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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 22, 2000
MEDICAL ASSURANCE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 001-12129 63-1137505
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation) Identification No.)
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100 Brookwood Place, Birmingham, AL 35209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 877-4400
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On June 22, 2000 Professionals Group, Inc. (Nasdaq National Market:
PICM) and Medical Assurance, Inc. (NYSE: MAI) entered into a definitive
agreement to consolidate (the "Consolidation Agreement"). The entity resulting
from the consolidation of Professionals Group and Medical Assurance will be
known as "Medical and Professionals Assurance, Inc." The consolidation, which is
subject to certain insurance and anti-trust regulatory approvals and to
shareholder approvals, is expected to be completed in early 2001.
It is expected that the consolidation of Professionals Group and
Medical Assurance, two physician founded and directed medical malpractice
insurance companies, will result in a stronger, more diversified, combined
entity. It is also expected that the consolidation will enhance the financial
security of policyholders.
Medical and Professionals Assurance, Inc. will have combined total
premium writings of $426 million and combined medical liability premiums of
$281 million, based on 1999 data, making it the nation's third largest writer
of liability insurance for health care professionals and facilities. It also
will have assets of approximately $2 billion, making it one of the strongest
company groups focusing primarily on health care liability.
Medical and Professionals Assurance, Inc. will own all of the stock of
Medical Assurance and of Professionals Group. Medical Assurance is an insurance
holding company that provides malpractice protection to physicians, hospitals,
dentists, and health care organizations and serves more than 22,000 insureds
from a national headquarters in Birmingham, Alabama and regional offices in
Indianapolis, Indiana; Charleston, West Virginia; Cleveland and Columbus, Ohio;
and Springfield and St. Louis, Missouri. Professionals Group is an insurance
holding company that provides medical professional liability insurance and
related services to physicians, dentists, hospitals, and other health care
providers and institutions in eight states, including Michigan, Illinois,
Indiana, Ohio, and Florida. Professionals Group also owns 77% of MEEMIC
Holdings, Inc. (Nasdaq National Market: MEMH) which provides personal auto and
homeowners coverages to approximately 120,000 educational employees and other
Michigan based policyholders through MEEMIC Insurance Company.
Upon completion of the consolidation, Medical Assurance shareholders
will exchange their shares on a one-for-one basis and Professionals Group
shareholders will receive their choice of $12.00 in cash and $14.00 in shares of
stock in the new holding company (based on the "market value" of Medical
Assurance stock during a period preceding closing) (the "stock election"), or
$26.00 in cash (the "cash election"), for each share of Professionals Group
stock they own. The amount of cash consideration payable with respect to each
share of Professionals Group upon completion of the consolidation may be
increased or decreased to reflect certain increases or decreases in the
aggregate market value of Professionals Group's portfolio assets that occur
between December 31, 1999 and the end of the second-to-last calendar month
preceding the completion of the consolidation.
For purposes of the preceding paragraph the market value of Medical
Assurance stock will be an amount equal to the arithmetic average of the last
reported sale prices of one share of Medical Assurance common stock as reported
on the New York Stock Exchange during the
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twenty trading days ending on the date of the meeting of Professionals Group's
stockholders to be held in connection with the consolidation. However, if such
period would otherwise include any trading days from the month of December 2000,
then such December 2000 trading days will be excluded from such period and will
be replaced with a corresponding number of the most recent trading days in the
month of November 2000 that would not otherwise be included in such period.
It is to be noted that at least 10% of the value of the consideration
issued to the stockholders of Professionals Group, taken as a whole, must be
represented by shares of stock in the new holding company (the "minimum stock
requirement"). Accordingly, the Consolidation Agreement provides that if the
stockholders of Professionals Group have not made stock elections that are
sufficient to satisfy the minimum stock requirement, then the exchange agent
must select such additional number of cash elections, in the order last received
by the exchange agent, that, if converted to stock elections and added to the
shares of holding company stock issuable pursuant to the other stock elections
then held by the exchange agent, would result in the issuance of shares of
holding company stock sufficient to satisfy the minimum stock requirement. The
cash elections so selected by the exchange agent will be converted to stock
elections.
It is currently anticipated that the cash payable to shareholders of
Professionals Group will be financed from cash on hand and/or privately placed
indebtedness. It is a condition to each party's obligation to complete the
consolidation that the other party's insurance subsidiaries not be rated lower
than A- by the A.M. Best Rating Agency. It also is a condition to each party's
obligation to complete the consolidation that such party not have received
notice from A.M. Best Rating Agency to lower the rating of the holding company's
insurance subsidiaries below A- after giving effect to the consolidation.
Medical Assurance is currently rated A+ (Excellent) by Standard and Poor's and A
(Excellent) by A.M. Best. Professional Group's primary insurance subsidiary,
ProNational Insurance Company, is currently rated A- (Excellent) by A.M. Best
and A- (Strong) by Standard and Poor's. MEEMIC Insurance Company is rated A-
(Excellent) by A.M. Best.
The consolidation also is conditioned upon the receipt of a tax opinion
from a nationally recognized accounting firm with respect to the federal income
tax consequences of the participants in the transaction. The opinion will
provide, among other things, substantially to the following effect: (i)
stockholders of Medical Assurance will not recognize any gain or loss upon
receipt of new holding company stock in exchange for their Medical Assurance
stock, and (ii) the stockholders of Professionals Group will recognize gain upon
their exchange of Professionals Group stock, but only to the extent they receive
cash in the transaction.
The Consolidation Agreement prohibits Professionals Group and Medical
Assurance from soliciting acquisition proposals from any third person. It also
requires each party (i) to promptly inform the other party of any serious, bona
fide inquiry it receives from any third person with respect to any acquisition
proposals, (ii) to furnish the other party with a copy thereof, and (iii) to
keep the other party informed as to the status of any discussions of
negotiations relating thereto. However neither party's Board of Directors is
prohibited from either furnishing information to, or entering into discussions
or negotiations with, any third person regarding any acquisition proposal, or
approving and recommending to such party's stockholders an acquisition proposal
from a third
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person, if its Board of Directors determines in good faith that such action is
appropriate in furtherance of the best interests of stockholders. In connection
with any such determination, such party must direct its officers and other
appropriate personnel to cooperate with and be reasonably available to consult
with such third person and must disclose to the other party that it is
furnishing information to, or entering into discussions or negotiations with,
such third person. Prior to furnishing any information to a third person, such
party must enter into a written confidentiality agreement with the third person
that requires the third person to furnish to such party information
regarding the third person's ability to finance and otherwise perform its
obligations under its acquisition proposal. The confidentiality agreement must
obligate the third person to maintain the confidentiality of all non-public
information furnished to such third person, and must specify procedures that
restrict or limit the provision of information regarding such party that could
be used to the competitive disadvantage of such party, or in a manner that would
be detrimental to the interests of its stockholders. Finally, the third person
must also permit such party to conduct a due diligence inquiry with respect to
the third person generally.
Medical Assurance or Professionals Group may elect to terminate the
Consolidation Agreement if the Board of Directors of the other party desires to
recommend or otherwise pursue an acquisition proposal other than that
contemplated by the Consolidation Agreement (an "Alternative Acquisition
Proposal"), and if not sooner terminated, the party desiring to pursue an
Alternative Acquisition Proposal may elect to terminate the Consolidation
Agreement upon completion of the transaction contemplated by the Alternative
Acquisition Proposal. Upon any such termination, the party pursuing the
Alternative Acquisition Proposal is required to pay the other party $2,400,000
as reimbursement for expenses in connection with the consolidation and an
additional $7,500,000 as liquidated damages and compensation for the recipient's
involvement in the transaction contemplated by the Consolidation Agreement. In
addition, each of Medical Assurance and Professionals Group have granted to each
other an option to acquire up to 4.9% of its outstanding common stock that is
exercisable upon completion of an Alternative Acquisition Proposal by the party
granting the option. Medical Assurance has granted to Professionals Group an
option to purchase up to 1,146,838 shares of its authorized and unissued common
stock at a price of $14.26 per share payable in cash upon the exercise of the
option. Professionals Group has granted to Medical Assurance an option to
purchase 437,320 shares of its authorized and unissued common stock at a price
of $26.00 per share payable in cash upon the exercise of the option. Each option
agreement limits the profit that may be realized upon completion of the
transaction contemplated by the Alternative Acquisition Proposal with respect to
the stock purchased pursuant to the option to an amount not exceeding
$4,500,000.
The terms and conditions of the consolidation are set forth in the
Agreement to Consolidate dated June 22, 2000 between Medical Assurance and
Professionals Group. The terms and conditions of the stock options are set forth
in the reciprocal stock option agreements dated June 22, 2000 between Medical
Assurance and Professionals Group. Copies of the Consolidation Agreement and the
reciprocal stock option agreements are filed as exhibits to this report. The
disclosures herein concerning the consolidation, the stock options, the
Consolidation Agreement and the reciprocal stock option agreements are qualified
in their entirety by reference to the documents filed as exhibits hereto.
This report and the news release included as an exhibit to this report
contain historical information and forward-looking statements that are based
upon estimates and anticipation of future events by Professionals Group and/or
Medical Assurance that are subject to certain risks and uncertainties. Such
risks and uncertainties could cause actual results to vary materially from the
expected results described in the forward-looking statements. The expectations
of either or both of Medical Assurance and Professionals Group regarding
combined financial strength, losses, the retention of current business,
expansion of product lines, and the development of business in new geographical
areas depend on a variety of factors (including economic, legal, competitive,
and market conditions) which may be beyond either company's control and are thus
difficult or impossible to predict. In view of the many uncertainties inherent
in the forward-looking statements made in this document and the press release,
the inclusion of such information should not be taken as representation by
either or both of Medical Assurance and Professionals Group or any other person,
that the objectives or plans of Professionals Group and/or Medical Assurance
will be realized.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
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Exhibit Reference Number Exhibit Description
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2.1 Agreement to Consolidate dated as of June 22, 2000 by
and between Medical Assurance, Inc., a Delaware
corporation, and Professionals Group, Inc. (including
Exhibit A (Certificate of Incorporation of Medical
and Professionals Assurance, Inc.); Exhibit B (Bylaws
of Medical and Professionals Assurance, Inc.); and
Exhibit C (Form of Company Stock Option Agreement).*
2.2 Medical Assurance, Inc. Stock Option Agreement dated
as of June 22, 2000 by and between Medical Assurance,
Inc., as grantor, and Professionals Group, Inc., as
grantee.*
2.3 Professionals Group, Inc. Stock Option Agreement
dated as of June 22, 2000 by and between
Professionals Group, Inc., as grantor, and Medical
Assurance, Inc., as grantee.*
99.1 Press Release dated June 23, 2000.*
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* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDICAL ASSURANCE, INC.
Date: June 30, 2000 By: /s/ James J. Morello
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Name: James J. Morello
Tls: Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
