-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzUzcalCk8GmohhGoeQX1TnQyDur4zlnhgTssklfTnqy9wXW1taH/IKbnCkjZ6OE 8xugPTGZzLX/JAqFy4+UXw== 0001157523-06-000125.txt : 20060109 0001157523-06-000125.hdr.sgml : 20060109 20060109060426 ACCESSION NUMBER: 0001157523-06-000125 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060104 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060109 DATE AS OF CHANGE: 20060109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROASSURANCE CORP CENTRAL INDEX KEY: 0001127703 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 631261433 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16533 FILM NUMBER: 06517877 BUSINESS ADDRESS: STREET 1: 100 BROOKWOOD PLACE CITY: BIRMINGHAM STATE: AL ZIP: 35209 BUSINESS PHONE: 2058774400 8-K 1 a5051137.txt PROASSURANCE CORPORATION 8-K 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. 2 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. 3 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 ====================================================================
4 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 ================ ==============
5 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 ================ ===============
6 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. 7 (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. 8 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. 9 EX-2.3 2 a5051137ex2_3.txt EXHIBIT 2.3 Exhibit 2.3 CROSS RECEIPT AND RELEASE AGREEMENT ----------------------------------- THIS AGREEMENT is made and entered into between and among Lynn M. Kalinowski ("Executive"), ProAssurance Corporation ("ProAssurance") and MEEMIC Holdings, Inc. ("Holdings"). RECITALS: On January 4, 2006, ProAssurance through its wholly owned subsidiary, Holdings, sold to Motors Insurance Corporation ("Purchaser") all of the issued and outstanding capital stock of Holdings' operating subsidiaries, MEEMIC Insurance Company ("MEEMIC Insurance") and MEEMIC Insurance Services Corporation ("MEEMIC Agency" which together with MEEMIC Insurance are collectively referred to as the "Companies"). Under the terms of a letter agreement between Executive and ProAssurance dated November 4, 2005 (the "Letter Agreement") ProAssurance agreed to pay Executive a success fee (the "Success Fee") in the amount of $570,000, of which $285,000 is payable at closing of the sale of the Companies (the "Closing") and the balance is payable 18 months after the Closing unless accelerated as provided in the Letter Agreement. The Letter Agreement provides for the acceleration of payment of the second installment of the Success Fee to the date of Closing if prior to the Closing Executive agrees to terminate the Release and Severance Compensation Agreement dated June 15, 2001, among Executive, ProAssurance, Holdings and MEEMIC Insurance (the "Severance Agreement") and to release ProAssurance, Holdings and the Companies from their respective obligations under the Severance Agreement. On December 21, 2005, Executive agreed to terminate the Severance Agreement in the letter attached hereto as Exhibit A, and ProAssurance has paid the full amount of the Success Fee to the Executive. The parties desire to enter into this Agreement to evidence payment of the Success Fee and the release of claims as required under the Letter Agreement. AGREEMENT NOW, THEREFORE, these premises considered, and in consideration of the mutual covenants and conditions herein set forth and other good and valuable consideration, the parties do hereby agree as follows: ProAssurance shall pay, or cause its subsidiary, to pay Executive cash in the amount of $570,000 representing the payment of the Success Fee before applicable and legally required withholding for income and employment taxes ("Withholdings"). The parties hereby acknowledge that Executive was a participant in certain employee benefit plans maintained by ProAssurance for employees of the Companies on the date of Closing, and agree with respect to participation in such plans as follows: On date of Closing, Executive held options to purchase 17,500 shares of common stock of ProAssurance ("ProAssurance Common Stock") under the ProAssurance Incentive Compensation Stock Plan (the "1995 Option"), all of which became vested at the Closing and options to purchase 10,000 shares of ProAssurance Common Stock under the ProAssurance 2004 Equity Incentive Plan (the "2004 Options"), all of which became vested at the Closing. Executive may exercise the 1995 Options and the 2004 Options within 30 days after Closing. Any options not exercised within said time periods shall be forfeited in accordance with the terms of the respective plans and agreements for said options. Executive shall be required to make arrangements satisfactory to ProAssurance for payment of all amounts required to be withheld for income and employment taxes in connection with the exercise of the options. On the date of Closing, Executive had a total of 858.24075 shares of ProAssurance Common Stock and the ProAssurance Employee Stock Ownership Plan 10 (the "Stock Purchase Plan") of which 315.08577 Grant Shares, which were previously unvested, became vested upon the Closing. The shares held for the account of the Executive under the Stock Purchase Plan shall be distributed to Executive promptly after Closing, except that fractional shares shall be purchased or redeemed for cash at the then current price. Executive shall be required to make arrangements satisfactory to ProAssurance for payment of all amounts required to be withheld for income and employment taxes in accordance with the Stock Purchase Plan. Employee hereby acknowledges delivery of a check of ProAssurance's subsidiary, ProNational Insurance Company, payable to Executive in the amount of $391,164.60 (after $142,500.00 federal, $22,230.00 state, $5,840.40 Social Security, and $8,265.00 Medicare withholding in full satisfaction of the cash payments described in Section 1 hereof. Executive hereby waives, releases and forever discharges ProAssurance, Holdings and the Companies, and each of their direct or indirect parents, subsidiaries and affiliates, and each of their present or former employees, officers, agents, directors, and their respective successors and assigns, of and from any and all claims, causes of action, expenses and compensation under the Severance Agreement and the Letter Agreement. This Agreement constitutes the entire agreement between the parties at the time and date this Agreement is executed, and fully supersedes any and all prior agreements or understandings between them pertaining to the subject matter in this Agreement. This Agreement may not be modified or amended except by a written agreement intended as such, and signed by all parties. Executive and the Company acknowledge that they have read and understand this Agreement, that they have had adequate time to consider this Agreement and discuss it with their attorneys and advisors, that they understand the consequences of entering into this Agreement, that they are knowingly and voluntarily entering into this Agreement, and that they are competent to enter into this Agreement. This Agreement shall benefit and be binding upon the parties and their respective directors, officers, employees, agents, heirs, successors, assigns, devisees and legal or personal representatives. Except to the extent that federal law controls, this Agreement is to be construed according to the law of the State of Michigan. If any provision of this Agreement is determined to be unenforceable, at the discretion of the Company the remainder of this Agreement shall not be affected but each remaining provision or portion shall continue to be valid and effective and shall be modified so that it is enforceable to the fullest extent permitted by law. This Agreement will be interpreted as a whole according to its fair terms. It will not be construed strictly for or against either party. [SIGNATURES ON FOLLOWING PAGE] 11 To signify their agreement to the terms of this Agreement, the parties have executed it on the date set forth opposite their signatures, or those of their authorized agents, which follow: Dated: January 4, 2005 /s/ Lynn M. Kalinowski --------------- ---------------------- Lynn M. Kalinowski PROASSURANCE CORPORATION Dated: January 4, 2005 /s/ Victor T. Adamo --------------- ------------------- Its: President MEEMIC HOLDINGS, INC. Dated: January 4, 2005 /s/ Victor T. Adamo --------------- ------------------- Its: Chief Executive Officer 12 Edward L. Rand, Jr. Senior Vice President and Chief Financial Officer ProAssurance Corporation P.O. Box 590009 Birmingham, AL 35259-0009 Dear Mr. Rand: The purpose of this letter is to provide written notice to ProAssurance Corporation that I will agree to terminate my Severance Agreement and to release MEEMIC Insurance Company, MEEMIC Insurance Services Corporation, ProAssurance Corporation and MEEMIC Holdings, Inc. from their respective obligations thereunder, effective on the date of Closing, as defined in our letter agreement dated November 4, 2005. My understanding is that in exchange for this agreement, ProAssurance will pay me the amount of my Success Fee at Closing. If my understanding is not correct, or you need any additional documentation completed, please contact me immediately. /s/ Lynn M. Kalinowski -------------------------------------- Lynn M. Kalinowski 13 [LETTERHEAD OF PROASSURANCE CORPORATION] November 4, 2005 Lynn M. Kalinowski MEEMIC Insurance Company 691 North Squirrel Road, Suite 100 Auburn Hills, MI 48326 Dear Lynn: ProAssurance Corporation ("PRA") and MEEMIC Holdings, Inc. ("Holdings") are in the process of negotiating a proposed transaction (the "Transaction") that will involve the sale of all of the stock of MEEMIC Insurance Company and MEEMIC Insurance Services Corporation (the "Companies") to Motors Insurance Company ("Buyer"). Because of your knowledge of and experience with the financial and business operations of the Companies, PRA and Holdings have requested your cooperation and assistance in negotiating and effecting the Transaction. In connection therewith, PRA and Holdings agree to pay you a success fee on the following terms and conditions. Subject to the conditions herein set forth, PRA will pay you a success fee in a total amount equal to two times your current base salary of $285,000 per annum (the "Success Fee") in two installments with the first installment in the amount of $285,000 due promptly after the closing of the Transaction (the "Closing") and the second installment in the amount of $285,000 due 18 months following the Closing if you are still employed by either of the Companies or by Buyer or its affiliate; provided, however, that the second installment will become immediately due and payable if you should become entitled to severance compensation under the terms of the Release and Severance Compensation Agreement dated June 15, 2001, among you, PRA, Holdings and MEEMIC Insurance Company (the "Severance Agreement"). Notwithstanding the foregoing, PRA will pay you the full amount of your Success Fee at Closing if and on the condition that prior to Closing you agree in writing to terminate your Severance Agreement and to release the Companies, Holdings, and PRA from their respective obligations thereunder effective on the date of Closing. The obligation of PRA to pay the Success Fee is subject to and conditioned upon the closing of the Transaction and upon your compliance with the following covenants: 1. You shall cooperate and assist PRA, Holdings and the Companies in the negotiation of the Transaction documents; the due diligence relating to the Transaction; the requests for third party consents to the Transaction; and the filings relating to all necessary governmental approvals for the Transaction. 2. You shall review the terms and provisions of the Stock Purchase Agreement to be executed as of October 31, 2005, by and among Buyer, Holdings, PRA and the Companies (the "Stock Purchase Agreement") and the Companies' Disclosure Schedule delivered to Buyer as required under the Stock Purchase Agreement (the "Disclosure Schedule"); and you shall provide your written certification to PRA (included herein) that you have reviewed the Stock Purchase Agreement and Disclosure Schedule and that to the best of your knowledge after a reasonable investigation, the representations and warranties in Article II of the Stock Purchase Agreement, when read together with the Disclosure Schedule are true, correct and complete. 3. You shall review the updated Disclosure Schedule as and when prepared and delivered to Buyer as required under the Stock Purchase Agreement and provide your written certification to PRA that to the best of your knowledge after a reasonable investigation, the updated Disclosure Schedule is true, correct and complete. 14 In consideration of PRA's agreement to pay you the Success Fee as provided herein: (a) You hereby certify to PRA and Holdings that you have reviewed the most recent draft of the Stock Purchase Agreement and Disclosure Schedule (dated November 1, 2005) and that the representations and warranties set forth in Article II of said Stock Purchase Agreement when read in conjunction with the Disclosure Schedule are true, accurate and complete. (b) If you should be entitled to severance compensation under the Severance Agreement, you agree that the Success Fee will not be treated as bonus compensation for purposes of calculating the amount of your severance compensation under the terms of the Severance Agreement, and you agree that the Success Fee can be included in the calculation of the limitation on severance compensation under paragraph 3 of the Severance Agreement if and to the extent that the Success Fee constitutes a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended. If the foregoing is acceptable to you, please indicate your acceptance and agreement to the terms of this letter and your certification as herein required by executing a copy of this letter in the space provided below. Sincerely, /s/ Edward L. Rand, Jr. Edward L. Rand, Jr. Senior Vice President and Chief Financial Officer ACCEPTED, AGREED and CERTIFIED by the undersigned on this 4th day of November, 2005: /s/ Lynn M. Kalinowski Lynn M. Kalinowski 15 EX-99.1 3 a5051137ex991.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1: News Release Dated January 4, 2006 ProAssurance Closes Sale of Personal Lines Operations BIRMINGHAM, Ala.--(BUSINESS WIRE)--Jan. 4, 2006--ProAssurance Corporation (NYSE:PRA) has closed the sale of its personal lines insurance operations to Motors Insurance Corporation, a subsidiary of GMAC Insurance Holdings, Inc. The transaction is worth $400 million to ProAssurance, before transaction expenses. GMAC Insurance paid approximately $325 million in cash for MEEMIC Insurance Company and its internal agency, and ProAssurance retained approximately $75 million of MEEMIC's pre-sale capital. The proceeds will be held for general corporate purposes, including support of the capital requirements of ProAssurance's professional liability insurance subsidiaries. The effective date of the transaction is January 1, 2006. MEEMIC will be accounted for as discontinued operations when ProAssurance reports 2005 results. ProAssurance was advised by Cochran, Caronia & Co. on this transaction. About ProAssurance ProAssurance Corporation is the nation's fourth largest writer of medical professional liability insurance. Our principal professional liability subsidiaries are The Medical Assurance Company, Inc., ProNational Insurance Company, NCRIC, Inc., and Red Mountain Casualty Insurance Company. We also write professional liability coverage through Woodbrook Casualty Insurance Company. A.M. Best assigns a rating of "A-" (Excellent) to the ProAssurance Group and our principal professional liability subsidiaries, except NCRIC, Inc. which is rated B++ (Very Good). Standard & Poor's assigns our principal professional liability carriers a rating of "A-" ("Strong") but has not yet issued a rating for NCRIC, Inc. Fitch assigns a rating of "A-" to ProAssurance and our subsidiaries. Caution Regarding Forward-Looking Statements This news release 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. 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. CONTACT: ProAssurance Corporation Frank B. O'Neil, 800-282-6242 or 205-877-4461 foneil@ProAssurance.com 16 -----END PRIVACY-ENHANCED MESSAGE-----