outstanding NHCS Common Stock and .71% of the shares of the outstanding NHCS
Preferred Stock entitled to vote (excluding shares that may be received upon
exercise of NHCS Stock Options).
See "THE MERGER -- Terms of the Merger Agreement -- CONDITIONS TO
CONSUMMATION OF THE MERGER."
PROXIES. Shares of NHCS Common Stock and NHCS Preferred Stock represented
by properly executed proxies received at or prior to the NHCS Special Meeting,
will be voted at the NHCS Special Meeting in the manner specified by the holders
of such shares. PROPERLY EXECUTED PROXIES WHICH DO NOT CONTAIN VOTING
INSTRUCTIONS WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
If any other matters are properly presented at the NHCS Special Meeting for
consideration, the person or persons named in the relevant form of proxy
enclosed herewith and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment, unless the proxy indicates
otherwise. NHCS has no knowledge of any matters to be presented at the NHCS
Special Meeting other than those matters referred to and described herein.
The grant of a proxy on the enclosed NHCS form of proxy does not preclude a
stockholder from voting in person or otherwise revoking a proxy. Attendance at
the NHCS Special Meeting will not in and of itself constitute revocation of a
proxy. A stockholder may revoke a proxy at any time prior to its exercise by
filing with the Secretary of NHCS at or prior to the NHCS Special Meeting a duly
executed revocation or a proxy bearing a later date or by voting in person at
the Special Meeting. All written notices of revocation should be addressed as
follows: National Health Care Systems of Florida, Inc., 8130 Baymeadows Way
West, Suite 200, Jacksonville, Florida 32245, Attention: Mark Cook, Secretary.
SOLICITATION OF PROXIES. NHCS will bear the costs of the solicitation of
proxies from NHCS shareholders. In addition to soliciting proxies by mail,
directors, officers and regular employees of NHCS, without receiving additional
compensation, may solicit proxies in person, by telephone, by telegram or by
similar means of communication. The total cost of solicitation, including
mailing, is expected to be less than $500.
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Proxy Statement-Prospectus and is incorporated herein by reference. All
shareholders are urged to read carefully the Merger Agreement, as well as the
other Appendices, in their entirety.
BACKGROUND OF THE MERGER
From time to time, NHCS has been approached on an unsolicited basis by a
number of parties interested in acquiring, or entering into a business
combination with NHCS, including Protective which first approached NHCS in early
1994. In May 1994, in order to determine a strategic direction for NHCS, NHCS
undertook to explore various financial alternatives regarding how NHCS should
position itself for increased growth, while providing its shareholders with
increased liquidity. These financial alternatives included the possibility of
participating in a joint venture with a strategic
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partner or other business combination. By letter agreement dated June 3, 1994,
NHCS retained A.G. Edwards & Sons, Inc. ("A.G. Edwards") to act as its exclusive
representative to explore potential business combinations in order to maximize
shareholder value and liquidity while positioning the company for continued
growth. The engagement of A.G. Edwards as well as NHCS's interest in seeking a
business combination were made public via a press release dated July 18, 1994.
On behalf of NHCS, A.G. Edwards contacted and responded to contacts from
over fifty entities which were believed to have the ability to acquire NHCS in
order to determine if these entities had an interest in engaging in a
transaction beneficial to NHCS's shareholders. Protective, as well as other
qualified entities which had previously approached NHCS, were also contacted by
A.G. Edwards. After A.G. Edwards' initial contacts, confidentiality agreements
were signed with approximately thirty entities (including Protective) which were
then provided an offering memorandum containing substantial data on the
personnel, properties, business, liabilities and operations of NHCS. Interested
parties who executed the confidentiality agreements were also provided
additional data on a case by case basis and had the opportunity to ask questions
of the A.G. Edwards representatives. After reviewing this information, the
interested parties were asked to submit preliminary proposals for the
acquisition of NHCS on or about August 29, 1994. Seven of the potential
acquirers (including Protective) submitted preliminary proposals to NHCS.
After receipt and consideration of the preliminary proposals, five of the
interested entities (including Protective) which the Board of Directors of NHCS
deemed most likely to consummate a transaction on terms favorable to NHCS's
shareholders were offered the opportunity to conduct additional investigations
of the personnel, properties, business, liabilities and operations of NHCS, and
to discuss such matters with the executive officers of NHCS, with a view toward
making a more definitive offer to acquire NHCS. On behalf of NHCS, A.G. Edwards
distributed drafts of an Agreement and Plan of Merger (on both a taxable and tax
free basis, as appropriate) to the interested parties for their review and
comments regarding substantial changes desired prior to the submission of their
more definitive proposal. On October 11, 1994, the date set for receipt of the
more definitive offers, two of the interested entities (including Protective)
submitted detailed proposals to acquire NHCS, with another party indicating that
it was still interested, but that it was not willing to substantially increase
the value range indicated in its preliminary proposal.
After review of the more definitive proposals by A.G. Edwards which included
a presentation to NHCS's Board of Directors on October 21, 1994, and through
preliminary discussions between NHCS's legal counsel and Protective's legal
counsel, the Board of Directors of NHCS determined that although Protective's
proposal, at this stage, was at a somewhat lower value, Protective had
essentially accepted the terms and structure of the draft Agreement and Plan of
Merger on a tax free basis, and did not include a financing contingency in its
proposal. Additionally, the Board of Directors of NHCS concluded that although
the other interested party had submitted a detailed proposal at a somewhat
higher value, the proposal contained numerous unattractive terms and conditions
that differed substantively from the transaction contemplated by the draft
Agreement and Plan of Merger.
After receipt and consideration of the two proposals, the Board of Directors
of NHCS determined that neither proposal was acceptable as submitted, and that
it would be in the best interests of NHCS shareholders if Protective were
offered the opportunity to negotiate on an exclusive basis for a limited period,
if it were to increase its offer to an acceptable value level. Protective
increased its offer to an acceptable level, and on October 26, 1994, NHCS and
Protective executed an agreement whereby NHCS would negotiate exclusively with
Protective for a period of 14 days (later extended through November 11, 1994),
in an attempt to finalize the definitive agreement under these revised terms.
See "THE MERGER -- Reasons for the Merger; Recommendations of the NHCS Board of
Directors." Representatives and officers of Protective and NHCS promptly
commenced arm's-length negotiations regarding a definitive Agreement and Plan of
Merger.
The Boards of Directors for both Protective and NHCS were scheduled to meet
on November 7, 1994. At the Protective meeting held on such date, its Board of
Directors unanimously approved the
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Merger Agreement and the transactions contemplated therein. The NHCS Board of
Directors meeting scheduled for that day was postponed until November 9, 1994,
in order to give NHCS the opportunity to further prepare calculations
illustrating the effect of the negotiated purchase price adjustments for
presentation to its Board of Directors.
The NHCS Board of Directors met on November 9, 1994. The Board determined
that the Merger Agreement and the transactions contemplated thereby were fair
and in the best interest of NHCS and its shareholders, and unanimously approved
the Merger Agreement. See "THE MERGER -- Reasons for the Merger: Recommendations
of the NHCS Board of Directors" and "-- Opinions of Financial Advisor." See
"SUMMARY -- The Merger," and "THE MERGER -- Terms of the Merger."
REASONS FOR THE MERGER; RECOMMENDATION OF THE NHCS BOARD OF DIRECTORS
NHCS. NHCS believes that rapid growth of managed care will continue within
the health and dental environments and that through the Merger it will acquire
competitive advantages, including synergistic marketing opportunities and
improved access to capital.
In reaching the determination that the Merger is fair to and in the best
interests of NHCS and its shareholders, the Board of Directors of NHCS consulted
with the executive management of NHCS as well as with its financial and legal
advisors, and considered a number of factors. NHCS's Board of Directors did not
assign any relative or specific weights to the factors considered. Among such
factors, NHCS's Board of Directors considered the following:
(1) Alternatives to the Merger, including remaining independent, in
light of the industry conditions and prospects of markets and the
competitive environment in the economy generally and within the insurance
sector specifically.
(2) Protective's historical results of operations and other financial
data, including its business operations, asset quality, financial condition,
position in the dental insurance industry, and management strength.
(3) A comparison of Protective's historical data with NHCS's historical
results of operations, financial statements and business condition, asset
quality and other financial and operational data.
(4) A review of Protective's historical stock prices, volumes, returns
to stockholders, market performance, recent research reports for Protective
Common Stock, and its trading ranges and multiples.
(5) The presentation of NHCS's financial advisor, A.G. Edwards,
including its comparable company analysis, discounted cash flow analysis and
review of comparable merger transactions, and A.G. Edwards' opinion that the
Purchase Price and the resulting NHCS Exchange Ratio is fair to NHCS's
shareholders from a financial point of view.
(6) A comparison of the consideration offered in the Protective proposal
and the imputed value of NHCS Capital Stock based upon comparable
institutions and based on multiples in selected acquisitions.
(7) The process conducted by A.G. Edwards which resulted in the
proposals from other entities and the terms of such proposals, providing
NHCS's Board of Directors with other valuations of NHCS to use in evaluating
Protective's proposal.
(8) The terms of the Merger Agreement, and the expectation that the
Merger will be a tax-free transaction to NHCS's shareholders to the extent
they receive common stock of Protective.
(9) The apparent absence of significant problems in obtaining regulatory
approvals for the transaction.
Based upon all these matters, and such other matters as the Board of
Directors of NHCS deemed relevant, the Board of Directors of NHCS believes that
the Merger is fair to, and in the best interests
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of NHCS and its shareholders. The Board of Directors of NHCS has unanimously
approved the Merger Agreement and the Merger and recommends that NHCS
shareholders vote in favor of the proposal to adopt and approve the Merger and
Merger Agreement.
NHCS'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT NHCS SHAREHOLDERS VOTE
FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
PROTECTIVE. Protective recognizes that the health care industry is in a
state of change and that Protective must be in a position to take advantage of
this change.
After review of its initial due diligence regarding NHCS's business and
operations, financial condition and growth prospects (both on a stand-alone
basis and in combination with Protective), as well as opportunities for
marketing synergies, Protective's management determined that, in light of other
transactions and trends within the industry, the contemplated transaction was in
the best interests of Protective.
In reaching its determination to approve the acquisition of NHCS pursuant to
the terms of the Merger Agreement, Protective's Board of Directors consulted
with Protective's management and considered a number of factors. Protective's
Board of Directors did not assign any relative or specific weights to the
factors considered. Among such factors, Protective's Board of Directors
considered the following:
(1) A review of NHCS's business, results of operations, prospects, and
financial condition, as perceived by Protective's management.
(2) The enhancement of Protective's competitiveness in the dental
insurance business and its ability to serve its customers in the geographic
area in which it operates as a result of a business combination with a
prepaid dental plan, such as NHCS.
(3) The geographic and business fit of Protective and NHCS, the
complementary nature of their respective businesses, and the depth and
strength of the respective management groups of the two companies.
Based upon all of these matters and such other matters as deemed relevant,
Protective's Board of Directors unanimously approved the Merger Agreement, the
Merger and the issuance of Protective Common Stock in connection therewith.
OPINION OF FINANCIAL ADVISOR
NHCS retained A.G. Edwards to act as its exclusive investment banking
representative and financial advisor for the purpose of advising NHCS concerning
possible business combinations and, upon a successful acquisition of NHCS by
another entity, to render an opinion as to the fairness, from a financial point
of view, of the consideration to be received by the stockholders of NHCS as
defined in Appendix C.
A.G. Edwards is a nationally recognized securities and investment banking
firm engaged in, among other things, the evaluation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distribution of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. A.G. Edwards was selected as financial advisor based upon such
expertise and its reputation in investment banking and mergers and acquisitions.
At the November 9, 1994, meeting with NHCS's Board of Directors, A.G.
Edwards rendered its oral opinion to the NHCS Board of Directors, based on
various considerations and assumptions discussed below and A.G. Edwards' general
knowledge of the mergers and acquisitions market for companies similar to NHCS,
that, as of such date, the Purchase Price, and the resulting NHCS Exchange Ratio
was fair to the shareholders of NHCS from a financial point of view. A.G.
Edwards has delivered a written opinion to NHCS's Board of Directors dated as of
the date of this Proxy Statement-Prospectus, the full text of which is attached
as Appendix C to this Proxy Statement-Prospectus and is
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incorporated herein by reference. NHCS SHAREHOLDERS ARE URGED TO READ THE
OPINION, TOGETHER WITH THE ASSUMPTIONS AND CONSIDERATIONS SET FORTH THEREIN, IN
ITS ENTIRETY. The discussion of the opinion set forth herein is qualified in its
entirety by reference to Appendix C. A.G. Edwards' opinion is directed to NHCS's
Board of Directors only and is directed only to the Purchase Price and the NHCS
Exchange Ratio and does not constitute a recommendation to any NHCS shareholder
as to how such shareholder should vote at the NHCS Special Meeting.
In arriving at its written opinion, A.G. Edwards, considered among other
things: (i) the Merger Agreement; (ii) available information concerning NHCS
which it deemed relevant, including NHCS's audited financial statements for each
of the years in the five-year period ended December 31, 1993, and the NHCS's
results of operations for each month for the nine-month period ended September
30, 1994; (iii) financial projections for NHCS for fiscal years 1994 through
1998; (iv) certain other internal operating and financial information supplied
to it at its request by NHCS concerning the business and operations of NHCS,
including monthly financial reports and the 1994 NHCS company marketing program;
(v) publicly available information concerning Protective which it deemed
relevant, including Protective's Annual Reports to Shareholders for each of the
years in the two-year period ended December 31, 1993, and Protective Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1994, June 30, 1994 and
September 30, 1994; (vi) financial projections for Protective for 1994 and for
1995; (vii) certain other operating and financial data supplied to A.G. Edwards
at its request by Protective concerning the business and operations of
Protective for the purposes of its analysis; (viii) historical and current
publicly available market data concerning the trading of, and the trading
markets for Protective Common Stock; (ix) certain publicly available information
concerning certain other companies that it believed to be generally comparable
to NHCS or Protective, and the trading of, and trading markets for, certain of
such companies' securities; (x) information relating to the nature and financial
terms of certain other mergers or acquisitions that it considered relevant; and
(xi) other information that it considered relevant to its analysis. In addition,
A.G. Edwards met with members of management of NHCS and of Protective to discuss
the foregoing and other matters it believed relevant to its inquiry.
A.G. Edwards has relied upon and assumed, without independent verification,
the accuracy and completeness of all information that has been furnished to it
by NHCS or Protective or otherwise reviewed by A.G. Edwards. The Board of
Directors of NHCS has not specifically engaged A.G. Edwards to, and therefore it
has not verified the accuracy or completeness of any such information nor has
A.G. Edwards made any evaluation or appraisal of any assets or liabilities of
NHCS or of Protective.
A.G. Edwards' opinion is necessarily based on economic, market and other
conditions as they exist on, and the information made available to it as of, the
date hereof. A.G. Edwards' opinion as expressed herein, in any event, is limited
to the fairness, from a financial point of view, to the stockholders of NHCS as
defined in Appendix C of the Purchase Price and the related NHCS Exchange Ratio.
The following is a summary of the analyses used by A.G. Edwards in rendering
its opinion:
DISCOUNTED CASH FLOW ANALYSIS. A.G. Edwards performed discounted cash flow
analyses using the financial projections prepared by NHCS management by
estimating the value of future cash flows set forth in such projections. A.G.
Edwards calculated the net present value of NHCS's equity from free cash flow
available for the years 1994 through and including 1998 and an assumed financial
value based upon a multiple of earnings. Based on this analysis, A.G. Edwards
determined that the present value of NHCS Capital Stock was between $5.56 per
share and $7.47 per share (assuming 5.4 million shares outstanding).
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information, A.G.
Edwards reviewed and compared the consideration paid in two selected publicly
announced merger and acquisition transactions involving dental HMOs since
December 1991, namely the acquisitions of California Dental Health Plan, Inc. by
PacificCare Health Systems, Inc., and National Health Care Systems, Inc. by
Foundation Health Corporation. Among other things, A.G. Edwards analyzed as
available (i) the
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aggregate transaction price as a percentage of revenues for the twelve month
period prior to the announcement of the transaction ("LTM"); (ii) the aggregate
transaction price per member; and (iii) and the similarity of such transactions
to the Merger. A.G. Edwards concluded that the Purchase Price of NHCS compared
favorably to the prices paid in such previous dental HMO transactions.
No transaction used in A.G. Edwards' analysis is identical to the Merger.
A.G. Edwards' analysis of the value of the Merger involves complex
considerations and judgments concerning differences in acquisition values of the
comparable transactions.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, A.G.
Edwards reviewed and compared NHCS with financial, operating, and stock market
information of the only identified publicly traded dental HMO, Safeguard Health
Enterprise, Inc. ("Safeguard"). A.G. Edwards considered among other things: (i)
stock price ratios for LTM earnings, 1994 estimated earnings, and 1995 estimated
earnings based on First Call Estimates, (ii) the firm's market capitalization to
LTM revenues; (iii) the firm's market capitalization to LTM earnings before
interest and taxes ("EBIT"); and (iv) the similarity of Safeguard to NHCS. A.G.
Edwards concluded that the Purchase Price of NHCS compared favorably to the
public trading multiples of Safeguard.
The company used in A.G. Edwards' analysis, Safeguard, is not identical to
NHCS. A.G. Edwards' analysis of the value of NHCS involves complex
considerations and judgments concerning differences in the potential financial
and operating characteristics of the two companies and other factors regarding
the trading values of Safeguard.
ANALYSIS OF PROTECTIVE LIFE CORPORATION. Using publicly available
information, A.G. Edwards compared Protective's financial, operating and stock
market information to eight publicly traded insurance companies: AFLAC,
Incorporated, American General Corporation, Aon Corporation, Jefferson Pilot
Corporation, The NWNL Companies, Providian Corporation, Torchmark Corporation,
and UNUM Corporation (the "Protective Comparables"). A.G. Edwards considered
among other things: (i) stock price ratios for LTM earnings, 1994 estimated
earnings, and 1995 estimated earnings (based on First Call estimates as of
October 9, 1994), (ii) the firm's market capitalization to LTM revenues; (iii)
the firm's market capitalization to LTM EBIT, and (iv) the similarity of such
companies to Protective.
A.G. Edwards examined the history of the trading prices of Protective Common
Stock and the relationship between movements of such common stock prices and the
movements in the prices of the Protective Comparables and the S&P Life Insurance
Index. This analysis showed that Protective Common Stock had outperformed the
Protective Comparables and the S&P Life Insurance Index when measured from May
1993 to November 1, 1994.
A.G. Edwards examined the quarterly history of the price to earnings ratio
of Protective Common Stock and the price to earnings ratio of the median of the
Protective Comparables and the S&P 400. This analysis showed that the quarterly
price to earnings ratio of Protective's Common Stock since 1989 had historically
been below the price to earnings ratio of the median of the Protective
Comparables and the S&P 400, that since that time there has been a strong
correlation between the fluctuations in the price to earnings multiples of
Protective Common Stock and the median of the Protective Comparables, and that
the price to earnings ratios of both the Protective Common Stock and the median
of the Protective Comparable were below that of the S&P 400.
A.G. Edwards examined the quarterly history of the multiple of the earnings
to price ratio to the 30 year U.S. Treasury Bond yield for both the Protective
Common Stock and the median of the Protective Comparables. This analysis showed
that since the first quarter of 1989 the multiple of earnings to price ratio to
the 30 year U.S. Treasury Bond yield for Protective Common Stock has generally
been greater than the multiple of the earnings to price ratio to the 30 year
U.S. Treasury Bond yield for the Protective Comparables, and at the time of the
analysis, was at a higher level relative to its average over the past five
years.
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Based upon the comparable company and other analyses conducted on
Protective, A.G. Edwards concluded that the price of Protective Common Stock was
fairly valued in the public marketplace.
PRO FORMA MERGER ANALYSIS. A.G. Edwards analyzed certain pro forma effects
resulting from the Merger, including the impact of the Merger on Protective's
projected earnings per share for fiscal 1994 and 1995. As a result of the
Merger, NHCS shareholders will own approximately 5.5% of Protective on a
fully-diluted basis (assuming a Protective Common Stock price of $40 per share
and Protective Common shares outstanding of approximately 14.5 million). Based
on estimates of Protective management and of selected investment banking firms
as to Protective earnings, the results of the pro forma merger analysis suggest
that the pro forma dilutive effects of the Merger on Protective's projected 1995
earnings per share would be immaterial. The actual results achieved by
Protective after the Merger may vary from projected results and the variations
may be material.
OTHER FACTORS AND ANALYSIS. In rendering its opinion, A.G. Edwards
considered certain other factors and conducted certain other analyses, including
among other things (i) discussions with management of NHCS regarding the
potential marketing synergies between the two companies; (ii) a review of the
projected financial results of NHCS and Protective; (iii) a review of the
projected 1994 earnings per share and 1995 earnings per share of Protective
Common Stock as estimated by selective investment banking firms; and (iv) a
review of mergers, acquisitions and public trading multiples of health
maintenance organizations and managed health care organizations in general.
The summary of the A.G. Edwards report set forth above does not purport to
be a complete description of the main elements of A.G. Edwards' presentation to
NHCS's Board of Directors on November 9, 1994. It does not purport to be a
complete description of the analyses performed, or the matters considered, by
A.G. Edwards in rendering its opinion. A.G. Edwards believes that its analyses
and the summary set forth above must be considered as a whole and that selecting
portions of such analyses, without considering all analyses, or of the above
summary, without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in the A.G.
Edwards report and its fairness opinion. The fact that any specific analyses
have been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analyses.
The preparation of a fairness opinion is not necessarily susceptible to
partial analyses or summary. In rendering its fairness opinion, A.G. Edwards
applied its judgment to a variety of complex analyses and assumptions. A.G.
Edwards may have given various analyses more or less weight than other analyses,
and may have deemed various assumptions more or less probable than other
assumptions. The assumptions made, and the judgments applied, by A.G. Edwards in
rendering its opinion are not readily susceptible to description beyond that set
forth in the written text of the fairness opinion itself.
In performing its analyses, A.G. Edwards made numerous assumptions with
respect to industry performance and general business and economic conditions,
many of which are beyond the control of NHCS or Protective. The analyses
performed by A.G. Edwards are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of A.G.
Edwards' analysis of the fairness of the Purchase Price and the resulting NHCS
Exchange Ratio to the shareholders of NHCS from a financial point of view and
were provided to NHCS's Board of Directors in connection with the delivery of
A.G. Edwards' fairness opinion. In addition, as described above, A.G. Edwards'
opinion and presentation to NHCS's Board of Directors was one of many factors
taken into consideration by NHCS's Board of Directors in making its
determination to approve the Merger Agreement.
TERMS OF A.G. EDWARDS ENGAGEMENT, OTHER RELATIONSHIPS. The terms of
engagement of A.G. Edwards by NHCS are set forth in a letter agreement dated
June 3, 1994, as amended by a subsequent letter agreement dated November 8, 1994
between A.G. Edwards and NHCS (the "Engagement Letter"). Pursuant to the terms
of the Engagement Letter, as compensation for rendering its financial advisory
services and its opinion to the Board of Directors of NHCS, NHCS agrees to pay
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A.G. Edwards a transaction fee payable upon the consummation of the Merger equal
to 1.25% of the total consideration paid at the Merger, excluding NHCS's excess
cash (the "Transaction Fee"). Based upon the terms of the Merger, the
Transaction Fee will be approximately $415,000.
A.G. Edwards acts, from time to time, as an agent in the sale of certain
Protective securities and insurance related products in the ordinary course of
its business. A.G. Edwards may from time to time hold positions in securities of
Protective, and has participated as a syndicate member in underwritten public
offerings of securities by Protective and its affiliates.
TERMS OF THE MERGER AGREEMENT
Set forth below is a description of the material provisions of the Merger
Agreement. This description does not purport to be complete and is qualified in
its entirety by reference to the full text of the Merger Agreement, which is
attached as Appendix A to this Proxy Statement-Prospectus. As discussed below,
the Merger will be effected by the merger of Sub with and into NHCS. To effect
the Merger, Protective formed Sub as a wholly-owned subsidiary.
CONVERSION OF NHCS CAPITAL STOCK AND NHCS STOCK OPTIONS INTO PROTECTIVE
COMMON STOCK. Each share of NHCS Common Stock and NHCS 8% Cumulative Convertible
Series A Preferred Stock, $0.01 par value (the "NHCS Preferred Stock", and
collectively with NHCS Common Stock, the "NHCS Capital Stock"), outstanding
immediately prior to the Merger will be converted into and become exchangeable
for a combination of cash, without interest, and shares of Protective Common
Stock. Each stock option to purchase shares of NHCS Common Stock (individually,
a "NHCS Stock Option" and collectively, the "NHCS Stock Options") that is issued
and outstanding immediately prior to the Effective Time, whether or not then
vested or exercisable, shall, without action on the part of the holder thereof,
become exercisable in full, shall be cancelled and converted into and be
exchanged for a combination of cash, without interest, and shares of Protective
Common Stock, all as hereinafter described.
Under the terms of the Merger Agreement, the purchase price (the "Purchase
Price") to be paid by Protective for NHCS through a combination of cash and
Protective Common Stock will be equal to $33.15 million, increased by NHCS's
consolidated net worth as of the end of the month immediately preceding the
Effective Time of the Merger, subject to certain reductions. The Purchase Price
will be reduced by (a) the amount, if any, by which the aggregate minimum
statutory capital of NHCS's subsidiaries under applicable law at the Effective
Time exceeds $300,000, and (b) the amount, if any, by which NHCS's subsidiaries'
net worth determined in accordance with generally accepted accounting principles
exceeds the NHCS's subsidiaries' net worth determined in accordance with
statutory accounting principles prescribed or permitted by insurance regulatory
authorities. If the Merger were to have been consummated based upon the net
worth of NHCS on September 30, 1994 (on an unaudited basis and after giving
effect to the appropriate reductions), the Purchase Price would have been
approximately $38.4 million.
Upon consummation of the Merger, each outstanding share of NHCS Capital
Stock (other than shares of NHCS Capital Stock held by NHCS as treasury stock
and shares of NHCS Capital Stock that are outstanding immediately prior to the
Effective Time and that are held by shareholders who validly perfect their
rights to dissent from the Merger under applicable Florida statutes (the
"Dissenting Shares")) will be converted into a combination of cash (the "Cash
Portion") and Protective Common Stock (the "Stock Portion") as described below.
In order to determine the amount of cash and Protective Common Stock to be
received by each shareholder of NHCS, as well as the amount to be received by
each holder of an NHCS Stock Option, on a per share basis, the amount of the
Purchase Price is increased by the aggregate sum of the exercise prices of the
NHCS Stock Options outstanding immediately prior to the Effective Time. This
amount, referred to in the Merger Agreement as the "Fully Diluted Purchase
Price," is then divided by the sum of (a) the total number of shares of NHCS
Capital Stock outstanding immediately prior to
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the Effective Time and (b) the total number of shares of the NHCS Common Stock
issuable upon exercise of the NHCS Stock Options outstanding immediately prior
to the Effective Time, in order to calculate the "Fully Diluted Purchase Price
Per Share." Based upon the number of shares of NHCS Capital Stock outstanding,
the number of shares of NHCS Common Stock issuable upon exercise of the NHCS
Stock Options and the consolidated net worth of NHCS on September 30, 1994 (on
an unaudited basis and after giving effect to the appropriate reductions), the
Fully Diluted Purchase Price Per Share would have been approximately $7.34.
NHCS and Protective intend that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Generally, in order to qualify as a reorganization, the
amount of cash payable by Protective in respect of the NHCS Capital Stock and
NHCS Stock Options cannot exceed twenty percent (20%) of the aggregate
consideration paid in such exchange. Accordingly, the Merger Agreement provides
that the Cash Portion shall be a dollar amount determined by multiplying the
Purchase Price by an amount not to exceed 0.199 (19.9%); however, since holders
of NHCS Capital Stock are entitled to exercise dissenters' rights under Florida
law (see, "THE MERGER -- Dissenters' Rights of Appraisal") and receive in cash
the fair value of their shares under such laws, the Merger Agreement provides
that the Cash Portion will be adjusted in the event that there are any
Dissenting Shares. In such event, Protective shall reduce the Cash Portion of
the Purchase Price by an amount equal to (a) the number of Dissenting Shares
multiplied by the Fully Diluted Purchase Price Per Share (the "Dissenters'
Contractual Amount") and (b) such additional amount as Protective and NHCS may
reasonably agree upon in order to increase the possibility that the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code (the "Dissenters' Additional Amount"). The
Cash Portion, as reduced by the sum of the Dissenters' Contractual Amount and
the Dissenters' Additional Amount, is then divided by (i) the Purchase Price
LESS (ii) the Dissenters' Contractual Amount in order to determine the
percentage of the Purchase Price that will be paid in cash to the holders of
NHCS Capital Stock (other than Dissenting Shares) and NHCS Stock Options
(referred to in the Merger Agreement as the "Adjusted Cash Percentage").
Finally, in order to determine the amount of cash to be paid by Protective
on a per share basis (the "Per Share Cash Amount") for NHCS Capital Stock (other
than Dissenting Shares and shares subject to NHCS Stock Options), the Fully
Diluted Purchase Price Per Share is multiplied by the Adjusted Cash Percentage.
In order to determine the Per Share Cash Amount for shares of NHCS Common Stock
subject to NHCS Stock Options, the amount by which the Fully Diluted Purchase
Price Per Share exceeds the per share exercise price of such NHCS Stock Option
is multiplied by the Adjusted Cash Percentage.
Assuming that there were no Dissenting Shares and based upon the number of
shares of NHCS Capital Stock outstanding, the number of shares of NHCS Common
Stock issuable upon exercise of the NHCS Stock Options and the consolidated net
worth of NHCS on September 30, 1994 (on an unaudited basis and after giving
effect to the appropriate reductions), the Adjusted Cash Percentage would have
been 19.9% and the Per Share Cash Amount payable with respect to each share of
NHCS Capital Stock would have been approximately $1.46. Using the same
assumptions except that (a) the number of Dissenting Shares were to equal 15% of
the NHCS Capital Stock (the maximum amount permitted as a condition to the
parties' obligation to consummate the Merger) and (b) Protective and NHCS agree
that the Dissenters' Additional Amount were equal to 50% of the Dissenters'
Contractual Amount, the Adjusted Cash Percentage would have been 0% and no Per
Share Cash Amount would have been payable with respect to each share of NHCS
Capital Stock.
The Stock Portion on a per share basis would be equal to the Fully Diluted
Purchase Price Per Share less the Per Share Cash Amount and the exchange ratio
is determined by dividing the result by the average of the closing price for a
share of Protective Common Stock as reported on the New York Stock Exchange
Composite Tape for the twenty (20) consecutive trading days immediately
preceding the second business day preceding the Closing Date, provided, however,
that if such average is less than $40.00 or greater than $50.00, then in such
events the minimum average shall be $40.00 and the
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maximum average shall be $50.00, respectively (the "Protective Trading
Average"). Assuming that there were no Dissenting Shares, under the example
described above in which the Adjusted Cash Percentage would have been 19.9% and
the Per Share Cash Amount payable with respect to each share of NHCS Capital
Stock would have been $1.46, the percentage of the consideration to be received
in Protective Common Stock stock would be 80.1% and the number of shares of
Protective Common Stock received in exchange for each share of NHCS Capital
Stock would range from a high of approximately 768,000 shares, or approximately
0.1470 shares per share of NHCS Capital Stock (on a fully diluted basis) (in the
event that the Protective Trading Average was $40.00) to a low of approximately
615,000 shares, or approximately 0.1176 shares per share of NHCS Capital Stock
(on a fully diluted basis) (in the event that the Protective Trading Average was
$50.00). Assuming that the number of Dissenting Shares were to equal 15% of the
NHCS Capital Stock (the maximum amount permitted as a condition to the parties'
obligation to consummate the Merger), under the example described above in which
the Adjusted Cash Percentage would have been 0% and no Per Share Cash Amount
would have been payable with respect to each share of NHCS Capital Stock, the
percentage of the consideration to be received in Protective Common Stock stock
would be 100% and the number of shares of Protective Common Stock received in
exchange for each share of NHCS Capital Stock would range from a high of
approximately 833,000 shares, or approximately 0.1839 shares per share of NHCS
Capital Stock (on a fully diluted basis) (in the event that the Protective
Trading Average was $40.00) to a low of approximately 666,000 shares, or
approximately 0.1471 shares per share of NHCS Capital Stock (on a fully diluted
basis) (in the event that the Protective Trading Average was $50.00).
Notwithstanding any other provision of the Merger Agreement to the contrary,
each holder of shares of NHCS Capital Stock exchanged pursuant to the Merger who
would have otherwise been entitled to receive a fraction of a share of
Protective Common Stock (after taking into account all Certificates delivered,
or Company Stock Options held, by such holder) shall receive, in lieu thereof,
cash (without any interest thereon) in an amount equal to such fractional part
of a share of Protective Common Stock multiplied by the Purchaser Trading
Average. No such holder shall be entitled to dividends, voting rights or any
other rights as a stockholder of the Protective in respect of any fractional
share.
EFFECTIVE TIME. The Merger shall become effective on the date and at the
time on which articles of merger containing the provisions required by, and
executed in accordance with, Section 607.1105 of the Florida Business
Corporation Act (the "Articles of Merger") shall have been accepted for filing
by the Secretary of State of the State of Florida, or such later date and time
as may be specified in the Articles of Merger (the "Effective Time").
TERMINATION. The Merger Agreement may be terminated and the transaction
contemplated hereby abandoned at any time at or prior to Closing:
(a) by the mutual consent of NHCS and Protective;
(b) by either Party, if there shall have been any material breach by the
other Party of any of its covenants or agreements contained herein and such
breach shall not have been remedied, or cannot be remedied, within 30 days
after written notice specifying the nature of such breach and requesting
that it be remedied has been delivered to the breaching Party;
(c) by either Party, if the Closing Date shall not have occurred on or
prior to June 15, 1995, unless the failure of such occurrence shall be due
to the failure of the Party seeking to terminate this Agreement to perform
or observe its or their agreements as set forth in this Agreement required
to be performed or observed by such Party on or before the Closing Date;
(d) by either Party upon written notice to the other Party that (i) any
Requisite Regulatory Approval shall have been denied, or (ii) any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable Order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement;
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(e) by either Party (provided that the terminating Party is not then in
material breach of any of its representation, warranty, covenant or other
agreement contained herein), if the shareholders of NHCS fail to approve the
Merger at the NHCS Special Meeting; and
(f) by NHCS, if the Board of Directors shall have withdrawn or modified
in a manner adverse to Protective its approval or recommendation of the
Merger in order to approve the execution by NHCS of a definitive agreement
providing for the acquisition of NHCS or its Assets by merger or other
business combination or in order to approve a tender offer for the NHCS
Capital Stock by a third party, in either case, as determined by the NHCS's
Board of Directors, on terms more favorable to the NHCS's shareholders than
the Merger.
CONDITIONS TO CONSUMMATION OF THE MERGER. Under the terms of the Merger
Agreement, the obligation of each of the parties to consummate the Merger is
subject to a number of conditions, including: (i) the approval of the proposal
to adopt and approve the Merger Agreement by the NHCS shareholders; (ii) all
consents of any governmental entity that are prescribed by law as necessary for
the consummation of the transactions contemplated hereby (including the lapse of
any waiting periods imposed by law), other than consents, the failure to obtain
which would have no material adverse effect on the consummation of the
transactions contemplated hereby, shall have been filed, occurred or obtained;
(iii) the receipt by each of Protective and NHCS of a written opinion of
counsel, dated as of the Closing Date, containing such opinions as are customary
in a transaction of this kind and otherwise in form and substance reasonably
satisfactory; (iv) the Registration Statement of which this Proxy
Statement-Prospectus is a part shall have been declared effective by the
Securities and Exchange Commission (the "SEC") and shall not be subject to a
stop order or a threatened stop order; (v) no order issued by any court or
agency of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the transactions contemplated
hereby shall be in effect, nor shall any litigation by any governmental entity
seeking any such Injunction be pending, and no law or order shall have been
enacted, entered, promulgated or enforced by any governmental entity that
prohibits, restricts or makes illegal consummation of the transactions
contemplated hereby;. (vi) the shares of Protective Common Stock issuable
pursuant to the Merger shall have been authorized for listing on the NYSE; and
(vii) holders of not more than 15% of NHCS's Capital Stock shall have perfected
their dissenter's rights under applicable law.
Under the terms of the Merger Agreement, the obligations of Protective and
Sub to consummate the Merger are also subject to a number of conditions,
including: (i) each of the representations and warranties of NHCS contained in
the Merger Agreement shall be true and correct in all material respects as of
the date executed and as of the Closing Date with the same force and effect as
if made on and as of such date, except as contemplated or permitted by the
Merger Agreement; (ii) NHCS shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement; (iii)
there shall have been no material adverse effect and no events, transactions or
information shall have come to the attention of Protective which could
reasonably be expected to have a material adverse effect on the on-going
business of NHCS; and (iv) certain other conditions set forth in the Merger
Agreement shall have been satisfied or waived.
Under the terms of the Merger Agreement, the obligations of NHCS to
consummate the Merger are also subject to a number of conditions, including: (i)
the representations and warranties of Protective set forth in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and as of the Closing Date (as though made on and as of the
Closing Date except to the extent any of such representations and warranties are
by their express provisions made as of a specified date) and NHCS shall have
received a certificate signed by a duly authorized officer of Protective to that
effect; (ii) Protective shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to Closing, and NHCS shall have received a certificate signed by a duly
authorized officer of Protective to that effect; and (iii) certain other
conditions which are set forth in the Merger Agreement shall have been satisfied
or waived. NHCS, acting through its Board of Directors, Chief Executive Officer
or other authorized officer, may waive any condition to its obligations to
consummate the Merger.
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ACQUISITION PROPOSALS. The Merger Agreement provides that unless and until
it is terminated, NHCS shall not, directly or indirectly, and shall instruct and
otherwise use its best efforts to cause its officers, directors, employees,
agents or advisors or other representatives or consultants (collectively,
"NHCS's Representatives") not to, directly or indirectly, (a) solicit or
initiate any proposals or offers from any persons relating to any acquisition or
purchase of all or a material amount of the assets of, or any securities of, or
any merger, consolidation or business combination with NHCS (such transactions
are referred to herein as "Acquisition Transactions") or (b) except to the
extent that the NHCS Board of Directors reasonably believes it is required, in
the exercise of its fiduciary duties in accordance with applicable law, to
participate or cause NHCS's Representatives to participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, an Acquisition Transaction. NHCS will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. NHCS will
notify Protective if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with NHCS. The NHCS Board may, but is not
required to, rely on the written opinion of counsel in determining whether its
fiduciary duties require it to participate or cause NHCS's Representatives to
participate in any discussions or negotiations regarding, or furnish to any
other person, any information with respect to an Acquisition Transaction.
FEES AND EXPENSES. Each party (Protective and NHCS) shall pay all expenses
incurred by it in connection with the negotiation, execution and performance of
the Merger, whether or not the transactions contemplated herein are consummated,
including the fees and expenses of the counsel and accountants of each;
PROVIDED, HOWEVER, that (a) the expenses, fees and costs necessary for obtaining
any consents or requisite regulatory approvals (other than the fees and expenses
of NHCS's attorneys, accountants or other consultants rendered in connection
therewith) shall be borne by Protective and (b) nothing contained in the Merger
Agreement shall limit any party's liability arising out of any willful and
intentional breach of any provision of the Merger Agreement. Any and all
expenses attributable to or relating to the Merger, and the transactions
contemplated thereby, shall be fully expensed or accrued on NHCS's closing
balance sheet that is used to calculate the Purchase Price.
EXCHANGE OF CERTIFICATES FORMERLY REPRESENTING NHCS CAPITAL STOCK. As soon
as practicable after the Effective Time, Protective shall cause to be mailed to
each holder of record of certificates representing NHCS Capital Stock
("Certificates"), a form letter of transmittal (which shall specify that a
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the certificates to an exchange agent reasonably
acceptable to Protective and NHCS) and instructions for use in effecting the
surrender of the Certificates in exchange for the cash (including cash in lieu
of fractional shares) and Protective Common Stock into which the shares of NHCS
Capital Stock represented by such Certificate or Certificates shall have been
converted (all without any interest thereon). Holders of (a) NHCS Stock Options
and (b) Certificates (upon surrender of a Certificate for exchange and
cancellation to the exchange agent, together with such letter of transmittal,
duly executed), shall be entitled to receive therefor a certificate representing
the number of whole shares of Protective Common Stock and a bank check for the
cash being paid (including cash in lieu of fractional shares, if any) for the
aggregate number of NHCS Stock Options or shares of NHCS Capital Stock
previously represented by the Certificates surrendered. The Certificates so
surrendered shall forthwith be cancelled.
CONDUCT OF BUSINESS OF NHCS PRIOR TO THE EFFECTIVE TIME; CERTAIN
COVENANTS. Pursuant to the Merger Agreement, NHCS shall carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted. NHCS shall use its best efforts to (a) preserve its
business organization intact, (b) keep available the present services of its
employees and (c) preserve the goodwill of its customers and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as otherwise contemplated by the Merger Agreement or consented to in
writing by Protective, NHCS shall not:
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(i) declare or pay any dividends on, or make other distributions in
respect of the NHCS Capital Stock (other than regular or partial dividends
due in respect of the NHCS Preferred Stock) prior to the Closing Date;
(ii) issue, sell, redeem, or purchase any of its capital stock or other
equity securities of any kind or grant or issue any additional options or
other rights to acquire any of its equity securities;
(iii) amend its articles of incorporation, bylaws or other similar
applicable governing documents;
(iv) make any capital expenditures other than in the ordinary course of
business or as necessary to maintain existing assets in good repair;
(v) enter into any new line of business;
(vi) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or division thereof or, any
person or, other than in the ordinary course of business consistent with
prior practice, otherwise acquire any assets that would be material,
individually or in the aggregate, to the condition of NHCS;
(vii) except for increases in the ordinary course of business consistent
with past practice, as disclosed in NHCS's Disclosure Schedule:
(A) increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan
or agreement as in effect as of the date hereof (including, without
limitation, the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares);
or
(B) enter into, modify or renew any contract providing for the
payment to any director, officer, or employee of compensation or benefits
contingent, or the terms of which are materially altered, upon the
occurrence of any of the transactions contemplated by the Merger
Agreement;
(viii) other than activities in the ordinary course of business consistent
with prior practice and subject to general parameters agreed to by
Protective and NHCS, sell, lease, encumber, assign or otherwise dispose of,
or agree to sell, lease, encumber, assign or otherwise dispose of, any of
its assets;
(ix) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other person, or make any loan or advance to any person;
(x) accelerate, create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract to
which NHCS is a party or by which NHCS or its assets is bound;
(xi) make any change in accounting principles or methods from those
currently employed, except as required by generally accepted accounting
principles or by applicable law;
(xii) grant any lien, or, other than in the ordinary course of business,
permit any lien to be placed on any of its assets;
(xiii) take any action, or fail to take any action, that is intended or
may reasonably be expected to result in a breach or violation of any of the
representations and warranties of NHCS contained in the Merger Agreement or
would cause any condition to the transactions contemplated hereby not to be
satisfied, except, in every case, as may be required by law;
(xiv) enter into any intercompany transaction not in the ordinary course
of business; or
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(xv) agree to do any of the foregoing.
NHCS will deliver to Protective promptly upon the completion thereof copies
of its monthly consolidated balance sheets and the related consolidated
statements of income, consolidated statements of changes in shareholders' equity
and consolidated statements of the cash flows (including related notes and
schedules) prepared subsequent to the execution of the Merger Agreement. All
material expenses of NHCS relating to the Merger Agreement and the consummation
of the transactions contemplated thereby, as well as the effect of the exercise
of unqualified NHCS Stock Options, shall be accrued or otherwise reflected in
such financial statements.
NHCS shall manage its investments consistent with the guidelines established
by Protective and NHCS as set forth in the Merger Agreement.
Pursuant to the Merger Agreement during the period from the date of the
Merger Agreement and continuing until the Closing Date, except as otherwise
contemplated by the Merger Agreement or consented to in writing by NHCS,
Protective will:
(a) not take, or fail to take, any action that is intended or may
reasonably be expected to result in a breach or violation of any of the
representations and warranties of NHCS contained in the Merger Agreement or
would cause any condition to the transactions contemplated hereby not to be
satisfied, except, in every case, as may be required by law; and
(b) deliver to NHCS promptly upon the filing thereof with the SEC copies
of its quarterly and annual consolidated balance sheets and the related
consolidated statements of income, consolidated statements of changes in
shareholders' equity and consolidated statements of the cash flows
(including related notes and schedules) prepared subsequent to the execution
of the Merger Agreement.
AGREEMENTS TO VOTE IN FAVOR OF THE MERGER. Although there are no agreements
by any party to vote in favor of the Merger Agreement, NHCS directors and
executive officers and their affiliates held approximately 61% of the shares of
outstanding NHCS Common Stock and 71% of the shares of outstanding NHCS
Preferred Stock entitled to vote (excluding shares that may be received upon
exercise of NHCS Stock Options) at the NHCS Special Meeting, as of the record
date thereof. None of such directors or executive officers has indicated to NHCS
that he intends to vote against the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Upon consummation of the
Merger, the Surviving Corporation will become a wholly-owned subsidiary of
Protective. The directors of a wholly-owned subsidiary of Protective ("Sub")
immediately prior to the Effective Time (which will not include any of the
current directors of NHCS) will be the initial directors of the Surviving
Corporation, and the executive officers of NHCS immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation.
Following the Merger, such officers will own a maximum of approximately
shares of Protective Common Stock, representing in each instance less
than 1% of the total shares of Protective Common Stock to be outstanding
following consummation of the Merger.
Protective has agreed in the Merger Agreement to enter into an Employment
Agreement with Mr. Alekna, NHCS's Chief Executive Officer, having a term of
three years or lesser period as may be acceptable to Protective.
STOCK OPTIONS OF NHCS. Each NHCS Stock Option that is issued and
outstanding immediately prior to the Effective Time, whether or not then vested
or exercisable, shall, without action on the part of the holder thereof, become
exercisable in full, shall be cancelled and converted into and become the right
to receive, without interest, a combination of cash and shares of Protective
Common Stock.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF NHCS. The Surviving
Corporation shall honor the existing indemnification agreements that the
directors of NHCS have with NHCS for a period of time not to exceed six (6)
years. In addition, NHCS shall have acquired prior to the Effective Time,
director's and officer's liability insurance coverage with aggregate limits of
five million dollars, which
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the Surviving Corporation shall maintain after the Effective Time, subject to
the general corporate policies of Protective from time to time in effect with
respect such insurance, covering each person who is now, or has been prior to
the date hereof or who becomes prior to the Effective Time, an officer or
director of NHCS, which insurance shall be on terms not materially less
favorable than the insurance maintained in effect by NHCS as of the date of the
Merger Agreement in terms of coverage (including without limitation types of
claims, time period of claims, exclusions and persons covered), and deductibles;
PROVIDED, HOWEVER, that if the Surviving Corporation shall not maintain such
director's and officer's liability insurance coverage (or coverage of less than
$5,000,000), then Protective shall guaranty the payment and performance of the
Surviving Corporation's obligations under the indemnification agreements.
RESALE OF PROTECTIVE COMMON STOCK ISSUED AS A RESULT OF THE MERGER. The
shares of Protective Common Stock issuable to shareholders of NHCS upon
consummation of the Merger have been registered under the Securities Act. Such
shares may be traded freely and without restriction by those shareholders not
deemed to be "affiliates" of NHCS as that term is defined in the rules under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by or are under common control with NHCS at the time of the Special
Meeting. Accordingly, "affiliates" generally will include directors and
executive officers of NHCS. Protective Common Stock received by those
shareholders of NHCS who are deemed to be "affiliates" of NHCS may be resold
without registration as provided for by Rule 145, or as otherwise permitted,
under the Securities Act.
NHCS has agreed to use its best efforts to cause each holder of NHCS Capital
Stock deemed to be an affiliate of NHCS to enter into an agreement providing
that such affiliate will not sell, pledge, transfer or otherwise dispose of the
shares of Protective Common Stock to be received by such person in the Merger
except in compliance with the applicable provisions of the Securities Act and
the rules and regulations thereunder.
If NHCS shareholders intend to dispose of a significant amount of Protective
Common Stock received in the Merger, the transaction might not qualify as a
tax-free reorganization. See "FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
ACCOUNTING TREATMENT OF THE MERGER. Protective intends to account for the
Merger as a purchase.
NYSE LISTING OF PROTECTIVE COMMON STOCK ISSUABLE UNDER THE MERGER. The
Protective Common Stock which will be issued in connection with the Merger has
been listed on the New York Stock Exchange ("NYSE"). The Protective Common
Stock's NYSE trading symbol is "PL."
DISSENTERS' RIGHTS OF APPRAISAL. Notwithstanding anything herein to the
contrary, each of the shares of NHCS Capital Stock that are outstanding
immediately prior to the Effective Time and that are held by shareholders, if
any, who are entitled to assert a right under Section 607.1302 of the Florida
Business Corporation Act ("FBCA") to dissent from the Merger and who validly
perfect their rights under Section 607.1320 of the FBCA to receive the fair
value of their shares with respect to the Merger (the "Dissenting Shares") shall
not be converted into or be exchangeable for Protective Common Stock, but the
holders of such shares of NHCS Capital Stock shall be entitled solely to payment
of the fair value of such shares in accordance with the provisions of the FBCA;
PROVIDED, HOWEVER, that:
(a) if such demand for payment of fair value shall be withdrawn upon the
consent of NHCS;
(b) if the Merger Agreement shall be terminated or the Merger shall not
be consummated;
(c) if no demand or petition for the determination of fair value by a
court shall have been made or filed within the time provided in the
provisions of the FBCA; or
(d) if a court of competent jurisdiction shall determine that such
holder of Dissenting Shares is not entitled to the relief provided by the
provisions of the FBCA;
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then the right of such holder of Dissenting Shares to be paid the fair value of
such holder's shares of NHCS Capital Stock shall cease and, with respect to
clauses (a), (c) and (d) above, such Dissenting Shares shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive a combination of cash and Protective Common
Stock (or cash in lieu of fractional shares thereof) into which such shares
would have been converted in the Merger in accordance with the Merger Agreement,
without any interest thereon, and, with respect to clause (b) above, the status
of such shareholder shall be restored retroactively without prejudice to any
corporate proceeding that may have been taken during the interim.
Under the applicable provisions of the FBCA, any holder of NHCS Capital
Stock has the right to dissent from the Merger and to receive payment of the
fair value of his or her shares of NHCS Capital Stock stock if (1) he or she
notifies NHCS in writing before the NHCS Special Meeting of his or her intent to
demand payment if the Merger is effectuated and (2) he or she does not vote in
favor of the Merger Agreement at the NHCS Special Meeting. A proxy or vote
against the Merger Agreement does not constitute notice of intent to demand
payment. In addition, such shareholder must file a notice of election to dissent
with NHCS within 20 days after he or she is notified by NHCS of the
authorization of the Merger Agreement by the shareholders. See "FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER."
THE FULL TEXT OF THE APPLICABLE SECTIONS OF THE FBCA ARE SET FORTH IN
APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS AND SHAREHOLDERS OF NHCS ARE URGED
TO READ CAREFULLY SUCH SECTIONS OF THE FBCA IN THEIR ENTIRETY, SINCE STRICT
COMPLIANCE WITH THESE PROVISIONS IS REQUIRED IN ORDER TO PERFECT DISSENTERS'
RIGHTS.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material federal income tax consequences
of the Merger. It may not apply to holders who acquired NHCS Capital Stock or
NHCS Stock Options in connection with the performance of services. This summary
is provided for information purposes only and relates only to NHCS Capital Stock
held as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), by persons who are citizens of
the United States. The discussion set forth in this summary is based on the
provisions of the Code, Treasury Regulations thereunder and administrative and
judicial interpretations thereof, all as in effect as of the date hereof and all
of which are subject to change (possibly on a retroactive basis). This summary
does not discuss all aspects of federal income taxation that may be relevant to
a particular NHCS shareholder in light of such shareholder's specific
circumstances or tax consequences to categories of holders that are subject to
special rules, such as foreign persons, tax-exempt organizations, insurance
companies, financial institutions, persons holding NHCS Capital Stock as part of
a conversion transaction and dealers in stocks and securities, and it does not
discuss any aspect of state, local, foreign, or other tax laws. No rulings will
be sought from the Internal Revenue Service with respect to the federal income
tax consequences of the Merger. In addition, certain requirements for a tax-free
reorganization are not within the control of Protective, Sub or NHCS. For
example, if NHCS shareholders intend to dispose of a significant amount of
Protective Common Stock received in the Merger, the transaction might not
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Code. Mahoney Adams & Criser, P.A., counsel to NHCS, has advised NHCS that, in
their opinion, the following discussion, insofar as it relates to matters of
federal income tax law, is a fair and accurate summary of such matters.
NHCS SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
Based upon the advice of Mahoney Adams & Criser, P.A., counsel to NHCS, NHCS
intends to treat the Merger as a reorganization within the meaning of Section
368(a) of the Code. HOWEVER, NO
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ASSURANCES CAN BE GIVEN BY PROTECTIVE, SUB OR NHCS THAT THE MERGER WILL QUALIFY
AS A REORGANIZATION WITHIN THE MEANING OF SECTION 368(A) OF THE CODE. Assuming
the Merger so qualifies, (i) no gain or loss will be recognized by NHCS,
Protective or Sub as a result of the Merger; (ii) no gain or loss will be
recognized by NHCS shareholders upon the receipt of Protective Common Stock in
exchange for NHCS Capital Stock in connection with the Merger (except as
discussed below with respect to the Cash Portion and cash received in lieu of a
fractional interest in Protective Common Stock); (iii) the tax basis of the
Protective Common Stock to be received by the NHCS shareholders in connection
with the Merger will be the same as the basis in the NHCS Capital Stock
surrendered in exchange therefor (reduced by the amount of the Cash Portion and
cash received in lieu of a fractional share interest in Protective Common Stock
and increased by the amount of gain, if any, recognized in connection with the
receipt of such cash amount, as discussed below); and (iv) the holding period of
the Protective Common Stock to be received by NHCS shareholders in connection
with the Merger will include the holding period of the NHCS Capital Stock
surrendered in exchange therefor, provided that the NHCS Capital Stock is held
as a capital asset at the effective time of the Merger. Mahoney Adams & Criser,
P.A., counsel to NHCS, has rendered an opinion to NHCS to this effect.
A NHCS shareholder who receives a Cash Portion or cash in lieu of a
fractional share interest of Protective Common Stock in connection with the
Merger will recognize capital gain (but not loss) equal to the lesser of (i)
such cash amount and (ii) the difference between (x) the sum of (i) the Cash
Portion, (ii) cash received in lieu of a fractional share interest in Protective
Common Stock and (iii) the fair market value of Protective Common Stock received
in connection with the Merger and (y) the shareholder's basis in the NHCS
Capital Stock exchanged therefor, as long as such NHCS Capital Stock is held by
such shareholder as a capital asset at the Effective Time.
A NHCS shareholder who successfully asserts his or her dissenters' rights
with respect to NHCS Capital Stock will recognize capital gain or loss equal to
the difference between the amount of cash received pursuant to such assertion
and such shareholder's tax basis in such NHCS Capital Stock, provided that the
NHCS Capital Stock is held by such shareholder as a capital asset.
It is possible that a holder of NHCS Stock Options (other than a holder who
acquired such options in connection with the performance of services) who does
not exercise such options prior to the Merger will recognize capital gain (or
loss) equal to the difference between (x) the sum of (i) the Cash Portion, (ii)
cash received in lieu of a fractional share interest in Protective Common Stock
and (iii) the fair market value of Protective Common Stock received in
connection with the Merger and (y) such holder's basis in the NHCS Stock Options
exchanged therefor, provided that the NHCS Stock Options are held as a capital
asset. Such holder should consider whether it would be advisable to exercise the
NHCS Stock Options prior to the Merger.
COMPARISON OF RIGHTS OF NHCS SHAREHOLDERS
AND PROTECTIVE STOCKHOLDERS
NHCS is a Florida corporation and the rights of its shareholders are
governed by the FBCA and the Articles of Incorporation and By-Laws of NHCS.
Protective is a Delaware corporation and the rights of its stockholders are
governed by the Delaware General Corporation Law ("DGCL") and its 1985 Restated
Certificate of Incorporation, and any amendments thereto ("Certificate of
Incorporation"), and By-Laws of Protective. If the Merger is consummated, former
NHCS shareholders will become stockholders of Protective. The rights of such
former NHCS shareholders as Protective stockholders will be governed by DGCL and
the Certificate of Incorporation and By-Laws of Protective. Although it is not
practical to compare all differences between (i) Florida law and the Articles of
Incorporation and By-Laws of NHCS and (ii) Delaware law and the Certificate of
Incorporation and By-Laws of Protective, the following is a summary of certain
of those differences which may significantly affect the rights of NHCS
shareholders.
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LIABILITY OF DIRECTORS
The FBCA provides that a director is not personally liable for monetary
damages to the corporation or any other person for any act or omission as a
director unless the director breached or failed to perform his statutory duties
as a director and such breach or failure (1) constitutes a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful, (2) constitutes
a transaction from which the director derived an improper personal benefit, (3)
results in an unlawful distribution, (4) in a derivative action or an action by
a shareholder, constitutes conscious disregard for the best interests of the
corporation or willful misconduct or (5) in a proceeding other than a derivative
action or an action by a shareholder, constitutes recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety or
property.
The DGCL provides that a corporation's certificate of incorporation may
contain a provision which eliminates or limits the personal liability of a
director to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except for a breach which (1)
constitutes an act or omission not in good faith or which involves intentional
misconduct or a knowing violation of law, (2) constitutes a breach of the
director's duty of loyalty to the corporation or its stockholders, (3) results
in an unlawful distribution or (4) relates to a transaction from which the
director derived an improper personal benefit. Protective's Certificate of
Incorporation includes such a provision eliminating the personal liability of
its directors to the extent permitted by the DGCL. The Articles of Incorporation
of NHCS do not include a comparable provision because the provisions of the FBCA
eliminating personal liability of directors automatically apply to all Florida
corporations.
INDEMNIFICATION
Under both the FBCA and the DGCL, a corporation may generally indemnify its
officers, directors, employees and agents against expenses (including attorneys'
fees) judgments, fines and amounts paid in settlement of any proceedings (other
than derivative actions), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action of proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in derivative actions, except that indemnification may be made only
for (1) expenses (including attorneys' fees) and certain amounts paid in
settlement and (2) in the event the person seeking indemnification has been
adjudicated liable amounts deemed proper, fair and reasonable by the appropriate
court upon application thereto. The DGCL and the FBCA both provide that to the
extent that such persons have been successful in defense of any proceeding, they
must be indemnified by the corporation against expenses actually and reasonably
incurred in connection therewith. The FBCA also provides that, unless a
corporation's articles of incorporation provide otherwise, if a corporation does
not so indemnify such persons, they may seek, and a court may order,
indemnification under certain circumstances even if the board of directors or
shareholders of the corporation have determined that the persons are not
entitled to indemnification. The bylaws of Protective and NHCS provide that
directors and officers and former directors and officers will be indemnified to
the fullest extent permitted by law.
Section 6.5 of Article VI of Protective's Certificate of Incorporation
provides that Protective shall indemnify to the fullest extent permitted by law
any person who is made or is threatened to be made a party or is involved in any
action, suit, or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer,
employee or agent of Protective or was serving at the request of Protective as
an officer, director, employee or agent of another corporation, partnership,
joint venture, enterprise, or nonprofit entity.
Protective is empowered by Section 145 of the DGCL, subject to the
proceedings and limitations stated therein, to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of Protective) by reason
of the fact that
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such person is or was an officer, employee, agent or director of Protective, or
is or was serving at the request of Protective as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
Protective, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Protective may indemnify
any such person against expenses (including attorneys' fees) in an action by or
in the right of Protective under the same conditions, except that no
indemnification is permitted without judicial approval if such person is
adjudged to be liable to Protective. To the extent such person is successful on
the merits or otherwise in the defense of any action referred to above,
Protective must indemnify him against the expenses which he actually and
reasonably incurred in connection therewith.
Policies of insurance are maintained by Protective under which directors and
officers of Protective are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities which might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such directors or officers.
Protective has entered into indemnity agreements with each of its directors
which provide insurance protection in excess of the directors' and officers'
liability insurance maintained by Protective and in force at the time up to $20
million and against certain liabilities excluded from such liability insurance.
The agreements provide generally that, upon the happening of certain events
constituting a change in control of Protective, Protective must obtain a $20
million letter of credit upon which the directors may draw for defense or
settlement of any claim relating to performance of their duties as directors.
Protective has similar agreements with certain of its executive officers under
which Protective is required to provide up to $10 million in indemnification,
although this obligation is not secured by a commitment to obtain a letter of
credit.
DERIVATIVE ACTIONS
Under both the FBCA and the DGCL, a person may not bring a derivative action
unless the person was a shareholder of the corporation at the time of the
challenged transaction or unless the person acquired the shares by operation of
law from a person who was a shareholder at such time. The FBCA also provides
that a complaint in a derivative proceeding must be verified and must allege
with particularity that a demand was made to obtain action by the board of
directors and that the demand was refused or ignored. Under the FBCA, a
derivative proceeding may be settled or discontinued only with court approval,
and the court may dismiss a derivative proceeding if the court finds that
certain independent directors (or a committee of independent persons appointed
by such directors) have determined in good faith after conducting a reasonable
investigation that the maintenance of the action is not in the best interest of
the corporation. The FBCA also provides that if an action was brought without
reasonable cause the court may require the plaintiff to pay the corporation's
reasonable expenses, and if the plaintiff is successful the court may require
the corporation to pay the reasonable expenses of the plaintiff.
DISTRIBUTIONS AND REDEMPTIONS
A Florida corporation may make distributions to shareholders as long as,
after giving effect to such distribution (1) the corporation would be able to
pay its debts as they become due in the usual course of business and (2) the
corporation's total assets would not be less than the sum of its total
liabilities plus (unless the articles of incorporation permit otherwise, which
NHCS's Articles of Incorporation do not) the amount that would be needed if the
corporation were to be dissolved at the time of the distribution to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. Under the FBCA, a
corporation's redemption of its own capital stock is deemed to be a
distribution.
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A Delaware corporation may pay dividends out of surplus or, if there is no
surplus, out of its net profits for the fiscal year in which the dividend is
declared and the preceding fiscal year. A Delaware corporation is generally
prohibited from redeeming any of its capital stock if the redemption would
result in an impairment of the corporation's capital.
SHAREHOLDER INSPECTION OF BOOKS AND RECORDS
Under the FBCA, a shareholder is entitled to inspect and copy the articles
of incorporation, bylaws, certain board and shareholder resolutions, certain
written communications to shareholders, a list of the names and business
addresses of the corporation's directors and officers, and the corporation's
most recent annual report, during regular business hours if the shareholder
gives at least five business days' prior written notice to the corporation. In
addition, a shareholder of a Florida corporation is entitled to inspect and copy
other books and records of the corporation during regular business hours if the
shareholder gives at least five business days' prior written notice to the
corporation and (1) the shareholder's demand is made in good faith and for a
proper purpose, (2) the demand describes with particularity its purpose and the
records to be inspected or copied, and (3) the requested records are directly
connected with such purpose. The FBCA also provides that a corporation may deny
any demand for inspection if the demand was made for an improper purpose or if
the demanding shareholder has, within two years preceding such demand, sold or
offered for sale any list of shareholders of the corporation or any other
corporation, has aided or abetted any person in procuring a list of shareholders
for such purpose or has improperly used any information secured through any
prior examination of the records of the corporation or any other corporation.
The provisions of the DGCL governing the inspection and copying of a
corporation's books and records are generally less restrictive than those of the
FBCA. Specifically, the DGCL permits any stockholder the right, during usual
business hours, to inspect and copy the corporation's stock ledger, stockholders
list and other books and records for any proper purpose upon written demand
under oath stating the purpose thereof.
DISSENTERS' RIGHTS
A shareholder of a Florida corporation, with certain exceptions, has the
right to dissent from, and obtain payment of the fair value of his shares in the
event of: (1) a merger or consolidation to which the corporation is a party, (2)
a sale or exchange of all or substantially all of the corporation's property
other than in the usual and regular course of business, (3) the approval of a
control share acquisition, (4) a statutory share exchange to which the
corporation is a party as the corporation whose shares will be acquired, (5) an
amendment to the articles of incorporation if the amendment would adversely
affect the shareholder, and (6) any corporate action taken to the extent that
the articles of incorporation provide for dissenters' rights with respect to
such action. The FBCA provides that unless a corporation's articles of
incorporation provide otherwise, which NHCS's Articles of Incorporation do not,
a shareholder does not have dissenters' rights with respect to a plan of merger,
share exchange or proposed sale or exchange of property if the shares held by
the shareholder are either registered on a national securities exchange or held
of record by 2,000 or more shareholders. The holders of NHCS Common Stock will
have dissenters' rights in connection with the Merger.
A stockholder of a Delaware corporation generally is entitled to dissenters'
rights in the event that the corporation is a party to certain mergers or
consolidations to which the stockholder did not consent. A Delaware
corporation's certificate of incorporation may also provide that dissenters'
rights are available with respect to any amendment to the certificate of
incorporation or any sale of all or substantially all of the corporation's
assets. Protective's Certificate of Incorporation does not contain such a
provision. Similar to the FBCA, dissenters' rights do not apply to a stockholder
of a Delaware corporation if the class of which his shares are a part are (1)
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Security Dealers, Inc. or (2) held of record by more than 2,000 stockholders.
Notwithstanding the foregoing, however, under the DGCL a stockholder does have
dissenters' rights with respect to such shares if the stockholder is required by
the terms of the agreement of merger or
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consolidation to accept anything for his shares other than: (1) shares of stock
of the corporation surviving or resulting from the merger of consolidation, (2)
shares of stock of any other corporation which is so listed or designated or
held of record by more than 2,000 stockholders, (3) cash in lieu of fractional
shares or (4) any combination of the foregoing.
QUORUM FOR SHAREHOLDER MEETINGS
Under the FBCA, unless otherwise provided in a corporation's articles of
incorporation (but not its bylaws), a majority of shares entitled to vote on a
matter constitutes a quorum at a meeting of shareholders, but in no event may a
quorum consist of less than one-third of the shares entitled to vote on such
matter. NHCS's Articles of Incorporation do not include a provision altering the
shareholder quorum requirement.
The DGCL is similar to the FBCA, except that under the DGCL a corporation's
certificate of incorporation or bylaws may specify the percentage of votes which
constitutes a quorum at a meeting of stockholders, but in no event may a quorum
consist of less than one-third of the shares entitled to vote. Protective's
By-Laws provide that a quorum exists if a majority of the voting power entitled
to vote is present in person or by proxy at a meeting.
SHAREHOLDER VOTING REQUIREMENTS; ACTION BY CONSENT
Under both the FBCA and the DGCL, directors are generally elected by a
plurality of the votes cast by the shareholders entitled to vote at a
shareholders' meeting at which a quorum is present. With respect to matters
other than the election of directors, unless a greater number of affirmative
votes is required by the FBCA or a Florida corporation's articles of
incorporation (but not its bylaws), if a quorum exists, action on any matter
generally is approved by the shareholders if the votes cast by the holders of
the shares represented at the meeting and entitled to vote on the matter
favoring the action exceed the votes cast opposing the action. In the case of a
merger, consolidation, or a sale, lease or exchange of all or substantially all
of the assets of a Florida corporation, except in limited circumstances in which
no shareholder vote is required, the affirmative vote of the holders of a
majority of the issued and outstanding shares entitled to vote is required under
the FBCA. NHCS's Articles of Incorporation do not include a provision requiring
a greater vote on any matter than required by the FBCA.
Under the DGCL, unless otherwise provided by the DGCL or a Delaware
corporation's certificate of incorporation or bylaws, if a quorum exists, action
on a matter is approved by the affirmative vote of a majority of the shares
represented at a meeting and entitled to vote on the matter. In the case of a
merger, the affirmative vote of the holders of a majority of the issued and
outstanding shares entitled to vote is required by the DGCL. Accordingly, under
the DGCL, abstentions have the same effect as votes against a matter.
Protective's stockholders of record are entitled to cast one vote for each
share held on all matters presented for a vote of the stockholders. Stockholders
do not have preemptive rights. Cumulative voting for the election of directors
is not permitted. When a quorum is present at any meeting, the vote of the
holders of a majority of the shares present, either in person or by proxy, shall
decide any questions properly brought before such meeting, except on matters
where the DGCL or the following provisions require a different vote.
Protective's Certificate of Incorporation also contains restrictions
regarding certain mergers, consolidations, asset sales and other "Business
Combinations" involving Protective or its subsidiaries. Business Combinations
with a Related Person (defined as a holder of at least 20% of Protective's
voting stock with certain exceptions) must be approved by the holders of 80% of
the voting power of the outstanding shares and also by the holders of 67% of
such voting power not held by the Related Person, unless: (a) the Business
Combination is approved in advance by those persons then on the Board of
Directors who were directors immediately prior to the time the Related Person
(or certain of its predecessors) first became a Related Person and who would
have constituted a majority of the board at that time (a "Majority of the
Continuing Directors"), (b) the acquisition of the voting stock
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that caused the Related Person to become a Related Person was approved by the
Majority of the Continuing Directors, or (c) certain minimum "fair price"
requirements are met. Protective's Certificate of Incorporation also provides
that these provisions cannot be amended, altered or repealed without the
"super-majority" vote described above.
Protective Common Stock is neither redeemable nor convertible into other
securities, and there are no sinking fund provisions. Subject to the preferences
applicable to any shares of Protective preferred stock outstanding at the time,
holders of Protective Common Stock are entitled to dividends when and as
declared by the Board of Directors from funds legally available therefore and
are entitled, in the event of liquidation, to share ratably in all assets
remaining after payment of liabilities.
In accordance with the FBCA, NHCS's By-Laws permit shareholder action to be
taken without a meeting if written consents signed by the holders of at least a
majority of shares entitled to vote with respect to such action are delivered to
NHCS within 60 days after the date that the earliest written consent was
delivered by NHCS. Within 10 days after the authorization of an action by
written consent, written notice of such action is required to be given to NHCS's
shareholders entitled to vote with respect to such action and not consenting to
such action.
Protective's Certificate of Incorporation provides that no action requiring
the consent or approval of Protective's stockholders may be taken unless such
consent or approval be given at a duly convened annual or special meeting of
stockholders. Thus, Protective stockholder action may not be taken by written
consent.
TREASURY STOCK
A Delaware corporation may reacquire its own issued and outstanding capital
stock, and such capital stock is deemed treasury stock which is issued but not
outstanding. A Florida corporation may also reacquire its own issued and
outstanding capital stock. Under the FBCA, however, all capital stock reacquired
by a Florida corporation is automatically returned to the status of authorized
but not issued or outstanding, and is not deemed treasury stock.
PREFERRED STOCK
NHCS's Articles of Incorporation grants NHCS Board of Directors the power to
provide for the issuance of one or more series of preferred stock and to
establish the number of shares of each series, voting rights, dividend rights,
redemption rights, conversion rights, exchange rights and participation rights,
and other preferences, qualifications, limitations and restrictions, of such
preferred stock. 2,333,334 shares of preferred stock are authorized by NHCS's
Certificate of Incorporation, all of which are issued or outstanding.
Protective's Certificate of Incorporation provides for 4,000,000 shares of
preferred stock, $1.00 par value per share and the Board of Directors is fully
authorized to adopt a resolution which will provide for voting, preferential
dividend, conversion, liquidation and other rights and to fix the consideration
to be received for issuance of such preferred shares and/or rights with respect
thereto. In connection with the Share Purchase Rights Plan adopted by Protective
in 1987, 150,000 of these shares have been designated as Junior Participating
Cumulative Preferred Stock, $1.00 par value. No Protective preferred stock has
been issued nor is there in effect any Board of Directors authorization with
respect thereto.
BOARD VACANCIES
The FBCA provides that a vacancy on the board of directors generally may be
filled by the affirmative vote of a majority of the remaining directors or by
the shareholders, unless the articles of incorporation provide otherwise. NHCS's
Articles of Incorporation do not alter this provision.
Under the DGCL, a vacancy on the board of directors generally may be filled
by a majority of the remaining directors or in the manner specified in a
corporation's certificate of incorporation or bylaws. Protective's By-Laws
provide that a vacancy on the board may be filled by the remaining directors.
25
<PAGE>
REMOVAL OF DIRECTORS
The FBCA provides that shareholders may remove one or more directors with or
without cause unless the articles of incorporation provide that directors may be
removed only for cause. NHCS's Articles of Incorporation do not include such a
provision. Under the FBCA a director generally may be removed only if the number
of votes cast to remove him exceed the number of votes cast not to remove him.
The DGCL provides that, with respect to corporations with classified boards
(as is applicable to Protective), a director may be removed, only for cause, by
the holders of the majority of the shares entitled to vote at an election of
directors.
AMENDMENTS TO CHARTER
An amendment to a Florida corporation's articles of incorporation must be
approved by the corporation's shareholders, except that certain immaterial
amendments specified in the FBCA may be made by the board of directors. Unless a
specific section of the FBCA or a Florida corporation's articles of
incorporation require a greater vote, an amendment to a Florida corporation's
articles of incorporation generally must be approved by a majority of the votes
entitled to be cast on the amendment. NHCS's Articles of Incorporation do not
include any provision requiring greater than a majority of votes to amend its
articles of incorporation.
A Delaware corporation's certificate of incorporation generally may be
amended only if approved by a majority of the outstanding stock entitled to vote
thereon.
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of a Florida corporation's shareholders may be called by
its board of directors, by the persons authorized to do so in its articles of
incorporation or bylaws or by the holders of not less than 10% of all votes
entitled to be cast on any issue proposed to be considered at the special
meeting, unless a greater percentage not to exceed 50 percent is required by the
articles of incorporation. NHCS's Articles of Incorporation contain a 50 percent
requirement for the calling of special meetings by the shareholders. Under
NHCS's Articles of Incorporation, special meetings may be called by the
President, the Board of Directors or holders of not less than 50 percent of NHCS
Capital Stock.
Special meetings of the stockholders of a Delaware corporation may be called
by the board of directors or by the persons authorized in the corporation's
certificate of incorporation or bylaws. Protective's Certificate of
Incorporation provides that special meetings of stockholders may be called upon
not less than 10 days notice by resolution of the Board of Directors, Executive
Committee or Chief Executive Officer. Holders of a majority of the sum of the
outstanding shares of Protective Common Stock and of Protective Common Stock
which would be outstanding upon the conversion of all outstanding convertible
securities of Protective may call a special meeting upon 60 days' advance
written notice. These provisions of Protective's Certificate of Incorporation
can only be amended or repealed by vote of 67% of the outstanding shares.
AFFILIATED TRANSACTIONS
The FBCA contains an affiliated transactions statute which provides that
certain transactions involving a corporation and a shareholder owning 10% or
more of the corporation's outstanding voting shares (an "affiliated
shareholder") must generally be approved by the affirmative vote of the holders
of two-thirds of the voting shares other than those owned by the affiliated
shareholder. The transactions covered by the statute include, with certain
exceptions: (1) mergers and consolidations to which the corporation and the
affiliated shareholder are parties, (2) sales or other dispositions of
substantial amounts of the corporation's assets to the affiliated shareholder,
(3) issuances by the corporation of substantial amounts of its securities to the
affiliated shareholder, (4) the adoption of any plan for the liquidation or
dissolution of the corporation proposed by or pursuant to an arrangement with
the affiliated shareholder, (5) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
affiliated shareholder, and (6) the receipt by the affiliated shareholder of
26
<PAGE>
certain loans or other financial assistance from the corporation. These special
voting requirements do not apply in any of the following circumstances: (1) if
the transaction was approved by a majority of the corporation's disinterested
directors, (2) if the corporation did not have more than 300 shareholders of
record at any time during the preceding three years, (3) if the affiliated
shareholder has been the beneficial owner of at least 80 percent of the
corporation's outstanding voting shares for the past five years, (4) if the
affiliated shareholder is the beneficial owner of at least 90 percent of the
corporation's outstanding voting shares, exclusive of those acquired in a
transaction not approved by a majority of disinterested directors or (5) if the
consideration received by each shareholder in connection with the transaction
satisfies the "fair price" provisions of the statute. This statute applies to
any Florida corporation unless the original articles of incorporation or an
amendment to the articles of incorporation or bylaws contain a provision
expressly electing not to be governed by this statute. Such an amendment to the
articles of incorporation or bylaws must be approved by the affirmative vote of
a majority of disinterested shareholders and is not effective until 18 months
after approval. NHCS's Articles of Incorporation and By-Laws do not contain a
provision electing not to be governed by this statute.
The DGCL generally prohibits a shareholder owning 15 percent or more of a
Delaware corporation's outstanding voting stock (an "interested stockholder")
from engaging in certain business combinations involving the corporation during
the three years after the date the person became an interested stockholder
unless (1) prior to such date, the board of directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (2) upon the consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
stockholder owned at least 85 percent of the voting stock outstanding at the
time the transaction commenced, (3) on or subsequent to such date, the
transaction is approved by the board of directors and by the stockholders by a
vote of two-thirds of the disinterested outstanding voting stock, (4) the
corporation's original certificate of incorporation provides that the
corporation shall not be governed by the statute or (5) a majority of shares
entitled to vote approve an amendment to the corporation's certificate of
incorporation or bylaws expressly electing not to be governed by the statute
(but such amendment may not be effective until one year after it was adopted and
may not apply to any business combination between the corporation and any person
who became an interested stockholder on or prior to such adoption). These
business combinations include, with certain exceptions, mergers, consolidations,
sales of assets and transactions benefiting the interested stockholder.
Protective's Certificate of Incorporation and By-Laws do not contain a provision
electing not to be governed by this statute.
CONTROL SHARE ACQUISITIONS
The FBCA also contains a control share acquisition statute which provides
that a person who acquires shares in an issuing public corporation in excess of
certain specified thresholds will generally not have any voting rights with
respect to such shares unless the voting rights are approved by a majority of
the shares entitled to vote, excluding interested shares. The thresholds
specified in the FBCA are the acquisition of a number of shares representing:
(1) 20 percent or more, but less than 33 percent of all voting power of the
corporation, (2) 33 percent or more but less than a majority of all voting power
of the corporation, or (3) a majority or more of all voting power of the
corporation. This statute does not apply to acquisitions of shares of a
corporation if, prior to the pertinent acquisition of shares, the corporation's
articles of incorporation or bylaws provide that the corporation shall not be
governed by the statute. This statute also permits a corporation to adopt a
provision in its articles of incorporation or bylaws providing for the
redemption by the corporation of such acquired shares in certain circumstances.
Unless otherwise provided in the corporation's articles of incorporation or
bylaws prior to the pertinent acquisition of shares, in the event that such
shares are accorded full voting rights by the shareholders of the corporation
and the acquiring shareholder acquires a majority of the voting power of the
corporation, all shareholders who did not vote in favor of according voting
rights to such acquired shares are entitled to dissenters' rights. NHCS's
Articles of Incorporation and By-Laws do not contain any provisions with respect
to this statute.
27
<PAGE>
Delaware does not have any provision comparable to Florida's control share
acquisition statute.
OTHER CONSTITUENCIES
The FBCA provides that directors of a Florida corporation, in discharging
their duties to the corporation and in determining what they believe to be in
the best interests of the corporation, may, in addition to considering the
effects of any corporation action on the shareholders and the corporation,
consider the effects of the corporate action on employees, suppliers and
customers of the corporation or its subsidiaries and the communities in which
the corporation and its subsidiaries operate.
Delaware does not have a comparable statutory provision.
SHAREHOLDER RIGHTS PLANS
The FBCA has a provision which explicitly authorizes corporations to adopt
"poison pill" or "shareholder rights" plans. These plans may be adopted in a
number of forms, but generally involve the distribution by the corporation to
its shareholders of rights or options which are triggered by a hostile takeover
attempt or by a party acquiring a specified percentage of a class of the
corporation's securities. These plans can make hostile takeovers excessively or
prohibitively expensive unless the board of directors cancels the plan. Although
the DGCL does not have a comparable statutory provision, a number of courts have
construed Delaware law to permit certain of these plans under certain
circumstances.
NHCS has not adopted a shareholder rights plan.
In 1987, Protective adopted a Share Purchase Rights Plan and declared a
dividend of one Preferred Share Purchase Right on each share of the Protective
Common Stock. Each right entitles a stockholder to buy one one-hundredth of a
share of Junior Participating Cumulative Preferred Stock $1.00 par value, at an
exercise price of $52.00 per one one-hundredth of a share. The rights are
exercisable only if a party acquires 20% or more (or offers to acquire 30% or
more) of Protective's outstanding Common Stock. Each one hundredth of a share of
Junior Participating Cumulative Preferred Stock approximates one share of
Protective's Common Stock and is subject to a minimum dividend of $0.10 per year
and a minimum liquidation payment of $1.00. The rights, which expire in July
1997, are nonvoting.
Protective can redeem the rights at $0.01 per right and can amend the rights
until ten business days following a public announcement or notice to Protective
that 20% or more of Protective's Common Stock has been acquired by a party.
After the rights become exercisable, if Protective becomes involved in a merger
or certain other major corporate transactions, each right then outstanding
(other than those held by the 20% holder) would entitle its holder to buy from
the acquirer or Protective or its successor, common stock of the acquirer or
Protective or its successor worth twice the exercise price.
28
<PAGE>
BUSINESS OF NHCS
OVERVIEW
NHCS is a leading dental health maintenance organization ("HMO") operating
in nine southeastern states, with over 250,000 members who are served by a
network of over 1,500 dental providers. For the fiscal year ending December 31,
1993, membership in the states of Florida, Tennessee and Georgia represented
approximately 51%, 23%, and 15%, respectively, of the total members covered by
NHCS plans. Since 1989, NHCS has increased its revenues and net income by
compound annual growth rates of 27.5% and 76.0%, respectively. NHCS's strategy
is to continue its aggressive growth within its core business by taking
advantage of the burgeoning demand for managed dental care and providing the
highest quality prepaid dental plan services within NHCS's nine-state region.
GENERAL DEVELOPMENT OF BUSINESS
NHCS was founded in Florida in 1975 and in the early 1980's expanded
operations to include Kentucky and Georgia. Although NHCS enjoyed limited
success outside of its traditional market area, primarily because it focused its
sales and marketing efforts in Florida, NHCS continued its geographic expansion
in the mid-to-late 1980's by entering into the states of Tennessee and North
Carolina. Commencing with the employment of Mr. Stan Alekna as President and
Chief Executive Officer of NHCS, the company began to aggressively expand its
scope of operations, entering into the states of Alabama and South Carolina, as
well as obtaining regulatory approval to operate a dental HMO in the states of
Louisiana and Mississippi.
In early 1975, a group of dentists in Jacksonville, Florida, founded
DentiCare, Inc. At that time, Florida law required all prepaid dental plans to
be incorporated as not-for-profit corporations. In July 1975, DentiCare, Inc.
received its certificate of authority from the state of Florida. At that time,
NHCS was founded to provide management and marketing services to DentiCare,
Inc., as well as to become its parent company. In 1987, Florida law was amended
to allow NHCS to convert to a for-profit corporation. In addition, the company
repurchased a large block of stock from one shareholder and, in order to provide
the necessary capital to effect such repurchase, NHCS issued 1,666,667 and
686,667 shares of NHCS Preferred Stock to R.W. Allsop and Associates II L.P. and
Southeast Venture Capital II Limited, respectively.
NHCS conducts business through its subsidiaries, DentiCare, Inc. (a Florida
corporation), DentiCare, Inc. (a Kentucky corporation), and DentiCare of
Alabama, Inc. (an Alabama corporation) under certificates of authority issued by
the states of Florida, Kentucky and Alabama, respectively.
NHCS is authorized to sell prepaid dental coverage contracts in the states
of Louisiana, Mississippi, North Carolina, South Carolina and Tennessee through
fronting arrangements with either Ameritas Life Insurance Company ("Ameritas")
and Guarantee Mutual Life Company ("GMLC"). Fronting is a common practice in the
insurance industry in which a company that is not licensed to do business in a
particular state issues business through an entity that is licensed in that
state. Presently, Georgia has not enacted any laws that would require NHCS to
either obtain a certificate of authority or to be fronted through another
entity.
GENERAL DESCRIPTION OF INDUSTRY
The dental insurance industry is characterized by three primary forms of
dental coverage, traditional indemnity insurance, HMO's (such as NHCS) and
preferred provider organizations ("PPO's"), which are differentiated by the
subscriber's access to dentists and the allocation of the risk of dental
over-utilization. Under traditional indemnity insurance, policyholders are free
to receive dental care from the dentist of his/her choice. The dentist charges
his or her usual and customary fees. The insurer reimburses the dentist or the
policyholder for service based on a percent of charges and, therefore, bears
most of the risk for over-utilization. The policyholder pays any amounts not
reimbursed by the insurer.
In a dental HMO, members must receive dental care from a list of
participating dentists. The dental HMO pays the dentist a fixed amount
("capitation") per member, per month, and in return, the
29
<PAGE>
dentist agrees to provide specific services to the member as needed. The member
also makes co-payments directly to the dentist for certain services and
therefore the dentist and the member share the risk of over-utilization.
In a dental PPO, policyholders are encouraged, but not required, to receive
dental care from a selected list of dentists. Typically, the policyholder pays
higher dental fees when a dentist used is not on the PPO list. Since the
policyholder pays the dentist directly, the policyholder, for the most part,
bears the risk of over-utilization.
NHCS's dental HMO is generally offered by employers as an alternative to or
replacement of traditional indemnity insurance. NHCS's primary clients are
governmental or private sector employers and, to a lesser extent, individuals.
Since the inception of NHCS in 1975, there has been a significant growth in the
amount of third party financed dental benefits coverage primarily as a result of
increasing concerns among employers about health benefit coverages. With the
increased awareness of cost containment needs within the dental care
marketplace, significant enrollment in managed care dental plans has occurred
over the last several years. As more employer groups have switched to dental
HMO's, or offered them in conjunction with traditional indemnity insurance,
nationwide enrollment in these plans has risen from approximately 7.9 million
members in 1990 to approximately 13.5 million members in 1993. As of June 30,
1994, dental care under NHCS's plans is provided by its panels in various states
of approximately 1,500 independent dental offices, consisting of 846 general
dentists and 663 specialists. The number of subscribers served by NHCS's plans
was approximately 118,000, consisting of approximately 86,500 subscribers
covered through over 2,270 employer groups and 31,500 individual subscribers, at
June 30, 1994.
MARKETING
NHCS's marketing efforts are directed at insurance brokers and consultants
who work with employer groups to recommend or design employee benefit packages.
Historically, nearly all of NHCS's business has been sold by independent
insurance agents and brokers on a commission basis. NHCS pays the broker's
commission over the life of the contract while, in most instances, consultants
are paid by the employer group. For the fiscal years 1993 and 1992, NHCS's top
ten independent insurance agents and brokers sold approximately 75% of NHCS's
net additional subscribers. NHCS supports the marketing of its brokers through
programs which are designed to increase employer group penetration as well as to
attract and retain individual subscribers.
PRODUCTS
NHCS offers prospective subscribers a variety of group plans and an
individual dental HMO plan under the name "DentiCare" as well as dual choice
plans which offer an annual choice of either a dental HMO plan or traditional
indemnity coverage. NHCS also offers vision care coverage to members at no
additional premium. NHCS's plans are generally uniform regardless of customer
location. Under NHCS's plans, each subscriber and covered dependent receives
dental services from a selected list of NHCS dentists. All eligible family
members must select the same general dentist. NHCS pays the dentist a fixed
amount per member per month and in return, the dentist agrees to provide
specific services to the member and to bear the risk of over-utilization. The
member is also responsible for co-payments for certain scheduled services.
QUALITY ASSURANCE
To assure that its members receive high quality dental care, NHCS has
implemented a comprehensive quality assurance program. The Director of Provider
Services and his staff are responsible for, among other things, reviewing a
prospective dentist's location, offices, facilities, staff and reputation in the
community, as well as his or her dentistry license, Drug Enforcement Agency
license, evidence of malpractice insurance and current standing with the state
licensing authority. NHCS adds to the network only those dentists with current,
unencumbered credentials. NHCS reviews the credentials of all participating
dentists on an annual basis.
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<PAGE>
All complaints about any dentist, either as a result of a letter or a phone
call, are entered into a confidential, automated computer system. This system
permits a real-time comprehensive view of potential problems with any one
provider. When a provider reaches an established complaint threshold, NHCS
visits and/or audits the provider to correct this problem. If NHCS determines
that the problem can not be corrected or reversed, NHCS will terminate the
dentist and transfer all of the member-patients to another participating
dentist. NHCS is not aware of any other prepaid dental plan that has such a
system in place. As a matter of policy, NHCS responds, in writing, to all
written complaints within 30 days of receipt. When a member files a complaint
involving a participating dentist, the complaint is mailed to the dentist and
NHCS requires a written response to the issues.
MANAGEMENT INFORMATION SYSTEMS
Customer service and satisfaction are the driving factors behind NHCS's
investment in its MIS system. NHCS has developed and integrated into each
department a reliable, responsive and flexible MIS support system.
GOVERNMENT REGULATION
Many states have laws which establish the fiscal requirements for, and
regulate the conduct of dental HMOs. Normally, compliance with established
regulations is the responsibility of each state's department of insurance.
Currently, there is no regulation of these companies at the federal level.
NHCS is licensed by the appropriate state authorities in each of the states
in which it operates. Among the areas regulated, although not necessarily by
each state, are the scope of benefits available to members; the content of
contracts with clients, providers and others; levels of financial resources
including maintenance of minimum stipulated financial reserves; procedures for
the review of quality assurance; enrollment requirements; the relationship
between the plan and its providers; procedures for resolving grievances and the
manner in which premiums are determined or structured.
NHCS is directly licensed in Florida, Alabama and Kentucky and conducts
business under fronting contracts with Ameritas in Tennessee and North Carolina
and with GMLC in Louisiana, Mississippi and South Carolina. There are currently
no regulations controlling dental HMOs in Georgia, but it is anticipated that
such regulations may be enacted in 1995. Although NHCS cannot predict with
certainty the actions of any state regulatory body, NHCS believes that when and
if enacted, Georgia's regulations will not have a material adverse effect on
NHCS.
RISK MANAGEMENT
The nature of NHCS's operations does not lend itself to product liability
lawsuits and NHCS is not engaged in any material legal action relating to its
operations, nor has it any loss reserve set aside in anticipation of such. NHCS
carries general and professional liability insurance coverage to manage the
ordinary risks of being a dental HMO, which the company deems to be adequate to
cover its secondary risk of malpractice claims. However, there can be no
guarantee that sufficient professional liability insurance coverage will be
available to NHCS in the future at an acceptable cost. NHCS is generally
indemnified against professional liability claims and includes an arbitration
clause in its agreement with participating dentists.
TRADEMARKS, ETC.
NHCS has registered and reserved as exclusive and renewable trademarks or
service marks the name and/or logo "DentiCare" in the states of Alabama,
Florida, Georgia, Kentucky, North Carolina and Tennessee. In addition NHCS is in
the process of gaining trademark or service mark status in Arkansas, Louisiana,
Mississippi and South Carolina. NHCS believes that the name "DentiCare" is
registered with other corporations in the states of California, Colorado, Idaho,
Illinois, Indiana, Montana, Nevada, Pennsylvania, South Dakota, Texas,
Washington and Wyoming.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NHCS's revenues consist principally of subscriber premiums and interest
income from its investments. NHCS has experienced substantial growth in revenues
over the past five years. Revenue growth has been accomplished both through
increases in total membership and premium rate increases per member.
The following table sets forth, at the dates indicated, the total membership
of NHCS.
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------- -------------------------------
1994 1993 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Membership................................... 251,713 242,109 246,542 219,452 174,239
</TABLE>
During that time period, NHCS's earnings have grown as well, both in amount
and as a percentage of revenues. The following table sets forth, for the periods
indicated, certain items from NHCS's consolidated statements of operations
expressed as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------------------------
1994 1993 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Premiums Earned............................................ 99% 99% 99% 99% 99%
Interest Income............................................ 1 1 1 1 1
Provider Fees.............................................. 55 57 57 58 57
Commissions................................................ 14 13 13 14 14
General and Administrative................................. 16 17 17 18 20
Income Before Income Taxes................................. 15 13 13 11 9
Net Income................................................. 9 8 8 7 6
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1993
Total revenue increased 13.2% to $16.4 million for the first nine months of
1994 compared to $14.5 million for the same period in 1993, primarily from
higher membership. The increase in membership resulted from the addition of new
employer groups, increased membership in existing employer groups and growth in
the individual membership, which helped offset the unexpected loss of two
accounts which represented over 3,500 subscribers in January 1994.
Interest income increased 10% to $143,342 for the first nine months of 1994
compared to $130,365 for the same period in 1993. This increase in interest
income is primarily due to an increase in cash available for investment.
Provider fees and commissions increased 11.4% to $11.3 million for the first
nine months of 1994 compared to $10.1 million for the same period in 1993. These
expenses remained relatively constant as a percentage of total revenues.
General and administrative expenses increased 6.4% to $2.6 million for the
first nine months of 1994 compared to $2.5 million for the same period in 1993.
These expenses grew slower than revenue which caused profits to grow faster than
revenue.
Net income increased 29.1% to $1.5 million for the first nine months of 1994
compared to $1.2 million for the same period in 1993 as a result of the
foregoing factors.
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YEAR ENDED DECEMBER 31, 1993, COMPARED TO YEAR ENDED DECEMBER 31, 1992
Total revenue increased 21.9% to $19.7 million for 1993 compared to $16.1
million for 1992, primarily from higher membership and premium rate increases.
Higher membership was principally due to increases in membership in existing
employer groups, the addition of new employer groups and growth in the
individual membership.
Interest income increased 154.5% to $222,345 for 1993 compared to $87,343
for 1992. This significant growth in interest income was due to an increase in
cash available for investment, a change in investment policy and employment of
an outside investment firm.
Provider fees and commissions increased 19.6% to $13.8 million for 1993
compared to $11.6 million for 1992. These expenses remained relatively constant
as a percentage of total revenues.
General and administrative expenses increased 15.3% to $3.3 million for 1993
compared to $2.9 million in 1992. These expenses grew slower than revenue, which
caused profits to grow faster than revenue.
Net income increased 48.6% to $1.6 million in 1993 compared to $1.1 million
in 1992 as a result of the foregoing factors.
YEAR ENDED DECEMBER 31, 1992, COMPARED TO YEAR ENDED DECEMBER 31, 1991
Total revenue increased 31.5% to $16.1 million for 1992 compared to $12.3
million for 1991, primarily from higher membership from the addition of new
employer groups.
Interest income decreased 7.4% to $87,343 for 1992 compared to $94,335 for
1991. The decrease was caused by a general drop in short-term interest rates.
Provider fees and commissions increased 32.4% to $11.6 million for 1992
compared to $8.7 million for 1991. These expenses remained relatively constant
as a percentage of total revenues.
General and administrative expenses increased 15.7% to $2.9 million for 1992
compared to $2.5 million for 1991. These expenses grew slower than revenue,
which caused profits to grow faster than revenue.
Net income increased 57.5% to $1.1 million for 1992 compared to $0.7 million
for 1991 as a result of the foregoing factors.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
NHCS's unaudited consolidated quarterly operating data for the nine months
ended September 30, 1994, and for the years ended December 31, 1993 and 1992,
are presented below. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of quarterly
results have been reflected in the data which follows. It is also management's
opinion, however, that quarterly operating data for the company are not
indicative of results to be achieved in succeeding quarters or years. In order
to obtain a more accurate indication of performance, there should be a review of
operating results, changes in stockholders' equity and cash flows for a period
of several years. Fluctuation in short-term performance may be due to seasonal
patterns in premiums earned as well as to the varying yields obtained on
invested assets.
<TABLE>
<CAPTION>
SECOND
1994 FIRST QUARTER QUARTER THIRD QUARTER
- ----------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned.................................... $ 5,299,260 $ 5,421,353 $ 5,554,904
Interest income.................................... 56,881 64,931 21,530
------------- ------------- -------------
Total revenues................................... 5,356,141 5,486,284 5,576,434
------------- ------------- -------------
Expenses:
Provider fees...................................... 3,001,066 3,041,842 3,036,170
Commissions........................................ 712,404 738,339 765,852
General and administrative......................... 905,638 890,837 837,150
------------- ------------- -------------
Total expenses................................... 4,619,108 4,671,018 4,639,172
------------- ------------- -------------
Income before income taxes........................... 737,033 815,266 937,262
Income taxes......................................... 284,594 319,921 360,737
------------- ------------- -------------
Net income........................................... $ 452,439 $ 495,345 $ 576,525
------------- ------------- -------------
------------- ------------- -------------
Fully diluted earnings per share..................... $0.10 $0.10 $0.13
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SECOND FOURTH
1993 FIRST QUARTER QUARTER THIRD QUARTER QUARTER
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned.................................... $ 4,649,495 $ 4,770,172 $ 4,953,175 $ 5,070,533
Interest income.................................... 22,833 47,280 60,252 91,980
------------- ------------- ------------- -------------
Total revenues................................... 4,672,328 4,817,452 5,013,427 5,162,513
------------- ------------- ------------- -------------
Expenses:
Provider fees...................................... 2,704,134 2,725,712 2,797,315 2,991,829
Commissions........................................ 630,104 648,162 630,258 705,763
General and administrative......................... 754,026 825,658 895,801 810,302
------------- ------------- ------------- -------------
Total expenses................................... 4,088,264 4,199,532 4,323,374 4,507,894
------------- ------------- ------------- -------------
Income before income taxes........................... 584,064 617,920 690,053 654,619
Income taxes......................................... 218,828 230,125 261,940 234,571
------------- ------------- ------------- -------------
Net income........................................... $ 365,236 $ 387,795 $ 428,113 $ 420,048
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted earnings per share..................... $0.08 $0.08 $0.09 $0.09
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SECOND FOURTH
1992 FIRST QUARTER QUARTER THIRD QUARTER QUARTER
- ----------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned.................................... $ 3,805,058 $ 3,979,035 $ 4,122,453 $ 4,142,974
Interest income.................................... 25,049 20,089 21,932 20,273
------------- ------------- ------------- -------------
Total revenues................................... 3,830,107 3,999,124 4,144,385 4,163,247
------------- ------------- ------------- -------------
Expenses:
Provider fees...................................... 2,225,650 2,304,770 2,382,656 2,388,268
Commissions........................................ 581,390 562,706 556,895 562,120
General and administrative......................... 650,188 700,077 728,173 771,745
------------- ------------- ------------- -------------
Total expenses................................... 3,457,228 3,567,553 3,667,724 3,722,133
------------- ------------- ------------- -------------
Income before income taxes........................... 372,879 431,571 476,661 441,114
Income taxes......................................... 139,074 162,227 180,527 162,937
------------- ------------- ------------- -------------
Net income........................................... $ 233,805 $ 269,344 $ 296,134 $ 278,177
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted earnings per share..................... $0.05 $0.06 $0.06 $0.06
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
NHCS's operating results show variation from quarter to quarter since a
significant number of employer group contracts are renewed effective January 1,
resulting in an increase in earned premiums. Accordingly, revenues generally
show a greater increase in the first quarter than in the remainder of the year.
EFFECTS OF INFLATION
Dental health care costs have been rising at a faster rate than costs for
consumer goods as a whole, however, much less than general health care costs.
NHCS's recent survey of participating dentists shows nearly a 6% annual increase
in usual and customary (U&C) charges. Current dentist compensation via
capitation and copayments is judged to be adequate based on dental network
attrition. Further premium rate increases will result in increased capitation to
dentists, which is expected to maintain an acceptable level of compensation.
LIABILITY AND CAPITAL RESOURCES
During the three-year period ended December 31, 1993, and continuing through
September 30, 1994, NHCS maintained cash and cash equivalents at levels that
were more than adequate to support operations. NHCS did not borrow from
financial institutions or other sources during those periods. The level of cash,
cash equivalents and investments totaled $7.4 million at September 30, 1994, and
$5.5 million, $3.9 million and $2.9 million for the years ended December 31,
1993, 1992 and 1991, respectively. NHCS believes that its existing cash balances
and cash flow will be adequate to fund the capital requirements of existing
operations through the next fiscal year.
NHCS generated $2.2 million in cash from operations during the nine-month
period ended September 30, 1994, and $2.2 million, $1.1 million and $1.0 million
for the years ended December 31, 1993, 1992 and 1991, respectively.
NHCS has no significant capital expenditures currently planned.
NHCS's investment policy is intended to preserve principal, earn an
appropriate yield and provide liquidity. Recently, NHCS has concentrated its
investments in medium-term securities, such as Government and Municipal bonds
having maturities not exceeding five years.
35
<PAGE>
NHCS's operating subsidiaries in Florida, Alabama and Kentucky are governed
by regulations administered by the respective State Departments of Insurance.
Under Florida regulations, NHCS's principal operating subsidiary must maintain
minimum capital as follows:
<TABLE>
<CAPTION>
DATE AMOUNT
- ------------------- ------------------------------------------------------------------
<S> <C>
January 1, 1994 The greater of $100,000 or 6 percent of total liabilities,
whichever is greater
January 1, 1995 The greater of $125,000 or 8 percent of total liabilities,
whichever is greater
January 1, 1996 The greater of $150,000 or 10 percent of total liabilities,
whichever is greater
</TABLE>
PRINCIPAL SHAREHOLDERS OF NHCS
The following table sets forth certain information regarding beneficial
ownership of the NHCS Common Stock and NHCS Preferred Stock as of December 31,
1994 (i) by each person who is known by NHCS to own beneficially more than 5% of
the outstanding shares of either class, (ii) by each of the directors and
executive officers of NHCS and (iii) by all officers and directors as a group.
Except as otherwise indicated, NHCS believes that the beneficial owners of the
stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------------------------------------
FULLY
NAME OF BENEFICIAL OWNER COMMON %(1) PREFERRED %(2) DILUTED %(3)
- ---------------------------------------------------- --------- ---------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
R.W. Allsop and Associates II L.P................... 1,388,890 32.6% 277,777 71.0% 1,666,667 30.9%
Southeast Venture Capital II Limited................ 555,560 13.0 111,107 29.0 666,667 12.3
Robert V. Williams (4).............................. 1,209,056 28.3 -- -- 1,209,056 22.4
Robert L. Kuk (5)................................... 1,388,890 32.6 277,777 71.0 1,666,667 30.9
Paul Rhines (5)..................................... 1,388,890 32.6 277,777 71.0 1,666,667 30.9
Thomas V. Bruns (6)................................. -- -- -- -- 200,500 3.7
Stan Alekna (7)..................................... -- -- -- -- 334,000 6.2
Richard P. Day (8).................................. -- -- -- -- 10,000 0.2
All directors and executive officers as a group
(9)................................................ 2,597,946 60.9 277,777 71.0 3,420,223 63.5
<FN>
- ------------------------------
(1) Percentage of ownership is based upon 4,265,356 shares of NHCS Common Stock
outstanding as of December 31, 1994.
(2) Percentage of ownership is based upon 388,884 shares of NHCS Preferred
Stock outstanding as of December 31, 1994.
(3) Percentage of ownership is based upon 4,265,356 shares of NHCS Common
Stock, 388,884 shares of NHCS Preferred Stock and NHCS Stock Options to
purchase 734,500 shares of NHCS Common Stock outstanding as of December 31,
1994.
(4) Includes shares held by Dr. Williams' family members.
(5) Includes shares held by R.W. Allsop and Associates, L.P., of which he is a
general partner.
(6) Includes NHCS Stock Options to purchase 200,500 shares of NHCS Common
Stock.
(7) Includes NHCS Stock Options to purchase 334,000 shares of NHCS Common
Stock.
(8) Includes NHCS Stock Options to purchase 10,000 shares of NHCS Common Stock.
(9) Includes NHCS Stock Options held by members of such group.
</TABLE>
REGULATORY APPROVALS
As discussed above, NHCS is generally subject to the insurance laws in the
states in which it operates. Under the laws of certain of such states a change
in control of NHCS is subject to either the prior approval of the state
insurance regulatory authority or to a requirement that a prior filing be made
with such state insurance regulatory authority and a specified period of time
pass without any objection having been raised by such authority. Protective and
NHCS are cooperating to submit all necessary filings and requests for approval.
36
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Merger Agreement are being passed
upon for Protective by Deborah J. Long, Senior Vice President and General
Counsel, Protective Life Corporation, 2801 Highway 280 South, Birmingham,
Alabama 35223 and for NHCS by Mahoney, Adams & Criser, P.A., 3300 Barnett
Center, 50 North Laura Street, Jacksonville, Florida 32201. Mahoney, Adams &
Criser, P.A. will deliver its opinion to NHCS as to certain federal income tax
consequences of the Merger to NHCS shareholders.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -- NHCS
The firm of KPMG Peat Marwick LLP served as the independent accountants for
NHCS for the fiscal year ending December 31, 1993. Representatives of KPMG Peat
Marwick LLP are expected to be present at the NHCS Special Meeting to respond to
appropriate questions.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE -- NHCS
On January 11, 1994 NHCS engaged KMPG Peat Marwick LLP as NHCS's independent
accountants. Through January 11, 1994 Coopers & Lybrand had been NHCS's
independent accountants. The change in accountants was approved by NHCS's Board
of Directors. Coopers & Lybrand's report on NHCS's financial statements for each
of the two years in the period ended December 31, 1992 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope, or accounting principles. Also, there had been no
disagreement with the accountants on any matter of accounting principles or
practices. Prior to engaging KPMG Peat Marwick LLP, NHCS had not consulted KPMG
Peat Marwick LLP regarding the application of accounting principles or any
matter that was the subject of a disagreement with its former accountants.
EXPERTS
The consolidated financial statements of National Health Care Systems of
Florida, Inc. and subsidiaries as of December 31, 1993 and for the year ended
December 31, 1993, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1993 financial statements refers to a change in the
method of accounting for certain investments in debt and equity securities and a
change in the method of accounting for income taxes.
The consolidated balance sheet of National Health Care Systems of Florida,
Inc. and subsidiaries as of December 31, 1992 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1992, included in this Proxy
Statement-Prospectus, have been included herein in reliance upon the report of
Coopers and Lybrand, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The consolidated balance sheets of Protective Life Corporation as of
December 31, 1993 and 1992 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993 and the related financial statement schedules which are
incorporated by reference or included in Protective Life Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993 and which have been
incorporated by reference in this Proxy Statement-Prospectus, have been
incorporated herein in reliance on the report, which includes an explanatory
paragraph with respect to changes in Protective Life Corporation's methods of
accounting for certain investments in debt and equity securities in 1993 and
postretirement benefits other than pension in 1992, of Coopers and Lybrand,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
37
<PAGE>
With respect to the unaudited interim financial information for Protective
Life Corporation and subsidiaries for the three-month periods ended March 31,
1994 and 1993, the three-month and six-month periods ended June 30, 1994 and
1993 and the three-month and nine-month periods ended September 30, 1994 and
1993 incorporated by reference in this Proxy Statement-Prospectus, Coopers &
Lybrand L.L.P. has reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report included in the Registration Statement of which
this Proxy Statement-Prospectus forms a part states that they did not audit and
they do not express an opinion on such interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Coopers & Lybrand L.L.P. is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by Coopers & Lybrand L.L.P. within
the meaning of Sections 7 and 11 of the Act.
The financial statements of Wisconsin National Life Insurance Company as of
December 31, 1992 and 1991, and for each of the years in the two year period
ended December 31, 1992, incorporated by reference in or included in Protective
Life Corporation's Current Report on Form 8-K, dated August 4, 1993, have been
incorporated herein by reference in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS -- NHCS
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report for the year ended December 31, 1993.......................................... F-2
Report of Independent Accountants for the years ended December 31, 1992 and 1991........................... F-3
Consolidated Balance Sheets at September 30, 1994 (unaudited), and December 31, 1993 and 1992.............. F-4
Consolidated Statements of Operations for the nine months ended September 30, 1994 and 1993 (unaudited),
and for the years ended December 31, 1993, 1992 and 1991.................................................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 1994
(unaudited), and for the years ended December 31, 1993, 1992 and 1991..................................... F-6
Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 and 1993 (unaudited),
and for the years ended December 31, 1993, 1992 and 1991.................................................. F-7
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Health Care Systems of Florida, Inc.:
We have audited the accompanying consolidated balance sheet of National
Health Care Systems of Florida, Inc. and subsidiaries as of December 31, 1993,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1993 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Health Care Systems of Florida, Inc. and subsidiaries as of December 31, 1993,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in notes 1 and 2 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" at December 31, 1993. As
discussed in notes 1 and 10, the Company adopted the provisions of the Financial
Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993.
KPMG PEAT MARWICK LLP
Jacksonville, Florida
January 31, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
National Health Care Systems of Florida, Inc.:
We have audited the accompanying balance sheet of National Health Care
Systems of Florida, Inc. and subsidiaries as of December 31, 1992 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1992.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National Health
Care Systems of Florida, Inc. and subsidiaries as of December 31, 1992, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1992, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND
Jacksonville, Florida
February 12, 1993
F-3
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
SEPTEMBER 30, ------------- -------------
1994
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 2,182,634 $ 1,805,262 $ 1,392,735
Marketable securities (note 2)..................................... 5,134,797 3,668,951 2,466,861
Prepaid commissions and provider fees.............................. 281,157 333,964 399,661
Premiums receivable and other, net................................. 51,247 57,962 48,327
Income tax refund.................................................. -- 56,937 142,876
Other current assets............................................... 466,899 344,374 207,959
------------- ------------- -------------
Total current assets............................................. 8,116,734 6,267,450 4,658,419
Furniture and equipment.............................................. 568,511 533,387 344,651
Less accumulated depreciation........................................ (385,202) (331,202) (286,017)
------------- ------------- -------------
183,309 202,185 58,634
------------- ------------- -------------
Restricted cash...................................................... 76,000 25,000 25,000
------------- ------------- -------------
Total assets..................................................... $ 8,376,043 $ 6,494,635 $ 4,742,053
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unearned premium revenue........................................... $ 2,547,270 $ 2,335,029 $ 1,936,177
Accounts payable and accrued expenses.............................. 1,162,920 771,802 636,680
------------- ------------- -------------
Total current liabilities........................................ 3,710,190 3,106,831 2,572,857
------------- ------------- -------------
Convertible preferred stock-redeemable at $.60 share, convertible
into common stock with a $.01 par value, 8% cumulative; 2,333,334
shares authorized (note 8).......................................... 233,330 583,331 1,049,999
------------- ------------- -------------
Stockholders' equity (note 5):
Common stock, $.01 par value; 10,000,000 shares authorized......... 69,196 63,231 55,453
Paid in capital in excess of par value............................. 1,830,500 1,460,064 1,001,174
Net unrealized loss on marketable securities (note 2).............. (100,026) (44,184) --
Retained earnings.................................................. 4,632,628 3,136,317 1,605,125
Treasury stock (note 7)............................................ (1,999,775) (1,810,955) (1,542,555)
------------- ------------- -------------
Total stockholders' equity....................................... 4,432,523 2,804,473 1,119,197
------------- ------------- -------------
Commitments and contingencies (notes 3, 8 and 9)
Total liabilities and stockholders' equity....................... $ 8,376,043 $ 6,494,635 $ 4,742,053
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
YEAR ENDED DECEMBER 31
------------------------------ ----------------------------------------------
1994 1993 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Premiums earned.............. $ 16,275,517 $ 14,372,842 $ 19,443,375 $ 16,049,520 $ 12,175,527
Interest income.............. 143,342 130,365 222,345 87,343 94,335
-------------- -------------- -------------- -------------- --------------
16,418,859 14,503,207 19,665,720 16,136,863 12,269,862
-------------- -------------- -------------- -------------- --------------
Operating expenses:
Provider fees................ 9,079,078 8,227,161 11,218,990 9,301,344 7,025,977
Commissions.................. 2,216,595 1,908,524 2,614,287 2,263,111 1,710,920
General and administrative... 2,633,625 2,475,485 3,285,787 2,850,042 2,463,094
Interest..................... -- -- -- 141 955
-------------- -------------- -------------- -------------- --------------
13,929,298 12,611,170 17,119,064 14,414,638 11,200,946
-------------- -------------- -------------- -------------- --------------
Income before income taxes... 2,489,561 1,892,037 2,546,656 1,722,225 1,068,916
Income taxes................... 965,252 710,893 945,464 644,765 384,844
-------------- -------------- -------------- -------------- --------------
Net income................. $ 1,524,309 $ 1,181,144 $ 1,601,192 $ 1,077,460 $ 684,072
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Earnings per common share:
Primary...................... $0.38 $0.32 $0.46 $0.37 $0.23
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Fully diluted................ $0.33 $0.25 $0.34 $0.23 $0.14
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Weighted average number of
common shares and equivalents:
Primary...................... 3,963,242 3,565,353 3,346,251 2,641,128 2,454,533
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Fully diluted................ 4,676,201 4,732,017 4,739,767 4,780,017 4,787,867
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
COMMON PAID IN UNREALIZED TREASURY
STOCK ISSUED CAPITAL LOSS ON STOCK
---------------------- IN EXCESS MARKETABLE RETAINED ---------
# SHARES PAR VALUE OF PAR SECURITIES EARNINGS # SHARES
--------- ----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1991.................................. 4,962,016 $ 49,620 $ 657,006 $ -- $ 60,592 2,506,433
Net income................................................ -- -- -- -- 684,072 --
Dividends................................................. -- -- -- -- (112,000) --
Purchases of treasury stock............................... -- -- -- -- -- 1,400
--------- ----------- ---------- ----------- ---------- ---------
Balance, December 31, 1991................................ 4,962,016 49,620 657,006 -- 632,664 2,507,833
Net income................................................ -- -- -- -- 1,077,460 --
Dividends................................................. -- -- -- -- (104,999) --
Purchases of treasury stock............................... -- -- -- -- -- 15,000
Conversion of preferred stocks............................ 583,335 5,833 344,168 -- -- --
--------- ----------- ---------- ----------- ---------- ---------
Balance, December 31, 1992................................ 5,545,351 55,453 1,001,174 -- 1,605,125 2,522,833
Net income................................................ -- -- -- -- 1,601,192 --
Dividends................................................. -- -- -- -- (70,000) --
Unrealized loss on marketable securities.................. -- -- -- (44,184) -- --
Purchases of treasury stock............................... -- -- -- -- -- 75,500
Conversion of preferred stock............................. 777,780 7,778 458,890 -- -- --
--------- ----------- ---------- ----------- ---------- ---------
Balance, December 31, 1993................................ 6,323,131 63,231 1,460,064 (44,184) 3,136,317 2,598,333
Net income (unaudited).................................... -- -- -- -- 1,524,309 --
Dividends (unaudited)..................................... -- -- -- -- (27,998) --
Unrealized loss on marketable securities (unaudited)...... -- -- -- (55,842) -- --
Issuance of stock from options (unaudited)................ 13,200 132 26,268 -- -- --
Purchases of treasury stock (unaudited)................... -- -- -- -- -- 44,957
Conversion of preferred stock (unaudited)................. 583,335 5,833 344,168 -- -- --
--------- ----------- ---------- ----------- ---------- ---------
Balance, September 30, 1994 (unaudited)................... 6,919,666 $ 69,196 $1,830,500 $(100,026) $4,632,628 2,643,290
--------- ----------- ---------- ----------- ---------- ---------
--------- ----------- ---------- ----------- ---------- ---------
<CAPTION>
STOCKHOLDERS'
PAR VALUE EQUITY
----------- ------------
<S> <C> <C>
Balance, January 1, 1991.................................. $(1,499,855) $ (732,637)
Net income................................................ -- 684,072
Dividends................................................. -- (112,000)
Purchases of treasury stock............................... (700) (700)
----------- ------------
Balance, December 31, 1991................................ (1,500,555) (161,265)
Net income................................................ -- 1,077,460
Dividends................................................. -- (104,999)
Purchases of treasury stock............................... (42,000) (42,000)
Conversion of preferred stocks............................ -- 350,001
----------- ------------
Balance, December 31, 1992................................ (1,542,555) 1,119,197
Net income................................................ -- 1,601,192
Dividends................................................. -- (70,000)
Unrealized loss on marketable securities.................. -- (44,184)
Purchases of treasury stock............................... (268,400) (268,400)
Conversion of preferred stock............................. -- 466,668
----------- ------------
Balance, December 31, 1993................................ (1,810,955) 2,804,473
Net income (unaudited).................................... -- 1,524,309
Dividends (unaudited)..................................... -- (27,998)
Unrealized loss on marketable securities (unaudited)...... -- (55,842)
Issuance of stock from options (unaudited)................ -- 26,400
Purchases of treasury stock (unaudited)................... (188,820) (188,820)
Conversion of preferred stock (unaudited)................. -- 350,001
----------- ------------
Balance, September 30, 1994 (unaudited)................... $(1,999,775) $4,432,523
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30 DECEMBER 31
------------------------ -----------
1994 1993 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................................ $ 1,524,309 $ 1,181,144 $ 1,601,192
Adjustments to reconcile change in net assets to net cash provided by operating
activities:
Depreciation............................................................................ 54,000 45,620 45,185
Changes in assets and liabilities:
(Increase) decrease in prepaid commissions and provider fees............................ 52,807 98,089 65,697
(Increase) decrease in premiums receivable.............................................. 6,715 (1,650) (9,635)
(Increase) decrease in deferred tax asset............................................... -- -- --
(Increase) decrease in income tax refund................................................ 56,937 142,876 85,939
(Increase) decrease in other assets..................................................... (122,525) (200,642) (136,415)
Increase in accounts payable and accrued expenses....................................... 306,262 298,987 135,122
Increase (decrease) in unearned premium revenue......................................... 212,241 175,650 398,852
Increase (decrease) in income taxes payable............................................. 84,858 205,893 --
----------- ----------- -----------
Net cash provided by operating activities............................................. 2,175,604 1,945,967 2,185,937
----------- ----------- -----------
Cash flows from investing activities:
Purchases of equipment.................................................................... (35,126) (165,378) (188,736)
Purchase of marketable securities......................................................... (6,165,994) (3,392,813) (3,616,298)
Increase in restricted cash............................................................... (51,000) -- --
Sale of marketable securities............................................................. 4,644,306 2,114,868 2,370,024
----------- ----------- -----------
Net cash (used in) provided by investing activities................................... (1,607,814) (1,443,323) (1,435,010)
----------- ----------- -----------
Cash flows from investing activities:
Payment of dividends...................................................................... (27,998) (56,000) (70,000)
Purchase of treasury stock................................................................ (162,420) (121,400) (268,400)
Repayment of notes payable................................................................ -- -- --
----------- ----------- -----------
Net cash used in financing activities................................................... (190,418) (177,400) (338,400)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.................................... 377,372 325,244 412,527
Cash and cash equivalents, beginning of year................................................ 1,805,262 1,392,735 1,392,735
----------- ----------- -----------
Cash and cash equivalents, end of year...................................................... $ 2,182,634 $ 1,717,979 $ 1,805,262
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure:
Cash payments of income taxes............................................................. $ 807,597 $ 480,000 $ 743,000
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................ $ 1,077,460 $ 684,072
Adjustments to reconcile change in net assets to net cash provided by operating
activities:
Depreciation............................................................................ 40,346 47,568
Changes in assets and liabilities:
(Increase) decrease in prepaid commissions and provider fees............................ 85,328 (55,958)
(Increase) decrease in premiums receivable.............................................. 1,584 4,842
(Increase) decrease in deferred tax asset............................................... 125,458 (15,173)
(Increase) decrease in income tax refund................................................ (142,876) --
(Increase) decrease in other assets..................................................... (31,658) (62,373)
Increase in accounts payable and accrued expenses....................................... 67,602 136,708
Increase (decrease) in unearned premium revenue......................................... (33,211) 296,537
Increase (decrease) in income taxes payable............................................. (107,835) (69,871)
----------- -----------
Net cash provided by operating activities............................................. 1,082,198 966,352
----------- -----------
Cash flows from investing activities:
Purchases of equipment.................................................................... (6,246) (29,427)
Purchase of marketable securities......................................................... (3,179,806) --
Increase in restricted cash............................................................... -- --
Sale of marketable securities............................................................. 712,945 70,287
----------- -----------
Net cash (used in) provided by investing activities................................... (2,473,107) 40,860
----------- -----------
Cash flows from investing activities:
Payment of dividends...................................................................... (104,999) (112,000)
Purchase of treasury stock................................................................ (42,000) (700)
Repayment of notes payable................................................................ (3,000) (42,552)
----------- -----------
Net cash used in financing activities................................................... (149,999) (155,252)
----------- -----------
Net increase (decrease) in cash and cash equivalents.................................... (1,540,908) 851,960
Cash and cash equivalents, beginning of year................................................ 2,933,643 2,081,683
----------- -----------
Cash and cash equivalents, end of year...................................................... $ 1,392,735 $ 2,933,643
----------- -----------
----------- -----------
Supplemental disclosure:
Cash payments of income taxes............................................................. $ 800,800 $ 482,846
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
presented herein include the accounts of National Health Care Systems of
Florida, Inc. (NHCS) and its wholly owned subsidiaries, DentiCare, Inc.
(Kentucky), DentiCare of Alabama, Inc., and DentiCare, Inc. (Florida). All
material intercompany accounts and transactions have been eliminated. These
entities are referred to collectively herein as "the Company" and they are
engaged in the marketing and administration of prepaid dental plans.
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments and
eliminations, consisting only of normal recurring adjustments, necessary to
present fairly the consolidated financial position of the Company as of
September 30, 1994 and the consolidated results of their operations and cash
flows for the nine months ended September 30, 1994 and 1993, have been included.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
(b) REVENUE RECOGNITION. Revenue from dental plan subscribers is reported
as earned over the related contract periods on a pro rata basis. The unearned
portion of such revenue collected in advance is reported as unearned premium
revenue. Approximately 64% of the Company's subscribers reside in the state of
Florida as of December 31, 1993.
(c) FURNITURE AND EQUIPMENT. Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial reporting
purposes and the modified accelerated cost recovery system for tax reporting
purposes.
(d) PROVIDER FEES AND COMMISSIONS. Provider fees remitted to participating
dentists (providers) and commissions to sales agents averaged the following
percentages of subscriber revenue:
<TABLE>
<CAPTION>
PROVIDER FEES COMMISSIONS
--------------- ---------------
<S> <C> <C>
1993................................................... 58% 13%
1992................................................... 58% 14%
1991................................................... 58% 14%
</TABLE>
Prepaid commissions and provider fees represent amounts paid to dentists and
sales agents in advance of the period that corresponding revenue is earned and
recognized in income.
(e) MARKETABLE SECURITIES. Marketable securities consist of treasury and
municipal bonds which are stated at amortized cost or market, depending on
management's intent with regard to disposition of the related securities. The
Company adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" as
of December 31, 1993. Under Statement 115, the Company classifies its marketable
securities in one of three categories: trading, available-for-sale or
held-to-maturity. Trading securities are bought and held principally for the
purpose of selling them in the near-term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold until
maturity. All other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts.
F-8
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
(f) EARNINGS PER SHARE. Primary earnings per common share are calculated
by dividing the weighted average number of common shares outstanding during each
year into net income after deducting preferred stock dividends. The convertible
preferred stock has not been included in the primary earnings per common share
computations since they do not meet the criteria of a common stock equivalent;
and the stock options described in note 6 were not included in the primary or
fully diluted earnings per common share computations, since there is no dilutive
effect. On a fully diluted basis, shares outstanding are adjusted to assume the
conversion of the convertible preferred stock from the date of issue.
(g) INCOME TAXES. In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Effective
January 1, 1993, the Company adopted Statement 109 and has determined the
cumulative effect of that change in the method of accounting for income taxes in
the 1993 consolidated statement of operations to be minimal.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
The Company and its subsidiaries file a consolidated federal income tax
return. Deferred income taxes have been provided to recognize timing differences
between income determined for financial reporting purposes and income determined
for federal income tax purposes.
(h) CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
instruments purchased with a maturity of less than ninety days to be cash
equivalents. The Company maintains cash and cash equivalents in high quality
institutions in order to limit exposure related to credit risk.
(2) MARKETABLE SECURITIES
As discussed in note 1, the Company adopted Statement 115 as of December 31,
1993. The cumulative effect of this change in accounting for investments
determined as of December 31, 1993 is reported as a component of stockholders'
equity.
F-9
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) MARKETABLE SECURITIES (CONTINUED)
At September 30, 1994 the cost and estimated market value of marketable
securities which are classified as available for sale are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................... $ 2,230,289 $ 2,061 $ (84,191) $ 2,148,159
Obligations of states and special revenue bonds.......... 2,986,779 -- (76,641) 2,910,138
------------- ----------- ------------ -------------
Total................................................ $ 5,217,068 $ 2,061 $ (160,832) $ 5,058,297
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
</TABLE>
Unrealized losses (difference between cost and estimated market value) for
these securities, net of applicable income taxes, are $100,026 and are reflected
in stockholders' equity.
In addition, at September 30, 1994, the Company had $76,500 of municipal
bonds being held to maturity which are stated at amortized cost in the
accompanying consolidated financial statements.
At December 31, 1993 the cost and estimated market value of marketable
securities which are classified as available for sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. government
corporations and agencies................................. $ 1,582,049 $ 83 $ (28,239) $ 1,553,893
Obligations of states and special revenue bonds............ 2,080,535 -- (41,977) 2,038,558
------------- --- ---------- -------------
Total.................................................. $ 3,662,584 $ 83 $ (70,216) $ 3,592,451
------------- --- ---------- -------------
------------- --- ---------- -------------
</TABLE>
Unrealized losses (difference between cost and estimated market value) for
these securities, net of applicable income taxes, are $44,184 and are reflected
in stockholders' equity.
In addition, at December 31, 1993, the Company had $76,500 of municipal
bonds being held to maturity which are stated at amortized cost in the
accompanying consolidated financial statements.
The cost and estimated market value of investments in marketable securities
at December 31, 1993, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
MARKET
COST VALUE
------------- -------------
<S> <C> <C>
Due in one year or less................................................... $ 903,502 $ 882,347
Due after one year through five years..................................... 2,835,582 2,786,604
------------- -------------
Total..................................................................... $ 3,739,084 $ 3,668,951
------------- -------------
------------- -------------
</TABLE>
Proceeds from sales of marketable securities during 1993 were $2,370,024.
Gross gains of $4,494 and gross losses of $5,515 were realized on these sales
and are included in interest income on the consolidated statement of operations.
F-10
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) MARKETABLE SECURITIES (CONTINUED)
At December 31, 1992 and prior, marketable securities are stated at cost
which approximated market.
(3) OPERATING LEASES
The Company leases its offices under an operating lease expiring in 1996.
Under special conditions contained within the lease, the Company was granted
free rent for the first six months. Rental expense is recognized on a
straight-line basis which represents the approximate time pattern upon which
benefit is derived. Total rent expense was $123,502 for 1993, 1992 and 1991.
The Company also entered into an operating lease for its phone system in
1990, which expires in 1996. In addition, the Company leases 2 automobiles with
leases expiring in 1995. The net future minimum lease payments related to the
aforementioned leases as of December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994............................................................. $ 182,844
1995............................................................. 176,531
1996............................................................. 54,696
---------
Total minimum payments required................................ $ 414,071
---------
---------
</TABLE>
(4) WORKING CAPITAL AND REGULATORY REQUIREMENT
DentiCare, Inc. (Florida) is subject to a minimum working capital
requirement of $100,000 imposed by the Florida Insurance Code. This minimum
working capital is required to be maintained in the form of cash or a U.S.
government security. At December 31, 1993 and 1992, DentiCare, Inc. (Florida)
was in compliance with this requirement.
DentiCare, Inc. (Kentucky) is required by the Kentucky Department of
Insurance to maintain a minimum of $100,000 in stockholders' equity and to have
at least $25,000 deposited within the state of Kentucky. At December 31, 1993
and 1992, DentiCare, Inc. (Kentucky) was in compliance with these requirements.
(5) NET WORTH REQUIREMENT
NHCS is subjected to a "net worth" requirement of $600,000 pursuant to an
agreement with R. W. Allsop and Associates II Limited Partnership and Southeast
Venture Capital Limited II (holders of the preferred stock). As of December 31,
1993 and 1992, NHCS was in compliance with this requirement.
(6) STOCK OPTIONS
The Company has granted to its officers, a director, and two non-employees,
options to purchase shares of common stock which are exercisable over a period
of ten years from the date of issuance. The exercise prices of these options
range from $.50 to $3.00. The schedule of granted options is as follows:
<TABLE>
<CAPTION>
1993 1992
SEPTEMBER 30, 1994 --------- ---------
------------------
(UNAUDITED)
<S> <C> <C> <C>
Options at beginning of year....................... 667,300 597,300 447,700
Options granted.................................... 16,000 70,000 162,800
Options exercised.................................. (13,200) -- --
Options expired.................................... -- -- (13,200)
-------- --------- ---------
Options at end of year............................. 670,100 667,300 597,300
-------- --------- ---------
-------- --------- ---------
</TABLE>
F-11
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCK OPTIONS (CONTINUED)
As of December 31, 1993, none of the options have been exercised and all of
these options were deemed to be non-compensatory.
(7) CAPITAL TRANSACTIONS
The following is a schedule of treasury shares purchased:
<TABLE>
<CAPTION>
1993 1992
SEPTEMBER 30, 1994 -------------- ---------
------------------
(UNAUDITED)
<S> <C> <C> <C>
Treasury Shares................................. 44,957 75,500 15,000
Price........................................... $4.20 $2.80-$4.20 $2.80
</TABLE>
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to the Articles of Incorporation, the convertible preferred stock
issued by the Company is scheduled to be redeemed for $.60 per share on June 30,
1993 and on various dates thereafter. The following is a schedule of redemptions
as of December 31, 1993 should conversions not take place:
<TABLE>
<S> <C>
1994........................................ 777,780 shares
1995........................................ 194,439 shares
</TABLE>
During 1993, no preferred stock was redeemed, and 777,780 shares of
preferred stock with a redemption value of $466,668 were converted to common
stock. It is not presently known whether the preferred stockholders will convert
their remaining shares prior to each redemption date; however, management
expects that all shares will be converted to common stock.
(9) DEFINED CONTRIBUTION PLAN
In January 1991, DentiCare, Inc. established a defined contribution plan for
all employees eligible for participation after 6 months of service. The defined
contribution plan allows participants to defer up to $8,728 of their salary
pursuant to Section 401(k) of the Internal Revenue Code. The Company matches
contributions equal to the sum of 50% of the portion of the participant's salary
reduction which does not exceed 3% of the participant's contribution.
Contributions to the defined contribution plan by the Company for 1993, 1992 and
1991 were $19,024, $16,080 and $13,648, respectively. The Company's contribution
to the plan for the nine months ended September 30, 1994 was $11,386
(unaudited).
(10) INCOME TAXES
Income tax expense amounted to $945,464 (an effective rate of 37.1%),
$644,765 (an effective rate of 37.4%) and $384,844 (an effective rate of 36%)
for 1993, 1992 and 1991, respectively. The actual tax expense differs from the
"expected" tax expense (computed by applying the U.S. Federal tax rate to income
before income taxes) as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Statutory rate applied to income before income taxes....................... $ 865,863 $ 585,557 $ 379,898
Increase (decrease) in income taxes resulting from:
Tax exempt interest income............................................... (5,038) (5,625) (11,142)
State taxes net of federal benefit....................................... 73,113 62,517 41,755
Other.................................................................... 11,526 2,316 (25,667)
----------- ----------- -----------
$ 945,464 $ 644,765 $ 384,844
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Deferred federal and state income tax liabilities of approximately $13,000
at December 31, 1993 and 1992, relate to temporary differences between the
method of recording depreciation expense for
F-12
<PAGE>
NATIONAL HEALTH CARE SYSTEMS OF FLORIDA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) INCOME TAXES (CONTINUED)
income tax and financial reporting purposes and are reflected as accrued
expenses in the accompanying financial statements. Future deductions for such
temporary differences for federal and state income taxes amounted to
approximately $38,000 and $28,000 at December 31, 1993 and 1992, respectively.
In February 1992, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. In 1993, the Company adopted Statement No. 109.
F-13
<PAGE>
APPENDIX A TO PROXY STATEMENT -- PROSPECTUS
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of the 11th
day of November, 1994, by and between NATIONAL HEALTH CARE SYSTEMS OF FLORIDA,
INC., a Florida corporation (the "Company"), and PROTECTIVE LIFE CORPORATION, a
Delaware corporation (the "Purchaser").
P R E A M B L E
The respective Boards of Directors of the Company and the Purchaser have
approved, as in the best interests of the respective corporations and their
shareholders, this Agreement and the transactions described herein. This
Agreement provides for the acquisition of the Company by the Purchaser through
the merger of a wholly-owned subsidiary (the "Merger Sub") of the Purchaser with
and into the Company (the "Merger"), upon the terms and subject to the
conditions hereinafter set forth, in which shares of the Company's Capital Stock
(as defined in SECTION 4.01(B)(II) hereof) and the Company Stock Options (as
defined in SECTION 4.01(B)(III) hereof) will be converted into the right to
receive the consideration set forth in ARTICLE V hereof.
ACCORDINGLY, in consideration of the mutual representations, warranties and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I
DEFINITIONS; ETC.
1.01 CERTAIN DEFINED TERMS. All capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings set forth in APPENDIX
"A" attached to this Agreement.
1.02 RULES OF CONSTRUCTION. The use of any gender shall include all other
genders. The singular shall include the plural and the plural shall include the
singular. The word "or" is not exclusive and the use of the word "and" may be
conjunctive or disjunctive. The use of the word "including" shall not mean an
exclusive or limiting list of items. The terms "hereof", "herein", "hereunder"
and similar terms shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
1.03 HEADINGS. The Article headings and the section, subsection and
paragraph titles hereof are inserted for convenience of reference only, and
shall in no way alter or modify the text or substance of such Articles,
sections, subsections and paragraphs.
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
2.01 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in SECTION 2.03 hereof), the Merger Sub shall be
merged with and into the Company in accordance with the provisions of Section
607.1101 of the Florida Business Corporation Act (the "FBCA"). The separate
corporate existence of the Merger Sub shall cease and the Company shall continue
as the surviving corporation of the Merger (the "Surviving Corporation") under
the corporate name of "National Health Care Systems of Florida, Inc." and shall
continue to be governed by the Laws of the State of Florida.
2.02 PLACE AND TIME OF CLOSING. Unless this Agreement is terminated
pursuant to SECTION 11.01 hereof, the closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at (a) the offices of Mahoney
Adams & Criser, 3300 Barnett Center, 50 North Laura Street, Jacksonville,
Florida, at 10:00 a.m., as soon as practicable after the satisfaction or, where
permissible,
A-1
<PAGE>
waiver, of the conditions set forth in ARTICLE X of this Agreement occurs, or
(b) such other time, place and/or date (after the satisfaction or waiver of such
conditions) as the Parties may agree to in writing (the "Closing Date").
2.03 EFFECTIVE TIME. The Merger shall become effective on the date and at
the time on which articles of merger containing the provisions required by, and
executed in accordance with, Section 607.1105 of the FBCA (the "Articles of
Merger") shall have been accepted for filing by the Secretary of State of the
State of Florida, or such later date and time as may be specified in the
Articles of Merger (the "Effective Time").
2.04 EFFECT OF THE MERGER. The Merger shall have the effect provided
therefor by the FBCA and, upon the effectiveness of the Merger, the Surviving
Corporation shall possess, without limitation, all the rights, privileges,
powers and franchises, and be subject to all the restrictions, disabilities and
duties, of each of the Merger Sub and the Company (collectively, the
"Constituent Corporations"). Any and all of the rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, tangible and intangible, and all debts due to either of the
Constituent Corporations on whatever account, shall be vested in the Surviving
Corporation. All property, rights, privileges, powers and franchises, and all
and every other interest of either of the Constituent Corporations shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Constituent Corporations, and the title to any real estate vested by deed
or otherwise in either of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger. All rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of either of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties
had been incurred or contracted by it.
ARTICLE III
ARTICLES, BYLAWS, DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.01 ARTICLES OF INCORPORATION. The articles of incorporation of the
Merger Sub in effect immediately prior to the consummation of the Merger shall
be the articles of incorporation of the Surviving Corporation from and after the
Effective Time, until thereafter amended or repealed in accordance with the
provisions thereof and as provided by the FBCA.
3.02 BYLAWS. The bylaws of the Merger Sub in effect immediately prior to
the consummation of the Merger shall be the bylaws of the Surviving Corporation
from and after the Effective Time, until thereafter amended or repealed in
accordance with the provisions thereof and as provided by the FBCA.
3.03 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of the Merger Sub immediately prior to the
Effective Time, in each case until their successors are duly elected and
qualified, and the officers of the Surviving Corporation shall be the officers
of the Merger Sub (which may include officers of the Company designated by the
Purchaser) immediately prior to the Effective Time, in each case until their
successors are duly elected and qualified.
A-2
<PAGE>
ARTICLE IV
MANNER OF CONVERTING SHARES
4.01 CONVERSION. Subject to the provisions of this ARTICLE IV, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holders thereof, the shares of capital stock (and, in the case of the
Company, the options to purchase such capital stock) of the Merger Sub and
Company shall be converted as follows:
(a) MERGER SUB. Each share of common stock, par value $0.01 per share,
of the Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into a share of common stock, par value $0.01 per
share, of the Surviving Corporation.
(b) THE COMPANY.
(i) COMMON STOCK. Except (A) as set forth in SECTION 4.02 of this
Agreement and (B) for any Dissenting Shares (as defined in Section 4.04
hereof), each share of the Company's common stock, $0.01 par value (the
"Company Common Stock"), that is issued and outstanding immediately prior
to the Effective Time shall automatically be cancelled and shall cease to
exist, and each certificate previously representing any such shares of
Company Common Stock shall be converted into and become (A) the right to
receive an amount in cash, without interest, equal to the Per Share Cash
Amount (as defined in Section 5.02 hereof) and (B) the number of shares
of Purchaser Common Stock (as defined in Section 8.07 hereof) equal to
the Exchange Ratio (as defined in Section 5.03 hereof)(or cash in lieu of
any fractional share thereof);
(ii) PREFERRED STOCK. Except (A) as set forth in SECTION 4.02 of
this Agreement and (B) for any Dissenting Shares, each share of the
Company's 8% cumulative convertible Series A preferred stock, $0.01 par
value (the "Company Preferred Stock" and, collectively with the Company
Common Stock, the "Company Capital Stock"), that is issued and
outstanding immediately prior to the Effective Time shall automatically
be cancelled and shall cease to exist and each certificate previously
representing any such shares of Company Preferred Stock shall be
converted into and become (A) the right to receive an amount in cash,
without interest, equal to the Per Share Cash Amount and (B) the number
of shares of Purchaser Common Stock equal to the Exchange Ratio (or cash
in lieu of any fractional share thereof); and
(iii) STOCK OPTIONS. Each option to purchase shares of Company Common
Stock (individually, a "Company Stock Option" and collectively, the
"Company Stock Options") that is issued and outstanding immediately prior
to the Effective Time, whether or not then vested or exercisable, shall,
without action on the part of the holder thereof, become exercisable in
full, shall be cancelled and converted into and become (A) the right to
receive an amount in cash, without interest, equal to the Per Share Cash
Amount and (B) the number of shares of Purchaser Common Stock equal to
the Exchange Ratio (or cash in lieu of any fractional share thereof).
4.02 CANCELLATION OF TREASURY STOCK. Each share of Company Capital Stock
that may be held in the treasury by the Company shall be cancelled and retired
and no capital stock of the Surviving Corporation, cash or other consideration
shall be paid or delivered in exchange therefor.
4.03 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement to the contrary, each holder of shares of Company Capital Stock
exchanged pursuant to the Merger who would have otherwise been entitled to
receive a fraction of a share of Purchaser Common Stock (after taking into
account all Certificates (as defined in SECTION 4.05 hereof) delivered, or
Company Stock Options held, by such holder) shall receive, in lieu thereof, cash
(without any interest thereon) in an amount
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equal to such fractional part of a share of Purchaser Common Stock multiplied by
the Purchaser Trading Average (as defined in Section 5.03 hereof). No such
holder shall be entitled to dividends, voting rights or any other rights as a
stockholder of the Purchaser in respect of any fractional share.
4.04 DISSENTING SHARES. Notwithstanding anything herein to the contrary,
each of the shares of Company Capital Stock that are outstanding immediately
prior to the Effective Time and that are held by shareholders, if any, who are
entitled to assert a right under Section 607.1302 of the FBCA to dissent from
the Merger and who validly perfect their rights under Section 607.1320 of the
FBCA to receive the fair value of their shares with respect to the Merger (the
"Dissenting Shares") shall not be converted into or be exchangeable for
Purchaser Common Stock (or cash in lieu of fractional shares thereof), but the
holders of such shares of Company Capital Stock shall be entitled solely to
payment of the fair value of such shares in accordance with the provisions of
the FBCA; PROVIDED, HOWEVER, that:
(a) if such demand for payment of fair value shall be withdrawn upon the
consent of the Surviving Corporation;
(b) if this Agreement shall be terminated or the Merger shall not be
consummated;
(c) if no demand or petition for the determination of fair value by a
court shall have been made or filed within the time provided in the
provisions of the FBCA; or
(d) if a court of competent jurisdiction shall determine that such
holder of Dissenting Shares is not entitled to the relief provided by the
provisions of the FBCA:
then the right of such holder of Dissenting Shares to be paid the fair value of
such holder's shares of Company Capital Stock shall cease and, with respect to
clauses (a), (c) and (d) above, such Dissenting Shares shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive cash and Purchaser Common Stock (or cash in
lieu of fractional shares thereof) into which such shares would have been
converted in the Merger in accordance with SECTIONS 4.01(B)(I) AND (II) hereof,
without any interest thereon, and, with respect to clause (b) above, the status
of such shareholder shall be restored retroactively without prejudice to any
corporate proceeding that may have been taken during the interim.
4.05 TRANSFERS. At the Effective Time, the stock transfer book of the
Company shall be closed as to holders of the Company Capital Stock and Company
Stock Options immediately prior to the Effective Time and no transfers of the
Company Capital Stock or Company Stock Options by any such holder shall
thereafter be made or recognized. At the Effective Time, the Company Stock
Options shall be converted and cancelled as provided in SECTION 4.01(B)(III)
hereof. After the Effective Time, the Company Stock Options and certificates
representing Company Capital Stock ("Certificates"), if such Certificates are
properly presented in accordance with ARTICLE VI of this Agreement to the
Exchange Agent (as defined in SECTION 6.01 hereof), shall be cancelled and
exchanged for a check representing the amount of cash (including the amount of
cash for fractional shares, if any) and certificates representing the number of
whole shares of Purchaser Common Stock into which the Company Stock Options and
the Company Capital Stock represented thereby were converted in the Merger.
ARTICLE V
PURCHASE PRICE; EXCHANGE RATIO; ANTI-DILUTION;
VOTING AND DIVIDENDS
5.01 PURCHASE PRICE. The purchase price for the Company Capital Stock and
the Company Stock Options shall be $33.15 million, increased by the Consolidated
GAAP Net Worth, reduced by the amount, if any, by which the aggregate minimum
statutory capital of the Company's Subsidiaries under applicable Law at the
Effective Time exceeds $300,000, and further reduced by the Net Worth
Differential, if any (the "Purchase Price"). The Purchase Price shall be paid
with a combination of cash (the "Cash Portion") and Purchaser Common Stock (the
"Stock Portion") as set forth in SECTIONS 5.02 AND 5.03 hereof, respectively.
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For purposes hereof, the "Fully Diluted Purchase Price" shall mean an amount
calculated as the sum of (i) the Purchase Price AND (ii) the aggregate sum of
the exercise prices of the Company Stock Options outstanding immediately prior
to the Effective Time (calculated for each Company Stock Option by multiplying
the per share exercise price of such Company Stock Option by the number of
shares of Company Common Stock subject to such option).
For purposes hereof, the "Fully Diluted Purchase Price Per Share" shall mean
an amount calculated as the Fully Diluted Purchase Price divided by the sum of
the following:
(i) the total number of shares of the Company Common Stock outstanding
immediately prior to the Effective Time;
(ii) the total number of shares of the Company Preferred Stock
outstanding immediately prior to the Effective Time; and
(iii) the total number of shares of the Company Common Stock issuable
upon exercise of the Company Stock Options, which options were outstanding
immediately prior to the Effective Time.
5.02 CASH PORTION. The Cash Portion shall be a dollar amount determined by
multiplying the Purchase Price by an amount not to exceed 0.199 (19.9%), as
determined pursuant to SECTION 5.10 hereof (the "Cash Percentage"). For purposes
hereof, the "Adjusted Cash Portion" shall mean the Cash Portion LESS the
Dissenters' Contractual Amount (as defined in SECTION 5.09 hereof) and LESS the
Dissenter's Additional Amount (as defined in SECTION 5.09 hereof).
For purposes hereof, the "Adjusted Cash Percentage" shall mean the
percentage calculated by DIVIDING the Adjusted Cash Portion by (i) the Purchase
Price LESS (ii) the Dissenters' Contractual Amount.
For purposes hereof, the "Per Share Cash Amount" shall be a dollar amount
calculated by:
(a) with respect to shares of Company Capital Stock, other than
Dissenting Shares and shares subject to Company Stock Options, MULTIPLYING
(i) the Fully Diluted Purchase Price Per Share by (ii) the Adjusted Cash
Percentage; or
(b) with respect to shares of Company Capital Stock subject to Company
Stock Options, MULTIPLYING (i) the amount by which the Fully Diluted
Purchase Price Per Share exceeds the per share exercise price of such
Company Stock Option by (ii) the Adjusted Cash Percentage.
5.03 STOCK PORTION; EXCHANGE RATIO. The Stock Portion shall be the
Purchase Price LESS the Dissenters' Contractual Amount LESS the Adjusted Cash
Portion. For purposes hereof, the "Adjusted Stock Percentage" shall mean the
percentage amount equal to the difference between one (1) and the Adjusted Cash
Percentage.
For purposes hereof, the "Exchange Ratio" shall be a ratio calculated by:
(a) with respect to shares of Company Capital Stock, other than
Dissenting Shares and shares subject to Company Stock Options, MULTIPLYING
(i) the Fully Diluted Purchase Price Per Share by (ii) the Adjusted Stock
Percentage and DIVIDING the result by the Purchaser Trading Average; or
(b) with respect to shares of Company Capital Stock subject to Company
Stock Options, MULTIPLYING (i) the amount by which the Fully Diluted
Purchase Price Per Share exceeds the per share exercise price of such
Company Stock Option by (ii) the Adjusted Stock Percentage and DIVIDING the
result by the Purchaser Trading Average.
For purposes of this Agreement, the term "Purchaser Trading Average" shall
mean the average of the closing price for a share of Purchaser Common Stock
(after any adjustment in accordance with SECTION 5.04 hereof) as reported on the
NYSE Composite Tape for the twenty (20) consecutive trading days immediately
preceding the second business day preceding the Closing Date (the "Purchaser
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Trading Average Determination Period"); PROVIDED, HOWEVER, that for purposes of
determining the Exchange Ratio, in the event that the actual determination of
the Purchaser Trading Average produces an amount less than $40.00 or greater
than $50.00, then in such event the Purchaser Trading Average shall be deemed to
be $40.00 or $50.00, respectively.
5.04 ANTI-DILUTION PROVISIONS. The Exchange Ratio shall be subject to
adjustment during the Purchaser Trading Average Determination Period:
(a) If the Purchaser shall take any of the following actions after the
date hereof:
(i) pay a dividend in its capital stock to the holders of Purchaser
Common Stock;
(ii) subdivide the outstanding shares of Purchaser Common Stock;
(iii) combine the outstanding shares of Purchaser Common Stock into a
smaller number of shares; or
(iv) issue by reclassification of the shares of Purchaser Common Stock
(including any such reclassification in connection with a consolidation
or merger in which the Purchaser is the continuing corporation) any
shares of its capital stock;
THEN, if the record date for such action (in the case of an action taken
under clause (i) above) or the effective time for such action (in the case
of actions taken under clauses (ii), (iii) or (iv) above) is prior to the
Closing, the Exchange Ratio shall be adjusted so that the consideration to
be received by the Company's stockholders shall consist of the number and
kind of shares of capital stock and/ or other property of the Purchaser that
a record holder of Purchaser Common Stock (or such other amount or type of
stock as such consideration shall have been adjusted previously pursuant to
the provisions of this SECTION 5.04) immediately prior to the happening of
such event would own and/or be entitled to receive after the happening of
such event. An adjustment made pursuant to this clause (a) shall become
effective retroactively to immediately after the record date in the case of
a dividend payable in capital stock of the Purchaser, and shall become
effective immediately after the effective time in the case of a subdivision,
combination or reclassification and all references contained in this
Agreement to "Purchaser Common Stock" shall be deemed to be references to
such other amount or type of stock as Purchaser Common Stock shall have been
adjusted.
(b) If at any time prior to the Closing the Purchaser shall be a party
to any transaction (including, without limitation, a merger, consolidation,
sale of all or substantially all of its assets, liquidation or
recapitalization of, or shall make an extraordinary dividend or distribution
with respect to, Purchaser Common Stock) in which the previously outstanding
Purchaser Common Stock shall be changed into or exchanged for different
securities of the Purchaser (other than any change or exchange by reason of
which an adjustment is made under the clause (a) above) or for the common
stock or other securities of another corporation or interests in a
noncorporate entity, or if at any time interests in a noncorporate entity or
other property are distributed to the holders of Purchaser Common Stock
(whether by means of any extraordinary dividend, spinoff of assets or
otherwise), the consideration to be received by the Company's stockholders
shall thereafter consist of the securities and/or other property that a
record holder of Purchaser Common Stock (or such other amount or type stock
as such consideration shall have been adjusted previously pursuant to the
provisions of this SECTION 5.04) immediately prior to the happening of such
event would own and/or be entitled to receive after the happening of such
event and all references contained in this Agreement to "Purchaser Common
Stock" shall be deemed to be references to such other amount or type of
stock as Purchaser Common Stock shall have been adjusted.
5.05 VOTING AND DIVIDENDS. Former stockholders of record of the Company
shall be entitled to vote after the Effective Time at any meeting of the
Purchaser's stockholders the number of whole shares of Purchaser Common Stock
into which their shares of Company Capital Stock are converted, regardless of
whether such holders have exchanged their Certificates for certificates
representing
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Purchaser Common Stock in accordance with the provisions of ARTICLE VI of this
Agreement. Until surrendered for exchange in accordance with the provisions of
ARTICLE VI of this Agreement, each Certificate (other than Dissenting Shares or
shares to be cancelled pursuant to SECTION 4.02 hereof) shall from and after the
Effective Time represent for all purposes only the right to receive shares of
Purchaser Common Stock and cash in lieu of fractional shares as set forth in
this Agreement (without any interest thereon). Whenever a dividend or
distribution is declared by the Purchaser on Purchaser Common Stock, the record
date for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of Purchaser Common Stock
issuable pursuant to this Agreement: PROVIDED, HOWEVER, that beginning 12 months
after the Effective Time, no dividend or other distribution payable to holders
of record of Purchaser Common Stock at or as of any time after the Effective
Time shall be paid to the holder of any Certificate until such holder physically
surrenders such Certificate for exchange, promptly after which time all such
dividends or distributions shall be paid (without any interest thereon).
5.06 ADJUSTMENT PROCESS. In order to calculate the Purchase Price, the
Parties shall proceed as follows:
(a) As soon as available, but in no event later than the fifth (5th)
business day prior to the Closing Date, the Company shall prepare and
deliver to the Purchaser (i) the Closing Balance Sheet (together with
related notes and appropriate supporting schedules and work papers), (ii)
the statutory financial statements of each of the Company's Subsidiaries as
of the month-end immediately preceding the Closing Date, which statutory
financial statements shall comply with applicable Law at the Effective Time
(the "Subsidiary STAT Financial Statements") and (iii) a statement showing
the calculation of the amount of the Purchase Price (together with
appropriate supporting schedules), accompanied by a certificate of the chief
financial officer of the Company to the effect that (x) the Closing Balance
Sheet has been prepared in accordance with GAAP consistent with the
accounting principles used in the preparation of the Company's audited
financial statements or as otherwise contemplated by this Agreement and (y)
the Subsidiary STAT Financial Statements comply with applicable Law or as
otherwise contemplated by this Agreement (the "Adjustment Certificate").
(b) Within three (3) business days after delivery of the Closing Balance
Sheet, Subsidiary STAT Financial Statements and Adjustment Certificate to
the Purchaser, the Purchaser may dispute all or any portion thereof by
giving written notice (a "Notice of Disagreement") to the Company setting
forth in reasonable detail the basis for any such dispute (any such dispute
being hereinafter called a "Disagreement"). During such three-day period,
the Company shall provide the Purchaser and its designees with reasonable
access to its Books, Records, personnel and representatives and such other
information as the Purchaser may require in order to determine that the
Closing Balance Sheet has been prepared in accordance with GAAP consistent
with the accounting principles used in the preparation of the Company's
audited financial statements and that the Subsidiary STAT Financial
Statements comply with applicable Law, or, in each case, as otherwise
contemplated by this Agreement. The Parties shall promptly commence good
faith negotiations with a view to resolving all such Disagreements. If the
Purchaser does not give a Notice of a Disagreement in accordance with the
provisions of the first sentence of this paragraph (b) within the three-day
period set forth therein, the Purchaser shall be deemed to have irrevocably
accepted the Purchase Price reflected in the Adjustment Certificate
delivered by the Company.
(c) If the Purchaser shall deliver a Notice of Disagreement and the
Company shall not dispute all or any portion of such Notice of Disagreement
by giving written notice to the Purchaser setting forth in reasonable detail
the basis for such dispute within one (1) business day following the
delivery of such Notice of Disagreement, the Company shall be deemed to have
irrevocably accepted the Purchase Price as modified in the manner described
in the Notice of Disagreement. If the Company disputes all or any portion of
the Notice of Disagreement within the one-day period described in the
previous sentence, and within one (1) business day following the delivery to
the Purchaser of the notice of such dispute the Purchaser and the Company do
not
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resolve the Disagreement (as evidenced by a written agreement among the
Parties hereto), such Disagreement shall be referred to an independent
accounting firm mutually selected by the Purchaser and the Company for a
resolution of such Disagreement in accordance with the terms of this
Agreement. If the Purchaser and the Company do not promptly agree on the
selection of an independent accounting firm, their respective independent
public accountants shall select such firm. The determinations of such firm
with respect to any Disagreement shall be final and binding upon the Parties
and the amount so determined shall be used to complete the final Closing
Balance Sheet. The Purchaser and the Company shall use their best efforts to
cause the independent accounting firm to render its determination as soon as
practicable after referral of the Disagreement to such firm, and each shall
cooperate with such firm and provide such firm with reasonable access to the
Books, Records, personnel and representatives of the Surviving Company and
such other information as such firm may require in order to render its
determination. All of the fees and expenses of any independent accounting
firm retained pursuant to this paragraph (c), together with the good-faith
estimate of the expenses to be incurred due to any delayed payment of a
portion of the Purchase Price, including, without limitation, attorneys'
fees and SEC filing fees to be incurred in order to effectuate a delayed
distribution of Purchaser Common Stock, shall be paid by the Parties in
proportion to the difference between the Purchase Price as determined
pursuant to this paragraph (c) and the Purchase Price as determined by each
Party. The amount of such fees and expenses, if any, which is to be borne by
the Company shall constitute a reduction in the Purchase Price.
5.07 POST-CLOSING ADJUSTMENT. If the Purchaser disputes all or any portion
of the Purchase Price and all Disagreements are not resolved prior to the
Closing Date, the Parties agree to proceed to consummate the Merger, except that
the Exchange Ratio shall be determined based upon the amount of the Purchase
Price that is not subject to dispute, less the good-faith estimate of the
expenses to be incurred due to any delayed payment of a portion of the Purchase
Price, including, without limitation, attorneys' fees and SEC filing fees to be
incurred in order to effectuate a delayed distribution of Purchaser Common Stock
(the amount that is subject to dispute shall be referred to herein as the
"Disputed Amount"), and cash and certificates representing Purchaser Common
Stock (rounded down to the nearest whole share) shall be exchanged by the
Exchange Agent for the Certificates based upon the Cash Portion and the Stock
Portion (determined in accordance with this subsection) pending resolution of
all Disagreements pursuant to SECTION 5.06(C) hereof.
5.08 FINAL DISTRIBUTION. On a date (the "Adjustment Date") that is no
later than one (1) business day after the Parties resolve the Disagreement, the
actual amount of the Purchase Price shall be determined, and, to the extent that
any portion of the Disputed Amount shall have been determined to be includable
as part of the Purchase Price, such portion, together with any fractional
interest not included in any previous exchange and accrued interest thereon, if
any, from the period from the Closing Date to the Adjustment Date shall
constitute a portion of the Purchase Price and the Exchange Agent shall deliver
to those holders of Certificates who have previously exchanged their
Certificates, checks and certificates representing Purchaser Common Stock in an
amount as determined after the resolution of the Disagreement.
5.09 CASH RESERVE FOR DISSENTERS. The Purchaser shall reduce the Cash
Portion of the Purchase Price by an amount equal to (a) the number of Dissenting
Shares multiplied by the Fully Diluted Per Share Purchase Price (the
"Dissenters' Contractual Amount") and (b) such additional amount as the Company
and the Purchaser may reasonably agree upon in order to increase the possibility
that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code (the
"Dissenter's Additional Amount").
5.10 DETERMINATION OF CASH AND STOCK PERCENTAGES. The Purchaser and the
Company intend that the Cash Percentage and the Stock Percentage shall be 19.9%
and 80.1%, respectively; PROVIDED, HOWEVER, that the Purchaser and the Company
reserve the right to alter such percentages at any time
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hereafter, in light of the number of Dissenting Shares, to increase the
possibility that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
ARTICLE VI
EXCHANGE OF SHARES
6.01 EXCHANGE AGENT. The Purchaser and the Company agree that AmSouth Bank
of Alabama, or another bank or trust company reasonably acceptable to Purchaser
and the Company, shall be designated as the exchange agent for the Merger (the
"Exchange Agent"). The Purchaser shall deposit, or cause to be deposited, with
the Exchange Agent at the Effective Time (a) a sufficient number of certificates
representing Purchaser Common Stock (completed in all respects except as to the
name of the registered holder and number of shares of Purchaser Common Stock
represented by such certificate) required in order to effect the exchange of the
Certificates and (b) immediately available funds in an amount equal to (i) the
Adjusted Cash Portion PLUS $4,000 (the "Payment Fund").
6.02 EXCHANGE PROCEDURE. As soon as practicable after the Effective Time,
the Purchaser shall cause the Exchange Agent to mail to each holder of record of
a Certificate or Certificates a form letter of transmittal (which shall specify
that a delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
in exchange for the cash (including cash in lieu of fractional shares) and the
Purchaser Common Stock into which the shares of Company Capital Stock
represented by such Certificate or Certificates shall have been converted
pursuant to this Agreement (all without any interest thereon). Holders of (a)
Company Stock Options and (b) Certificates (upon surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed), shall be entitled to receive therefor a certificate
representing the number of whole shares of Purchaser Common Stock and a bank
check for the cash being paid (including cash in lieu of fractional shares, if
any) as set forth in Sections 4.01(B)(I), (II) AND (III) hereof for the
aggregate number of Company Stock Options or shares of Company Capital Stock
previously represented by the Certificates surrendered. The Certificates so
surrendered shall forthwith be cancelled.
If for any reason (other than as a result of, or otherwise arising out of, a
breach of the Company's representations and warranties set forth in SECTION 7.03
hereof), the Payment Fund is inadequate to pay the amounts to which the holders
of shares of Company Capital Stock shall be entitled under SECTION 4.01(B)
hereof, the Purchaser shall be liable for the payment thereof. In no event shall
the holder of any surrendered Certificates be entitled to receive interest on
any of the funds to be received in the Merger (except as set forth in SECTION
5.07 of this Agreement). If a certificate representing Purchaser Common Stock or
a check is to be sent to a Person other than the Person in whose name the
Certificates surrendered for conversion are registered, it shall be a condition
of the exchange that the Certificate so surrendered shall be properly endorsed
and the signatures thereon properly guaranteed and otherwise in proper form for
transfer and that the Person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the delivery of such
certificate or check to a Person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
In addition, Certificates surrendered for exchange by any person
constituting an "affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "1933 Act"), described in SECTION 9.15
hereof, shall not be exchanged for certificates representing whole shares of
Purchaser Common Stock until the Purchaser has received a written agreement from
such Affiliate as provided in SECTION 9.15 hereof.
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6.03 NO FURTHER OWNERSHIP RIGHTS. The certificates and cash exchanged upon
the surrender of Certificates in accordance with the terms hereof shall be
deemed to have been paid, issued and distributed in full satisfaction of all
rights pertaining to such shares of Company Capital Stock.
6.04 RETURN OF UNUSED CERTIFICATES AND PAYMENT FUNDS. Any certificates
representing Purchaser Common Stock or cash delivered or made available to the
Exchange Agent pursuant to SECTION 6.01 hereof and not exchanged for
Certificates within six (6) months after the Effective Time pursuant to this
SECTION 6.04 shall be returned by the Exchange Agent to the Surviving
Corporation which shall thereafter act as exchange agent for purposes hereof,
subject to the rights of holders of unsurrendered Certificates hereunder. Any
other provision of this Agreement notwithstanding, neither the Purchaser, the
Surviving Corporation nor the Exchange Agent shall be liable to a holder of
Company Capital Stock for any amount paid or property delivered in good faith to
a public official pursuant to any applicable abandoned property, escheat or
similar Law.
6.05 LOST OR STOLEN CERTIFICATES. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Purchaser, the posting by such Person of a bond (the term of
which bond shall not be for a period of time greater than one (1) year) in such
amount as the Purchaser may direct (but in no event greater than the portion of
the Purchase Price to be paid to such holder with respect to the Certificate) as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Purchaser Common Stock and cash deliverable in respect
thereof pursuant to this Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser, with such exceptions
and qualifications as are stated in this ARTICLE VII or are as set forth in the
disclosure schedule of the Company attached to this Agreement and made a part
hereof and incorporated herein by this reference to such disclosure schedule
(the "Company Disclosure Schedule"), as follows:
7.01 ORGANIZATION, STANDING, AND AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the Laws of the
State of Florida. The Company has the corporate power and authority to own,
lease and operate all of its 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 Assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified will not have, or is not reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Condition of the Company or its
ability to consummate the transactions contemplated by this Agreement. The
Company has delivered to the Purchaser accurate and complete copies of its
articles of incorporation and bylaws as in effect on the date of this Agreement.
7.02 AUTHORIZATION OF TRANSACTION. The Company has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, subject to the approval of the Company's
shareholders to the extent required by applicable Law. The execution and
delivery of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of the Company and, except for the approval and adoption of
the Merger by the Company's shareholders as set forth in SECTION 9.09 hereof, no
other corporate proceedings on the part of the Company are necessary to
authorize the Merger provided in this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed by the
Company and, assuming this Agreement constitutes a valid and binding agreement
of the Purchaser, represents a valid and legally binding
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obligation of the Company enforceable against the Company in accordance with its
terms, subject to the Bankruptcy Exception and subject, as to enforceability, to
general principles of equity, whether applied in a proceeding in equity or at
law.
7.03 CAPITALIZATION OF THE COMPANY.
(a) The authorized capital stock of the Company consists of:
(i) 10,000,000 shares of Company Common Stock of which, at the close of
business on November 1, 1994, 4,266,376 shares were issued and outstanding,
2,653,290 were treasury shares and no shares were reserved for issuance;
(ii) 2,333,334 shares of Company Preferred Stock of which, at the close
of business on November 1, 1994, 388,884 shares were issued and outstanding
and no shares are reserved for issuance; and
(iii) 3,000,000 shares of preferred stock, $0.01 par value, of which, at
the close of business on November 1, 1994, no shares were issued,
outstanding or reserved for issuance.
All of the issued and outstanding shares of the Company Capital Stock are
duly and validly issued and are fully paid and nonassessable. None of the
outstanding shares of the Company Capital Stock has been issued in violation of
any preemptive rights.
(b) As of the date of this Agreement, the Company had outstanding and
unexercised Company Stock Options covering 734,500 shares of the Company Common
Stock, as more particularly described on SECTION 7.03(B) OF THE COMPANY
DISCLOSURE SCHEDULE.
(c) Except as set forth in SECTIONS 7.03(A) AND (B) herein, there are no
shares of capital stock or other equity securities of the Company outstanding
and no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of the Company
or Contracts by which the Company is or may be bound to issue additional shares
of its stock or options, warrants or rights to purchase or acquire any
additional shares of its stock. Except as set forth in SECTION 7.03(C) OF THE
COMPANY DISCLOSURE SCHEDULE, there are no Contracts by which the Company is or
may be bound to transfer any shares of the capital stock of the Company, and
there are no Contracts relating to the right of the Company to vote or to
dispose of such shares.
7.04 FINANCIAL STATEMENTS. The Company has delivered to the Purchaser
copies of its consolidated balance sheets and the related consolidated
statements of income, consolidated statements of changes in shareholders' equity
and consolidated statements of the cash flows (including related notes and
schedules, except with respect to unaudited information) as of and for the
periods ended August 31, 1994, and December 31, 1993, 1992 and 1991
(collectively, with the financial statements to be delivered by the Company to
the Purchaser pursuant to SECTION 9.02(B) hereof, the "Company Financial
Statements"). The Company Financial Statements (as of the dates thereof and for
the periods covered thereby and including the notes thereto) (a) are, or will
be, prepared in accordance with GAAP, consistently applied during such periods
(subject to any exceptions as to consistency specified therein or as may be
indicated in the notes thereto and, in the case of interim periods, normal
recurring year-end adjustments and except for the absence of certain footnote
information in the unaudited statements), (b) are, or in the case of the Company
Financial Statements dated as of dates after the date of this Agreement will be,
in accordance with the Books and Records of the Company and that are or will be,
as the case may be, complete and correct and that have been or will have been,
as the case may be, maintained in accordance with good business practices, and
(c) present or will present, as the case may be, fairly the financial position
and the results of operations of the Company as of the dates indicated and the
results of operations, changes in shareholders' equity, and cash flows of the
Company for the periods indicated, in accordance with GAAP, consistently applied
during such periods (subject to any
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exceptions as to consistency specified therein or as may be indicated in the
notes thereto and, in the case of interim periods, normal recurring year-end
adjustments and except for the absence of certain footnote information in the
unaudited statements).
7.05 SUBSIDIARIES.
(a) Except as set forth in SECTION 7.05 OF THE COMPANY DISCLOSURE SCHEDULE,
the Company has no direct or indirect Subsidiaries. The Company owns
beneficially and of record all the issued and outstanding capital stock of each
of its Subsidiaries, free and clear of all liens, claims, security interests or
other encumbrances. All of such capital stock was validly issued and is fully
paid and nonassessable. Except for shares of such Subsidiaries registered in the
name of the Company, no shares of capital stock or other equity securities of
the Company's Subsidiaries are or may become required to be issued by reason of
any options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of the capital stock of any of the Company's
Subsidiaries, and there are no Contracts by which any of the Company's
Subsidiaries is or may be bound to issue additional shares of its stock or
options, warrants or rights to purchase or acquire any additional shares of its
stock. There are no Contracts by which the Company or any of its Subsidiaries is
or may be bound to transfer any shares of the stock of any such Subsidiary, and
there are no Contracts relating to the right of the Company or any such
Subsidiary to vote or to dispose of such shares.
(b) Each of the Company's Subsidiaries (i) is a corporation duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation, (ii) has the corporate power and authority to own, lease and
operate all of its Assets and to carry on its business as it is now being
conducted, (iii) 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 Assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified will not have, or is not reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Condition of such Subsidiary or
the Company. The Company has delivered to the Purchaser accurate and complete
copies of the articles of incorporation and bylaws of each of its Subsidiaries,
as in effect on the date of this Agreement.
(c) Each of the representations and warranties made by the Company in
SECTIONS 7.06 - 7.20 of this Agreement with respect to the Company shall be
deemed to have been made by the Company with respect to each of the Company's
Subsidiaries.
7.06 NON-CONTRAVENTION. None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the transactions
contemplated hereby or the compliance by the Company with any of the provisions
herein will:
(a) conflict with or result in a breach of any provision of the
Company's articles of incorporation or bylaws;
(b) constitute or result in a violation or breach of any term, condition
or provision of, or constitute a default with or without notice of lapse of
time or both under, or give rise to any right of termination, cancellation
or acceleration of any obligation or the loss of a benefit with respect to,
or result in the creation of any lien upon any of the Assets of the Company
pursuant to, any Contract to which the Company is a party or by which it or
any of its Assets may be subject, except for such violations, breaches,
defaults, terminations, cancellations, accelerations or creations that will
not have, or are not reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Condition of the Company; or
(c) subject to the receipt of the Requisite Regulatory Approvals (as
defined in Section 10.01(a) hereof), violate any Law, Order or Authorization
applicable to the Company or any of its Assets.
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7.07 CONSENTS. Except as set forth in SECTION 7.07 OF THE COMPANY
DISCLOSURE SCHEDULE, no Consent of any Person is necessary to be obtained or
made by the Company in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, other than:
(a) Consents of the Governmental Entity having jurisdiction with respect
to the business of the Company in each state in which the Company is doing
business, including, but not limited to, the Florida Department of
Insurance, if required;
(b) the filing of pre-merger notification and the expiration or early
termination of the waiting period required by the HSR Act;
(c) the approval of the Company's shareholders;
(d) the filing of the Articles of Merger with the Secretary of State of
the State of Florida; and
(e) Consents that, if not obtained, will not have, or are not reasonably
likely to have, individually or in the aggregate, a material adverse effect
on the ability of the Company to consummate the transactions contemplated
hereby or the business of the Company.
7.08 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no Liabilities
that will have, or are reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Condition of the Company, except for
material Liabilities that:
(a) are accrued or reserved against in the consolidated balance sheet of
the Company as of December 31, 1993, included in the Company Financial
Statements or reflected in the notes thereto; or
(b) incurred in connection with the Merger or as otherwise contemplated
or permitted by this Agreement.
7.09 TAX MATTERS.
(a) The Company has (i) timely filed all Tax Returns (or requests for
extensions thereof) required to be filed by it on or before the date hereof, and
all such Tax Returns were true, complete and accurate in all material respects,
and (ii) timely paid in full, or made adequate provision on the Company
Financial Statements delivered prior to the date of this Agreement for the
payment of, all Taxes that are due and payable with respect to such Tax Returns.
There is no audit, examination, deficiency or refund Litigation with respect to
any Taxes that will result, or is reasonably likely to result in, a
determination that would have a material adverse effect on the Condition of the
Company, except as reserved against in the Company Financial Statements
delivered prior to the date of this Agreement.
(b) Except as set forth in SECTION 7.09(B) OF THE COMPANY DISCLOSURE
SCHEDULE, the Company has not received any written notice of deficiency or
assessment (or other written notice) from any Taxing Authority with respect to
Liabilities for Taxes that have not been fully paid or finally settled. Any such
written notice of deficiency or assessment is being contested in good faith
through appropriate and timely proceedings, the status of which is described in
SECTION 7.09(B) OF THE COMPANY DISCLOSURE SCHEDULE.
(c) Except as set forth in SECTION 7.09(C) OF THE COMPANY DISCLOSURE
SCHEDULE, all Tax Returns of the Company have been audited by the appropriate
Taxing Authority or are closed by the applicable statute of limitations (other
than for fraud) for all taxable periods through December 31, 1987.
(d) The Company has not executed any extension or waiver that is currently
in effect of any statute of limitations on the assessment or collection of any
Tax.
(e) All Taxes that the Company is required by Law to withhold or to collect
for payment have been duly withheld and collected, and all such Taxes that are
required to be paid or remitted to any Taxing Authority have been paid or
remitted to the proper Taxing Authority.
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(f) There are no Liens with respect to Taxes upon any of the Assets of the
Company other than for Taxes not yet due and payable.
(g) The Company has not filed a consent under Code Section 341(f) concerning
collapsible corporations. The Company has not made any payments, is not
obligated to make any payments and is not a party to any agreement that could
obligate it to make any payments to a current or former employee that are not or
will not be deductible under Code Section 280G. The Company is not and has not
been a United States real property holding company within the meaning of Code
Section 897(c)(2).
7.10 ASSETS. Except as set forth in SECTION 7.10 OF THE COMPANY DISCLOSURE
SCHEDULE and except for nonconsensual Liens arising in the ordinary course of
business after the date hereof, the Company has good and marketable title, free
and clear of all Liens that are material to the Condition of the Company, to all
its Assets which are material to the Condition of the Company, and that are
reflected in the Company Financial Statements as being owned by the Company as
of the date hereof.
7.11 COMPLIANCE WITH LAWS.
(a) The Company holds all Authorizations of all Governmental Entities that
are required in order to permit it to carry on its business in all material
respects as it is presently conducted, except where failure to hold such
Authorizations will not have, or is not reasonably likely to have, individually
or in the aggregate, a material adverse effect on the Condition of the Company.
The Company, and the business of the Company, is in compliance with all Laws,
Orders or Authorizations, except for possible violations which will not have, or
are not reasonably likely to have, individually or in the aggregate, a material
adverse effect on the Condition of the Company.
(b) Except as set forth in SECTION 7.11(B) OF THE COMPANY DISCLOSURE
SCHEDULE, the Company has not received any written notification or communication
from any Governmental Entity (i) asserting that the Company is not in compliance
with any Law which such Governmental Entity enforces, which will have, or is
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the Condition of the Company, or (ii) threatening to revoke any
Authorization, the revocation of which will have, or is reasonably likely to
have, individually or in the aggregate, a material adverse effect on the
Condition of the Company.
7.12 COMMITMENTS AND CONTRACTS.
(a) Except as set forth in SECTION 7.12 OF THE COMPANY DISCLOSURE SCHEDULE,
the Company is not a party to or subject to any Contract:
(i) with any present or former officer, director or employee, other than
those that either:
(A) are terminable at will by the Company without Liability (other
than Liability for services already rendered) at any time on or after
Closing; or
(B) do not involve payments by the Company in excess of $10,000 per
annum or in excess of $25,000 for the remaining term of the Contract
without giving effect to extensions or renewals made after the date
hereof;
(ii) providing for payments in excess of $10,000 per annum or in excess
of $25,000 for the remaining term of the Contract;
(iii) for the lease of real property by the Company;
(iv) between the Company and any of its Affiliates;
(v) relating to the borrowing of money or the guarantee by the Company
of any such obligation;
(vi) containing noncompetition covenants that limits the ability of the
Company to compete in any line of business or that involve any restriction
of the geographical area in which the Company may carry on its business
(other than such limitations or restrictions as may be required by Law or
applicable Governmental Entities);
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(vi) with any dental or health care provider; or
(vi) governing, or otherwise with respect to, its obligations to its
members.
(b) The Company has made available to the Purchaser a correct and complete
copy of each written Contract (or, with respect to Contracts included due to
SECTION 7.12(A)(VII) AND (VIII), the form of such Contract) set forth in SECTION
7.12 OF THE COMPANY DISCLOSURE SCHEDULE. With respect to each such Contract:
(i) the Contract is valid, binding and in full force and effect;
(ii) the Company has not repudiated or waived any material provision of
any such Contract;
(iii) all amounts due and payable by the Company through the Closing Date
have been or will be paid or will be adequately reserved against on the
Closing Balance Sheet, and there will be no amounts due after the Closing
Date which relate to the period prior to the Closing for which adequate
reserves will not be established on the Closing Balance Sheet; and
(iv) no other party to any such Contract is, to the Knowledge of the
Company, in default in any respect thereunder.
(c) With respect to any lease of real property set forth in SECTION 7.12 OF
THE COMPANY DISCLOSURE SCHEDULE:
(i) all rents and other amounts currently due thereunder have been paid
and no waiver or indulgence or postponement of any obligation thereunder has
been granted by any lessor or sublessor; and
(ii) the Company has not entered into any sublease or assignment with
respect to its interest in such lease.
7.13 MATERIAL CONTRACT DEFAULTS. The Company is not and has not received
any written notice and has no Knowledge that it is in default in any respect
under any Contract to which it or by which its Assets, business or operations
thereof may be bound or affected or under which it or its Assets, business or
operations receive benefits except for those defaults, which either alone or
when combined with all similar liabilities, which would have a material adverse
effect on the Condition of the Company, and there has not occurred any event
that with the lapse of time or the giving of notice or both would constitute
such a default.
7.14 LEGAL PROCEEDINGS. There is no Litigation pending or, to the
Knowledge of the Company, threatened against the Company, as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, will have, or is reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Condition of the Company, nor is
there any Order imposed on the Company that will have, or is reasonably likely
to have, individually or in the aggregate, such a material adverse effect. All
Litigation pending or threatened against the Company is set forth in SECTION
7.14 OF THE COMPANY DISCLOSURE SCHEDULE.
7.15 STATEMENTS TRUE AND CORRECT.
(a) The representations and warranties of the Company set forth in this
Agreement, and in the documents delivered by the Company to the Purchaser
pursuant to this Agreement, are, as of the date hereof, and will be, as of the
Effective Time, true and correct in all respects.
(b) None of the information supplied or to be supplied by the Company for
inclusion in the Registration Statement (as defined in SECTION 9.14 hereof) or
the Proxy Statement (as defined in SECTION 9.09(B) hereof) will, at the time (i)
the Registration Statement becomes effective or (ii) the Proxy Statement is
mailed, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or, at the time of the Shareholder Meeting (as
defined in SECTION 9.09(A) hereof) or at the Effective Time, as then amended or
supplemented, omit any information necessary to correct any statement which has
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become materially false or misleading in any earlier communication with respect
to the solicitation of any proxy for such meeting, except that no representation
is made by the Company with respect to information supplied by the Purchaser
that relates to the Purchaser or any Affiliate or associate of the Purchaser for
inclusion in the Proxy Statement. The Proxy Statement will comply in all
material respects, as to form and otherwise, with the requirements of all
applicable Laws.
(c) All documents that the Company is responsible for filing with any
Governmental Entity in connection with the transactions contemplated hereby will
comply as to form in all material respects with the provisions of applicable Law
and none of them will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
7.16 BROKERS AND FINDERS. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
material liability for any financial advisory fees, brokerage fees, commissions
or finder's fees, and no broker or finder has acted directly or indirectly for
the Company in connection with this Agreement or the transactions contemplated
hereby, except that the Company has engaged, and will pay a fee to, A.G. Edwards
& Sons, Inc. pursuant to a letter agreement.
7.17 EMPLOYEE BENEFIT PLANS.
(a) The Company has delivered to the Purchaser prior to the date hereof true
and complete copies or summaries of, and the most recent Form 5500 and actuarial
valuation, if applicable, with respect to, all material pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other material incentive plans, all other
material written employee programs, arrangements or agreements, whether arrived
at through collective bargaining or otherwise, all material medical, vision,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by the Company for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries
who are eligible to participate (collectively, the "Company Benefit Plans"). Any
of the Company Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to herein as a
"Company ERISA Plan." Neither the Company nor any ERISA Affiliate of the Company
maintains or has maintained any multi-employer plan within the meaning of
Section 3(37) of ERISA. SECTION 7.17(A) OF THE COMPANY DISCLOSURE SCHEDULE sets
forth a list of all of the Company Benefit Plans.
(b) All the Company Benefit Plans are in compliance in all material respects
with the applicable terms of ERISA and the Code and any other applicable Laws,
the breach or violation of which will have, or is reasonably likely to have,
individually or in the aggregate, a material adverse effect on the Condition of
the Company.
(c) No Company ERISA Plan is a Defined Benefit Pension Plan and neither the
Company nor any ERISA Affiliate of the Company ever sponsored or maintained a
Defined Benefit Pension Plan.
(d) Except as set forth in SECTION 7.17 OF THE COMPANY DISCLOSURE SCHEDULE,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of the Company from the
Company under any Company Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any Company Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits to any
extent, which will have, or is reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Condition of the Company. To the
extent applicable, the Company shall amend all of its Company ERISA Plans so as
to provide that none of the transactions contemplated by this Agreement shall
be, or shall be deemed to be, a change of control thereunder.
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7.18 ENVIRONMENTAL MATTERS. To the Knowledge of the Company, the Company
is, and has been, in compliance with all applicable Environmental Laws, except
for violations which will not have, or are not reasonably likely to have,
individually or in the aggregate, a material adverse effect on the Condition of
the Company and there is no Litigation pending or threatened, before any court,
Governmental Entity or other forum in which the Company has been or, with
respect to threatened Litigation, may be, named as a defendant (i) for alleged
noncompliance (including by any predecessor), with any Environmental Law, or
(ii) relating to the release into the environment of any Hazardous Material or
oil whether or not occurring at or on a site owned, leased or operated by the
Company, nor to the Knowledge of the Company, is there any reasonable basis for
any such Litigation.
7.19 LABOR MATTERS. The Company is not a party to, or bound by, any
collective bargaining agreement or other Contract with a labor union or labor
organization, nor is it the subject of any material Litigation asserting that it
has committed an unfair labor practice (within the meaning of the National Labor
Relations Act or comparable state Laws) or seeking to compel it to bargain with
any labor organization as to wages or conditions of employment nor is there any
strike or other labor dispute involving it pending or, to its Knowledge,
threatened, any of which will have, or is reasonably likely to have, a material
adverse effect on the Condition of the Company.
7.20 INSURANCE.
(a) SCHEDULE 7.20 OF THE COMPANY DISCLOSURE SCHEDULE sets forth, as of
August 31, 1994, a list of (i) all policies of insurance maintained by the
Company with respect to its Assets, business, employees or otherwise and
(ii) each life insurance policy of which the Company is the owner or
beneficiary.
(b) The Company is insured with reputable insurers against such risks
and in such amounts normally insured against by companies of the same type
and in the same line of business. All of the insurance policies, binders or
bonds maintained by the Company is in full force and effect and the Company
is not in default thereunder. All claims thereunder have been filed in due
and timely fashion and all such policies, binders and bonds will remain in
full force and effect after the Closing Date, unaffected by the transactions
contemplated hereby.
7.21 ABSENCE OF CHANGES. Since December 31, 1993, the Company has not
experienced any material adverse effect on its financial condition, results of
operations, business, properties, Assets or prospects.
7.22 BANK AND BROKERAGE ACCOUNTS. SECTION 7.22 OF THE COMPANY DISCLOSURE
SCHEDULE contains and true and complete list of all banking and brokerage
institutions in which the Company, or any of its Subsidiaries, has accounts or
safety deposit boxes, together with the account numbers thereof and the names of
the persons authorized to have access thereto.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company, with such exceptions
and qualifications as are stated in this ARTICLE VIII, as follows:
8.01 ORGANIZATION, STANDING, AND AUTHORITY. The Purchaser is, and the
Merger Sub upon its formation will be, a corporation duly organized, validly
existing and in good standing under the Laws of its jurisdiction of
incorporation. The Purchaser has the corporate power and authority to own, lease
and operate all of its 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 Assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified will not
have, or is not reasonably likely to have, a material adverse effect on the
Condition of the Purchaser or its ability to consummate the transactions
contemplated in this Agreement.
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8.02 AUTHORIZATION OF TRANSACTION. The Purchaser has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of the Purchaser and no other corporate proceeding on the part of the
Purchaser is necessary to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed by the Purchaser and, assuming this
Agreement constitutes a valid and binding agreement of the Company, represents a
valid and legally binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms, subject to the Bankruptcy Exception and
subject, as to enforceability, to general principles of equity, whether applied
in a proceeding in equity or at law.
8.03 NON-CONTRAVENTION. None of the execution and delivery of this
Agreement by the Purchaser, the consummation by the Purchaser of the
transactions contemplated hereby or the compliance by the Purchaser with any of
the provisions herein will:
(a) conflict with or result in a breach of any provision of the
Purchaser's articles of incorporation or bylaws;
(b) constitute or result in a violation or breach of any term, condition
or provision of, or constitute a default with or without notice of lapse of
time or both under, or give rise to any right of termination, cancellation
or acceleration of any obligation or the loss of a benefit with respect to,
or result in the creation of any lien upon any of the Assets of the
Purchaser pursuant to, Contract to which the Purchaser is a party or by
which it or any of its Assets may be subject, except for such violations,
breaches, defaults, terminations, cancellations, accelerations or creations
that will not have, or are not reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Condition of the Purchaser;
or
(c) subject to receipt of the Requisite Regulatory Approvals, violate
any Law, Order or Authorization applicable to the Purchaser or any of its
properties or assets.
8.04 CONSENTS. No Consent of any Person is necessary to be obtained or
made by the Purchaser in connection with the execution and delivery of this
Agreement by the Purchaser or the consummation by the Purchaser of the
transactions contemplated hereby, other than:
(a) Consents of the Governmental Entity having jurisdiction with respect
to the business of the Purchaser in each state in which the Company is doing
business, including, but not limited to, the Florida Department of
Insurance;
(b) the filing of pre-merger notification and the expiration or early
termination of the waiting period required by the HSR Act;
(c) notices to the IRS or the PBGC, if any, with respect to any employee
benefit plans maintained by the Purchaser;
(d) the filing of the Articles of Merger with the Secretary of State of
the State of Florida; and
(e) Consents that, if not obtained, will not have, or are not reasonably
likely to have, individually or in the aggregate, a material adverse effect
on the Condition of the Purchaser or its ability to consummate the
transactions contemplated hereby or the business of the Purchaser.
8.05 STATEMENTS TRUE AND CORRECT.
(a) The representations and warranties of the Purchaser set forth in
this Agreement, and in the documents delivered by the Purchaser to the
Company pursuant to this Agreement, are, as of the date hereof, and will be,
as of the Effective Time, true and correct in all respects.
(b) None of the information supplied or to be supplied by the Purchaser
for inclusion in the Registration Statement or the Proxy Statement will, at
the time (i) the Registration Statement becomes effective or (ii) the Proxy
Statement is mailed, contain any untrue statement of a
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material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading
or, at the time of the Shareholder Meeting or at the Effective Time, as then
amended or supplemented, omit any information necessary to correct any
statement that has become materially false or misleading in any earlier
communication with respect to the solicitation of any proxy for such
meeting, except that no representation is made by the Purchaser with respect
to information supplied by the Company that relates to the Company or any
Affiliate or associate of the Company for inclusion in the Registration
Statement or the Proxy Statement. The Registration Statement will comply in
all material respects, as to form and otherwise, with the requirements of
all applicable Laws.
(c) All documents that the Purchaser is responsible for filing with any
Governmental Entity in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law and none of them will contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
8.06 BROKERS AND FINDERS. Neither the Purchaser nor any of its officers,
directors or employees has employed any broker or finder or incurred any
material liability for any financial advisory fees, brokerage fees, commissions
or finder's fees, and no broker or finder has acted directly or indirectly for
the Purchaser in connection with this Agreement or the transactions contemplated
hereby.
8.07 PURCHASER COMMON STOCK. All shares of common stock, $0.50 par value
(the "Purchaser Common Stock") to be issued in the Merger will be duly and
validly issued and are fully paid and nonassessable and will not be subject to
any preemptive rights.
8.08 REGULATORY MATTERS. The Purchaser has not received any indication
from any Governmental Entity that such entity would oppose or refuse to grant or
issue its Consent, if required, with respect to the transactions contemplated
hereby and the Purchaser is not aware of any basis for any Governmental Entity
to oppose or refuse to grant such Consent.
8.09 REPORTS. Since January 1, 1991, the Purchaser has filed all reports
and statements, together with all amendments required to be made with respect
thereto, that it was required to file, with any Governmental Entity, including,
without limitation, all Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements
with the SEC, except where the failure to so file will not have, or is not
reasonably likely to have, a material adverse effect on the Condition of the
Purchaser or its ability to consummate the transactions contemplated in this
Agreement. As of their respective dates, each of such reports and documents
described in the preceding sentence, including the financial statements,
exhibits and schedules thereto, complied in all material respects with all of
the Laws enforced or promulgated by the applicable Governmental Entity and no
such report contained any information that was false or misleading with respect
to any material fact or omitted to state any material fact necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading. The Purchaser has no material Liabilities, except for
material Liabilities that are accrued or reserved against in the reports and
statements filed with the SEC prior to the date hereof (other than those
incurred in connection with the Merger or in the ordinary course of business)
nor has any event occurred that, but for the lapse of time, is otherwise
required to be reported to any Governmental Entity, which event would reasonably
be expected to have a material adverse effect on the Purchaser.
ARTICLE IX
COVENANTS OF THE PARTIES
9.01 BEST EFFORTS AND FURTHER ASSURANCES. Each of the Parties shall use
its best efforts (a) to take, or cause to be taken, all actions necessary to
comply promptly with all legal requirements that may be imposed on such Party
with respect to the transactions contemplated by this Agreement and, subject to
the conditions set forth in ARTICLE X hereof, to consummate the transactions
contemplated by
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this Agreement, (b) to obtain (and to cooperate with each other Party to obtain)
any Consent of any Person which is required to be obtained or made by such Party
in connection with the transactions contemplated by this Agreement and (c) to
take, or cause to be taken, all other actions necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
9.02 PRE-CLOSING COVENANTS OF THE COMPANY.
(a) OPERATION OF THE COMPANY. During the period from the date of this
Agreement and continuing until the Closing Date, except as expressly
contemplated or permitted by this Agreement or with the prior written
consent of the Purchaser, the Company shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted. The Company shall use its best efforts to (x) preserve
its business organization intact, (y) keep available the present services of
its employees and (z) preserve the goodwill of its customers and others with
whom business relationships exist. Without limiting the generality of the
foregoing, and except as otherwise contemplated by this Agreement or
consented to in writing by the Purchaser, and except as set forth in SECTION
9.02(A) OF THE COMPANY DISCLOSURE SCHEDULE, the Company shall not:
(i) declare or pay any dividends on, or make other distributions in
respect of the Company Capital Stock (other than regular or partial
dividends due in respect of the Company Preferred Stock) prior to the
Closing Date;
(ii) issue, sell, redeem, or purchase any of its capital stock or
other equity securities of any kind or grant or issue any additional
options or other rights to acquire any of its equity securities;
(iii) amend its articles of incorporation, bylaws or other similar
applicable governing documents;
(iv) make any capital expenditures other than in the ordinary course
of business or as necessary to maintain existing Assets in good repair;
(v) enter into any new line of business;
(vi) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion
of the Assets of, or by any other manner, any business or division
thereof or, any Person or, other than in the ordinary course of business
consistent with prior practice, otherwise acquire any Assets that would
be material, individually or in the aggregate, to the Condition of the
Company;
(vii) except for increases in the ordinary course of business
consistent with past practice, as disclosed in SECTION 9.02(A) OF THE
COMPANY DISCLOSURE SCHEDULE:
(A) increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by
any plan or agreement as in effect as of the date hereof (including,
without limitation, the granting of stock options, stock appreciation
rights, restricted stock, restricted stock units or performance units
or shares); or
(B) enter into, modify or renew any Contract providing for the
payment to any director, officer or employee of compensation or
benefits contingent, or the terms of which are materially altered,
upon the occurrence of any of the transactions contemplated by this
Agreement;
(viii) other than activities in the ordinary course of business
consistent with prior practice and subject to general parameters agreed
to by the Parties, sell, lease, encumber, assign or otherwise dispose of,
or agree to sell, lease, encumber, assign or otherwise dispose of, any of
its Assets;
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(ix) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible
for the obligations of any other Person, or make any loan or advance to
any Person;
(x) accelerate, create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material Contract to
which the Company is a party or by which the Company or its Assets is
bound;
(xi) make any change in accounting principles or methods from those
currently employed, except as required by GAAP or by applicable Law;
(xii) grant any Lien, or, other than in the ordinary course of
business, permit any Lien to be placed on any of its Assets;
(xiii) take any action, or fail to take any action, that is intended or
may reasonably be expected to result in a breach or violation of any of
the representations and warranties of the Company contained in this
Agreement or would cause any condition to the transactions contemplated
hereby not to be satisfied, except, in every case, as may be required by
Law;
(xiv) enter into any intercompany transaction not in the ordinary
course of business that decreases the Net Worth Differential, if any; or
(xv) agree to do any of the foregoing.
(b) FINANCIAL STATEMENTS. The Company will deliver to the Purchaser
promptly upon the completion thereof copies of its monthly consolidated
balance sheets and the related consolidated statements of income,
consolidated statements of changes in shareholders' equity and consolidated
statements of the cash flows (including related notes and schedules)
prepared subsequent to the execution of this Agreement. All material
expenses of the Company relating to this Agreement and the consummation of
the transactions contemplated hereby, as well as the effect of the exercise
of unqualified Company Stock Options, shall be accrued or otherwise
reflected in such Financial Statements.
(c) INVESTMENTS. During the period from the date hereof and continuing
until the Closing Date, the Company shall manage its investments consistent
with the guidelines established by the Purchaser and the Company as set
forth in APPENDIX "B" attached hereto.
9.03 PRE-CLOSING COVENANTS OF THE PURCHASER. During the period from the
date of this Agreement and continuing until the Closing Date, except as
otherwise contemplated by this Agreement or consented to in writing by the
Company, the Purchaser will:
(a) not take, or fail to take, any action that is intended or may
reasonably be expected to result in a breach or violation of any of the
representations and warranties of the Company contained in this Agreement or
would cause any condition to the transactions contemplated hereby not to be
satisfied, except, in every case, as may be required by Law; and
(b) will deliver to the Company promptly upon the filing thereof with
the SEC copies of its quarterly and annual consolidated balance sheets and
the related consolidated statements of income, consolidated statements of
changes in shareholders' equity and consolidated statements of the cash
flows (including related notes and schedules) prepared subsequent to the
execution of this Agreement.
9.04 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable Laws relating to
the exchange of information, each Party shall 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 Closing
Date, to all of its material Assets, Books and Records and, during such
period, each
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Party shall make available to the other Party (i) a copy of each report,
schedule and other document filed or received by it during such period from
any Governmental Entity (other than reports or documents that such Party is
not permitted to disclose under applicable Law) and (ii) all other
information concerning the Assets, business and personnel of such Party as
the other Party may reasonably request; PROVIDED, HOWEVER, that in no event
shall any information, analyses, draft documents, notes or other material
relating to the Merger, whether in the possession of the Company or any of
its representatives (collectively, the "Transaction Information"), be made
available at any time, whether prior to or after the Closing, to the
Purchaser or its representatives and all such Transaction Information shall
remain at all times prior to the Closing the proprietary and confidential
information of the Company. Prior to the Closing, all of the Transaction
Information in the possession of the Company shall either be destroyed or
delivered to A.G. Edwards & Sons, Inc.
(b) All information furnished by one of the Parties to the other Party
or any of its representatives pursuant to this SECTION 9.04 shall be treated
as the sole property of the Party furnishing such information and, if the
Closing shall not occur, the Party receiving such information and its
representatives shall return to the Party furnishing such information all of
such written information and all documents or other materials containing,
reflecting or referring to such information. The Party receiving such
information shall, and shall use its best efforts to cause its
representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential
shall continue for five (5) years from the date this Agreement is terminated
and shall not apply to (i) any information that (A) was already in the
recipient's possession prior to the disclosure thereof by the Party
furnishing such information (whether such information was furnished pursuant
to this Agreement or the Confidentiality Agreement, dated August 4, 1994,
between the Company and the Purchaser (the "Confidentiality Agreement")),
(B) was then generally known to the public, or (C) was disclosed to the
Party receiving such information by a third party not bound by an obligation
of confidentiality, or (ii) disclosures made as required by Law. It is
further agreed that, if in the absence of a protective order or the receipt
of a waiver hereunder the Party receiving information pursuant to this
SECTION 9.04 is nonetheless, in the opinion of its counsel, compelled to
disclose information concerning the Party furnishing such information to any
Governmental Entity or else stand liable for contempt or suffer other
censure or penalty, the Party receiving such information may disclose such
information to such Governmental Entity without Liability hereunder.
9.05 REGULATORY APPROVALS.
(a) The Parties 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, and to obtain as promptly
as practicable all Consents of all Governmental Entities that are necessary
or advisable to consummate the Merger and the other transactions
contemplated by this Agreement. Each Party 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 such Party that appears in any
filing made with, or written materials submitted to, any Governmental Entity
in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the Parties shall act reasonably and
as promptly as practicable. The Parties agree that they will consult with
each other with respect to the obtaining of all Consents 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 herein.
(b) Each Party shall, upon request, furnish each other with all
information concerning itself, its directors, officers and stockholders and
such other matters as may be reasonably necessary or
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advisable in connection with any statement, filing, notice or application
made by or on behalf of the Purchaser or the Company to any Governmental
Entity in connection with the transactions contemplated by this Agreement.
(c) Each Party shall promptly furnish each other with copies of written
communications received by it or any of its Affiliates from, or delivered by
any of the foregoing to, any Governmental Entity in respect of the
transactions contemplated hereby.
9.06 PRESS RELEASES. Subject to the requirements of applicable Law and, if
applicable, the rules of the NYSE, each of the Purchaser and the Company shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any of the
transactions contemplated hereby.
9.07 EMPLOYEE MATTERS.
(a) BENEFITS. Subject to SECTION 9.07(C) hereof, immediately following
the Effective Time, the Purchaser shall cause the Surviving Corporation to
provide generally to its officers and employees employee benefits,
including, without limitation, pension benefits, health and welfare
benefits, life insurance and vacation and severance arrangements, on terms
and conditions that, when taken as a whole, are not substantially less than
those currently provided by the Company to such officers and employees.
(b) CONTRACTS AND VESTED BENEFITS. Subject to SECTION 9.07(C) hereof,
immediately following the Effective Time, the Purchaser shall cause the
Surviving Corporation to honor in accordance with their terms all
employment, severance, consulting and other compensation Contracts described
in SECTION 7.12 OF THE COMPANY DISCLOSURE SCHEDULE between the Company and
any current or former director, officer and employee thereof, and all
provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under the Company Benefit Plans.
(c) SUBSEQUENT MODIFICATIONS. SECTIONS 9.07(A) AND (B) above shall
apply only to the time immediately following the Effective Time; thereafter,
the Purchaser reserves the right on behalf of the Company to exercise
maximum flexibility with respect to the retention of employees and the right
to modify or eliminate benefits (subject, in all cases to applicable law and
prior contract rights of such employees).
9.08 NON-SOLICITATION OF EMPLOYEES. If this Agreement is terminated, the
Purchaser agrees that for a period of two (2) years following the date of
termination it shall not, and shall not permit its officers, employees,
representatives or agents to, directly or indirectly, encourage, solicit,
continue or initiate discussions or negotiations with, or provide offers of
employment to persons who currently are, or who become prior to the date of such
termination, executive employees of the Company.
9.09 SHAREHOLDER APPROVAL.
(a) As soon as reasonably practicable following the date of this
Agreement, the Company shall take all action necessary in accordance with
the Laws of the State of Florida and its articles of incorporation and
bylaws to call, give notice of and convene a meeting (the "Shareholder
Meeting") of its shareholders to consider and vote upon the approval and
adoption of this Agreement and the Merger and for such other purposes as may
be necessary or desirable. The Board of Directors of the Company has
determined that the Merger is advisable and in the best interests of the
shareholders of the Company and, subject to its fiduciary obligations as
advised in writing by counsel or its investment bankers, shall recommend
that the Company's shareholders vote to approve and adopt this Agreement and
the Merger and any other matters to be submitted to the Company's
shareholders in connection therewith. The Company shall, subject as
aforesaid, use its best efforts to solicit and secure from shareholders of
the Company such approval and adoption.
(b) As promptly as reasonably practicable following the date of this
Agreement, the Company shall prepare and cause to be mailed a proxy
statement to its shareholders entitled to vote at
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the Shareholder Meeting (the "Proxy Statement"). The Purchaser shall
cooperate fully with the Company in the preparation of the Proxy Statement
and any amendments and supplements thereto. The Proxy Statement shall not be
mailed, and no amendment or supplement thereto shall be made by the Company,
without consultation with the Purchaser.
9.10 ACQUISITION PROPOSALS. The Company shall not, directly or indirectly,
and shall instruct and otherwise use its best efforts to cause its officers,
directors, employees, agents or advisors or other representatives or consultants
(collectively, the "Company's Representatives") not to, directly or indirectly,
(a) solicit or initiate any proposals or offers from any Persons relating to any
acquisition or purchase of all or a material amount of the assets of, or any
securities of, or any merger, consolidation or business combination with the
Company (such transactions are referred to herein as "Acquisition Transactions")
or (b) except to the extent that the Board of Directors reasonably believes it
is required, in the exercise of its fiduciary duties in accordance with
applicable Law, to participate or cause the Company's Representatives to
participate in any discussions or negotiations regarding, or furnish to any
other Person any information with respect to, an Acquisition Transaction;
provided, however, that nothing contained in this SECTION 9.10 shall restrict or
prohibit any disclosure by the Company that is required under applicable Law.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. The Company will notify the Purchaser if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with the Company. The Board may, but is not required to,
rely on the written opinion of counsel to the Board in determining whether its
fiduciary duties require it to participate or cause the Company's
Representatives to participate in any discussions or negotiations regarding, or
furnish to any other Person, any information with respect to an Acquisition
Transaction.
9.11 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice
to the Purchaser, and the Purchaser shall give prompt notice to the Company, of
(a) the occurrence, or failure to occur, of any event that such Party believes
would be likely to cause any of its representations or warranties contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time and (b) any material failure of the
Company or the Purchaser, as the case may be, or any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that
failure to give such notice shall not constitute a waiver of any defense that
may be validly asserted with respect to such failure.
9.12 INDEMNIFICATION; DIRECTOR'S AND OFFICER'S INSURANCE.
The Surviving Corporation shall honor the indemnification agreements
identified in SECTION 7.12 OF THE COMPANY DISCLOSURE SCHEDULE for a period of
time not to exceed six (6) years. In addition, the Company shall have acquired
prior to the Effective Time, director's and officer's liability insurance
coverage with aggregate limits of five million dollars, which the Surviving
Corporation shall maintain after the Effective Time, subject to the general
corporate policies of the Purchaser from time to time in effect with respect
such insurance, covering each Person who is now, or has been prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of the
Company, which insurance shall be on terms not materially less favorable than
the insurance maintained in effect by the Company on the date hereof in terms of
coverage (including without limitation types of claims, time period of claims,
exclusions and persons covered), and deductibles; PROVIDED, HOWEVER, that if the
Surviving Corporation shall not maintain such director's and officer's liability
insurance coverage (or coverage of less than $5,000,000), then the Purchaser
shall guaranty the payment and performance of the Surviving Corporation's
obligations under the indemnification agreements in SECTION 7.12 OF THE COMPANY
DISCLOSURE SCHEDULE.
9.13 TAX-FREE REORGANIZATION TREATMENT. Neither the Purchaser nor the
Company shall take or cause to be taken any action, whether before or after the
Effective Time, that would disqualify the
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Merger as a "reorganization" within the meaning of Section 368(a) of the Code.
The Purchaser shall use its good faith efforts to take such actions that the
Company reasonably requests and that are within its control to enable Mahoney
Adams & Criser to render an opinion, in form and substance reasonably
satisfactory to the Company, dated as of the 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 Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Mahoney Adams & Criser may require and rely upon
representations contained in certificates of officers of the Company, the
Purchaser and others.
9.14 REGISTRATION STATEMENT. The Purchaser shall (a) prepare and file with
the SEC as soon as is reasonably practicable a registration statement on Form
S-4, or other appropriate form, under the 1933 Act (the "Registration
Statement"), (b) use its reasonable best efforts to cause the Registration
Statement to become effective and remain effective through the Effective Time
and (c) take any action reasonably required to be taken under any applicable
state blue sky or securities laws in connection therewith. The Company shall
furnish the Purchaser with all information concerning the Company and the
holders of the Company Capital Stock as the Purchaser may reasonably request in
connection with the foregoing.
9.15 AGREEMENTS OF AFFILIATES. The Company shall deliver to the Purchaser
a letter identifying all Persons whom the Company believes to be, at the time
the Merger is submitted to a vote at the Shareholders meeting, "affiliates" of
the Company for purposes of Rule 145 under the 1933 Act. The Company shall use
its reasonable best efforts to cause each Person who is identified as an
Affiliate in such letter to deliver to the Purchaser prior to the Effective Time
a written agreement providing that each such Affiliate will agree not to sell,
pledge, transfer or otherwise dispose of the shares of Purchaser Common Stock to
be received by such Persons in the Merger except in compliance with the
applicable provisions of the 1933 Act. Prior to the Effective Time, the Company
shall amend and supplement such letter and use its reasonable best efforts to
cause each additional Person who is identified as an Affiliate to execute a
written agreement as set forth in this SECTION 9.15. Each of the Company and the
Purchaser shall use its best efforts to cause each Affiliate (for purposes of
Rule 145 under the 1933 Act) of such Party to deliver to the other Party hereto,
as soon as practicable after the date hereof, and prior to the date of the
Shareholders Meeting called to approve this Agreement, a written agreement
providing that such person will not sell, pledge, transfer or otherwise dispose
of any shares of Purchaser Common Stock to be received by such Affiliate in the
Merger, except in compliance with the applicable provisions of the 1933 Act and
the rules and regulations thereunder.
9.16 LISTING OF PURCHASER COMMON STOCK. The Purchaser shall use its
reasonable best efforts to list, prior to the Effective Time, on the NYSE upon
official notice of issuance, the shares of Purchaser Common Stock to be issued
to holders of Company Capital Stock and Company Stock Options in the Merger.
9.17 ALTERNATIVE STRUCTURE. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, the Purchaser and the
Company shall be entitled, but shall not be obligated, to revise the structure
of the Merger and related transactions described in ARTICLES I THROUGH VI hereof
provided that each of the transactions comprising such revised structure shall
fully qualify as, or fully be treated as part of, one or more tax-free
reorganizations within the meaning of Section 368(a) of the Code, and not
subject any of the Company's stockholders to an adverse tax consequences or
change the amount of consideration to be received by such stockholders (except
for cash for fractional shares), and in the reasonable opinion of the Company
will be consummated in as timely a manner as the structure contemplated herein.
This Agreement and any related documents shall be appropriately amended in order
to reflect any such revised structure.
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9.18 COMPANY STOCK OPTIONS. Prior to the Effective Time, the Board of
Directors of the Company shall take such action as may be required to effect the
conversion and cancellation of the Company Stock Options as contemplated
pursuant to SECTION 4.01(B)(III) hereof and any related transaction contemplated
with respect to such options.
ARTICLE X
CONDITIONS
10.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each of the Company and the Purchaser to effect the transactions contemplated
hereby shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(a) CONSENTS. Other than the filing of the Articles of Merger
contemplated by SECTION 2.03 hereof, all Consents (i) of any Governmental
Entity that are prescribed by Law as necessary for the consummation of the
transactions contemplated hereby (including the lapse of any waiting periods
imposed by Law), other than Consents, the failure to obtain which would have
a no material adverse effect on the consummation of the transactions
contemplated hereby, shall have been filed, occurred or obtained (all such
Consents, and the lapse of all such waiting periods, being referred to as
the "Requisite Regulatory Approvals"), as the case may be, and (ii) set
forth in SECTION 7.07 OF THE COMPANY DISCLOSURE SCHEDULE shall have been
filed, occurred or obtained. All such Requisite Regulatory Approvals or
other consents shall be in full force and effect.
(b) INJUNCTIONS. No Order issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the transactions contemplated hereby shall be
in effect, nor shall any Litigation by any Governmental Entity seeking any
such Injunction be pending. No Law or Order shall have been enacted,
entered, promulgated or enforced by any Governmental Entity that prohibits,
restricts or makes illegal consummation of the transactions contemplated
hereby.
(c) SHAREHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the requisite vote of the holders of the outstanding Company
Capital Stock entitled to vote in accordance with the FBCA and the Company's
articles of incorporation and bylaws.
(d) REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall
have been declared effective and shall not be subject to a stop order or any
threatened stop order.
(e) LISTING. The shares of Purchaser Common Stock issuable pursuant to
the Merger shall have been authorized for listing on the NYSE.
(f) DISSENTING SHARES. Holders of not more than 15% of the Company's
Capital Stock shall have perfected their dissenter's rights under applicable
Law.
10.02 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the
Purchaser to effect the transactions contemplated hereby shall be subject to the
fulfillment or waiver at or prior to Closing of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in ARTICLE VII of this Agreement, respectively,
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (as though made on and as of the
Closing Date except to the extent any of such representations and warranties
are by their express provisions made as of a specified date) and the
Purchaser shall have received a certificate signed by a duly authorized
officer of the Company to that effect.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed in all
material respects all obligations required to be performed by them under
this Agreement at or prior to Closing, and the Purchaser shall have received
a certificate signed by a duly authorized officer of the Company to that
effect.
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(c) OPINION OF COUNSEL. The Purchaser shall have received a written
opinion of counsel to the Company, dated as of the Closing Date, containing
such opinions as are customary in a transaction of this kind and otherwise
in form and substance reasonably satisfactory to the Purchaser.
(d) ALEKNA EMPLOYMENT AGREEMENT. The Purchaser shall have entered into
an employment agreement with Stan A. Alekna, having a term of three (3)
years (or such lesser period as may be reasonably acceptable to the
Purchaser) and such other reasonable terms as the Purchaser and Mr. Alekna
may agree to.
(e) CHANGE IN LAWS APPLICABLE TO TRANSACTION. The tax or other Laws
applicable to the transactions contemplated by this Agreement shall not have
been changed, nor be subject to being changed, in a manner that has, or is
reasonably likely to have, a material adverse effect on the Purchaser or the
Company.
(f) NO DAMAGE OR DESTRUCTION; NO ADVERSE CHANGE. Since the date of this
Agreement, there shall not have any casualty loss to any facility, property,
machinery or equipment owned or operated by the Company, which casualty loss
shall have a material adverse effect on the Company's financial condition,
results of operations, properties, Assets or prospects. Additionally, there
shall have been no material adverse effect, and no events, transactions or
information shall have come to the attention of the Purchaser which could be
reasonably expected to have a material adverse effect, on the on-going
business of the Company.
(g) NO PROCEEDINGS. There shall not be pending any litigation or
proceedings against the Purchaser or the Company that seeks to impose
substantial damages in connection with, or to restrain, materially modify or
invalidate, the transactions contemplated by this Agreement and no
preliminary or permanent injunction or order that would prohibit, materially
modify or restrain such transactions shall be in effect.
10.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the transactions contemplated hereby shall be subject to the
fulfillment or waiver at or prior to Closing of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Purchaser set forth in ARTICLE VIII hereof shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing Date (as though made on and as of the Closing Date except to the
extent any of such representations and warranties are by their express
provisions made as of a specified date) and the Company shall have received
a certificate signed by a duly authorized officer of the Purchaser to that
effect.
(b) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to Closing, and the Company shall have received a
certificate signed by a duly authorized officer of the Purchaser to that
effect.
(c) OPINION OF COUNSEL. The Company shall have received a written
opinion of counsel to the Purchaser, dated as of the Closing Date,
containing such opinions as are customary in a transaction of this kind and
otherwise in form and substance reasonably satisfactory to the Company.
(d) PURCHASER TRADING AVERAGE. The Purchaser Trading Average shall be
equal to or greater than $40.00.
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ARTICLE XI
TERMINATION
11.01 TERMINATION. This Agreement may be terminated and the transaction
contemplated hereby abandoned at any time at or prior to Closing:
(a) by the mutual consent of the Company and the Purchaser;
(b) by either Party, if there shall have been any material breach by the
other Party of any of its covenants or agreements contained herein and such
breach shall not have been remedied, or cannot be remedied, within 30 days
after written notice specifying the nature of such breach and requesting
that it be remedied has been delivered to the breaching Party;
(c) by either Party, if the Closing Date shall not have occurred on or
prior to June 15, 1995, unless the failure of such occurrence shall be due
to the failure of the Party seeking to terminate this Agreement to perform
or observe its or their agreements as set forth in this Agreement required
to be performed or observed by such Party on or before the Closing Date;
(d) by either Party upon written notice to the other Party that (i) any
Requisite Regulatory Approval shall have been denied, or (ii) any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable Order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement;
(e) by either Party (provided that the terminating Party is not then in
material breach of any of its representation, warranty, covenant or other
agreement contained herein), if the stockholders of the Company fail to
approve the Merger at the Shareholder Meeting; and
(f) by the Company, if the Board of Directors shall have withdrawn or
modified in a manner adverse to the Purchaser its approval or recommendation
of the Merger in order to approve the execution by the Company of a
definitive agreement providing for the acquisition of the Company or its
Assets by merger or other business combination or in order to approve a
tender offer for the Company Capital Stock by a third party, in either case,
as determined by the Company's Board of Directors, on terms more favorable
to the Company's stockholders than the Merger.
11.02 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to SECTION 11.01, this Agreement shall
become void and have no effect and no Party shall have any obligation to the
other Party with respect to this Agreement, except that (i) the provisions of
SECTIONS 9.04(B), 9.08, 12.09 and this SECTION 11.02 shall survive any such
termination and abandonment, (ii) no Party shall be relieved or released from
any Liability arising out of any willful and intentional breach of any provision
of this Agreement, and (iii) if terminated under Section 11.01(f) hereof, the
Company shall reimburse the Purchaser for all out-of-pocket expenses incurred by
the Purchaser arising out of or relating to this Agreement and the transactions
contemplated hereby.
11.03 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS FOLLOWING
THE EFFECTIVE TIME. Except for ARTICLE V and SECTIONS 6.04, 9.07 AND 9.12 of
this Agreement, none of the respective representations, warranties, covenants,
agreements or other obligations of the Parties shall survive the Effective Time.
Such representations, warranties, covenants, agreements or other obligations of
the Parties that survive the Effective Time shall be for the benefit of the
shareholders of the Company.
ARTICLE XII
MISCELLANEOUS
12.01 NOTICES. Notices to be given to a Party hereunder shall be in
writing, and delivered either (a) personally, (b) by facsimile transmission, or
(c) by depositing the same in the United States mail,
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certified, return receipt requested, postage prepaid or by courier or overnight
carrier, and addressed to such Party at the following addresses, or at such
other address as such Party may notify in writing to the other Party:
IF TO THE COMPANY:
National Health Care Systems of Florida, Inc.
8130 Baymeadows Way West
Suite 200
Jacksonville, Florida 32245
Facsimile Number: (904) 731-5600
Attention: Stan A. Alekna, President and CEO
With a copy to:
Mahoney Adams & Criser
3400 Barnett Center
50 North Laura Street
Jacksonville, Florida 32202
Facsimile Number: (904) 798-2661
Attention: W. Hamilton Traylor, Esquire
IF TO THE PURCHASER
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Facsimile Number: (205) 868-3023
Attention: John D. Johns, Executive Vice President and CFO
With a copy to:
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Facsimile Number: (205) 868-3597
Attention: Deborah J. Long, Senior Vice President and General Counsel
Notices delivered personally or by courier or overnight carrier to a Party
shall be effective upon delivery, notices delivered by facsimile transmission
shall be effective upon confirmation of receipt (either telephonically or by
confirmation sheet) and notices delivered by mail shall be effective upon the
earlier of (x) their acceptance or rejection by the Party to whom they are
addressed or (y) five (5) days after the proper posting thereof.
12.02 AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by all Parties; provided, however, that the Purchase Price
shall not be decreased or otherwise altered or modified in any manner adverse to
the Company's stockholders without the approval of the Company's stockholders
entitled to vote thereon.
12.03 ASSIGNMENT. Neither Party may assign any of its rights or delegate
any of its obligations hereunder to any other Person without the written consent
of the other Party and any such purported assignment or delegation shall be void
and of no effect.
12.04 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.05 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Florida.
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12.06 ENTIRE AGREEMENT. This Agreement, together with any appendices,
exhibits and schedules, including, without limitation, the Company Disclosure
Schedule, set forth the entire agreement and understanding among the Parties
with respect to the subject matter hereof and supersede any prior arrangements,
negotiations or understandings, whether written or oral, among the Parties with
respect to the subject matter hereof. To the extent that the provisions of this
Agreement conflict with the provisions of the Confidentiality Agreement, the
provisions of this Agreement shall govern.
12.07 WAIVERS.
(a) Prior to or at the Effective Time, the Purchaser, acting through its
Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any default in the performance of any term of
this Agreement by the Company, to waive or extend the time for the
compliance or fulfillment by the Company of any and all of its obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of the Purchaser under this Agreement, except any condition
that, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized
officer of the Purchaser.
(b) Prior to or at the Effective Time, the Company, acting through its
Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any default in the performance of any term of
this Agreement by the Purchaser, to waive or extend the time for the
compliance or fulfillment by the Purchaser of any and all of its obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of the Company under this Agreement, except any condition
that, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized
officer of the Company.
(c) The failure of any Party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such Party at
a later time to enforce the same or any other provision of this Agreement.
No waiver of any condition or of the breach of any term contained in this
Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
12.08 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation hereof.
12.09 EXPENSES. Each Party shall pay all expenses incurred by it in
connection with the negotiation, execution and performance of this Agreement,
whether or not the transactions contemplated herein are consummated, including
the fees and expenses of the counsel and accountants of each; PROVIDED, HOWEVER,
that (a) the expenses, fees (including, without limitation, filing fees pursuant
to the HSR Act) and costs necessary for obtaining any Consents or Requisite
Regulatory Approvals (other than the fees and expenses of the Company's
attorneys, accountants or other consultants) rendered in connection therewith)
shall be borne by the Purchaser and (b) nothing contained in this SECTION 12.09
shall limit any Party's liability arising out of any willful and intentional
breach of any provision of this Agreement.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
NATIONAL HEALTH CARE SYSTEMS OF
FLORIDA, INC.
By: /s/ THOMAS V. BRUNS
-----------------------------------
Thomas V. Bruns
CHAIRMAN OF THE BOARD
PROTECTIVE LIFE CORPORATION
By: /s/ DRAYTON NABERS, JR.
-----------------------------------
Drayton Nabers, Jr.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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APPENDIX "A" TO AGREEMENT AND PLAN OF MERGER
"ACQUISITION TRANSACTIONS" shall have the meaning assigned thereto in
SECTION 9.10 of this Agreement.
"ADJUSTED CASH PERCENTAGE" shall have the meaning assigned thereto in
SECTION 5.02 of this Agreement.
"ADJUSTED CASH PORTION" shall have the meaning assigned thereto in SECTION
5.02 of this Agreement.
"ADJUSTED STOCK PERCENTAGE" shall have the meaning assigned thereto in
SECTION 5.03 of this Agreement.
"ADJUSTMENT CERTIFICATE" shall have the meaning assigned thereto in SECTION
5.05(A) of this Agreement.
"ADJUSTMENT DATE" shall have the meaning assigned thereto in SECTION 5.06(B)
of this Agreement.
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, as amended or
supplemented from time to time. References to Articles, Sections, Schedules,
Exhibits and the like refer to the Articles, Sections, Schedules, Exhibits and
the like of this Agreement unless otherwise indicated.
"ARTICLES OF MERGER" shall have the meaning set forth in SECTION 2.03 of
this Agreement.
"ASSETS" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the Books and Records
of such Person.
"AUGUST BALANCE SHEET" shall mean the unaudited consolidated balance sheet
of the Company as of August 31, 1994, a copy of which has been delivered to the
Purchaser prior to the date of this Agreement.
"AUTHORIZATION" shall mean any approval, authorization, certificate,
easement, filing, franchise, license, notice or permit of, or notice to or
filing with, any Governmental Entity, or other similar right, that is or may be
binding upon or inure to the benefit of any Person or its Assets or business.
"BANKRUPTCY EXCEPTION" shall mean applicable bankruptcy, insolvency and
similar Laws affecting creditors' rights generally.
"BOOKS" shall mean, with respect to any Person, the general ledger of such
Person and any related subsidiary ledger.
"CASH PERCENTAGE" shall have the meaning assigned thereto in SECTION 5.02 of
this Agreement.
"CASH PORTION" shall have the meaning assigned thereto in SECTION 5.01 of
this Agreement.
"CERTIFICATES" shall have the meaning assigned thereto in SECTION 4.04 of
this Agreement.
"CLOSING" shall mean the closing of the transactions contemplated by this
Agreement.
"CLOSING BALANCE SHEET" shall mean an unaudited consolidated balance sheet
of the Company and its Subsidiaries as of the month-end immediately preceding
the Closing Date, which Closing Balance Sheet shall be prepared in accordance
with the terms of this Agreement and GAAP consistent with the accounting
principles used in the preparation of the Company's audited financial statements
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or as otherwise contemplated by this Agreement; PROVIDED, HOWEVER, that any and
all expenses attributable to or relating to this Agreement, and the transactions
contemplated hereby, shall be fully expensed or accrued on such Closing Balance
Sheet.
"CLOSING DATE" shall mean the date on which the Closing shall take place as
provided by SECTION 2.02 of this Agreement.
"CODE" means the Internal Revenue of 1986, as amended.
"COMMON EQUIVALENT AMOUNT" shall have the meaning assigned thereto in
SECTION 5.02 of this Agreement.
"COMPANY" shall mean National Health Care Systems of Florida, Inc., a
Florida corporation.
"COMPANY BENEFIT PLAN" shall have the meaning assigned thereto in SECTION
7.17 of this Agreement.
"COMPANY CAPITAL STOCK" shall mean, collectively, the Company Common Stock
and the Company Preferred Stock.
"COMPANY COMMON STOCK" shall have the meaning assigned thereto in SECTION
4.01(B)(I) of this Agreement.
"COMPANY DISCLOSURE SCHEDULE" shall have the meaning assigned thereto in
ARTICLE VII of this Agreement.
"COMPANY ERISA PLAN" shall have the meaning assigned thereto in SECTION 7.17
of this Agreement.
"COMPANY FINANCIAL STATEMENTS" shall have the meaning assigned thereto in
SECTION 7.04 of this Agreement.
"COMPANY PREFERRED STOCK" shall have the meaning assigned thereto in SECTION
4.01(B)(II) of this Agreement.
"COMPANY STOCK OPTION" and "COMPANY STOCK OPTIONS" shall have the meanings
set forth in SECTION 4.01(B)(III) of this Agreement.
"COMPANY'S REPRESENTATIVES" shall have the meaning assigned thereto in
SECTION 9.10 of this Agreement.
"CONDITION" shall mean, as to any Person, the business, financial condition,
results of operations or prospects of such Person and its Subsidiaries, taken as
a whole.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by, or notice to or filing with, any
Person pursuant to any Contract, Law, Order or Authorization.
"CONSOLIDATED GAAP NET WORTH" shall mean Net Worth of the Company and its
Subsidiaries as reflected on the Closing Balance Sheet.
"CONSTITUENT CORPORATIONS" shall mean the Merger Sub and the Company, as
parties to the Merger.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document (other than an Order or Authorization) to which any
Person is a party or that is binding on any Person.
"DEFINED BENEFIT PENSION PLAN" shall have the meaning assigned thereto in
Section 3(35) of ERISA.
"DISAGREEMENT" shall have the meaning assigned thereto in SECTION 5.06(B) of
this Agreement.
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"DISPUTED AMOUNT" shall have the meaning assigned thereto in SECTION 5.07 of
this Agreement.
"DISSENTERS' ADDITIONAL AMOUNT" shall have the meaning assigned thereto in
SECTION 5.09 of this Agreement.
"DISSENTERS' CONTRACTUAL AMOUNT" shall have the meaning assigned thereto in
SECTION 5.09 of this Agreement.
"DISSENTING SHARES" shall have the meaning assigned thereto in SECTION 4.03
of this Agreement.
"EFFECTIVE TIME" shall have the meaning assigned thereto in SECTION 2.03 of
this Agreement.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to the protection of the
environment, human health, safety, or natural resources, or to emissions,
discharges, or releases of Hazardous Materials into the environment including
without limitation, air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE AGENT" shall have the meaning assigned thereto in SECTION 6.01 of
this Agreement.
"EXCHANGE RATIO" shall have the meaning assigned thereto in SECTION 5.03 of
this Agreement.
"FBCA" shall mean the Florida Business Corporation Act, Chapter 607, Florida
Statutes (1993), as amended from time to time.
"FULLY DILUTED PURCHASE PRICE" shall have the meaning assigned thereto in
SECTION 5.01 of this Agreement.
"FULLY DILUTED PURCHASE PRICE PER SHARE" shall have the meaning assigned
thereto in SECTION 5.01 of this Agreement.
"GAAP" shall mean generally accepted accounting principles.
"GOVERNMENTAL ENTITY" shall mean any governmental department, commission,
board, bureau, agency, instrumentality, judicial, administrative or regulatory
body, or any foreign, federal, state or local government, or political
subdivision thereof, having jurisdiction over the matter or matters in question.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, or hazardous
substance under the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section9601 et seq., or any similar state Law.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INJUNCTION" shall mean any order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby.
"IRS" shall mean the Internal Revenue Service.
"KNOWLEDGE" as used with respect to a Person shall mean the actual knowledge
after due inquiry of the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, General Counsel, any Assistant or Deputy General Counsel, or
any Vice President of such Person.
"LAW" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements
of
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notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean, with respect to any asset of any Person, any mortgage,
deed of trust, pledge, security interest, hypothecation, assignment, deposit
arrangement, charge, encumbrance, lien (statutory or other), priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
with respect to such asset (including, without limitation, any conditional sale
or other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing and the filing of any financing
statement under the Uniform Commercial Code or comparable Law of any
jurisdiction), other than (a) Liens for current property Taxes not yet due and
payable, (b) Liens incurred in the ordinary course of business, and (c) other
Liens that will not or are not reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Condition of the Person in question.
"LITIGATION" shall mean any action, arbitration, claim, complaint, criminal
prosecution, governmental or other examination or investigation, hearing,
inquiry, or administrative or other proceeding, commenced against or with
respect to a Person or its Assets.
"MATERIAL ADVERSE CHANGE," "MATERIAL ADVERSE EFFECT," "MATERIAL ADVERSE
IMPACT," "MATERIAL," "MATERIALLY," or any similar terms are used in this
Agreement (whether in the representations set forth in ARTICLE VII or in ARTICLE
VIII, the closing conditions contained in ARTICLE X or otherwise) with respect
to the Condition of the Company or the Purchaser (in each case whether
individually or together with its Subsidiaries), as the case may be, the
following expenses and adjustments shall be excluded in determining whether a
material adverse change, effect or impact has occurred: (i) all out-of-pocket
fees and expenses (including legal, accounting, investigatory, and other fees
and expenses) incurred in connection with the consummation of the transactions
contemplated by this Agreement; (ii) any effect resulting from any change in
Law, or GAAP, that impacts entities such as the Company generally; and (iii) any
effect resulting from compliance by any Party with the terms of this Agreement.
"MERGER" shall mean the merger of the Merger Sub with and into the Company,
all as set forth in SECTION 2.01 of this Agreement.
"MERGER SUB" shall mean the Subsidiary of the Purchaser utilized to effect
the Merger.
"NET WORTH" shall mean, at any date, the amount equal to the stockholder's
equity reflected on the balance sheet at such date.
"NET WORTH DIFFERENTIAL" shall mean the amount, if any, that the Subsidiary
GAAP Net Worth exceeds the Subsidiary STAT Net Worth.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"NOTICE OF DISAGREEMENT" shall have the meaning assigned thereto in SECTION
5.05(B) of this Agreement.
"NYSE" shall mean the New York Stock Exchange.
"ORDER" shall mean any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or writ of any
federal, state, local or foreign or other court, arbitrator, mediator, tribunal
or any Governmental Entity.
"PARTY" shall mean either the Company or the Purchaser and "PARTIES" shall
mean the Company and the Purchaser.
"PAYMENT FUND" shall have the meaning assigned thereto in SECTION 6.01 of
this Agreement.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PER SHARE CASH AMOUNT" shall have the meaning assigned thereto in SECTION
5.02 of this Agreement.
"PERSON" shall mean any natural person, any legal or commercial entity,
including without limitation a corporation, partnership, joint venture,
association, joint-stock company, trust or unincorporated organization, any
group acting in concert, any person acting in a representative capacity, or any
Governmental Entity.
"PROXY STATEMENT" shall have the meaning assigned thereto in SECTION 9.09(B)
of this Agreement.
"PURCHASE PRICE" shall have the meaning assigned thereto in SECTION 5.01 of
this Agreement.
"PURCHASER" shall mean Protective Life Corporation, a Delaware corporation.
"PURCHASER CAPITAL STOCK" shall mean, collectively, the Purchaser Common
Stock and the Purchaser Preferred Stock.
"PURCHASER COMMON STOCK" shall have the meaning assigned thereto in SECTION
8.07 of this Agreement.
"PURCHASER TRADING AVERAGE" shall have the meaning assigned thereto in
SECTION 5.03 of this Agreement.
"PURCHASER TRADING AVERAGE DETERMINATION PERIOD" shall have the meaning
assigned thereto in SECTION 5.03 of this Agreement.
"RECORD" or "RECORDS" shall mean any and all records of the Company,
including without limitation, all papers, microfiche, microfilm and computer
records (including but not limited to, magnetic tape, disc storage, card forms
and printed copy) generated or maintained by the Company.
"REGISTRATION STATEMENT" shall have the meaning assigned thereto in SECTION
9.14 of this Agreement.
"REQUISITE REGULATORY APPROVALS" shall have the meaning assigned thereto in
SECTION 10.01(A) of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SHAREHOLDER MEETING" shall have the meaning assigned thereto in SECTION
9.09(A) of this Agreement.
"STOCK PORTION" shall have the meaning assigned thereto in SECTION 5.01 of
this Agreement.
"SUBSIDIARY" shall mean, with respect to any Person, any other Person
(whether now existing or hereafter organized) for which at least a majority of
the securities or other ownership interests having ordinary voting power for the
election of directors or other managers (other than contingency) are at the time
owned or controlled by such first Person or one or more Subsidiaries of such
first Person or any combination thereof.
"SUBSIDIARY GAAP NET WORTH" shall mean the aggregate Net Worth of the
Company's Subsidiaries as reflected on the consolidating financial statements
used to prepare the Closing Balance Sheet.
"SUBSIDIARY STAT FINANCIAL STATEMENTS" shall have the meaning assigned
thereto in SECTION 5.06(A) of this Agreement.
"SUBSIDIARY STAT NET WORTH" shall mean the aggregate Net Worth of the
Company's Subsidiaries as reflected on the statutory financial statements of
each of the Company's Subsidiaries as of the month-end immediately preceding the
Closing Date, which statutory financial statements shall comply with applicable
Law at the Effective Time.
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"SURVIVING CORPORATION" shall have the meaning assigned thereto in SECTION
2.01 of this Agreement.
"TAX RETURN" shall mean any report, statement or other written information
required to be supplied to a Taxing Authority in connection with Taxes,
including, without limitation, information returns, payee statements and
specified information reporting requirements as defined in Section 6724(d) of
the Code.
"TAXES" shall mean all taxes levies or other like assessments, charges, or
fees (including estimated taxes, charges and fees), including, without
limitation, net income, gross income, gross receipts, transfer, excise,
property, ad valorem, stamp, documentary stamp, sales, use, value-added,
license, payroll, pay as you earn ("PAYE"), withholding, emergency excise,
social security and franchise or other governmental taxes or similar charges,
imposed by any Taxing Authority, including any interest, penalties or additions
to tax attributable to such taxes, and including any penalties for failure to
comply with the information reporting of Section 6721 through 6724 of the Code.
"TAXING AUTHORITY" shall mean the United States of America, or any state,
county, local or foreign government or subdivision or agency thereof.
"TRANSACTION INFORMATION" shall have the meaning assigned thereto in SECTION
9.04(A) of this Agreement.
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APPENDIX "B" TO AGREEMENT AND PLAN OF MERGER
Other than current investments as of the date hereof, the Company shall not
make any investments after the date hereof other than in accordance with the
following high quality instruments of maturities not greater than 365 days:
(a) Securities issued or guaranteed as to principal and interest by the
U.S. government, it agencies, authorities or instrumentalities and related
custody receipts;
(b) Commercial paper (unsecured promissory notes, including variable
amount master demand notes) issued or guaranteed by U.S. corporations or
other entities or short-term debt obligations that are, at the time of
purchase, rated in the highest rating category by at least one
nationally-recognized rating organization;
(c) Other investment grade short-term obligations issued or guaranteed
by U.S. corporations, state and municipal governments or other entities; and
(d) such other securities and obligations that may be approved in
advance by the Purchaser.
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APPENDIX B TO PROXY STATEMENT -- PROSPECTUS
TEXT OF FLA. STAT. SECTION607.1301 -- DISSENTERS' RIGHTS; DEFINITIONS,
SECTION607.1302 -- RIGHT OF SHAREHOLDERS TO DISSENT, AND SECTION607.1320 --
PROCEDURES FOR EXERCISE OF DISSENTERS' RIGHTS
607.1301. DISSENTERS' RIGHTS; DEFINITIONS
The following definitions apply to SectionSection607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to Section607.1104, the day prior to the date on which a copy of
the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302. RIGHT OF SHAREHOLDERS TO DISSENT
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under Section607.1104, and the shareholders would have been entitled to
vote on action taken, except for the applicability of Section607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to Section607.1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within 1 year after the date of sale;
(c) As provided in Section607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is
a party at the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) An amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or reclassification of any
of his shares, when such exchange, cancellation, or reclassification
would alter or abolish his voting rights or alter his percentage of
equity in the corporation, or effecting a reduction or cancellation of
accrued dividends or other arrearages in respect to such shares;
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<PAGE>
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund
for the redemption or purchase of any of his shares, or making any of his
shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provided that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affect by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(1) (a) If a proposed corporate action creating dissenters' rights under
Section607.1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of SectionSection607.1301,
607.1302, and Section607.1320. A shareholder who wishes to assert dissenters'
rights shall:
1. Deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under
Section607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of SectionSection607.1301, 607.1302, and
607.1320 to each shareholder simultaneously with any request for his written
consent or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(l)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
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<PAGE>
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights ave expired or
any such dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his shares shall be made within 90 days after the making
of such offer or the consummation of the proposed action, whichever is later.
Upon payment of the agreed value, the dissenting shareholder shall cease to have
an interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate
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<PAGE>
action was effected, shall, or at its election at any time within such period of
60 days may, file an action in any court of competent jurisdiction in the county
in this state where the registered office of the corporation is located
requesting that the fair value of such shares be determined. The court shall
also determine whether each dissenting shareholder, as to whom the corporation
requests the court to make such determination, is entitled to receive payment
for his shares. If the corporation fails to institute the proceeding as herein
provided, any dissenting shareholder may do so in the name of the corporation.
All dissenting shareholders (whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the value of their
shares, shall be made parties to the proceeding as an action against their
shares. The corporation shall serve a copy of the initial pleading in such
proceeding upon each dissenting shareholder who is a resident of this state in
the manner provided by law for the service of a summons and complaint and upon
each non resident dissenting shareholder either by registered or certified mail
and publication or in such other manner as is permitted by law. The jurisdiction
of the court is plenary and exclusive. All shareholders who are proper parties
to the proceeding are entitled to judgment against the corporation for the
amount of the fair value of their shares. The court may, if it so elects,
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers shall have such power and
authority as is specified in the order of their appointment or an amendment
thereof. The corporation shall pay each dissenting shareholder the amount found
to be due him within 10 days after final determination of the proceedings. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expense shall include
reasonable compensation for, and reasonable expenses of, the app aisers, but
shall exclude the fees and expenses of counsel for, and experts employed by, any
party. If the fair value of the shares, as determined, materially exceeds the
amount which the corporation offered to pay therefor or if no offer was made,
the court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court determines to be reasonable compensation to any
attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
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<PAGE>
APPENDIX C TO PROXY STATEMENT -- PROSPECTUS
OPINION OF A.G. EDWARDS & SONS, INC.
, 1995
National Health Care Systems of Florida, Inc.
Board of Directors
8130 Baymeadows Way West
Suite 200
Jacksonville, FL 32256-7450
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of National Health Care Systems of Florida, Inc. ("NHCS" or
the "Company") common stock, par value $0.01 per share ("Company Common Stock"),
and 8% Convertible Preferred Stock, par value $0.01 ("Company Preferred"), (in
aggregate the "Company Capital Stock"), and the holders of the Company's Stock
Options, (collectively, the "Stockholders") of the consideration to be received
in the proposed merger of a wholly-owned subsidiary of Protective Life
Corporation ("Protective") with and into NHCS, (the "Merger"). The terms of the
Merger are set forth in an Agreement and Plan of Merger (the "Merger Agreement")
dated November 11, 1994, between the Company and Protective. Unless otherwise
indicated, capitalized terms shall have the same meanings subscribed to them in
the Merger Agreement.
Upon consummation of the Merger, the shares of Protective common stock, par
value $0.50 ("Protective Common Stock") will continue unchanged by the Merger
and the Company Capital Stock and Stock Options will be converted into the right
to receive cash and Protective Common Stock.
The purchase price for the Company Capital Stock and the Company Stock
Options shall be $33.1 million, increased by the Company's Consolidated GAAP Net
Worth, reduced by the amount, if any, by which the aggregate minimum statutory
capital of the Company's Subsidiaries under applicable Law at the Effective Time
exceeds $300,000, and further reduced by the Net Worth Differential, if any (the
"Purchase Price"). The Purchase Price shall be paid with a combination of cash
(the "Cash Portion") and Protective Common Stock ("Stock Portion") and the
amount of the Cash Portion and Stock Portion shall be determined as set forth in
the Merger Agreement.
A.G. Edwards & Sons, Inc., ("Edwards") has acted as financial advisor to
NHCS in connection with the Merger and has represented the Company in
negotiations with Protective with regards to the Merger. We will receive a fee
from the Company for our services, a significant portion of which is contingent
upon the consummation of the Merger.
Edwards is a nationally recognized securities and investment banking firm
engaged in, among other things, the evaluation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwriting, competitive biddings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are not aware of any present or contemplated
relationships between Edwards and NHCS or Protective which, in our opinion,
would affect our ability to render a fair and independent opinion in this
matter.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed, among other things:
(i) the Merger Agreement;
(ii) available information concerning NHCS which we deem relevant,
including the Company's Audited Financial Statements for each of the years
in the five year period ended December 31, 1993, and its results of
operations for each month for the nine month period ended September 30,
1994;
(iii) financial projections for NHCS for fiscal years 1994 through 1998;
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<PAGE>
(iv) certain other internal operating and financial information supplied
to us at our request by NHCS, concerning the business and operations of
NHCS, including monthly financial reports and the 1994 NHCS Company
Marketing Program;
(v) publicly available information concerning Protective which we deem
relevant, including Protective's Annual Reports to Shareholders for each of
the years in the two-year period ended December 31, 1993, and Protective's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994, June
30, 1994 and September 30, 1994;
(vi) financial projections for Protective for 1994 and for 1995;
(vii) certain other operating and financial data supplied to us at our
request by Protective concerning the business and operations of Protective
for the purposes of our analysis;
(viii) historical and current publicly available market data concerning
the trading of, and the trading markets for Protective Common Stock;
(ix) certain publicly available information concerning certain other
companies that we believe to be generally comparable to NHCS or Protective,
and the trading of, and trading markets for, certain of such companies'
securities;
(x) information relating to the nature and financial terms of certain
other mergers or acquisitions that we consider relevant; and
(xi) other information that we consider relevant to our analysis.
In addition, we have met with members of management of the Company and
Protective to discuss the foregoing and other matters we believe relevant to our
inquiry.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of all information that has been furnished to us by
the Company or Protective or otherwise reviewed by us. The Board of Directors
has not specifically engaged us to, and therefore we have not verified the
accuracy or completeness of any such information nor have we made any evaluation
or appraisal of any assets or liabilities of NHCS or of Protective.
Our opinion is necessarily based on economic, market and other conditions as
they exist on, and the information made available to us as of, the date hereof.
Our opinion as expressed herein, in any event, is limited to the fairness, from
a financial point of view to the Stockholders, of the Purchase Price and the
related Exchange Ratio.
Based upon and subject to the foregoing, it is our opinion that the terms of
Merger are fair, from a financial point of view, to the Stockholders.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By: _____/s/__________________________
Douglas E. Reynolds
VICE PRESIDENT
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.5 of Article VI of the Certificate of Incorporation of Protective
provides, in substance, that any of Protective's directors and officers and
certain directors and officers of Protective, who is a party or is threatened to
be made a party to any action, suit or proceeding, other than an action by or in
the right of Protective, by reason of the fact that he is or was an officer or
director, shall be indemnified by Protective against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of Protective and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. If the action or suit is or was by or in the right of
Protective to procure a judgment in its favor, such person shall be indemnified
by Protective against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to Protective
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. To the extent that any officer or director has been successful on
the merits or otherwise in defense of any such action, suit or proceeding, or in
defense of any issue or matter therein, he shall be indemnified by Protective
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith without the necessity of any action being taken by
Protective other than the determination, in good faith, that such defense has
been successful. In all other cases, unless ordered by a court, indemnification
shall be made by Protective only as authorized in the specific case upon a
determination that indemnification of the officer or director is proper in the
circumstances because he has met the applicable standard of conduct. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion or (c) by the holders of a majority of the shares of capital
stock of Protective entitled to vote thereon. By means of a by-law, Protective
offers its directors and certain executive officers similar indemnification.
In addition, the executive officers and directors are insured by
Protective's Directors' and Officers' Liability Insurance Policy including
Company Reimbursement and are indemnified by a written contract with Protective
which supplements such coverage.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
All other schedules required by Regulation S-X are not required under the
related instructions or are inapplicable and therefore have been omitted.
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
15 Letter re: unaudited interim financial statements
23a Consent of Coopers & Lybrand L.L.P.
23b Consent of KPMG Peat Marwick LLP
23c Consent of KPMG Peat Marwick LLP
24 Power of Attorney
</TABLE>
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement-Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Protective has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROTECTIVE LIFE CORPORATION
By: /s/ DRAYTON NABERS, JR.
-----------------------------------
Drayton Nabers, Jr.
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of Protective and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED
- ----------------------------------------------------------------------------------------------------
<C> <S>
/s/ DRAYTON NABERS, JR.
------------------------------------------ Chairman of the Board, President and Chief
Drayton Nabers, Jr. Executive Officer (Principal Executive Officer)
/s/ JOHN D. JOHNS
------------------------------------------ Executive Vice President and Chief Financial
John D. Johns Officer (Principal Financial Officer)
/s/ JERRY W. DEFOOR
------------------------------------------ Vice President and Controller, and Chief
Jerry W. Defoor Accounting Officer (Principal Accounting Officer)
*
------------------------------------------ Director
William J. Rushton III
*
------------------------------------------ Director
John W. Woods
*
------------------------------------------ Director
Crawford T. Johnson III
*
------------------------------------------ Director
William J. Cabaniss, Jr.
*
------------------------------------------ Director
H. G. Pattillo
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED
- ----------------------------------------------------------------------------------------------------
<C> <S>
*
------------------------------------------ Director
Edward L. Addison
*
------------------------------------------ Director
John J. Mcmahon, Jr.
*
------------------------------------------ Director
A. W. Dahlberg
*
------------------------------------------ Director
John W. Rouse, Jr.
*
------------------------------------------ Director
Robert T. David
*
------------------------------------------ Director
Ronald L. Kuehn, Jr.
*
------------------------------------------ Director
Herbert A. Sklenar
</TABLE>
*Drayton Nabers, Jr., by signing his name hereto, does sign this document on
behalf of each of the persons indicated above pursuant to powers of attorney
duly executed by such persons and filed with the Securities and Exchange
Commission.
By: /s/ DRAYTON NABERS, JR.
--------------------------------------
Drayton Nabers, Jr.
ATTORNEY-IN-FACT
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<PAGE>
EXHIBIT 15
LETTER RE: UNAUDITED INTERIM FINANCIAL STATEMENTS
Securities and Exchange Commission
Washington, D.C. 20549
Re: Protective Life Corporation
Registration on Form S-4
We are aware that our report dated April 26, 1994, except for Note G, as to
which the date is May 2, 1994 on our review of interim financial information of
Protective Life Corporation and Subsidiaries for the three-month periods ended
March 31, 1994 and 1993, our report dated July 26, 1994 on our review of interim
financial information of Protective Life Corporation and Subsidiaries for the
three-month and six-month periods ended June 30, 1994 and 1993, and our report
dated October 25, 1994, except for Note H, as to which the date is November 7,
1994 on our review of interim financial information of Protective Life
Corporation and Subsidiaries for the three-month and nine-month periods ended
September 30, 1994 and 1993, are incorporated by reference in this Registration
Statement. Pursuant to Rule 436(c) under the Securities Act of 1933, these
reports should not be considered a part of the Registration Statement prepared
or certified by us within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
<PAGE>
EXHIBIT 23A
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the inclusion in this Registration Statement on Form S-4 of
our report dated February 12, 1993, on our audit of the consolidated financial
statements of National Health Care Systems of Florida, Inc. and subsidiaries as
of December 31, 1992 and for the years ended December 31, 1992 and 1991. We
consent to the incorporation by reference in this Registration Statement on Form
S-4 of our report, which includes an explanatory paragraph with respect to
changes in Protective Life Corporation's methods of accounting for certain
investments in debt and equity securities in 1993 and postretirement benefits
other than pensions in 1992, dated February 14, 1994, on our audits of the
consolidated financial statements and financial statement schedules of
Protective Life Corporation and subsidiaries as of December 31, 1993 and 1992
and for the years ended December 31, 1993, 1992, and 1991. We also consent to
the reference to our firm under the caption "Experts" in the Registration
Statement.
COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
Birmingham, Alabama
December 23, 1994
<PAGE>
EXHIBIT 23B
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
National Health Care Systems of Florida, Inc.:
We consent to the inclusion of our report dated January 31, 1994, with
respect to the consolidated balance sheet of National Health Care Systems of
Florida, Inc. and subsidiaries as of December 31, 1993, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the year ended December 31, 1993, which report appears in the Form S-4 of
Protective Life Corporation dated December 23, 1994. Our report refers to a
change in the method of accounting for certain investment in debt and equity
securities and a change in the method of accounting for income taxes. We also
consent to the reference to our firm under the caption "Experts" in the
Registration Statement.
KPMG Peat Marwick LLP
Jacksonville, Florida
December 23, 1994
<PAGE>
EXHIBIT 23C
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Protective Life Corporation:
We consent to the incorporation by reference in the Registration Statement
on Form S-4 of Protective Life Corporation of our report to the Board of
Directors of Wisconsin National Life Insurance Company, dated February 26, 1993
(including Note 11 thereto, which is dated as of May 4, 1994), relating to the
balance sheets of Wisconsin National Life Insurance Company as of December 31,
1992 and 1991 and the related statements of income, stockholder's equity and
cash flows for the years then ended, which report appears in the Protective Life
Corporation's Current Report on Form 8-K, dated August 4, 1993, filed with the
Securities and Exchange Commission. We also consent to the reference to our firm
under the caption "Experts" in the Registration Statement.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
December 23, 1994
<PAGE>
EXHIBIT 24
PROTECTIVE LIFE CORPORATION
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
KNOW ALL MEN BY THESE PRESENTS that the undersigned Officers and Directors
of Protective Life Corporation, a Delaware corporation (the "Corporation"),
hereby constitute and appoint Drayton Nabers, Jr., John D. Johns and Deborah J.
Long, and each of them, the true and lawful agents and attorneys-in-fact of the
undersigned with full power and authority in said agents and attorneys-in-fact,
and any one or more of them, to sign for the undersigned and in their respective
names as Officers and as Directors of the Corporation a Registration Statement
on Form S-4 of the Corporation to be filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933, as amended, and
any amendment or amendments to such Registration Statement, relating to the
shares of the Corporation's common stock to be issued in connection with the
merger of National Health Care Systems of Florida, Inc. with a wholly-owned
subsidiary of the Corporation and the undersigned hereby ratify and confirm all
acts taken by such agents and attorneys-in-fact, or any one or more of them, as
herein authorized.
Dated: December 12, 1994
<TABLE>
<CAPTION>
NAME TITLE
------------------------- -------------------------
<C> <S>
/s/ DRAYTON NABERS, JR. President, Chief
------------------------- Executive Officer and
Drayton Nabers, Jr. Chairman of the Board
/s/ JOHN D. JOHNS Executive Vice President
------------------------- and Chief Financial
John D. Johns Officer
/s/ JERRY W. DEFOOR Vice President and
------------------------- Controller, and Chief
Jerry W. DeFoor Accounting Officer
/s/ WILLIAM J. RUSHTON
III Chairman Emeritus and
------------------------- Director
William J. Rushton III
/s/ JOHN W. WOODS
------------------------- Director
John W. Woods
/s/ CRAWFORD T. JOHNSON
III
------------------------- Director
Crawford T. Johnson III
/s/ WILLIAM J. CABANISS,
JR.
------------------------- Director
William J. Cabaniss, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
------------------------- -------------------------
<C> <S>
/s/ H. G. PATTILLO
------------------------- Director
H. G. Pattillo
/s/ EDWARD L. ADDISON
------------------------- Director
Edward L. Addison
/s/ JOHN J. MCMAHON, JR.
------------------------- Director
John J. McMahon, Jr.
/s/ A. W. DAHLBERG
------------------------- Director
A. W. Dahlberg
/s/ JOHN W. ROUSE, JR.
------------------------- Director
John W. Rouse, Jr.
/s/ ROBERT T. DAVID
------------------------- Director
Robert T. David
/s/ RONALD L. KUEHN, JR.
------------------------- Director
Ronald L. Kuehn, Jr.
/s/ HERBERT A. SKLENAR
------------------------- Director
Herbert A. Sklenar
</TABLE>
