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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): August 16, 1999
---------------
PROVIDENT AMERICAN CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 0-13591 23-2214195
- ------------------------------ ---------------- ------------------
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
2500 DeKalb Pike, Norristown, Pennsylvania 19401
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(Address of principal executive offices/Zip Code)
Former name, former address, and former fiscal year, if changed since last
report: N/A
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Item 5. Other Events
The following information is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements of the Provident American Corporation
("the Company") and its subsidiaries, and the notes thereto, appearing in The
Company's reports filed with the Securities and Exchange Commission ("SEC").
Except for the historical information contained herein, this Current Report on
Form 8-K, contains certain forward-looking statements regarding The Company's
business and prospects that are based upon numerous assumptions about future
conditions which may ultimately prove to be inaccurate and actual events and
results may materially differ from anticipated results described in such
statements. Such forward-looking statements may involve risks and uncertainties,
such as historical and anticipated losses; uncertainty of future results, new
business challenges, risks associated with brand development, competition,
funding; need for additional capital, management of potential growth; new
management team, dependence on key personnel, dependence on the Internet,
dependence on strategic alliances with Internet providers, liability for
information retrieved from the Internet, uncertain acceptance of the Internet as
a medium for health insurance sales, risk capacity constrains; reliance on
internally developed systems; system development risks, dependence on third
party systems, rapid technological change, risk of system failure, dependence on
key suppliers of insurance products, dependence upon third party claims
administration services, changes in the insurance industry, insurance industry
factors, health care reform legislation, government regulation and legal
uncertainties, potential conflicts of interest, risk associated with the Year
2000 and absence of dividends. Any one or a combination of these factors could
have a material adverse effect on The Company's business, financial condition
and results of operations. These forward-looking statements represent The
Company's judgment as of the date of this report. The Company disclaims,
however, any intent or obligation to update these forward-looking statements.
Stock Purchase Agreement to Sell Provident Indemnity Life Insurance
Company ("PILIC")
On August 16, 1999 Provident American Corporation ("the Company" or
"PAMCO") entered into a Stock Purchase Agreement to sell all of the outstanding
shares of the common stock of the Company's wholly owned insurance subsidiary
PILIC to AHC Acquisition, Inc. ("AHC"), a newly formed Pennsylvania business
corporation. AHC is owned by Alvin H. Clemens, the Company's and PILIC's
Chairman of the Board of Directors. Terms of the Stock Purchase Agreement
require PAMCO, at or prior to closing, to pay $14.7 million to PILIC for PAMCO's
purchase of PILIC's home office building, PAMCO's purchase of 545,915 shares of
HealthAxis.com, Inc. Series A Preferred Stock ("the HealthAxis Stock") and a
capital contribution. Upon the completion of the transaction AHC assumes the
risk, uncertainty and responsibility for the operation of PILIC which has
recognized significant losses in 1999 and recent years.
2
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The terms of the Stock Purchase Agreement require PAMCO to purchase
PILIC's home office building for $4.7 million and PAMCO to purchase the
HealthAxis Stock at a purchase price equal to $4.71 per share plus interest at
the rate of 8% per annum thereon from the date of acquisition of such shares by
PILIC through the date of such sale. The difference between the $14.7 million
required payment amount and the sum of purchase price of the building and the
HealthAxis Stock will be a capital contribution from PAMCO to PILIC to be paid
at or before closing. In addition, the terms of the Stock Purchase Agreement
require PAMCO to transfer 100,000 shares of the HealthAxis Stock to AHC together
with registration rights previously granted to PILIC to AHC. The terms of the
Stock Purchase Agreement further require the Company to assume all of PILIC's
employees and related employee obligations and that PILIC shall have no
employees at closing. The Company anticipates entering into an employee leasing
arrangement with PILIC whereby PILIC will reimburse PAMCO for PAMCO's' out of
pocket employee costs related to services provided on PILIC's behalf. The Stock
Purchase Agreement provides that any cost associated with the termination of
certain executives along with certain taxes incurred by PILIC prior to the
effective date in connection with any of the transactions contemplated in the
Stock Purchase Agreement shall be borne by the Company. Pursuant to the Stock
Purchase Agreement closing is to occur on or before December 31, 1999 with an
effective date of September 30, 1999. The Stock Purchase Agreement further
requires the Company to lease to PILIC office space, furniture and equipment for
a period of up to one year at no cost.
The Stock Purchase Agreement includes various warranties,
representations, covenants and conditions, including but not limited to certain
non-compete and non-solicitation agreements with AHC regarding the future sale
of health insurance products for a three-year period commencing on December 31,
1998 by licensed insurance agents of PILIC. Notwithstanding the foregoing,
HealthAxis, and its affiliates (as defined therein) may freely solicit the sale
of and distribute health and all other types of nsurance products on behalf of
any person or entity through Internet websites, or other means of electronic
commerce, including but not limited to, sales of such products on behalf of
PILIC or AHC pursuant to the Individual Medical Products Carrier Partner
Agreement among Provident American Life and Health Insurance Company ("PALHIC"),
and HealthAxis dated December 29, 1998 and the Carrier Partner Agreement among
PALHIC and HealthAxis dated December 14, 1998.
The Stock Purchase Agreement requires the approval by the boards of
directors and lenders of the Company, PILIC, and AHC and the shareholders of the
Company. The Company anticipates that the transaction will close as soon as
practical after receiving the appropriate approvals.
Upon PAMCO's fulfillment of its obligations to PILIC prior to the
closing, together with the completion of the closing, the Company will not have
any liability with respect to PILIC's insurance business, capital and surplus,
and business operations, except for the liability of PAMCO and its successors
under the PAMCO Guaranty Agreement with the Reassurance Company of Hannover
("RCH"), the Stock Pledge Agreement with RCH, the Provident American Life and
Health Insurance Company ("PALHIC") Purchase Agreement together with the ceding
commission liability recorded on the Company's books in connection with
agreements with RCH and the Company's obligation to lease to PILIC office space,
furniture and equipment.
3
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The Company further anticipates that the sale of PILIC will result in a
loss, the amount of which will vary depending upon a number of factors,
including but not limited to, the value ascribed to the HealthAxis Stock
transferred AHC and PILIC's operating results between June 30, 1999 and the
effective date of the sale. Had the sale been effective on June 30, 1999 the
Company would have reported a realized loss on the sale of PILIC of
approximately $13 million.
The Company will need to raise capital through private offerings of
either debt or equity securities which will be used for working capital and
other general corporate purposes including the funding of the $14.7 million
payment to PILIC.
No assurances can be given as to whether or not the transactions will
be completed or, if completed, the timing thereof, the receipt of required
regulatory and contractual approvals and the completion of the necessary
financing, including the terms thereof.
Appointment of New President and Chief Executive Officer
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On August 16, 1999 the Company announced the appointment of Michael
Ashker as the President and Chief Executive Officer of the Company. Mr. Ashker
remains a member of the Company's Board of Directors and President and Chief
Executive Officer of HealthAxis.com, Inc.
Mr. Clemens continues to serve as the Company's Chairman of the Board
of Directors, with responsibility for strategic planning as well as mergers and
acquisitions, and will assume the role of Chairman of the Executive Committee.
4
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Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
Not applicable.
(b) Proforma Financial Information.
Not applicable.
(c) Exhibits.
The following exhibits are filed herewith:
S-K Item
Number Description
- -------- -----------
10.1 Stock Purchase Agreement, dated August 16, 1999, between
Provident American Corporation ("the Company") and AHC
Acquisition, Inc. ("AHC").
5
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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 hereunto duly authorized.
PROVIDENT AMERICAN CORPORATION
Date: August 25, 1999 By: /s/ Alvin H. Clemens
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Alvin H. Clemens
Chairman of the Board
Date: August 26, 1999 By: /s/ Michael Ashker
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Michael Ashker
President and Chief Executive Officer
Date: August 25, 1999 By: /s/ Francis L. Gillan III
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Francis L. Gillan III
Chief Financial Officer and Treasurer
6
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EXHIBIT INDEX
S-K Item
Number Description
- -------- -----------
10.1 Stock Purchase Agreement, dated August 16, 1999, between
Provident American Corporation ("the Company") and AHC
Acquisition, Inc. ("AHC").
7
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into on
this 16th day of August, 1999, by and between AHC ACQUISITION, INC., a
Pennsylvania corporation ("BUYER"), and PROVIDENT AMERICAN CORPORATION, a
Pennsylvania corporation ("PAMCO").
RECITALS:
WHEREAS, PAMCO is the record and beneficial owner of all of the
outstanding capital stock of Provident Indemnity Life Insurance Company, a
Pennsylvania corporation ("PILIC") which is engaged in the business of selling
life, accident, and health insurance, in those jurisdictions in which it is
licensed;
WHEREAS, effective as of January 1, 1999, PAMCO entered into a guaranty
in favor of Reassurance Company of Hannover, a Florida corporation ("Hannover"),
as agent for Hannover and Central Reserve Life Insurance Company ("CRL") (the
"PAMCO Guaranty") pursuant to a Guaranty Agreement dated December 29, 1998, and
a stock pledge agreement in favor of Hannover, as agent for Hannover and CRL
(the "Stock Pledge Agreement"), to pledge the PILIC Shares to Hannover to secure
certain obligations of PILIC and certain other parties to Hannover and CRL under
a quota-share reinsurance agreement between Hannover and PILIC (the "Hannover
Treaty") in connection with CRL's purchase of the stock of Provident American
Life & Health Insurance Company, a Pennsylvania corporation ("PALHIC"), from
PILIC pursuant to that certain Stock Purchase Agreement dated December 29, 1998
pursuant to a Stock Pledge Agreement dated December 29, 1998 (the "PALHIC
Purchase Agreement");
WHEREAS, BUYER desires to purchase from PAMCO, and PAMCO desires to
sell to BUYER, all of the outstanding capital stock of PILIC (collectively, the
"PILIC Shares"), under and subject to the pledge of the PILIC Shares to Hannover
pursuant to the Stock Pledge Agreement and on the terms and subject to the
conditions set forth herein; and
NOW, THEREFORE, for and in consideration of the foregoing, the mutual
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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1. PURCHASE AND SALE OF STOCK
1.1 Agreement to Purchase and Sell. At the Closing (as hereinafter
defined), BUYER or its nominee shall purchase, and PAMCO shall sell, all of
PAMCO's right, title and interest in and to all of the PILIC Shares, free and
clear of any and all liens, taxes, claims, mortgages, charges, security
interests, encumbrances or similar agreements of any kind or nature whatsoever,
except as set forth on Part 1.1 of the Disclosure Letter (collectively,
"Liens"), and on the terms and conditions set forth herein.
1.2 Consideration for Sale. The consideration for the sale of the PILIC
Shares shall be the agreements of BUYER and PAMCO as set forth herein, including
the transfer of the Norristown Facility to PAMCO or its nominee, the transfer of
the HealthAxis Stock (as hereinafter defined) to PAMCO, the subsequent transfer
of certain of the HealthAxis Stock to BUYER, and the contribution of certain
funds to the capital of PILIC.
1.3 Conditions Precedent to Closing.
1.3.1 Mutual Condition to Closing. The obligation of the
parties to close the transactions contemplated by this Agreement shall be
subject to the satisfaction of the following conditions on or prior to the
Closing Date:
(a) The approval of the transactions described herein
by the boards of directors and lenders of PAMCO, PILIC, and BUYER and
the shareholders of PAMCO.
(b) The receipt by each party of all regulatory
approvals and consents necessary to consummate the transactions
described in this Agreement (including, without limitation, the
approval of the Pennsylvania Department of Insurance) and any related
agreements, on terms satisfactory to the parties hereto and thereto.
1.3.2 Conditions Precedent to Obligation of PAMCO to Close.
The obligation of PAMCO to close the transactions contemplated by this Agreement
shall be subject to the satisfaction (or written waiver by PAMCO) of the
following conditions on or prior to the Closing Date:
(a) The completeness and accuracy of all of the
representations and warranties of BUYER set forth in this Agreement as
of the Closing Date.
(b) The performance by BUYER of all covenants set
forth in this Agreement that by their terms are to be performed by it
on or prior to the Closing Date.
(c) The payment of the consideration described in
Section 1.2.
(d) The delivery by BUYER of all closing documents
required by Section 1.4.1 hereof.
1.3.3 Conditions Precedent to Obligation of BUYER to Close.
The obligation of BUYER to close the transactions contemplated by this Agreement
shall be subject to the satisfaction (or written waiver by BUYER) of the
following conditions on or prior to the Closing Date:
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(a) The completeness and accuracy of all of the
representations and warranties of PAMCO set forth in this Agreement as
of the Closing Date.
(b) The performance by PAMCO of all covenants set
forth in this Agreement that by their terms are to be performed by it
on or prior to the Closing Date.
(c) The payment of the consideration described in
Section 1.2.
(d) The delivery by PAMCO of a certificate executed
by an executive officer of PAMCO, dated as of the Closing Date, in form
and substance reasonably satisfactory to BUYER, certifying as to the
fulfillment and satisfaction of the conditions specified in Section
1.3.3.
(e) All of PILIC's directors and officers shall have
submitted their written resignations as directors and/or officers of
PILIC.
(f) PILIC shall have no employees and PAMCO shall
have assumed and guaranteed all of PILIC's obligations, if any, to any
former employees.
(g) The transactions described in Section 2.4 shall
have been completed or shall be completed as of the Closing Date.
(h) The delivery by PAMCO of all closing documents
required by Section 1.4.2 hereof.
(i) PAMCO shall have assigned to BUYER all of
PAMCO's right, title and interest (but none of the obligations) under
the PAMCO Guaranty and the Stock Pledge Agreement, under and subject to
the terms set forth therein.
(j) PAMCO shall have assigned to BUYER all rights
relating to the registration of the Transferred HealthAxis Shares (as
hereinafter defined) pursuant to the Registration Rights Agreement
between PILIC and HealthAxis.com, Inc. ("HealthAxis"), a Pennsylvania
corporation which is an affiliate of PAMCO, dated March 30, 1999 (the
"Registration Rights Agreement").
(k) PAMCO shall have caused HealthAxis to deliver to
BUYER a written acknowledgment that BUYER will succeed to all of the
rights of PILIC under the Registration Rights Agreement with respect to
the Transferred HealthAxis Shares.
(l) PAMCO shall have assumed and agreed to indemnify
PILIC from all obligations, if any, for self-funded retirement or
health benefits, and for all severance and other employment benefits
due or which become due to Alvin H. Clemens, Anthony R. Verdi, and
Francis L. Gillan, III.
<PAGE>
1.4 Closing Deliveries. At the Closing:
1.4.1 BUYER shall deliver to PAMCO the legal opinion of
BUYER's general counsel in substantially the form attached hereto as Exhibit A.
1.4.2 PAMCO shall deliver to BUYER: (a) a Bill of Sale
assigning, selling, and transferring to BUYER all of the PILIC Shares; (b) all
of the certificates representing the Transferred HealthAxis Shares, duly
endorsed in blank or with appropriate stock powers attached; (c) a fully
executed copy of the Registration Rights Agreement; (d) the written resignations
of all directors and officers of PILIC; (e) all original organizational
documents, minutes and other corporate records of PILIC; (f) evidence
satisfactory to BUYER that any regulatory approvals necessary to consummate the
transactions described herein have been obtained; and (g) a legal opinion of
counsel to PAMCO and PILIC in substantially the form attached hereto as
Exhibit B.
1.5 Certain Taxes. PAMCO shall be responsible for the payment of any
and all sales, use, excise, transfer, value added, capital gains, and similar
taxes and transfer or recording fees imposed by any governmental body in
connection with any of the transactions contemplated herein to the extent
incurred or accrued on or prior to the Effective Date.
1.6 Date, Time and Place of Closing. Subject to the satisfaction of the
conditions set forth in Section 1.3 hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall occur at the offices of
Butera, Beausang, Cohen & Brennan, 630 Freedom Business Center, Suite 212, King
of Prussia, PA 19406, at 10:00 a.m. on the sooner to occur of (a) the tenth day
after the date that all conditions to Closing specified in Section 1.3 hereof
have been satisfied or waived as provided therein or (b) December 31, 1999, or
at such other place or time as the parties may agree in writing. Regardless of
the actual date of Closing (the "Closing Date"), the Closing shall be effective
as of 12:01 a.m. on September 30, 1999, or such later date as shall be agreed
upon by the parties (the "Effective Date").
2. COVENANTS
2.1 Restrictive Covenants.
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2.1.1 Noncompetition and Nonsolicitation. For a period of
three years after the Closing Date, PAMCO shall not, and shall cause each
Affiliate thereof not to (a) solicit the sale of or sell any life, accident or
health insurance products to any customer of PILIC, BUYER or any Affiliate of
BUYER or (b) solicit, hire or engage any present or future employee or agent of
PILIC, BUYER or any Affiliate of BUYER to sell any life, accident and health
insurance products. Notwithstanding the foregoing, HealthAxis., and its
Affiliates may freely solicit the sale of and distribute health and all other
types of insurance products on behalf of any person or entity through Internet
websites, or other means of electronic commerce, including but not limited to
sales of such products on behalf of PILIC or BUYER pursuant to that certain
Individual Medical Products Carrier Partner Agreement among PALHIC, BUYER and
HealthAxis dated December 29, 1998 and that certain Carrier Partner Agreement
among PALHIC, BUYER and HealthAxis dated December 14, 1999 (together, the
"HealthAxis Carrier Agreement"). For purposes of this Agreement, the term
"Affiliate" means, with respect to any party hereto, any other person or entity
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with such party.
2.1.2 Confidentiality. PAMCO acknowledges that it has had
access to Confidential Information of PILIC and covenants and agrees that, after
the Closing, neither it nor any of its Affiliates will use for its own benefit
or divulge to any third party any Confidential Information or trade secrets of
PILIC. As used herein, "Confidential Information" consists of any and all
information, knowledge or data relating to PILIC (including without limitation
all information relating to customer and prospective customer lists, insurance
products, prices and trade practices) that is not in the public domain or
otherwise published or publicly available. Except as may be required by
applicable law or regulation, and to the extent reasonably possible, PAMCO
agrees to deliver to BUYER at the Closing all material (and all copies thereof)
in the possession or control of PAMCO or any of its Affiliates that contains or
relates to any such confidential information.
2.1.3 Civil Process, Etc. In the event that PAMCO is requested
or required, as a result of a judicial or regulatory proceeding (by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process), to make any disclosure of
Confidential Information contrary to the terms of Section 2.1.2 above, PAMCO
agrees to provide BUYER with prompt notice thereof so that BUYER may seek an
appropriate protective order or other appropriate remedy. PAMCO agrees to
cooperate with BUYER in seeking any such protective order or appropriate remedy.
If a protective order or other appropriate remedy has not been obtained after
BUYER has had sufficient time to secure one in light of the circumstances under
which such order or remedy is sought, and PAMCO is compelled to disclose any
Confidential Information to any tribunal, regulatory authority or agency or
third party claimant or else stand liable for contempt or suffer any similar
censure, sanction or penalty, then PAMCO may disclose only that portion of the
Confidential Information that it is advised by written opinion of counsel (a
copy of which shall be provided to BUYER) is legally required to be disclosed,
and PAMCO shall use its best efforts to obtain reliable assurances that the
Confidential Information that is so disclosed will be treated confidentially.
2.1.4 Remedies upon Breach. PAMCO acknowledges that the
restrictions contained in this Section 2.1 are reasonable and necessary to
protect the legitimate interests of PILIC and BUYER and do not cause PAMCO or
its Affiliates undue hardship, that any violation of this Section 2.1 will
result in irreparable injury to PILIC and BUYER and that, therefore, PILIC and
BUYER shall be entitled to preliminary and permanent injunctive relief in any
court of competent jurisdiction without having to prove actual damages and to an
equitable accounting of all earnings, profits and other benefits arising from
such violation, which rights shall be cumulative and in addition to any other
rights or remedies to which PILIC or BUYER may be entitled.
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2.2 Conduct Pending the Closing. Between the date hereof and the
Closing Date, and unless the prior written consent of BUYER is obtained, PAMCO
shall cause PILIC to: (a) except as otherwise permitted in Section 1.3.1 hereof,
operate its Business only in the ordinary course; (b) promptly notify BUYER of
any event or series of events that, singly or in the aggregate, have had or are
reasonably likely to have a Material Adverse Effect on PILIC; (c) promptly
notify BUYER of any event or series of events occurring prior to the Closing
that, singly or in the aggregate, have caused or are reasonably likely to cause
any of the representations and warranties of PAMCO to be untrue, inaccurate or
incomplete in any material respect; (d) avoid any change in its Business which,
if occurring prior to the date hereof, would have been subject to disclosure
pursuant to Section 3.9 hereof; and (e) pay all 1999, 1998 and prior claims when
due (subject to the right to contest any claims in good faith and consistent
with good business practice).
2.3 Access and Cooperation.
2.3.1 PAMCO shall provide, and shall cause PILIC to provide,
BUYER and its representatives with access upon reasonable notice and during
normal business hours from and after the date hereof to PILIC's assets,
contracts, commitments, books and records, and shall furnish such information
concerning the business and affairs of PILIC as may be reasonably requested.
PAMCO shall, and shall cause PILIC to, assist BUYER and its representatives in
connection with their due diligence investigation of PILIC.
2.3.2 The parties shall cooperate fully with each other and
with their respective representatives in connection with any steps required to
be taken as part of their respective obligations under this Agreement, and each
party shall use its best reasonable efforts to consummate the transactions
described herein in a timely manner, to fulfill its obligations hereunder, and
to satisfy all conditions to the Closing that such party is obligated to satisfy
pursuant hereto.
2.4 Sale or Transfer of Certain Other Assets of PILIC. The following
assets of PILIC shall be excluded from the sale of the PILIC Shares and shall be
sold, transferred or assigned by PILIC without any liability or obligation of
PILIC to PAMCO or its designee:
2.4.1 Norristown Facility. At or prior to the Closing, PILIC
shall sell to PAMCO or its nominee:
(a) the real property located at 2500 DeKalb Pike,
Norristown, Pennsylvania, consisting of an office building that has
been used as the home office of PILIC (the "Norristown Facility"), and
(b) the personal property (other than the corporate
records of PILIC, which shall be transferred to PALHIC at the Closing)
located at the Norristown Facility, provided that (i) PAMCO or such
nominee assumes any and all liabilities relating thereto and (ii) PILIC
receives payment at least equal to the value of such property on the
books of PILIC in exchange for such transfer,
for a purchase price of Four Million Seven Hundred Thousand ($4,700,000)
Dollars.
<PAGE>
PAMCO shall enter into a lease agreement with PILIC to lease to PILIC, without
cost to PILIC, necessary office space in the Norristown Facility, and
appropriate phone and computer support, for a term of one (1) year commencing on
the Closing Date. PAMCO agrees that all costs incurred from January 1, 1999 to
the Closing Date in connection with the renovation of the Norristown Facility
shall be paid by PAMCO.
2.4.2 HealthAxis Stock. At or prior to the Closing, PAMCO
shall:
(a) cause PILIC to sell to PAMCO all 545,916 shares
of the Series A Cumulative Convertible Preferred Stock, par value $1.00 per
share, of HealthAxis owned by PILIC (the "HealthAxis Stock") and all
registration rights relating thereto to PAMCO or its nominee at a purchase price
equal to $4.71 per share plus interest at the rate of 8% per annum thereon from
the date of acquisition of such shares by PILIC through the date of such sale,
and in accordance with the terms and conditions of a certain Option Agreement
between PAMCO and PILIC dated March 24, 1999 and a Termination of Option
Agreement between the same parties dated May 21, 1999.
(b) transfer 100,000 shares of the HealthAxis Stock
(the "Transferred HealthAxis Shares") and all registration rights relating
thereto to BUYER or its designee, free and clear of any and all Liens, in
exchange for BUYER's services in arranging the transactions contemplated by this
Agreement.
2.5 PILIC Employees. Prior to the Closing, PAMCO shall terminate the
employment of all employees of PILIC without any liability or continuing
obligation to PILIC. PAMCO shall, or cause PILIC to, comply with all the
requirements of the Worker Adjustment and Retraining Notification Act, 29 U.S.C.
"2101 et seq. (the "WARN Act"), provided that PAMCO shall provide BUYER an
opportunity to review and comment on any notices required under the WARN Act.
2.6 Capital and Surplus at Closing. PAMCO agrees to contribute cash or
other assets which qualify as admitted assets for statutory accounting purposes
to the capital and surplus of PILIC in the amount of Seven Million Two Hundred
Thousand ($7,200,000) Dollars.
2.7 PAMCO Obligations to Hannover and CRL. Neither this Agreement nor
the consummation of the transactions contemplated hereby shall affect the
liability of PAMCO and its successors under the PAMCO Guaranty, the Stock Pledge
Agreement, or the PALHIC Purchase Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PAMCO
As of the date hereof and the Closing Date, PAMCO represents and
warrants to BUYER as follows:
<PAGE>
3.1 Organization, Power and Qualification. Each of PAMCO and PILIC is a
corporation duly organized, validly existing and in good standing under the laws
of its state of organization. PILIC has all requisite corporate power and
authority to own or hold under lease its properties and assets and to carry on
its business as presently conducted (its "Business"). PILIC is duly licensed to
sell life, accident and health insurance or, as the case may be, duly qualified
to do business as a foreign corporation in each jurisdiction in which the nature
of its activities or properties makes qualification as a foreign corporation
necessary. Part 3.1 of the disclosure letter from PAMCO to BUYER of even date
herewith (the "Disclosure Letter," a copy of which is attached as Exhibit C)
includes a list of the states where PILIC is licensed to issue insurance.
3.2 Authority. PAMCO has the absolute and unrestricted right, power,
authority and capacity, corporate or otherwise, to make, execute and deliver
this Agreement and all other agreements and documents to be executed and
delivered by it pursuant to this Agreement; and PAMCO has taken all necessary
actions required to be taken to authorize it to execute and deliver this
Agreement and such other agreements, and to perform all of its obligations,
undertakings and agreements to be observed and performed by it hereunder and
thereunder. This Agreement and such other agreements and documents have been
duly executed and delivered by PAMCO and constitute the valid and binding
agreements of PAMCO, enforceable in accordance with their respective terms
subject, as to the enforcement of remedies, to general equitable principles and
to bankruptcy, insolvency and similar laws affecting creditors' rights
generally.
3.3 No Violation. The execution, delivery and performance of this
Agreement and each other agreement or document to be executed, delivered and
performed hereunder by PAMCO or PILIC will not: (a) contravene, conflict with,
or result in a violation or breach of any provision of, or give any person or
entity the right to declare a default or exercise any remedy under, or result in
the acceleration of the maturity or performance of, or the cancellation,
termination or modification of, or create (or cause the acceleration of the
maturity of) any debt, obligation or liability affecting, or result in the
creation or imposition of any Lien under: (i) any term or provision of the
charter, bylaws or other organizational documents, or any resolution adopted by
the board of directors or the stockholders, of PAMCO or PILIC; (ii) any law,
rule, regulation, judgment, decree or order of any court or governmental
authority applicable to PAMCO or PILIC; or (iii) any contract, agreement,
indenture, lease or other commitment to which PAMCO or PILIC is a party or by
which any of them or their assets is bound; (b) cause any material change in the
rights or obligations of any party under any such contract, agreement,
indenture, lease or commitment; (c) give any governmental body or other person
or entity the right to challenge any of the transactions contemplated by this
Agreement or to exercise any remedy or obtain any relief under any law, rule,
regulation, judgment, decree or order applicable to PAMCO or PILIC; or (d) give
any governmental body the right to revoke, withdraw, suspend, cancel, terminate
or modify any permit, license, consent, certificate, order, authorization or
approval held by PAMCO or PILIC or that otherwise relates to the Business of, or
any of the assets owned or used by, PAMCO or PILIC; except, in the case of
clause (c) and (d) of this sentence, for the consent and approval of the
Pennsylvania Department of Insurance with respect to the transactions
contemplated hereby.
<PAGE>
3.4 Consents. Except for the consent and approval of the Pennsylvania
Department of Insurance, no consent of any federal, state or local authority, or
any private person or entity is required to be obtained that has not been
obtained or will be obtained as of the Closing Date, and no notice to any such
authority, person or entity is required to be given that has not been given, in
connection with the execution, delivery or performance of this Agreement or any
other agreement or document to be executed, delivered or performed hereunder by
PAMCO or PILIC or to enable BUYER to conduct the Business of PILIC after the
Closing in the manner in which it is currently conducted or to enable PILIC to
continue to own the HealthAxis Stock, including, without limitation, any
consents or notices required by any applicable federal or state securities laws,
any applicable state takeover laws and any applicable requirement of the
Commonwealth of Pennsylvania or any other insurance regulatory authority having
jurisdiction over PAMCO or PILIC.
3.5 Capital Stock of PILIC.
3.5.1 The capital structure of PILIC is as set forth in Part
3.5.1 of the Disclosure Letter. The PILIC Shares constitute all of the issued
and outstanding capital stock of PILIC. All of the PILIC Shares are duly
authorized, validly issued, fully paid and nonassessable. No legend (other than
any legend regarding registration under applicable securities laws) or other
reference to any purported Lien appears upon any certificate representing any of
the PILIC Shares. There are no outstanding securities convertible into or
exercisable for, or any rights to subscribe for or purchase, or any options,
warrants or other rights for the purchase of, or any agreements or arrangements
providing for the issuance (contingent or otherwise) of, or any actions relating
to, any shares of capital stock of PILIC. PAMCO is the direct legal and
beneficial owner of all of the PILIC Shares, free and clear of any and all
Liens, and there are no outstanding contracts, demands, commitments or other
agreements or arrangements under which PAMCO is or may become obligated to sell,
transfer or assign any of the PILIC Shares (other than pursuant to the Stock
Pledge to be assumed by BUYER as of the Closing Date). Each of the PILIC Shares
has been issued in compliance with all federal and state securities laws and
without violation of any pre-emptive rights.
3.5.2 There are no outstanding surplus notes issued by PILIC.
3.5.3 PILIC does not have any subsidiaries nor does it
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable with or exercisable for any equity or similar
interest in, any corporation, partnership, limited liability company, joint
endeavor or other business entity or association other than for investment
purposes in the ordinary course in accordance with past practice.
3.5.4 Upon the Closing, BUYER will have good and marketable
title to the PILIC Shares, free and clear of any and all Liens, except as set
forth in Part 1.1 of the Disclosure Letter. Following the Closing, PAMCO will
not have any claim against BUYER or PILIC, including, without limitation, any
claim arising under the terms of, or otherwise relating to, any of the PILIC
Shares.
<PAGE>
3.5.5 PILIC is the direct legal and beneficial owner of all of
the HealthAxis Stock. HealthAxis has not exercised any call, redemption,
repurchase, conversion or similar rights with respect to the HealthAxis Stock.
Immediately following the Closing, PILIC will have good and marketable title to
the HealthAxis Stock, free and clear of any and all Liens. Following the
Closing, PAMCO will not have any claim against HealthAxis or PILIC, and
HealthAxis will not have any claim against PILIC, arising under the terms of or
otherwise relating to any of the HealthAxis Stock.
3.6 Approvals. PILIC possesses or has applied for all material
governmental and other permits, licenses, consents, certificates, orders,
authorizations and approvals ("Approvals") necessary for it to own or hold under
lease and operate its respective properties and assets and to carry on its
respective Business as now conducted (except for the consent and approval of the
Pennsylvania Department of Insurance with respect to the transactions
contemplated hereby). Each such Approval is without material qualification or
restriction. Neither PAMCO nor PILIC has not received any notice or other
communication relating to the potential revocation, withdrawal, suspension,
cancellation, termination or modification of any such Approvals that, singly or
in the aggregate and if the subject of an unfavorable ruling or finding, could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) of its Business, results of operation or business
prospects, whether taken individually or as a whole, and taking into account all
relevant factors including, without limitation, assets, liabilities, personnel,
business and relationships with agents, customers, lenders, lessors and others
(a "Material Adverse Effect"). PILIC has operated and is operating in compliance
with the provisions, terms and conditions of its Approvals. All applications
required to have been filed for the renewal of such Approvals have been duly
filed on a timely basis with the appropriate governmental bodies, and all other
filings required to have been made with respect to such Approvals have been duly
made on a timely basis with the appropriate governmental bodies.
3.7 No Default, Violation or Litigation. PILIC is not in violation of
any applicable law, regulation or order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any Approvals or laws, rules,
regulations, orders, restrictions and compliance schedules applicable to
insurers, wages and hours, employee benefit plans or civil rights) that could
reasonably be expected to have a Material Adverse Effect on PILIC. Except for
the Lawsuits and as described in Part 3.7 of the Disclosure Letter: (a) there
are no lawsuits, proceedings, claims or governmental investigations pending or,
to the knowledge of PAMCO, threatened against or involving PILIC or any of its
officers or directors; and (b) there are no judgments, consents, decrees,
injunctions or any other judicial or administrative mandates outstanding against
PILIC or any of its officers or directors.
<PAGE>
3.8 Liabilities of PILIC. Except as set forth in Part 3.8 of the
Disclosure Letter or in the SAP Statements (as defined below), PILIC does not
have any debts, liabilities or obligations of any nature whatsoever, including
but not limited to any debts, liabilities or obligations under or relating to
any of the following: (a) any contracts, agreements, arrangements or
understandings with any Affiliate thereof or any third party or governmental
body, including without limitation, any reinsurance, ceding, commission, agency,
brokerage, fee sharing, employment, consulting, sales, marketing, management,
administration, noncompetition or nonsolicitation agreement; (b) any note, bond,
indenture, loan, credit agreement or other evidence of indebtedness or direct or
indirect guaranty or assumption of indebtedness, liabilities or obligations
thereof, any Affiliate thereof or any third party, including but not limited to
any intercompany obligations to PAMCO or any such Affiliate; (c) any accrued and
unpaid dividend or other distribution on, or redemption obligation relating to,
any of the PILIC Shares; (d) any pension, retirement, profit sharing, thrift
savings, deferred compensation, stock bonus, stock option, cash bonus, employee
stock ownership (including investment credit or payroll stock ownership),
severance pay, insurance, medical, welfare, vacation or other employee pension
or welfare benefit plan, or any withdrawal liability or other penalty or charge
relating to any such plans; (e) any collective bargaining or other labor
agreement; (f) any obligation to pay compensation, commissions, perquisites,
bonuses, profit sharing distributions, severance or termination pay, or other
extraordinary compensation to any director, officer, employee or agent of PILIC
in connection with any of the transactions contemplated by this Agreement; (g)
any taxes or other Liens of any nature whatsoever; (h) any environmental
liabilities; or (i) the sale of any assets or insurance policies by PILIC. As of
the Closing, PILIC will have no employees and no liability or continuing
obligations to any former employees.
3.9 Absence of Certain Changes. Except as may be disclosed in Part 3.9
of the Disclosure Letter, since March 31, 1999, PILIC has conducted its Business
in the ordinary course and there has been no event or series of events that has
had or is reasonably likely to have a Material Adverse Effect on PILIC. Without
limiting the generality of the foregoing, and except as may be disclosed in Part
3.9 of the Disclosure Letter, there has not been: (a) any damage, destruction or
loss (whether or not covered by insurance) that could reasonably be expected to
have a Material Adverse Effect on PILIC; (b) any direct or indirect redemption,
retirement, purchase or other acquisition of any shares of capital stock of
PILIC; (c) any dividend or other distribution, in cash, stock or other assets,
by PILIC; (d) any change in the compensation, commissions or perquisites payable
or to become payable by PILIC or grant of any severance or termination pay to
any officer, employee or agent of PILIC, or any payment of any bonus, profit
sharing or other extraordinary compensation to any employee of PILIC (in each
case other than any such increase or payment paid or to become payable in the
ordinary course of business consistent with past practices); (e) any change in
the accounting methods or practices followed by PILIC, including, without
limitation, any change in depreciation or amortization policies or rates
theretofore adopted; (f) any increase in accounts payable owed by PILIC, or the
creation of any note, bond, indenture, loan, credit agreement or other evidence
of indebtedness or direct or indirect guaranty or assumption of indebtedness,
liabilities or obligations or others ("Indebtedness") of PILIC or to which PILIC
is a party, in each case other than in the ordinary course of business
consistent with past practice; (g) any forgiveness or cancellation of any debts
or receivables owed to or claims held by PILIC or acceleration of the collection
of accounts receivable by PILIC, in each case other than in the ordinary course
<PAGE>
of business consistent with past practice; (h) any sale, lease, transfer,
conveyance, abandonment or other disposition by PILIC of any real property, or
any sale, transfer or conveyance of any other assets or properties, tangible or
intangible, of PILIC (other than investment securities) with an individual book
value or with any aggregate book value in excess of $25,000, in each case other
than in the ordinary course of business consistent with past practice; (i)
except as required by this Agreement, any amendment, termination or waiver by
PILIC of any material right of, or any actual or threatened termination or
cancellation of, any material contract to which PILIC is a party or by which it
is bound; (j) any termination, lapse, suspension, revocation of, limitation upon
or failure to renew any Approval of PILIC; (k) any agreement between the PILIC
and any Affiliate of PILIC; (l) any change in any underwriting, actuarial,
investment or financial reporting practice or policy followed by PILIC or method
or application thereof, or any assumption underlying such principle, practice or
policy, in each case other than in the ordinary course of business consistent
with past practice; (m) except as otherwise contemplated herein, any
termination, amendment or execution by PILIC of any reinsurance, coinsurance or
similar contract or treaty, as ceding or assuming insurer other than in the
ordinary course of business consistent with past practice; (n) any purchase of
any investment securities by PILIC other than purchases of investment grade
commercial paper or cash equivalents; or (o) any material change in the
operating practices of PILIC.
3.10 SAP Statements of PILIC.
3.10.1 PILIC has heretofore delivered to BUYER the following
annual and quarterly statements of PILIC filed with or submitted to the
insurance regulatory authorities of the state in which PILIC is domiciled on
forms prescribed or permitted by such authorities (collectively, the "SAP
Statements"):
(a) an Annual Statement for each of the years ended
December 31, 1998, 1997 and 1996 (and the notes, exhibits and schedules
relating thereto and any affirmations and certifications filed
therewith);
(b) audited statements of admitted assets,
liabilities, and capital and surplus as of December 31, 1998, 1997 and
1996, and the related summaries of operations, statements of capital
and surplus and cash flow for the years then ended, together with the
notes related thereto; and
(c) a Quarterly Statement for the period ended June
30, 1999 (and the exhibits and schedules relating thereto).
3.10.2 Each such SAP Statement complied in all material
respects with all applicable laws when so filed and was timely filed with all
required insurance regulatory authorities. No material deficiencies have been
asserted or are otherwise known by PAMCO with respect thereto. Each of the SAP
Statements (and the exhibits and schedules relating thereto), including, without
limitation, each statement of assets, liabilities, surplus and other funds and
each of the summaries of operations, statements of capital and surplus and cash
flow contained in the SAP Statements, was to the knowledge of PAMCO (a) prepared
in accordance with SAP applied on a consistent basis (except for changes, if
any, disclosed therein), (b) prepared from and is consistent with the books and
records of PILIC and (c) is true and complete in all material respects and
presents fairly the financial condition, assets, properties and liabilities of
PILIC as of the respective dates thereof and the results of operations and
changes in capital and surplus and in the cash flow of PILIC for and during the
respective periods covered thereby. "SAP" shall mean, with respect to PILIC, the
accounting practices required or permitted by the National Association of
Insurance Commissioners and the insurance regulatory authorities of the state in
which PILIC is domiciled, consistently applied throughout the specified period
and in the immediately prior comparable period.
3.11 Assets. PILIC has good and marketable title to all of its assets
and properties.
<PAGE>
3.12 Reserves and Insurance Issued by PILIC. Except as disclosed in
Part 3.12 of the Disclosure Letter:
3.12.1 All reserves and other liabilities with respect to
insurance and annuities and for claims and benefits incurred but not reported
(collectively, "Reserve Liabilities"), as established or reflected in the SAP
Statements, (a) have been determined in accordance with generally accepted
actuarial standards (as adopted by the Actuarial Standards Board and the
National Association of Insurance Commissioners, including but not limited to
Actuarial Guidelines as found in the Financial Condition Examiners Handbook)
consistently applied, (b) are fairly stated in accordance with sound actuarial
principals, (c) are based on actuarial assumptions that are in accordance with
those called for by the provisions of the related insurance and annuity
contracts and in the related reinsurance, coinsurance and other similar
contracts, (d) meet the requirements of the insurance laws and regulations of
the jurisdictions in which such contracts were issued or delivered, (e) are at
least as great as the minimum aggregate amounts required for the conduct of
business in any other states in which PILIC is licensed, and adequate provision
for all such Reserve Liabilities has been made (in accordance with SAP) and (f)
are or will be in all material respects in accordance with the related
insurance, coinsurance and reinsurance contracts. PILIC owns assets that qualify
as admitted assets under applicable laws in an amount at least equal to PILIC's
Reserve Liabilities.
3.12.2 Each form of insurance policy, policy endorsement or
amendment, reinsurance contract, annuity contract, application form, sales
material and service contract used by PILIC (collectively, the "PILIC Policies")
in any jurisdiction has, where required, received interim or final approvals
from the appropriate insurance regulatory authorities of such jurisdiction.
3.12.3 PILIC has not issued any participating policies or any
retrospectively rated policies of insurance, other than policies with final
premiums subject to audit.
3.12.4 Any premium rates required to be filed with or approved
by insurance regulatory authorities have been so filed and have received interim
or final approval from such regulatory authorities, and all premiums charged by
PILIC conform with such approvals.
3.12.5 All insurance contract benefits payable under the PILIC
Policies and by any other person that is or was a party to or bound by any
reinsurance, coinsurance or other similar contract with PILIC, have in all
respects been paid or are in the course of settlement in accordance with the
terms of the insurance, reinsurance or coinsurance contracts under which they
arose, except for such benefits which PAMCO reasonably believes there is a basis
to contest payment.
3.12.6 No outstanding insurance contract issued, reinsured,
underwritten or assumed by PILIC entitles the holder thereof or any other person
to receive dividends, distributions or other benefits based upon the revenues of
earnings of PILIC or any other person.
<PAGE>
3.12.7 The underwriting standards utilized and ratings applied
by PILIC and by any other person that is a party to or bound by any insurance,
reinsurance, coinsurance or other similar contract with PILIC conforms in all
respects as to such contracts to the standards and ratings required pursuant to
the terms of the respective insurance, reinsurance, coinsurance or other similar
contracts.
3.12.8 All amounts to which PILIC is entitled under
reinsurance, coinsurance or similar contracts (including without limitation
amounts based on paid and unpaid losses) relating to the PILIC Policies are
fully collectible, in accordance with the terms of such contracts.
3.12.9 Each insurance agent, general agent, broker, producer,
or representative for the PILIC Policies, is duly licensed under state insurance
laws for the type of business written, sold or produced by such person in the
particular jurisdiction in which such person writes, sells or produces such
business for PILIC and, where required by law, is duly appointed by PILIC to act
as agent for PILIC, except where such lack of licensure would not have a
Material Adverse Effect on PILIC.
3.13 Books and Records. The books of account, minute books, stock
record books, and other records of PILIC, all of which have been made available
to BUYER, are complete and correct in all material respects and, to the
knowledge of PAMCO, have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
The minute books of PILIC contain accurate and complete records of all meetings
held of, and corporate action taken by, the stockholder, the board of directors
and committees of the board of directors of PILIC, respectively, and no meeting
of any such stockholder, board of directors or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be delivered to BUYER.
3.14 Software. PILIC has reviewed all material computer software used
by it and the areas within its business and operations that could be adversely
affected by the "year 2000 computer issue" (that is, the risk that such software
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999), and has
developed or is developing a program to address this issue on a timely basis.
Based on such reviews and programs, the year 2000 computer issue is not
reasonably likely to impair the ability of PILIC to use such software after
December 31, 1999.
3.15 Transactions with Affiliates. Except as set forth in Part 3.15 of
the Disclosure Letter: (a) there are no contracts or arrangements (formal or
informal, written or oral), directly or indirectly, between PILIC or any
Affiliate thereof; and (b) neither PILIC nor any Affiliate thereof has any
direct or indirect interest in any person or entity involved in any business
that is competitive with the business of PILIC.
3.16 Commissions and Fees. PAMCO and PILIC shall be solely responsible
for the payment of any commission or compensation for broker or finder fees
engaged by them with respect to the transactions contemplated by this Agreement,
all of which shall have been paid or satisfied on or before the Closing Date.
<PAGE>
3.17 Contracts. Part 3.17 of the Disclosure Letter contains a true,
accurate and complete list and brief description of each material contract
(other than insurance contracts issued or underwritten by PILIC) to which PILIC
is currently bound or by which any of its assets or properties are subject or
bound. Each contract disclosed or required to be disclosed in Part 3.17 of the
Disclosure Letter is (a) in full force and effect, (b) constitutes the legal,
valid and binding obligation of PILIC and, to the knowledge of PAMCO, of all
other parties thereto, and (c) is enforceable in accordance with its terms.
Neither PILIC nor, to the knowledge of PAMCO, any other party to any such
contract is in violation, breach or default thereof (with or without notice or
lapse of time). Except as set forth in Part 3.17 of the Disclosure Letter, no
such contract was entered into by PILIC other than in the ordinary course of its
Business consistent with past practice or, either singly or in the aggregate
with any other contracts, has had or may reasonably be expected to have a
Material Adverse Effect on PILIC.
3.18 Taxes. All tax returns required to be filed with respect to PILIC
have been duly and timely filed, and all such tax returns are true, accurate and
complete in all respects. PILIC has (a) duly and timely paid all taxes,
penalties, interest, additions to tax and assessments (collectively, "Taxes")
that are due, or claimed or asserted by any taxing authority to be due,
therefrom for the periods covered by such returns or (b) duly and fully provided
for such Taxes, in accordance with SAP, in the books and records thereof,
including without limitation in each of the SAP Statements. There are no Liens
with respect to Taxes on any of the assets or properties of PILIC. The SAP
Statements for the year ended December 31, 1998 and for the Quarterly Period
most recently ended prior to the Closing include due and sufficient accruals for
Taxes in accordance with SAP with respect to any period for which tax returns of
PILIC were not filed or for which Taxes were not then due and owing.
3.19 Benefit Plans. Except as set forth in Part 3.19 of the Disclosure
Letter, PILIC has not adopted, maintained or sponsored any pension, welfare,
bonus, deferred compensation, profit sharing, 401(k), stock, retirement or other
benefit plan or arrangement for any of its officers, directors, employees,
agents, consultants or similar representatives, or any "employee benefit plans"
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and has not participated in any "multiemployer plan"
as defined in Section 3(37) of ERISA. After the Closing, PILIC shall have no
liability or obligations under any such plans or arrangements.
3.20 Environmental Matters.
3.20.1 For purposes of this Section 3.20: (a) the term
"Environmental Laws" shall mean all applicable laws, rules and regulations
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes, and any and all applicable Orders, provisions and conditions of
permits, licenses and other operating authorizations, notices or demand letters
issued, entered, promulgated or approved thereunder; and (b) the term "Hazardous
Substance" shall have the meaning assigned to it in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as currently in
effect, and, in addition, shall include petroleum and any petroleum-based
product.
<PAGE>
3.20.2 No real property owned or leased by PILIC or any
business or entity to which it is a successor (all such real property being
hereinafter referred to as the "Real Property") is currently being used to, nor,
to the knowledge of PAMCO, has the Real Property ever been used to make, store,
handle, treat, dispose of, generate or transport Hazardous Substances in
material violation of any currently applicable Environmental Laws.
3.20.3 There has never been a release of Hazardous Substances
on, for or migrating onto any of the Real Property.
3.20.4 To the knowledge of PAMCO, PILIC has substantially
complied with all currently applicable Environmental Laws.
3.20.5 Neither PILIC has not received any written
notification, citation, complaint, violation, notice or order of any kind from
any government or any other person or entity relating or pertaining to any
Environmental Laws or the making, storing, handling, treating, disposing,
generating, transporting or release of any Hazardous Substances.
3.20.6 Except as set forth in Part 3.20 of the Disclosure
Letter, there are no above or below ground storage tanks presently in use or
formerly used for the storage of any Hazardous Substances on any of the Real
Property.
3.21 PAMCO Guaranty. PAMCO has complied with each and every material
term and condition of the PAMCO Guaranty and the Stock Pledge Agreement, and
neither PAMCO nor PILIC has received any notification of any event of default or
threatened event of default under the PAMCO Guaranty and the Stock Pledge
Agreement.
3.22 Disclosure. Copies of all documents referred to herein or in the
Disclosure Letter have been delivered or made available to BUYER, are true,
complete and accurate copies thereof, and include all amendments, supplements or
modifications thereto or waivers thereunder. Except as expressly set forth in
this Agreement, the Disclosure Letter or any certificates or other documents
executed and delivered by PAMCO to BUYER pursuant hereto, PAMCO has no knowledge
of any facts or conditions (other than any actual or competitive factors in the
markets in which it operates) that will or may reasonably be expected to have a
Material Adverse Effect on PILIC.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof and the Closing Date, BUYER represents and
warrants to PAMCO as follows:
<PAGE>
4.1 Organization. BUYER is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. BUYER has all requisite corporate power and authority to own or
hold under lease its properties and assets and to carry on its business as
presently conducted. BUYER is duly qualified to do business as a foreign
corporation in each jurisdiction in which the nature of its activities or
properties makes qualification as a foreign corporation necessary.
4.2 Authority. BUYER has the right, power, authority and capacity,
corporate or otherwise, to make, execute and deliver this Agreement and all
other agreements and documents to be executed and delivered by it pursuant to
this Agreement; and BUYER has taken all necessary actions required to be taken
to authorize it to execute and deliver this Agreement and such other agreements,
and to perform all of its obligations, undertakings and agreements to be
observed and performed by it hereunder and thereunder. This Agreement and such
other agreements and documents have been duly executed and delivered by BUYER
and constitute the valid and binding agreements of BUYER, enforceable in
accordance with their respective terms subject, as to the enforcement of
remedies, to general equitable principles and to bankruptcy, insolvency and
similar laws affecting creditors' rights generally.
4.3 No Violation. The execution, delivery and performance of this
Agreement and each other agreement or document to be executed, delivered and
performed hereunder by BUYER will not: (a) contravene, conflict with, or result
in a violation or breach of any provision of, or give any person or entity the
right to declare a default or exercise any remedy under, or result in the
acceleration of the maturity or performance of, or the cancellation, termination
or modification of, or create (or cause the acceleration of the maturity of) any
debt, obligation or liability affecting, or result in the creation or imposition
of any Lien under: (i) any term or provision of the charter, bylaws or other
organizational documents, or any resolution adopted by the board of directors or
the stockholders, of BUYER; (ii) any law, rule, regulation, judgment, decree or
order of any court or governmental authority applicable to BUYER; or (iii) any
contract, agreement, indenture, lease or other commitment to which BUYER is a
party or by which it or any of its assets is bound; (b) cause any material
change in the rights or obligations of any party under any such contract,
agreement, indenture, lease or commitment; or (c) give any governmental body or
other person or entity the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under any law, rule, regulation, judgment, decree or order applicable to BUYER;
or (d) give any governmental body the right to revoke, withdrawn, suspend,
cancel, terminate or modify any permit, license, consent, certificate, order,
authorization or approval held by BUYER or that otherwise relates to the
Business of, or any assets owned or used by, BUYER; except, in the case of
clause (c) and (d) of this sentence, for the consent and approval of the
Pennsylvania Department of Insurance with respect to the transactions
contemplated hereby.
<PAGE>
4.4 Consents. Except for the consent and approval of the Pennsylvania
Department of Insurance, no consent of any federal, state or local authority, or
any private person or entity is required to be obtained that has not been
obtained, and no notice to any such authority, person or entity is required to
be given that has not been given, in connection with the execution, delivery or
performance of this Agreement or any other agreement or document to be executed,
delivered or performed hereunder by BUYER, including, without limitation, any
consents or notices required by any applicable federal or state securities laws,
any applicable state takeover laws and any applicable requirement of any
insurance regulatory authority having jurisdiction over BUYER.
4.5 No Litigation. There are no lawsuits, proceedings, claims or
governmental investigations pending or, to the knowledge of BUYER, threatened
against or involving BUYER, or any officers or directors thereof, that
challenge, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the transactions contemplated by this
Agreement; and to the knowledge of BUYER there are no judgments, consents,
decrees, injunctions or any other judicial or administrative mandates
outstanding against BUYER that may have the effect of preventing, delaying,
making illegal or otherwise interfering with any of the transactions
contemplated by this Agreement.
4.6 Commissions and Fees. BUYER has not retained or used the services
of any person or entity in such a manner as to entitle such person or entity to
any commission or compensation for broker or finder fees with respect to the
transactions contemplated by this Agreement.
4.7 Software. BUYER has reviewed all material computer software used by
it and the areas within its business and operations that could be adversely
affected by the "year 2000 computer issue" (that is, the risk that such software
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999), and has
developed or is developing a program to address this issue on a timely basis.
Based on such review and program, the year 2000 computer issue is not reasonably
likely to impair the ability of BUYER to use such software after December 31,
1999.
4.8 PILIC Shares. BUYER is purchasing the PILIC Shares for investment
and without a view to distribution or resale. BUYER acknowledges that the PILIC
Shares have not been registered under any securities laws and that the
certificates representing the PILIC Shares shall bear a legend in substantially
the following form:
"[THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REQUIREMENTS. THE SECURITIES ARE BEING
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND ARE NOT BEING
PURCHASED WITH A VIEW TO OR FOR RESALE.]"
<PAGE>
5. INDEMNIFICATION
5.1 Indemnification by PAMCO. Subject to the limitations set forth in
Section 5.4 hereof, PAMCO agrees to reimburse, indemnify and hold BUYER and its
parent corporation, directors, officers, stockholders, employees and agents
harmless from, against and in respect of all losses, interest (including
prejudgment interest on any litigated or arbitrated matter), claims, damages,
liabilities, costs and expenses, including, without limitation, fines,
penalties, court costs and reasonable attorneys' and expert witness' fees
(collectively, "Losses"), that they may suffer or incur in connection with any
of the following:
5.1.1 any untruth or inaccuracy in, breach of or omission from
(a) any of the representations and warranties of PAMCO in this Agreement, (b)
the Disclosure Letter, (c) the SAP Statements, or (d) any other agreement,
document or instrument executed and delivered by PAMCO or PILIC to BUYER
pursuant to this Agreement (regardless of whether such untruth, inaccuracy,
breach or omission is considered material);
5.1.2 any nonfulfillment or breach of any covenant or
agreement of PAMCO set forth in this Agreement, the Disclosure Letter or any
other agreement, document or instrument executed and delivered by PAMCO or PILIC
to BUYER pursuant to this Agreement (regardless of whether such nonfulfillment
or breach is considered material);
5.1.3 any fees, expenses or other payments incurred or owed by
PAMCO or PILIC, or any of their Affiliates to any brokers, finders or comparable
third parties in connection with the transactions contemplated by this
Agreement;
5.1.4 the operation of PILIC prior to the Closing, including,
without limitation, any debts, liabilities or other obligations of PAMCO or
PILIC of any nature whatsoever arising, or relating to any act or omission
occurring, on or prior to the Closing, including but not limited to any and all
claims of employees of PAMCO or PILIC with respect to compensation, pension
plans, stock purchase plans or other employee benefits, severance payments or
termination of employment;
5.1.5 any Loss that (a) arises out of, results from or relates
to any act or omission, whether or not in bad faith, intentional, willful,
negligent, reckless, careless or otherwise, of PILIC or any of its respective
directors, officers, agents or representatives in connection with any insurance
policy issued by PILIC prior to the Closing and (b) is not a claim for health
benefits that are contractually covered by the terms and conditions of such
insurance policy;
5.1.6 any amounts due to any reinsurer or other person in
connection with the cancellation by PILIC of all reinsurance agreements with
respect to any insurance policies issued by PILIC prior to the Closing; and
5.1.7 any litigation or contemplated litigation against or
involving PAMCO, PILIC or any of their Affiliates existing as of the date hereof
or the Closing Date (regardless of subject matter).
<PAGE>
5.2 Indemnification by BUYER. Subject to the limitations set forth in
Section 5.4 hereof, BUYER agrees to reimburse, indemnify and hold PAMCO and its
directors, officers, stockholders, employees and agents harmless from, against
and in respect of all Losses that they may suffer or incur in connection with
any of the following:
5.2.1 any untruth or inaccuracy in, breach of or omission from
any of the representations and warranties of BUYER in this Agreement or any
other agreement, document or instrument executed and delivered by BUYER to PAMCO
pursuant to this Agreement (regardless of whether such untruth, inaccuracy,
breach or omission is considered material);
5.2.2 any nonfulfillment or breach of any covenant or
agreement of BUYER set forth in this Agreement or any other agreement, document
or instrument executed and delivered by BUYER to PAMCO pursuant to this
Agreement (regardless of whether such nonfulfillment or breach is considered
material);
5.2.3 the operation of PILIC after the Closing;
5.2.4 any fees, expenses or other payments incurred or owed by
BUYER or any of its Affiliates to any brokers, finders or comparable third
parties in connection with the transactions contemplated by this Agreement; and
5.2.5 any litigation or contemplated litigation against or
involving BUYER or any of its Affiliates (excluding PILIC and PALHIC) existing
as of the date hereof or the Closing Date that is not related to any of the
transactions contemplated by this Agreement.
5.3 Method of Asserting Claims.
5.3.1 Notice of Claim. If any legal proceedings are instituted
or any claim or demand given by any person, in respect of which payment may be
sought by any party or parties from any other party or parties under the
provisions of Sections 5.1 or 5.2, the party or parties seeking indemnification
(collectively, the "Indemnitee") will cause written notice of any claim of which
it has knowledge that is covered by this Agreement to be forwarded promptly to
the party or parties from which indemnification is sought (collectively, the
"Indemnitor"). Such notice will specify the amount and nature of the claim and
the reason why it constitutes an indemnified liability, it being understood that
failure to provide notice will not relieve the other party from liability except
to the extent damages or prejudice results from such failure.
5.3.2 Payment of Claims. In the event of a Loss other than a
third party claim, the Indemnitor will remit the amounts due, as indicated in
such notice, within thirty days of receipt thereof unless the Indemnitor asserts
in a writing delivered to the Indemnitee that the claim is not an indemnified
liability or disputes the amount of the Loss. The failure by the Indemnitor to
respond within thirty days of receipt of such notice will be deemed to be an
acknowledgment of the correctness of the amounts due as set forth in the notice.
<PAGE>
5.3.3 Third Party Claims. If any action is brought by a third
party against any Indemnitee with respect to which such Indemnitee is entitled
to indemnification hereunder and notice of such action to the Indemnitor has
been given pursuant to Section 5.3.1, the Indemnitor will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the Indemnitee within thirty days after receiving the aforesaid notice from
such Indemnitee, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnitee. Such Indemnitee will cooperate with respect to
any such participation or defense. Notwithstanding the foregoing, the Indemnitee
will have the right to employ its own counsel in any such case but the fees and
expenses of such counsel will be at the expense of such Indemnitee, unless (a)
the employment of such counsel at the expense of the Indemnitor shall have been
authorized in writing by the Indemnitor, (b) the Indemnitor shall not have
employed counsel reasonably satisfactory to such Indemnitee to have charge of
the defense of such action within thirty days after notice of commencement of
the action, or (c) such Indemnitee shall have reasonably concluded, based upon
written advice of counsel, that there may be defenses available to it that are
different from or additional to those available to the Indemnitor (in which case
the Indemnitor will not have the right to direct the defense of such action on
behalf of the Indemnitee with respect to such different defenses), in any of
which events such fees and expenses of one additional counsel will be borne by
the Indemnitor. Notwithstanding anything in this Section 5 to the contrary, an
Indemnitor will not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent is not
unreasonably withheld. Upon payment of indemnification by the Indemnitor, the
Indemnitee, if requested in writing by the Indemnitor, will assign to Indemnitor
its rights against any applicable account debtor or other responsible person to
the extent of the indemnification payment.
5.4 Limitations on Indemnification. Except with respect to the breach
of the representation contained in Section 3.5.4 by PAMCO, for which there shall
not be any limitation on indemnification, the maximum liability of PAMCO for any
Loss arising in connection with Sections 5.1.1, 5.1.4, 5.1.5, 5.1.6 and 5.1.7 of
this Agreement shall be Twenty-Five Thousand ($25,000) Dollars.
5.5 Survival. The representations and warranties of the parties shall
survive the Closing for a period of three years (except for the representations
and warranties set forth in Section 3.5.4, which shall survive indefinitely) and
shall not be deemed waived by the Closing and will be effective regardless of
any investigation that may have been made at any time by or on behalf of the
Indemnitee by its directors, officers, employees or agents. All other
obligations and covenants of the parties shall survive indefinitely.
5.6 Payment of Losses. The Indemnitor will pay to the Indemnitee, in
cash, the amount of any Loss to which the Indemnitee may become entitled by
reason of the provisions of this Section 5, such payment to be made within
thirty days after such Loss is finally determined either by mutual agreement of
the parties or pursuant to the final unappealable judgment of a court of
competent jurisdiction.
<PAGE>
6. TERMINATION
6.1 Termination of Agreement. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by either BUYER or PAMCO if a material breach of any
provision of this Agreement has been committed by the other party and
such breach has not been waived or cured on or before the Closing Date;
(b) by BUYER if any of the conditions in Section 1.3.1 or
1.3.3 have not been satisfied (or waived in writing by BUYER) as of the
Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the willful failure of BUYER to comply
with its obligations under this Agreement) on or before the Closing
Date;
(c) by PAMCO if any of the conditions in Section 1.3.1 or
1.3.2 have not been satisfied (or waived in writing by PAMCO) as of the
Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the willful failure of PAMCO to comply
with its obligations under this Agreement) on or before the Closing
Date;
(d) by mutual consent of BUYER and PAMCO; or
(e) by either BUYER or PAMCO if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before December 31, 1999, or such later date as the parties may
agree upon.
6.2 Effect of Termination. Each party's right of termination under
Section 6 is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 6.1, then all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 2.1.2, 2.1.3, 2.1.4, 8.1, 8.4 and 8.5 will
survive; provided, however, that if this Agreement is terminated by a party
because of the breach of this Agreement by the other party or because one or
more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's willful failure to
comply with its obligations under this Agreement, then the terminating party's
right to pursue any legal remedies will survive such termination unimpaired.
<PAGE>
7. OBLIGATIONS AFTER CLOSING
7.1 PILIC Shares. PAMCO agrees to comply with each and every material
term and condition of the PAMCO Guaranty and the Stock Pledge Agreement, and
agrees to provide written notice to BUYER of any and all notices received under
the PAMCO Guaranty and the Stock Pledge Agreement, within three (3) business
days after receipt thereof by PAMCO. Immediately upon the delivery to PAMCO of
the PILIC Shares by Hannover or any other person, PAMCO shall transfer and
deliver the PILIC Shares to BUYER or its nominee, free and clear of any and all
Liens, with fully executed and witnessed stock powers in blank attached thereto
with signatures guaranteed by a bank or trust company or a member firm of the
New York Stock Exchange, Inc.
8. MISCELLANEOUS
8.1 Payment of Expenses. Unless otherwise specified in this Agreement,
each of the parties will each pay its or his own expenses, including, without
limitation, the expenses of its or his own counsel, investment bankers and
accountants, incurred in connection with the preparation, execution and delivery
of this Agreement and the other agreements and documents referred to herein and
the consummation of the transactions contemplated hereby and thereby. All
expenses of the parties in enforcing any of the provisions of this Agreement and
the other agreements and documents referred to herein, including reasonable
attorneys' fees, will be borne as determined by the court or arbitrator deciding
any dispute under this Agreement in accordance with their determination of what
is fair and equitable under the circumstances.
8.2 Knowledge. For purposes of the representations and warranties made
in this Agreement, the term "knowledge" refers to the applicable party's
knowledge after reasonable due inquiry.
8.3 Notices. All notices, demands or other communications required or
permitted to be given or made hereunder shall be in writing and (a) delivered
personally, or (b) sent by pre-paid, first class, certified or registered mail,
return receipt requested, or (c) by priority overnight national express courier
service, or (d) by facsimile transmission (followed by a hard copy by U.S. mail
or priority overnight delivery as aforesaid), to the intended recipient thereof.
8.4 Successors and Assigns. No party may assign all or any part of its
rights, duties or obligations under or pursuant to this Agreement without the
consent of the other parties hereto (which consent shall not be unreasonably
withheld); provided that BUYER may freely assign its right to purchase the PILIC
Shares to an Affiliate of BUYER. Except as otherwise provided, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, executors, legal representatives, successors and
permitted assigns.
<PAGE>
8.5 Governing Law; Venue. This Agreement will be governed, construed
and enforced in accordance with the internal laws of the State of Pennsylvania,
excluding any choice of law rules that may direct the application of the laws of
another jurisdiction. Any legal action, suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby shall be
instituted in the Court of Common Pleas of Montgomery County, Pennsylvania, and
each party agrees not to assert, by way of motion, as a defense, or otherwise,
in any such action, suit or proceeding, any claim that it is not subject
personally to the jurisdiction of such court, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court. Each party further irrevocably
submits to the jurisdiction of such court in any such action, suit, or
proceeding. Any and all service of process and any other notice in any such
action, suit or proceeding will be effective against any party if served or
delivered as provided by the rules of the court in which such legal action, suit
or proceeding has been instituted.
8.6 Amendment and Waiver. This Agreement shall not be altered or
amended except by an instrument in writing signed by or on behalf of the party
entitled to the benefit of the provision against whom enforcement is sought. Any
term or condition of this Agreement may be waived at any time by the party which
is entitled to the benefit thereof, but only if such waiver is evidenced by a
writing signed by such party. No failure on the part of any party hereto to
exercise, and no delay in exercising any right, power or remedy created
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy by any such party preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. No
waiver by any party hereto of any breach of or default in any term or condition
of this Agreement shall constitute a waiver of or assent to any succeeding
breach of or default in the same or any other term or condition hereof.
8.7 Instruments of Further Assurance. Each of the parties hereto
agrees, upon the request of any of the other parties, from time to time to
execute and deliver to such other party or parties all such instruments and
documents of further assurance or otherwise as are reasonable under the
circumstances, and to do any and all such acts and things as may reasonably be
required to carry out the obligations of such requested party hereunder.
8.8 Publicity. No notices to third parties or other publicity,
including press releases, concerning any of the transactions provided for herein
will be made by any party hereto unless planned and coordinated jointly among
the parties, except to the extent otherwise required by applicable law. PAMCO is
aware that BUYER is owned by a public company that must comply with the
disclosure requirements of the federal securities laws and any applicable stock
exchange or securities association.
8.9 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof,
and contains the sole and entire agreement among the parties with respect to the
matters covered hereby. The Disclosure Letter and any exhibits or schedules
referred to herein constitute a part of this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
<PAGE>
8.11 Advise of Counsel/Waiver of Conflict of Interest.
8.11.1 The provisions of this Agreement and the legal effect
hereof is acknowledged by each party hereto. PAMCO has been represented in the
negotiation and preparation of this Agreement by Butera, Beausang, Cohen &
Brennan, King of Prussia, Pennsylvania, and Buyer has acknowledged that Buyer at
the present time is unrepresented. Buyer understands that Buyer is entitled to
retain separate and independent counsel and had declined to do so. The parties
further acknowledge that the firm of Butera, Beausang, Cohen & Brennan has from
time to time represented Buyer, and Alvin H. Clemens, the sole shareholder of
Buyer.
8.11.2 Each of PAMCO and BUYER agree that Butera, Beausang,
Cohen & Brennan may represent PAMCO in the transactions set forth in this
Agreement as well as in connection with other matters unrelated to the
transactions set forth in this Agreement. PAMCO and BUYER agree not object to
Butera, Beausang, Cohen & Brennan's continued representation of PAMCO, its
subsidiaries or affiliates, and BUYER in connection with matters other than
those related to the transactions set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first set forth above.
BUYER:
AHC ACQUISITION, INC.
By:
-----------------------------------
Name: Alvin H. Clemens
Title: President
PAMCO:
PROVIDENT AMERICAN CORPORATION
By:
-----------------------------------
Name: Anthony R. Verdi
Title: Chief Operating Officer
<PAGE>
EXHIBIT A
LEGAL OPINION OF COUNSEL TO BUYER
TO BE PROVIDED WITHIN THIRTY (30) DAYS AFTER EXECUTION
OF THIS STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT B
LEGAL OPINION OF COUNSEL TO PAMCO
TO BE PROVIDED WITHIN THIRTY (30) DAYS AFTER EXECUTION
OF THIS STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT "C"
DISCLOSURE LETTER
DATED AS OF THE DATE OF THIS
AGREEMENT AND DELIVERED UPON THE EXECUTION
<PAGE>
DISCLOSURE LETTER OF
PROVIDENT AMERICAN CORPORATION
DELIVERED PURSUANT TO
STOCK PURCHASE AGREEMENT
DATED AUGUST 16, 1999
BY AND BETWEEN
AHC ACQUISITION, INC. ("BUYER"),
AND
PROVIDENT AMERICAN CORPORATION ("PAMCO")
<PAGE>
AHC ACQUISITION, INC. ("BUYER"),
AND
PROVIDENT AMERICAN CORPORATION ("PAMCO")
INDEX
PART 1.1 Agreement to Purchase and Sell.......................... 1
PART 3.1 Organization, Power and Qualification.................... 2
PART 3.5.1 Capital Stock of PILIC................................. 3
PART 3.7 Default, Violation or Litigation......................... 4
PART 3.8 Liabilities of PILIC..................................... 6
PART 3.9 Absence of Certain Changes............................... 9
PART 3.12 Reserves and Insurance Issued by PILIC................. 13
PART 3.15 Transactions with Affiliates........................... 14
PART 3.17 Contracts.............................................. 15
PART 3.19 Benefit Plans.......................................... 18
PART 3.20 Environmental Matters.................................. 19
<PAGE>
PART 1.1
Agreement to Purchase and Sell
(4) Except as set forth below, at Closing, Buyer or its designee
shall purchase, and PAMCO shall sell, all of PAMCO's right,
title and interest in and to all of the PILIC Shares, free and
clear of any and all liens, taxes, claims, mortgages, charges,
security interests, encumbrances or similar agreements of any
kind or nature whatsoever under and subject to the pledge of
the PILIC Shares to Hannover, and on the terms and conditions
set forth in the Stock Purchase Agreement.
NONE
<PAGE>
PART 3.1
Organization, Power and Qualification
(5) List of the states where PILIC is licensed to issue insurance.
Alabama
Alaska
Arizona
Colorado
Delaware
District of Columbia
Florida
Georgia
Indiana
Kentucky
Louisiana
Maryland
Mississippi
Missouri
Montana
Nebraska
Nevada
New Mexico
Ohio
Oklahoma
Pennsylvania
South Carolina
Texas
Utah
Virginia
West Virginia
U.S. Virgin Islands
<PAGE>
PART 3.5.1
Capital Stock of PILIC
o The following is the capital structure of PILIC:
Authorized Shares: 1,500,000 shares of common stock
par value $1.60 per share
Shareholder: PAMCO - 937,500 shares
<PAGE>
PART 3.7
Default, Violation or Litigation
(a) Except for the Lawsuits, list of all lawsuits, proceedings, claims,
or governmental investigations pending or, to the knowledge of PAMCO,
threatened against or involving PILIC or any of its officers or
directors.
1. Academy Life Insurance Company v. Provident American
Corporation, Provident Indemnity Life Insurance Company,
Provident American Life and Health Insurance Company,
Provident American Services, Inc., Alvin H. Clemens and Len E.
Jost, Court of Common Pleas, Chester County, Pennsylvania,
98-03519
This lawsuit is being settled upon exchange of Mutual
Releases.
2. Gayle F. Allen v. Provident Indemnity Life Insurance Company,
Court of Common Pleas, Montgomery County, Pennsylvania,
94-05305.
3. Helen Anne Coviello vs. Provident American Life & Health
Insurance Company and/or Provident Indemnity Life Insurance
Company, County Court, 15th Judicial Circuit, Palm Beach
County, Florida, No. MS-98-004926-RE
This lawsuit was settled for the sum of $5,500. Settlement
documentation has been completed, but Ms. Coviello's
work-related injury claims have been dismissed without
prejudice in case Fireman's Fund won't honor them.
4. Colleen Graver v. Provident Indemnity Life Insurance Company
a/k/a Provident American Life & Health Insurance Co., Circuit
Court in and for the 17th Judicial District, Broward County,
FL, Case No. 98018040
5. Robert Mozingo v. Provident American Life & Health Insurance
Company f/k/a Provident Indemnity Life Insurance Company and
Dean A. Gunter, Tenth Judicial Circuit Court, Polk County,
Florida, Case No. G-98-821
6. Dispute between Swiss Re and PILIC over Swiss Re's refusal to
settle the September, October, and November 1998 reinsurance
payables to PILIC under the Quota Share Medical Reinsurance
Agreement, Reference No. BAGA 95189, effective January 1,
1996.
<PAGE>
PART 3.7
(continued)
7. Litigation as set forth in Provident American Corporation
Litigation Report dated June 30, 1999. Copy supplied to Buyer.
(b) List of all judgments, consents, decrees, injunctions or any other judicial
or administrative mandates outstanding against PILIC or any of its officers or
directors.
NONE
<PAGE>
PART 3.8
Liabilities of PILIC
o Except as set forth in the SAP Statements, list of all of PILIC's
debts, liabilities or obligations of any nature whatsoever, including
but not limited to any debts, liabilities or obligations under or
relating to any of the following:
(a) any contracts, agreements, arrangements or understandings with
any Affiliate thereof or any third party or governmental body, including without
limitation, any reinsurance, ceding, commission, agency, brokerage, fee sharing,
employment, consulting, sales, marketing, management, administration,
noncompetition or nonsolicitation agreement;
1. Quota Share Medical Reinsurance Agreement No. 900446,
Reference No. BAGA 95189, effective January 1, 1996, by and
between Provident Indemnity Life Insurance Company and The
Mercantile and General Reinsurance Company Limited, n/k/a
Swiss Re Life & Health America Inc.
2. Services Agreement effective February 1, 1998 by and among
Provident Indemnity Life Insurance Company, Provident American
Life & Health Insurance Company, HealthPlan Services
Corporation, and HealthPlan Services, Inc.
3. Stock Purchase Agreement dated September 15, 1998 between
Provident Indemnity Life Insurance Company, and
HealthAxis.com, Inc.
4. Administrative Services Agreement dated December 29, 1998 by
and among Central Reserve Life Insurance Company, Reassurance
Company of Hannover, and Provident Indemnity Life Insurance
Company.
5. Stock Purchase Agreement dated December 29, 1998 by and among
Central Reserve Life Insurance Company, Provident American
Corporation and Provident Indemnity Life Insurance Company.
6. Assignment and Termination Agreement dated December 29, 1998
between Provident American Life & Health Insurance Company,
Provident American Corporation, and Provident Indemnity Life
Insurance Company.
7. Reinsurance Agreement effective 11:59 p.m., Local Standard
Time, December 31, 1998 among Provident American Life & Health
Insurance Company, Provident Indemnity Life Insurance Company
("Reinsurer") and Provident Indemnity Life Insurance Company
("Administrator").
<PAGE>
PART 3.8
(continued)
8. Reinsurance Agreement effective 11:59 p.m., Local Standard
Time, December 31, 1998 among Provident Indemnity Life
Insurance Company and Reassurance Company of Hannover, and
Central Reserve Life Insurance Company.
9. Termination of Stock Option Agreement dated May 21, 1999
between Provident Indemnity Life Insurance Company, Provident
American Corporation, and HealthAxis.com, Inc.
10. Stock Option Agreement dated March 24, 1999 between Provident
Indemnity Life Insurance Company, and Provident American
Corporation.
11. Registration Rights Agreement dated March 30, 1999 between
Provident Indemnity Life Insurance Company, and
HealthAxis.com, Inc.
(b) any note, bond, indenture, loan, credit agreement or other
evidence of indebtedness or direct or indirect guaranty or assumption of
indebtedness, liabilities or obligations thereof, any Affiliate thereof or any
third party, including but not limited to any intercompany obligations to PAMCO
or any such Affiliate;
Intercompany indebtedness between PILIC and HealthAxis.com, Inc.
(c) any accrued and unpaid dividend or other distribution on, or
redemption obligation relating to, any of the PILIC Shares;
NONE
(d) any pension, retirement, profit sharing, thrift savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, vacation or other employee pension or welfare
benefit plan, or any withdrawal liability or other penalty or charge relating to
any such plans;
NONE
<PAGE>
PART 3.8
(continued)
(e) any collective bargaining or other labor agreement;
NONE
(f) any obligation to pay compensation, commissions, perquisites,
bonuses, profit sharing distributions, severance or termination pay, or other
extraordinary compensation to any director, officer, employee or agent of PILIC
in connection with any of the transactions contemplated by the Stock Purchase
Agreement;
NONE
(g) any taxes or other Liens of any nature whatsoever;
The PILIC Shares owned by PAMCO are subject to a Stock Pledge
Agreement dated December 29, 1998 by PAMCO in favor of Reassurance
Company of Hannover, as agent on behalf of itself and Central Reserve
Life Insurance Company ("CRL"), and a Guaranty Agreement of the same
date by PAMCO in favor of the same party.
(h) any environmental liabilities;
NONE
(i) the sale of any assets or insurance policies by PILIC.
NONE
<PAGE>
PART 3.9
Absence of Certain Changes
o Since March 31, 1999, PILIC has conducted its Business in the
ordinary course, and there has been no event or series of events that
has had or is reasonably likely to have a Material Adverse Effect on
PILIC, except as disclosed below.
NONE
o Since March 31, 1999, list of the following with respect to PILIC:
(a) any damage, destruction or loss (whether or not covered by
insurance), that could reasonably be expected to have a Material Adverse Effect
on PILIC;
NONE
(b) any direct or indirect redemption, retirement, purchase or other
acquisition of any shares of capital stock of PILIC;
NONE
(c) any dividend or other distribution, in cash, stock or other
assets, by PILIC;
NONE
(d) any change in the compensation, commissions or perquisites
payable or to become payable by PILIC or grant of any severance or termination
pay to any officer, employee or agent of PILIC, or any payment of any bonus,
profit sharing or other extraordinary compensation to any employee of PILIC (in
each case other than any such increase or payment paid or to become payable in
the ordinary course of business consistent with past practices);
NONE
<PAGE>
PART 3.9
(continued)
(e) any change in the accounting methods or practices followed by
PILIC, including, without limitation, any change in depreciation or amortization
policies or rates theretofore adopted;
NONE
(f) any increase in accounts payable owed by PILIC, or the creation
of any note, bond, indenture, loan, credit agreement or other evidence of
indebtedness or direct or indirect guaranty or assumption of indebtedness,
liabilities or others("Indebtedness") of PILIC or to which PILIC is a party, in
each case other than in the ordinary course of business consistent with past
practice;
NONE
(g) any forgiveness or cancellation of any debts or receivables owed
to or claims held by PILIC or acceleration of the collection of accounts
receivable by PILIC, in each case other than in the ordinary course of business
consistent with past practice;
NONE
(h) any sale, lease, transfer, conveyance, abandonment or other
disposition by PILIC of any real property, or any sale, transfer or conveyance
of any other assets or properties, tangible or intangible, of PILIC (other than
investment securities) with an individual book value or with any aggregate book
value in excess of $25,000, in each case other than in the ordinary course of
business consistent with past practice;
NONE
(i) except as required by the Stock Purchase Agreement, any
amendment, termination or waiver by PILIC of any material right of, or any
actual or threatened termination or cancellation of, any material contract to
which PILIC is a party or by which it is bound;
NONE
<PAGE>
PART 3.9
(continued)
(j) any termination, lapse, suspension, revocation of, limitation
upon or failure to renew any Approval of PILIC;
1. Commonwealth of Virginia: PILIC received an Impairment Order
dated June 7, 1999 ordering PILIC to cease issuing new
insurance due to PILIC's surplus as of March 31, 1999 being
below the minimum requirement for Virginia. PILIC has complied
with the Order.
2. State of Colorado: Acting upon the verbal request of a
representative of the Department of Insurance, PILIC has
agreed to cease writing new business in Colorado due to
PILIC's Risk Base Capital being below Company Action Level
required by Colorado as of December 31, 1998.
3. State of Florida: By reason of the fact that PILIC was not in
compliance with Florida's 10 to 1 direct written premium to
capital and surplus requirement, PILIC voluntarily agreed to
cease writing new business as of June 30, 1999.
(k) any agreement between PILIC and any Affiliate of PILIC;
NONE, except as disclosed in Part 3.8.
(l) any change in any underwriting, actuarial, investment or
financial reporting practice or policy followed by PILIC or method or
application thereof, or any assumption underlying such principle, practice or
policy, in each case other than in the ordinary course of business consistent
with past practice;
NONE
(m) except as otherwise contemplated in the Stock Purchase Agreement,
any termination, amendment or execution by PILIC of any reinsurance, coinsurance
or similar contract or treaty, as ceding or assuming insurer other than in the
ordinary course of business consistent with past practice;
NONE
<PAGE>
PART 3.9
(continued)
(n) any purchase of any investment securities by PILIC other than
purchases of investment grade commercial paper or cash equivalents;
Stock Purchase Agreement dated September 15, 1998 between Provident
Indemnity Life Insurance Company, and HealthAxis.com, Inc.
(o) any material change in the operating practices of PILIC.
NONE
<PAGE>
PART 3.12
Reserves and Insurance Issued by PILIC
As disclosed in the Stock Purchase Agreement.
<PAGE>
PART 3.15
Transactions with Affiliates
(a) List of all contracts or arrangements (formal or informal,
written or oral), directly or indirectly, between PILIC and any Affiliate
thereof;
NONE, except as set forth on Part 3.8.
(b) List of all direct or indirect interest of PILIC or any Affiliate
thereof in any person or entity involved in any business that is competitive
with the business of PILIC.
NONE, except as set forth on Part 3.8.
<PAGE>
PART 3.17
Contracts
o List and brief description of each material contract (other than
insurance contracts issued or underwritten by PILIC) to which PILIC
is currently bound or by which any of its assets or properties are
subject or bound.
1. Quota Share Medical Reinsurance Agreement No. 900446,
Reference No. BAGA 95189, effective January 1, 1996, by and
between Provident Indemnity Life Insurance Company and The
Mercantile and General Reinsurance Company Limited, n/k/a
Swiss Re Life & Health America Inc. Copy supplied to Buyer.
2. Stock Purchase Agreement dated December 29, 1998 by and among
Central Reserve Life Insurance Company, Provident American
Corporation and Provident Indemnity Life Insurance Company.
CRL purchased all of the outstanding capital stock of PALHIC
and NIA Corporation from PILIC.
3. Employee and Facility Lease Agreement dated December 29, 1998
between Provident Indemnity Life Insurance Company, and
Central Reserve Life Insurance Company. CRL leased certain
employees and their facilities and equipment from PILIC.
4. Termination of Stock Option Agreement dated May 21, 1999
between Provident Indemnity Life Insurance Company, Provident
American Corporation, and HealthAxis.com, Inc. Copy supplied
to Buyer.
5. Services Agreement effective February 1, 1998 by and among
Provident Indemnity Life Insurance Company, Provident American
Life & Health Insurance Company, HealthPlan Services
Corporation, and HealthPlan Services, Inc. Copy supplied to
Buyer.
6. Assignment and Termination Agreement dated December 29, 1998
between Provident American Life & Health Insurance Company,
Provident American Corporation, and Provident Indemnity Life
Insurance Company.
<PAGE>
PART 3.17
(continued)
PALHIC assigned to PAMCO all its right, title and interest to
all claims and rights of PALHIC against HealthPlan Services,
Inc. ("HPS") and HealthPlan Services Corporation ("HPSC")
arising under the Services Agreement among PILIC, PALHIC, HPS
and HPSC effective February 1, 1998.
7. Administrative Services Agreement dated December 29, 1998 by
and among Central Reserve Life Insurance Company, Reassurance
Company of Hannover, and Provident Indemnity Life Insurance
Company. Sets forth the conditions under which CRL shall
perform all services with respect to administration of certain
insurance policies to be reinsured.
8. Reinsurance Agreement effective 11:59 p.m., Local Standard
Time, December 31, 1998 among Provident American Life & Health
Insurance Company, Provident Indemnity Life Insurance Company
(Reinsurer") and Provident Indemnity Life Insurance Company
("Administrator"). PALHIC ceded to PILIC and PILIC reinsured
from PALHIC 100% of the liabilities incurred after the
effective date on the underlying policies.
9. Reinsurance Agreement effective 11:59 p.m., Local Standard
Time, December 31, 1998 among Provident Indemnity Life
Insurance Company and Reassurance Company of Hannover, and
Central Reserve Life Insurance Company. PILIC ceded to
Reassurance Company of Hannover and Reassurance Company of
Hannover reinsured from PILIC 100% of losses under policies
incurred on and after the effective date.
10. Stock Purchase Agreement dated September 15, 1998 between
Provident Indemnity Life Insurance Company, and
HealthAxis.com, Inc. PILIC purchased certain shares of Series
A Convertible Preferred Stock of HealthAxis.com, Inc.
11. Stock Option Agreement dated March 24, 1999 between Provident
Indemnity Life Insurance Company, and Provident American
Corporation.
Copy supplied to Buyer.
12. Registration Rights Agreement dated March 30, 1999 between
Provident Indemnity Life Insurance Company, and
HealthAxis.com, Inc.
<PAGE>
PART 3.17
(continued)
Sets forth the circumstances under which HealthAxis and PILIC
have agreed to register under the Securities Act the Series A
Cumulative Convertible Preferred Stock, and common stock
issuable upon conversion of the Series A Cumulative
Convertible Preferred Stock.
o List of each contract disclosed or required to be disclosed in this
Part 3.17 that is not:
(a) in full force and effect;
NONE
(b) constituting the legal, valid and binding obligation of PILIC
and, to the knowledge of PAMCO, of all other parties thereto;
NONE
(c) enforceable in accordance with its terms.
NONE
o List of each contract entered into by PILIC other than in the
ordinary course of its Business consistent with past practice or,
either singly or in the aggregate with any other contracts, has had
or may reasonably be expected to have a Material Adverse Effect on
PILIC.
NONE
<PAGE>
PART 3.19
Benefit Plans
o List of all pension, welfare, bonus, deferred compensation, profit
sharing, 401(k), stock, retirement or other benefit plan or
arrangement which PILIC has adopted, maintained or sponsored for any
of its officers, directors, employees, agents, consultants or similar
representatives, or any "employee benefit plans" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any "multiemployer plan" as defined in
Section 3(37) of ERISA in which PILIC has participated.
PAMCO is assuming all of PILIC's benefit plans as of the Closing
Date. PILIC will not be a party and will not have any liability under
any benefit plan.
<PAGE>
PART 3.20
Environmental Matters
o List of all above or below ground storage tanks presently in use or
formerly used for the storage of any Hazardous Substances on any of
the Real Property.
NONE
