Unassociated Document
UNITED
STATES
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): December
4, 2006
DIRECT
GENERAL CORPORATION
(Exact
Name of Registrant as Specified in Charter)
|
Tennessee
|
000-50360
|
62-1564496
|
|
(State
or other jurisdiction
|
(Commission
|
(I.
R. S. Employer
|
|
of
incorporation)
|
File
Number)
|
Identification
No.)
|
1281
Murfreesboro Road Nashville, Tennessee 37217
(Address of Principal Executive Offices)
(Zip
Code)
Registrant's
telephone number, including area code: (615)
399-4700
Not
Applicable
(Former
name or former address, if changed since last report)
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:
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
x
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
Item
1.01 Entry
Into a Material Definitive Agreement.
Merger
Agreement
On
December 4, 2006, Direct General Corporation (the "Company") entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Elara Holdings,
Inc.
("Parent") and Elara Merger Corporation ("Merger Sub").
Under
the
terms of the Merger Agreement, Merger Sub will be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation and as a wholly owned
subsidiary of Parent (the "Merger"). Parent and Merger Sub are entities owned
and controlled by Fremont Partners III, L.P., Fremont Partners III Side-by-Side,
L.P., Fremont Investors X, L.L.C., and TPG Partners V, L.P.
The
board
of directors of the Company (acting upon the unanimous recommendation of the
special committee, the members of which are not affiliated with Parent or Merger
Sub and are not members of the Company's management) has adopted the Merger
Agreement and approved the transactions contemplated thereby upon the terms
and
subject to the conditions set forth in the Merger Agreement.
Pursuant
to the Merger Agreement, at the effective time of the Merger, each outstanding
share of common stock of the Company (the "Common Stock"), will be cancelled
and
converted into the right to receive $21.25 in cash, without interest, upon
surrender of the certificate representing the outstanding share of Common Stock.
Except for certain options held by certain continuing investors, each company
option, whether vested or unvested, outstanding immediately prior to the
effective time of the Merger, will be cancelled in exchange for the right to
receive the excess, if any, of the Merger consideration over the per share
exercise price of the Common Stock subject to such option.
The
Company has made customary representations and warranties and covenants in
the
Merger Agreement.
The
Company is subject to a "no-shop" restriction on its ability to solicit
third-party proposals, provide information and engage in discussions with third
parties. The no-shop provision is subject to a "fiduciary-out" provision that
allows the Company to provide information and participate in discussions with
respect to third party proposals submitted.
The
Company may terminate the Merger Agreement under certain circumstances,
including if its Board of Directors determines in good faith that it has
received a superior offer and it otherwise complies with certain terms of the
Merger Agreement. In connection with such termination, the Company must pay
a
fee of $13 million to Parent. In certain other circumstances, the Merger
Agreement provides for Parent or the Company to pay to the other party a fee
of
$13 million upon termination of the Merger Agreement.
Parent
has obtained equity and debt financing commitments for the transactions
contemplated by the Merger Agreement, the aggregate proceeds of which will
be
sufficient for Parent to pay the aggregate Merger consideration and all related
fees and expenses. In addition, the Company has entered into a Limited Guarantee
with Fremont Partners III, L.P., Fremont Partners III Side-by-Side, and TPG
Partners V, L.P., who each irrevocably and unconditionally guarantee Parent’s
obligation in the event that the Merger Agreement is terminated and Parent
is
obligated to pay a termination fee. A form of the Limited Guarantee is attached
as Exhibit 2.2.
Consummation
of the Merger is subject to various conditions, including approval of the Merger
by the Company's shareholders, expiration or termination of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt
of all authorizations, consents, and approvals required by any state insurance
department or financing department, and other customary closing conditions.
The
parties expect to close the transaction during the first half of 2007.
The
foregoing summary of the Merger Agreement and the transactions contemplated
thereby does not purport to be complete and is subject to, and qualified in
its
entirety by, the full text of the Merger Agreement attached as Exhibit 2.1.
The
Merger Agreement has been included to provide investors and security holders
with information regarding its terms. It is not intended to provide any other
factual information about the Company. The representations, warranties and
covenants contained in the Merger Agreement were made only for purposes of
such
agreement and as of specific dates, were solely for the benefit of the parties
to such agreement, and may be subject to limitations agreed upon by the
contracting parties, including being qualified by confidential disclosures
exchanged between the parties in connection with the execution of the Merger
Agreement. The representations and warranties may have been made for the
purposes of allocating contractual risk between the parties to the agreement
instead of establishing these matters as facts, and may be subject to standards
of materiality applicable to the contracting parties that differ from those
applicable to investors. Investors are not third-party beneficiaries under
the
Merger Agreement and should not rely on the representations, warranties and
covenants or any descriptions thereof as characterizations of the actual state
of facts or condition of the Company or Parent or any of their respective
subsidiaries or affiliates. Moreover, information concerning the subject matter
of the representations and warranties may change after the date of the Merger
Agreement, which subsequent information may or may not be fully reflected in
the
Company's public disclosures.
Termination
of the 1996 Employee Stock Incentive Plan and the 2003 Equity Incentive
Plan
Upon
consummation of the Merger, each company option, whether vested or unvested,
outstanding immediately prior to the effective time of the Merger, will be
cancelled in exchange for the right to receive the excess, if any, of the Merger
consideration over the per share exercise price of the Common Stock subject
to
such option. Also upon the consummation of the Merger, the Company’s 1996
Employee Stock Incentive Plan and the 2003 Equity Incentive Plan will terminate.
Important
Additional Information will be filed with the SEC:
In
connection with the proposed Merger, the Company will prepare a proxy statement
for the shareholders of the Company to be filed with the Securities and Exchange
Commission ("SEC"). Before making any voting decision, the company's
shareholders are urged to read the proxy statement regarding the Merger
carefully in its entirety when it becomes available because it will contain
important information about the proposed transaction. The Company's shareholders
and other interested parties will be able to obtain, without charge, a copy
of
the proxy statement (when available) and other relevant documents filed with
the
SEC from the SEC's website at http://www.sec.gov. The Company's shareholders
and
other interested parties will also be able to obtain, without charge, a copy
of
the proxy statement and other relevant documents (when available) by directing
such request to Direct General Corporation, Investor Relations, 2813 Business
Park Drive, Building I, Memphis, TN 38118, or through the company's website
at
www.directgeneral.com.
The
Company
and its directors and officers may be deemed to be participants in the
solicitation of proxies from the Company's shareholders with respect to the
Merger. Information about the Company's directors and executive officers and
their ownership of the Company's common stock is set forth in the proxy
statement for the Company's 2006 Annual Meeting of Shareholders, which was
filed
with the SEC on March 15, 2006. Shareholders and investors may obtain additional
information regarding the interests of the Company and its directors and
executive officers in the Merger, which may be different than those of the
Company's shareholders generally, by reading the proxy statement and other
relevant documents regarding the Merger, which will be filed with the
SEC.
Item
5.02 Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers; Compensatory Arrangements of Certain Officers.
Certain
Resignation and Restrictive Covenants Agreements
On
December 4, 2006, and in connection with the Merger, the Company entered into
Resignation and Restrictive Covenants Agreements with Parent and each of William
C. Adair and Jacqueline C. Adair. The effectiveness of each agreement is
conditioned upon the consummation of the Merger. Under the terms of each
executive’s respective agreement, Mr. Adair will resign from his position as
Chairman and Chief Executive Officer of the Company, but continue to serve
as a
director of the Company, and Ms. Jacqueline Adair will resign from her position
as Executive Vice President and Chief Operating Officer of the Company. Each
of
the agreements contains five year non-competition and non-solicitation of
employees and customers clauses, as well as a non-disclosure
clause.
Mr.
Adair’s agreement waives section 3.3(i) of the Executive Employment Agreement,
entered into on July 21, 2003, between Mr. Adair and the Company, which would
have otherwise entitled Mr. Adair to a lump sum payment in the event of
termination of his employment in connection with a change of control. Upon
effectiveness of his new agreement, Mr. Adair will be entitled to receive
severance payments in accordance with Section 3.3 of his former agreement,
which
will include continued payment of Mr. Adair’s most recent salary for a period of
twenty-four months, continued eligibility of Mr. Adair for all Company benefit
plans for a period of twenty-four months, immediate vesting of outstanding,
unvested Company stock options, and the right to retain two vehicles. Mr.
Adair’s Resignation and Restrictive Covenants Agreement is attached as Exhibit
10.1 hereto.
Upon
effectiveness of her new agreement, Ms. Jacqueline Adair will be entitled to
receive severance payments in accordance with Section 3.3 of her Executive
Employment Agreement, entered into on July 21, 2003, between Ms. Jacqueline
Adair and the Company, which will include continued payment of Ms. Jacqueline
Adair’s most recent salary for a period of twenty-four months, continued
eligibility of Ms. Jacqueline Adair for all Company benefit plans for a period
of twenty-four months, immediate vesting of outstanding, unvested Company stock
options, and the right to retain one vehicle. Ms. Jacqueline Adair’s Resignation
and Restrictive Covenants Agreement is attached as Exhibit 10.2
hereto.
Certain
Employment Agreements
On
December
4, 2006, and in connection with the Merger, the Company entered into Employment
Agreements with Parent and each of Tammy R. Adair and J. Todd Hagely. The
effectiveness of each agreement is conditioned upon consummation of the Merger.
Ms. Tammy Adair will continue to serve as President of the Company with an
annual base salary of $300,000 and Mr. Hagely will continue to serve as
Executive Vice President and Chief Financial Officer of the Company with an
annual base salary of $215,000. Each executive will be entitled to participate
in a bonus plan and a Parent stock option plan to be adopted by the Company’s
board of directors.
The
term
of each employment agreement ends at such time that the executive’s employment
is terminated by either the Company or the employee. Each agreement contains
customary terms regarding competing with the Company during and after the term
of employment and non-competition and non-solicitation following termination
of
the executive’s employment.
Each
employment agreement provides for certain payments if the employment of
executive is terminated by the executive for good reason or by the Company,
other than for death, disability, or cause. In such circumstances, Ms. Tammy
Adair would be entitled to receive, among other things, two-hundred percent
of
the her annual base salary in effect at the time of termination, payable over
twenty-four months, and continued health benefits for twenty-four months. Mr.
Hagely would be entitled to receive, among other things, one-hundred percent
of
his respective base salary in effect at the time of termination, payable over
twelve months, and continued health benefits for twelve months.
Ms.
Tammy
Adair’s agreement is attached as Exhibit 10.3,and Mr. Hagely’s agreement is
attached as Exhibit 10.4.
Indemnification
Agreements
On
December 4, 2006, the Company entered into indemnification agreements with
each
of William C. Adair, Jr., Jacqueline C. Adair, Fred H. Medling, Raymond L.
Osterhout, and Stephen L. Rohde, who are each directors. Each agreement provides
that the Company will indemnify and advance expenses to the director in
connection with any action, suit, or other proceeding that arises out of or
is
related to service by the director as a member of the Company’s board of
directors or any committee thereof and to which the director is or is threatened
to be made a party. In addition, the Company will indemnify the director against
expenses, judgments, penalties, fines and amounts paid in settlements actually
and reasonably incurred by the director or on his or her behalf. The
indemnification agreements are not exclusive of any other rights to
indemnification that the directors may have under applicable law, the Company’s
charter, its bylaws, any other agreement, or otherwise. The rights granted
under
the agreements shall last until the later of ten years after the director ceases
being a director or until all indemnifiable proceedings are terminated. A form
of the Indemnification Agreement is attached hereto as Exhibit
10.5.
On
December 4, 2006, the Company entered into indemnification agreements with
each
member of the Special Committee of the board of directors, which includes Fred
H. Medling, Raymond L. Osterhout, and Stephen L. Rohde. Each agreement provides
that the Company will indemnify and advance expenses to the director in
connection with any action, suit, or other proceeding that arises out of or
is
related to service by the director as a member of the Special Committee of
the
Company’s board of directors and to which the director is or is threatened to be
made a party. In addition, the Company will indemnify the director against
expenses, judgments, penalties, fines and amounts paid in settlements actually
and reasonably incurred by the director or on his or her behalf. The
indemnification agreements are not exclusive of any other rights to
indemnification that the directors may have under applicable law, the Company’s
charter, its bylaws, any other agreement, or otherwise. The rights granted
under
the agreements shall last until the later of ten years after the director ceases
being a director or until all indemnifiable proceedings are terminated. A form
of the Special Committee Indemnification Agreement is attached hereto as Exhibit
10.6.
Item
7.01 Regulation
FD Disclosure.
On
December 5, 2006, the Company issued a press release announcing that it had
entered into the Merger Agreement. A copy of the press release is attached
as
Exhibit 99.1 hereto.
Item
8.01 Other
Events.
Shareholder
Voting Agreement
On
December 4, 2006, Tammy R. Adair, in her capacity as sole trustee of the William
C. Adair, Jr. Trust, entered into a Shareholder Voting Agreement with Parent,
pursuant to which such shareholder agrees to vote in favor of the Merger and
agrees to, or refrain from, taking certain actions in connection therewith.
The
shares subject to the Shareholder Voting Agreement represent approximately
21%
of the aggregate voting power of the Common Stock. The Company is not a party
to
the Shareholder Voting Agreement.
Forward-Looking
Statements:
This
Current Report and the exhibits furnished herewith contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements include statements regarding expectations
as to
the completion of the Merger and the other transactions contemplated by the
Merger Agreement. The forward-looking statements contained herein involve risks
and uncertainties that could cause actual results to differ materially from
those referred to in the forward-looking statements. Such risks include, but
are
not limited to, the ability of the parties to the Merger Agreement to satisfy
the conditions to closing specified in the Merger Agreement. More information
about the Company and other risks related to the Company are detailed in the
Company's most recent annual report on Form 10-K for the fiscal year ended
December 31, 2005, and its quarterly reports on Form 10-Q and current reports
on
Form 8-K as filed with the SEC. The Company does not undertake an obligation
to
update forward-looking statements.
Item
9.01 Financial
Statements and Exhibits.
(d) Exhibits:
|
Exhibit
Number
|
|
Description
|
| |
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of December 4, 2006, by and among Elara
Holdings, Inc., Elara Merger Corporation and Direct General
Corporation*
|
| |
|
|
|
2.2
|
|
Form
of Limited Guarantee, dated as of December 4, 2006, by Guarantor
in favor
of Direct General Corporation.
|
| |
|
|
|
10.1
|
|
Resignation
and Restrictive Covenants Agreement, dated as of December 4, 2006,
by and
between William C. Adair, Direct General Corporation, and Elara Holdings,
Inc.
|
| |
|
|
|
10.2
|
|
Resignation
and Restrictive Covenants Agreement, dated as of December 4, 2006,
by and
between Jacqueline C. Adair, Direct General Corporation, and Elara
Holdings, Inc.
|
| |
|
|
|
10.3
|
|
Employment
Agreement, dated as of December 4, 2006, by and between Tammy R.
Adair,
Direct General Corporation, and Elara Holdings, Inc.
|
| |
|
|
|
10.4
|
|
Employment
Agreement, dated as of December 4, 2006, by and between J. Todd Hagely,
Direct General Corporation, and Elara Holdings, Inc.
|
| |
|
|
|
10.5
|
|
Form
of Director Indemnification Agreement, dated as of December 4, 2006,
by
and between Director and the Company
|
| |
|
|
|
10.6
|
|
Form
of Special Committee Indemnification Agreement, dated as of December
4,
2006, by and between Member and the Company
|
| |
|
|
|
99.1
|
|
Press
Release dated December 5, 2006
|
| |
|
|
|
*
|
|
Schedules
and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.
The
Company agrees to furnish supplementally a copy of any omitted schedule
to
the SEC upon request.
|
SIGNATURE
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 thereunto
duly authorized.
Date:
December 4, 2006
DIRECT
GENERAL CORPORATION
(Registrant)
By: /s/
Ronald F. Wilson
INDEX
TO EXHIBITS
|
Exhibit
Number
|
|
Description
|
| |
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of December 4, 2006, by and among Elara
Holdings, Inc., Elara Merger Corporation and Direct General
Corporation*
|
| |
|
|
|
2.2
|
|
Form
of Limited Guarantee, dated as of December 4, 2006, by Guarantor
in favor
of Direct General Corporation.
|
| |
|
|
|
10.1
|
|
Resignation
and Restrictive Covenants Agreement, dated as of December 4, 2006,
by and
between William C. Adair, Direct General Corporation, and Elara Holdings,
Inc.
|
| |
|
|
|
10.2
|
|
Resignation
and Restrictive Covenants Agreement, dated as of December 4, 2006,
by and
between Jacqueline C. Adair, Direct General Corporation, and Elara
Holdings, Inc.
|
| |
|
|
|
10.3
|
|
Employment
Agreement, dated as of December 4, 2006, by and between Tammy R.
Adair,
Direct General Corporation, and Elara Holdings, Inc.
|
| |
|
|
|
10.4
|
|
Employment
Agreement, dated as of December 4, 2006, by and between J. Todd Hagely,
Direct General Corporation, and Elara Holdings, Inc.
|
| |
|
|
|
10.5
|
|
Form
of Director Indemnification Agreement, dated as of December 4, 2006,
by
and between Director and the Company
|
| |
|
|
|
10.6
|
|
Form
of Special Committee Indemnification Agreement, dated as of December
4,
2006, by and between Member and the Company
|
| |
|
|
|
99.1
|
|
Press
Release dated December 5, 2006
|
| |
|
|
|
*
|
|
Schedules
and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.
The
Company agrees to furnish supplementally a copy of any omitted schedule
to
the SEC upon request.
|