Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of
February 28, 2005, by and among PROASSURANCE CORPORATION, a Delaware corporation
("PRA"), NCP MERGER CORPORATION, a Delaware corporation and a wholly-owned
subsidiary of PRA ("NEWCO"), and NCRIC GROUP, INC., a Delaware corporation
("NCRIC").
WITNESSETH:
WHEREAS, PRA is an insurance holding company which provides, through
its insurance subsidiaries, medical professional liability insurance and
personal lines insurance; and
WHEREAS, NCRIC is an insurance holding company which provides, through
its subsidiaries, medical professional liability insurance and practice
management and financial services to physicians and other health care providers;
and
WHEREAS, the Boards of Directors of PRA, NEWCO and NCRIC have
determined that it is in the best interests of their respective companies and
stockholders for PRA to acquire NCRIC through the consummation of the business
combination transaction provided for in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Agreement, and
intending to be legally bound by this Agreement, the parties to this Agreement
agree as follows:
ARTICLE 1
THE MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement and in
accordance with the Delaware General Corporation Law, as amended (the "DGCL"),
at the Effective Time (as defined in Section 1.2 of this Agreement), NCRIC shall
merge with and into NEWCO (the "MERGER"). NEWCO shall be the surviving
corporation in the Merger, and shall continue its corporate existence under the
laws of the State of Delaware. Upon consummation of the Merger, the separate
corporate existence of NCRIC shall terminate.
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, and in
connection with the Closing, a certificate of merger (the "CERTIFICATE OF
MERGER") will be filed with the Secretary of State of Delaware pursuant to
Section 252 of the DGCL. The parties will make all other filings or recordings
as may be required under the DGCL, and the Merger will become effective when the
Certificate of Merger is filed in the office of the Secretary of State of
Delaware, or at such later date or time as PRA and NCRIC agree and specify in
the Certificate of Merger (the time the Merger comes effective being the
"EFFECTIVE TIME").
1.3 EFFECTS OF MERGER. At and after the Effective Time, the Merger shall
have the effects set forth in this Agreement, the Certificate of Merger and the
DGCL. At the Effective Time, (i) all rights, franchises, licenses and interests
of NCRIC in and to every type of property, real, personal and mixed, and all
choses in action of NCRIC shall continue unaffected and uninterrupted by the
Merger and shall accrue to NEWCO; (ii) all rights, franchises, licenses and
interests of NEWCO in and to every type of property, real, personal and mixed,
and all choses in action of NEWCO shall continue unaffected and uninterrupted by
the Merger and shall accrue to NEWCO; (iii) all obligations and liabilities of
NEWCO then outstanding shall remain obligations of NEWCO; (iv) all obligations
and liabilities of NCRIC then outstanding shall become and be obligations of
NEWCO; and (v) no action or proceeding then pending and to which NCRIC or NEWCO
is a party shall be abated or discontinued but may be prosecuted to final
judgment by NEWCO.
1.4 NEWCO SHARES. At the Effective Time, all of the shares of NEWCO Common
Stock (as defined in Section 4.3(b) of this Agreement) issued and outstanding
prior to the Effective Time shall remain an issued and outstanding share of
common stock of NEWCO and shall not be affected by the Merger. It is the
intention of the parties that, immediately after the Effective Time, PRA shall
own all of the issued and outstanding shares of Common Stock of NEWCO as the
surviving corporation of the Merger.
1.5 CONVERSION OF NCRIC COMMON STOCK.
(a) Except as otherwise provided in this Agreement, and subject to the
Market Adjustment pursuant to Section 1.5(b) hereof, each holder of record of
the shares of the common stock, $0.01 par value per share, of NCRIC ("NCRIC
COMMON STOCK") as of the Effective Time shall have the right to receive 0.25
(the "EXCHANGE RATIO") of a share of common stock of PRA, par value $0.01 per
share ("PRA COMMON STOCK") for each share of NCRIC Common Stock (the "MERGER
CONSIDERATION").
(b) The Exchange Ratio shall be subject to adjustment if the MARKET
VALUE (herein defined) of a share of PRA Common Stock is greater than $44.00 or
less than $36.00. In each event, the Exchange Ratio shall be adjusted (the
"MARKET ADJUSTMENT") so that each holder of the shares of NCRIC Common Stock as
of the Effective Time shall have the right to receive such number of shares or
fraction of a share (in ten thousandths; i.e., four decimal places) of PRA
Common Stock in accordance with the following (references to the Exchange Ratio
shall include the Exchange Ratio calculated to reflect the Market Adjustment, if
any):
(i) If the Market Value is greater than $44.00, the Exchange
Ratio shall be such fraction of a share of PRA Common Stock as shall
equal $11.00 divided by the Market Value; or
(ii) If the Market Value is less than $36.00, the Exchange Ratio
shall be such number of shares or fraction of a share as shall equal
$9.00 divided by the Market Value.
(iii) The term "MARKET VALUE" shall refer to an amount equal to
the arithmetic average of the last reported sale prices of one share
of PRA Common Stock as reported on the New York Stock Exchange the ten
(10) trading days ending on the date preceding the Effective Time.
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(c) Each share of NCRIC Common Stock that is owned by NCRIC or any
NCRIC Subsidiary shall automatically be cancelled and retired and shall cease to
exist, and no Merger Consideration shall be delivered in exchange therefore.
1.6 NO FRACTIONAL SHARES. No certificates or scrip representing a
fractional share of PRA Common Stock shall be issued upon the surrender of NCRIC
Common Stock certificates for exchange; no dividend or distribution with respect
to PRA Common Stock shall be payable on or with respect to any fractional share;
and such fractional share interests shall not entitle the owner thereof to vote
or to any other rights of a stockholder of PRA. In lieu of any such fractional
share, PRA shall pay to each former holder of NCRIC Common Stock who otherwise
would be entitled to receive a fractional share of PRA Common Stock an amount in
cash determined by multiplying the fractional share of PRA Common Stock to which
such holder would otherwise be entitled by whichever of the following is
applicable: (i) $40.00 if there is no Market Adjustment; or (ii) the Market
Value if there is a Market Adjustment to the Exchange Ratio.
1.7 STOCK OPTIONS.
(a) Section 1.7 of the NCRIC Disclosure Schedule (as defined in Article 3
of this Agreement) lists (i) all stock options to purchase NCRIC Common Stock
issued by NCRIC pursuant to the Stock Option Plan and the 2003 Stock Option Plan
(the "NCRIC OPTION PLANS") that are outstanding on the date of this Agreement
(collectively, the "NCRIC STOCK OPTIONS"), and (ii) all awards of shares of
NCRIC Common Stock that are to be issued by NCRIC pursuant to its 2003 Stock
Award Plan (the "NCRIC AWARD PLAN") that are outstanding on the date hereof
("NCRIC STOCK AWARDS"). Section 1.7 of the NCRIC Disclosure Schedule also sets
forth, with respect to each NCRIC Stock Option, the option exercise price, the
number of shares subject to the option, the date granted, vesting, and
expiration of the option and indicates whether the option is either an incentive
or a nonqualified stock option. Section 1.7 of the NCRIC Disclosure Schedule
also sets forth with respect to each NCRIC Stock Award the number of shares
subject to the Stock Awards and the date granted and the vesting schedule of the
award. All NCRIC Stock Options are exercisable as of the date of this Agreement.
(b) Each unexercised NCRIC Stock Option that is issued and outstanding at
the Effective Time (a "CONTINUING NCRIC STOCK OPTION") shall be assumed by PRA
and, except as provided in this Section 1.7(b), shall be continued in accordance
with its terms and conditions as in effect immediately prior to the Effective
Time. The holder of each Continuing NCRIC Stock Option shall have the election
to either:
(i) exchange his or her Continuing Stock Option for the right to
acquire a number of shares of PRA Common Stock at the Effective Time on the
following terms and conditions:
(A) Each share of NCRIC Common Stock subject to a Continuing
NCRIC Stock Option so exchanged shall be converted into shares of PRA
Common Stock using the Exchange Ratio. The number of shares subject to
each Continuing NCRIC Stock Option so exchanged shall be multiplied by
said Exchange Ratio to determine the number of shares of PRA Common
Stock subject to said Continuing NCRIC Stock Option; provided,
however, that all fractional shares resulting from such determination
shall be eliminated;
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(B) The exercise price for the shares of PRA Common Stock subject
to a Continuing NCRIC Stock Option so exchanged shall be determined by
dividing the Exchange Ratio into the exercise price of the shares of
NCRIC Common Stock subject to said Continuing NCRIC Stock Option
immediately prior to the Effective Time;
(C) The NCRIC Option Plans shall be amended at the Effective Time
to reserve for issuance pursuant to the Continuing NCRIC Stock
Options, the number of shares of PRA Common Stock subject to the NCRIC
Stock Options after the Effective Time, and to allow former members of
the Board of Directors of NCRIC to continue to participate under the
NCRIC Option Plans with respect to their Continuing NCRIC Stock
Options during the term of the Consulting Agreement executed by the
directors pursuant to Section 1.12 hereof; or
(ii) surrender his or her Continuing NCRIC Stock Option at the
Effective Time in exchange for a cash payment equal to the greater of
either (A) the amount by which the Adjusted NCRIC Share Value (herein
defined) exceeds the unadjusted exercise price for each share of NCRIC
Common Stock subject to the Continuing Stock Option so surrendered as shown
in Section 1.7(a) of the Disclosure Schedule or (B) $1.00 for each share of
NCRIC Common Stock subject to the Continuing NCRIC Stock Option so
surrendered. The term "ADJUSTED NCRIC SHARE VALUE" shall mean (i) that
amount that is equal to 0.25 times the Market Value; (ii) $11.00 if there
is a Market Adjustment because the Market Value is greater than $44.00; or
(iii) $9.00 if there is a Market Adjustment because the Market Value is
less than $36.00. A holder of a Continuing NCRIC Stock Option may elect to
receive cash for any or all of his or her Continuing NCRIC Stock Options.
Each holder of a Continuing NCRIC Stock Option shall make his or her cash
election on an election form to be provided by PRA at least twenty (20)
days prior to the Effective Time. The right to make an election to receive
a cash payment for the shares of NCRIC Common Stock subject to a Continuing
NCRIC Stock Option shall terminate on the Effective Time.
(c) Each NCRIC Stock Award that is outstanding at the Effective Time
("CONTINUING NCRIC STOCK AWARD") shall be assumed by PRA and shall be continued
in accordance with its terms as in effect immediately prior to the Effective
Time. Each Continuing NCRIC Stock Award shall give the holder thereto the right
to acquire a number of shares of PRA Common Stock to be determined by
multiplying the Exchange Ratio by the number of shares of NCRIC Common Stock
subject to a Continuing NCRIC Stock Award; provided that all fractional shares
resulting therefrom shall be eliminated.
1.8 MERGER TAX CONSEQUENCES. It is intended (i) that the Merger shall
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and (ii) that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
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1.9 NEWCO CERTIFICATE OF INCORPORATION. Subject to the terms and conditions
of this Agreement, at the Effective Time, the Certificate of Incorporation of
NEWCO then in effect shall be, and shall continue in effect as, the Certificate
of Incorporation of NEWCO, as the surviving corporation in the Merger, until
amended in accordance with applicable law; provided, however, that in connection
with and as a result of the consummation of the Merger, the Certificate of
Incorporation of NEWCO then in effect shall be amended so as to change the name
of NEWCO to "NCRIC Corporation."
1.10 NEWCO BYLAWS. Subject to the terms and conditions of this Agreement,
at the Effective Time, the Bylaws of NEWCO then in effect shall be, and shall
continue in effect as, the Bylaws of NEWCO, as the surviving corporation in the
Merger, until amended in accordance with applicable law.
1.11 NEWCO MANAGEMENT AND OFFICERS. At the Effective Time, the directors
and officers of NEWCO, as the surviving corporation in the Merger, shall
continue as the Board of Directors and Officers of NEWCO until their successors
are elected and qualified.
1.12 ADVISORY COMMITTEES.
(a) PRA shall offer to each Person who, as of the date of this
Agreement, is a member of the Board of Directors of NCRIC a Consulting and
Noncompetition Agreement in form a substance reasonably acceptable to PRA (each
a "CONSULTING AGREEMENT"), substantially in the form attached hereto as EXHIBIT
A. Pursuant to his or her Consulting Agreement, each such Person shall be paid a
monthly consulting fee of $2,500 through December 31, 2006; provided, however,
that no fees of any type shall be paid to such Person unless he or she shall
have executed a Consulting Agreement. PRA shall cause each Person who executes a
Consulting Agreement to be appointed to an advisory committee maintained by PRA
or its Subsidiaries. The Advisory Committee shall provide advice as to the
transition of NCRIC's business after the Merger.
(b) It is the intention of the parties, subject to operating
constraints, to maintain the NCRIC physician underwriting/claims committee that
NCRIC has in the District of Columbia, Delaware, and Virginia (collectively, the
"NCRIC ADVISORY COMMITTEES"). The members of the NCRIC Advisory Committees shall
consist of those persons who are members thereof at the Effective Time and such
other persons who are appointed to the NCRIC Advisory Committees thereafter. The
NCRIC Advisory Committees shall provide advice as to underwriting and claims
matters regarding medical professional liability insurance. Except for
compensation pursuant to consulting agreements described in subparagraph (a)
above, PRA shall fix the compensation of, and may change the membership of, the
NCRIC Advisory Committees.
1.13 PRA COMMON STOCK. At and after the Effective Time, each share of PRA
Common Stock issued and outstanding immediately prior thereto shall remain an
issued and outstanding share of common stock of PRA and shall not be affected by
the Merger.
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1.14 PRA STOCK OPTIONS. At and after the Effective Time, each stock option
granted by PRA to purchase shares of PRA Common Stock which is outstanding and
unexercised immediately prior thereto shall continue to represent a right to
acquire shares of PRA Common Stock and shall remain an issued and outstanding
option to purchase from PRA shares of PRA Common Stock in the same amount and at
the same exercise price subject to the terms of the PRA stock option plans under
which they were issued and the agreements evidencing grants thereunder, and
shall not be affected by the Merger.
1.15 PRA CERTIFICATE OF INCORPORATION. Subject to the terms and conditions
of this Agreement, at the Effective Time, the Certificate of Incorporation of
PRA then in effect shall be, and shall continue in effect as, the Certificate of
Incorporation of PRA until thereafter amended in accordance with applicable law.
1.16 PRA BYLAWS. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Bylaws of PRA then in effect shall be, and shall
continue in effect as, the Bylaws of PRA until thereafter amended in accordance
with applicable law.
1.17 PRA MANAGEMENT. The directors and officers of PRA shall be the Board
of Directors and officers of PRA to serve until their successors are duly
elected and qualified.
1.18 INSURANCE OPERATIONS. It is the intention of the parties, subject to
operating constraints, to maintain the NCRIC home office as a PRA regional
office with a substantial number of staff positions for the conduct of insurance
operations in the mid-Atlantic states after the Merger. PRA may, after the
Closing Date, modify or change the operating structure in the exercise of its
business judgment.
1.19 ANTI-DILUTION PROVISIONS. In the event PRA changes (or establishes a
record date for changing) the number of, or provides for the exchange of, shares
of PRA Common Stock issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend, recapitalization, reclassification, or
similar transaction with respect to the outstanding PRA Common Stock and the
record date therefore shall be on or prior to the Effective Time, the Exchange
Ratio (and the related collars of the Market Adjustment) shall be
proportionately and appropriately adjusted, to reflect the economic substance of
the event, in a manner that is mutually acceptable; provided, however, that no
such adjustment shall be made with regard to PRA Common Stock if PRA issues
additional shares of Common Stock and receives fair market value consideration
for such shares.
ARTICLE 2
EXCHANGE PROCEDURES
2.1 EXCHANGE AGENT. Prior to the mailing of the Proxy Statement (as defined
in Section 3.5(c) of this Agreement), PRA shall appoint a bank or trust company
to act as an exchange agent who shall be reasonably acceptable to NCRIC (the
"EXCHANGE AGENT") for the payment of the Merger Consideration. PRA shall pay the
charges and expenses of the Exchange Agent.
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2.2 EXCHANGE PROCEDURES.
(a) Prior to the Effective Time, PRA shall deposit with the Exchange Agent
(or otherwise make available to the reasonable satisfaction of NCRIC and the
Exchange Agent), for the benefit of the holders of shares of NCRIC Common Stock,
for exchange through the Exchange Agent, the certificates representing shares of
PRA Common Stock for the Merger Consideration (such shares of PRA Common Stock
together with any dividends or distributions with respect to such shares with a
record date after the Effective Time and any cash payable in lieu of any
fractional shares pursuant to this Agreement being hereinafter referred to as
the "EXCHANGE FUND") issuable pursuant to this Agreement in exchange for
outstanding shares of NCRIC Common Stock.
(b) Promptly after the Effective Time, but no later than five (5) business
days following the Effective Time, PRA will send or cause to be sent to each
person who was a record holder of NCRIC Common Stock immediately before the
Effective Time transmittal materials for exchanging the certificates
representing NCRIC Common Stock ("OLD CERTIFICATES") for certificates
representing PRA Common Stock ("NEW CERTIFICATES"). Upon surrender of the Old
Certificate for cancellation to the Exchange Agent, together with the duly
executed transmittal materials, and such other documents as the Exchange Agent
may reasonably require, the holder of such Old Certificate shall be entitled to
receive in exchange therefore a certificate representing that number of New
Certificates which such holder has the right to receive in respect of the Old
Certificates surrendered pursuant to the provisions of this Section 2.2 (after
taking into account all shares of NCRIC Common Stock then held by such holder)
and any check in respect of dividends or distributions or for fractional shares
that the holder will be entitled to receive (without interest), and the Old
Certificates so surrendered shall forthwith be cancelled. Neither PRA nor the
surviving corporation of the Merger shall be obligated to deliver the Merger
Consideration to which any former record holder of NCRIC Common Stock is
entitled as a result of the Merger until such record holder surrenders his or
her certificate or certificates representing the shares of NCRIC Common Stock
for exchange as provided in this Section 2.2.
(c) At the Effective Time, the stock transfer books of NCRIC shall be
closed as to holders of NCRIC Common Stock immediately prior to the Effective
Time, and no transfer of NCRIC Common Stock by any such record holder shall
thereafter be made or recognized. Until surrendered for exchange in accordance
with the provisions of this Section 2.2, each certificate theretofore
representing shares of NCRIC Common Stock shall from and after the Effective
Time represent for all purposes only the right to receive the Merger
Consideration provided in this Agreement in exchange therefore. To the extent
permitted by law, former stockholders of record of NCRIC Common Stock shall be
entitled to vote after the Effective Time at any meeting of the PRA stockholders
the number of shares of PRA Common Stock into which their respective shares of
NCRIC Common Stock are converted, regardless of whether such holders have
exchanged their certificates for NCRIC Common Stock for certificates
representing the PRA Common Stock.
(d) Any other provision of this Agreement notwithstanding, none of PRA, the
surviving corporation of the Merger, and the Exchange Agent shall be liable to a
holder of NCRIC Common Stock for any amounts paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property law.
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2.3 LOST OR STOLEN CERTIFICATES. If any holder of NCRIC Common Stock
convertible into the right to receive shares of the PRA Common Stock is unable
to deliver the certificate which represents such shares, the Exchange Agent, in
the absence of actual notice that any such shares have been acquired by a bona
fide purchaser, shall deliver to such holder the Merger Consideration to which
the holder is entitled for such shares upon presentation of the following: (i)
evidence to the reasonable satisfaction of the Exchange Agent and PRA that any
such certificate has been lost, wrongfully taken or destroyed; (ii) such
security or indemnity as may be reasonably requested by the Exchange Agent or
PRA to indemnify and hold PRA and the Exchange Agent harmless; and (iii)
evidence satisfactory to the Exchange Agent and PRA that such person is the
owner of the shares theretofore represented by each certificate claimed by the
holder to be lost, wrongfully taken or destroyed and that the holder is the
person who would be entitled to present such certificate for exchange pursuant
to this Agreement.
2.4 DIVIDENDS AND OTHER DISTRIBUTIONS. Whenever a dividend or other
distribution is declared on the PRA 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 the PRA Common Stock issuable to holders of NCRIC
Common Stock under this Agreement. Notwithstanding the preceding sentence, any
person holding any certificate for NCRIC Common Stock after the Effective Time
shall not be entitled to receive any dividend or other distribution payable
after the Effective Time to holders of the PRA Common Stock, which dividend or
other distribution is attributable to such person's NCRIC Common Stock until
such person surrenders said certificate for NCRIC Common Stock for exchange as
provided in Section 2.2 of this Agreement. However, upon surrender of such
certificate, the PRA Common Stock certificate (together with all such
undelivered dividends or other distributions, without interest) shall be
delivered and paid (without interest) with respect to each share represented by
such certificate for NCRIC Common Stock.
2.5 EXCHANGE FUND. Any portion of the Exchange Fund that remains
undistributed to the holders of NCRIC Common Stock for six months after the
Effective Time shall be delivered to PRA, upon demand, and any holders of NCRIC
Common Stock who have not theretofore complied with this Agreement shall
thereafter look only to PRA for payment of their claim for any shares of PRA
Common Stock, any cash in lieu of fractional shares and any dividends or
distributions with respect to PRA Common Stock.
2.6 WITHHOLDING. PRA or the Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement or
the transactions contemplated thereby to any holder of NCRIC Common Stock such
amounts as PRA (or any Affiliate thereof) or the Exchange Agent are required to
deduct and withhold with respect to the making of such payment under the Code,
or any applicable provision of U.S. federal, state, local or non-U.S. tax law.
To the extent that such amounts are properly withheld by PRA or the Exchange
Agent, such withheld amounts will be treated for all purposes of this Agreement
as having been paid to the holder of the NCRIC Common Stock in respect of whom
such deduction and withholding were made by PRA or the Exchange Agent.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NCRIC
NCRIC represents and warrants to PRA that the statements contained in
this Article 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date was substituted for the date of this Agreement
throughout this Article), except (i) as set forth in the disclosure schedule
delivered by NCRIC to PRA on the date hereof and initialed by the parties (the
"NCRIC DISCLOSURE SCHEDULE"), or (ii) for any changes to the NCRIC Disclosure
Schedule that are disclosed by NCRIC to PRA in accordance with Section 6.9(b) of
this Agreement, or (iii) to the extent such representations and warranties speak
as of an earlier date. Nothing in the NCRIC Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein
unless the NCRIC Disclosure Schedule identifies the exception with reasonable
particularity. The NCRIC Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article;
provided, however, (i) that each exception set forth in the NCRIC Disclosure
Schedule shall be deemed disclosed for purposes of all representations and
warranties if such exception is contained in a section of the NCRIC Disclosure
Schedule corresponding to a Section in this Article 3, and (ii) the mere
inclusion of an exception in the NCRIC Disclosure Schedule shall not be deemed
an admission by NCRIC that such exception represents a material fact, event or
circumstance or would result in a material adverse effect or material adverse
change.
3.1 CORPORATE ORGANIZATION. NCRIC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. NCRIC has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect (as defined in Section 9.18(a) of this Agreement) on
NCRIC.
3.2 SUBSIDIARIES.
(a) Section 3.2(a) of the NCRIC Disclosure Schedule sets forth the name and
state of incorporation or organization of each Subsidiary (as defined in Section
9.18(a) of this Agreement) of NCRIC (the "NCRIC SUBSIDIARIES"). Each NCRIC
Subsidiary (i) is duly organized and validly existing as a corporation under the
laws of its jurisdiction of organization, (ii) is duly qualified to do business
and in good standing in all jurisdictions (whether federal, state, local or
foreign) where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be so
qualified would have a Material Adverse Effect on NCRIC, and (iii) has all
requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
(b) Section 3.2(b) of the NCRIC Disclosure Schedule identifies the NCRIC
Subsidiaries that offer insurance and the states or other jurisdictions in which
they are authorized or licensed to conduct business, and the type of insurance
products that they are authorized or licensed to offer in each such state (the
"NCRIC INSURANCE SUBSIDIARIES"). No NCRIC Insurance Subsidiary offers any
insurance products in any jurisdiction where it is neither authorized nor
licensed to offer such insurance products. The business of each NCRIC Insurance
Subsidiary has been and is being conducted in compliance with all of its
licenses in all material respects. All of such licenses are in full force and
effect and there is no proceeding or investigation pending or, to the knowledge
of NCRIC, threatened which would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or restriction
of such license.
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(c) Except as set forth in Section 3.2(c) of the NCRIC Disclosure Schedule,
NCRIC is, directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the NCRIC Subsidiaries. There are
no irrevocable proxies granted by NCRIC or any NCRIC Subsidiary with respect to
such shares. There are no equity securities of any of the NCRIC Subsidiaries
that are or may become required to be issued by reason of any option, 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 any capital stock of any of the NCRIC Subsidiaries except shares of
the NCRIC Subsidiaries issued to other wholly owned NCRIC Subsidiaries. There
are no contracts, commitments, understandings or arrangements by which any of
the NCRIC Subsidiaries is bound to issue additional shares of its capital stock
or options, warrants or rights to purchase or acquire any additional shares of
its capital stock or securities convertible into or exchangeable for such
shares. All of the shares of the NCRIC Subsidiaries described in the first
sentence of this Section 3.2(c) are validly issued, fully paid and nonassessable
and free of preemptive rights, and are owned by NCRIC or a NCRIC Subsidiary free
and clear of any and all Liens (as defined in Section 9.18(a) of this Agreement)
and free and clear of any claim, right or option to acquire any such shares.
(d) No NCRIC Subsidiary is the record or beneficial owner of any shares of
NCRIC Common Stock.
3.3 CORPORATE AFFAIRS.
(a) NCRIC has made available to PRA correct and complete copies of the
Certificate of Incorporation and Bylaws of NCRIC and each of the NCRIC
Subsidiaries (as amended to date). NCRIC has made available to PRA all of the
minute books containing the records of the meetings of the stockholders, the
board of directors and any committee of the board of directors of NCRIC and each
of the NCRIC Subsidiaries (except for confidential portions of such minutes
relating to the Merger, but provided that the availability of such information
is subject to Section 6.3 of this Agreement). The minute books of NCRIC and the
NCRIC Subsidiaries reflect all of the material actions taken by each of their
respective Boards of Directors (including each committee thereof) and
stockholders. NCRIC has made available to PRA all of the stock ledgers of NCRIC
and the NCRIC Subsidiaries.
(b) The books and records of NCRIC and each of the NCRIC Subsidiaries (i)
are and have been properly prepared and maintained in form and substance
adequate for preparing audited consolidated financial statements, in accordance
with generally accepted accounting principles in the United States consistently
applied ("GAAP") and any other applicable legal and accounting requirements,
(ii) reflect only actual transactions, and (iii) fairly and accurately reflect
all assets and liabilities of NCRIC and each of the NCRIC Subsidiaries and all
contracts and other transactions to which NCRIC or any of the NCRIC Subsidiaries
is or was a party or by which NCRIC or any of the NCRIC Subsidiaries or any of
their respective businesses or assets is or was affected.
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(c) The minute books and stock ledgers of NCRIC accurately and completely
list and describe all issuances, transfers and cancellations of shares of
capital stock of NCRIC. The minute books and stock ledgers of each NCRIC
Subsidiary accurately and completely list and describe all issuances, transfers
and cancellations of shares of capital stock of such NCRIC Subsidiary.
3.4 CAPITALIZATION.
(a) The authorized capital stock of NCRIC consists of 13,000,000 shares,
with said shares divided into two classes. One class of said shares consists of
1,000,000 shares of preferred stock and the other class of said shares consists
of 12,000,000 shares of NCRIC Common Stock. As of December 31, 2004, no shares
of such preferred stock and 6,892,517 shares of NCRIC Common Stock were issued
and outstanding and no shares of such preferred stock and 56,134 shares of NCRIC
Common Stock were held in treasury. All of the issued and outstanding shares of
NCRIC Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, and except
pursuant to the terms of this Agreement, the NCRIC Options Plans and the 2003
NCRIC Award Plan, NCRIC does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of NCRIC Common
Stock or any other equity securities of NCRIC or any securities representing the
right to purchase or otherwise receive any shares of NCRIC Common Stock or any
other equity securities of NCRIC. As of December 31, 2004 no shares of NCRIC
Common Stock were reserved for issuance, except for 427,838 shares reserved for
issuance upon the exercise of NCRIC Stock Options outstanding under the NCRIC
Option Plans. Since January 1, 2005, NCRIC has not issued any shares of NCRIC
Common Stock or other equity securities of NCRIC, or any securities convertible
into or exercisable for any shares of NCRIC Common Stock or other equity
securities of NCRIC, other than as contemplated by this Agreement or pursuant to
the exercise of stock options issued under the NCRIC Option Plans granted prior
to such date.
(b) Section 3.4(b) of the NCRIC Disclosure Schedule sets forth a complete
list of (i) the officers and directors of NCRIC and each NCRIC Subsidiary, (ii)
the percentage of the outstanding voting stock of such NCRIC Subsidiary owned or
controlled, directly or indirectly, by NCRIC, and (iii) the percentage of the
outstanding voting stock of such NCRIC Subsidiary owned or controlled, directly
or indirectly, by one or more of the other Subsidiaries of NCRIC. Except as set
forth in Section 3.4(b) of the NCRIC Disclosure Schedule, NCRIC does not have
any direct or indirect equity or ownership interest in any other business or
entity and does not have any direct or indirect obligation or any commitment to
invest any funds in any corporation or other business or entity, other than for
investment purposes in the ordinary course of business in accordance with past
practices.
3.5 AUTHORITY; NO VIOLATION; CONSENTS AND APPROVALS.
(a) NCRIC has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly and validly
approved by the Board of Directors of NCRIC. The Board of Directors of NCRIC has
directed that this Agreement and the transactions contemplated by this Agreement
be submitted to the stockholders of NCRIC for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of NCRIC Common
Stock, no other corporate proceedings on the part of NCRIC are necessary to
approve this Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly and validly executed and delivered by
NCRIC and (assuming due authorization, execution and delivery by NEWCO and PRA
and the receipt of all Requisite Regulatory Approvals (as defined in Section
7.1(d) of this Agreement)) constitutes a valid and binding obligation of NCRIC,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity. On or prior to the date of this Agreement, the Board of
Directors of NCRIC received the oral opinion of Sandler, O'Neil & Partners, L.P.
that the Merger Consideration is fair to the stockholders of NCRIC from a
financial point of view.
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(b) Neither the execution and delivery of this Agreement by NCRIC nor the
consummation by NCRIC of the transactions contemplated by this Agreement, nor
compliance by NCRIC with any of the terms or provisions of this Agreement, will
(i) violate any provision of the Certificate of Incorporation or Bylaws of NCRIC
or (ii) assuming that all Requisite Regulatory Approvals and all of the consents
and approvals referred to in Section 3.5(c) of this Agreement are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to NCRIC or any of its properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the properties or assets of NCRIC under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NCRIC is a party, or
by which it or any of its properties or assets may be bound or affected, except
(in the case of clause (y) above) as set forth in Section 3.5(b)(ii)(y) of the
NCRIC Disclosure Schedule, or for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, would not have a
Material Adverse Effect on NCRIC.
(c) Except for (i) the filing of applications, notices and forms with, and
the obtaining of approvals from, the Insurance Regulators (as defined in Section
9.18(a) of this Agreement) pursuant to the Insurance Laws (as defined in Section
9.18(a) of this Agreement), with respect to the transactions contemplated by
this Agreement, (ii) the filing with the Securities and Exchange Commission (the
"SEC") of a proxy statement in definitive form relating to the meeting of
stockholders of NCRIC to be held in connection with this Agreement and the
transactions contemplated by this Agreement (the "PROXY STATEMENT") and the
registration statement on Form S-4 in which the Proxy Statement will be included
as a prospectus (the "S-4"), (iii) the filing of the Certificate of Merger with
the Secretary of State of Delaware pursuant to the DGCL, (iv) the filing of a
notification and report form (the "HSR ACT REPORT") with the Pre-Merger
Notification Office of the Federal Trade Commission and with the Antitrust
Division of the Department of Justice (collectively, the "PRE-MERGER
NOTIFICATION AGENCIES") pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Anti-Trust
Improvements Act, as amended, and the rules and regulations thereunder
(collectively, the "HSR ACT"), (v) any consents, authorizations, orders and
approvals required under the Securities Act of 1933, as amended, and the rules
and regulations thereunder (collectively, the "SECURITIES Act"), the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively, the "EXCHANGE ACT"), and the HSR Act, (vi) any consents,
authorizations, approvals, filings or exemptions in connection with compliance
with the applicable provisions of federal and state securities laws relating to
the regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry self-regulatory
organization (including, without limitation, the National Association of
Insurance Regulators (the "NAIC"), the New York Stock Exchange, the National
Association of Securities Dealers, Inc. (the "NASD") and the Nasdaq National
Market) (each, an "SRO"), or which are required under the Insurance Laws and
other similar laws, (vii) such filings and approvals as are required to be made
or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of the shares of PRA Common Stock pursuant to this
Agreement, and (viii) the approval of this Agreement by the requisite votes of
the stockholders of NCRIC and the stockholder of NEWCO, no consents or approvals
of or filings or registrations with any Governmental Authority (as defined in
Section 9.18(a) of this Agreement), or with any other Person (as defined in
Section 9.18(a) of this Agreement) are necessary in connection with the
execution and delivery by NCRIC of this Agreement or the consummation by NCRIC
of the transactions contemplated by this Agreement.
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(d) No stockholder of NCRIC or any NCRIC Subsidiary shall have any
pre-emptive rights under applicable law with respect to, or as a result of, the
transactions contemplated by this Agreement (including the Merger).
3.6 INSURANCE REPORTS.
(a) "NCRIC SAP STATEMENTS" means (i) the annual statutory statements of
each of the NCRIC Insurance Subsidiaries filed with any Insurance Regulator for
each of the years ended December 31, 2003, 2002 and 2001 and each calendar year
ending after December 31, 2003, (ii) the quarterly statutory statements of each
of the NCRIC Insurance Subsidiaries filed with any Insurance Regulator for each
quarterly period in 2004 and for each quarterly period ending after the date of
this Agreement, and (iii) all exhibits, interrogatories, notes, schedules and
any actuarial opinions, affirmations or certifications or other supporting
documents filed in connection with such annual statutory statements and
quarterly statutory statements.
(b) All such NCRIC SAP Statements were and will be prepared (i) in
conformity with statutory accounting practices prescribed or permitted by the
Insurance Regulators consistently applied ("SAP") and (ii) in accordance with
the books and records of NCRIC and the NCRIC Insurance Subsidiaries. The NCRIC
SAP Statements, when read in conjunction with the notes thereto and any
statutory audit reports relating thereto, present, and will present, fairly in
all material respects the statutory financial condition and results of
operations of the NCRIC Insurance Subsidiaries for the dates and periods
indicated and are consistent with the books and records of the NCRIC Insurance
Subsidiaries (which books and records are correct and complete in all material
respects). The annual statutory balance sheets and income statements included in
the NCRIC SAP Statements have been, and will be, where required by Insurance
Laws, audited by an independent accounting firm of recognized national
reputation. In accordance with Section 3.6(b) of the NCRIC Disclosure Schedule,
NCRIC has made available to PRA true and complete copies of all of the NCRIC SAP
Statements and all audit opinions related thereto.
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(c) Since December 31, 2000 NCRIC and each NCRIC Subsidiary (i) have filed
or submitted with all applicable Insurance Regulators, all registration
statements, notices and reports, together with all exhibits and amendments
thereto under the Insurance Laws applicable to insurance holding companies (the
"NCRIC HOLDING COMPANY ACT Reports"), (ii) have filed all NCRIC SAP Statements,
(iii) have filed all other reports and statements, together with all amendments
and supplements thereto, required to be filed with any Insurance Regulator under
the Insurance Laws, and (iv) have paid all fees and assessments due and payable
by them under the Insurance Laws. Section 3.6(c) to the NCRIC Disclosure
Schedule sets forth a list of, and NCRIC has made available to PRA, accurate and
complete copies of, all NCRIC SAP Statements, NCRIC Holding Company Act Reports
and all other reports and statements filed by NCRIC or any of the NCRIC
Subsidiaries with any Insurance Regulator for periods ending and events
occurring, after December 31, 2000 and prior to the Closing Date (as defined in
Section 9.1 of this Agreement), and the latest requests for approval of a rate
increase in each state or other jurisdiction that a NCRIC subsidiary writes
insurance. All such NCRIC SAP Statements, NCRIC Holding Company Act Reports and
other reports and statements complied with the Insurance Laws when filed and, as
of their respective dates, contained all information required under the
Insurance Laws and did not contain any false statements or material
misstatements of fact or omit to state any material facts necessary to make the
statements set forth therein not materially misleading in light of the
circumstances in which such statements were made. No deficiencies have been
asserted by any Governmental Authority with respect to such NCRIC SAP
Statements, NCRIC Holding Company Act Reports and other reports and statements.
(d) Except for normal examinations conducted by a Governmental Authority in
the regular course of the business of NCRIC and its Subsidiaries, and except as
set forth in Section 3.6(d) of the NCRIC Disclosure Schedule, no Governmental
Authority has initiated any proceeding or investigation into the business or
operations of NCRIC, any NCRIC Subsidiary, or any director or officer of NCRIC
or any NCRIC Subsidiary, since December 31, 2000. There is no unresolved
violation, criticism, or exception by any Governmental Authority with respect to
any examinations of NCRIC or any of its Subsidiaries.
(e) Section 3.6(e) of the NCRIC Disclosure Schedule lists all financial
examinations that any Insurance Regulator has conducted with respect to NCRIC or
any of the NCRIC Insurance Subsidiaries since December 31, 2000. NCRIC has made
available to PRA correct and complete reports issued by the applicable Insurance
Regulator with respect to such financial examinations. There are no regulatory
examinations of NCRIC or any of the NCRIC Insurance Subsidiaries currently in
process.
(f) Neither NCRIC nor any NCRIC Subsidiary has received from any Person any
Notice on Form A or such other form as may be prescribed under applicable law
indicating that such Person intends to make or has made a tender offer for or a
request or invitation for tenders of, or intends to enter into or has entered
into any agreement to exchange securities for, or intends to acquire or has
acquired (in the open market or otherwise), any voting security of NCRIC, if
after the consummation thereof such Person would directly or indirectly be in
control of NCRIC.
14
3.7 SEC REPORTS; FINANCIAL STATEMENTS.
(a) NCRIC has on a timely basis filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 2001. Section 3.7(a) of
the NCRIC Disclosure Schedule lists, and NCRIC has delivered to PRA (except to
the extent available in full without redaction on the SEC's web site through the
Electronic Data Gathering, Analysis and Retrieval System ("▇▇▇▇▇") two days
prior to the date of this Agreement) copies in the form filed with the SEC of
(i) NCRIC's Regulation Statement on Form S-1 effective May 14, 2003 (SEC File
No. 333-104023); (ii) NCRIC's Annual Reports on Form 10-K for each fiscal year
of NCRIC commencing after December 31, 2000, (iii) its Quarterly Reports on Form
10-Q for each of the first three fiscal quarters in each of the fiscal years of
NCRIC commencing after January 1, 2001, (iv) all proxy statements relating to
NCRIC's meetings of stockholders (whether annual or special) held, and all
information statements relating to stockholder consents, since January 1, 2001,
(v) all certifications and statements required by (x) the SEC's Order dated June
27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460), and
(y) Rule 13a-14 or 15d-14 under the Exchange Act or (z) 18 U.S.C. ss.1350
(Section 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 ("SOX")) with respect to any
report referred to in clause (i) or (ii) of this sentence, (vi) all other forms,
reports, registration statements and other documents (other than preliminary
materials if the corresponding definitive materials have been provided to PRA
pursuant to this Section 3.7(a)) filed by NCRIC with the SEC since January 1,
2001 (the forms, reports, registration statements and other documents referred
to in causes (i), (ii), (iii), (iv) and (v) of this sentence are, collectively,
the "NCRIC SEC REPORTS" and, to the extent available in full without redaction
on the SEC's web site through ▇▇▇▇▇ two days prior to the date of this
Agreement, are, collectively, the "NCRIC FILED SEC REPORTS"), and (vi) all
comment letters received by NCRIC from the Staff of the SEC since January 1,
2001 and all responses to such comment letters by or on behalf of NCRIC.
(b) Except as set forth in Section 3.7(b) of the NCRIC Disclosure Schedule,
the NCRIC SEC Reports (i) were or will be prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, in
all material respects, and (ii) did not at the time they were filed with the
SEC, or will not at the time they are filed with the SEC, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary of NCRIC is or has been required to file any form, report,
registration statement or other document with the SEC. As used in this Section
3.7, the term "file" shall be broadly construed to include any manner in which a
document or information is furnished, supplied or otherwise made available to
the SEC.
(c) NCRIC has established and maintains disclosure controls and procedures
(as such term is defined in Section 13(b)(2)(B) and Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Such disclosure controls and procedures: (i)
are designed to ensure that material information relating to NCRIC and its
Subsidiaries is made known to NCRIC's chief executive officer and its chief
financial officer by others within those entities, particularly during the
periods in which NCRIC's reports and filings under the Exchange Act are being
prepared, (ii) have been evaluated for effectiveness as of the end of the most
recent annual period reported to the SEC, and (iii) are effective to perform the
functions for which they were established. Neither the auditors of NCRIC nor the
Audit Committee of the Board of Directors of NCRIC have been advised of: (x) any
significant deficiencies or material weaknesses in the design or operation of
the internal controls over financial reporting (as such term is defined in
Section 13(b)(2)(B) and Rules 13d-15(d) and 15d-15(d) of the Exchange Act) of
NCRIC and its Subsidiaries which could adversely affect NCRIC's ability to
record, process, summarize and report financial data, and (y) any fraud, whether
or not material, that involves management or other employees who have a role in
the internal controls over financial reporting of NCRIC and its Subsidiaries.
Since the date of the most recent evaluation of such internal controls over
financial reporting and procedures, there have been no significant changes in
internal controls over financial reporting or in other factors that could
significantly affect such internal controls over financial reporting, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
15
(d) The financial statements of NCRIC and its Subsidiaries included in the
NCRIC SEC Reports (including the related notes) (i) did or will comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto (including, without limitation,
Regulation S-X), (ii) were or will be prepared in accordance with GAAP (except,
in the case of unaudited statements, to the extent permitted by Regulation S-X
for Quarterly Reports on Form 10-Q) applied on a consistent basis during the
periods and at the dates involved (except as may be indicated in the notes
thereto), and (iii) did or will fairly present the consolidated financial
condition of NCRIC and its Subsidiaries at the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to notes and normal year-end
audit adjustments that were not, or with respect to any such financial
statements contained in any NCRIC SEC Reports to be filed subsequent to the date
hereof are not reasonably expected to be, material in amount or effect). Except
(x) as reflected in NCRIC's unaudited balance sheet at September 30, 2004, or
liabilities described in any notes thereto (or liabilities for which neither
accrual nor footnote disclosure is required pursuant to GAAP), (y) as reflected
in NCRIC's unaudited draft of the consolidated balance sheet at December 31,
2004 included in Section 3.7(d) of the Disclosure Schedule (the "2004 NCRIC
BALANCE SHEET"), or (z) for liabilities incurred in the ordinary course of
business since December 31, 2004 consistent with past practice or in connection
with this Agreement or the transactions contemplated hereby, neither NCRIC nor
any NCRIC Subsidiary has any material liabilities or obligations of any nature.
(e) Since July 31, 2002, each NCRIC Filed SEC Report which included
financial statements was accompanied by the certifications of NCRIC's chief
executive officer and chief financial officer as required under Sections 302 and
906 of SOX.
(f) Section 3.7(f) of the NCRIC Disclosure Statement lists, and NCRIC has
delivered to PRA copies of the documentation creating or governing, all
securitization transactions and "off-balance sheet arrangements" (as defined in
Item 303(c) of Regulation S-K of the SEC) effected by NCRIC or its Subsidiaries
since December 31, 1999.
16
(g) Deloitte & Touche LLP, which has expressed its opinion with respect to
the financial statements of NCRIC and its subsidiaries included in NCRIC SEC
Reports (including the related notes), is and has been throughout the periods
covered by such financial statements (with respect to (i) and (ii) below, for
the periods required by SOX) (i) a registered public accounting firm (as defined
in Section 2(a)(12) of SOX), (ii) "independent" with respect to NCRIC within the
meaning of Regulation S-X, and (iii) in compliance with subsections (g) through
(l) of Section 10A of the Exchange Act and the Public Company Accounting
Oversight Board. Section 3.7(g) of the NCRIC Disclosure Schedule lists all
non-audit services performed by Deloitte & Touche LLP for NCRIC and each NCRIC
Subsidiary for each year commencing after December 31, 2002.
(h) NCRIC and each NCRIC Subsidiary maintains accurate books and records
reflecting its assets and liabilities and maintains proper and adequate internal
accounting controls over financial reporting which provide assurance that (i)
transactions are executed with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of NCRIC and to maintain accountability for the consolidated assets
of NCRIC; (iii) access to assets is permitted only in accordance with
management's authorization; (iv) the reporting of assets is compared with
existing assets at regular intervals; and (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis.
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of NCRIC and each NCRIC
Subsidiary are reflected properly on their respective books and records, are
valid receivables subject to no set offs or counterclaims, are presently current
and collectible, and will be collected in accordance with their terms at the
recorded amounts, subject only to a reasonable reserve for bad debts.
3.9 BROKER'S FEES. Except as set forth in Section 3.9 of the NCRIC
Disclosure Schedule, none of NCRIC, the NCRIC Subsidiaries and their respective
officers and directors, has employed any broker or finder or incurred any
liability for any broker's fees or commissions, or investment banker fees or
commissions, or finder's fees in connection with the transactions contemplated
by this Agreement.
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except for (i) those liabilities and obligations that are fully
reflected or reserved against on the 2004 NCRIC Balance Sheet, (ii) those
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 2004, and (iii) coverage and
other claims (other than bad faith claims) made with respect to insurance
policies issued by any NCRIC Insurance Subsidiary for which adequate claims
reserves have been established, or otherwise disclosed in Section 3.10(a) of the
NCRIC Disclosure Schedule, neither NCRIC nor any of its Subsidiaries has
incurred any liability or obligation of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether due or to become due), that, either
individually or in the aggregate, would have a Material Adverse Effect on NCRIC,
and, there is no existing condition, situation or set of circumstances that
would be reasonably expected to result in such a liability or obligation. Except
as disclosed in the NCRIC SEC Reports filed prior to the date of this Agreement,
since December 31, 2004, NCRIC and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary and usual course
theretofore conducted.
17
(b) Since December 31, 2004, and except as set forth in Section 3.10(b) of
the NCRIC Disclosure Schedule, neither NCRIC nor any of its Subsidiaries has
(except as required by applicable law): (i) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount thereof in effect as of
December 31, 2004, (ii) granted any stock options or severance or termination
pay, entered into any contract to make or grant any stock options or severance
or termination pay, or paid any bonuses, or (iii) suffered any strike, work
stoppage, slowdown, or other labor disturbance.
(c) Since September 30, 2004, and except as set forth in Section 3.10(c) of
the NCRIC Disclosure Schedule, there has not been: (i) any change in the
financial condition, assets, liabilities, prospects (financial and otherwise) or
business of NCRIC or any NCRIC Subsidiary, which, either individually or in the
aggregate, has had or would have a Material Adverse Effect on NCRIC; (ii) any
material change in any method of accounting or accounting principals or practice
by NCRIC or any NCRIC Subsidiary, except as required by GAAP or SAP and
disclosed in the notes to the unaudited financial statements of NCRIC and the
NCRIC Subsidiaries; (iii) any material change in the actuarial, investment,
reserving, underwriting or claims administration policies, practices,
procedures, methods, assumptions or principles of NCRIC or any NCRIC Insurance
Subsidiary; (iv) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of
NCRIC or any NCRIC Subsidiary; (v) any declaration or payment of any dividends
or distribution of any kind in respect of any of the capital stock of NCRIC or
any NCRIC Subsidiary; (vi) any direct or indirect redemption, purchase or other
acquisition by NCRIC or any NCRIC Subsidiary of any of the capital stock of
NCRIC or any NCRIC Subsidiary; (vii) any discharge or cancellation, whether in
part or in whole, of any indebtedness owed by NCRIC or any NCRIC Subsidiary to
any Person, except reimbursement to employees of ordinary business expenses or
other debts arising in the ordinary course of business; (viii) any sale or
transfer or cancellation of any of the assets, properties, or claims of NCRIC or
any NCRIC Subsidiary, except in the ordinary course of business; (ix) any sale,
assignment or transfer of any trademarks, trade names, or other intangible
assets of NCRIC or any NCRIC Subsidiary; (x) except as set forth in Section
3.10(c) of the NCRIC Disclosure Schedule, any material amendment to or
termination of any material contract, agreement, instrument or license to which
NCRIC or any NCRIC Subsidiary is a party; or (xi) any other event or condition
of any character materially and adversely affecting the business or properties
of NCRIC or any NCRIC Subsidiary.
3.11 LEGAL PROCEEDINGS AND JUDGMENTS.
(a) Except as set forth in Section 3.11(a) of the NCRIC Disclosure
Schedule, neither NCRIC nor any NCRIC Subsidiary is a party to any, and there
are no pending or, to the knowledge of NCRIC, threatened, legal, administrative,
arbitral or other inquiries, proceedings, claims (whether asserted or
unasserted), actions or governmental or regulatory or SRO investigations of any
nature (including noncontractual claims, bad faith claims and claims against any
directors or officers of NCRIC or any NCRIC Subsidiary, but excluding coverage
and other claims made with respect to insurance policies issued by any NCRIC
Insurance Subsidiary for which adequate claims reserves have been established)
against NCRIC, any NCRIC Subsidiary, any of their respective businesses or
assets, any assets of any other Person which are used in any of the business or
operations of NCRIC or any NCRIC Subsidiary, any directors or officers of NCRIC
or any NCRIC Subsidiary, or the transactions contemplated by this Agreement, or
challenging the validity or propriety of the transactions contemplated by this
Agreement, and to the knowledge of NCRIC Subsidiaries there is no basis for any
such proceedings, claims, actions or investigations.
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(b) Except for the 2004 Judgment and as set forth in Section 3.11(b) of the
NCRIC Disclosure Schedule, there is no injunction, order, judgment, decree, or
regulatory restriction (including noncontractual claims, bad faith claims and
claims against any directors or officers of NCRIC or any NCRIC Subsidiary, but
excluding coverage and other claims made with respect to insurance policies
issued by any NCRIC Insurance Subsidiary for which adequate claims reserves have
been established) imposed upon NCRIC, any NCRIC Subsidiary or the assets of
NCRIC or any NCRIC Subsidiary.
(c) Except as set forth in Section 3.11(c) of the NCRIC Disclosure
Schedule, no breach of contract, breach of fiduciary duties under ERISA, bad
faith, breach of warranty, tort, negligence, infringement, fraud,
discrimination, wrongful discharge or other claim of any nature has been
asserted or, to the knowledge of NCRIC, threatened against NCRIC or any NCRIC
Subsidiary, nor is there any basis for any such claim.
(d) As to each matter (if any) described on Section 3.11(c) of the NCRIC
Disclosure Schedule, accurate and complete copies of all relevant pleadings,
judgments, orders and correspondence have been made available to PRA.
(e) Except for each matter (if any) described on Section 3.11(d) of the
NCRIC Disclosure Schedule, no legal, administrative, arbitral or other
inquiries, proceedings, claims, actions or governmental or regulatory or SRO
investigations alleging violations of Federal securities laws (including the
Securities Act and the Exchange Act) have been filed against NCRIC, any NCRIC
Subsidiary or any director or officer of NCRIC or any NCRIC Subsidiary and not
dismissed with prejudice.
3.12 INSURANCE.
(a) Except as set forth in Section 3.12(a) of the NCRIC Disclosure
Schedule, NCRIC and the NCRIC Subsidiaries maintain policies of general
liability, fire and casualty, automobile, directors and officers, errors and
omissions, fiduciary, and other forms of insurance (the "NCRIC INSURANCE
POLICIES") in such amounts, with such deductibles and against such risks and
losses as are reasonable for the business and assets of NCRIC and the NCRIC
Subsidiaries. All such policies are in full force and effect, all premiums due
and payable thereon have been paid (other than retroactive or retrospective
premium adjustments that are not yet, but may be, required to be paid with
respect to any period ending prior to the Closing Date under comprehensive
general liability and workmen's compensation insurance policies), and no notice
of cancellation or termination has been received with respect to any such policy
which has not been replaced on substantially similar terms prior to the date of
such cancellation. To the knowledge of NCRIC, the activities and operations of
NCRIC and the NCRIC Subsidiaries have been conducted in a manner so as to
conform in all material respects to all applicable provisions of such insurance
policies.
19
(b) No issuer of the NCRIC Insurance Policies has issued a
reservation-of-rights letter, or entered into a nonwaiver agreement, or
otherwise denied or limited coverage (in whole or in part), under any of the
NCRIC Insurance Policies, and no declaratory judgment has been sought by any
Person or entered by any court of competent jurisdiction that denies or limits
coverage (in whole or in part) under any of the NCRIC Insurance Policies.
3.13 TAXES AND TAX RETURNS.
(a) As used in this Agreement: "TAX" or "TAXES" means all federal, state,
county, local, and foreign income, excise, gross receipts, gross income,
profits, franchise, license, ad valorem, profits, gains, capital, sales,
transfer, use, payroll, employment, severance, withholding, duties, intangibles,
franchise, backup withholding, stamp, occupation, premium, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, registration, alternative or add on minimum, estimated, and other taxes,
charges, levies or like assessments together with all penalties and additions to
tax and interest thereon). "TAX RETURN" or "TAX RETURNS" means any and all
returns, declarations, claims for refunds, reports, information returns and
information statements (including, without limitation, Form 1099, Form W-2 and
W-3, Form 5500, and Form 990) with respect to Taxes filed, or required to be
filed, by any Person or any Subsidiary of such Person with the IRS or any other
Governmental Authority or tax authority or agency, whether domestic or foreign
(including consolidated, combined and unitary tax returns).
(b) NCRIC and the NCRIC Subsidiaries have duly filed all Tax Returns
required to be filed by them on or prior to the date of this Agreement (all such
Tax Returns being accurate and complete in all material respects) and has duly
paid or made sufficient provisions for the payment of all Taxes shown thereon as
owing on or prior to the date of this Agreement (including, if and to the extent
applicable, those due in respect of their properties, income, business, capital
stock, premiums, franchises, licenses, sales and payrolls) other than Taxes
which are not yet delinquent or are being contested in good faith and have not
been finally determined for which adequate reserves have been made on the
financial statements described in Section 3.6(a) of this Agreement. Neither
NCRIC nor any NCRIC Subsidiary has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax Return or tax
assessment or deficiency other than extensions that are automatically granted by
the taxing authorities upon filing on application therefore. The unpaid Taxes of
NCRIC and the NCRIC Subsidiaries do not exceed the reserve for tax liability set
forth on the 2004 NCRIC Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with past custom and practice of NCRIC in
filing its returns. No claim has been made since December 31, 1999 by an
authority in a jurisdiction where NCRIC or any NCRIC Subsidiary does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
(c) There is no claim, audit, action, suit, proceeding or investigation now
pending or, to the knowledge of NCRIC, threatened against or with respect to
NCRIC or any NCRIC Subsidiary in respect of any material Tax. NCRIC and each
NCRIC Subsidiary in connection with amounts paid or owed to any employee,
independent contractor, creditor, stockholder or other third party have complied
with applicable tax withholding in all material respects. NCRIC and each NCRIC
Subsidiary have reported such withheld amounts to the appropriate taxing
authority and to each such employee, independent contractor, creditor,
stockholder or other third party as required by applicable law.
20
(d) There are no Tax Liens upon any property or assets of NCRIC or its
Subsidiaries except Liens for current Taxes not yet due. Neither NCRIC nor any
NCRIC Subsidiary has been required to include in income any adjustment pursuant
to Section 481 of the Code by reason of a voluntary change in accounting method
initiated by NCRIC or any NCRIC Subsidiary, and the IRS has not initiated or
proposed any such adjustment or change in accounting method. Except as set forth
in the financial statements described in Section 3.7(a) of this Agreement,
neither NCRIC nor any NCRIC Subsidiary has entered into a transaction which is
being accounted for as an installment obligation under Section 453 of the Code.
Neither NCRIC nor any NCRIC Subsidiary is a party to or bound by any tax
indemnity, tax sharing or tax allocation agreement (other than such agreements
as exist by and among themselves). Neither NCRIC nor any NCRIC Subsidiary has
ever been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code other than as a common parent corporation. Neither
NCRIC nor any NCRIC Subsidiary is liable for the Taxes of any person under
Section 1.1502-6 of the Treasury Regulations (or any similar provision of state,
local or foreign Tax law) or by contract, as a successor or otherwise. During
the five (5) year period ending on the date hereof, neither NCRIC nor any NCRIC
Subsidiary was a distributing corporation or a controlled corporation in a
transaction intended to be governed by Section 355 of the Code. Neither NCRIC
nor any NCRIC Subsidiary is a party to any joint venture, partnership or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes. NCRIC's basis and excess loss account, if any, in each
NCRIC Subsidiary is set forth in Section 3.13(d) of the NCRIC Disclosure
Schedule.
(e) Except as set forth in Section 3.13(e) of the NCRIC Disclosure
Schedule, any amount that is reasonably likely to be received (whether in cash
or property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of NCRIC or
any of its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or NCRIC
Benefit Plan (as defined in Section 3.14 of this Agreement) currently in effect
will not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code).
(f) There has been no disallowance of a deduction under Section 162(m) of
the Code for employee remuneration of any amount paid or payable by NCRIC or any
NCRIC Subsidiary under any contract, plan, program, arrangement or
understanding.
(g) To the knowledge of NCRIC, there is no dispute or claim concerning any
tax liability of NCRIC or any NCRIC Subsidiary except as disclosed in Section
3.13(g) of the NCRIC Disclosure Schedule. Section 3.13(g) of the NCRIC
Disclosure Schedule identifies the last Tax Returns that have been audited by
the taxing authority with whom they were filed, and indicates those Tax Returns
that currently are the subject of an audit procedure or that NCRIC or any NCRIC
Subsidiary has received notice will be subject to an audit procedure. NCRIC has
made available to PRA correct and complete copies of all federal income tax
returns (including amendments thereto) of, all examination reports of, and
statements of deficiencies assessed against or agreed to by, NCRIC or any NCRIC
Subsidiary since December 31, 1999.
21
3.14 EMPLOYEE PLANS; LABOR MATTERS.
(a) Section 3.14(a) of the NCRIC Disclosure Schedule sets forth a true and
complete list of all of the Employee Plans (as defined in Section 9.18) for
employees of NCRIC and any NCRIC Subsidiary ("NCRIC EMPLOYEE PLANS"). Except
with respect to the NCRIC Employee Plans, neither NCRIC nor any NCRIC Subsidiary
sponsors, maintains or contributes to, or has any ongoing obligation or
liability whatsoever with respect to: (i) any employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or (ii) any other program, plan, trust agreement or
arrangement for any bonus, severance, hospitalization, vacation, sick pay,
deferred compensation, pension, profit sharing, post-employment, retirement,
payroll savings, stock option, stock purchase, group insurance, self insurance,
death benefit, fringe benefit, welfare or any other employee benefit plan or
fringe benefit arrangement of any nature whatsoever including those for the
benefit of former employees. Neither NCRIC nor any NCRIC Subsidiary has any
agreement, arrangement, commitment, or understanding, whether legally binding or
not, to create any additional NCRIC Employee Plan or to continue, modify,
change, or terminate, in any material respect, any NCRIC Employee Plan. PRA may
modify, amend and/or terminate any NCRIC Employee Plan after the Effective Time,
subject to applicable law and the terms of such NCRIC Employee Plan.
(b) NCRIC has heretofore delivered or made available to PRA true and
complete copies of each NCRIC Employee Plan and certain related documents,
including: (i) the plan document and the related trust agreement or annuity
contract for such NCRIC Employee Plan; (ii) the summary plan description and
material employee communication document for such NCRIC Employee Plan; (iii) the
actuarial report for such NCRIC Employee Plan (if applicable) for each of the
last two years; (iv) all determination letters from the IRS (if applicable) for
such NCRIC Employee Plan; (v) all insurance policies relating thereto and any
written materials used by NCRIC to describe employee benefits to employees of
NCRIC and the NCRIC Subsidiaries; (vi) the most recent annual return on Form
5500 (including all schedules thereto along with the accompanying auditor's
opinion, if applicable) and tax return (Form 990) for such NCRIC Employee Plan;
(vii) the most current actuarial, valuation, and trustee's reports (as
applicable) for such NCRIC Employee Plan; and (viii) all material communications
with any governmental entity or agency (including the Department of Labor, the
Internal Revenue Service, the Pension Benefit Guaranty Corporation, and the
Securities and Exchange Commission) with respect to such NCRIC Employee Plan.
Each such actuarial or valuation report correctly shows the value of the assets
of such NCRIC Employee Plan as of the date thereof, the total accrued and vested
liabilities, all contributions by NCRIC and the NCRIC Subsidiaries, and the
assumptions on which the calculations are based.
(c) Except as set forth in Section 3.14(c) of the NCRIC Disclosure
Schedule, each of the NCRIC Employee Plans has been operated and administered in
all material respects in compliance with applicable laws, including, but not
limited to, ERISA and the Code. To the knowledge of NCRIC, there has not been
any material violation of the reporting and disclosure provisions of the Code
and ERISA. There has not been any termination or partial termination (including
any termination or partial termination attributable to the transactions
contemplated by this Agreement) of such plans. Neither NCRIC nor any NCRIC
Subsidiary nor any of their respective ERISA affiliates, nor any predecessor
thereof, contributes to, or has within the past six years contributed to, any
multiemployer plans, as defined in Section 3(37) of ERISA, or any multiple
employer welfare arrangements, as defined in Section 3(40) of ERISA. Neither
NCRIC nor any NCRIC Subsidiary nor any of their respective ERISA affiliates, nor
any predecessor thereof, sponsors, participates in, or contributes to, or has at
any time in the past sponsored, participated in, or contributed to (i) any plan
which is subject to the funding standards or requirements described in Section
412 of the Code, or (ii) any plan which is subject to any of the requirements,
obligations, and liabilities imposed by Title IV of ERISA.
22
(d) Each NCRIC Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter or has pending or has time remaining in which to file, an
application for such determination from the IRS, and NCRIC is not aware of any
reason why any such determination letter should be revoked or not be reissued,
and any related trust is exempt from taxation under Section 501(a) of the Code.
NCRIC has made available to PRA copies of the most recent Internal Revenue
Service determination letters with respect to each such NCRIC Employee Plan (if
applicable). Except as set forth in Section 3.14(d) of the NCRIC Disclosure
Schedule, each NCRIC Employee Plan has been maintained in material compliance
with its terms and with the requirements prescribed by any and all applicable
laws and regulations, including but not limited to ERISA and the Code. No
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code, or breach of fiduciary duty under Title I of ERISA has
occurred with respect to any NCRIC Employee Plan or with respect to NCRIC or any
NCRIC Subsidiary. No events have occurred with respect to any NCRIC Employee
Plan that could result in payment or assessment by or against Parent or any of
its Subsidiaries of any material excise taxes under Sections 4972, 4975, 4976,
4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code.
(e) There has been no amendment to, written interpretation or announcement
(whether or not written) by NCRIC or any of its affiliates relating to, or
change in employee participation or coverage under, any NCRIC Employee Plan
which would increase materially the expense of maintaining NCRIC Employee Plans
above the level of the expense incurred in respect thereof for the fiscal year
ended December 31, 2003. No event has occurred or circumstances exist that could
result in a material increase in the premium costs of NCRIC Employee Plans that
are insured, or a material increase in benefit costs of the NCRIC Employee Plans
that are self-insured.
(f) Except as set forth in Section 3.14(f) of the NCRIC Disclosure
Schedule, there is no action, suit, investigation, audit or proceeding pending
against or involving or, to the knowledge of NCRIC, threatened against or
involving any NCRIC Employee Plan before any court or arbitrator or any state,
federal or local governmental body, agency or official, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on NCRIC. Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal proceeding involving,
any NCRIC Employee Plan is pending or threatened.
23
(g) Except as described in Section 3.14(g) of the NCRIC Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will (i) result
in any material payment (including severance, unemployment compensation, golden
parachute or otherwise) becoming due to any director or employee of NCRIC or any
of its Subsidiaries from NCRIC or any of its Subsidiaries under any NCRIC
Employee Plan or otherwise; (ii) materially increase any benefits otherwise
payable under any NCRIC Employee Plan; (iii) result in any acceleration of the
time of payment or vesting of any such benefits to any material extent (in each
case under clauses (i), (ii) or (iii) whether or not such payment or benefit
would constitute a parachute payment within the meaning of Section 280G of the
Code); or (iv) constitute a prohibited transaction within the meaning of Section
406 of ERISA or Section 4975 of the Code, or breach of fiduciary duty under
Title I of ERISA.
(h) Neither NCRIC nor any NCRIC Subsidiary has any direct or indirect
material liability or obligation under any NCRIC Employee Plan other than as
described in the terms of such NCRIC Employee Plans. There are no circumstances
arising out of the sponsorship of any NCRIC Employee Plan which will result in
any direct or indirect material liability to NCRIC or any NCRIC Subsidiary,
other than liability for contributions, benefit payments, administrative costs
and liabilities incurred in accordance with the terms of the NCRIC Employee
Plans consistent with past practice.
(i) NCRIC and each NCRIC Subsidiary have made all payments and
contributions due from them to each NCRIC Employee Plan. There are no funded
benefit obligations under any NCRIC Employee Plan for which contributions have
not been made or properly accrued, and there are no unfunded benefit obligations
that have not been accounted for by reserves, or otherwise properly footnoted in
accordance with generally accepted accounting principles on the financial
statements of NCRIC and each NCRIC Subsidiary.
(j) Each NCRIC Employee Plan which is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA that is not qualified under Section
401(a) or 403(a) of the Code is exempt from Parts 2, 3, and 4 of Title I of
ERISA as an unfunded plan that is maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees, pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of
ERISA. Except as set forth in Section 3.14(j) of the NCRIC Disclosure Schedule,
no assets of NCRIC or any NCRIC Subsidiary are allocated to or held in a "rabbi
trust" or similar funding vehicle.
(k) Each NCRIC Employee Plan that is a "group health plan" (as defined in
Section 607(1) of ERISA or Section 5001(b)(1) of the Code) has been operated at
all times in compliance with the provisions of Section 4980B of the Code and
Part 6 of Subtitle B of Title I of ERISA ("COBRA"), with the provisions of the
Code and ERISA enacted by the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"), and with the provisions of any applicable similar state
law.
(l) Except as set forth in Section 3.14(l) of the NCRIC Disclosure
Schedule, no NCRIC Employee Plan provides benefits to current or former
employees beyond their retirement or other termination of service (other than
coverage mandated by COBRA, the cost of which is fully paid by the current or
former employee or his or her dependents).
24
3.15 EMPLOYEES.
(a) NCRIC has made available to PRA a true and correct list of the names of
the employees of NCRIC and the NCRIC Subsidiaries, their birth dates, hire
dates, compensation rates, name of employer and capacity in which employed, and
accrued vacation and sick leave, if any, all as of December 31, 2004. Except as
limited by any employment agreements and severance agreements listed on Section
3.15(a) of the NCRIC Disclosure Schedule, and except for any limitations of
general application which may be imposed under applicable employment laws, NCRIC
and the NCRIC Subsidiaries have the right to terminate the employment of any of
their respective employees at will and without payment to such employees.
(b) NCRIC and the NCRIC Subsidiaries are in compliance, in all material
respects, with all applicable ordinances or other laws, orders, and regulations
regarding labor and employment and the compensation therefore, labor and
employment matters, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health, and employment
practices, whether state or federal (including, without limitation, wage and
hour laws; workplace safety laws; workers' compensation laws; equal employment
opportunity laws; equal pay laws; civil rights laws; the Occupational Safety and
Health Act of 1970, as amended; the Equal Employment Opportunity Act, as
amended; the Americans With Disabilities Act, 42 U.S.C. ss. 12101 et seq., as
amended; the Fair Labor Standards Act, 29 U.S.C. ss. 201 et seq., as amended;
the Equal Pay Act, 29 U.S.C. ss. 206d, as amended, the Portal-to-Portal Pay Act
of 1947, 29 U.S.C. ss. 255 et seq., as amended; Title VII of the Civil Rights
Act of 1964, 42 U.S.C. ss. 2000e, as amended and 42 U.S.C. ss. 1981, as amended;
Rehabilitation Act of 1973, as amended; the Vietnam-Era Veterans' Readjustment
Assistance Act of 1974, as amended; the Immigration Reform and Control Act, 8
U.S.C. ss. 1324A et seq., as amended; the Employee Polygraph Protection Act of
1988, as amended; the Veterans Re-employment Act - Handicap Bias, 38 U.S.C. ss.
2027 et seq., as amended; the Civil Rights Act of 1991, as amended; the Family
and Medical Leave Act of 1993, as amended; the Religious Freedom Restoration Act
of 1993, as amended; and the Age Discrimination and Employment Act of 1967, as
amended). No action or investigation has been instituted or, to the knowledge of
NCRIC, is threatened to be conducted by any state or federal agency regarding
any potential violation by NCRIC or any NCRIC Subsidiary of any laws, orders,
ordinances and regulations regarding labor and employment or the compensation
therefore (including, without limitation, any of the aforementioned statutes)
during the past five (5) years.
(c) Neither NCRIC nor any NCRIC Subsidiary has ever been a party to or
bound by any union or collective bargaining contract, nor is any such contract
currently in effect or being negotiated by NCRIC or any NCRIC Subsidiary. NCRIC
does not know of any activities or proceedings of any labor union to organize
any employees of NCRIC or any NCRIC Subsidiary. Since December 31, 2004, no
executive officer of NCRIC or any NCRIC Subsidiary has indicated to the Chief
Executive Officer of NCRIC an intention to terminate his or her employment.
25
(d) NCRIC and each NCRIC Subsidiary have complied with all applicable
notice provisions of and have no material obligations under the Consolidated
Omnibus Budget Reconciliation Act of 1985 with respect to any former employees
or qualifying beneficiaries thereunder. There is no action, claim, cause of
action, suit or proceeding pending or, to the knowledge of NCRIC, threatened, on
the part of any employee, independent contractor or applicant for employment,
including any such action, claim, cause of action, suit or proceeding based on
allegations of wrongful termination or discrimination on the basis of age, race,
religion, sex, sexual preference, or mental or physical handicap or disability.
All sums due from NCRIC or any NCRIC Subsidiary for employee compensation
(including, without limitation, wages, salaries, bonuses, relocation benefits,
stock options and other incentives) have been paid, accrued or otherwise
provided for, and all employer contributions for employee benefits, including
deferred compensation obligations, and all benefits under any NCRIC Employee
Plan have been duly and adequately paid or provided for in accordance with plan
documents. To the knowledge of NCRIC, no person treated as an independent
contractor by NCRIC or any NCRIC Subsidiary is an employee as defined in Section
3401(c) of the Code, nor has any employee been otherwise improperly classified,
as exempt, nonexempt or otherwise, for purposes of federal or state income tax
withholding or overtime laws, rules, or regulations.
(e) Since September 30, 2004, neither NCRIC nor any NCRIC Subsidiary has
effectuated (i) a "plant closing" (as defined in the Worker Adjustment and
Retraining Notification Act (the "WARN ACT")) affecting any site of employment
or one or more facilities or operating units within any site of employment or
facility of NCRIC or any NCRIC Subsidiary; (ii) a "mass layoff" (as defined in
the WARN Act); or (iii) such other transaction, layoff, reduction in force or
employment terminations sufficient in number to trigger application of any
similar foreign, state or local law.
3.16 COMPLIANCE WITH APPLICABLE LAW.
(a) NCRIC and the NCRIC Subsidiaries hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to, and have complied in all material respects
with, and are not in default in any respect under any, and have maintained and
conducted their respective businesses in all respects in compliance with, all
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines.
(b) Neither NCRIC nor any NCRIC Subsidiary is subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or has been a recipient of any supervisory letter from, or
since that date, has adopted any board resolutions at the request of any
Governmental Authority that: (i) limits the ability of NCRIC or any NCRIC
Insurance Subsidiary to conduct any line of business, (ii) require any
investments of NCRIC or any NCRIC Insurance Subsidiary to be treated as
non-admitted assets, (iii) require divestiture of any investments of NCRIC or
any NCRIC Insurance Subsidiary, (iv) in any manner imposes any requirements on
NCRIC or any NCRIC Insurance Subsidiary in respect of risk based capital
requirements that add to or otherwise modify the risk based capital requirements
imposed under the Insurance Laws, (v) in any manner relate to the ability of
NCRIC or any NCRIC Insurance Subsidiary to pay or declare dividends or
distributions, or (vi) restricts in any material respect the conduct of the
business, credit policies or management of NCRIC or any NCRIC Subsidiary (each,
whether or not set forth in the NCRIC Disclosure Schedule, a "NCRIC REGULATORY
AGREEMENT"), nor has NCRIC or any of its Subsidiaries been advised by any
Governmental Authority that it is considering issuing or requesting any such
NCRIC Regulatory Agreement. Neither NCRIC nor any NCRIC Insurance Subsidiary,
directly or indirectly, engages in any activity prohibited by applicable law.
26
(c) Except as set forth in Section 3.16(c) of the NCRIC Disclosure
Schedule, there is no pending or, to the knowledge of NCRIC, threatened charge
by any Governmental Authority that NCRIC or any NCRIC Insurance Subsidiary has
violated any applicable laws, rules or regulations (including any Insurance
Laws), nor any pending or, to the knowledge of NCRIC, threatened investigation
by any Governmental Authority with respect to possible violations of any
applicable laws, rules or regulations (including any Insurance Laws).
(d) There are no contracts (other than contracts relating to employment),
real estate leases, loans, guarantees or other arrangements or transactions of
any nature between NCRIC or any NCRIC Subsidiary, on the one hand, and any of
their respective officers, directors, or affiliates (as such term is defined in
Rule 405 of the SEC), on the other hand. NCRIC has not, since July 30, 2002,
extended or maintained credit, arranged for the extension of credit, or renewed
an extension of credit, in the form of a personal loan to or for any director or
executive officer (or equivalent thereof) of NCRIC or any NCRIC Subsidiary.
Section 3.16(d) of the NCRIC Disclosure Schedule identifies each loan or
extension of credit maintained by NCRIC or any NCRIC Subsidiary to which the
second sentence of Section 13(k)(1) of the Exchange Act applies.
(e) NCRIC is, or will timely be, in all material respects, in compliance
with all current and proposed listing and corporate governance requirements of
the NASD and the Nasdaq National Market.
(f) Each of NCRIC, its directors and its executive officers has consulted
with NCRIC's independent auditors and outside counsel with respect to, and (to
the extent applicable to NCRIC) is familiar in all material respects with all of
the requirements of SOX. NCRIC is in compliance with the provisions of SOX
applicable to it as of the date hereof and has implemented such programs and has
taken reasonable steps, upon the advice of NCRIC's independent auditors and
outside counsel, respectively, to ensure NCRIC's future compliance (not later
than the relevant statutory and regulatory deadlines therefore) with all
provisions of SOX which shall become applicable to NCRIC after the date of this
Agreement.
(g) None of NCRIC, the NCRIC Subsidiaries, any of their respective current
directors or officers, and, to the knowledge of NCRIC, any of their respective
former officers or directors or current or former employees, agents or
representatives have: (i) used any corporate funds for any illegal
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) used any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or employees,
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977, (iv)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets, (v) made any false or fictitious entries on the books and records
of NCRIC or any NCRIC Subsidiary, (vi) made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature, or (vi) made any
material favor or gift which is not deductible for federal income tax purposes.
To the knowledge of NCRIC: (x) no director or officer of NCRIC or any NCRIC
Subsidiary has engaged in any "▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇" in violation of applicable law
with respect to any security issued by NCRIC or any NCRIC Subsidiary; and (y) no
such director or officer has made any false certifications or statements under
(i) the SEC's Order dated June 27, 2002 pursuant to Section 21(a)(1) of the
Exchange Act (File No. 4-460), (ii) Rule 13a-14 or 15d-14 under the Exchange Act
or (iii) 18 U.S.C. ss.1350 (Section 906 of SOX) with respect to any NCRIC SEC
Report.
27
3.17 CERTAIN CONTRACTS.
(a) The documents listed in Item 15(c) in NCRIC's Annual Report on Form
10-K for the year ended December 31, 2003 and the documents listed on Section
3.17(a) of the NCRIC Disclosure Schedule set forth all contracts, agreements,
arrangements, commitments, or understandings (whether written or oral) to which
NCRIC or a NCRIC Subsidiary is a party to or bound by: (i) with respect to the
employment of any directors, officers or employees; (ii) which, upon the
consummation of the transactions contemplated by this Agreement will (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from NCRIC, PRA,
NEWCO, or any of their respective Subsidiaries to any director, officer or
employee thereof; (iii) which is a "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date
of this Agreement that has not been filed or incorporated by reference in the
NCRIC SEC Reports; (iv) that concerns a partnership or joint venture that is not
consolidated with NCRIC for financial reporting purposes; (v) the purpose of
which is to limit the ability of NCRIC or any NCRIC Subsidiary to compete with
respect to any product, service or territory; (vi) that is in the nature of a
collective bargaining agreement, employment agreement, consulting agreement or
severance agreement that is not cancelable by NCRIC or any NCRIC Subsidiary
without penalty or compensation on thirty (30) days notice or less; (vii) that
provides for the payment to an employee of NCRIC or any NCRIC Subsidiary any
incentive or bonus compensation based on the productivity or performance of such
employee or of NCRIC or any NCRIC Subsidiary; (viii) that is with any Insurance
Regulator and restricts (A) distributions or other payments to the stockholders
of NCRIC or any NCRIC Subsidiary, (B) the continued operation of NCRIC or any
NCRIC Subsidiary, or (C) any other matter relating to NCRIC or any NCRIC
Subsidiary and its affairs; or (ix) (including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan) any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. NCRIC has previously made available to PRA true and correct copies of
all employment and deferred compensation agreements which are in writing and to
which NCRIC or any NCRIC Subsidiary is a party. Each contract, agreement,
arrangement, commitment, or understanding (whether written or oral) of the type
described in Sections 3.17(a), (b) and (c) of this Agreement, whether or not set
forth in the NCRIC Disclosure Schedule, is referred to in this Agreement as a
"NCRIC Contract", and neither NCRIC nor any NCRIC Subsidiary knows of, or has
received notice of, any violation of any NCRIC Contract by any of the other
parties thereto.
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(b) Section 3.17(b) of the NCRIC Disclosure Schedule sets forth a list of,
and NCRIC has made available to PRA correct and complete copies of, all written
arrangements (or group of related written arrangements) from or to third
parties, for the furnishing of services to, or receipt of services by, NCRIC or
any NCRIC Subsidiary (including without limitation, legal and accounting
services, risk management services, agency agreements, managing general agent
agreements, reinsurance intermediary agreements and other distribution
agreements, and agreements relating to the sale or servicing of medical
professional liability insurance products offered by NCRIC or any NCRIC
Subsidiary) under which payments were made during any calendar year since
December 31, 2001 in excess of $250,000 or that has a non-cancelable term in
excess of one year (as to the latter, which is still in effect).
(c) With respect to each NCRIC Contract: Such NCRIC Contract is in full
force and effect (except for contracts that have expired pursuant to the terms
thereof) and is legally valid, binding and enforceable in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies). There are no material defaults by NCRIC
or any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party, under
such NCRIC Contract. Neither NCRIC nor any NCRIC Subsidiary has received notice
of any default, offset, counterclaim or defense under such NCRIC Contract. No
condition or event has occurred which with the passage of time or the giving of
notice or both would constitute a default or breach by NCRIC or any NCRIC
Subsidiary, or, to the knowledge of NCRIC, any other party under the terms of
such NCRIC Contract. All security deposits, reserve funds, and other sums and
charges that have become due and payable under such NCRIC Contract have been
paid in full. No party has repudiated any provision of such NCRIC Contract.
3.18 INVESTMENTS AND INTEREST RATE RISK MANAGEMENT INSTRUMENTS.
(a) Except as set forth in Section 3.18(a) of the NCRIC Disclosure
Schedule, NCRIC and each NCRIC Subsidiary have good and marketable title to all
securities held by it (except securities sold under repurchase agreements or
held in any fiduciary or agency capacity), free and clear of any Lien, except to
the extent such securities are pledged in the ordinary course of business
consistent with prudent business practices to secure obligations of NCRIC or any
NCRIC Subsidiary. Such securities are permissible investments under all
applicable laws and are valued on the books of NCRIC in accordance with GAAP and
SAP. None of the securities are in default in the payment of principal, interest
or dividends or is impaired to any extent. NCRIC has provided to PRA a copy of
the investment policies of NCRIC and the NCRIC Subsidiaries as of December 31,
2004. There has been no material change in investment policy of NCRIC and the
NCRIC Subsidiaries or in the composition of the investments of NCRIC and the
NCRIC Subsidiaries since December 31, 2004.
(b) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements entered into for the account of NCRIC
or its Subsidiaries were entered into in the ordinary course of business and, to
the best knowledge of NCRIC, in accordance with prudent business practice and
applicable rules, regulations and policies of any Governmental Authority and
with counterparties believed to be financially responsible at the time. All of
such interest rate swaps, caps, floors and option agreements and other interest
rate risk management arrangements are legal, valid and binding obligations of
NCRIC or its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. NCRIC and each NCRIC
Subsidiary have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to the best knowledge of NCRIC, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
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3.19 INTELLECTUAL PROPERTY.
(a) NCRIC or a NCRIC Subsidiary owns or has the right to use, pursuant to
license, sublicense, agreement or permission, all Intellectual Property
necessary for the operation of the businesses of NCRIC and the NCRIC
Subsidiaries as presently conducted and as presently proposed to be conducted.
As used in this Agreement, "INTELLECTUAL PROPERTY" means all trademarks, service
marks, logos, domains and domain names, trade names and corporate names and
registrations and applications for registration thereof, copyrights and
registrations and applications for registration thereof, computer software
(including computer software used in insurance operations or for accounting
operations), data and documentation, trade secrets and confidential business
information (including financial, marketing and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), other proprietary rights, and copies and tangible embodiments
thereof (in whatever form or medium). Section 3.19(a) of the NCRIC Disclosure
Schedule lists all trademarks, service marks, logos, domains and domain names,
trade names and corporate names owned by NCRIC and each NCRIC Subsidiary.
(b) To the knowledge of NCRIC: Neither NCRIC nor any NCRIC Subsidiary has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property of third parties. None of NCRIC, the NCRIC
Subsidiaries, and any of the directors, officers or employees with
responsibility for intellectual property matters of NCRIC or any NCRIC
Subsidiary has ever received any charge, complaint, claim or notice alleging any
such interference, infringement, misappropriation or violation. No third party
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any intellectual property rights of NCRIC or any NCRIC Subsidiary.
(c) Section 3.19(c) of the NCRIC Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that NCRIC or any NCRIC
Subsidiary uses, or intends to use, pursuant to license, sublicense, agreement,
or permission. NCRIC has made correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date) available to PRA.
With respect to each such item of such Intellectual Property: (i) the license,
sublicense, agreement or permission covering the item is legal, valid, binding,
enforceable and in full force and effect; (ii) except as set forth in Section
3.5(b)(ii)(y) of the NCRIC Disclosure Schedule, the license, sublicense,
agreement or permission will continue to be legal, valid, binding and
enforceable and in full force and effect on identical terms on and after the
Merger and the Closing Date; (iii) no party to the license, sublicense,
agreement or permission is in breach or default, and no event of default has
occurred which with notice or lapse of time, or both, would constitute a breach
or default or permit termination, modification or acceleration thereunder; (iv)
no party to the license, sublicense, agreement or permission has repudiated any
provision thereof; (v) with respect to any sublicense, the representations and
warranties set forth in (i) through (iv) above are true and correct with respect
to the underlying license; and (vi) neither NCRIC nor any NCRIC Subsidiary has
granted any sublicense or similar right with respect to the license, sublicense,
agreement or permission.
30
3.20 REAL PROPERTY; ENVIRONMENTAL LIABILITY.
(a) Neither NCRIC nor any NCRIC Subsidiary owns any right, title or
interest in any real property except as described on Section 3.20(a) of the
NCRIC Disclosure Schedule (collectively, the "NCRIC REAL PROPERTY"). Section
3.20(a) of the NCRIC Disclosure Schedule sets forth a complete and accurate list
and general description of all material leases for real property ("NCRIC REAL
PROPERTY LEASES") to which NCRIC or any NCRIC Subsidiary is a party or by which
any of them are bound. NCRIC or any NCRIC Subsidiary owns all right, title and
interest in, and has good and marketable title to, the NCRIC Real Property, and
NCRIC or any NCRIC Subsidiary has a valid leasehold interest in each NCRIC Real
Property Leases, in each case free and clear of all Liens except for (i) rights
of lessors, co-lessees or sublessees that are reflected in each NCRIC Real
Property Lease; (ii) current taxes not yet due and payable; (iii) Liens of
public record; and (iv) such nonmonetary imperfections of title and
encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of the subject property. To the
knowledge of NCRIC, the activities of NCRIC and its Subsidiaries with respect to
all NCRIC Real Property and NCRIC Real Property Leases used in connection with
their operations are in all material respects permitted and authorized by
applicable zoning laws, ordinances and regulations.
(b) NCRIC and its Subsidiaries enjoy peaceful and undisturbed possession
under all NCRIC Real Property Leases. NCRIC has made available to PRA complete
and correct copies of all of the NCRIC Real Property Leases. Each NCRIC Real
Property Lease is in full force and effect and is legally valid, binding and
enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
rights of creditors generally and the availability of equitable remedies). There
are no monetary defaults and no material nonmonetary defaults by NCRIC or any
NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party, under any
NCRIC Real Property Lease. Neither NCRIC nor any NCRIC Subsidiary has received
notice of any default, offset, counterclaim or defense under any NCRIC Real
Property Lease. Except as set forth in Section 3.5(b)(ii)(y) of the NCRIC
Disclosure Schedule, no condition or event has occurred which with the passage
of time or the giving of notice or both would constitute a default or breach by
NCRIC or any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party,
under of the terms of any NCRIC Real Property Lease. All rent, security
deposits, reserve funds, and other sums and charges that have become due and
payable under the NCRIC Real Property Leases have been paid in full. To the
knowledge of NCRIC, there are no purchase contracts, options or other agreements
of any kind whereby any Person has acquired or will have any basis to assert any
right, title or interest in, or right to the possession, use, enjoyment or
proceeds of, any part or all of the interests in the real property subject to
the NCRIC Real Property Leases.
(c) NCRIC and its Subsidiaries are and have been in compliance with all
Environmental Laws (as defined in Section 9.18(a) of this Agreement) and all
Environmental Permits (as defined in Section 9.18(a) of this Agreement). There
are no legal, administrative, arbitral or other proceedings, claims, actions,
causes of action, private environmental investigations or remediation activities
or governmental investigations of any nature seeking to impose on NCRIC or any
NCRIC Subsidiary, or that could reasonably be expected to result in the
imposition on NCRIC or any NCRIC Subsidiary of, any liability or obligation
arising under any Environmental Law which would have a Material Adverse Effect
on NCRIC. To the knowledge of NCRIC, there is no reasonable basis for any such
proceeding, claim, action, investigation or remediation activity. Neither NCRIC
nor any NCRIC Subsidiary is subject to any agreement, order, judgment, decree,
letter or memorandum by or with any Governmental Authority or private Person
imposing any liability or obligation under any Environmental Law that would have
a Material Adverse Effect on NCRIC. For purposes of this Section 3.20, the terms
"NCRIC" and "Subsidiaries" include any Person that is, in whole or in part, a
predecessor of NCRIC or any of its Subsidiaries.
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3.21 PERSONAL PROPERTY.
(a) None of the personal property owned by NCRIC or any NCRIC Subsidiary is
subject to, or as of the Closing Date will be subject to, any Lien.
(b) Section 3.21(b) of the NCRIC Disclosure Schedule lists each personal
property lease to which NCRIC or any NCRIC Subsidiary is a party that is not
cancelable upon ninety (90) days notice without penalty and has monthly rent
that exceeds $1,500 (collectively, the "NCRIC PERSONAL PROPERTY LEASES"). NCRIC
has made available to PRA complete and correct copies of all of the NCRIC
Personal Property Leases. Each NCRIC Personal Property Leases is in full force
and effect and is legally valid, binding and enforceable in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies). There are no material defaults by NCRIC
or any NCRIC Subsidiary, or, to the knowledge of NCRIC, any other party, under
any NCRIC Personal Property Lease. Neither NCRIC nor any NCRIC Subsidiary has
received notice of any material default, offset, counterclaim or defense under
any NCRIC Personal Property Lease. No condition or event has occurred which with
the passage of time or the giving of notice or both would constitute a material
default or breach by NCRIC or any NCRIC Subsidiary, or, to the knowledge of
NCRIC, any other party under of the terms of any NCRIC Personal Property Lease.
All rent, security deposits, reserve funds, and other sums and charges that have
become due and payable under the NCRIC Personal Property Leases have been paid
in full. To the knowledge of NCRIC, there are no purchase contracts, options or
other agreements of any kind whereby any Person has acquired or will have any
basis to assert any right, title or interest in, or right to the possession,
use, enjoyment or proceeds of, any part or all of the interests in the real
property subject to the NCRIC Personal Property Leases.
3.22 STATE TAKEOVER LAWS. The Board of Directors of NCRIC has approved the
transactions contemplated by this Agreement and taken such action such that the
provisions of the DGCL and any other provisions of any state or local "takeover"
law applicable to NCRIC will not apply to this Agreement or any of the
transactions contemplated by this Agreement. PRA understands and acknowledges
that the Insurance Laws applicable to NCRIC regulate and apply to the change in
the ownership of NCRIC, Inc. as contemplated by this Agreement.
32
3.23 INSURANCE MATTERS.
(a) Except as set forth in Section 3.23(a) of the NCRIC Disclosure
Schedule, all policies, binders, slips, certificates and other agreements of
insurance in effect as of the date hereof (including all applications,
endorsements, supplements, endorsements, riders and ancillary agreements in
connection therewith) issued by the NCRIC Insurance Subsidiaries, and any and
all marketing materials, agents agreements, brokers agreements, service
contracts, and managing general agents agreements to which NCRIC or any NCRIC
Subsidiary is a party, are, to the extent required under applicable law, on
forms approved by the Insurance Regulators or have been filed with and not
objected to by such Insurance Regulators within the period provided for
objection, and all of such forms comply with the Insurance Laws in all material
respects. As to premium rates established by NCRIC or any NCRIC Insurance
Subsidiary which are required to be filed with or approved by any Insurance
Regulators, the rates have been so filed or approved, the premiums charged
conform thereto, and such premiums comply with the Insurance Laws. Section
3.23(a) of the NCRIC Disclosure Schedule sets forth all increases in premium
rates for medical professional liability insurance submitted by the NCRIC
Insurance Subsidiaries which have been disapproved by any Insurance Regulators
since December 31, 1999. Section 3.23(a) of the NCRIC Disclosure Schedule lists
all correspondence or communications from any Insurance Regulator received by
NCRIC or any NCRIC Insurance Subsidiary after December 31, 1999, that requests
or suggests that its premium rates, if applicable, for professional liability
insurance should be reduced below the current approved premium levels.
(b) Except as set forth in Section 3.23(b) of the NCRIC Disclosure
Schedule, neither NCRIC nor any NCRIC Insurance Subsidiary has issued any
participating policies or any retrospectively rated policies of insurance.
(c) All reinsurance treaties or agreements, including retrocessional
agreements, to which NCRIC or any NCRIC Insurance Subsidiary is a party or under
which NCRIC or any NCRIC Insurance Subsidiary has any existing rights,
obligations or liabilities are listed on Section 3.23(c) of the Disclosure
Schedule (the "NCRIC REINSURANCE TREATIES"). NCRIC has provided PRA with correct
and complete copies of all of such NCRIC Reinsurance Treaties and all such NCRIC
Reinsurance Treaties are in full force and effect, and the consummation of the
transactions contemplated by this Agreement will not result in the termination
of any NCRIC Reinsurance Treaties. The NCRIC Reserves (as defined in Section
3.23(d) of this Agreement) at each of December 31, 2004 and December 31, 2003,
and December 31, 2002, as reflected in the NCRIC SAP Statements, are stated net
of reinsurance ceded amounts. The NCRIC SAP Statements accurately reflect the
extent to which, pursuant to Insurance Laws, NCRIC and/or the NCRIC Insurance
Subsidiaries are entitled to take credit for reinsurance under the NCRIC
Reinsurance Treaties. All reinsurance recoverable amounts reflected in said
balance sheets are collectible, and NCRIC is unaware of any material adverse
change in the financial condition of its reinsurers that might raise concern
regarding their ability to honor their reinsurance commitments, except as set
forth in Section 3.23(c) of the NCRIC Disclosure Schedule. No party to any of
the NCRIC Reinsurance Treaties has given notice to NCRIC or any NCRIC Insurance
Subsidiary that such party intends to terminate or cancel any of the NCRIC
Reinsurance Treaties as a result of or following consummation of the Merger.
Each NCRIC Reinsurance Treaty is valid and binding on each party thereto, and
none of NCRIC, any NCRIC Insurance Subsidiary, and, to the knowledge of NCRIC,
any other party thereto, is in default in any material respect with respect to
any such reinsurance agreement or treaty. No NCRIC Reinsurance Treaty contains
any provision providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement, or contains any other
provision which would be altered or otherwise become applicable by reason of
such transactions. Since January 1, 2004 no NCRIC Reinsurance Treaty has been
canceled and there has not been any change in the retention level under any of
such reinsurance agreements or treaties.
33
(d) Each NCRIC Insurance Subsidiary has assets that qualify as admitted
assets under the Insurance Laws in an amount at least equal to the sum of all
its reserves and liability amounts and its minimum statutory capital and surplus
as required by such Insurance Laws. Each of the NCRIC SAP Statements, as of the
date thereof, sets forth all of the reserves of the NCRIC Insurance Subsidiaries
as of such date (collectively, the "NCRIC Reserves"). The NCRIC Reserves, gross
and net of the reinsurance thereof, were prepared in accordance with the
requirements for reserves established by the Insurance Regulators, were
determined in accordance with SAP and generally accepted actuarial principles
consistently applied, were computed on the basis of methodologies consistent in
all material respects with those used in prior periods, were fairly stated in
all material respects in accordance with sound actuarial and statutory
accounting principles, and were established in accordance with prudent insurance
practices generally followed in the insurance industry. The NCRIC Reserves make
good and sufficient provisions for all insurance obligations of the NCRIC
Insurance Subsidiaries. The NCRIC Reserves set forth in any NCRIC SAP Statement
are adequate to provide for the estimated ultimate net costs of all reported and
unreported losses incurred through the date of such NCRIC SAP Statement. NCRIC
has provided or made available to PRA copies of all work papers used as the
basis for establishing the NCRIC Reserves. Except for regular periodic
assessments based on developments that are publicly known within the insurance
industry, to the knowledge of NCRIC, no claim or assessment is pending or
threatened against NCRIC or any NCRIC Insurance Subsidiary which is peculiar or
unique to NCRIC or such NCRIC Insurance Subsidiary by any state insurance
guaranty association in connection with such association's fund relating to
insolvent insurers.
(e) Section 3.23(e) of the NCRIC Disclosure Schedule lists each actuary,
independent or otherwise, that has reviewed, on behalf of NCRIC or any NCRIC
Subsidiary, the reserves for losses and loss adjustment expenses of NCRIC or any
of the NCRIC Insurance Subsidiaries and their premium rates for liability
insurance in each of the years commencing after December 31, 2000 (collectively
the "NCRIC ACTUARIES" and separately an "NCRIC ACTUARY"). Section 3.23(e) of the
NCRIC Disclosure Schedule lists each and every actuarial report, and all
attachments, supplements, addenda and modifications thereto prepared for or on
behalf of NCRIC or any NCRIC Subsidiary by the NCRIC Actuaries, or delivered by
the NCRIC Actuaries to NCRIC or any NCRIC Subsidiary, since December 31, 2000,
in which a NCRIC Actuary has (i) either expressed an opinion on the adequacy of
such reserves for losses and loss adjustment expenses loss reserves or made
recommendations as to either the amount of reserves for losses and loss
adjustment expenses that should be maintained by NCRIC or any NCRIC Insurance
Subsidiary, or (ii) expressed an opinion as to the adequacy of such premiums or
made a recommendation as to the premiums that should be charged by NCRIC or any
NCRIC Insurance Subsidiary for liability insurance (collectively, the "NCRIC
ACTUARIAL ANALYSES"). To the knowledge of NCRIC the information and data
furnished by NCRIC or any NCRIC Subsidiary to the NCRIC Actuaries in connection
with the NCRIC Actuarial Analyses were accurate in all material respects. To the
knowledge of NCRIC, each NCRIC Actuarial Analysis was based upon an accurate
inventory of policies in force for NCRIC and the NCRIC Insurance Subsidiaries,
as the case may be, at the relevant time of preparation, was prepared using
appropriate modeling procedures accurately applied and in conformity with
generally accepted actuarial principles consistently applied, and the
projections contained therein were properly prepared in accordance with the
assumptions stated therein. NCRIC has made available to PRA a true and correct
copy of each of the NCRIC Actuarial Analyses.
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3.24 NO INVESTMENT COMPANY. Neither NCRIC nor any NCRIC Subsidiary is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
3.25 ACCURACY OF INFORMATION SUPPLIED.
(a) All of the representations and warranties made by NCRIC in this
Agreement, taken together and with the NCRIC Disclosure Schedule, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements set forth herein and therein, in light
of the circumstances in which such statements were made, not misleading. The
copies of documents attached to the NCRIC Disclosure Schedule or otherwise made
available to NCRIC in connection with the transactions contemplated hereby are
accurate and complete in all respects.
(b) The S-4 and the Proxy Statement used for the registration and
qualification of shares of PRA Common Stock to be issued upon consummation of
the Merger and used to solicit approval of the Merger by the stockholders of
NCRIC, and all other documents to be filed with the SEC or any applicable state
securities law regulatory authorities relating to this Agreement or the
transactions contemplated by this Agreement (including the Merger), at the
respective times such documents are filed or become effective, and with respect
to the Proxy Statement, from the time of mailing to the stockholders of NCRIC
through the date of the meeting of NCRIC stockholders held to approve this
Agreement, shall, as to all information provided by NCRIC: (i) comply with the
Securities Act, the Exchange Act and all other applicable laws and regulations;
and (ii) not contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact and not omit to state any material fact necessary in order to make
the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which have become false or
misleading.
3.26 EFFECTIVE TIME OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Each representation, warranty, covenant and agreement of NCRIC set
forth in this Agreement, as updated by any written disclosure schedule delivered
pursuant to Section 6.9(b) of this Agreement, shall be deemed to be made on and
as of the date of this Agreement, and as of the Closing Date, and as of the
Effective Time.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PRA
PRA represents and warrants to NCRIC that the statements contained in
this Article 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date was substituted for the date of this Agreement
throughout this Article), except (i) as set forth in the disclosure schedule
delivered by PRA to NCRIC on the date hereof and initialed by the parties (the
"PRA DISCLOSURE SCHEDULE"), or (ii) for any changes to the PRA Disclosure
Schedule that are disclosed by PRA to NCRIC in accordance with Section 6.9(b) of
this Agreement, or (iii) to the extent such representations and warranties speak
as of an earlier date. Nothing in the PRA Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein
unless the PRA Disclosure Schedule identifies the exception with reasonable
particularity. The PRA Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article;
provided, however, (i) that each exception set forth in the PRA Disclosure
Schedule shall be deemed disclosed for purposes of all representations and
warranties if such exception is contained in a section of the PRA Disclosure
Schedule corresponding to a Section in this Article 4, and (ii) the mere
inclusion of an exception in the PRA Disclosure Schedule shall not be deemed an
admission by PRA that such exception represents a material fact, event or
circumstance or would result in a material adverse effect or material adverse
change.
4.1 CORPORATE ORGANIZATION.
(a) PRA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. PRA has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect (as
defined in Section 9.18) on PRA. NEWCO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) PRA has made available to NCRIC correct and complete copies of the
Certificate of Incorporation and Bylaws of PRA and each of the PRA Subsidiaries
(as amended to date). PRA has made available to NCRIC all of the minute books
containing the records of the meetings of the stockholders, the board of
directors and any committee of the board of directors of PRA, except for
information subject to confidentiality agreements with third parties in which
case, such information has been redacted. The minute books of PRA reflect all of
the material actions taken by each of its Boards of Directors (including each
committee thereof) and stockholders.
(c) The books and records of PRA and each of the PRA Subsidiaries (i) are
and have been properly prepared and maintained in form and substance adequate
for preparing audited consolidated financial statements, in accordance with GAAP
and any other applicable legal and accounting requirements, (ii) reflect only
actual transactions, and (iii) fairly and accurately reflect all assets and
liabilities of PRA and each of the PRA Subsidiaries and all contracts and other
transactions to which PRA or any of the PRA Subsidiaries is or was a party or by
which PRA or any of the PRA Subsidiaries or any of their respective businesses
or assets is or was affected.
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4.2 SUBSIDIARIES.
(a) Section 4.2(a) of the PRA Disclosure Schedule sets forth the name and
state of incorporation or organization of each Subsidiary of PRA (the "PRA
SUBSIDIARIES"). Each PRA Subsidiary (i) is duly organized and validly existing
as a corporation under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on PRA, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
(b) Section 4.2(b) of the PRA Disclosure Schedule identifies the PRA
Subsidiaries that offer insurance and the states in which they are authorized or
licensed to conduct business, and the type of insurance products that they are
authorized or licensed to offer in each such state (the "PRA INSURANCE
SUBSIDIARIES"). No PRA Insurance Subsidiary offers any insurance products in any
jurisdiction where it is neither authorized nor licensed to offer such insurance
products. The business of each of the PRA Insurance Subsidiaries has been and is
being conducted in compliance with all of its licenses in all material respects.
All of such licenses are in full force and effect and there is no proceeding or
investigation pending or, to the knowledge of PRA, threatened which would
reasonably be expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of such license.
(c) PRA is, directly or indirectly, the record and beneficial owner of all
of the outstanding shares of capital stock of each of the PRA Subsidiaries,
including, without limitation, NEWCO. There are no irrevocable proxies granted
by PRA or any PRA Subsidiary with respect to such shares. There are no equity
securities of any of the PRA Subsidiaries that are or may become required to be
issued by reason of any option, 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 any capital stock of any of the
PRA Subsidiaries except shares of the PRA Subsidiaries issued to other wholly
owned PRA Subsidiaries. There are no contracts, commitments, understandings or
arrangements by which any of the PRA Subsidiaries is bound to issue additional
shares of its capital stock or options, warrants or rights to purchase or
acquire any additional shares of its capital stock or securities convertible
into or exchangeable for such shares. All of the shares of the PRA Subsidiaries
described in the first sentence of this Section 4.2(c) are validly issued, fully
paid and nonassessable and free of preemptive rights, and are owned by PRA or a
PRA Subsidiary free and clear of any and all Liens and free and clear of any
claim, right or option to acquire any such shares. PRA does not directly or
indirectly own any interest in any other corporation, partnership, joint venture
or other business association or entity which is material to PRA and the PRA
Subsidiaries taken as a whole.
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(d) No PRA Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
4.3 CAPITALIZATION.
(a) The authorized capital stock of PRA consists of 150,000,000 shares,
with said shares divided into two classes. One class of said shares consists of
50,000,000 shares of preferred stock and the other class of said shares consists
of 100,000,000 shares of common stock, $0.01 par value per share, of PRA ("PRA
Common Stock"). As of December 31, 2004, no shares of such preferred stock and
29,204,463 shares of PRA Common Stock were issued and outstanding and no shares
of either such preferred stock or PRA Common Stock were held in treasury. All of
the issued and outstanding shares of PRA Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights with no personal liability attaching to the ownership thereof. As of the
date of this Agreement, and except pursuant to the terms of this Agreement, the
PRA Stock Options, and the PRA 3.9% Convertible Senior Debentures due 2023 ( the
"PRA DEBENTURES" ), PRA does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of PRA Common Stock
or any other equity securities of PRA or any securities representing the right
to purchase or otherwise receive any shares of PRA Common Stock or any other
equity securities of PRA. As of December 31, 2004, no shares of PRA Common Stock
were reserved for issuance, except for (i) 1,105,373 shares reserved for
issuance upon the exercise of outstanding stock options under the PRA Incentive
Compensation Stock Plan (excluding reload options) and the Professionals Group
1996 Long-Term Stock Incentive Plan (the PRA Stock Options"), (ii) 2,500,000
shares reserved for issuance pursuant to awards under the PRA 2004 Equity
Incentive Plan of which there are 10,000 shares subject to outstanding options
as of the date of this Agreement, and (iii) 3,230,000 shares reserved for
issuance upon conversion of the PRA Debentures. Since September 30, 2004, PRA
has not issued any shares of PRA Common Stock or other equity securities of PRA,
or any securities convertible into or exercisable for any shares of PRA Common
Stock or other equity securities of PRA, other than pursuant to the exercise of
stock options issued under the PRA Stock Option Plans granted prior to such
date.
(b) The authorized capital stock of NEWCO consists of 1,000 shares, no par
value per share, of common stock ("NEWCO COMMON STOCK"). As of the date of this
Agreement, 1,000 shares of NEWCO Common Stock were issued and outstanding and no
shares of NEWCO Common Stock were held in treasury. As of the date of this
Agreement, no shares of NEWCO Common Stock were reserved for issuance. NEWCO has
not issued any shares of NEWCO Common Stock or other equity securities of NEWCO,
or any securities convertible into or exercisable for any shares of NEWCO Common
Stock or other equity securities of NEWCO to any Person other than PRA.
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4.4 AUTHORITY; NO VIOLATION; CONSENTS AND APPROVALS.
(a) PRA has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly and validly approved
by the Board of Directors of PRA, and no other corporate proceedings on the part
of PRA are necessary to approve this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement has been duly and
validly executed and delivered by PRA and (assuming due authorization, execution
and delivery by NEWCO and NCRIC and the receipt of all Requisite Regulatory
Approvals constitutes a valid and binding obligation of PRA, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally, and subject, as to enforceability, to general principles of equity.
(b) Neither the execution and delivery of this Agreement by PRA nor the
consummation by PRA of the transactions contemplated by this Agreement, nor
compliance by PRA with any of the terms or provisions of this Agreement, will
(i) violate any provision of the Certificate of Incorporation or Bylaws of PRA
or (ii) assuming that all Requisite Regulatory Approvals and all of the consents
and approvals referred to in Section 4.5(c) of this Agreement are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to PRA or any of its properties or assets,
or (y) violate, conflict with, result in a breach of any provision of or the
loss of any benefit under, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any Lien upon any of the
properties or assets of PRA under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which PRA is a party, or by which it or any of
its properties or assets may be bound or affected, except (in the case of clause
(y) above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, would not have a Material Adverse Effect on
PRA.
(c) Except for (i) the filing of applications, notices and forms with, and
the obtaining of approvals from, the Insurance Regulators pursuant to the
Insurance Laws, with respect to the transactions contemplated by this Agreement,
(ii) the filing with the SEC of the Proxy Statement and the S-4, (iii) the
filing of the Certificate of Merger with the Delaware Secretary of State
pursuant to the DGCL, (iv) the filing of the HSR Act Report with the Pre-Merger
Notification Agencies pursuant to the HSR Act, (v) any consents, authorizations,
orders and approvals required under the Securities Act, the Exchange Act, and
the HSR Act, (vi) any consents, authorizations, approvals, filings or exemptions
in connection with compliance with the applicable provisions of federal and
state securities laws relating to the regulation of broker-dealers or investment
advisers, and federal commodities laws relating to the regulation of futures
commission merchants and the rules and regulations thereunder and of any SRO
(including, without limitation, the NAIC, the New York Stock Exchange, the NASD
and the Nasdaq National Market, or which are required under the Insurance Laws
and other similar laws, (vii) such filings and approvals as are required to be
made or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of the shares of PRA Common Stock pursuant to this
Agreement, and (viii) the approval of this Agreement by the requisite votes of
the stockholders of NEWCO and the stockholders of NCRIC, no consents or
approvals of, or filings or registrations with any Governmental Authority or
with any other Person are necessary in connection with the execution and
delivery by PRA of this Agreement or the consummation by PRA or any PRA
Subsidiary of the transactions contemplated by this Agreement.
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(d) NEWCO has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly and validly
approved by the Board of Directors of NEWCO. The Board of Directors of NEWCO has
directed that this Agreement and the transactions contemplated by this Agreement
be submitted to the sole stockholder of NEWCO. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been duly and validly approved by PRA, acting through its Board
of Directors, as the sole stockholder of NEWCO, and no further corporate
proceedings on the part of NEWCO are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by NEWCO and (assuming due authorization,
execution and delivery by PRA and NCRIC and the receipt of all Requisite
Regulatory Approvals) constitutes a valid and binding obligation of NEWCO,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity.
(e) Neither the execution and delivery of this Agreement by NEWCO nor the
consummation by NEWCO of the transactions contemplated by this Agreement, nor
compliance by NEWCO with any of the terms or provisions of this Agreement, will
(i) violate any provision of the Certificate of Incorporation or Bylaws of NEWCO
or (ii) assuming that all Requisite Regulatory Approvals and all of the consents
and approvals referred to in Section 4.5(c) of this Agreement are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to NEWCO or any of its properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of NEWCO under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NEWCO is a party, or
by which it or any of its properties or assets may be bound or affected, except
(in the case of clause (y) above) for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, will not have or be
reasonably likely to have a Material Adverse Effect on NEWCO.
4.5 INSURANCE REPORTS.
(a) "PRA SAP STATEMENTS" means (i) the annual statutory statements of each
of the PRA Insurance Subsidiaries filed with any Insurance Regulator for each of
the years ended December 31, 2004, 2003, 2002 and 2001 and each calendar year
ending after the date of this Agreement, (ii) the quarterly statutory statements
of each of the PRA Insurance Subsidiaries filed with any Insurance Regulator for
each quarterly period in 2004 and for each quarterly period ending after the
date of this Agreement, and (iii) all exhibits, interrogatories, notes,
schedules and any actuarial opinions, affirmations or certifications or other
supporting documents filed in connection with such annual statutory statements
and quarterly statutory statements.
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(b) All such PRA SAP Statements were and will be prepared (i) in conformity
with SAP and (ii) in accordance with the books and records of PRA and the PRA
Insurance Subsidiaries. The PRA SAP Statements, when read in conjunction with
the notes thereto and any statutory audit reports relating thereto, present, and
will present, fairly in all material respects the statutory financial condition
and results of operations of the PRA Insurance Subsidiaries for the dates and
periods indicated and are consistent with the books and records of the PRA
Insurance Subsidiaries (which books and records are correct and complete in all
material respects). The annual statutory balance sheets and income statements
included in the PRA SAP Statements have been, and will be, where required by
Insurance Laws, audited by an independent accounting firm of recognized national
reputation. PRA has made available to PRA true and complete copies of all of the
PRA SAP Statements and all audit opinions related thereto.
(c) Since January 1, 2001, PRA and each PRA Insurance Subsidiary (i) have
filed or submitted with all applicable Insurance Regulators, all registration
statements, notices and reports, together with all supplements and amendments
thereto, required under the Insurance Laws applicable to insurance holding
companies (the "PRA HOLDING COMPANY ACT REPORTS"); (ii) have filed all PRA SAP
Statements, (iii) have filed all other reports and statements together with all
amendments and supplements thereto, required to be filed with any Insurance
Regulator under the Insurance Laws; and (iv) have paid all fees and assessments
due and payable by them under the Insurance Laws. Section 4.5(c) of the PRA
Disclosure Schedule sets forth a list of, and PRA has made available to NCRIC,
accurate and complete copies of, all PRA SAP Statements, PRA Holding Company Act
Reports and all other reports and statements filed by PRA or any PRA Subsidiary
with any Insurance Regulator for periods ending and events occurring, after
January 1, 2001 and prior to the Closing Date and the latest requests for
approval of rate increase in each state in which an PRA Subsidiary writes
insurance. All such PRA SAP Statements, PRA Holding Company Act Reports and
other reports and statements complied with the Insurance Laws when filed and, as
of their respective dates, contained all information required under the
Insurance Laws and did not contain any false statements or material
misstatements of fact or omit to state any material facts necessary to make the
statements set forth therein not materially misleading in light of the
circumstances in which such statements were made. No deficiencies have been
asserted by any Governmental Authority with respect to such PRA SAP Statements,
PRA Holding Company Act Reports and other reports and statements.
(d) Except for normal examinations conducted by a Governmental Authority in
the regular course of the business of PRA and its Subsidiaries, no Governmental
Authority has initiated any proceeding or investigation into the business or
operations of PRA, any PRA Subsidiary, or any director or officer of PRA or any
PRA Subsidiary, since January 1, 2002. There is no unresolved violation,
criticism, or exception by any Governmental Authority with respect to any
examinations of PRA or any of its Subsidiaries.
(e) Section 4.5(e) of the PRA Disclosure Schedule lists all financial
examinations that any Insurance Regulator has conducted with respect to PRA or
any of the PRA Insurance Subsidiaries since December 31, 2001. PRA has made
available to NCRIC correct and complete reports issued by the applicable
Insurance Regulator with respect to such financial examinations except for those
indicated as currently in process.
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(f) Neither PRA nor any PRA Subsidiary has received from any Person any
Notice on Form A or such other form as may be prescribed under applicable law
indicating that such Person intends to make or has made a tender offer for or a
request or invitation for tenders of, or intends to enter into, or has entered
into any agreement to exchange securities for, or intends to acquire or has
acquired (in the open market or otherwise), any voting security of PRA, if after
the consummation thereof such Person would directly or indirectly be in control
of PRA.
4.6 SEC REPORTS; FINANCIAL STATEMENTS.
(a) PRA has on a timely basis filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 2001. Section 4.6(a) of
the PRA Disclosure Schedule lists, and PRA has delivered to NCRIC (except to the
extent available in full without redaction on the SEC's web site through ▇▇▇▇▇
two days prior to the date of this Agreement) copies in the form filed with the
SEC of (i) PRA's Annual Reports on Form 10-K for each fiscal year of PRA
commencing after December 31, 2000, (ii) its Quarterly Reports on Form 10-Q for
each of the first three fiscal quarters in each of the fiscal years of PRA
commencing after December 31, 2000, (iii) all proxy statements relating to PRA's
meetings of stockholders (whether annual or special) held, and all information
statements relating to stockholder consents, since December 31, 2000, (iv) all
certifications and statements required by (x) the SEC's Order dated June 27,
2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460), (y) Rule
13a-14 or 15d-14 under the Exchange Act or (z) 18 U.S.C. ss.1350 (Section 906 of
SOX) with respect to any report referred to in clause (i) or (ii) of this
sentence, (v) all other forms, reports, registration statements and other
documents (other than preliminary materials if the corresponding definitive
materials have been provided to NCRIC pursuant to this Section 4.6(a) filed by
PRA with the SEC since January 1, 2001 (the forms, reports, registration
statements and other documents referred to in clauses (i), (ii), (iii), (iv) and
(v) of this sentence together with any and all amendments thereto are,
collectively, the "PRA SEC REPORTS" and, to the extent available in full without
redaction on the SEC's web site through ▇▇▇▇▇ two days prior to the date of this
Agreement, are, collectively, the "PRA FILED SEC REPORTS"), and (vi) all comment
letters received by PRA from the Staff of the SEC since January 1, 2001 and all
responses to such comment letters by or on behalf of PRA.
(b) The PRA SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, in
all material respects, and (ii) did not at the time they were filed with the
SEC, or if thereafter amended, at the time of such amendment, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary of PRA is or has been required to file any form, report, registration
statement or other document with the SEC. As used in this Section 4.6, the term
"file" shall be broadly construed to include any manner in which a document or
information is furnished, supplied otherwise made available to the SEC.
42
(c) PRA has established and maintains disclosure controls and procedures
(as such term is defined in Section 13(b)(2)(B) and Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Such disclosure controls and procedures: (i)
are designed to ensure that material information relating to PRA and its
Subsidiaries is made known to PRA's chief executive officer and its chief
financial officer by others within those entities, particularly during the
periods in which PRA's reports and filings under the Exchange Act are being
prepared, (ii) have been evaluated for effectiveness as of the end of the annual
or quarterly period reported to the SEC, and (iii) are effective to perform the
functions for which they were established. Neither the auditors of PRA nor the
Audit Committee of the Board of Directors of PRA have been advised of: (x) any
significant deficiencies or material weaknesses in the design or operation of
the internal controls over financial reporting (as such term is defined in
Section 13(b)(2)(B) and Rules 13d-15(d) and 15d-15(d) of the Exchange Act) of
PRA and its Subsidiaries which could adversely affect PRA's ability to record,
process, summarize and report financial data, or (y) any fraud, whether or not
material, that involves management or other employees who have a role in the
internal controls over financial reporting of PRA and its Subsidiaries. Since
the date of the most recent evaluation of such internal controls over financial
reporting and procedures, there have been no significant changes in internal
controls over financial reporting or in other factors that could significantly
affect such internal controls over financial reporting, including any corrective
actions with regard to significant deficiencies and material weaknesses.
(d) Since July 31, 2002, each PRA Filed SEC Report which included financial
statements was accompanied by the certifications of PRA's chief executive
officer and chief financial officer as required under Sections 302 and 906 of
SOX, and
(e) The financial statements of PRA and its Subsidiaries included in the
PRA SEC Reports (including the related notes) complied or will comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto (including, without limitation,
Regulation S-X), were or will be prepared in accordance with GAAP during the
periods and at the dates involved (except as may be indicated in the notes
thereto and except, in the case of unaudited statements, to the extent permitted
by Regulation S-X for Quarterly Reports on Form 10-Q), and fairly present the
consolidated financial condition of PRA and its Subsidiaries at the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended. Except (x) as reflected in PRA's unaudited balance sheet at
September 30, 2004, or liabilities described in any notes thereto (or
liabilities for which neither accrual nor footnote disclosure is required
pursuant to GAAP), (y) as reflected in the unaudited draft of the consolidated
balance sheet at December 31, 2004 of PRA and the PRA Subsidiaries included in
Section 4.6(e) of the Disclosure Schedule (the "2004 PRA BALANCE SHEET"), or (z)
for liabilities incurred in the ordinary course of business since December 31,
2004 consistent with past practice or in connection with this Agreement or the
transactions contemplated hereby, neither PRA nor any PRA Subsidiary has any
material liabilities or obligations of any nature.
(f) Section 4.6(f) of the PRA Disclosure Schedule lists, and PRA has
delivered to NCRIC copies of the documentation creating or governing, all
securitization transactions and "off-balance sheet arrangements" (as defined in
Item 303(c) of Regulation S-K of the SEC) effected by PRA or its subsidiaries
since December 31, 2002.
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(g) Ernst & Young LLP, which has expressed its opinion with respect to the
financial statements of PRA and its subsidiaries included in PRA SEC Reports
(including the related notes), is and has been throughout the periods covered by
such financial statements (with respect to (i) and (ii) for periods required by
SOX) (i) a registered public accounting firm (as defined in Section 2(a)(12) of
SOX), (ii) "independent" with respect to PRA within the meaning of Regulation
S-X, and (iii) in compliance with subsections (g) through (l) of Section 10A of
the Exchange Act and the Public Company Accounting Oversight Board. Section
4.6(f) of the PRA Disclosure Schedule lists all non-audit services performed by
Ernst & Young LLP for PRA and each PRA Subsidiary for each year commencing after
December 31, 2002.
(h) PRA and each PRA Subsidiary maintains accurate books and records
reflecting its assets and liabilities and maintains proper and adequate internal
accounting controls over financial reporting which provide assurance that (i)
transactions are executed with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of PRA and to maintain accountability for the consolidated assets of
PRA; (iii) access to assets is permitted only in accordance with management's
authorization; (iv) the reporting of assets is compared with existing assets at
regular intervals; and (v) accounts, notes and other receivables and inventory
are recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis.
4.7 BROKER'S FEES. Except as set forth in Section 4.7 of the PRA Disclosure
Schedule, none of PRA, the PRA Subsidiaries and their respective officers and
directors, has employed any broker or finder or incurred any liability for any
broker's fees or commissions, or investment banker fees or commissions, or
finder's fees in connection with the transactions contemplated by this
Agreement.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except for (i) those liabilities and obligations that are fully
reflected or reserved against on the 2004 PRA Balance Sheet, (ii) those
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 2004, and (iii) coverage and
other claims (other than bad faith claims) made with respect to insurance
policies issued by any PRA Insurance Subsidiary for which adequate claims
reserves have been established, neither PRA nor any of its Subsidiaries has
incurred any liability or obligation of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether due or to become due) that, either
individually or in the aggregate, would have a Material Adverse Effect on PRA,
and, there is no existing condition, situation or set of circumstances that
would be reasonably expected to result in such a liability or obligation. Except
as disclosed in the PRA SEC Reports filed prior to the date of this Agreement,
since September 30, 2004, PRA and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary and usual course
theretofore conducted.
(b) Since September 30, 2004, there has not been: (i) any change in the
financial condition, assets, liabilities, prospects (financial and otherwise) or
business of PRA or any PRA Subsidiary which, either individually or in the
aggregate, has had or would have a Material Adverse Effect on PRA; (ii) any
material change in any method of accounting or accounting principals or practice
by PRA or any PRA Subsidiary, except as required by GAAP or SAP and disclosed in
the notes to the consolidated financial statements of PRA and PRA Subsidiaries;
or (iii) any material change in the actuarial, investment, reserving,
underwriting or claims administration policies, practices, procedures, methods,
assumptions or principles of PRA or any PRA Insurance Subsidiary.
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4.9 COMPLIANCE WITH APPLICABLE LAW.
(a) PRA and the PRA Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to, and have complied in all material respects with, and are
not in default in any respect under any, and have maintained and conducted their
respective businesses in all material respects in compliance with, all
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines, except where the failure to hold such license, franchise, permit or
authorization, or such noncompliance or default, would not, either individually
or in the aggregate, have a Material Adverse Effect on PRA.
(b) There is no pending or, to the knowledge of PRA, threatened charge by
any Governmental Authority that PRA or any PRA Insurance Subsidiary has violated
any Insurance Laws, nor any pending or, to the knowledge of PRA threatened
investigation by any Governmental Authority with respect to possible violations
of any Insurance Laws, that would, individually or in the aggregate, be expected
to have a Material Adverse Effect on PRA.
(c) There are no contracts (other than contracts relating to employment),
real estate leases, loans, guarantees or other arrangements or transactions of
any nature between PRA or any PRA Subsidiary, on the one hand, and any of their
respective officers, directors, or affiliates (as such term is defined in Rule
405 of the SEC), on the other hand. PRA has not, since July 30, 2002, extended
or maintained credit, arranged for the extension of credit, or renewed an
extension of credit, in the form of a personal loan to or for any director or
executive officer (or equivalent thereof) of PRA or any PRA Subsidiary. Section
4.9(c) of the PRA Disclosure Schedule identifies any loan or extension of credit
maintained by PRA or any PRA Subsidiary to which the second sentence of Section
13(k)(1) of the Exchange Act applies.
(d) PRA is, or will timely be in all material respects, in compliance with
all current and proposed listing and corporate governance requirements of the
New York Stock Exchange.
(e) Each of PRA, its directors and its senior financial officers has
consulted with PRA's independent auditors and outside counsel with respect to,
and (to the extent applicable to PRA) is familiar in all material respects with
all of the requirements of, SOX PRA is in compliance with the provisions of SOX
applicable to it as of the date hereof and has implemented such programs and has
taken reasonable steps, upon the advice of PRA's independent auditors and
outside counsel, respectively, to ensure PRA's future compliance (not later than
the relevant statutory and regulatory deadlines therefore) with all provisions
of SOX which shall become applicable to PRA after the date of this Agreement.
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(f) None of PRA, the PRA Subsidiaries, any of their respective current
directors or officers, and, to the knowledge of PRA, any of their respective
former officers or directors or current or former employees, agents or
representatives have: (i) used any corporate funds for any illegal
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) used any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or employees,
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977, (iv)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets, (v) made any false or fictitious entries on the books and records
of PRA or any PRA Subsidiary, (vi) made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature, or (vi) made any
material favor or gift which is not deductible for federal income tax purposes.
To the knowledge of PRA: (x) no director or officer of PRA or any PRA Subsidiary
has engaged in any "▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇" in violation of applicable law with respect
to any security issued by PRA or any PRA Subsidiary; and (y) no such director or
officer has made any false certifications or statements under (i) the SEC's
Order dated June 27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File
No. 4-460), (ii) Rule 13a-14 or 15d-14 under the Exchange Act or (iii) 18 U.S.C.
ss.1350 (Section 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002) with respect to any PRA
SEC Report.
(g) Neither PRA nor any PRA Subsidiary is subject to any cease and desist
or other order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
has been a recipient of any supervisory letter from, or since that date, has
adopted any board resolutions at the request of any Governmental Authority that:
(i) limits the ability of PRA or any PRA Insurance Subsidiary to conduct any
line of business, (ii) require any investments of PRA or any PRA Insurance
Subsidiary to be treated as non-admitted assets, (iii) require divestiture of
any investments of PRA or any PRA Insurance Subsidiary, (iv) in any manner
imposes any requirements on PRA or any PRA Insurance Subsidiary in respect of
risk based capital requirements that add to or otherwise modify the risk based
capital requirements imposed under the Insurance Laws, (v) in any manner relate
to the ability of PRA or any PRA Insurance Subsidiary to pay or declare
dividends or distributions, or (vi) restricts in any material respect the
conduct of the business, credit policies or management of PRA or any PRA
Subsidiary (each, whether or not set forth in the PRA Disclosure Schedule, an
"PRA REGULATORY Agreement"), nor has PRA or any of its Subsidiaries been advised
by any Governmental Authority that it is considering issuing or requesting any
such PRA Regulatory Agreement. Neither PRA nor any PRA Insurance Subsidiary,
directly or indirectly, engages in any activity prohibited by applicable law.
4.10 STATE TAkEOVER LAWS. The Board of Directors of PRA has approved the
transactions contemplated by this Agreement and taken such action such that the
provisions of Section 203 of the DGCL and any other provisions of any state or
local "takeover" law applicable to PRA will not apply to this Agreement or any
of the transactions contemplated by this Agreement.
4.11 NO INVESTMENT COMPANY. Neither PRA nor any Subsidiary of PRA is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
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4.12 INSURANCE MATTERS.
(a) The PRA Reserves (as defined below in Section 4.13(b)) at each of
December 31, 2004 and December 31, 2003, and December 31, 2002, as reflected in
the PRA SAP Statements, are stated net of reinsurance ceded amounts. The PRA SAP
Statements accurately reflect the extent to which, pursuant to Insurance Laws,
PRA and/or the PRA Insurance Subsidiaries are entitled to take credit for
reinsurance under reinsurance treaties of the PRA Insurance Subsidiaries ("PRA
REINSURANCE TREATIES"). All reinsurance recoverable amounts reflected in said
balance sheets are collectible, and PRA is unaware of any material adverse
change in the financial condition of its reinsurers that might raise concern
regarding their ability to honor their reinsurance commitments. No party to any
of the PRA Reinsurance Treaties has given notice to PRA or any PRA Insurance
Subsidiary that such party intends to terminate or cancel any of the PRA
Reinsurance Treaties as a result of or following consummation of the Merger.
Each PRA Reinsurance Treaty is valid and binding on each party thereto, and none
of PRA, any PRA Insurance Subsidiary, and, to the knowledge of PRA, any other
party thereto, is in default in any material respect with respect to any such
reinsurance agreement or treaty. No PRA Reinsurance Treaty contains any
provision providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement, or contains any other
provision which would be altered or otherwise become applicable by reason of
such transactions. Since January 1, 2004 no PRA Reinsurance Treaty has been
canceled and there has not been any change in the retention level under any of
such reinsurance agreements or treaties.
(b) Each PRA Insurance Subsidiary has assets that qualify as admitted
assets under the Insurance Laws in an amount at least equal to the sum of all
its reserves and liability amounts and its minimum statutory capital and surplus
as required by such Insurance Laws. Each of the PRA SAP Statements, as of the
date thereof, sets forth all of the reserves of the PRA Insurance Subsidiaries
as of such date (collectively, the "PRA RESERVES"). The PRA Reserves, gross and
net of the reinsurance thereof, were prepared in accordance with the
requirements for reserves established by the Insurance Regulators, were
determined in accordance with SAP and generally accepted actuarial principles
consistently applied, were computed on the basis of methodologies consistent in
all material respects with those used in prior periods, were fairly stated in
all material respects in accordance with sound actuarial and statutory
accounting principles, and were established in accordance with prudent insurance
practices generally followed in the insurance industry. The PRA Reserves make
good and sufficient provisions for all insurance obligations of the PRA
Insurance Subsidiaries. The PRA Reserves set forth in any PRA SAP Statement are
adequate to provide for the estimated ultimate net costs of all reported and
unreported losses incurred through the date of such PRA SAP Statement. PRA has
provided or made available to NCRIC copies of all work papers used as the basis
for establishing the PRA Reserves. Except for regular periodic assessments based
on developments that are publicly known within the insurance industry, to the
knowledge of PRA, no claim or assessment is pending or threatened against PRA or
any PRA Insurance Subsidiary which is peculiar or unique to PRA or such PRA
Insurance Subsidiary by any state insurance guaranty association in connection
with such association's fund relating to insolvent insurers.
4.13 TAXES AND TAX RETURNS. PRA and the PRA Subsidiaries have duly filed
all Tax Returns required to be filed by them on or prior to the date of this
Agreement (all such Tax Returns being accurate and complete in all material
respects) and has duly paid or made sufficient provisions for the payment of all
Taxes shown thereon as owing on or prior to the date of this Agreement
(including, if and to the extent applicable, those due in respect of their
properties, income, business, capital stock, premiums, franchises, licenses,
sales and payrolls) other than Taxes which are not yet delinquent or are being
contested in good faith and have not been finally determined for which adequate
reserves have been made on the financial statements described in Section 4.5 of
this Agreement. The unpaid Taxes of PRA and the PRA Subsidiaries do not exceed
the reserve for tax liability set forth on the 2004 PRA Balance Sheet as
adjusted for the passage of time through the Closing Date in accordance with
past custom and practice of PRA in filing its returns. There is no claim, audit,
action, suit, proceeding or investigation now pending or, to the knowledge of
PRA, threatened against or with respect to PRA or any PRA Subsidiary in respect
of any material Tax.
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4.14 ENVIRONMENTAL LIABILITY. PRA and its Subsidiaries are and have been in
compliance with all Environmental Laws (as defined in Section 9.18(a) of this
Agreement) and all Environmental Permits (as defined in Section 9.18(a) of this
Agreement). There are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose on PRA or any PRA Subsidiary, or that could reasonably be expected to
result in the imposition on PRA or any PRA Subsidiary of, any liability or
obligation arising under any Environmental Law which would have a Material
Adverse Effect on PRA. To the knowledge of PRA, there is no reasonable basis for
any such proceeding, claim, action, investigation or remediation activity.
Neither PRA nor any PRA Subsidiary is subject to any agreement, order, judgment,
decree, letter or memorandum by or with any Governmental Authority or private
Person imposing any liability or obligation under any Environmental Law that
would have a Material Adverse Effect on PRA. For purposes of this Section 4.15,
the terms "PRA" and "Subsidiaries" include any Person that is, in whole or in
part, a predecessor of PRA or any of its Subsidiaries.
4.15 EMPLOYEE MATTERS. Each employee benefit plan, program, policy or
arrangement (including, but not limited to each employee benefit plan (as
defined in Section 3(3) of ERISA) which PRA or any PRA Subsidiary maintains or
contributes to for the benefit of its current or former employees complies, and
has been administered in form and in operation, in all material respects with
all applicable requirements of law and no notice has been issued by any
Governmental Authority questioning or challenging such compliance.
4.16 LEGAL PROCEEDINGS. Except as set forth in Section 4.16 of the PRA
Disclosure Schedule, neither PRA nor any PRA Subsidiary is a party to any, and
there are no pending or, to PRA's knowledge, threatened legal, administrative,
arbitration or other proceedings, claims (whether asserted or unasserted),
actions or governmental investigations or inquiries of any nature (i) against
PRA or any PRA Subsidiary, (ii) to which PRA or any PRA Subsidiary's assets are
or may be subject, (iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which could adversely
affect the ability of PRA or NEWCO to perform under this Agreement, except for
(x) coverage and other claims made with respect to insurance policies issued by
any PRA Insurance Subsidiary for which adequate claims reserves have been
established, and (y) any proceeding, claim, action, investigation or inquiry
which, if adversely determined, individually or in the aggregate, would not be
reasonably expected to have a Material Adverse Effect on PRA.
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4.17 ACCURACY OF INFORMATION SUPPLIED.
(a) All of the representations and warranties made by PRA in this
Agreement, taken together and with the PRA Disclosure Schedule, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements set forth herein and therein, in light
of the circumstances in which such statements were made, not misleading. The
copies of documents attached to the PRA Disclosure Schedule or otherwise made
available to PRA in connection with the transactions contemplated hereby are
accurate and complete in all respects.
(b) The S-4 and the Proxy Statement used for the registration and
qualification of shares of PRA Common Stock to be issued upon consummation of
the Merger and used to solicit approval of the Merger by the stockholders of
NCRIC, and all other documents to be filed with the SEC or any applicable state
securities law regulatory authorities relating to this Agreement or the
transactions contemplated by this Agreement (including the Merger), at the
respective times such documents are filed or become effective, shall, as to all
information provided by PRA: (i) comply with the Securities Act, the Exchange
Act and all other applicable laws and regulations; and (ii) not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact and not omit to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter which have become false or misleading.
4.18 EFFECTIVE TIME OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Each representation, warranty, covenant and agreement of PRA set
forth in this Agreement, as updated by any written disclosure schedule delivered
pursuant to Section 6.9(b) of this Agreement, shall be deemed to be made on and
as of the date of this Agreement, and as of the Closing Date.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESSES OF NCRIC PRIOR TO THE EFFECTIVE TIME.
(a) During the period between the date of this Agreement and the Effective
Time, except as expressly contemplated or permitted by this Agreement, NCRIC
shall, and shall cause each NCRIC Subsidiary to: (a) conduct its business in the
usual, regular and ordinary course consistent with past practice and its current
business plan, (b) use reasonable best efforts to maintain and preserve intact
its business organization, employees, agents and advantageous business
relationships and retain the services of its key employees and agents, and (c)
take no action which would adversely affect or delay the ability of any party to
this Agreement to obtain any Requisite Regulatory Approval for the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement.
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(b) During the period between the date of this Agreement and the Effective
Time, NCRIC shall permit PRA's senior officers to meet with the Chief Financial
Officer and Controller of NCRIC and officers of NCRIC responsible for the
financial statements, the internal controls, and disclosure controls and
procedures of NCRIC to discuss such matters as PRA may deem reasonably necessary
or appropriate for PRA to satisfy its obligations under Sections 302, 404 and
906 of SOX and any rules and regulations relating thereto.
(c) NCRIC agrees to consult with PRA with respect to reserve policies and
practices (including levels of reserves) with respect to (i) losses and loss
adjustment expenses of the NCRIC Subsidiaries, and (ii) litigation against NCRIC
and the NCRIC Subsidiaries (including, but not limited to, the 2004 Judgment).
PRA and NCRIC shall also consult with respect to the character, amount and
timing of restructuring charges to be taken by each of them in connection with
the transactions contemplated hereby.
5.2 NCRIC FORBEARANCES. During the period from the date of this Agreement
to the Effective Time, except as set forth in the NCRIC Disclosure Schedule,
and, except as expressly contemplated or permitted by this Agreement, NCRIC
shall not, and NCRIC shall not permit any NCRIC Subsidiary to, without the prior
written consent of PRA (which consent will not be unreasonably withheld):
(a) incur any indebtedness for borrowed money (other than short-term
indebtedness incurred on commercially reasonable terms to refinance indebtedness
of NCRIC or any of its Subsidiaries, on the one hand, to NCRIC or any of its
Subsidiaries, on the other hand), or assume, guarantee, endorse or otherwise as
an accommodation become responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance (it being understood
and agreed that incurrence of indebtedness in the ordinary course of business
shall include entering into repurchase agreements and reverse repurchase
agreements);
(b) redeem, repay, discharge or defease any surplus note, unless such
redemption, repayment, discharge or defeasance is an express condition of any
Requisite Regulatory Approval;
(c) (i) adjust, split, combine or reclassify any capital stock; (ii) make,
declare or pay any dividend or make any other distribution on, any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock (except dividends paid by any NCRIC
Subsidiary to NCRIC or any other NCRIC Subsidiary, respectively), (iii) directly
or indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock (except repurchases of shares of NCRIC Common Stock
by NCRIC and its Subsidiaries on the open market in accordance with the rules
and regulations of the SEC); (iv) grant any stock options or stock awards or
stock appreciation rights or right, or (v) issue any additional shares of
capital stock except pursuant to (A) the exercise of NCRIC Stock Options or
warrants outstanding as of the date of this Agreement, or (B) as permitted under
clause (ii) or clause (iv) of this subsection;
(d) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets to any Person other than a Subsidiary, or cancel, release
or assign any indebtedness of any such Person or any claims held by any such
Person, except (i) in the ordinary course of business consistent with past
practice, or (ii) pursuant to contracts or agreements in force at the date of
this Agreement, or (iii) in connection with the sale of the Practice Management
Business for cash or the sale or other disposition of the Practice Management
Business with the prior written approval of PRA;
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(e) except pursuant to contracts or agreements in force at the date of this
Agreement, make any material non-portfolio investment (by purchase of stock or
securities, contributions to capital, property transfers, or purchase of any
property or assets) in any Person other than a Subsidiary;
(f) enter into, change or terminate any material contract, lease or
agreement, other than renewals of contracts, leases and agreements without
material adverse changes of terms;
(g) increase in any manner the compensation of the employees of NCRIC and
the NCRIC Subsidiaries, or pay any bonus or incentive compensation to such
employees; provided that NCRIC and the NCRIC Subsidiaries may make annual
increases in the salaries and wages of their employees in the ordinary course of
business and consistent with past practice so long as the aggregate amount of
the increase in compensation on an annualized basis does not exceed four percent
(4%) of the aggregate amount of the compensation paid to the affected employees
in the 12 months preceding the effective date of the increase in compensation;
(h) except as contemplated in Section 6.7 hereof, pay any pension or
retirement allowance not required by any existing plan or agreement to any of
its employees or become a party to, amend (except as may be required by law) or
commit itself to any pension, retirement, profit-sharing or welfare benefit plan
or agreement or employment agreement with or for the benefit of any employee or
accelerate the vesting of any stock options or other stock-based compensation;
(i) settle any claim, action or proceeding involving money damages, except
in the ordinary course of business consistent with past practice; provided,
however, that prior to the settlement of any lawsuit, claim, action or
proceeding against NCRIC or any NCRIC Subsidiary or otherwise in which NCRIC or
any NCRIC Subsidiary is a named defendant involving a payment by NCRIC or any
NCRIC Subsidiary in excess of $1,000,000 or the settlement of any ECO, XPL or
bad faith claim involving any insurance policy of any NCRIC Subsidiary involving
a payment by NCRIC or any NCRIC Subsidiary in excess of $1,000,000, NCRIC will
notify PRA of the terms of the proposed settlement and will consult with PRA
regarding the terms of the settlement, but shall not be required to obtain PRA's
consent to the terms of the settlement; and provided further, NCRIC shall not
settle the 2004 Judgment without the prior approval of PRA;
(j) take any action that would prevent or impede the Merger from qualifying
as a reorganization within the meaning of Section 368 of the Code;
(k) amend its Certificate or Articles of Incorporation, or its Bylaws;
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(l) other than in accordance with its current investment guidelines,
restructure or materially change its investment securities portfolio through
purchases, sales or otherwise, or the manner in which such portfolio is
classified or reported;
(m) offer or sell insurance or reinsurance of any type in any jurisdiction
other than such lines of insurance and reinsurance that it offers and sells on
the date of this Agreement and other than in those jurisdictions where it offers
and sells such line of insurance and reinsurance on the date of this Agreement;
(n) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger set forth in Article 7
of this Agreement not being satisfied, or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law; or
(o) agree to, or make any commitment to, take any of the actions prohibited
by this Section 5.2.
5.3 PRA FORBEARANCES. During the period from the date of this Agreement to
the Effective Time, except as set forth in the PRA Disclosure Schedule, and,
except as expressly contemplated or permitted by this Agreement, PRA shall not,
and PRA shall not permit any PRA Subsidiary to, without the prior written
consent of NCRIC:
(a) take any action that would prevent or impede the Merger from qualifying
as a reorganization within the meaning of Section 368 of the Code;
(b) amend its Certificate or Articles of Incorporation, or its Bylaws,
except as provided in this Agreement;
(c) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger set forth in Article 7
of this Agreement not being satisfied, or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;
(d) take any action that is intended or likely to adversely affect its
ability to perform its covenants and agreements under this Agreement; or
(e) agree to, or make any commitment to, take any of the actions prohibited
by this Section 5.3.
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ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS.
(a) In connection with the solicitation of approval of the Merger by the
stockholders of NCRIC and the registration of the shares of PRA Common Stock to
be issued upon consummation of the Merger, the parties will prepare, and PRA
will file with the SEC, the S-4 and the Proxy Statement (both of which shall
comply as to form, in all material respects, with the provisions of the
Securities Act, the Exchange Act and other applicable law). PRA and NCRIC will
use all reasonable effects to respond to the comments of the SEC staff with
respect to the S-4 and the Proxy Statement and to have the S-4 and the Proxy
Statement declared effective by the SEC as soon as practicable. As soon as
practicable after the S-4 is declared effective, NCRIC shall mail or deliver the
Proxy Statement to its stockholders. The information provided and to be provided
by PRA and NCRIC for use in the S-4 and the Proxy Statement will not, in the
case of the S-4 on the date it becomes effective, and in the case of Proxy
Statement on such date and on the date on which approval of the Merger by the
stockholders of NCRIC is obtained, contain any untrue statement of material fact
or omit to state any material fact required to be stated in this Agreement or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. Each of PRA and NCRIC agree promptly to correct
any such information provided by it which shall have become false or misleading
in any material respect and to take all steps necessary to file with the SEC and
have declared effective or cleared by the SEC any amendment or supplement to the
S-4 or the Proxy Statement so as to correct the same and to cause the Proxy
Statement so corrected to be distributed to the stockholders of NCRIC to the
extent required by applicable law. To the extent that any opinion regarding the
tax consequences of the Merger is required with respect to the S-4 or the Proxy
Statement, PRA and NCRIC will both cause each of their respective tax counsel to
issue substantially similar opinions in the form contemplated herein. PRA shall
not be required to maintain the effectiveness of the Registration Statement for
the purpose of resale by the affiliates of PRA and NCRIC, as such term is used
in Rule 145 of the SEC.
(b) The parties shall use all reasonable commercial efforts to cause their
respective independent auditors to render any consent required by the SEC to
include its report on the NCRIC consolidated financial statements or the PRA
consolidated financial statements, as the case may be, in the S-4 and to refer
to said accountants as experts in the S-4 with respect to the matters included
in said report.
(c) To the extent applicable, NCRIC and PRA shall prepare and file with all
necessary Governmental Authorities (i) a Notice on Form A and related documents
and (ii) the preacquisition notification and report forms and related material
on Form E in connection with the Merger.
(d) PRA will prepare and file, and NCRIC will cooperate with and assist PRA
in preparing and filing, all statements, applications, correspondence or forms
required to be filed with appropriate state securities law regulatory
authorities to register or qualify the shares of PRA Common Stock to be issued
upon consummation of the Merger or to establish an exemption from such
registration or qualification (the "BLUE SKY FILINGS").
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(e) Pursuant to the HSR Act, PRA and NCRIC will promptly prepare and file,
or cause to be filed, the HSR Act Report with the Pre-Merger Notification
Agencies in respect of the transactions contemplated by this Agreement, which
filing shall comply as to form with all requirements applicable thereto and all
of the data and information reported therein shall be accurate and complete in
all material respects. Each of PRA and NCRIC will promptly comply with all
requests, if any, of the Pre-Merger Notification Agencies for additional
information or documentation in connection with the HSR Act Report forms filed
by or on behalf of each of such parties pursuant to the HSR Act, and all such
additional information or documentation shall comply as to form with all
requirements applicable thereto and shall be accurate and complete in all
material respects.
(f) Each party shall provide to the other, (i) promptly after filing
thereof, copies of all statements, applications, correspondence or forms filed
by such party prior to the Closing Date with state securities law regulatory
authorities, the SEC, the Pre-Merger Notification Agencies, the Insurance
Regulators and any other Governmental Authority in connection with the
transactions contemplated by this Agreement and (ii) promptly after delivery to,
or receipt from, such regulatory authorities, all written communications,
letters, reports or other documents relating to the transactions contemplated by
this Agreement.
(g) The parties hereto shall cooperate with each other and use their best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including the
Merger), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Authorities. PRA
and NCRIC 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
PRA or NCRIC, as the case may be, and any of their respective Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any Governmental Authority in connection with the transactions
contemplated by this Agreement. The cooperation and coordination of each party
required under this Section 6.1 shall include giving timely public notice of any
public hearings regarding the transactions contemplated by this Agreement,
having its representatives attend and testify at such public hearings. In
addition, each of the parties hereto shall act reasonably and as promptly as
practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated by this Agreement.
(h) PRA and NCRIC shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders/stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of PRA, NCRIC or
any of their respective Subsidiaries to any Governmental Authority in connection
with the Merger and the other transactions contemplated by this Agreement.
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(i) PRA and NCRIC shall promptly advise each other upon receiving any
communication from any Governmental Authority whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
any Requisite Regulatory Approval will not be obtained or that the receipt of
any such approval will be materially delayed.
6.2 TAX OPINION. PRA agrees to engage ▇▇▇▇ & ▇▇▇▇▇▇ LLP, or such other
nationally recognized firm, to render an opinion, acceptable to PRA in form and
substance, as to the material tax consequences to PRA, NCRIC and the
stockholders of PRA and the stockholders of NCRIC in connection with the Merger
and the receipt of the Merger Consideration. The opinion shall be addressed to
the Board of Directors of PRA, shall be rendered on or before the filing of the
S-4, and the person rendering the opinion shall consent to the reference to the
opinion in the Proxy Statement and to the inclusion of the opinion as an exhibit
to the S-4 in accordance with the requirements of the Securities Act. NCRIC
agrees to engage ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC, or another nationally
recognized firm, to render an opinion, reasonably acceptable to NCRIC in form
and substance, as to the material tax consequences to PRA, NCRIC and the
stockholders of PRA and the stockholders of NCRIC in connection with the Merger
and the receipt of the Merger Consideration. The opinion shall be addressed to
the Board of Directors of NCRIC, shall be rendered on or before the filing of
the S-4, and the Person rendering the opinion shall consent to the reference to
the opinion in the Proxy Statement and to the inclusion of the opinion as an
exhibit to the S-4 in accordance with the requirements of the Securities Act.
6.3 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information and to the Confidentiality Agreement dated January 23,
2005 (the "CONFIDENTIALITY AGREEMENT"), each of PRA and NCRIC shall, and shall
cause each of their respective Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the other party,
access, during normal business hours during the period prior to the Closing
Date, to all its properties, books, contracts, commitments and records and,
during such period, each of PRA and NCRIC shall, and shall cause their
respective Subsidiaries to, make available to the other party (i) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws or
state insurance laws (other than reports or documents which PRA or NCRIC, as the
case may be, is not permitted to disclose under applicable law or by agreement);
(ii) all other information concerning its business, properties and personnel as
such party may reasonably request; and (iii) any other information, confidential
or otherwise, relating to the Merger which has not been provided to the other
party and is necessary for disclosure in the S-4, including, but not limited to,
the confidential portions of the minutes of NCRIC and NCRIC subsidiaries that
was not provided pursuant to Section 3.3(a) of this Agreement. Neither PRA nor
NCRIC nor any of their respective Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of PRA's or NCRIC's, as the case may be,
customers, jeopardize the attorney-client and work product privileges of the
entity in possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
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(b) Each of PRA and NCRIC agrees to keep confidential, and not divulge to
any other party or person (other than employees of, and attorneys, accountants,
financial advisors and other representatives for, any said party who agree to be
bound by the Confidentiality Agreement), all non-public documents, information,
records and financial statements received from the other and, in addition, any
and all reports, information and financial information obtained through audits
or other reviews conducted pursuant to this Agreement (unless readily
ascertainable from public or published information, or trade sources, or already
known or subsequently developed by a party independently of any investigation or
received from a third party not under an obligation to the other party to keep
such information confidential), and to use the same only in connection with the
transactions contemplated by this Agreement; and if the transactions
contemplated by this Agreement are not consummated for any reason, each party
agrees to promptly return to the other party all written materials furnished by
the other party, and all copies thereof, in connection with such investigation,
and to destroy all documents and records in its possession containing extracts
or summaries of any such non-public information.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
conditions of the other set forth in this Agreement.
6.4 NCRIC STOCKHOLDER APPROVAL. NCRIC shall call a meeting of its
stockholders to be held as soon as reasonably practicable for the purpose of
obtaining the requisite NCRIC stockholder approval required in connection with
this Agreement and the Merger. NCRIC will, through its Board of Directors,
subject to its fiduciary obligations as determined by its Board of Directors,
recommend to its stockholders approval of this Agreement and the Merger.
6.5 LEGAL CONDITIONS TO MERGER. Each of PRA and NCRIC shall, and shall
cause its Subsidiaries to, use their best efforts (i) to take, or cause to be
taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger and, subject to the conditions set forth in Article 7 of
this Agreement, to consummate the transactions contemplated by this Agreement,
and (ii) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Authority and any other third party which is required to be
obtained by PRA or NCRIC or any of their respective Subsidiaries in connection
with the Merger and the other transactions contemplated by this Agreement.
6.6 NYSE LISTING. PRA shall cause the shares of the PRA Common Stock to be
issued in the Merger to be approved for trading and reporting on New York Stock
Exchange subject to official notice of issuance, prior to the Closing Date.
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6.7 EMPLOYEE PLANS.
(a) From and after the Effective Time, the NCRIC Employee Plans in effect
as of the date of this Agreement and at the Effective Time shall remain in
effect with respect to the current and former employees of NCRIC and its
Subsidiaries (the "NCRIC EMPLOYEES") covered by such NCRIC Employee Plans at the
Effective Time, until such time as PRA shall otherwise determine. PRA agrees
that it will honor all NCRIC Employee Plans in accordance with their terms as in
effect at the Effective Time, subject to any amendment or termination thereof
that may be required or permitted by the plans or applicable law. PRA will
review all NCRIC Employee Plans to determine whether to maintain, terminate or
continue such plans. In the event employee compensation and/or benefits as
currently provided by NCRIC or any NCRIC Subsidiary are changed or terminated by
PRA, in whole or in part, PRA shall provide any NCRIC Employees who continue in
employment with PRA ("CONTINUING EMPLOYEES") with compensation and benefits that
are, in the aggregate, substantially similar to the compensation and benefits
provided to similarly situated employees of PRA or applicable PRA Subsidiary (as
of the date any such compensation or benefit is provided). Notwithstanding
anything herein to the contrary, PRA shall pay Continuing Employees incentive
compensation for their performance in the full year ended December 31, 2005, in
accordance with the incentive compensation policies and practices for employees
of PRA and the PRA Subsidiaries consistently applied with past practice.
(b) Employees of NCRIC or any NCRIC Subsidiary who become participants in a
PRA Employee Plan shall, for purposes of determining eligibility for and for any
applicable vesting periods of such employee benefits only (and not for benefit
accrual purposes unless specifically set forth herein) be given credit for
meeting eligibility and vesting requirements in such plans for service as an
employee of NCRIC or any predecessor thereto prior to the Effective Time,
provided, however, that credit for benefit accrual purposes will be given only
for purposes of PRA vacation policies or programs. In the event of any
termination or consolidation of any NCRIC health plan with any PRA health plan,
PRA shall make available to Continuing Employees and their dependents
employer-provided health coverage on substantially the same basis as it provides
such coverage to PRA employees. Unless a Continuing Employee affirmatively
terminates coverage under a NCRIC health plan prior to the time that such
Continuing Employee becomes eligible to participate in the PRA health plan, or
unless a Continuing Employee and/or a dependent of a Continuing Employee has an
event which, under the terms of the NCRIC health plan, results in a loss of
coverage (which may include a sale or other disposition of a NCRIC Subsidiary or
substantially all of the business operations thereof), no coverage of any of the
Continuing Employees or their dependents shall terminate under any of the NCRIC
health plans prior to the time such Continuing Employees and their dependents
become eligible to participate in the health plans, programs and benefits common
to all employees of PRA and their dependents. In the event of a termination or
consolidation of any NCRIC health plan, terminated NCRIC employees and qualified
beneficiaries will have the right to continued coverage under group health plans
of PRA in accordance with Code Section 4980B(f), consistent with the provisions
below. In the event of any termination of any NCRIC health plan, or
consolidation of any NCRIC health plan with any PRA health plan, any coverage
limitation under the PRA health plan due to any pre-existing condition shall be
waived by the PRA health plan to the degree that such condition was covered by
the NCRIC health plan and such condition would otherwise have been covered by
the PRA health plan in the absence of such coverage limitation. All NCRIC
Employees who cease participating in a NCRIC health plan and become participants
in a comparable PRA health plan during any plan year shall receive credit toward
the applicable deductible under the PRA health plan for any amounts paid by the
employee under NCRIC's health plan during the applicable plan year, upon
substantiation, in a form satisfactory to PRA that such payments have been made.
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(c) It is understood that PRA and its Subsidiaries are "at-will" employers.
Nothing in this Section 6.7 shall be interpreted as preventing PRA from
terminating the employment of any individual or from amending, modifying or
terminating any PRA Employee Plans, or any NCRIC Employee Plans, or any benefits
under any PRA Employee Plans or any NCRIC Employee Plans, or any other
contracts, arrangements, commitments or understandings, in accordance with their
terms and applicable law.
(d) The NCRIC ESOP shall be terminated as of, or prior to, the Effective
Time (all shares held by the ESOP shall be converted into the right to receive
the Merger Consideration), all outstanding NCRIC ESOP indebtedness shall be
repaid, either by return to PRA or cancellation of sufficient shares received as
Merger Consideration to repay the outstanding indebtedness or by open market
sales of such shares by the NCRIC ESOP and payment of the proceeds to PRA in
cancellation of the indebtedness, and the balance of the shares and any other
assets remaining in the NCRIC ESOP suspense account (as such term is defined in
the NCRIC ESOP) shall be allocated and distributed to NCRIC ESOP participants
(subject to the receipt of a favorable determination letter from the IRS), as
provided for in the NCRIC ESOP and unless otherwise required by applicable law.
Prior to the Effective Time, NCRIC, and following the Effective Time, PRA shall
use their respective best efforts in good faith to obtain such favorable
determination letter (including, but not limited to, making such changes to the
ESOP and the proposed allocations as may be requested by the IRS as a condition
to its issuance of a favorable determination letter). NCRIC and following the
Effective Time, PRA, will adopt such amendments to the NCRIC ESOP as may be
reasonably required by the IRS as a condition to granting such favorable
determination letter on termination. Neither NCRIC, nor following the Effective
Time, PRA shall make any distribution from the NCRIC ESOP except as may be
required by applicable law until receipt of such favorable determination letter.
In the case of a conflict between the terms of this Section and the terms of the
NCRIC ESOP, the terms of the NCRIC ESOP shall control, however, in the event of
any such conflict, NCRIC before the Merger, and PRA, after the Merger, shall use
their best efforts to cause the ESOP to be amended to conform to the
requirements of this Section.
(e) At the Effective Time, NCRIC shall terminate the NCRIC Group, Inc.
Deferred Compensation Plan (the "NCRIC DCP"). All amounts credited to the
accounts of participants in the NCRIC DCP shall be distributed in lump sum in
accordance with the terms of the plan.
(f) PRA shall assume and honor in accordance with their terms the
employment agreements between NCRIC and any officer or employee thereof that are
listed in Section 6.7(f) of the NCRIC Disclosure Schedule, including without
limitation, the obligation to pay cash severance on termination of employment
after a change of control; provided that PRA shall require in accordance with
the terms of said employment agreements that each officer or employee receiving
a payment shall enter into an acknowledgment and release acknowledging that no
further cash severance payments are due under the employment agreement and
releasing NCRIC and PRA and their respective officers, directors and employees
from any and all claims arising thereunder. Notwithstanding the foregoing, PRA
shall offer the terms of employment set forth in Section 6.7(f) of the PRA
Disclosure Schedule to the NCRIC employees named in Section 6.7(f) of the PRA
Disclosure Schedule.
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(g) Notwithstanding anything herein to the contrary, all payments made to
NCRIC Employees under their Section 6.7 shall be subject to withholding required
by applicable federal, state and local taxing authorities.
6.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) PRA shall use its best efforts to cause the individuals serving as
officers and directors of NCRIC and the NCRIC Subsidiaries, immediately prior to
the Effective Time to be covered for a period of three (3) years from the
Effective Time (or the period of the applicable statute of limitations, if
longer) by the directors' and officers' liability insurance policy maintained by
NCRIC or the NCRIC Subsidiary (provided that PRA may substitute therefore
policies of the same or substantially similar coverage and amounts containing
terms and conditions which are not less advantageous in any material respect
than such policy) with respect to acts or omissions occurring prior to the
Effective Time which were committed by such officers and directors in their
capacity as such; provided, however, that in no event shall PRA be required to
expend more than 300% of the current amount expended by NCRIC or the NCRIC
Subsidiary (the "INSURANCE PREMIUM AMOUNT") to maintain or procure insurance
coverage pursuant hereto; and provided further, that if PRA is unable to
maintain or obtain the insurance called for by this Section 6.8, PRA shall use
its best efforts to obtain as much comparable insurance as available for the
Insurance Premium Amount.
(b) In addition to 6.8(a), PRA shall indemnify, defend and hold harmless
each person who is now, or who has been at any time before the date hereof or
who becomes before the Effective Time, an officer, director or employee of NCRIC
or a NCRIC Subsidiary (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorney's fees), liabilities or judgments
or amounts that are paid in settlement of or in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, or
administrative (each a "Claim"), in which an Indemnified Party is, or is
threatened to be made, a party or witness in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of NCRIC or a NCRIC Subsidiary if such Claim pertains to any matter
of fact arising, existing or occurring at or before the Effective Time
(including, without limitation, the Merger and the other transactions
contemplated hereby), regardless of whether such Claim is asserted or claimed
before, or after, the Effective Time (the "Indemnified Liabilities"), to the
fullest extent NCRIC is permitted under, and in accordance with the terms of
indemnification provisions under, NCRIC's Certificate of Incorporation and
Bylaws as of the date of this Agreement. PRA shall pay expenses in advance of
the final disposition of any such action or proceeding to each Indemnified Party
to the full extent provided in NCRIC's Certificate of Incorporation as of the
date of this Agreement. The Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with PRA; provided, however, that (A)
PRA shall have the right to assume the defense thereof and upon such assumption
PRA shall not be liable to any Indemnified Party for any legal expenses of other
counsel or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if PRA elects not to assume
such defense the Indemnified Party may retain counsel reasonably satisfactory to
him after consultation with PRA, and PRA shall pay the reasonable fees and
expenses of such counsel for the Indemnified Party, (B) PRA shall be obligated
pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties except to the extent representation by a single firm or
attorney is, in the absence of an informed consent by the Indemnified Party,
prohibited by ethical rules relating to lawyers' conflicts of interest, (C) PRA
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld), (D) PRA shall have
no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated by this Agreement is prohibited by applicable
law and (E) PRA shall have no obligation hereunder to any Indemnified Party for
which and to the extent payment is actually and unqualifiedly made to such
Indemnified Party under any insurance policy, any other agreement for
indemnification or otherwise. Any Indemnified Party wishing to claim
Indemnification under this Section 6.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify PRA thereof, provided that the
failure to so notify shall not affect the obligations of PRA under this Section
6.8 except to the extent such failure to notify materially prejudices PRA. PRA's
obligations under this Section 6.8 continue in full force and effect for a
period of three (3) years from the Effective Time (or the period of the
applicable statute of limitations, if longer); provided, however, that all
rights to indemnification in respect of any claim (a "CLAIM") asserted or made
within such period shall continue until the final disposition of such Claim.
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6.9 ADVICE OF CHANGES.
(a) PRA and NCRIC shall give prompt notice to the other party as soon as
practicable after it has actual knowledge of (i) the occurrence, or failure to
occur, of any event which would or would be likely to cause any party's
representations or warranties contained in this Agreement to be untrue or
incorrect in any material respect at any time from the date of this Agreement to
the Closing Date, or (ii) any failure on its part or on the part of any of its
or its Subsidiaries' officers, directors, employees, representatives or agents
(other than persons or entities who are such employees, representatives or
agents only because they are appointed insurance agents of such parties) to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by such party under this Agreement.
Each party shall have the right to deliver to the other party a written
disclosure schedule as to any matter of which it becomes aware following
execution of this Agreement which would constitute a breach of any
representation, warranty or covenant of this Agreement by such party,
identifying on such disclosure schedule the representation, warranty or covenant
which would be so breached, provided that each such disclosure schedule shall be
delivered as soon as practicable after such party becomes aware of the matter
disclosed therein. The nondisclosing party shall have ten (10) business days
from receipt of such disclosure schedule to notify the disclosing party that (x)
it will close notwithstanding the new disclosure, or (y) it will not close based
on such new disclosure, or (z) further investigation or negotiation is required
for it to reach a determination whether or not to close based on such new
disclosure. If the parties thereafter are unable to reach agreement on a
mutually satisfactory means of resolving the matter so disclosed, the
nondisclosing party shall have the right in its discretion, to terminate this
Agreement to the extent such termination is permitted under Section 8.1 of this
Agreement.
(b) PRA shall update the PRA Disclosure Schedule (the "CLOSING DATE PRA
DISCLOSURE SCHEDULE") to a date that is no earlier than ten (10) business days
prior to the Closing Date and no later than seven (7) business days prior to the
Closing Date and shall deliver the Closing Date PRA Disclosure Schedule to NCRIC
not less than three (3) business days prior to the Closing Date. NCRIC shall
update the NCRIC Disclosure Schedule (the "CLOSING DATE NCRIC DISCLOSURE
SCHEDULE") to a date that is no earlier than ten (10) business days prior to the
Closing Date and no later than seven (7) business days prior to the Closing Date
and shall deliver the Closing Date NCRIC Disclosure Schedule to PRA not less
than three (3) business days prior to the Closing Date. The obligation of PRA to
deliver to NCRIC the Closing Date PRA Disclosure Schedule as provided above
shall be a material obligation for purposes of Section 7.3(b) hereof, and the
obligation of NCRIC to deliver to PRA the Closing Date NCRIC Disclosure Schedule
shall be a material obligation for purposes of Section 7.2(b) hereof.
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6.10 ADDITIONAL AGREEMENTS.
(a) In case at any time prior to the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or the
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, PRA.
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement (including
any merger between a Subsidiary of PRA and a Subsidiary of NCRIC) or to vest PRA
or any of its Subsidiaries with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to this Agreement or
the Merger, the proper officers and directors of each party to this Agreement
and their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, PRA.
(c) Prior to the Effective Time, neither NCRIC nor the NCRIC Subsidiary
shall acquire, directly or indirectly, beneficial or record ownership of any
shares of PRA Common Stock or other equity securities of PRA, or any securities
convertible into or exercisable for any shares of PRA Common Stock or other
equity securities of PRA.
6.11 NEGOTIATIONS WITH OTHER PARTIES.
(a) So long as this Agreement remains in effect and no notice of
termination has been given under this Agreement, NCRIC shall not authorize or
knowingly permit any of its representatives, directly or indirectly, to
initiate, entertain, solicit, encourage, engage in, or participate in,
negotiations with any Person or any group of Persons other than the other party
to this Agreement or any of its affiliates (a "POTENTIAL ACQUIROR") concerning
any Acquisition Proposal (as defined in this Section 6.11) other than as
expressly provided in this Agreement. NCRIC will promptly inform PRA of any
serious, bona fide inquiry it may receive with respect to any Acquisition
Proposal and shall furnish to PRA a copy thereof.
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(b) Nothing contained in this Agreement shall prohibit NCRIC or its Board
of Directors from making such disclosures to its stockholders as are required
under applicable law or the rules of the NASD or the Nasdaq National Market or
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act. Nothing contained in this Agreement
shall prohibit the Board of Directors of NCRIC from either furnishing
information to, or entering into discussions or negotiations with, any Person or
group of Persons regarding any Acquisition Proposal, or approving and
recommending to the stockholders of NCRIC an Acquisition Proposal from any
Person or group of Persons, if the Board of Directors of NCRIC determines in
good faith that such action is appropriate in furtherance of the best interests
of stockholders. In connection with any such determination, (i) NCRIC shall
direct its officers and other appropriate personnel to cooperate with and be
reasonably available to consult with any such person, entity or group, (ii)
NCRIC will disclose to PRA that it is furnishing information to, or entering
into discussions or negotiations with, such Person or group of Persons, which
disclosure shall describe the terms thereof (but need not identify the person,
entity or group making the offer), (iii) prior to furnishing such information to
such Person or group of Persons, NCRIC shall enter into a written agreement with
such Person or group of Persons which provides for, among other things, (A) the
furnishing to NCRIC of information regarding such Person or group of Persons
that is relevant to its ability to finance and otherwise perform its obligations
under its Acquisition Proposal; (B) the confidentiality of all non-public
information furnished to such Person or group of Persons by NCRIC; and (C)
procedures reasonably satisfactory to NCRIC that are designed to restrict or
limit the provision of information regarding NCRIC that could be used to the
competitive disadvantage of NCRIC, or in a manner that would be detrimental to
the interests of its stockholders; (iv) NCRIC will not furnish any non-public
information regarding PRA or the transactions contemplated hereby; and (v) NCRIC
will keep PRA informed of the status of any such discussions or negotiations
(provided that NCRIC shall not be required to disclose to PRA confidential
information concerning the business or operations of such Person or group of
Persons).
(c) As used in this Agreement, "ACQUISITION PROPOSAL" means (i) any
proposal pursuant to which any Person or group of Persons, other than PRA or
NCRIC, would acquire or participate in a merger or other business combination
involving NCRIC or any of the NCRIC Subsidiaries, directly or indirectly; (ii)
any proposal by which any Person or group of Persons, other than PRA or NCRIC,
would acquire the right to vote 25% or more of the capital stock of NCRIC of any
of the NCRIC Subsidiaries entitled to vote thereon for the election of
directors; (iii) any acquisition of 25% or more of the assets of NCRIC or any of
the NCRIC Subsidiaries, other than in the ordinary course of business; (iv) any
acquisition in excess of [25]% of the outstanding capital stock of NCRIC or any
of the NCRIC Subsidiaries, other than as contemplated by this Agreement; or (v)
any transaction similar to the foregoing.
6.12 ACCOUNTANTS COMFORT LETTER. On or before the mailing of the Proxy
Statement, NCRIC shall deliver to PRA a letter from Deloitte & Touche LLP,
accountants for NCRIC, dated as of the effective date of the S-4 and addressed
to PRA to the effect: (i) that they are the independent public accountants with
respect to NCRIC within the meaning of the Exchange Act; (ii) that, in their
opinion, the consolidated financial statements and the financial statement
schedules audited by them and included in NCRIC's latest annual report on Form
10-K included in and incorporated by reference in the S-4 comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and the Exchange Act; and (iii) on the basis of certain
procedures specified in the letter and reasonably acceptable to PRA, not
constituting an audit, nothing came to their attention that caused them to
believe that: (A) any material modifications should be made to the unaudited
consolidated financial statements of NCRIC included or incorporated by reference
in the S-4 for such financial statements to conform with GAAP; (B) the unaudited
consolidated financial statement of NCRIC included or incorporated by reference
in the S-4 do not comply as to form in all material respects with the
requirements of the Exchange Act as it applies to Form 10-Q.
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6.13 RESERVATION OF SHARES. PRA agrees at all times from the date of this
Agreement until the Merger Consideration has been paid in full to reserve a
sufficient number of shares of its common stock to fulfill its obligations under
this Agreement.
6.14 REGISTRATION OF CONTINUING NCRIC STOCK OPTIONS. As promptly as
practicable following the Effective Time, PRA shall include the shares of PRA
Common Stock issuable upon exercise of the Continuing NCRIC Stock Options in a
registration statement filed with the SEC.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated by this Agreement
shall have been approved and adopted by the requisite affirmative vote of the
stockholders of NCRIC entitled to vote thereon.
(b) The shares of PRA Common Stock which shall be issued pursuant to the
Merger shall have been authorized for trading and reporting on the New York
Stock Exchange, subject to official notice of issuance.
(c) The Certificate of Merger shall have been filed with the appropriate
Governmental Authorities immediately prior to or on the Closing Date.
(d) All approvals of Governmental Authorities required to consummate the
transactions contemplated by this Agreement shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in respect
thereof shall have expired, without the imposition of any condition which in the
reasonable judgment of PRA is materially burdensome upon PRA or its Subsidiaries
(all such approvals and the expiration of all such waiting periods being
referred to in this Agreement as the "REQUISITE REGULATORY APPROVALS"). Without
limiting the generality of the foregoing: (i) the S-4 shall have become
effective under the Securities Act, and no stop order suspending the
effectiveness of the S-4 shall have been issued and shall remain in effect and
no proceedings for that purpose shall have been initiated or threatened by the
SEC; (ii) all Blue Sky Filings shall have been made, and the sale of PRA Stock
resulting from the Merger shall have been qualified or registered with the
appropriate state securities law regulatory authorities of all states in which
qualification or registration is required under applicable state securities
laws, and such qualifications or registrations shall not have been suspended or
revoked, or shall be exempt from such qualification or registration; (iii) the
HSR Act Report shall have been submitted to the Pre-Merger Notification
Agencies, and the waiting period under the HSR Act shall have expired or notice
of early termination of the waiting period shall have been received; and (iv)
the Merger and the transfer of ownership of NCRIC and the NCRIC Subsidiaries
shall have been approved by the Insurance Regulators, to the extent such
approvals are required.
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(e) No order, injunction or decree issued by any Governmental Authority of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated by this
Agreement shall be in effect. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits, materially restricts or makes illegal
consummation of the Merger.
(f) PRA and NCRIC each shall have received a copy of the tax opinions
contemplated by Section 6.2 of this Agreement, updated as of the Closing Date,
substantially to the effect that, among other things, on the basis of the facts,
assumptions and representations set forth in the opinion which are consistent
with the state of facts existing at the Closing Date:
(i) The former stockholders of NCRIC who receive the PRA Common
Stock in the NCRIC Merger will not recognize gain or loss for federal
income tax purposes.
(ii) Neither NCRIC nor PRA, nor any of their respective
Subsidiaries, shall recognize any gain or loss for federal income tax
purposes as a result of the Merger.
7.2 CONDITIONS TO OBLIGATION OF PRA. The obligation of PRA to effect the
Merger is also subject to the satisfaction or waiver by PRA at or prior to the
Effective Time of the following conditions:
(a) The representations and warranties of NCRIC set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except (i) to the extent such representations and warranties
speak as of an earlier date and (ii) for any changes to the NCRIC Disclosure
Schedule that are disclosed by NCRIC to PRA in the Closing Date NCRIC Disclosure
Schedule) as of the Closing Date as though made on and as of the Closing Date.
PRA shall have received a certificate signed on behalf of NCRIC by the Chief
Executive Officer and the Chief Financial Officer of NCRIC to the foregoing
effect, and to which any Closing Date NCRIC Disclosure Schedule shall be
appended. Notwithstanding the foregoing, no representation or warranty of NCRIC
contained in this Agreement shall be deemed untrue or incorrect, and NCRIC shall
not be deemed to have breached a representation or warranty, as a consequence of
the existence of any fact, circumstance or event unless such fact, circumstance
or event, individually or taken together with all other facts, circumstances or
events inconsistent with any representation or warranty, has had or is
reasonably expected to have a Material Adverse Effect, disregarding for these
purposes (x) any qualification or exception for, or reference to, materiality in
any such representation or warranty and (y) any use of the terms "material",
"materially", "in all material respects", "Material Adverse Effect" or similar
terms or phrases in any such representation or warranty (except with respect to
representations and warranties contained in Sections 3.1, 3.4(a), and 3.5, which
shall be deemed untrue, incorrect and breached if they are not true and correct
in all material respects based on the qualifications and standards therein
contained).
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(b) NCRIC shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and PRA shall have received a certificate signed on behalf of NCRIC by the
Chief Executive Officer and the Chief Financial Officer of NCRIC to such effect.
(c) NCRIC and the NCRIC Subsidiaries, taken as a whole, shall not have
suffered a Material Adverse Effect; and no event or circumstance shall have
occurred which has, or is likely to have, a Material Adverse Effect on NCRIC or
upon the right of NCRIC or the NCRIC Subsidiaries to conduct their respective
businesses as presently conducted.
(d) No legal, administrative, arbitral or other inquiries, proceedings,
claims, actions have been initiated by any governmental or regulatory authority
or SRO alleging violations of Federal securities laws (including the Securities
Act and the Exchange Act) by NCRIC, any NCRIC Subsidiary or any director or
officer of NCRIC or any NCRIC Subsidiary, which action has not been dismissed
with prejudice.
(e) NCRIC shall have delivered to PRA such other certificates and
instruments as PRA and its counsel may reasonably request. The form and
substance of all certificates, instruments, opinions and other documentation
delivered to PRA under this Agreement shall be reasonably satisfactory to PRA
and its counsel.
7.3 CONDITIONS TO OBLIGATION OF NCRIC. The obligation of NCRIC to effect
the Merger is also subject to the satisfaction or waiver by NCRIC at or prior to
the Effective Time of the following conditions:
(a) The representations and warranties of PRA set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except (i) to the extent such representations and warranties
speak as of an earlier date and (ii) for any changes to the PRA Disclosure
Schedule that are disclosed by PRA to NCRIC in the Closing Date PRA Disclosure
Schedule) as of the Closing Date as though made on and as of the Closing Date.
NCRIC shall have received a certificate signed on behalf of PRA by the Chief
Executive Officer and the Chief Financial Officer of PRA to the foregoing
effect, and to which any Closing Date PRA Disclosure Schedule shall be appended.
Notwithstanding the foregoing, no representation or warranty of PRA contained in
this Agreement shall be deemed untrue or incorrect, and PRA shall not be deemed
to have breached a representation or warranty, as a consequence of the existence
of any fact, circumstance or event unless such fact, circumstance or event,
individually or taken together with all other facts, circumstances or events
inconsistent with any representation or warranty, has had or is reasonably
expected to have a Material Adverse Effect, disregarding for these purposes (x)
any qualification or exception for, or reference to, materiality in any such
representation or warranty and (y) any use of the terms "material",
"materially", "in all material respects", "Material Adverse Effect" or similar
terms or phrases in any such representation or warranty (except with respect to
representations and warranties contained in Sections 4.1, 4.3 and 4.4, which
shall be deemed untrue, incorrect and breached if they are not true and correct
in all material respects based on the qualifications and standards therein
contained).
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(b) PRA shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and NCRIC shall have received a certificate signed on behalf of PRA by the
Chief Executive Officer and the Chief Financial Officer of PRA to such effect.
(c) PRA and its Subsidiaries, taken as a whole, shall not have suffered a
Material Adverse Effect and no event or circumstance shall have occurred which
has, or is likely to have, a Material Adverse Effect on PRA or upon the right of
PRA or any of the PRA Subsidiaries to conduct their respective businesses as
presently conducted.
(d) PRA shall have delivered to NCRIC such other certificates and
instruments as NCRIC and its counsel may reasonably request. The form and
substance of all certificates, instruments and other documentation delivered to
NCRIC under this Agreement shall be reasonably satisfactory to NCRIC and its
counsel.
ARTICLE 8
TERMINATION AND AMENDMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of NCRIC:
(a) by mutual consent of PRA and NCRIC in a written instrument, if the
Board of Directors of PRA and the Board of Directors of NCRIC so determine to
terminate this Agreement by an affirmative vote of a majority of the members of
its entire Board;
(b) by either PRA or NCRIC if (i) any Governmental Authority which must
grant a Requisite Regulatory Approval has denied approval of the Merger and such
denial has become final and nonappealable or any Governmental Authority of
competent jurisdiction shall have issued a final nonappealable order permanently
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and (ii) the Board of Directors of PRA or the
Board of Directors of NCRIC, as the case may be, determines to terminate this
Agreement by an affirmative vote of a majority of the members of its entire
Board;
(c) by either PRA or NCRIC (provided that the terminating party is not then
in material breach of any representation, warranty, covenant or other agreement
contained in this Agreement) if (i) there shall have been a material breach of
any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach is not cured within forty-five (45) days following
written notice to the party committing such breach, or which breach, by its
nature or timing, cannot be cured prior to the Closing Date, and (ii) the Board
of Directors of PRA or the Board of Directors of NCRIC, as the case may be,
determines to terminate this Agreement by an affirmative vote of a majority of
the members of its entire Board;
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(d) by either PRA or NCRIC (provided that the terminating party is not then
in material breach of any representation, warranty, covenant or other agreement
contained in this Agreement) if (i) there shall have been a breach of any of the
representations and warranties set forth in this Agreement on the part of the
other party, which breach is not cured within forty-five (45) days following
written notice to the party committing such breach, or which breach, by its
nature or timing, cannot be cured prior to the Closing Date, and (ii) the Board
of Directors of PRA or the Board of Directors of NCRIC, as the case may be,
determines to terminate this Agreement by an affirmative vote of a majority of
the members of its entire Board; provided, however, that no representation or
warranty of either party contained in this Agreement shall be deemed untrue or
incorrect, and neither party shall be deemed to have breached a representation
or warranty, as a consequence of the existence of any fact, circumstance or
event unless such fact, circumstance or event, individually or taken together
with all other facts, circumstances or events inconsistent with any
representation or warranty, has had or is reasonably expected to have a Material
Adverse Effect, disregarding for these purposes (x) any qualification or
exception for, or reference to, materiality in any such representation or
warranty and (y) any use of the terms "material", "materially", "in all material
respects", "Material Adverse Effect" or similar terms or phrases in any such
representation or warranty (except with respect to representations and
warranties contained in Sections 3.1, 3.4(a), 3.5, 4.1, 4.3 and 4.4, which shall
be deemed untrue, incorrect and breached if they are not true and correct in all
material respects based on the qualifications and standards therein contained).
(e) by PRA upon written notice to NCRIC if the Board of Directors of NCRIC
does not, or shall indicate in writing to PRA that NCRIC is unwilling or unable
to, publicly recommend in the Proxy Statement that its stockholders approve and
adopt this Agreement, or if after recommending in the Proxy Statement that its
stockholders approve and adopt this Agreement, the Board of Directors of NCRIC
shall have withdrawn, modified or amended such recommendation in any respect
materially adverse to PRA (each a "NCRIC RECOMMENDATION EVENT"), provided that
any such notice of termination must be given not later than 45 days after the
later of the date PRA shall have been advised by NCRIC in writing that NCRIC is
unable or unwilling to so recommend in the Proxy Statement or that it has
withdrawn, modified or amended such recommendation, or such later date as may be
agreed upon by PRA and NCRIC;
(f) by PRA upon written notice to NCRIC if NCRIC shall have authorized,
recommended, or approved or proposed, or if NCRIC shall have entered into an
agreement with any Person other than PRA or NEWCO to effect an Acquisition
Proposal;
(g) by either PRA or NCRIC if approval of the stockholders of NCRIC
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof;
(h) by PRA if the Closing Date NCRIC Disclosure Schedule discloses any
Material Adverse Effect or any change from the NCRIC Disclosure Schedule which
has, or is likely to have, a Material Adverse Effect on NCRIC; or by NCRIC if
the Closing Date PRA Disclosure Schedule discloses any Material Adverse Effect
or any change from the PRA Disclosure Schedule which has, or is likely to have,
a Material Adverse Effect on PRA;
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(i) by either PRA or NCRIC if the S-4 has not been filed with the SEC on or
before June 30, 2005, unless the failure to so file the S-4 by such date shall
be due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party set forth in this
Agreement, and the Board of Directors of PRA or the Board of Directors of NCRIC,
as the case may be, determines to terminate this Agreement by an affirmative
vote of a majority of the members of its entire Board;
(j) by written notice from NCRIC to PRA, or from PRA to NCRIC, if the
Closing does not occur on or before December 31, 2005, for any reason other than
breach of this Agreement by the party giving such notice; or
(k) By NCRIC upon the occurrence of a NCRIC Acquisition Event (as defined
in Section 8.5(a) hereof) or NCRIC Recommendation Event.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either PRA or NCRIC as provided in Section 8.1 of this Agreement, (i) this
Agreement shall forthwith become void and have no effect, except that Sections
6.3(b), 8.2, 8.5, 9.2, 9.3, 9.4, 9.5, 9.13, 9.16 and 9.17 of this Agreement
shall survive any termination of this Agreement, and (ii) none of PRA, NEWCO,
and NCRIC, any of their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature whatsoever under
this Agreement, or in connection with the transactions contemplated by this
Agreement, except as otherwise provided in Section 8.5 of this Agreement;
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, neither PRA nor NCRIC shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
8.3 AMENDMENT. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by the Board
of Directors of PRA and the Board of Directors of NCRIC, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of NCRIC; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of NCRIC, there
may not be, without further approval of such stockholders, any amendment of this
Agreement which changes the amount or the form of the consideration to be
delivered to the stockholders of NCRIC under this Agreement other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the parties
to this Agreement may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties to
this Agreement, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant hereto, or (c)
waive compliance with any of the agreements or conditions contained in this
Agreement; provided, however, that after any approval of the transactions
contemplated by this Agreement by the stockholders of NCRIC, there may not be,
without further approval of such stockholders, any extension or waiver of this
Agreement or any portion thereof which reduces the amount or changes the form of
the consideration to be delivered to the stockholders of NCRIC under this
Agreement other than as contemplated by this Agreement. Any agreement on the
part of a party to this Agreement to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such party, but
such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
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8.5 LIQUIDATED DAMAGES; TERMINATION FEE. Notwithstanding anything to the
contrary contained in this Agreement, in the event that any of the following
events or circumstances shall occur, NCRIC shall, within ten (10) days after
notice of the occurrence thereof by PRA, pay to PRA the sum equal to $1,725,000
(which the parties agree and stipulate as reasonable and full liquidated damages
and reasonable compensation for the involvement of PRA in the transactions
contemplated in this Agreement, is not a penalty or forfeiture, and will not
affect the provisions of this Section 8.5): (i) at any time prior to termination
of this Agreement a NCRIC Acquisition Event shall occur; (ii) PRA shall
terminate this Agreement pursuant to Section 8.1(e) or (f); (iii) NCRIC shall
terminate this Agreement pursuant to Section 8.1(k); or (iv) if NCRIC fails to
call and hold the meeting of its stockholders as required by Section 6.4 of this
Agreement. For purposes of this Agreement a "NCRIC ACQUISITION EVENT" shall mean
that NCRIC shall have authorized, recommended, approved, or entered into an
agreement with any Person (other than any of the parties to this Agreement) to
effect an Acquisition Proposal or shall fail to publicly oppose a tender offer
or exchange offer by another person based on an Acquisition Proposal. Upon the
making and receipt of such payment under this Section 8.5, NCRIC shall have no
further obligation of any kind under this Agreement and neither PRA nor NEWCO
shall have any further obligation of any kind under this Agreement, except in
each case under Section 8.2 of this Agreement, and no party shall have any
liability for any breach or alleged breach by such party of any provision of
this Agreement.
ARTICLE 9
GENERAL PROVISIONS
9.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date
and at a place to be specified by the parties, which shall be no later than five
(5) business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions set forth in Article 7 of this
Agreement, unless extended by mutual agreement of the parties (the "CLOSING
DATE"). The parties shall use their respective best efforts to cause the
Effective Date to occur on or before July 31, 2005. The parties shall cause the
Certificate of Merger to be filed with the Delaware Secretary of State on or
before the Effective Date or as soon thereafter as is possible. The parties
shall take such further actions as may be required by the laws of the State of
Delaware in connection with such filing and the consummation of the Merger.
9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and agreements of NCRIC, PRA and NEWCO in
this Agreement or in any instrument delivered by NCRIC, PRA or NEWCO pursuant to
this Agreement shall survive the Effective Time, except as otherwise provided in
Section 8.2 of this Agreement and except for those covenants and agreements
contained in this Agreement and in any such instrument which by their terms
apply in whole or in part after the Effective Time.
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9.3 EXPENSES. Except as otherwise expressly provided in this Agreement, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such expense; provided, however, (i) that the costs and expenses of printing and
mailing the Proxy Statement, and all filing and other fees paid to the SEC in
connection with the Merger, shall be borne equally by PRA and NCRIC, and (ii)
that PRA and NCRIC will share the cost of the HSR Act filing fee in proportion
to their relative assets as of December 31, 2004.
9.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by facsimile (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to PRA or NEWCO to:
ProAssurance Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
(b) if to NCRIC, to:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: President and Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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with copies to:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇.
9.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
shall be brought against any of the parties in the State of Delaware, County of
New Castle or the United States District Court for the District of Delaware, and
each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
9.6 FURTHER ASSURANCES. At the request of any party to this Agreement, the
other parties shall execute, acknowledge and deliver such other documents and/or
instruments as may be reasonably required by the requesting party to carry out
the purposes of this Agreement. In the event any party to this Agreement shall
be involved in litigation, threatened litigation or government inquiries with
respect to a matter covered by this Agreement, every other party to this
Agreement shall also make available to such party, at reasonable times and
subject to the reasonable requirements of its own businesses, such of its
personnel as may have information relevant to such matters, provided that such
party shall reimburse the providing party for its reasonable costs for employee
time incurred in connection therewith if more than one business day is required.
Following the Closing, the parties will cooperate with each other in connection
with tax audits and in the defense of any legal proceedings.
9.7 REMEDIES CUMULATIVE. Unless expressly made the exclusive remedy by the
terms of this Agreement, all remedies provided for in this Agreement are
cumulative and shall be in addition to any and all other rights and remedies
provided by law and by any other agreements between the parties.
9.8 PRESUMPTIONS. It is expressly acknowledged and agreed that all parties
have been represented by counsel and have participated in the negotiation and
drafting of this Agreement, and that there shall be no presumption against any
party on the ground that such party was responsible for preparing this Agreement
or any part of it.
9.9 EXHIBITS AND SCHEDULES. Each of the Exhibits and Schedules referred to
in, and/or attached to, this Agreement is an integral part of this Agreement and
is incorporated in this Agreement by this reference.
9.10 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". No provision of this
Agreement shall be construed to require PRA, NCRIC or any of their respective
Subsidiaries or affiliates to take any action which would violate any applicable
law, rule or regulation.
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9.11 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.12 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to in this Agreement) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement.
9.13 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law principles.
9.14 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.15 PUBLICITY. PRA and NCRIC shall develop a joint communications plan and
each party shall (i) ensure that all press releases and other public statements
and communications (including any communications that would require a filing
under Rule 425, Rule 165 and Rule 166 under the 1933 Act or Rule 14a-2, Rule
14a-12 or Rule 14e-2 under the Exchange Act) with respect to this Agreement and
the transactions contemplated hereby shall be consistent with such joint
communications plan and (ii) unless otherwise required by applicable law or by
obligations pursuant to any listing agreement with or rules of the NYSE or the
NASD and the Nasdaq National Market, consult with each other for a reasonable
time before issuing any press release or otherwise making any public statement
or communication (including any communications that would require a filing with
the SEC), and mutually agree upon any such press release or any such public
statement or communication, with respect to this Agreement or the transactions
contemplated hereby. In addition to the foregoing, except to the extent
disclosed in the Proxy Statement, unless otherwise required by applicable law or
by obligations pursuant to any listing agreement with or rules of the NYSE or
the NASD and the Nasdaq National Market, neither PRA nor NCRIC shall issue any
press release or otherwise make any public statement or disclosure concerning
the other party or the other party's business, financial conditions or results
of operations without the consent of the other party.
9.16 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor any
of the rights, interests or obligations shall be assigned by any of the parties
to this Agreement (whether by operation of law or otherwise) without the prior
written consent of the other parties to this Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns. Except
as otherwise specifically provided in Section 6.9, this Agreement (including the
documents and instruments referred to in this Agreement) is not intended to
confer upon any person other than the parties to this Agreement any rights or
remedies under this Agreement.
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9.17 (Intentionally Omitted)
9.18 DEFINITIONS.
(a) The following terms, as used in this Agreement, have the meanings that
follow:
"Change-of-Control" means the occurrence of the following
events: (i) the consummation of any consolidation, merger or similar transaction
or purchase of securities of PRA pursuant to which (x) the members of the Board
of Directors of PRA immediately prior to such transaction do not, immediately
after the transaction, constitute a majority of the Board of Directors of the
surviving entity, or (y) the stockholders of PRA immediately preceding the
transaction do not, immediately after the transaction, own at least 50.1% of the
combined voting power of the outstanding securities of the surviving entity, or
(ii) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the assets of PRA and
its Subsidiaries, such that PRA and its Subsidiaries cease to function on a
going-forward basis as an insurance company holding system.
"Employee Plan" means any "employee benefit plan," as defined
in Section 3(3) of ERISA; any employment, severance or similar service
agreement, plan, arrangement or policy; any other plan or arrangement providing
for compensation, bonuses, profit-sharing, stock option or other equity-related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance (including any self-insured arrangements), medical, dental or vision
benefits, disability or sick leave benefits, life insurance, employee assistance
program, workers' compensation, supplemental unemployment benefits, severance
benefits and post-employment or retirement benefits (including compensation,
pension, insurance or medical benefits); or any loan; in each case including
plans or arrangements, both written and oral, covering or extended to any
current or former director, employee or independent contractor.
"Environmental Laws" means any federal, state, local or
foreign law (including common law) treaty, judicial decision, regulation, rule,
judgment, order, decree, injunction, permit or governmental restriction or
requirement or any agreement with any Governmental Authority or other third
party, relating to human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
"Environmental Permits" means, with respect to any Person, all
permits, licenses, franchises, certificates, approvals and other similar
authorizations of governmental authorities relating to or required by
Environmental Laws and affecting, or relating in any way to, the business of
such Person or any of such Person's Subsidiaries, as currently conducted.
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"Governmental Authority" means any governmental body, agency,
official or authority, domestic, foreign, or supranational, or SRO or other
similar non-governmental regulatory body.
"Insurance Laws" means all laws, rules and regulations
applicable to the business of insurance and the regulation of insurance holding
companies, whether domestic or foreign, and all applicable orders and directives
of Governmental Authorities and market conduct recommendations resulting from
market conduct examinations of Insurance Regulators.
"Insurance Regulators" means all Governmental Authorities
regulating the business of insurance under the Insurance Laws.
"Lien" means, with respect to any property or asset (real or
personal, tangible or intangible), any mortgage, lien, pledge, charge, security
interest, encumbrance or other adverse claim of any kind in respect of such
property or asset. For purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any property or asset that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
property or asset.
"Material Adverse Effect" means, with respect to NCRIC and
PRA, as the case may be, a material adverse effect on the business, assets,
properties, operations, or condition (financial or otherwise) or (insofar as can
reasonably be foreseen) prospects (financial or otherwise) of such party and its
Subsidiaries taken as a whole; provided that the following shall be excluded in
any determination of Material Adverse Effect: (i) the payment and/or incurrence
of transactional expenses by NCRIC, PRA, and NEWCO in connection with the
Merger, to the extent having such an effect, (ii) any change in the value of the
Investments of PRA or NCRIC, or any of their Subsidiaries, respectively,
resulting from a change in interest rates generally,; (iii) announcement of this
Agreement or transactions contemplated by this Agreement (including disruption
in customer, agent or reinsurance relationships or loss of employees); (iv) acts
of terrorism, war, armed hostilities or other international or natural calamity
directly or indirectly involving the United States; (v) circumstances affecting
the insurance industry or the medical malpractice industry generally (but only
to the extent that such changes affect NCRIC and PRA in a substantially
equivalent manner); (vi) changes in laws, regulations, or accounting or
actuarial principles or practices (but only to the extent that such changes
affect NCRIC and PRA in a substantially equivalent manner); (vii) litigation
arising from or relating to this Agreement or the Merger including allegations
of a breach of fiduciary duty or violation of securities laws; and (viii) with
respect to NCRIC, (x) the establishment of any reserve in an amount up to $19.5
million, relating to the 2004 Judgment; (ix) any valuation allowance established
in connection with the deferred tax assets reflected in its statement of
condition as of December 31, 2004, and (z) any charge relating to the impairment
of the goodwill reflected in its statement of condition as of December 31, 2004.
"Person" means an individual, corporation, partnership
(general or limited), limited liability company, association, trust or other
entity or organization, including any Governmental Authority.
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"Subsidiary," when used with respect to any Person, means any
corporation, partnership, limited liability company, association, trust or other
entity or organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes or in which a
party has direct or indirect beneficial ownership (as defined in Rule 13d-3 of
the SEC) of a majority of the voting stock or other equity interest of such
entity.
The "2004 Judgment" means the verdict or any related judgment
in NCRIC, Inc. v. Columbia Hospital for Women Medical Center, Inc. (Civil Action
#00-0007308, Superior Court of District of Columbia, Civil Division).
(b) Set forth below is an index to the definitions set forth in this Agreement.
TERM SECTION
2004 Judgment 9.18
2004 NCRIC Balance Sheet 3.7(d)
2004 PRA Balance Sheet 4.6(e)
Acquisition Proposal 6.11(c)
Actuarial Report 5.1(c)
Adjusted NCRIC Share Value 1.7(b)(ii)
Advisory Committee 1.12(b)
Agreement Recitals
Articles of Merger 1.2
Base Price 1.5(a)(iii)
Blue Sky Filings 6.1(d)
Certificate of Merger 1.2
Change of Control 9.18(a)
Claim 6.8(b)
Closing 9.1
Closing Date 9.1
Closing Date NCRIC Disclosure Schedule 6.9(b)
Closing Date PRA Disclosure Schedule 6.9(b)
COBRA 3.14(c)
Code 1.8
Confidentiality Agreement 6.3(a)
Consulting Agreement 1.12(a)
Continuing Employees 6.7(a)
Continuing NCRIC Stock Award 1.7(c)
Continuing NCRIC Stock Option 1.7(b)
DGCL 1.1
▇▇▇▇▇ 3.7(a)
Effective Time 1.2
Employee Plan 9.18(a)
Environmental Laws 9.18(a)
Environmental Permits 9.18(a)
ERISA 3.14(a)
Escrow Deposit 1.5(a)(iv)(C)
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Exchange Act 3.5(c)
Exchange Agent 2.1
Exchange Fund 2.2(a)
Exchange Ratio 1.5(a)
GAAP 3.3(b)
Governmental Authority 9.18(a)
HIPPA 3.14(k)
HSR Act 3.5(c)
HSR Act Report 3.5(c)
Insurance Laws 9.18(a)
Insurance Premium Amount 6.8(a)
Insurance Regulators 9.18(a)
Intellectual Property 3.19(a)
IRS 3.13
Lien 9.18(a)
Litigation Adjustment 1.5(a)(iv)
Market Adjustment 1.5(b)
Market Value 1.5(b)
Material Adverse Effect 9.18(a)
Merger 1.1
Merger Consideration 1.5(a)
NAIC 3.5(c)
NASD 3.5(c)
New Certificates 2.2(b)
NEWCO Recitals
NEWCO Common Stock 4.3(b)
NCRIC Recitals
NCRIC Acquisition Event 8.5
NCRIC Actuarial Analyses 3.23(e)
NCRIC Actuaries 3.23(e)
NCRIC Advisory Committees 1.12(b)
NCRIC Award Plan 1.7(a)
NCRIC Common Stock 1.5(a)
NCRIC Contract 3.17(a)
NCRIC DCP 6.7(e)
NCRIC Disclosure Schedule 3
NCRIC Employees 6.7(a)
NCRIC Employee Plan 3.14(a)
NCRIC ESOP 1.5(d)
NCRIC Filed SEC Reports 3.7(a)
NCRIC Holding Company Act Reports 3.6(c)
NCRIC Insurance Policies 3.12(a)
NCRIC Insurance Subsidiaries 3.2(b)
NCRIC Option Plans 1.7(a)
NCRIC Personal Property Leases 3.21(b)
NCRIC Real Property 3.20(a)
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NCRIC Real Property Leases 3.20(a)
NCRIC Recommendation Event 8.1(e)
NCRIC Regulatory Agreement 3.16(b)
NCRIC Reinsurance Treaties 3.23(c)
NCRIC Reserves 3.23(d)
NCRIC SAP Statements 3.6(a)
NCRIC SEC Reports 3.7(a)
NCRIC Stock Awards 1.7(a)
NCRIC Stock Award Plans 1.7(a)
NCRIC Stock Options 1.7(a)
NCRIC Subsidiaries 3.2(a)
NYSE 3.5(c)
Old Certificates 2.2(b)
Person 9.18(a)
Potential Acquirer 6.11(a)
PRA Recitals
PRA Acquisition Event 8.5(b)
PRA Common Stock 1.5(a)
PRA Debentures 4.3(a)
PRA Disclosure Schedule 4
PRA Filed SEC Reports 4.6(a)
PRA Holding Company Act Report 4.5(c)
PRA Insurance Subsidiaries 4.2(b)
PRA Regulatory Agreement 4.9(g)
PRA Reinsurance Treaties 4.12(a)
PRA Reserves 4.12(b)
PRA SAP Statements 4.5(a)
PRA SEC Reports 4.6(a)
PRA Subsidiaries 4.2(a)
Practice Management Adjustment 1.5(a)(v)
Practice Management Business 1.5(a)(v)
Pre-Merger Notification Agencies 3.5(c)
Proxy Statement 3.5(c)
Purchase Price 1.5(a)(ii)
Requisite Regulatory Approvals 7.1(d)
S-4 3.5(c)
SAP 3.6(b)
SEC 3.5(c)
Securities Act 3.5(c)
SOX 3.7(a)
SRO 3.5(c)
Stockholders' Equity Determination Date 9.18
Subsidiary 9.18(a)
Tax or Taxes 3.13(a)
Tax Return or Tax Returns 3.13(a)
WARN Act 3.15(e)
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IN WITNESS WHEREOF, PRA, NEWCO, and NCRIC have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
PROASSURANCE CORPORATION,
a Delaware corporation
By: /S/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
NCRIC MERGER CORPORATION,
a Delaware corporation
By: /S/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
NCRIC GROUP, INC.,
a Delaware corporation
By: /S/R. ▇▇▇ ▇▇▇▇, ▇▇.
-------------------------------------------------
R. ▇▇▇ ▇▇▇▇, ▇▇.
President and Chief Executive Officer
78