Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement
On March 13, 2008, National Atlantic Holdings Corporation, a New Jersey
corporation ("NAHC"), entered into a merger agreement (the "Merger Agreement")
with Palisades Safety and Insurance Association, an insurance exchange organized
under NJSA 17:50-1 et seq. ("Palisades"), and Apollo Holdings, Inc., a New
Jersey corporation and a direct wholly owned subsidiary of Palisades ("Merger
Sub"). The Merger Agreement provides that, upon the terms and subject to the
conditions set forth in the Merger Agreement, Merger Sub will merge with and
into NAHC, with NAHC continuing as the surviving corporation (the "Surviving
Corporation") and a direct wholly owned subsidiary of Palisades (the "Merger").
At the effective time and as a result of the Merger, in exchange for their
shares of issued and outstanding NAHC common stock, NAHC shareholders shall
receive $6.25 in cash for each of their shares. The closing price of NAHC shares
on the NASDAQ on March 12, 2008 was $5.46.
In addition, at or prior to the effective time of the Merger, each
outstanding option to purchase Common Stock and each outstanding stock
appreciation right (vested or unvested) will be canceled and the holder will be
entitled to receive an amount of cash equal to the difference between the Merger
Consideration and the exercise price of the applicable stock option, or the
difference between the Merger Consideration and the applicable per share base
price of the stock appreciation right, as applicable, less any required
withholding taxes.
The Merger Agreement provides that the directors and officers of the Merger
Sub immediately prior to the effective time of the Merger will be the directors
and officers of the Surviving Corporation.
NAHC and Palisades have made customary representations, warranties and
covenants in the Merger Agreement. The completion of the Merger is subject to
approval by the shareholders of NAHC, obtaining regulatory approvals, including
antitrust approval, and satisfaction or waiver of other conditions.
The Merger is subject to various closing conditions, including the approval
of NAHC's shareholders, the obtaining of certain regulatory approvals specified
in the Merger Agreement, the maintenance by NAHC of certain stockholders' equity
and capital and surplus measures within prescribed levels, NAHC obtaining a
directors' and officers' liability tail policy for a specified cost and level of
coverage and the maintenance of the A.M. Best Financial Strength Rating of
Proformance Insurance Company within a prescribed rating.
The Merger Agreement contains certain termination rights for both NAHC and
Palisades and further provides that, upon termination of the Merger Agreement
under specified circumstances, NAHC may be required to pay Palisades a
termination fee of up to $2,100,000. Furthermore, the Merger Agreement provides
that, upon termination of the Merger Agreement under specified circumstances
unrelated to a failure of the closing conditions, Palisades may be
required to pay NAHC certain liquidated damages based on the circumstances
relating to such termination.
Voting Agreement
Simultaneously with the execution and delivery of the Merger Agreement,
Palisades and James V. Gorman, the Chief Executive Officer of NAHC entered into
a voting agreement (the "Voting Agreement"). In the Voting Agreement, Mr. Gorman
agreed to vote, or provide his consent with respect to, all shares of NAHC
capital stock held by such him: (1) in favor of the recommendation of the Board
of Directors of NAHC to the holders of Common Shares; and (2) against any
Acquisition Proposal, or any agreement providing for the consummation of a
transaction contemplated by any Acquisition Proposal (other than the Merger and
other than following any Change in Recommendation made by the Board of Directors
pursuant to the requirements of the Merger Agreement); and (3) in favor of any
proposal to adjourn a shareholders' meeting which the Company, Merger Sub and
Parent support.
The foregoing description of the Merger, the Merger Agreement and the
Voting Agreement does not purport to be complete and is qualified in its
entirety by reference to (i) the complete text of the Merger Agreement, which is
attached hereto as Exhibit 2.1 and (ii) the complete text of the Voting
Agreement, which is attached hereto as Exhibit 4.1, which Merger Agreement and
Voting Agreement are incorporated herein by reference.
The Merger Agreement has been included to provide investors and
shareholders with information regarding its terms. It is not intended to provide
any other factual information about NAHC. The Merger Agreement contains
representations and warranties that the parties to the Merger Agreement made to
and solely for the benefit of each other. The assertions embodied in such
representations and warranties are qualified by information contained in
confidential disclosure letters that the parties exchanged in connection with
signing the Merger Agreement. Accordingly, investors and shareholders should not
rely on such representations and warranties as characterizations of the actual
state of facts or circumstances, since they were only made as of the date of the
Merger Agreement and are modified in important part by the underlying disclosure
letters. Moreover, information concerning the subject matter of such
representations and warranties may change after the date of the Merger
Agreement, which subsequent information may or may not be fully reflected in
NAHC's public disclosures.