SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): January 4, 2006
ProAssurance Corporation
(Exact name of registrant as specified in its charter)
Delaware 001-16533 63-1261433
(State of Incorporation) (Commission File No.) (IRS Employer I.D. No.)
100 Brookwood Place, Birmingham, Alabama 35209
(Address of Principal Executive Office ) (Zip code)
Registrant's telephone number, including area code: (205) 877-4400
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|X| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Securities Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-(c) under the Exchange
Act (17CFR 240.13e-(c))
Item 1.01. Entry into a Material Definitive Agreement
See Item 2.01 for a discussion of modifcations to documents governing the
employment of Mr. Lynn Kalinowski. Reference is made to Exhibits 2.2 and 2.3 to
this Current Report on Form 8-K and is incorporated in this Item by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On January 4, 2006, ProAssurance completed the sale of MEEMIC Insurance
Company ("MEEMIC") and MEEMIC Insurance Services Corporation (together with
MEEMIC, the "Companies") to Motors Insurance Company, a wholly-owned subsidiary
of GMAC Insurance Holdings, Inc. (the "Buyer"). The transaction is worth $400
million to ProAssurance, before transaction expenses. Approximately $325 million
was paid by the Buyer at closing and approximately $75 million was retained in
MEEMIC's parent company, MEEMIC Holdings, Inc., which remains a part of
ProAssurance and was renamed MEMH Holdings, Inc. as part of the transaction.
Substantially all of the assets retained at MEMH Holdings are cash and
investment securities.
MEMH Holdings is owned by ProNational Insurance Company ("ProNational"),
one of ProAssurance's operating subsidiaries, and all proceeds from the sale
will be distributed over time to ProNational. Proceeds not needed at ProNational
will then be distriubuted to ProAssurance, subject to regulatory approval.
The sale was completed under the terms of a Stock Purchase Agreement dated
as of November 4, 2005. The Stock Purchase Agreement was filed as Exhibit 2.1 to
ProAssurance's Current Report on Form 8K dated November 4, 2005, and is
incorporated by reference in this Item and in this filing as Exhibit 2.1.
The effective date of the transaction is January 1, 2006. MEEMIC will be
accounted for as discontinued operations when ProAssurance reports 2005 results.
In connection with the successful completion of the transaction,
ProAssurance paid Lynn M. Kalinowski, as president of both of the Companies, a
success fee pursuant to a Letter Agreement between ProAssurance and Lynn
Kalinowski, dated November 4, 2005. The Letter Agreement was filed as Exhibit
10.1 to ProAssurance's Current Report on Form 8K dated November 4, 2005, and is
incorporated by reference in this Item and in this filing as Exhibit 2.2. The
Letter Agreement was modified at the closing to terminate Mr. Kalinwoski's
severance agreement, thus allowing him to receive an accelerated payment of the
success fee. A copy of the revised agreement is filed as Exhibit 2.3 to this
filing and is incorporated in this Item by reference.
For further information, reference is made to the news release dated
January 4, 2006 which is included as Exhibit 99.1 to this Current Report on Form
8-K and is incorporated in this Item by reference.
Item 5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
As a result of the closing of the transaction, Mr. Kalinowski is no longer
an employee of ProAssurance, although he remains employed by the Companies.
Reference is made to Exhibits 2.2 and 2.3 to this Current Report on Form 8-K and
is incorporated in this Item by reference.
Item 7.01. Regulation FD Disclosure
On January 4, 2006, ProAssurance completed the sale of the Companies to
Buyer. A copy of the news release announcing the completion of the transaction,
is included as Exhibit 99.1 to this Current Report on Form 8-K and is
incorporated in this Item by reference.
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Item 9.01. Financial Statements and Exhibits.
(a) Pro Forma Financial Information.
The following unaudited pro forma condensed combined financial statements
give effect to the sale and include Pro Forma adjustments which are described in
the notes to these statements.
The unaudited pro forma condensed combined balance sheet presents the
financial position of ProAssurance as of September 30, 2005, assuming that the
sale had occurred as of that date. Such pro forma information is based on the
historical balance sheet of ProAssurance at September 30, 2005.
The unaudited pro forma condensed combined statements of income reflect the
historical results of continuing operations for ProAssurance for the periods
presented. As required by Rule 11-02 of Regulation S-X, the unaudited pro forma
condensed combined statements of income have been prepared assuming that the
sale occurred as of the beginning of the period presented.
ProAssurance believes that the assumptions used in preparing the unaudited
pro forma financial statements provide a reasonable basis for presenting all of
the significant effects of the sale and that the pro forma adjustments give
effect to those assumptions in the unaudited pro forma condensed combined
financial statements. The unaudited pro forma financial information is presented
for informational purposes only and is not necessarily indicative of the results
of operations or financial position which would have been achieved had this
transaction been completed as of the date indicated, nor is it necessarily
indicative of ProAssurance's future results of operations or financial position.
The unaudited pro form condensed combined financial statements should be
read in conjunction with the historical financial statements of ProAssurance,
including the related notes thereto.
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ProAssurance Corporation
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands)
Nine months ended September 30, 2005
ProAssurance MEEMIC Pro Forma
Historical Companies Adjustments Pro Forma
--------------------------------------------------------------------
Assets
Investments:
Fixed maturities available for sale, at fair value $ 2,613,232 $ (300,199) A $ 25,000 B $ 2,338,033
Equity securities available for sale, at fair value 19,385 (6,138) A 13,247
Equity securities, trading portfolio, at fair value 4,824 4,824
Real estate, net 25,383 (8,548) A 16,835
Short-term investments 150,404 150,404
Business owned life insurance 55,856 55,856
Other 46,142 46,142
--------------------------------------------------------------------
Total investments 2,915,226 (314,885) 25,000 2,625,341
Cash and cash equivalents 30,137 (12,660) A 309,448 C 326,925
Premiums and accounts receivable, net 128,815 (16,030) A 112,785
Receivable from reinsurers on unpaid losses and loss
adjustment expenses 465,333 (141,792) A 323,541
Prepaid reinsurance premiums 19,629 19,629
Deferred taxes 114,041 (11,527) A 102,514
Other assets 159,907 (32,964) A 126,943
--------------------------------------------------------------------
Total assets $ 3,833,088 $ (529,858) $ 334,448 $ 3,637,678
====================================================================
Liabilities and Stockholders' Equity
Liabilities:
Policy liabilities and accruals:
Reserve for losses and loss adjustment
expenses $ 2,394,631 $ (219,001) A $ 2,175,630
Unearned premiums 353,291 (67,932) A 285,359
Reinsurance premiums payable 77,148 (460) A 76,688
--------------------------------------------------------------------
Total policy liabilities 2,825,070 (287,393) 2,537,677
Other liabilities 102,380 (19,219) 83,161
Long-term debt 167,166 167,166
--------------------------------------------------------------------
Total liabilities 3,094,616 (306,612) 2,788,004
Commitments and Contingencies
Stockholders' equity:
Common stock 312 312
Additional paid-in capital 387,163 387,163
Accumulated other comprehensive (loss) income (114) (1,252) D (1,366)
Retained earnings 351,167 112,454 E 463,621
--------------------------------------------------------------------
738,528 (1,252) 112,454 849,730
Less treasury stock, at cost (56) (56)
--------------------------------------------------------------------
Total stockholders' equity 738,472 (1,252) 112,454 849,674
--------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,833,088 $ (307,864) $ 112,454 $ 3,637,678
====================================================================
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ProAssurance Corporation
Unaudited Pro Forma Condensed Consolidated Income Statement
Nine months ended September 30, 2005
(in thousands except per share data)
MEEMIC
ProAssurance Companies
Historical (F) Pro Forma
---------------------------------------------------
Revenues:
Net premiums earned $ 536,639 $ (141,082) $ 395,557
Net investment income 79,646 (9,337) 70,309
Net realized investment gains (losses) 1,761 (446) 1,315
Other income 4,612 (1,925) 2,687
---------------------------------------------------
Total revenues 622,658 (152,790) 469,868
Expenses:
Net losses and loss
Adjustment expenses 412,931 (81,458) 331,473
Underwriting, acquisition
and insurance expenses 94,021 (33,430) 60,591
Interest expense 6,457 6,457
---------------------------------------------------
Total expenses 513,409 (114,888) 398,521
---------------------------------------------------
Income from continuing operations before
income taxes 109,249 (37,902) 71,347
Income taxes 30,465 (12,242) 18,223
---------------------------------------------------
Income from continuing operations $ 78,784 $ (25,660) $ 53,124
===================================================
Earnings per share--from continuing operations:
Basic 2.65 1.79
================ ==============
Diluted 2.49 1.70
================ ==============
Weighted average shares outstanding:
Basic 29,700 29,700
================ ==============
Diluted 32,546 32,546
================ ==============
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ProAssurance Corporation
Unaudited Pro Forma Condensed Consolidated Income Statement
Year ended December 31, 2004
(in thousands except per share data)
MEEMIC
ProAssurance Companies
Historical (F) Pro Forma
---------------------------------------------------
Revenues:
Net premiums earned $ 696,020 $ (183,365) $ 512,655
Net investment income 87,225 (10,879) 76,346
Net realized investment gains (losses) 7,609 (37) 7,572
Other income 3,699 (2,358) 1,341
---------------------------------------------------
Total revenues 794,553 (196,639) 597,914
Expenses:
Net losses and loss
adjustment expenses 572,881 (112,444) 460,437
Underwriting, acquisition
and insurance expenses 117,689 (40,548) 77,141
Interest expense 6,515 6,515
---------------------------------------------------
Total expenses 697,085 (152,992) 544,093
---------------------------------------------------
Income from continuing operations before
income taxes 97,468 (43,647) 53,821
Income taxes 24,657 (13,879) 10,778
---------------------------------------------------
Income from continuing operations $ 72,811 $ (29,768) $ 43,043
===================================================
Earnings per share--from continuing operations:
Basic 2.50 1.48
================ ===============
Diluted 2.37 1.44
================ ===============
Weighted average shares outstanding:
Basic 29,164 29,164
================ ===============
Diluted 31,984 31,984
================ ===============
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Note 1 - Basis of Presentation
The unaudited pro forma balance sheet presents the financial position of
ProAssurance as of September 30, 2005 assuming that the transaction occurred as
of that date. Such pro forma information is based on the historical balance
sheet of ProAssurance as of September 30, 2005 adjusted for the expected effects
of the sale.
The unaudited pro forma condensed combined statements of income reflect the
historical results of continuing operations for ProAssurance for the periods
presented. As required by Rule 11-02 of Regulation S-X, the unaudited pro forma
condensed combined statements of income have been prepared assuming that the
sale occurred as of the beginning of the period presented. However, the pro
forma adjustments do not presume any increase in investment earnings due to
investment of cash proceeds from the sale.
The following is a summary of the estimated results of the sales transaction.
Proceeds from sale:
Fixed maturity securities $ 25,000
Cash 375,000
------------------
400,000
Less:
Expenses of sale, principally professional fees 5,000
------------------
Net before-tax proceeds from sale 395,000
Less:
Carrying value of net assets sold 221,994
------------------
Estimated before-tax gain on sale 173,006
Estimated tax effect of transaction (60,552)
------------------
Estimated after-tax gain on sale $ 112,454
==================
Note 2--Pro Forma Adjustments
A) Reflects reduction for amounts related to MEEMIC that were included in the
ProAssurance historical balance sheet.
B) Reflects the portion of the proceeds received in the form of fixed maturity
securities, at fair value.
C) Reflects net proceeds from sale less the expected tax effect of the
transaction and proceeds received in the form of fixed maturity securities
as described in B, above.
D) Reflects reversal of accumulated other comprehensive income recognized
related to investment securities held by MEEMIC.
E) Reflects the expected after-tax gain on the sale, the calculation of which
is presented in Note 1.
F) Reflects reduction for MEEMIC operating results included in ProAssurance's
historical income statements for the periods shown.
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(b) Exhibits
Exhibit No. Description
2.1 Stock Purchase Agreement dated as of November 4, 2005, among
Motors Insurance Corporation, MEEMIC Insurance Services
Corporation, MEEMIC Holdings, Inc. and ProAssurance
Corporation (without Exhibits & Schedules). Incorporated by
Reference.
2.2 Letter Agreement between ProAssurance and Lynn Kalinowski,
dated November 4, 2005. Incorporated by Reference.
2.3 Cross Receipt and Release Agreement between ProAssurance,
MEEMIC Holdings, Inc. and Lynn Kalinowski, dated January 4,
2006.
99.1 News release announcing the completion of the sale of the
Companies, released on January 4, 2006. We are furnishing
this exhibit in accordance with Item 7.01 of Form 8-K.
On December 8, 2005, ProAssurance Corporation ("ProAssurance") announced
that it entered into a definitive agreement that provides for Physicians
Insurance Company of Wisconsin ("PIC Wisconsin") to be merged into ProAssurance
in a proposed all-stock transaction. This report is also being filed as a Rule
425 prospectus with respect to this proposed transaction.
ProAssurance will file with the SEC a registration statement and a proxy
statement-prospectus and other relevant documents concerning the proposed
transaction with PIC Wisconsin. Shareholders of PIC Wisconsin are urged to read
the registration statement and the proxy statement-prospectus when they become
available and any other relevant documents filed with the SEC, as well as any
amendments or supplements to those documents, as they will contain important
information. You will be able to obtain a free copy of the proxy
statement-prospectus, as well as other filings containing information about
ProAssurance and PIC Wisconsin, at the SEC's internet site (http://www.sec.gov).
Copies of the proxy statement-prospectus can be obtained, without charge, by
directing a request to Frank B. O'Neil, Senior Vice President, Corporation
Communications, ProAssurance Corporation, 100 Brookwood Place, Birmingham,
Alabama 35209, telephone (205) 877-4461.
Caution Regarding Forward Looking Statements
This report contains historical information as well as forward-looking
statements that are based upon our estimates and anticipation of future events
that are subject to certain risks and uncertainties that could cause actual
results to vary materially from the expected results described in the
forward-looking statements. The words "anticipate," "believe," "estimate,"
"expect," "hopeful," "intend," "may," "optimistic," "preliminary," "project,"
"should," "will," and similar expressions are intended to identify these
forward-looking statements. There are numerous important factors that could
cause our actual results to differ materially from those in the forward-looking
statements. Thus, sentences and phrases that we use to convey our view of future
events and trends are expressly designated as "forward-looking statements" as
are sections of this news release clearly identified as giving our outlook on
future business. The principal risk factors that may cause actual results to
differ materially from those expressed in the forward-looking statements are
described in various documents we file with the Securities and Exchange
Commission, including Form 10K/A for the year ended December 31, 2004 and Form
10Q for the most recent quarter. These forward-looking statements are subject to
significant risks, assumptions and uncertainties, including, among other things,
the following important factors that could affect the actual outcome of future
events.
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We urge you not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and wish to advise readers that the
factors listed above could affect our financial performance and could cause
actual results for future periods to differ materially from any opinions or
statements expressed with respect to periods in any current statements. We do
not undertake and specifically decline any obligation to publicly release the
result of any revisions that may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
Pursuant to the requirements of the Securities Exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 9, 2006
PROASSURANCE CORPORATION
By: /s/ Edward L. Rand, Jr.
------------------------
Edward L. Rand, Jr.
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