UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 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): March
6, 2007
DIRECT
GENERAL CORPORATION
(Exact
Name of Registrant as Specified in Charter)
|
Tennessee
|
000-50360
|
62-1564496
|
|
(State
or Other Jurisdiction
|
(Commission
|
(IRS
Employer
|
|
of
Incorporation)
|
File
Number)
|
Identification
No.)
|
1281 Murfreesboro Road 37217
Nashville, Tennessee
(Address
of Principal Executive Offices)
(Zip
Code)
Registrant's
Telephone Number, Including Area Code: (615)
399-4700
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)
o
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
8.01. Other Events.
On
March
6, 2007, Direct General Corporation (the "Company") issued the press release
attached hereto as Exhibit 99.1, in which the Company announced that it had
entered into a Memorandum of Understanding ("MOU") with the plaintiffs to
settle
three purported federal shareholder derivative actions filed in the first
quarter of 2005, which have been consolidated into one action captioned as
In
Re
Direct General Corporation Derivative Litigation, United
States District Court for the Middle District of Tennessee, No. 3:05-0158
(the
"Federal Litigation"). As described below, the Federal Litigation was amended
to
add putative class action claims relating to the Company’s
announcement of its execution of a definitive agreement to merge with Elara
Holdings, Inc. ("Elara").
Pursuant
to the terms of the MOU, the defendants will pay an award of attorneys' fees
and
expenses of $675,000, and all state and federal derivative and class action
claims will either be voluntarily dismissed with prejudice or the parties
in the
Federal Litigation will take such action as is necessary to have such claims
dismissed with prejudice. The parties also are negotiating terms that would
provide the plaintiffs with certain benefits if Elara sells or divests Direct
General within a certain time after the merger between Elara and Direct General
closes. The settlement is subject to several conditions, including approval
by
the court in which the Federal Litigation is pending.
On
December 5, 2006, the Company announced its execution of a definitive agreement
to merge with Elara, an affiliate of Fremont Partners and Texas Pacific Group,
under which Elara will acquire all of the outstanding common stock of the
Company (the "Merger"). The Company's Board of Directors, based in large
part
upon the unanimous recommendation of the special committee of the Board of
Directors (the "Special Committee"), approved the acquisition of the Company
by
Elara on the terms and subject to the conditions set forth in the merger
agreement. In the transaction, the Company's shareholders will receive $21.25
in
cash for each share of the Company's common stock that they hold. The
transaction is subject to receipt of shareholder approval and required
regulatory approvals, as well as satisfaction of other closing conditions.
On
December 6, 2006, the plaintiffs in the Federal Litigation filed a motion
for
leave to amend the complaint to, among other things, add claims relating
to the
Merger. The amended complaint alleges, among other things, that the
consideration to be paid in
the
Merger is unfair and is the result of an unfair process and that the Merger
was
agreed to by the Company's directors and officers in order to discharge their
alleged personal liability. The amended complaint further alleges that the
Company's directors and officers breached their fiduciary duties by agreeing
to
a merger structure that is designed to deter higher offers from other bidders,
for failing to obtain the highest and best price for the Company's shareholders
and for structuring the merger so that the individuals would receive undeserved
change in control benefits, including the immediate vesting of unvested options.
The
plaintiffs also contested whether the Special Committee members were
disinterested and whether they had any interests in the Merger separate and
distinct from the interest of shareholders. If the Merger is approved and
closed, the Special Committee defendants might have asserted certain defenses
in
the Federal Litigation that could have provided a benefit to them separate
from
other shareholders. However, given the settlement in principle, all claims
against such defendants are settled and resolved and will become final with
court approval.
In
addition, pursuant to the terms of the MOU, the Company has agreed to provide
additional information to shareholders by filing such information as exhibits
to
this Current Report on Form 8-K. Direct General does not make any admission
that
such supplemental disclosures are material. The opinion of SunTrust Robinson
Humphrey dated February 2, 2007 is attached hereto as Exhibit 99.2. A
presentation made by SunTrust Robinson Humphrey to the Direct General Board
of
Directors on December 4, 2006 is attached hereto as Exhibit 99.3. A presentation
made by SunTrust Robinson Humphrey to the Direct General Board of Directors
on
February 2, 2007 is attached hereto as Exhibit 99.4. SunTrust Robinson
Humphrey’s opinion and the presentation materials were provided to the Special
Committee and the Board of Directors of Direct General in connection with
its
evaluation of the merger consideration to Direct General’s shareholders (other
than affiliates of Elara or the continuing investors). While the presentation
materials were intended to be a materially accurate representation of the
information that provided the basis for the opinion, they did not necessarily
provide the complete basis for any such opinion, were not provided for the
benefit of the shareholders and should not be relied upon by the shareholders
in
making investment decisions. The opinion does not address any other aspect
of
the proposed merger, relates only to the fairness, from a financial point
of
view, of the merger consideration and does not constitute a recommendation
to
any shareholder as to how such shareholder should vote or act with respect
to
any matters relating to the Merger.
A
special
meeting of the shareholders to consider the Merger is set to occur on March
8,
2007 at the Company's corporate headquarters located at 1281 Murfreesboro
Rd,
Nashville, Tennessee 37217 at 11:00 am local time.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements based on current expectations
of the
Company’s management. Those forward-looking statements include all statements
other than those made solely with respect to historical fact. Numerous risks,
uncertainties and other factors may cause actual results to differ materially
from those expressed in any forward-looking statements. These factors include,
but are not limited to, (1) the failure to obtain approval of the Stipulation
of
Settlement by the court; (2) a party withdrawing or otherwise terminating
its
participation in the MOU; or (3) other factors that are described in the
Company’s filings made with the Securities and Exchange Commission. While the
Company’s management makes projections and estimates in good faith, many of the
factors that will determine the outcome of the subject matter are beyond
the
Company’s ability to control or predict. The Company undertakes no obligation to
revise or update any forward-looking statements, or to make any other
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits:
|
Exhibit
Number
|
Description
|
|
99.1
|
Press
release issued by Direct General Corporation, dated March 6,
2007
|
|
99.2
|
Opinion
of SunTrust Robinson Humphrey, dated February 2, 2007
|
|
99.3
|
SunTrust
Robinson Humphrey Presentation to the Board of Directors, dated
December
4, 2006
|
|
99.4
|
SunTrust
Robinson Humphrey Presentation to the Board of Directors, dated
February
2, 2007
|
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.
DIRECT
GENERAL CORPORATION
(Registrant)
By: /s/
Ronald F. Wilson
Date:
March 6, 2007
INDEX
TO EXHIBITS
|
Exhibit
Number
|
Description
|
|
99.1
|
Press
release issued by Direct General Corporation, dated March 6,
2007
|
|
99.2
|
Opinion
of SunTrust Robinson Humphrey, dated February 2, 2007
|
|
99.3
|
SunTrust
Robinson Humphrey Presentation to the Board of Directors, dated
December
4, 2006
|
|
99.4
|
SunTrust
Robinson Humphrey Presentation to the Board of Directors, dated
February
2, 2007
|