<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996.
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PENN TREATY AMERICAN CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6312 23-1664166
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
3440 LEHIGH STREET
ALLENTOWN, PENNSYLVANIA 18103
(610) 965-2222
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
IRVING LEVIT
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PENN TREATY AMERICAN CORPORATION
3440 LEHIGH STREET
ALLENTOWN, PENNSYLVANIA 18103
(610) 965-2222
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JUSTIN P. KLEIN, ESQ. PETER S. ERLY, ESQ.
Ballard Spahr Andrews & Ingersoll Gravel and Shea
1735 Market Street, 51st Floor 76 St. Paul Street
Philadelphia, Pennsylvania 19103-7599 P.O. Box 369
(215) 665-8500 Burlington, Vermont 05402-0369
(802) 658-0220
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT AND THE
EFFECTIVE TIME OF THE MERGER (THE "MERGER") OF A WHOLLY OWNED SUBSIDIARY OF PENN
TREATY AMERICAN CORPORATION INTO HEALTH INSURANCE OF VERMONT, INC. AS DESCRIBED
IN THE AGREEMENT AND PLAN OF MERGER, DATED AS OF MARCH 15, 1996 (THE "MERGER
AGREEMENT"), ATTACHED AS APPENDIX I TO THE PROXY STATEMENT/PROSPECTUS FORMING A
PART OF THIS REGISTRATION STATEMENT.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and are in compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED (1) PER SHARE PRICE (2) FEE (2)
<S> <C> <C> <C> <C>
Common Stock ($.10 par
value)....................... 586,768 shares N/A $11,001,900 $3,793.76
<FN>
(1) Represents the maximum number of shares of Penn Treaty American Corporation
Common Stock, par value $.10 per share, to be issued pursuant to the Merger
Agreement in exchange for all of the issued and outstanding shares of
Common Stock of Health Insurance of Vermont, Inc. or reserved for issuance
pursuant to stock options or warrants.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the Common Stock of Health Insurance of Vermont, Inc.
to be exchanged in the Merger, computed in accordance with Rule 457(c) on
the basis of the average of bid and asked prices per share of such stock on
The Nasdaq National Market on May 10, 1996.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PENN TREATY AMERICAN CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Cover Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Available Information
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary; Risk Factors
4. Terms of the Transaction............................. Summary; The Merger; The Merger Agreement
5. Pro Forma Financial Information...................... Unaudited Pro Forma Financial Information
6. Material Contacts with the Company Being Acquired.... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... *
8. Interests of Named Experts and Counsel............... The Merger; Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.......... Incorporation of Certain Documents by Reference;
Selected Historical Consolidated Financial
Information
11. Incorporation of Certain Documents by Reference...... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants... *
13. Incorporation of Certain Documents by Reference...... *
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants.............................. *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies............ *
16. Information with Respect to S-2 or S-3 Companies..... Available Information; Incorporation of Certain
Documents by Reference; Summary; Risk Factors;
Selected Historical Consolidated Financial
Information -- HIVT
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
17. Information with Respect to Companies Other Than S-2
or S-3 Companies.................................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Other
Authorizations Are to be Solicited.................. Outside Front Cover Page of Proxy
Statement/Prospectus; Available Information;
Incorporation of Certain Documents by Reference;
Summary; The Meeting; The Merger
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited or in an Exchange Offer..... *
</TABLE>
- ------------------------
* Inapplicable
<PAGE>
HEALTH INSURANCE OF VERMONT, INC.
ONE ROOSEVELT HIGHWAY
COLCHESTER, VERMONT 05446
, 1996
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Health Insurance of Vermont, Inc. ("HIVT") to be held on ,
, 1996 at 12:00 p.m. (local time) at , ,
Vermont.
At this Annual Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
March 15, 1996, as amended (the "Merger Agreement"), between Penn Treaty
American Corporation ("Penn Treaty") and HIVT. Pursuant to the Merger Agreement,
a wholly-owned subsidiary of Penn Treaty ("Merger Sub") will be merged with and
into HIVT (the "Merger"), and HIVT will become a wholly-owned subsidiary of Penn
Treaty. In the Merger, outstanding shares of common stock of HIVT will be
converted into the right to receive cash and common stock of Penn Treaty, on the
terms and subject to the conditions set forth in the Merger Agreement, all as
more fully described in the attached Proxy Statement/Prospectus.
You should read carefully the accompanying Notice of Annual Meeting of
Stockholders and the Proxy Statement/Prospectus for details of the Merger and
additional related information.
HIVT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, HIVT AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT HIVT'S STOCKHOLDERS VOTE FOR THE PROPOSAL
TO APPROVE AND ADOPT THE MERGER AGREEMENT.
The affirmative vote of two-thirds of the votes cast by Stockholders present
at the Annual Meeting, either in person or by proxy is necessary to approve the
Merger Agreement.
In addition to approving the Merger Agreement, the Stockholders will also be
asked to:
A. Elect two Directors to serve a term of three years each (provided,
however, that such Directors and other Directors of HIVT will be required to
resign such positions upon completion of the Merger);
B. Elect a Secretary for the term of one year (provided, however, that
the Secretary will be required to resign upon completion of the Merger);
C. Ratify and approve the reimbursement by HIVT of out-of-pocket
expenses incurred by Robert S.W. Leong and the Committee to Maximize
Shareholder Value in connection with the proxy solicitation and other
actions taken by such persons with respect to HIVT during the period
December 1994 through September 1995; and
D. Transact such other business as may properly come before the meeting
or any adjournments thereof.
We urge you to complete, sign, date and return the enclosed proxy card as
soon as possible, whether or not you plan to attend the Annual Meeting in person
and regardless of the number of shares which you may own. We encourage you to
attend the Annual Meeting and vote in person even if you have previously
returned your proxy card.
Please do not send any stock certificates with the proxy card.
Sincerely,
Robert S.W. Leong
CHAIRMAN OF THE BOARD OF DIRECTORS
<PAGE>
HEALTH INSURANCE OF VERMONT, INC.
ONE ROOSEVELT HIGHWAY
COLCHESTER, VERMONT 05446
, 1996
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1996
---------------------
To The Stockholders of Health Insurance of Vermont, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of (the
"Annual Meeting") of Health Insurance of Vermont, Inc., a Vermont corporation
("HIVT"), will be held on , , 1996 at 12:00 p.m. (local time)
at , , Vermont.
A. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of March 15, 1996, as amended (the
"Merger Agreement") between HIVT and Penn Treaty American Corporation ("Penn
Treaty"), a Pennsylvania corporation, and the transactions contemplated
thereby (such proposal being referred to herein as the "Merger Proposal").
Pursuant to the Merger Agreement, a wholly-owned subsidiary of Penn Treaty
("Merger Sub") will be merged with and into HIVT (the "Merger") and HIVT
will become a wholly-owned subsidiary of Penn Treaty. In the Merger, each
outstanding share of common stock, par value $3.00 per share, of HIVT ("HIVT
Common Stock") will be converted into the right to receive $4.00 in cash and
up to 1.067 (but not less than 0.8) shares of common stock, par value $0.10
per share, of Penn Treaty ("Penn Treaty Common Stock") on the terms and
subject to the conditions set forth in the Merger Agreement, all as more
fully described in the accompany Proxy Statement/ Prospectus. A copy of the
Merger Agreement is attached as Annex I to the Accompanying Proxy
Statement/Prospectus;
B. To elect two Directors to serve a term of three years each for HIVT
(provided, however that such Directors and other Directors of HIVT will be
required to resign such positions upon completion of the Merger);
C. To elect a Secretary for the term of one year for HIVT (provided,
however, that the Secretary will be required to resign upon completion of
the Merger);
D. To ratify and approve the reimbursement by HIVT of out-of-pocket
expenses incurred by Robert S.W. Leong and the Committee to Maximize
Shareholder Value in connection with the proxy solicitation and other
actions taken with respect to HIVT during the period December 1994 through
September 1995 (the "Reimbursement Proposal"); and
E. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on , 1996, the
record date for the Annual Meeting, are entitled to notice of, and to vote at,
the Annual Meeting and any adjournment thereof.
The affirmative vote of two-thirds of the votes cast by Stockholders present
in person or by proxy at the Annual Meeting is necessary to approve the Merger
Proposal.
The affirmative vote of a plurality of the Stockholders present in person or
by proxy at the Annual Meeting is necessary to elect members of HIVT's Board of
Directors and its Secretary.
The affirmative vote of a majority of the Stockholders present in person or
by proxy at the Annual Meeting is necessary to ratify and approve the action
taken by HIVT's Board of Directors with respect to the Reimbursement Proposal.
Holders of HIVT common stock will be entitled to dissenters' rights as a
result of the Merger. See "The Merger -- Rights of Dissenting Stockholders."
<PAGE>
The Board of Directors of HIVT has determined that the Merger is fair to,
and in the best interests of, HIVT and its shareholders, has unanimously
approved the Merger Proposal and the Reimbursement Proposal and recommends a
vote FOR the approval and adoption of the Merger Proposal and Reimbursement
Proposal.
All Stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to complete, sign and date the enclosed proxy card and return it as
promptly as possible in the enclosed postage-prepaid envelope.
By Order of the Board of Directors
James L. Fraser
SECRETARY
COLCHESTER, VERMONT
, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN
AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE SPECIAL
MEETING.
DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR STOCK CERTIFICATES.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROXY STATEMENT/ PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION; DATED MAY , 1996
PENN TREATY AMERICAN CORPORATION
HEALTH INSURANCE OF VERMONT, INC.
------------------
PROXY STATEMENT/PROSPECTUS
---------------------
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") relates to
the proposed merger (the "Merger") of a wholly-owned subsidiary ("Merger Sub")
of Penn Treaty American Corporation ("Penn Treaty") into Health Insurance of
Vermont, Inc. ("HIVT") pursuant to an Agreement and Plan of Merger dated as of
March 15, 1996, as amended, between Penn Treaty and HIVT (the "Merger
Agreement"). As a result of the Merger, HIVT will become a wholly-owned
subsidiary of Penn Treaty and the stockholders of HIVT will receive in the
aggregate $2,200,380 in cash and up to 586,768 shares of Penn Treaty common
stock, $.10 par value ("Penn Treaty Common Stock"), in exchange for all of the
issued and outstanding shares of HIVT common stock, $3.00 par value ("HIVT
Common Stock"). Pursuant to the Merger, each outstanding share of HIVT Common
Stock will be converted into $4.00 in cash and up to 1.067 shares (but not less
than 0.8 shares) of Penn Treaty Common Stock (the "Exchange Rate"). The Exchange
Rate is subject to adjustment based on the average price per share of Penn
Treaty Common Stock during a specified period prior to the closing date of the
Merger. See "The Merger -- Adjustments to Merger Consideration."
This Proxy Statement/Prospectus serves as the proxy statement for the Annual
Meeting of HIVT stockholders to be held , 1996. See "The Meeting."
This Proxy Statement/Prospectus also constitutes a prospectus of Penn Treaty
with respect to up to 586,768 shares of Penn Treaty Common Stock to be issued to
stockholders of HIVT pursuant to the Merger Agreement. This Proxy
Statement/Prospectus and the accompanying forms of proxy are first being mailed
to stockholders of HIVT on or about , 1996.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN CONSIDERATIONS IN EVALUATING
THE MERGER.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities made
hereby and, if given or made, such information or representation should not be
relied upon as having been authorized by Penn Treaty or HIVT. This Proxy
Statement/ Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, any securities, or the solicitation of a proxy, in any
jurisdiction in which, or to any person to whom, it is unlawful to make such
offer or solicitation of an offer or proxy solicitation. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of the securities offered
hereby shall, under any circumstances, create any implication that there has
been no change in the affairs of Penn Treaty or HIVT since the date hereof or
that the information set forth or incorporated by reference herein is correct as
of any time subsequent to its date. All information herein with respect to Penn
Treaty and Merger Sub has been furnished by Penn Treaty, and all information
herein with respect to HIVT has been furnished by HIVT.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
Penn Treaty and HIVT are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the offices of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Regional Offices of the Commission: Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials may be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Penn Treaty has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), on Form S-4 with respect to the securities offered hereby.
This Proxy Statement/Prospectus also constitutes the Prospectus of Penn Treaty
filed as part of the Registration Statement and does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules of the
Commission. Statements made in this Proxy Statement/Prospectus as to the
contents of any contract, agreement, or other document referred to are not
necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits filed as
part thereof, are available for inspection and copying at the Commission's
offices as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Penn Treaty (File No.
0-15972) and HIVT (File No. 0-9934) with the Commission pursuant to the Exchange
Act, are incorporated by reference in this Proxy Statement/Prospectus:
1. Penn Treaty's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. Penn Treaty's Current Report on Form 8-K dated March 25, 1996, as
amended on Form 8-K/A dated May 10, 1996.
3. The description of the Penn Treaty Common Stock contained in Penn
Treaty's Registration Statement on Form 8-A dated June 12, 1987.
4. HIVT's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995.
5. HIVT's Current Report on Form 8-K dated March 22, 1996, as amended
on Form 8-K/A dated May 13, 1996.
6. HIVT's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996.
All documents and reports subsequently filed by Penn Treaty pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Meeting shall be deemed
to be incorporated by reference in this Proxy Statement/Prospectus and to be a
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or with
respect to Penn Treaty in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded, except as so modified
or superseded, shall not be deemed to constitute a part of this Proxy
Statement/Prospectus.
2
<PAGE>
The Proxy Statement/Prospectus incorporates documents by reference which are
not presented herein or delivered herewith. Such documents (other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference) are available to any person, including any beneficial owner, to which
this Proxy Statement/Prospectus is delivered, on written or oral request,
without charge, in the case of documents relating to Penn Treaty, directed to
Penn Treaty American Corporation, 3440 Lehigh Street, Allentown, Pennsylvania
18103 Attention: Michael F. Grill, (telephone number (610) 965-2222) or, in the
case of documents relating to HIVT, directed to Health Insurance of Vermont,
Inc., One Roosevelt Highway, Colchester, Vermont 05446, Attention: John W.
Mahoney, (telephone number (802) 655-5500).
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................................. 2
SUMMARY............................................................................... 6
Penn Treaty American Corporation.................................................... 6
Health Insurance of Vermont, Inc.................................................... 6
Reasons for the Merger.............................................................. 6
The Annual Meeting.................................................................. 7
The Merger.......................................................................... 8
Comparative Historical and Pro Forma Per Share Data................................. 12
Comparative Market Data............................................................. 13
RISK FACTORS.......................................................................... 14
Risks Relating to Penn Treaty....................................................... 14
Risks Relating to HIVT.............................................................. 17
Risks Relating to the Merger........................................................ 18
THE MEETING........................................................................... 19
Annual Meeting...................................................................... 19
Quorum.............................................................................. 23
Votes Required...................................................................... 23
Record Date; Stock Entitled to Vote................................................. 23
Voting of Proxies................................................................... 23
Revocation of Proxies............................................................... 24
Solicitation of Proxies............................................................. 24
THE MERGER............................................................................ 24
Merger Consideration................................................................ 24
Adjustments to Merger Consideration................................................. 24
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares.... 25
Nasdaq Listing...................................................................... 25
Background of the Merger............................................................ 25
Recommendations of the Board of Directors........................................... 27
Reasons for the Merger.............................................................. 27
Fairness Opinion.................................................................... 28
Effective Time of the Merger........................................................ 30
Interests of Certain Persons in the Merger.......................................... 30
Certain Federal Income Tax Consequences............................................. 31
Accounting Treatment................................................................ 32
Resale of Penn Treaty Common Stock by Affiliates.................................... 32
Certain Regulatory Matters.......................................................... 32
Rights of Dissenting Stockholders................................................... 33
COMPARISON OF RIGHTS OF HIVT AND PENN TREATY SHAREHOLDERS............................. 33
Classes and Series of Capital Stock................................................. 34
Director and Officer Liability and Indemnification.................................. 34
Special Meetings of Shareholders.................................................... 35
Annual Meeting of Shareholders...................................................... 35
Appraisal/Dissenters' Rights........................................................ 35
Shareholder Approval of Mergers..................................................... 36
Stock Repurchases................................................................... 36
Removal of Directors................................................................ 37
Charter Amendments.................................................................. 37
Stockholder Action Without a Meeting................................................ 37
"Anti-Takeover" Laws................................................................ 38
THE MERGER AGREEMENT.................................................................. 38
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Conditions to the Merger............................................................ 38
Representations and Warranties...................................................... 40
Certain Covenants................................................................... 40
Additional Agreements............................................................... 42
Termination, Amendment and Waiver................................................... 44
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA............................. 45
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION -- PENN TREATY................. 48
SELECTED FINANCIAL CONSOLIDATED FINANCIAL INFORMATION -- HEALTH INSURANCE OF VERMONT,
INC. (HIVT).......................................................................... 50
LEGAL MATTERS......................................................................... 52
EXPERTS............................................................................... 52
</TABLE>
APPENDIX I -- AGREEMENT AND PLAN OF MERGER DATED AS OF MARCH 15, 1996 AMONG PENN
TREATY AND HIVT
APPENDIX II -- FAIRNESS OPINION OF ADVEST, INC.
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/ PROSPECTUS. THE INFORMATION CONTAINED IN THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE.
PENN TREATY AMERICAN CORPORATION
Penn Treaty American Corporation ("Penn Treaty") is primarily engaged in
providing long-term nursing home and home health care insurance to persons age
65 and over. An originator of long-term nursing home care insurance products for
twenty years, Penn Treaty is the second largest insurance carrier whose
operations are primarily focused on long-term care insurance. Penn Treaty is
currently licensed to write business in 44 states and the District of Columbia.
Its policies are marketed nationally through independent insurance agents. Penn
Treaty underwrites its insurance products through two of its subsidiaries, Penn
Treaty Life Insurance Company, ("PTLIC") and Network America Life Insurance
Company ("Network America" and together with PTLIC, the "Insurers"). As of
December 31, 1995, long-term nursing home care and home health care policies
accounted for approximately 93% of Penn Treaty's total annualized premiums in
force.
Penn Treaty's principal products are individual fixed, defined benefit
accident and health insurance policies covering long-term skilled, intermediate
and custodial nursing home care, home health care, hospital care and policies
that supplement Medicare benefits. In 1993, Penn Treaty introduced life
insurance products designed specifically for individuals age 65 and over. In
late 1994, Penn Treaty introduced an Independent Living policy which provides
coverage over the full term of the policy for services furnished by a homemaker
or companion who is not a qualified or licensed care provider. Available policy
riders allow insureds to tailor their policies and include an automatic annual
benefit increase, benefits for adult day-care centers and a return of premium
benefit. Policies are designed to make the administration of claims simple,
quick and sensitive to the needs of senior citizens.
Penn Treaty's executive offices are located at 3440 Lehigh Street,
Allentown, Pennsylvania and its telephone number is (610) 965-2222.
HEALTH INSURANCE OF VERMONT, INC.
Health Insurance of Vermont, Inc. is engaged in the marketing and sale of
guaranteed renewable disability income insurance written on an individual basis.
HIVT does not market any line of insurance other than accident and health
insurance. Its focus is on the marketing of competitive, quality disability
insurance in those states in which it is licensed. HIVT is currently licensed to
write business in 46 states and the District of Columbia. HIVT does not maintain
its own sales force and therefore operates on a brokerage basis, distributing
its products in those states in which it is licensed. All of HIVT's business is
produced by licensed insurance agents who have contracts with HIVT. These agents
may have similar agreements with other insurance companies and generally write
insurance for those companies.
HIVT's executive offices are located at One Roosevelt Highway, Colchester,
Vermont and its telephone number is (802) 655-5500.
REASONS FOR THE MERGER
The Board of Directors of HIVT has determined that the Merger is fair to,
and in the best interests of, HIVT and its shareholders and unanimously approved
the Merger Agreement and recommends that HIVT shareholders vote FOR the approval
and adoption of the Merger.
6
<PAGE>
From time to time over the past several years, HIVT has reviewed and
reexamined its business strategies and prospects. In that regard, HIVT has
considered possible strategic alliances, combinations and transactions with
various industry participants, including companies smaller and larger than HIVT.
Based on that analysis, HIVT's Board of Directors concluded that a strategic
merger, if on terms and conditions acceptable to HIVT's Board and HIVT's
stockholders, could present a valuable opportunity to enhance the stockholders'
investment in HIVT as well as an opportunity to support the continued growth of
HIVT's business. The terms of the Merger Agreement, including the Exchange Rate,
was the result of arms' length negotiations between HIVT and Penn Treaty and
their respective representatives. The HIVT Board consulted with its legal and
financial advisors and management of HIVT. After careful review and
consideration, the HIVT Board has determined that the Merger will provide fair
value to all HIVT stockholders.
THE ANNUAL MEETING
<TABLE>
<S> <C>
Meeting of Stockholders........... The Annual Meeting of Stockholders of HIVT (the "Annual
Meeting") will be held on , , 1996 at 12:00
p.m. (local time) at , Vermont.
Matters to be Considered at the
Annual Meeting................... At the Annual Meeting, stockholders will be asked to
approve and adopt the Merger Agreement. Pursuant to the
terms of the Merger Agreement, each share of HIVT Common
Stock will be converted into $4.00 in cash and up to
1.067 (but not less than 0.8) shares of Penn Treaty
Common Stock. The Exchange Rate is subject to certain
adjustments. See "The Merger -- Adjustments to Merger
Consideration."
At the Annual Meeting, Stockholders will also be asked
to: (i) elect two persons to the Board of Directors to
serve terms of three years each (provided, however, that
such persons and other directors of HIVT will be
required to resign such positions upon completion of the
Merger); (ii) elect a Secretary for HIVT for a term of
one year (provided, however, that such person will be
required to resign as Secretary of HIVT upon completion
of the Merger); (iii) approve and ratify the reim-
bursement by HIVT of proxy solicitation and related ex-
penses of Robert S.W. Leong and the Committee to
Maximize Shareholder Value totalling $54,548 which were
incurred during the period December 1994 through
September 1995 (the "Reimbursement Proposal"); and (iv)
to consider and vote upon such additional matters as may
properly come before the Meeting.
For additional information relating to the Annual
Meeting, see "The Meeting."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Quorum; Vote Required............. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of HIVT Common Stock
at the Annual Meeting is necessary to constitute a
quorum at the meeting. Approval of the Merger Agreement
requires the affirmative vote of two-thirds of the votes
cast at the Annual Meeting by Stockholders present
either in person or by proxy. The affirmative vote of a
majority of the stockholders present, either in person
or by proxy, at the Annual Meeting is necessary to
ratify and approve the action taken by HIVT's Board of
Directors with respect to the Reimbursement Proposal.
The affirmative vote of a plurality of the Stockholders
present, in person or by proxy, at the Annual Meeting is
necessary to elect members of the HIVT Board of
Directors and its Secretary.
See "The Meeting -- Vote Required" and "The Merger
Agreement -- Conditions to the Merger."
Record Date....................... Only stockholders of record of HIVT Common Stock at the
close of business on , 1996 are entitled to
notice of and to vote at the Annual Meeting. On that
date, there were 549,095 shares of HIVT Common Stock
outstanding, with each share of HIVT Common Stock
entitled to cast one vote with respect to the items set
forth in this Proxy Statement/Prospectus.
Security Ownership
of Management.................... As of the record date, the directors and executive
officers of HIVT as a group had the power to vote
approximately 7.66% of the outstanding shares of HIVT
Common Stock entitled to vote at the HIVT Annual
Meeting. Directors of HIVT and certain stockholders with
the collective power to vote approximately 35.3% of the
outstanding HIVT Common Stock have indicated that they
intend to vote their shares in favor of the Merger
Agreement. See "Principal Stockholders."
THE MERGER
Effect of the Merger.............. Pursuant to the Merger, Merger Sub would merge into
HIVT, HIVT would continue as the surviving corporation
(sometimes referred to as the "Surviving Corporation")
and HIVT would become a wholly-owned subsidiary of Penn
Treaty. All of the shares of HIVT Common Stock issued
and outstanding immediately prior to the consummation of
the Merger would be automatically converted, at the
Effective Time (as defined below) into the right to
receive in the aggregate $2,200,380 in cash and up to
approximately 586,768 shares (but not less than 440,076
shares) of Penn Treaty Common Stock, representing
approximately 7.74% of the Penn Treaty Common Stock
outstanding after the Merger. Pursuant to the Merger,
each share of HIVT Common Stock would be converted into
$4.00 of cash and up to 1.067 shares (but not less than
0.8 shares) of Penn Treaty Common Stock. The Exchange
Rate is subject to adjustment based on the average price
per share of Penn Treaty Common Stock during a specified
period prior to the consummation of the Merger. See "The
Merger -- Adjustments to Merger Consideration."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Recommendation of the Board of
Directors and Reasons for the
Merger........................... The Board of Directors of HIVT believes that the terms
of the Merger are fair to and in the best interests of
its stockholders and have unanimously approved the
Merger Agreement and the related transactions. The HIVT
Board of Directors unanimously recommends that HIVT
stockholders approve the Merger Agreement. See "The
Merger -- Recommendation of the Board of Directors."
The HIVT Board of Directors believes that the Merger
will provide fair value to all HIVT stockholders and
offers HIVT opportunities for growth using the
additional capital, expertise and distribution channels
available from Penn Treaty. In reaching its decision to
approve the Merger Proposal, the HIVT Board of Directors
considered several factors including: (a) the market
value of Penn Treaty Common Stock to be received in the
Merger by HIVT stockholders; (b) the active trading
market and history of Penn Treaty Common Stock; (c) the
enhanced long term value to HIVT of a strategic merger
with a larger, more diversified insurance company; (d)
the opinion of Advest, Inc. ("Advest") to the effect
that, as of March 15, 1996, the transaction was fair to
the HIVT stockholders from a financial point of view;
(e) the present intention of Penn Treaty to keep HIVT's
headquarters in Colchester, Vermont; and (f) the
provision for the exchange of the Merger Consideration
consisting of Penn Treaty Common Stock in a tax-free
transaction.
In the event that HIVT stockholders do not approve the
Merger Proposal or if the Merger is not consummated for
any other reason, HIVT intends to continue as an
independent company, operating on a basis consistent
with its historical operations. HIVT will continue to
market and issue disability insurance policies and
intends to continue its selective geographic expansion,
seeking to spread risks and to enhance its sales volume.
See "The Merger -- Background of the Merger" and "--
Reasons for the Merger."
Opinions of Financial Advisors to
the HIVT Board................... Advest has delivered its written opinion to the HIVT
Board of Directors dated March 15, 1996, that the
consideration to be received by the holders of HIVT
Common Stock was fair from a financial point of view to
the holders of HIVT Common Stock.
For information on the assumptions made, matters consid-
ered and limits of the review by Advest, see "The Merger
-- Fairness Opinion." Stockholders are urged to read in
its entirety the opinion of Advest dated the date of
this Proxy Statement/Prospectus, attached as Appendix
II, to this Proxy Statement/Prospectus.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Effective Time of the Merger...... The Merger will become effective at the time provided in
articles of merger (the "Articles of Merger") to be
filed with the Secretary of State of Vermont (the
"Effective Time"). The filing will be made as soon as
practicable after the closing of the Merger. The closing
of the Merger (the "Closing") will occur on the fifth
business day after all of the conditions to the Merger
contained in the Merger Agreement have been satisfied or
waived. See "The Merger Agreement -- Conditions to the
Merger."
Conditions to the Merger.......... The obligations of Penn Treaty and HIVT to consummate
the Merger are subject to certain conditions including:
(i) obtaining the approval of the stockholders of HIVT;
(ii) approval for quotation on the Nasdaq National
Market (the "Nasdaq"), subject to official notice of
issuance, of the Penn Treaty Common Stock to be issued
in connection with the Merger; (iii) the effectiveness
of the Registration Statement of which this Proxy
Statement/Prospectus is a part; (iv) no order being
entered in any action or proceeding or other legal
restraint or prohibition preventing the consummation of
the Merger; (v) the receipt by each party of various
legal opinions, comfort letters and other certificates,
consents, reports and approvals from the other parties
to the Merger and from third parties; (vi) the accuracy
in all material respects of the representations and
warranties of each party and compliance with all
covenants and conditions by each party; and (vii) the
absence of any material adverse change in the business
or financial condition of Penn Treaty or HIVT. Either
Penn Treaty or HIVT may extend the time for performance
of any of the obligations of the other party or may
waive compliance with those obligations. See "The Merger
-- Certain Regulatory Matters" and "The Merger Agreement
-- Conditions to the Merger."
Termination, Amendment and
Waiver........................... The Merger Agreement may be terminated at any time prior
to the Effective Time by mutual consent of Penn Treaty
and HIVT, or, generally, by either party if (i) the
Merger shall not have been completed by August 31, 1996,
(ii) if the Merger is enjoined by court order or (iii)
if either party fails to perform in any material respect
any of its covenants under the Merger Agreement. In
addition either Penn Treaty or HIVT may extend the time
for performance of any of the obligations of the other
party or may waive conditions with respect to those
obligations. See "The Merger Agreement -- Termination,
Amendment and Waiver."
Dissenters' Rights................ HIVT stockholders will be entitled to dissenters' rights
under applicable state law in connection with the
Merger. See "The Merger -- Rights of Dissenting
Stockholders."
Certain Regulatory Matters........ Consummation of the Merger is subject to certain
regulatory approvals. Although no assurance can be
given, Penn Treaty and HIVT believe that the Merger can
be effected in compliance with all federal and state
regulations. See "The Merger -- Certain Regulatory
Matters."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Certain Federal Income
Tax Consequences................. The Merger is intended to qualify as a tax-free
reorganization for federal income tax purposes so that
no gain or loss would be recognized by Penn Treaty or
HIVT, and no gain or loss would be recognized by HIVT
stockholders on the portion of the consideration for
HIVT Common Stock consisting of Penn Treaty Common
Stock. Consummation of the Merger is conditioned upon
there being delivered an opinion of counsel prior to the
Closing to the effect that HIVT and the HIVT
stockholders will recognize no gain or loss for federal
income tax purposes on the portion of the consideration
for HIVT Common Stock consisting of Penn Treaty Common
Stock as a result of the consummation of the Merger.
Anticipated Accounting Treatment.. The Merger will be treated as a purchase for accounting
and financial reporting purposes. "The Merger --
Anticipated Accounting Treatment."
Interests of Certain Persons in
the Merger....................... In considering the recommendation of the HIVT Board of
Directors with respect to the Merger, HIVT stockholders
should be aware that members of the HIVT Board have
interests in HIVT as stockholders and that one member of
the HIVT Board of Directors has an interest as an
employee. See "The Merger -- Interests of Certain
Persons in the Merger" for a description of such
arrangements.
Risk Factors...................... For discussion of the risk factors which should be
considered carefully by HIVT Stockholders in considering
whether to vote in favor of the Merger Agreement, see
"Risk Factors."
Surrender of Certificates......... Promptly after the Effective Date, Penn Treaty's
Exchange Agent will mail a transmittal form and exchange
instructions to each holder of record of HIVT Common
Stock. CERTIFICATES FOR SHARES OF HIVT COMMON STOCK
SHOULD NOT BE SURRENDERED UNTIL SUCH TRANSMITTAL FORM
AND EXCHANGE INSTRUCTIONS ARE RECEIVED.
</TABLE>
CERTAIN STATEMENTS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS ARE FORWARD
LOOKING. ALTHOUGH PENN TREATY AND HIVT BELIEVE THEIR EXPECTATIONS ARE BASED ON
REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF THEIR BUSINESS AND OPERATIONS, THERE
CAN BE NO ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM THEIR
EXPECTATIONS. FOR FACTORS WHICH MAY CAUSE RESULTS TO DIFFER FROM EXPECTATIONS,
SEE "RISK FACTORS".
11
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following summary presents selected comparative per share information
(i) for Penn Treaty on a historical basis in comparison with pro forma
information giving effect to the Merger, and (ii) HIVT on an historical basis in
comparison with its pro forma equivalent information after giving effect to the
Merger, including the receipt of the Penn Treaty Common Stock in exchange for
the HIVT Common Stock in accordance with the Merger. The pro forma financial
information should be read in conjunction with the historical financial
statements of Penn Treaty and HIVT and the related notes thereto incorporated
herein by reference or contained elsewhere herein, and in conjunction with the
unaudited pro forma financial information appearing elsewhere in this Proxy
Statement/Prospectus.
Penn Treaty has never paid any cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. It is the present intention of
Penn Treaty to retain any future earnings to support the continued growth of
Penn Treaty's business. Any future payment of dividends by Penn Treaty is
subject to the discretion of the Board of Directors and is dependent, in part,
on any dividends it may receive as the sole shareholder of PTLIC and Senior
Financial Consultants Company, a wholly-owned subsidiary of Penn Treaty, and
which PTLIC may in turn receive as the sole shareholder of Network America. The
payment of dividends by PTLIC and Network America, respectively, is in turn
dependent on a number of factors, including their respective earnings and
financial condition, business needs and capital and surplus requirements, and is
also subject to certain regulatory restrictions and the effect that such payment
would have on their ratings by A.M. Best Company. See Item 1, "Business -- A.M.
Best's Rating" and Item 1, "Business -- Government Regulation".
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in future
periods or future combined financial position.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
Net income per common and common equivalent:
Penn Treaty:
Historical...................................................................................... $ 1.53
Pro forma combined.............................................................................. 1.38
HIVT:
Historical...................................................................................... $ .35
Pro forma equivalent............................................................................ 1.47
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
Stockholders' equity per common and common equivalent share:
Penn Treaty -- historical......................................................................... $ 13.93
Penn Treaty -- pro forma combined................................................................. 14.01
HIVT -- historical................................................................................ 15.88
HIVT -- pro forma equivalent...................................................................... 14.95
</TABLE>
12
<PAGE>
COMPARATIVE MARKET DATA
Penn Treaty Common Stock is traded on the Nasdaq under the symbol "PTAC".
The following table shows the high and low sale prices for Penn Treaty Common
Stock as reported by NASDAQ, for Penn Treaty's Common Stock for the periods
indicated below as follows:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C> <C>
1994 First Quarter.............................................................................. 15 12
Second Quarter............................................................................. 143/4 13
Third Quarter.............................................................................. 16 131/2
Fourth Quarter............................................................................. 161/2 143/8
1995 First Quarter.............................................................................. 121/8 95/8
Second Quarter............................................................................. 13 113/8
Third Quarter.............................................................................. 143/4 117/8
Fourth Quarter............................................................................. 161/2 13
1996 First Quarter.............................................................................. 19 15 1/4
Second Quarter (through May 10, 1996)...................................................... 19 1/4 18 1/2
</TABLE>
As of December 31, 1995, Penn Treaty Common Stock was held by approximately
200 holders of record.
HIVT Common Stock is traded over-the-counter under the symbol "HIVT". The
following table shows the high and low sales prices for the HIVT Common Stock,
as reported by the National Daily Quotation Bureau for the periods indicated
below as follows:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C> <C>
1994 First Quarter.............................................................................. 9 81/2
Second Quarter............................................................................. 101/2 9
Third Quarter.............................................................................. 11 91/2
Fourth Quarter............................................................................. 111/4 91/2
1995 First Quarter.............................................................................. 101/2 9
Second Quarter............................................................................. 111/4 91/2
Third Quarter.............................................................................. 141/2 91/2
Fourth Quarter............................................................................. 15 91/2
1996
First Quarter.............................................................................. 19 15
Second Quarter (through May 10, 1996)...................................................... 18 1/2 18
</TABLE>
As of December 31, 1995, HIVT Common Stock was held by approximately 514
holders of record.
The following table sets forth the closing price per share of Penn Treaty
Common Stock on the Nasdaq and HIVT Common Stock on the over the counter market,
and the equivalent per share price (as explained below) of HIVT Common Stock on
February 2, 1996, the business day preceding public announcement of the Merger:
<TABLE>
<CAPTION>
EQUIVALENT
MARKET PRICE PENN TREATY HIVT PER SHARE
PER SHARE AT: COMMON STOCK COMMON STOCK (1) PRICE (2)
- ----------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
February 2, 1996........................................... $ 17 $ 16.75 $ 17.87
</TABLE>
- ------------------------
(1) Bid price; there were no sales of HIVT Common Stock on February 2, 1996.
(2) The equivalent per share price of a share of HIVT Common Stock represents
the closing price of a share of HIVT Common Stock on such date multiplied by
an assumed Exchange Rate of 1.067 shares of Penn Treaty Common Stock for
each share of HIVT Common Stock. The Exchange Rate is subject to adjustment
under certain circumstances. See "The Merger -- Adjustments to Merger
Consideration."
Stockholders are advised to obtain current market quotations for Penn Treaty
Common Stock and HIVT Common Stock. No assurance can be given as to the market
price of Penn Treaty Common Stock or HIVT Common Stock at, or in the case of
Penn Treaty Common Stock, after the Effective Time.
13
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE PROPOSAL
RELATED TO THE MERGER AGREEMENT TO BE VOTED ON AT THE ANNUAL MEETING.
RISKS RELATING TO PENN TREATY
ADEQUACY OF LOSS RESERVES. The reserves for losses and expenses established
by Penn Treaty are estimates of amounts needed to pay reported and incurred but
not yet reported claims and related expenses based on facts and circumstances
known as of the time the reserves are established. Reserves are based on
historical claims information, industry statistics and other factors. The
establishment of appropriate reserves is an inherently uncertain process, and
there can be no assurance that the ultimate liability will not materially exceed
Penn Treaty's claim and policy reserves and have a material adverse effect on
Penn Treaty's results of operations and financial condition. Due to the inherent
uncertainty of estimating reserves, it has been necessary, and may over time
continue to be necessary, to revise estimated future liabilities as reflected in
the Company's reserves for claims and policy expenses.
IMPLEMENTATION OF NEW PRODUCTS. The introduction of new insurance products
entails a greater risk of unanticipated claims incurred than products with
respect to which Penn Treaty has developed significant historical claims data,
such as long-term nursing home insurance. In order to minimize the risks to Penn
Treaty associated with this lack of historical claims experience data, Penn
Treaty generally limits both the amount of benefits and duration of coverage
available under new products until such data is developed. If as a result of
actual experience, Penn Treaty does not meet state mandated loss ratios for a
product, state insurance regulators may require Penn Treaty to reduce or refund
premiums on such product. If, however, losses are greater than anticipated, then
in addition to adjusting its reserve levels as discussed below, Penn Treaty may
seek regulatory approval of premium increases. Because this approval process is
time consuming, Penn Treaty must attempt to anticipate the need for premium
increases substantially in advance of its targeted date for implementing such
increases. Failure to anticipate the need for or to secure regulatory approval
of such increases could have a material adverse effect on Penn Treaty. Moreover,
fluidity in market competition and regulatory forces might limit Penn Treaty's
ability to rely on historical claims experience for the development of new
premium rates and reserve allocations.
Penn Treaty began marketing its home health care policies as a stand-alone
product during the last seven years and, to date, has experienced a higher than
expected number of claims filed and longer than expected duration of claims,
requiring higher levels of reserves and loss ratios than anticipated with this
product line. In addition, in late 1994, Penn Treaty began marketing its
Independent Living policy, a home health care insurance product which provides
coverage over the full term of the policy for services furnished by a homemaker
or companion who is not a qualified or licensed care provider. Because of Penn
Treaty's relatively limited claims experience with these home health care
products, Penn Treaty may incur higher than expected loss ratios and may be
required to adjust further its reserve levels with respect to these products.
RECOVERABILITY OF DEFERRED ACQUISITION COSTS. In connection with the sale
of its insurance policies, Penn Treaty defers and amortizes a portion of the
policy acquisition costs over the related premium paying periods of the life of
the policy. These costs include all expenses directly related to the acquisition
of the policy, including commissions, underwriting and other policy issue
expenses. The amortization of deferred acquisition costs is determined using the
same projected actuarial assumptions used in computing policy reserves. Deferred
acquisition costs can be affected by unanticipated termination of policies
because, upon such unanticipated termination, Penn Treaty is required to expense
fully the deferred acquisition costs associated with the terminated policy. If
these actuarial assumptions prove to be inaccurate, the result could have a
material adverse effect on Penn Treaty's results of operations in future
periods.
14
<PAGE>
MANDATED LOSS RATIOS. The states in which Penn Treaty is licensed have the
authority to change the minimum mandated statutory loss ratios to which Penn
Treaty is subject, the manner in which these ratios are computed and the manner
in which compliance with these ratios is measured and enforced. Loss ratios are
commonly defined as incurred claims and increases in policy reserves divided by
earned premiums. Most states in which Penn Treaty writes insurance have adopted
the loss ratios recommended by the National Association of Insurance
Commissioners ("NAIC"). Penn Treaty is unable to predict the impact of (i) any
changes in the mandatory statutory loss ratios for individual or group long-term
care policies to which Penn Treaty may become subject, (ii) any changes in the
minimum loss ratios for individual or group long-term care or Medicare
supplement policies or (iii) any change in the manner in which these minimums
are computed or enforced in the future. Penn Treaty has not been informed by any
state that it does not meet mandated minimums, and Penn Treaty believes that it
is in compliance with all such minimum ratios. In the event Penn Treaty is not
in compliance with minimum statutory loss ratios mandated by regulatory
authorities with respect to certain policies, Penn Treaty may be required to
reduce or refund premiums, which could have a material adverse effect upon Penn
Treaty.
GOVERNMENT REGULATIONS. The business of Penn Treaty, including the
insurance policies sold by the Insurers, is subject to stringent state
governmental requirements, including those regarding licensure, benefit
structure, payment of dividends, settlement of claims, capital levels, premium
increases and transfer of control of the Insurers. Certain changes in such laws
and regulations could have a material adverse effect on the operations of the
Insurers and, in turn, on Penn Treaty. Specific developments which could have a
material adverse effect on the operations of the insurance industry include, but
are not limited to, possible rate rollback legislation and legislation to
control premiums, policy terminations and other policy terms, including premium
levels. In addition, the administration of such regulations is vested in state
agencies which have broad powers and are concerned primarily with the protection
of policyholders.
In addition, from time to time there are significant federal and state
legislative developments with respect to long-term care and Medicare coverage.
The Federal Omnibus Budget Reconciliation Act of 1990 required that Medicare
supplement policies provide for guaranteed renewability and waivers of
pre-existing condition coverage limitations under certain circumstances. In
addition, the NAIC has recently adopted model long-term care policy language
providing nonforfeiture benefits and has proposed a rate stabilization standard
for long-term care policies. Among the proposals currently pending in the U.S.
Congress are the implementation of certain minimum consumer protection standards
for inclusion in all long-term care policies, including guaranteed renewability,
protection against inflation and limitations on waiting periods for pre-existing
conditions. These proposals would also prohibit "high pressure" sales tactics in
connection with long-term care insurance and would guarantee consumers access to
information regarding insurers, including lapse and replacement rates for
policies and the percentage of claims denied. Other pending legislation would
permit premiums paid for long-term care insurance to be treated as deductible
medical expenses, with the amount of the deduction increasing with the age of
the taxpayer. Penn Treaty cannot predict with certainty the effect any such
proposals, if adopted, or legislative developments could have on its business
and operations.
HIGHLY COMPETITIVE MARKETS; A.M. BEST B+ RATING. The markets in which Penn
Treaty competes are highly competitive. Penn Treaty competes with large national
and smaller regional insurers, as well as specialty insurers. Many of theses
insurers are larger and have greater resources and higher A.M. Best ratings than
Penn Treaty. A.M. Best's ratings are based on a comparative analysis of the
financial condition and operating performance for the prior year of the
companies rated, as determined by their publicly available reports. A.M. Best's
classifications are A++ and A+ (superior), A and A- (excellent), B++ and B+
(very good), B and B- (good), C++ and C+ (fair), and C and C- (marginal), D
(below minimum standards), E (under state supervision) and F (in liquidation).
A.M. Best's ratings are based upon factors of concern to policyholders and
insurance agents and are not directed toward the protection of investors. The
Insurers' current A.M. Best ratings are both "B+" (very good). In addition to
the foregoing, competition may take several other forms, including breadth
15
<PAGE>
and flexibility of coverage, pricing and the quality and level of services
provided. Additional competition may result from changes in Medicare benefits,
as well as from the introduction of products similar to those offered by Penn
Treaty by additional private insurance carriers. In addition, Penn Treaty
competes with other insurance companies for producing agents to market and sell
its products. Over the past three fiscal years, more than half of Penn Treaty's
premiums have been derived from sales of policies in Florida and Pennsylvania.
Competitive changes in such; markets could have an adverse effect on Penn
Treaty.
AGENT RECRUITMENT; RELIANCE ON MARKETING GENERAL AGENT. Penn Treaty engages
continuously in active recruitment and training of independent agents to market
and sell its products, in part by frequent presentations designed to educate
agents with respect to Penn Treaty's insurance products and operations. Penn
Treaty also periodically reviews and terminates its agency relationships with
non-producing or underproducing agents or agents who do not comply with Penn
Treaty's guidelines and policies with respect to the sale of its products. While
Penn Treaty believes that the commissions it pays to independent agents are
competitive with the commissions paid by other insurance companies selling
similar policies, there can be no assurance that Penn Treaty will be able to
continue to attract and retain independent agents to sell Penn Treaty's
products.
Penn Treaty utilizes marketing general agents from time to time for the
purpose of recruiting independent agents and developing networks of agents in
various states. Penn Treaty has a marketing general agent ("MA") for purposes of
generating business for the Insurers in several states. This MA receives an
overriding commission on business written in return for recruiting, training,
and motivating the independent agents. This MA also functions as a general agent
("GA") for the Insurers in several states. In the capacity of MA and GA, this
agent accounted for 21%, 20% and 18% of the total premiums earned by Penn Treaty
during 1993, 1994 and 1995, respectively. The loss of the services provided by
this agent as MA and GA could have a material adverse effect upon Penn Treaty.
DEPENDENCE ON SENIOR CITIZEN MARKET. Penn Treaty's insurance products are
designed primarily for sale to persons age 65 and over. Many such persons live
on fixed incomes and, as such, are highly sensitive to inflation and interest
rate fluctuations which affect their buying power. In periods of low interest
rates, renewal premiums on Penn Treaty's products have decreased. There can be
no assurance that adverse economic conditions or lower interest rates will not
have a material impact upon the ability of senior citizens to afford Penn
Treaty's products which, in turn, could have a material adverse impact upon Penn
Treaty.
LACK OF DIVIDENDS. Penn Treaty has never paid any cash dividends on its
Common Stock and does not intend to do so in the foreseeable future. Any future
payment of dividends by Penn Treaty is subject to the discretion of the board of
Directors and is dependent, in part, on any dividends it may receive from its
subsidiaries. See "Dividend Policy."
RESTRICTIONS ON SUBSIDIARY DIVIDENDS. Payment of dividends by the Insurers
is subject to regulatory restrictions and will depend on profits arising from
their business, computed according to statutory formulae. In addition,
Pennsylvania law requires notice of extraordinary dividends to be given to the
Pennsylvania Insurance Department, which has the authority to disapprove such
dividends. From time to time, the NAIC and various state insurance regulators
consider modifying the methods of determining the amount of dividends that may
be paid by an insurance company without regulatory approval.
DEPENDENCE ON KEY PERSONNEL. The success of Penn Treaty has largely
depended upon the efforts of its senior operating management, including Penn
Treaty's President and founder, Irving Levit, age 66. The loss of the services
of Mr. Levit or one or more of its key personnel could have a material adverse
effect on the operations of Penn Treaty. Penn Treaty does not have an employment
agreement with Mr. Levit or any of its other key personnel. Penn Treaty
maintains insurance on Mr. Levit's life in an aggregate amount of $1,000,000
payable to Penn Treaty, all of which is underwritten by Penn Treaty and all of
which is reinsured.
16
<PAGE>
CONTROL BY PRINCIPAL SHAREHOLDER. The principal shareholder of Penn Treaty
is Irving Levit. After completion of the Merger, Mr. Levit will control,
directly or indirectly, up to approximately 26.5% of the Common Stock.
Accordingly, Mr. Levit will have the power to exert significant influence over
the policies and affairs of Penn Treaty.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. Penn Treaty's Restated and
Amended Articles of Incorporation, the Pennsylvania Business Corporation Law and
the insurance laws of states in which Penn Treaty conducts business contain
certain provisions which could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest
involving Penn Treaty, even if such a transaction would be beneficial to the
interests of the shareholders, or could discourage a third party from attempting
to acquire control of Penn Treaty. In particular, the classification of Penn
Treaty's Board of Directors could have the effect of delaying a change in
control of Penn Treaty. In addition, Penn Treaty has authorized 5,000,000 shares
of Preferred Stock, which Penn Treaty could issue without further shareholder
approval and upon such terms and conditions, and having such rights privileges
and preferences, as the Board of Directors may determine. Penn Treaty has no
current plans to issue any Preferred Stock. In addition, Pennsylvania insurance
laws and regulations prohibit any person from acquiring control of Penn Treaty
without the prior approval of the Pennsylvania Insurance Commissioner.
MARKET FOR COMMON STOCK. Penn Treaty's Common Stock is currently listed on
The Nasdaq Stock Market, and its average daily trading volume over the 52 weeks
ended December 31, 1995 was approximately 8,576 shares. While the shares of Penn
Treaty Common Stock to be issued pursuant to the Merger will increase the amount
of stock available for trading, there can be no assurance that a more active
trading market will develop or, if developed, that it will be maintained.
SHARES ELIGIBLE FOR FUTURE SALE. Following the Merger, Penn Treaty will
have up to 7,576,852 shares of Common Stock outstanding. Of these shares,
shares of Common Stock, including the shares issued in this offering,
will generally be freely transferable by persons other than affiliates of Penn
Treaty without restriction or further registration under the Securities Act. The
remaining outstanding shares of Common Stock may not be sold in the
absence of registration under the Securities Act unless an exemption is
available, including the exemption afforded by Rule 144. No prediction can be
made as to the effect, if any, that future sales of Penn Treaty Common Stock, or
the availability of Penn Treaty Common Stock for future sale, will have on the
market price of the Penn Treaty Common Stock issued upon the exercise of stock
options, or the perception that such sales may occur, which could adversely
affect prevailing market prices for the Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of Penn Treaty Common
Stock could be subject to significant fluctuations caused by variations in
quarterly operating results, litigation involving the company, announcements by
the company or its competitors, general conditions in the insurance industry and
other factors. The stock market in recent years has experienced extreme price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of publicly traded companies. These broad fluctuations
may adversely affect the market price of Penn Treaty Common Stock.
RISKS RELATING TO HIVT
ADEQUACY OF LOSS RESERVES. HIVT maintains reserves based on estimates of
amounts needed to pay reported and unreported claims. Reserves do not represent
an exact calculation of liabilities, but rather are estimates of what HIVT
expects the ultimate payment and administration of claims will cost based on
facts and circumstances then known, estimates of future trends in claims
frequency and severity and other factors.
HIGHLY COMPETITIVE MARKETS; BEST'S A- RATING. The markets in which HIVT
competes are very competitive. In those markets, HIVT competes with large
national and smaller regional insurers, as well as specialty insurers. Within
these markets, ratings have become an increasingly important factor in
establishing the competitive position of insurance companies. Rating
organizations review
17
<PAGE>
the financial performance and condition of insurers, including that of HIVT.
Penn Treaty's rating of B+ is below that of HIVT (A-). As a result of the
Merger, HIVT's rating is likely to be reduced. Such a reduction may adversely
affect HIVT's ability to market and sell its products, although such a reduction
is not expected to have a material and adverse impact on Penn Treaty, taken as a
whole.
LIMITED MANAGEMENT DEPTH. Largely as a function of its size, HIVT depends
heavily on the expertise and abilities of its senior management personnel and
does not have the depth in various management positions which a larger concern
may possess. As a result, any material and adverse events with respect to any of
its personnel, including voluntary departures for other employment positions,
could seriously and adversely affect HIVT.
NEW PRODUCTS; GEOGRAPHIC DIVERSIFICATION. As part of its operating
philosophy, HIVT has periodically attempted to increase its activities in
several states, including California. However, its claims experience in that
state has been higher than anticipated and has caused HIVT to reconsider its
market focus there, or to withdraw from certain areas entirely. In addition,
HIVT, from time to time, attempts to write disability insurance not available on
a regular basis from other insurance carriers. Issuance of such policies may
entail additional claims risks over and above risks associated with HIVT's
normal policies.
DIVIDEND RESTRICTIONS. As a regulated insurance company, HIVT is subject to
certain regulatory limitations on the payment of dividends to its stockholders.
HIVT has not paid any dividends since 1990, when it was determined that it was
necessary to increase its capital surplus in one jurisdiction in which HIVT is
licensed.
AGENT RECRUITMENT; MARKETING ACTIVITIES. HIVT's insurance products are
marketed and sold by a network of independent insurance agents. In addition to
independent agents HIVT has also developed a marketing network through
affiliation between HIVT and agent networks maintained by larger independent
insurance companies. HIVT may not be able to maintain these affiliations upon
completion of the Merger, and, accordingly, may need to rely on Penn Treaty's
distribution channels for its products. In addition, HIVT's success on
attracting agents to sell its policies will depend on the levels of commissions
it pays as compared to the amount of commissions paid by insurance companies
selling similar policies. There can be no assurance that HIVT will continue to
have the resources necessary to pay such commissions and resources to maintain
those relationships in the future.
INVESTMENT INCOME. Like other insurance companies, HIVT derives a
significant amount of its net income from its investment portfolio. That
portfolio, because of applicable regulatory restrictions, is largely invested in
long term bonds. The level of income generated by such investments will depend,
in large part, upon fluctuations in interest rates and other matters affecting
such investments which are outside the control of HIVT. There can be no
assurance that HIVT will be able to continue to make such investments on a
favorable economic basis in the future.
RISKS RELATING TO THE MERGER
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF CERTAIN OPERATIONS. Penn Treaty
and HIVT expect that the Merger will result in certain benefits for the combined
company. Achieving the anticipated benefits of the Merger will depend in part
upon whether the integration of the two companies' business is achieved in an
efficient and effective manner, and there can be no assurance that this will
occur. The combination of the two companies will require, among other things,
coordination of the companies' sales and marketing efforts, among others. There
can be no assurance that integration will be accomplished on a timely basis, if
at all. The difficulties of such integration may be increased by the necessity
of coordinating geographically separated organizations. The integration of
certain operations following the Merger will require the dedication of
management resources which may distract attention from the day-to-day business
of the combined company. Failure to accomplish effectively the integration of
the two companies' operations could have a material adverse effect on Penn
Treaty's results of operations and financial condition.
18
<PAGE>
EXCHANGE RATE WILL NOT FULLY REFLECT CHANGES IN STOCK PRICES. The relative
stock prices of Penn Treaty Common Stock and HIVT Common Stock at the Effective
Time may vary significantly from the prices as of the date of execution of the
Merger Agreement, the date hereof or the date on which stockholders vote on the
Merger due to, among other factors, changes in the business, operations and
prospects of Penn Treaty or HIVT, market assessments of the likelihood that the
Merger will be consummated and the timing thereof and general market and
economic conditions. The Exchange Rate is subject to adjustment based on changes
in the market value of Penn Treaty Common Stock. However, the Exchange Rate will
not be adjusted to reflect changes in the value of HIVT Common Stock.
THE MEETING
ANNUAL MEETING
The Annual Meeting will be held at , Vermont on
, , 1996, at 12:00 p.m., and at any adjournment
or postponement thereof.
MATTERS TO BE CONSIDERED -- THE MERGER
At the Annual Meeting, the stockholders of HIVT will be asked to consider
and vote upon the adoption and approval of the Merger Agreement under which,
among other things, Merger Sub would be merged into HIVT with HIVT surviving the
Merger, HIVT would become a wholly owned subsidiary of Penn Treaty, and all of
the outstanding and issued shares of HIVT Common Stock would be converted into
the right to receive an aggregate of up to approximately 586,768 shares (but not
less than 440,076 shares) of Penn Treaty Common Stock. Pursuant to the Merger,
each outstanding share of HIVT Common Stock will be converted into $4.00 in cash
and up to 1.067 shares (but not less than 0.8 shares) shares of Penn Treaty
Common Stock. The Exchange Rate is subject to adjustment in certain
circumstances described herein. See "The Merger -- Adjustments to the Merger
Consideration."
The HIVT Board of Directors has unanimously approved the Merger Agreement
and recommends a vote FOR approval of the Merger Agreement.
MATTERS TO BE CONSIDERED -- OTHER
At the Annual Meeting, the stockholders of HIVT will also be asked to ratify
and approve the reimbursement of certain proxy and other expenses incurred by
Robert S.W. Leong and the Committee to Maximize Shareholder Value during the
period from December 1994 through September 11, 1995 in the aggregate amount of
$54,548. That reimbursement has been previously approved by HIVT's Board of
Directors. In approving the reimbursement of such expenses, the Board of
Directors determined that Mr. Leong had engaged in proceedings on behalf of the
shareholders of HIVT intended to change the policies of HIVT and in connection
therewith, to elect a new Board of Directors of HIVT. The Board noted that such
expenses had been verified by the Treasurer of HIVT and that the various
proposals submitted by Mr. Leong to the shareholders of the Company had been
approved by the Company's shareholders. The Board therefore approved such
reimbursement on the condition that its decision to do so be ratified and
approved at the next meeting of the shareholders of HIVT. If the shareholders of
HIVT do not approve of such reimbursement by HIVT, Mr. Leong has agreed to
reimburse the Company in full for the amount paid to him for such expenses.
The Board of Directors recommends a vote FOR this proposal.
The Board of Directors having seven members has been authorized as permitted
by HIVT's bylaws. It is proposed to elect two Directors at the Annual Meeting to
replace those Directors whose terms will expire. The Directors so elected shall
serve terms of three years each or until their successors are elected and
qualified. In this regard and in connection with the Merger, HIVT has agreed to
submit resignations of its entire Board of Directors upon completion of the
Merger, including the Directors elected at the Annual Meeting.
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<PAGE>
It is the intention of the persons named in the accompanying form of proxy
to vote for the nominees named below. However, if because of death or unforeseen
disability, any of the nominees designated below is unavailable for election,
the persons named in the accompanying form of proxy reserve the right to vote
such proxy for such other person or persons as may be nominated by the HIVT
Board of Directors.
The Nominees for Director are: Robert J. Kecseg and David W. Menard, both of
whom are currently serving on the Board of Directors. The nominees for director
are Robert J. Kecseg and David W. Menard, both of whom are currently serving on
the Board of Directors.
The following table sets forth pertinent information with regard to nominees
for the Board of Directors.
<TABLE>
<CAPTION>
PRESENT TERM
NAME AGE EXPIRES PRINCIPAL OCCUPATION
- -------------------- --- ----------------- --------------------------------------------------------
<S> <C> <C> <C>
Robert J. Kecseg 43 1996 (Note A) Director of the Corporation since September 1995; Broker
and Supervisory Analyst of First Research Financial,
Irving, Texas, a registered broker/dealer, since
October 1995; Formerly Broker and Supervisory Analyst
of Southwest Securities, Inc., Irving, Texas, a
registered broker/dealer, 1981-1995.
David W. Menard 58 1996 (Note A) Director of the Corporation since September 1995;
President of Colmen Menard Company, Inc., Bala Cynwyd,
Pennsylvania, since 1993; President 1982-1993 of Colmen
Management Company.
</TABLE>
- ------------------------
Note A. The terms of Messrs. Kecseg and Menard will expire in 1999 if they are
elected to the Board at the Annual Meeting.
As of May 10, 1996, Mr. Menard owns 2,000 shares of HIVT Common Stock and
Mr. Kecseg owns 1,000 shares of HIVT Common Stock. Within the last two years,
Mr. Menard purchased 1,000 shares of HIVT Common Stock on March 14, 1996 at a
price of $19.00 per share.
The following table presents information with respect to those persons known
by HIVT to own beneficially, as of May 3, 1996, more than 5% of the common stock
issued by HIVT.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP (1) CLASS
- ------------------ --------------------------- ---------------------- -----------
<S> <C> <C> <C>
Common Stock Patrick W. Hopper 151,799 shares (2) 27.64
Las Vegas, NV 89109
Common Stock K.J. Seemann 33,147 shares (3) 6.03
Williston, VT 05495
Common Stock Bernard H. Zais 29,419 shares (2) 5.35
Burlington, VT 05401
Common Stock Security Group, Inc. 28,769 shares (2) 5.23
Spartanburg, SC 29304
Common Stock Thomas O. Putnam 27,703 shares (3) 5.04
Cobleskill, NY 12043
</TABLE>
- ------------------------
(1) Beneficial owners hold sole voting and investment powers with respect to
their shares.
(2) Direct beneficial ownership.
20
<PAGE>
(3) Indirect beneficial ownership.
The following table presents information with respect to the beneficial
ownership of HIVT common stock by all directors and nominees as of May 3, 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
- ------------------ --------------------------- ----------------------- -----------
<S> <C> <C> <C>
Common Stock...... Alfred J. Beauchamp 589 shares (2) .10
Common Stock James L. Fraser 8,365 shares (2)(3) 1.52
Common Stock Robert J. Kecseg 1,000 shares (2) .18
Common Stock Robert S.W. Leong 11,321 shares (2)(3) 2.06
Common Stock John W. Mahoney 14,133 shares (2) 2.57
Common Stock David W. Menard 2,000 shares (2) .36
Common Stock Robert S. Savage 1,500 shares (2) .27
</TABLE>
- ------------------------
(1) The directors and nominees hold sole voting and investment power with
respect to their shares, except the shares of Mr. Beauchamp, which are owned
jointly with his spouse, and with respect to 400 shares which are held by
Mr. Fraser's spouse.
(2) Direct beneficial ownership.
(3) Indirect beneficial ownership.
The following table presents information with respect to the beneficial
ownership of HIVT Common Stock by all directors, nominees, and officers as a
group as of May 3, 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------ --------------------------- ---------------------------- -----------
<S> <C> <C> <C>
Common Stock Director and Officers 42,554 shares (1)(2)(3) 7.75
</TABLE>
- ------------------------
(1) Direct beneficial ownership with respect to 36,854 shares.
(2) Investment and or voting power is shared with respect to 989 shares.
(3) Indirect beneficial ownership with respect to 5,700 shares.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES. The Board of Directors
held four regular meetings and eleven special meetings during calendar year
1995. The Directors also serve on various committees of the Board which include
standing audit, compensation, investment and nominating committees.
The members of the Audit Committee during 1995 were Directors Putnam and
Beauchamp (prior to September 11, 1995) and Directors Leong and Menard
thereafter. The function of the Audit Committee is to review reports by HIVT's
Treasurer and independent accountants and to make recommendations to management
based upon its review of these reports, for improving or changing operating
procedures that it considers necessary or desirable. The Audit Committee met
twice during 1995.
The members of the Compensation and Stock Option Committee during 1995 were
Directors Beauchamp, Brown, Mahoney, Wick and Zais (prior to September 11, 1995)
and Directors Beauchamp, Kecseg, Mahoney and Savage thereafter. The function of
the Compensation and Stock Option Committee is to periodically review officers'
salaries and consultants' fees and to make recommendations to the Board of
Directors with respect to adjustments that it considers appropriate. The
Committee also makes recommendations to the Board of Directors with respect to
the granting of options pursuant to HIVT's Stock Option Plan. The Compensation
and Stock Option Committee met three times during 1995.
21
<PAGE>
The members of the Investment Committee during 1995 were Directors Putnam
and Chadwick prior to September 11, 1995), and Directors Fraser and Kecseg
thereafter. The function of the Investment Committee is to monitor HIVT's
investment portfolio, with consideration of HIVT's liquidity position and
anticipated cash requirements. The Investment Committee met four times during
1995.
The members of the Nominating Committee during 1995 were Directors Zais,
Brown, Mahoney and Sams (prior to September 11, 1995) and Directors Fraser,
Leong, Mahoney and Savage thereafter. The function of the Nominating Committee
is to consider and recommend nominees for election to the Board of Directors as
vacancies occur. Shareholders may make suggestions for nominees by submitting
names to the Committee in writing. The Nominating Committee met once during 1995
in such capacity.
The members of the Nominating Committee also serve on the Executive
Committee for HIVT. The Executive Committee considers and makes recommendations
to the Board of Directors as to such matters as may be delegated to such
Committee for consideration by the Board of Directors. The Executive Committee
met four times during 1995.
In connection with the evaluation of various strategic and other
relationships by HIVT, the HIVT Board of Directors appointed a special committee
consisting of Directors Mahoney, Leong and Menard, and as special advisor to the
committee, Patrick Hopper, a shareholder of HIVT. The special committee met four
times during 1995.
EMPLOYEES' RETIREMENT PLAN. Under HIVT's Employee's Retirement Plan, upon
normal retirement at age 65, a participant would receive a monthly pension equal
to the sum of (a) 1% of the average of his highest 60 consecutive months of
earnings within the 120 month period immediately preceding retirement and (b)
.5% of the excess of the average of his highest 60 consecutive months of
earnings as described above over the maximum average monthly wage over a 60
month period ending at retirement upon which social security benefits can be
based multiplied by the participant's years of credited service. For example, an
employee with 35 credited years of service whose highest average monthly
earnings over a 60 month period was $2,000 and whose maximum average monthly
earnings upon which social security benefits could be based was $1,200 would
receive a monthly pension upon retirement at age 65 of $840 ($2,000 X .01 X 35)
= ($800.00 X .005 X 35). Benefits payable upon early retirement would be lower.
The following table illustrates the annual pension benefits payable under
the Plan for various representative combinations of pre-retirement remuneration
and years of service classifications, assuming retirement at age 65.
ESTIMATED ANNUAL PENSION BENEFITS*
<TABLE>
<CAPTION>
FINAL FIVE
YEAR AVERAGE YEARS OF SERVICE AT AGE 65
ANNUAL -----------------------------------------------------
COMPENSATION 10 15 20 25 30
- -------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 20,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000 $ 6,000
30,000...... 3,000 4,500 6,000 7,500 9,000
40,000...... 4,500 6,700 8,900 11,200 13,400
50,000...... 6,000 9,000 11,900 14,900 17,900
</TABLE>
- ------------------------
* Assuming year of birth is 1942.
INDEPENDENT PUBLIC ACCOUNTANTS. Coopers & Lybrand L.L.P. will serve as
HIVT's independent public accountants for 1996 and has served in that capacity
for a number of years. The report of Coopers & Lybrand L.L.P. respecting HIVT's
financial statements appears in HIVT's Annual Report for the year ended December
31, 1995. Representatives of Coopers & Lybrand L.L.P. are not expected to be
present at the annual meeting of stockholders.
22
<PAGE>
OTHER PROPOSED ACTIONS. Pursuant to the Bylaws, it is proposed to elect a
secretary of HIVT to serve a term of one year or until his or her successor is
elected and qualified. It is the intention of the persons named in the
accompanying form of proxy to vote for James L. Fraser, the nominee of
management for the office of secretary for HIVT. Mr. Fraser has served in that
capacity since 1995. Mr. Fraser will resign such position at the Effective Date,
if the Merger is approved.
In the event that, because of death or unforeseen disability, the nominee
indicated above is unavailable for election, the persons named in the
accompanying form of proxy reserve the right to vote such proxy for such other
person as may be nominated by the Board of Directors to the office of secretary.
Management knows of no other matters which may properly come before the
meeting. However, if any other business should properly come before the meeting,
the proxies relating to such meeting will be voted with respect thereto in
accordance with the best judgment of management.
Stockholders' proposals for the 1997 Annual Meeting must be received by HIVT
at its executive offices on or before December 31, 1996 for inclusion in the
1997 proxy materials.
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of HIVT Common Stock at the Annual Meeting is necessary to
constitute a quorum at the HIVT Annual Meeting.
VOTES REQUIRED
The affirmative vote of the holders of two-thirds of the votes cast by
Stockholders present, either in person or by proxy, at the Annual Meeting is
required to approve the Merger Agreement.
The affirmative vote of a majority of the stockholders present in person or
by proxy at the Annual Meeting is necessary to ratify and approve the action
taken by HIVT's Board of Directors with respect to the Reimbursement Proposal.
The affirmative vote of a plurality of the stockholders present in person or
by proxy at the Annual Meeting is necessary to elect members of HIVT's Board of
Directors and its Secretary.
RECORD DATE; STOCK ENTITLED TO VOTE
The HIVT Board of Directors has established , 1996 as the date
to determine those record holders of Common Stock entitled to notice of and to
vote at the Annual Meeting. On that date, there were 549,095 shares of HIVT
Common Stock outstanding, with each share entitled to one vote with respect to
the Merger Agreement.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for the
Annual Meeting will be voted at such meeting in the manner specified by the
holders thereof. Proxies that do not contain voting instructions will be voted
FOR approval of the Merger Agreement, the Reimbursement Proposal and the
nominees of the Board of Directors at the Meeting. It is not expected that any
matter other than those referred to herein will be brought before the Annual
Meeting. If, however, other matters are properly presented, the persons named as
proxies will vote in accordance with their judgment with respect to such
matters.
If a holder of HIVT Common Stock does not return a signed proxy card, his or
her shares will not be voted.
23
<PAGE>
REVOCATION OF PROXIES
Any holder of HIVT Common Stock has the unconditional right to revoke his or
her proxy at any time prior to the voting thereof at the Annual Meeting by (i)
filing a written revocation with the Secretary of HIVT prior to the voting of
such proxy, (ii) giving a duly executed proxy bearing a later date, or (iii)
attending the Annual Meeting and voting in person. Attendance by a stockholder
at the Annual Meeting will not itself revoke his or her proxy.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the Annual Meeting may be made in person
or by mail, telephone, telecopy or telegram. HIVT will bear the cost of the
solicitation of proxies from its stockholders. In addition to solicitation by
mail, the directors, officers and employees of HIVT may solicit proxies from
stockholders by telephone or telegram or in person. Such directors, officers and
employees will not be compensated for such solicitation. HIVT has requested that
banking institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries forward solicitation materials to the beneficial owners of HIVT
Common Stock held of record by such entities, and HIVT will, upon the request of
such record holders, reimburse reasonable forwarding expenses. HIVT does not
anticipate that it will incur any fees, except as set forth in this paragraph.
HIVT STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
MERGER CONSIDERATION
Pursuant to the Merger Agreement, at the Effective Time, Merger Sub will
merge into HIVT and each share of HIVT Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of HIVT Common Stock
owned by HIVT as treasury stock and shares of HIVT Common Stock owned by Penn
Treaty, Merger Sub or any wholly owned subsidiary of Penn Treaty or HIVT to be
canceled in accordance with the Merger Agreement) shall be converted into $4.00
of cash and up to 1.067 shares (but not less than 0.8 shares) of Penn Treaty
Common Stock. See "Adjustments to Merger Consideration".
Based upon the capitalization of Penn Treaty and HIVT as of May 10, 1996,
immediately after the Effective Time, the Stockholders of HIVT will hold
approximately 7.74% of the outstanding Penn Treaty Common Stock.
ADJUSTMENTS TO MERGER CONSIDERATION
The consideration to be issued to each HIVT stockholder in the Merger will
be $4.00 in cash and that number of shares of Penn Treaty Common Stock which is
determined by multiplying the Exchange Rate by the number of shares of HIVT
Common Stock held by such HIVT stockholder on the Closing Date (as hereinafter
defined). The Exchange Rate shall equal the quotient of the Base Price (as
defined below) divided by the Final Price (as defined below). Assuming all
outstanding options to purchase HIVT Common Stock have been exercised, the "Base
Price" shall mean $8,801,520 divided by the number of shares of HIVT Common
Stock outstanding on the Effective Date. If all such options have not been
exercised as of the Effective Date, the Base Price shall be reduced by $16.00
for each share of HIVT Common Stock not purchased pursuant to the options which
remain outstanding and unexercised. The "Final Price" shall mean the average
closing bid price of Penn Treaty Common Stock on the Nasdaq National Market
during the period comprised of the twenty consecutive trading days immediately
preceding the fifth business day immediately preceding the Effective Time (such
period is hereinafter referred to as the "Measurement Period"), as such closing
bid prices are published by the National Association of Securities Dealers
Automated Quotation Service; provided, however, that if the average closing
price of Penn Treaty Common Stock, determined in accordance with the first
clause of this sentence, during the Measurement Period is more than $.20 per
share higher than the average closing bid price of Penn Treaty Common Stock
24
<PAGE>
during the Measurement Period, the Final Price shall equal the average closing
price per share minus $.20 per share but this adjustment shall not cause the
Final Price to be reduced to a price per share less than the average closing bid
price of Penn Treaty Common Stock during the Measurement Period (the "Penn
Treaty Value").
If the Penn Treaty Value is greater than $20.00 or less than $15.00, the
parties will have the right to either (a) renegotiate the Exchange Rate or (b)
terminate the Merger Agreement.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of HIVT Common Stock into Penn Treaty Common Stock will occur
automatically at the Effective Time.
As soon as practicable after the Effective Time, Registrar and Transfer
Company or another bank or trust company designated by Penn Treaty and
reasonably acceptable to HIVT, in its capacity as Exchange Agent (the "Exchange
Agent"), will send a transmittal form to each HIVT stockholder. The transmittal
form will contain instructions with respect to the surrender of certificates
representing HIVT Common Stock to be exchanged for Penn Treaty Common Stock.
HIVT STOCKHOLDERS SHOULD NOT FORWARD HIVT STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. HIVT STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Until the certificates representing HIVT Common Stock are surrendered for
exchange after the consummation of the Merger, holders of such certificates will
not be paid dividends on the Penn Treaty Common Stock into which such shares
have been converted. When such certificates are surrendered, any unpaid
dividends will be paid without interest. For all other purposes, however, each
certificate which represents shares of HIVT Common Stock at the Effective Time
will be deemed to evidence ownership of the shares of Penn Treaty Common Stock
into which those shares have been converted by virtue of the Merger.
All shares of Penn Treaty Common Stock issued upon conversion of shares of
HIVT Common Stock shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of HIVT Common Stock.
No fractional shares of Penn Treaty Common Stock will be issued to any HIVT
stockholder upon consummation of the Merger. For each fractional share that
would otherwise be issued, the Exchange Agent will pay by check an amount equal
to a pro rata portion of the average closing bid price of Penn Treaty Common
Stock as reported on the Nasdaq during the Measurement Period; provided that
such average closing bid price is not less than $15.00 or greater than $20.00.
NASDAQ LISTING
It is a condition to the Merger that the shares of Penn Treaty Common Stock
to be issued in the Merger be authorized for listing on the Nasdaq, subject to
official notice of issuance.
BACKGROUND OF THE MERGER
On June 27, 1995, HIVT engaged Advest to assist it in identifying potential
business relationships, strategic partnerships or potential acquirors of HIVT.
Pursuant to that engagement, HIVT prepared, with Advest's assistance, a detailed
Offering Memorandum (the "Memorandum") describing HIVT and its business
activities which was circulated to a number of companies who, upon solicitation
by Advest, had expressed an interest in such a relationship or transaction. In
connection with this process, each company which received proprietary
information concerning HIVT was required to enter into a confidentiality
agreement pursuant to which the party contacted agreed to keep confidential all
non-public information concerning HIVT acquired in connection with discussions
with members of management of HIVT and the due diligence review of HIVT,
including information disclosed in the Memorandum. HIVT and Penn Treaty entered
into such a confidentiality agreement dated October 17, 1995.
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Subsequent to entering into the confidentiality agreement, Penn Treaty
submitted a preliminary indication of interest in acquiring the Company on
October 27, 1995. The consideration consisted solely of common stock.
HIVT's Board of Directors considered the Penn Treaty proposal at its meeting
on October 31, 1995. Because HIVT had not yet had an opportunity to explore
fully other potential indications of interest pursuant to its engagement of
Advest, the HIVT Board of Directors determined at that time that HIVT needed
more time to consider other proposals expected to be advanced by other
interested parties.
During its October 31, 1995 meeting, the HIVT Board of Directors appointed a
special committee to pursue potential business transactions through Advest. The
members of the committee were Robert S.W. Leong, John W. Mahoney, David Menard
and Patrick Hopper, a stockholder of HIVT and special consultant to the Board of
Directors.
During the period October 1995 through January 1996, Advest contacted a
number of potential acquirors of HIVT. Each was invited to submit a bid for HIVT
to be received on or before January 20, 1996. During HIVT's Board meeting of
January 20, 1996, the HIVT Board of Directors considered, with the assistance of
Advest the bids which it had received, including the proposal from Penn Treaty.
Advest indicated that of the bids received, two bids, including the bid received
from Penn Treaty, were more favorable than the other bids. Those bids were very
close in financial terms with the bid submitted by the other party slightly
higher than the Penn Treaty bid. Because of the closeness of the bids, Advest
was requested to return to Penn Treaty and the other bidder and solicit one
final bid for consideration at the HIVT Board of Directors' next meeting on
January 31, 1996.
Advest did so and both Penn Treaty and the other party increased their bids
over the bids submitted and considered as of January 20, 1996. Although the bid
submitted by the other party remained slightly higher than the bid submitted by
Penn Treaty in purely financial terms, the HIVT Board of Directors determined to
accept the Penn Treaty bid for the following reasons:
1. Penn Treaty had substantially completed its due diligence activities and
it also indicated that the proposed merger agreement prepared by HIVT was
acceptable to it, except for changes necessary to reflect the financial
terms of its offer. In addition, for the reasons discussed below, the
Penn Treaty proposal could be expected to have a slightly higher chance
of regulatory approval. These factors caused the HIVT Board of Directors
to conclude that a Penn Treaty merger had a higher probability of closing
than the other transaction.
2. The Penn Treaty transaction could be structured to qualify as a tax-free
merger transaction offering HIVT stockholders the ability to defer
payment of taxes on the portion of the transaction consisting of
consideration in the form of Penn Treaty Common Stock.
3. The HIVT Board of Directors also relied upon Penn Treaty's statements as
to its plans to retain employees of HIVT in Vermont and maintain HIVT's
ongoing activities in Vermont, and determined that the Penn Treaty offer
provided a higher degree of likelihood that those activities would
continue for an additional period of time.
Based on those considerations, the Board authorized Robert S.W. Leong,
Chairman/Chief Executive Officer, and John W. Mahoney, President, to negotiate
and execute a letter of intent with Penn Treaty in accordance with the bid
submitted. Penn Treaty and HIVT executed a letter of intent with respect to the
Merger on February 2, 1996. The letter of intent was subsequently modified on
February 27, 1996.
On February 22, 1996, representatives of HIVT, HIVT's Board and management,
representatives of Advest and representatives of Penn Treaty met at the offices
of Penn Treaty, to conduct a due diligence examination of the management and
operations of Penn Treaty. In addition, counsel for HIVT and Advest conducted
other due diligence activities prior to execution of the Merger Agreement.
On March 8, 1996, the Board of Directors of Penn Treaty approved the Merger
and authorized execution of the Merger Agreement.
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HIVT and Penn Treaty executed a definitive Merger Agreement as of March 15,
1996. The Merger Agreement was subsequently modified on May 10, 1996 to increase
the limits which apply to the per share price of the Penn Treaty stock to be
issued as partial consideration for the HIVT shares from $16 to $18 per share to
$15 to $20 per share. In connection with that amendment, the Merger Agreement
was also changed in other technical respects.
RECOMMENDATION OF THE BOARD OF DIRECTORS
For the reasons described under "Reasons for the Merger," the HIVT Board of
Directors has unanimously approved the Merger and recommends that HIVT
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
REASONS FOR THE MERGER
The Board of Directors of HIVT has determined that the Merger is fair to and
in the best interests of HIVT and its shareholders and unanimously approved the
Merger Proposal and recommends that HIVT shareholders vote FOR the approval and
adoption of the Merger.
From time to time over the past several years, HIVT has reviewed and
reexamined its business strategies and prospects. In that regard, HIVT has
considered possible strategic alliances, combinations and transactions with
various industry participants, including companies smaller and larger than HIVT.
During June 1995, HIVT engaged Advest to assist it in that process. In September
1995, HIVT held a special shareholders' meeting during which certain proposals
advanced by shareholders independent of the then incumbent Board of Directors
were approved by the shareholders. Pursuant to those proposals, a majority of
the then incumbent Board of Directors was removed from office. The proxy
materials distributed by the independent shareholders in connection with such
proposals indicated that the shareholders supported consideration of a
fundamental business change involving HIVT, such as a merger or combination of
HIVT with another company.
For the above reasons, HIVT's Board of Directors concluded that a strategic
merger, if on terms and conditions acceptable to HIVT's Board and HIVT's
stockholders, could present a valuable opportunity to enhance the stockholders'
investment in HIVT as well as an opportunity to support the continued growth of
HIVT's business. The terms of the Merger Agreement, including the Exchange Rate,
were the result of arms' length negotiations between HIVT and Penn Treaty and
the respective representatives. The HIVT Board of Directors consulted with its
legal and financial advisors and management of HIVT. After careful review and
consideration, the HIVT Board of Directors has determined that the Merger will
provide sufficient value to all HIVT stockholders.
In reaching its decision to approve the Merger, the HIVT Board of Directors
considered a number of factors, including the benefits of remaining independent,
and without assigning any relative or specific weight, the HIVT Board of
Directors deemed the following factors to be persuasive in selecting Penn
Treaty's offer for approval:
i. The value of the Penn Treaty Common Stock to be received by HIVT
shareholders along with the cash offered ($20.00 per share)
significantly exceeded the then market value of HIVT Common Stock
($15.00 bid and $16.50 asked per share at January 31, 1996);
ii. Because Penn Treaty had conducted significant due diligence with
respect to HIVT and had indicated that the Merger Agreement proposed by
HIVT was acceptable to it with the exception of amendments necessary to
reflect the specific consideration to be paid by Penn Treaty in
connection with the Merger, the Merger with Penn Treaty had a high
likelihood of closing;
iii. The presentation of HIVT's financial advisor, Advest, and the opinion
of Advest to the effect that, as of the date of the Merger Agreement,
the consideration to be paid to HIVT's shareholders pursuant to the
Merger was fair to holders of HIVT Common Stock from a financial point
of view;
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iv. The Merger provides for the exchange of Penn Treaty Common Stock for
HIVT Common Stock in a tax-free transaction (except for the portion of
consideration to be paid in cash); and
v. The acknowledgment by Penn Treaty of its present intention to keep
HIVT's headquarters in Colchester, Vermont.
FAIRNESS OPINION
In addition to assisting HIVT in evaluating potential relationships, HIVT
retained Advest as its financial advisor to render its opinion with respect to
the fairness, from a financial point of view, to the holders of HIVT Common
Stock, of the consideration to be paid to such stockholders pursuant to the
Merger.
Advest is a nationally recognized investment bank that is involved in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings and valuations for estate, corporate and
other purposes. In connection with its engagement by HIVT, Advest has been or
will be compensated as follows: (i) $35,000 for advisory fees; (ii) $50,000 for
rendering the fairness opinion discussed herein; and (iii) $100,000, plus one
percent of the aggregate consideration received by HIVT and/or its Stockholders
upon consummation of the Merger.
In July 1995, Penn Treaty consummated a registered public offering of
2,300,000 shares of Penn Treaty Common Stock which resulted in net proceeds of
$26,065,000. Advest served as a managing underwriter for such offering and
received usual and customary fees in connection therewith.
Advest rendered its oral opinion to the HIVT Board on January 31, 1996,
which it subsequently confirmed in writing, dated as of March 15, 1996, that, as
of the date of such opinion, the consideration to be paid pursuant to the Merger
was fair, from a financial point of view, to the holders of HIVT's Common Stock.
THE OPINION OF ADVEST UPDATED AS OF THE DATE OF THIS PROXY STATEMENT/
PROSPECTUS, WHICH SETS FORTH CERTAIN QUALIFICATIONS AND ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED AS
ANNEX II TO THIS PROXY STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY.
THE SUMMARY OF THE OPINION OF ADVEST SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION.
ADVEST'S OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF HIVT COMMON STOCK AS A
RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE ANNUAL MEETING. THE
INFORMATION SET FORTH BELOW WAS PROVIDED TO HIVT BY ADVEST AND DESCRIBES, AMONG
OTHER THINGS, FACTORS WHICH WERE CONSIDERED BY ADVEST IN ARRIVING AT ITS
OPINION.
In arriving at its opinion, Advest reviewed, among other things, (1) the
Merger Agreement together with exhibits thereto, and other publicly available
information concerning HIVT which it believes to be relevant to the inquiry, (2)
financial and operating information with respect to the business operations and
prospects of HIVT including annual reports, 10-KSB filings, 10-QSB filings, and
annual and quarterly statutory statements, (3) a trading history of HIVT's
common shares from 1990 to the present and a comparison of that trading history
with those of companies deemed comparable by Advest, and (4) a comparison of the
financial terms of the Merger with the terms of certain other transactions which
Advest deemed relevant. In addition, Advest conducted discussions with the
management of HIVT concerning its business and operation, assets, present
condition and future prospects, and undertook such other studies, analyses, and
investigations as it deemed appropriate.
In light of the fact that Penn Treaty is publicly traded and will be issuing
shares of its common stock to the owners of HIVT Common Stock pursuant to the
Merger, Advest reviewed relevant information concerning Penn Treaty.
Accordingly, Advest reviewed (1) financial and operating information with
respect to business operations and prospects of Penn Treaty, including annual
reports
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and various filings made by Penn Treaty with the Commission including annual
reports to shareholders, Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, and annual and quarterly statutory statements, (2) a trading history of
Penn Treaty common shares from 1990 to present, (3) an analysis of the financial
performance of Penn Treaty as compared to its comparable peer group, and (4) an
analysis of the financial effects of the Merger, as proposed, on the balance
sheet and income statement of Penn Treaty. In addition, Advest has held
discussions with the management of Penn Treaty concerning its business and
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as Advest deemed appropriate.
Advest relied upon the accuracy and completeness of the financial and other
information used in arriving at its opinion without independent verification. In
arriving at its opinion, Advest only conducted a limited physical inspection of
the properties and facilities of HIVT and of Penn Treaty. Advest did not make or
obtain any evaluations or appraisals of the assets of HIVT or Penn Treaty.
In connection with rendering its opinion dated January 31, 1996. Advest
advised the HIVT Board of Directors that it considered a variety of financial
analyses, as summarized below. The discussion of such analyses does not purport
to be a complete description of the analysis underlying Advest's opinion. The
preparation of a fairness opinion is a complex, analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances, and, therefore, such opinion is not readily susceptible to
summary description. Any estimates contained in Advest's analysis are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. In arriving at its opinion, Advest
did not attribute any particular weight to any analysis or fact considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Advest believes that its analysis must
be considered as a whole, and that selecting portions of such analyses and of
the factors considered by Advest without considering all such analysis and
factors may create a misleading or incomplete view of the analytical process
underlying Advest's opinion. Analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities may be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. The following discussions
summarizes the selected analyses considered and prepared by Advest and discussed
with the HIVT Board in connection with its oral opinion rendered on January 31,
1996.
COMPARABLE COMPANY ANALYSIS. Advest reviewed and analyzed selected earnings
per share, book values per share, and stock prices considered as multiples of
earnings and book value per share of various companies comparable to HIVT as
follows: Arista Investors Corp., Cotton State Life Insurance Company, Investors
Heritage Life Insurance, Mid-South Insurance Company, Paul Revere Corp.,
Security National Financial Corp., Universal Holding Corporation, UNUM
Corporation, and Westbridge Capital Corporation. Advest used the then effective
bid price for HIVT stock to develop per share comparisons of HIVT's value to the
value of the stock of the selected comparable companies based on HIVT's actual
results for 1993 and 1994, its estimated 1995 results adjusted to eliminate
certain non-recurring expenses, its actual September 30, 1995 balance sheet (for
book value purposes) and its projected 1996 results. Advest determined that the
then current median latest 12 months' price/earnings multiple for comparable
companies was 10.17 times earnings per share which yielded prices for HIVT
shares significantly below the then current bid price of $15.35 for each period
except for projected 1996 earnings per share, where the difference was
substantially reduced. On a book value per share basis, HIVT's bid price as a
multiple of its book value was .99, which exceeded the comparable group median
of .86.
COMPARABLE TRANSACTION ANALYSIS. As the next phase of its analysis, Advest
reviewed financial and market statistics derived from recent comparable
transactions. The transaction review included the acquisition of Prudential
Reinsurance Holdings, Kentucky Medical Insurance Company, Kemper Corporation and
Victoria Financial Corporation as base transactions. Advest reviewed a number of
other transactions. Based on that analysis, Advest concluded that the median
acquisition value for comparable transactions as a multiple of earnings was
11.84 and the median acquisition value for
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comparable transactions as a multiple of book value was 1.36. Based on these
multiples, HIVT's stock was valued on a per share basis of $17.52 (based on 1996
projected earnings) and at $21.35 based on its book value.
LIQUIDATION. Advest then proceeded to explore with HIVT's Board the
possible scenario of liquidating HIVT. In doing so, Advest relied upon
alternative means of valuing HIVT's business in force provided by E. Paul
Barnhart, HIVT's consulting actuary. Based on the assumptions utilized and the
analyses prepared by E. Paul Barnhart, the liquidation value of HIVT per share
was determined to range from $18.47 to $21.84 per share.
ANALYSIS OF BIDS. Advest then analyzed the bids submitted by the two
bidders who had advanced to the final stage in the process of potentially
acquiring HIVT. Based on the foregoing factors and analysis, Advest's conclusion
was that both of the bids, including the bid submitted by Penn Treaty, were fair
to the shareholders of HIVT from a financial point of view.
EFFECTIVE TIME OF THE MERGER
Upon the terms and conditions of the Merger Agreement and in accordance with
the provisions of Subchapter 3 of Chapter 101 of Title 8 of the Vermont Statutes
Annotated (the "Insurance Merger Statute"), Merger Sub will be merged with and
into HIVT at the Effective Time. The Merger will become effective immediately
when the Certificate of Merger, prepared and executed in accordance with the
relevant provisions of the Insurance Merger Statute, is issued by the Secretary
of State of the State of Vermont or at such time thereafter as is provided in
the Certificate of Merger. The filing of the Certificate of Merger will be made
as soon as practicable on or after the Closing.
The Closing shall take place at 10:00 a.m. on a date to be specified by the
parties, which shall be no later than the fifth business day after satisfaction
of (or waiver in accordance with the Merger Agreement) the latest to occur of
the conditions set forth in Article VIII of the Merger Agreement (the "Closing
Date"), at the offices of Penn Treaty, unless another date or place is agreed to
in writing by the parties. See "The Merger Agreement -- Conditions to the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the HIVT Board with respect to the
Merger Agreement, HIVT stockholders should be aware that certain members of the
HIVT Board and management have interests in the Merger that are in addition to
or different from the interests of HIVT stockholders generally.
BENEFICIAL OWNERSHIP OF HIVT COMMON STOCK BY DIRECTORS AND OFFICERS OF
HIVT. As of May 3, 1996, Directors and executive officers of HIVT and their
affiliates may be deemed to be beneficial owners of approximately 7.66% of the
outstanding HIVT stock. Each of the Directors and executive officers of HIVT has
advised HIVT that he intends to vote or direct the vote of all the outstanding
HIVT Common Stock over which he has voting control in favor of approval of the
Merger Agreement. HIVT's Directors and executive officers will not receive any
benefit in their capacities as stockholders of HIVT Common Stock that differ
from or is an addition to the benefit received by all other shareholders of HIVT
Common Stock.
JOHN W. MAHONEY EMPLOYMENT AGREEMENT. John W. Mahoney, President of HIVT,
entered into an Employment Agreement with HIVT on October 31, 1994, which was
subsequently amended on March 24, 1995. The Agreement, as amended, is for a term
ending on December 31, 1998, provided, however, that the Agreement shall be
extended for a period ending on the third anniversary of a change in control of
HIVT. In addition, HIVT must give Mr. Mahoney notice of termination of the
Agreement on or before October 30 of each year thereafter or the Agreement is
automatically extended for an additional year. Under the Agreement, a change in
control includes replacement of a majority of the Board of Directors in office
at HIVT on the date of execution of the Agreement. A majority of the directors
of HIVT were replaced by the shareholders of HIVT on September 11, 1995. A
change in control under the Agreement also includes approval of a merger by the
stockholders of HIVT. The Agreement does not specify that its term will not be
extended more than once upon occurrence of more than one change in control.
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In addition, the Agreement provides Mr. Mahoney certain other protections
upon occurrence of a change in control. If Mr. Mahoney's employment is
terminated after a change in control, or if Mr. Mahoney terminates his
employment based on the existence of one or more of the following circumstances,
as determined by him in good faith: (i) the assignment of any duties
inconsistent in any respect with his position, authority, duties or
responsibilities as contemplated by the Agreement, (ii) the transfer of Mr.
Mahoney to a location more than 35 miles from the current location of HIVT in
Colchester Vermont, or (iii) the requirement that Mr. Mahoney undertake business
travel obligations substantially greater than his obligations immediately prior
to the change in control, he will be entitled to be paid all accrued but unpaid
base salary, incentive and other compensation, and unused vacation time, plus
2.99 times his annual base salary.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
HIVT expects to receive an opinion, dated as of the date hereof and as of
the Closing and based on factual representations by HIVT, from Gravel and Shea,
counsel to HIVT, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), that Penn Treaty,
Merger Sub and HIVT will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, that gain on the exchange, if any, will
be recognized by a Stockholder of HIVT upon the exchange of HIVT Common Stock
for Penn Treaty Common Stock and $4.00 of cash to the extent of the lesser of
(i) the $4.00 in cash or (ii) the excess of the fair market value of the Penn
Treaty Common Stock and the $4.00 in cash and all other property received by an
HIVT Stockholder in the exchange, over the Stockholder's basis in his HIVT
stock, and that otherwise no gain or loss will be recognized by a Stockholder of
HIVT as a result of the Merger with respect to the shares of HIVT Common Stock
converted into Penn Treaty Common Stock (except to the extent such Stockholders
receive cash in lieu of fractional shares).
An opinion of counsel is not binding on the Internal Revenue Service or on
the courts. Therefore, there can be no assurance that the Merger will constitute
a tax-free reorganization or that any of the favorable tax treatments pursuant
to a tax-free reorganization will be available to HIVT Stockholders. Because of
the complexity of the tax laws and because the tax consequences to any
particular Stockholder may be affected by matters not discussed herein, each
HIVT Stockholder is advised to consult his/her own tax advisor concerning the
applicable federal, state and local income tax consequences of the Merger.
Assuming qualification as a tax-free reorganization under the Code, (i) no
gain or loss will be recognized by Penn Treaty or its shareholders as a result
of the Merger, (ii) no gain or loss will be recognized by HIVT, (iii) gain on
the exchange, if any, will be recognized by a Stockholder of HIVT, upon the
exchange of HIVT Common Stock for Penn Treaty Common Stock and $4.00 of cash to
the extent of the lesser of (a) the $4.00 in cash or (b) the excess of the fair
market value of the Penn Treaty Common Stock and the $4.00 in cash and all other
property received by an HIVT Stockholder over the Stockholder's basis in his
HIVT stock, but otherwise, no gain or loss will be recognized by HIVT or its
Stockholders who receive Penn Treaty Common Stock in the Merger in exchange for
their shares of HIVT Common Stock (except, as described below, to the extent
such Stockholders receive cash in lieu of the issuance of fractional shares),
(iv) the basis of the shares of Penn Treaty Common Stock to be received by the
HIVT Stockholders in the Merger will be equal to the basis of the shares of HIVT
Common Stock surrendered in exchange therefor decreased by the $4.00 received in
the exchange and increased by the amount of gain, if any, recognized on the
transaction by the HIVT Stockholder, (v) the holding period of the shares of
Penn Treaty Common Stock to be received by the HIVT Stockholders in the Merger
will include the holding period of the respective shares of HIVT Common Stock
exchanged therefor, provided that all shares are held as capital assets of HIVT
Stockholders at the Effective Time, and (vi) the payment of cash in lieu of the
issuance of fractional shares will be treated as if fractional shares of Penn
Treaty Common Stock had been issued in the Merger and then had been redeemed by
Penn Treaty, so that an HIVT Stockholder will recognize gain or loss measured by
the difference between the amount of cash received and his or her basis in the
fractional shares of Penn Treaty Common Stock treated as having been redeemed.
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THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND
MAY NOT BE APPLICABLE TO CERTAIN HIVT STOCKHOLDERS WHOSE TAX TREATMENT MAY
DIFFER SIGNIFICANTLY BECAUSE OF THEIR PARTICULAR CIRCUMSTANCES. IT DOES NOT
ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. THE DISCUSSION IS
BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT
DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH PENN TREATY AND HIVT
STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
Penn Treaty intends to account for the Merger under the purchase method of
accounting in accordance with APB No. 16. Under this method of accounting, the
cost of acquiring all outstanding shares of HIVT Common Stock and the assumption
of all outstanding HIVT Options will be determined by the combined value of the
cash and Penn Treaty Common Stock to be issued at the Effective Date plus the
direct costs associated with the Merger. Penn Treaty will allocate the purchase
price in establishing a new accounting and reporting basis for the underlying
acquired assets and liabilities of HIVT based on their estimated fair values at
the Effective Date.
RESALE OF PENN TREATY COMMON STOCK BY AFFILIATES
Penn Treaty Common Stock to be issued to stockholders of HIVT in connection
with the Merger has been registered under the Securities Act. Penn Treaty Common
Stock received by the stockholders of HIVT upon consummation of the Merger will
be freely transferable under the Securities Act, except for shares issued to any
person who may be deemed an "Affiliate" (as defined below) of HIVT or Penn
Treaty within the meaning of Rule 145 under the Securities Act ("Rule 145").
"Affiliates" are generally defined as persons who control, are controlled by, or
are under common control with HIVT or Penn Treaty at the time of the Annual
Meeting (generally, directors, certain executive officers and major
stockholders). Affiliates of HIVT or Penn Treaty may not sell their shares of
Penn Treaty Common Stock acquired in connection with the Merger, except pursuant
to an effective registration statement under the Securities Act covering such
shares or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act. In general, under Rule 145, for
two years following the Effective Time, an Affiliate (together with certain
related persons) would be entitled to sell shares of Penn Treaty Common Stock
acquired in connection with the Merger only through unsolicited "broker
transactions" or in transactions directly with a "market maker," as such terms
are defined in Rule 144 under the Securities Act. Additionally, the number of
shares to be sold by an Affiliate (together with certain related persons and
certain persons acting in concert) during such two-year period within any
three-month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding shares of Penn Treaty Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale. Rule
145 would remain available to Affiliates only if Penn Treaty remained current
with its information filings with the Commission under the Exchange Act. Two
years after the Effective Time, an Affiliate would be able to sell such Penn
Treaty Common Stock without such manner of sale or volume limitations, provided
that Penn Treaty was current with its Exchange Act information filings and such
Affiliate was not then an Affiliate of Penn Treaty. Three years after the
Effective Time, an Affiliate would be able to sell such shares of Penn Treaty
Common Stock without any restrictions provided such Affiliate has not been an
Affiliate of Penn Treaty for at least three months prior thereto.
CERTAIN REGULATORY MATTERS
As conditions precedent to the consummation of the Merger, the Merger
Agreement requires, among other things: that no statute, rule or regulation
shall have been enacted by the government (or
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any governmental agency) of the United States or any state, county, municipality
or other political subdivision thereof that makes the consummation of the Merger
and any other transaction contemplated thereby illegal.
Penn Treaty and HIVT believe that the Merger does not violate the antitrust
laws and intend to resist vigorously any assertion to the contrary by the
Federal Trade Commission ("FTC"), the Department of Justice ("DOJ") or others.
Any such resistance could delay consummation of the Merger, perhaps for a
considerable period. Prior to the Merger, the FTC or the DOJ could seek to
enjoin the consummation of the Merger under the federal antitrust laws or
require that Penn Treaty or HIVT divest certain assets to avoid such a
proceeding. The FTC or DOJ could also, following the Merger, take action under
the federal antitrust laws to rescind the Merger, to require divestiture of
assets of either Penn Treaty or HIVT, or to obtain other relief.
Certain persons, such as state's attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also seek to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, that it
will not be successful. Neither Penn Treaty nor HIVT intends to seek any further
stockholder approval or authorization of the Plan as a result of any action that
it may take to resist or resolve any FTC or other objections, unless required to
do so by applicable law.
The provisions of Title 8 of the Vermont Statutes Annotated Sections 3421
through 3434 (the "Insurance Company Merger Statute") govern the formation of
the Merger Sub, and the legal requirements which must be satisfied under Vermont
law for the Merger to be completed. Penn Treaty must obtain approval of the
Vermont Department of Banking, Insurance, and Securities (the "Department") to
organize the Merger Sub.
In addition, Articles of Merger with respect to the Merger must be approved
by the Department pursuant to 8 V.S.A. Section 3424. Finally, Penn Treaty will
also seek approval of the Merger as a change in control of HIVT under 8 V.S.A.
Section 3683 since the Merger is, in substance, an acquisition of HIVT by Penn
Treaty. In connection with the above requirements, public hearings must be held
with respect to the formation of the Merger Sub and the acquisition of HIVT by
Penn Treaty. Consummation of the Merger is contingent on obtaining the above
regulatory approvals as well as any other state or other regulatory approvals
necessary to complete the transaction.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Insurance Merger Statute, a shareholder is entitled to dissent
from, and obtain payment of the fair value of his or her shares, in the event of
a merger or consolidation. Following adoption of the merger agreement, the
insurer must provide notice of such adoption to each shareholder and file an
affidavit of such notice with the Department. Shareholders then have 30 days to
object to the merger in writing. The value of shares owned by a dissenting
shareholder is determined as of the effective date of the merger. If the
surviving corporation and the dissenting shareholder agree on such value within
30 days after the effective date, the corporation must pay that amount within 90
days of the effective date. If no such agreement is reached, the Vermont
Superior Court with jurisdiction over the insurer's principal place of business,
upon petition made within 90 days of the effective date, will determine the
value, which must be paid within 60 days of such determination. Fair value is
the value of the shares just before the corporate action to which the dissenter
objects, excluding any change in the value based on anticipation of the
corporate action.
The Merger qualifies as a transaction as to which HIVT stockholders may
exercise dissenter's rights under the Insurance Company Merger Statute.
COMPARISON OF RIGHTS OF HIVT AND PENN TREATY SHAREHOLDERS
Penn Treaty and HIVT are incorporated in Pennsylvania and Vermont,
respectively. HIVT's stockholders, whose rights are currently governed by the
laws of the State of Vermont and by the charter and bylaws of HIVT, will become
shareholders of Penn Treaty after consummation of the Merger, and their rights
will be governed by Pennsylvania law, and by the charter and bylaws of Penn
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Treaty. Although it is impracticable to delineate all of the differences between
Pennsylvania and Vermont corporate law and all of the differences between the
provisions of the governing documents of Penn Treaty and HIVT, set forth below
is a summary comparison of the rights of a shareholder under Penn Treaty's
Articles of Incorporation (the "Penn Treaty Articles") and Penn Treaty's Bylaws
(the "Penn Treaty Bylaws"), on the one hand, and the rights of a HIVT
stockholder under HIVT's Articles of Association (the "HIVT Articles") and
HIVT's Bylaws (the "HIVT Bylaws"), on the other hand. Such information is
qualified in its entirety by reference to the HIVT Articles, the HIVT Bylaws,
the Penn Treaty Articles and the Penn Treaty Bylaws. Also included below is a
summary comparison of the rights of a HIVT stockholder under Vermont law, on the
one hand, and the rights of a Penn Treaty shareholder under Pennsylvania law, on
the other hand.
CLASSES AND SERIES OF CAPITAL STOCK
PENN TREATY. The Penn Treaty Articles authorize Penn Treaty to issue
10,000,000 shares of Penn Treaty Common Stock, par value $.10 ("Penn Treaty
Common Stock"), and 5,000,000 shares of Preferred Stock, par value $1.00 ("Penn
Treaty Preferred Stock"). As of the Record Date, 6,990,084 shares of Penn Treaty
Common Stock are issued and outstanding.
HIVT. The HIVT Articles provide that HIVT may issue 1,000,000 shares of
HIVT Common Stock. As of the Record Date, 549,095 shares of HIVT Common Stock
are outstanding.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
PENN TREATY. Pennsylvania law permits a corporation to include in its
bylaws a provision adopted by the vote of its shareholders which eliminates the
personal liability of directors for monetary damages for any action taken or
omitted on behalf of Penn Treaty unless (i) the directors have breached or
failed to perform their duties and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. However, a
corporation may not eliminate personal liability where the responsibility or
liability of a director is pursuant to any criminal statute or is for the
payment of taxes pursuant to local, state or Federal law. The Penn Treaty Bylaws
limit director liability to the fullest extent permitted by the laws of
Pennsylvania.
Pennsylvania law permits a business corporation, unless otherwise restricted
by its bylaws, to indemnify any person involved in any third party or derivative
action by reason of the person's being or having been a representative of the
corporation, if the person acted in good faith and reasonably believed that his
or her actions were in or not opposed to the best interests of the corporation
and, with respect to any criminal proceedings, had no reasonable cause to
believe that his or her conduct was unlawful. In general, no indemnification is
allowable in derivative actions where the person has been adjudged liable to the
corporation, unless and to the extent that the court finds him or her entitled
to indemnification for expenses incurred. To the extent that a representative of
a business corporation has been successful on the merits or otherwise in defense
of a third party or derivative action, indemnification for expenses incurred is
mandatory. The Penn Treaty Bylaws contain no restriction on its ability to so
indemnify any person.
HIVT. Under Vermont law, a corporation may indemnify any current or former
director against any liability, if, in connection with the act or acts resulting
in liability, the director: (1) conducted himself or herself in good faith; (2)
the director reasonably believed (i) in connection with actions taken in the
director's official capacity as a director, that the conduct was in the
corporation's best interest, and (ii) in all other cases, that the director's
conduct was at least not opposed to the corporation's best interest; and (3) if
the proceeding is brought by a government entity, the director had no reasonable
cause to believe his or her conduct was unlawful, and the director's conduct is
not found to be reckless or intentionally unlawful. The corporation may not
indemnify a director if the director is found liable to the corporation in a
suit by the corporation or in a shareholder's derivative action, or if the
director is found liable based on receipt by such director of an improper
personal benefit. Indemnification, where allowed, must be approved by a
resolution of the corporation's directors, which must specifically find that the
appropriate standard of conduct has been met by the director who will be
indemnified. HIVT's bylaws provide indemnification to directors to the fullest
extent allowed under the Vermont law.
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Vermont law also mandates that, unless limited in its articles of
incorporation, a corporation shall indemnify any director against all reasonable
costs of any successful defense of any action brought against any director in
his or her capacity as a director. The same indemnification is available under
Vermont law for a corporation's officers, employees and agents, again unless
limited by the articles of incorporation. Finally, a director, officer, employee
or agent of the corporation who is a party to a proceeding may request court
ordered indemnification. A court may order indemnification if the director,
officer, employee or agent is entitled to mandatory indemnification, or if he or
she is fairly and reasonably entitled to indemnification in view of all relevant
circumstances, whether or not any relevant standard of conduct had been met.
However, if the director, officer, employee or agent is found liable for such
claim, the indemnification is limited to reasonable expenses incurred in
defending the claim.
SPECIAL MEETINGS OF SHAREHOLDERS
PENN TREATY. Pennsylvania law provides that a special meeting of the
shareholders may be called at any time: (i) by the board of directors; (ii) by
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at a particular meeting, unless otherwise provided in the
articles; and (iii) by such officers or other persons as may be provided in the
bylaws. The shareholders of a "registered corporation" are not entitled to call
a special meeting of the shareholders unless the shareholder is an "interested
shareholder" who is calling a special meeting for the purpose of approving a
"business combination".
HIVT. Special meetings of stockholders may be called by the board of
directors or by any other person or person(s) authorized by the articles of
incorporation or bylaws to do so, or by the holders of at least 10% of all votes
entitled to be cast on any issue if they provide the corporation's secretary a
written demand for the meeting, describing the purpose or purposes for the
meeting. Notice of a special meeting must be provided to each stockholder
entitled to vote at the meeting not less than 10 nor more than 60 days before
the meeting date. The notice must include a description of the purpose or
purposes for which the meeting is called.
ANNUAL MEETING OF SHAREHOLDERS
PENN TREATY. Under Pennsylvania law, if the annual meeting of shareholders
for election of directors is not called and held within six months after the
designated time, any shareholder may call such meeting, at any time thereafter.
HIVT. Vermont law contains no corresponding provision.
DIVIDENDS AND DISTRIBUTIONS
PENN TREATY. Under Pennsylvania law, unless otherwise restricted in the
bylaws, the board of directors may authorize, and a business corporation may
pay, dividends or make other distributions to shareholders. However, a
distribution may not be made if, as a result of such distribution: (i) the
corporation would be unable to pay its debts as they become due in the usual
course of business; or (ii) the total assets of the corporation would be less
than the sum of its total liabilities and (unless otherwise provided in the
articles of incorporation) the amount that would be needed, if the corporation
were to be dissolved at the time of distribution, to satisfy the preferential
rights of holders of preferred stock.
HIVT. Vermont law permits a corporation's board of directors to authorize,
and the corporation to make, distributions to its stockholders, unless the
articles of incorporation restrict distributions. The HIVT Articles do not
contain such a restriction. Further, no distribution may be made if, as a result
of the distribution, the corporation would not be able to pay its debts as they
become due in the usual course of business, or the corporation's total assets
would be less than the sum of its total liabilities plus the amount necessary to
satisfy any stockholders' preferential rights superior to those of stockholders
receiving the distribution.
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APPRAISAL/DISSENTERS' RIGHTS
PENN TREATY. Pennsylvania law provides that shareholders have a right of
appraisal (I.E., the right to dissent and obtain payment of the
judicially-determined "fair value" of their shares) with respect to specified
corporate actions, including: (i) a plan of merger, consolidation, division or
share exchange; (ii) certain plans or amendments of the articles of
incorporation in which disparate treatment is accorded to holders of shares of
the same class or series; and (iii) a sale or transfer of substantially all of
the corporation's assets. Appraisal rights are not provided to holders of shares
of any class that is either listed on a national securities exchange or held of
record by more than 2,000 shareholders; however, this exception to the provision
of appraisal rights does not apply in the case of: (i) a plan under which such
shares are not converted solely into shares of the acquiring, surviving or new
corporation, and cash in lieu of fractional shares; or (ii) shares of a
preferred or special class of stock, unless the articles, the plan or the terms
of the transaction entitle all holders of such class to vote thereon and require
for adoption of the plan the affirmative vote of a majority of the votes cast by
all holders of shares by all holders of such class to vote thereon and require
for adoption of the plan the affirmative vote of a majority of the votes cast by
holders of shares of the class. See "The Merger -- Appraisal Rights".
HIVT. Under the Insurance Merger Statute, stockholders have the right to
dissent from certain corporate actions, and obtain payment of the statutorily
determined fair value of their shares. The corporate actions from which
stockholders are entitled to dissent are (i) merger; (ii) share exchange; (iii)
sale of all or substantially all of the corporation's assets; (iv) certain
amendments to the articles of incorporation; and (v) any action for which the
articles of incorporation, bylaws or resolution of the Board of Directors
provide dissenters rights to shareholders. See "The Merger -- Rights of
Dissenting Stockholders".
SHAREHOLDER APPROVAL OF MERGERS
PENN TREATY. Under Pennsylvania law, unless required by the bylaws of the
corporation (the Penn Treaty Bylaws contain no such requirement), shareholder
approval is not required for a plan of merger or consolidation if: (i) the plan
does not alter the status of the corporation as a domestic business corporation
and the shares outstanding prior to the merger or consolidation will continue as
or be converted into identical shares of the surviving or new corporation; (ii)
prior to the adoption of the plan, another corporation that is a party to the
plan owns 90% or more of the outstanding shares of each class of the
corporation; or (iii) no shares of the corporation have been issued prior to the
adoption of the plan of merger or consideration by the board of directors. In
cases where shareholder approval is required, Pennsylvania law provides that a
merger or consolidation shall be approved by a majority of the votes cast by
holders or securities entitled to vote thereon. The presence, in person or by
proxy, of the holders of at least a majority of shares entitled to vote is
necessary to constitute a quorum at a meeting of shareholders held for such
purpose.
HIVT. Vermont insurance law requires the adoption of a plan of merger by a
corporation's board of directors, and the approval of the plan of merger by its
stockholders. Unless a greater vote is required by the corporation's articles of
incorporation or bylaws, a plan of merger for insurance companies must be
approved by two-thirds of the votes cast by stockholders entitled to vote at the
meeting at which such merger is considered. Following stockholder approval, and
further approved by the corporation's board of directors after a 30 day waiting
period, the plan is considered adopted.
STOCK REPURCHASES
PENN TREATY. Under Pennsylvania law, a corporation may acquire its own
shares. A purchase, redemption or other acquisition by a corporation of its
shares is treated as a distribution by the corporation to or for the benefit of
its shareholders and is subject to the limitations described above under the
caption "Dividends and Distributions." If the articles of incorporation provide
that shares acquired will be deemed to be issued but not outstanding, unless
otherwise provided in the bylaws, the board of directors may restore any or all
of the previously issued shares of the corporation owned by it
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to the status of authorized by unissued shares. Indebtedness of a corporation
incurred or issued to a shareholder in redemption of shares is on a parity with
the indebtedness of the corporation to its general unsecured creditors, except
to the extent subordinated by agreement.
HIVT. Vermont law permits a corporation to acquire its own shares, and
shares so acquired are treated as authorized but unissued shares. Unless
prohibited by the corporation's articles of incorporation, shares acquired by
the corporation may be reissued. If the articles of incorporation prohibit the
reissue of acquired shares, the number of authorized shares of the corporation's
stock is reduced by the number of shares the corporation has acquired. HIVT's
Articles do not contain such a restriction. A purchase, redemption or other
acquisition by a corporation of its shares is treated as a distribution by the
corporation to or for the benefit of its stockholders, and is subject to the
limitations described above under the caption "Dividends and Distributions."
REMOVAL OF DIRECTORS
PENN TREATY. Under Pennsylvania law, unless otherwise provided by the
corporation's articles or bylaws adopted by the shareholders, directors of a
corporation may be removed from office without cause by the vote of shareholders
entitled to elect directors but, unless otherwise provided in the articles, if a
bylaw of the corporation adopted by the shareholders provides for a classified
board of directors, directors generally may be removed from office only for
cause by the vote of shareholders entitled to vote on the matter.
HIVT. Unless a corporation's articles of incorporation permit the removal
of directors only for cause, Vermont law allows a corporation's stockholders to
remove any director with or without cause. HIVT's articles do not contain such a
restriction. Stockholders may only remove a director at a meeting called for
that purpose and the notice of the meeting must state that the purpose or one of
the purposes is the removal of the director. However, if a director is elected
by a voting group, only the voting group's stockholders may vote to remove the
director. A majority of the votes cast at any meeting considering removal of a
director is required to remove a director, unless cumulative voting authorized,
in which case removal is not effective if the number of votes against removal
would be sufficient to elect the director under cumulative voting. In addition,
upon request of the corporation or at least 10% of any class of stockholders, a
Vermont Superior Court may remove a director for fraudulent or dishonest conduct
relating to the corporation or gross abuse of authority or discretion relating
to the corporation if removal is in the best interest of the corporation.
CHARTER AMENDMENTS
PENN TREATY. Under Pennsylvania law, amendments to the articles of
incorporation may be proposed either by the board of directors or, unless
otherwise provided in the corporation's articles, by shareholders entitled to
cast at least 10% of the votes that all shareholders are entitled to cast.
However, shareholders of a registered corporation are not entitled by statute to
propose an amendment to the articles. Except for certain amendments which do not
require shareholder approval, and unless a greater vote is required, amendments
of the articles must be approved by the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote. In addition, if any class or
series of shares is entitled to vote as a class, the affirmative vote of a
majority of the votes cast in each such class vote is also required.
HIVT. Vermont insurance law requires a public hearing to be held in
connection with any proposed amendment to an insurance company's charter. The
Department must find that the amendment will not be detrimental to policyholders
and those having an interest in the company. Stockholder approval is governed by
the company's articles of association, and, if there is no such provision, the
affirmative vote of three-fourths or the stockholders entitled to vote is
required. Vermont law does not provide stockholders with a method by which they
can approve amendments to the articles of incorporation without approval by the
board of directors.
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STOCKHOLDER ACTION WITHOUT A MEETING
PENN TREATY. Pennsylvania law requires the unanimous written consent of the
shareholders to authorize any action without a meeting, unless otherwise
restricted by the bylaws. An action may be authorized by less than unanimous
written consent of the shareholders of a registered corporation, if less than
unanimous consent is permitted by its articles. The Penn Treaty Articles permit
action by less than unanimous consent.
HIVT. Unless prohibited by a corporation's articles of incorporation,
Vermont law allows any action required or permitted to be taken at a
shareholders' meeting, to be taken without a meeting if all shareholders
entitled to vote on the action consent in writing to the actions taken. In
addition, if the articles of incorporation specifically provide and if each
shareholder receives prior notice of the proposed action, action may be taken
without a meeting upon the written consent of a simple majority of the
corporation's shareholders who are entitled to vote on the action. HIVT's
Articles of Incorporation do not provide such authority.
"ANTI-TAKEOVER" LAWS
PENN TREATY. The Pennsylvania Business Corporation Law ("PBCL") contains
certain provisions which (1) require that following any acquisition by any
person or group of 20% of a public corporation's voting power, the remaining
shareholders have the right to receive payment for their shares, in cash, from
such person or group in an amount equal to the "fair value" of the shares,
including an increment representing a proportion of any value payable for
control of the corporation; and (2) prohibit for five years, subject to certain
exceptions, a "business combination" (which includes a merger or consolidation
of the corporation or a sale, lease or exchange of assets) with a shareholder or
group of shareholders beneficially owning 20% or more of a public corporation's
voting power.
The PBCL also contains a provision which provides that, in discharging their
duties, the board of directors may, in considering the best interests of the
corporation, consider the effects of any action upon any or all groups affected
by such action, including shareholders, employees, suppliers, customers and
creditors of the corporation, and upon communities in which offices or other
establishments of the corporation are located. Pennsylvania law also contains
provisions to the effect that directors have no greater obligation to justify
their actions, and need not meet any higher burden of proof, in the context of a
potential or proposed acquisition of control than they do in any other context.
Pennsylvania corporations could elect not to be governed by these provisions
prior to July 27, 1990. Penn Treaty did not opt out of such provisions and,
consequently, such provisions are applicable to Penn Treaty.
HIVT. Vermont law contains no similar provision.
THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, a copy of which is
attached as Appendix I to this Proxy Statement/ Prospectus and is incorporated
by this reference herein.
CONDITIONS TO THE MERGER
The respective obligations of each party to effect the Merger are subject to
the following conditions:
STOCKHOLDER APPROVAL. The Merger Agreement and the transactions
contemplated therein shall have been approved and adopted by the requisite vote
of the stockholders of HIVT under applicable law and applicable listing
requirements.
NASDAQ LISTING. The shares of Penn Treaty Common Stock issuable in the
Merger shall have been authorized for listing on the Nasdaq upon official notice
of issuance.
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THE REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the Commission
or any state regulatory authorities.
NO INJUNCTIONS OR RESTRAINTS. No preliminary or permanent injunction or
other order or decree by any federal or state court which would prevent the
consummation of the Merger shall have been issued and remain in effect.
NO ACTIONS. No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal.
OTHER CONSENTS. All required consents and approvals of lenders and lessors
of material leases shall have been obtained and be in effect at the Effective
Time.
The obligation of Penn Treaty to effect the Merger is subject to the
fulfillment at or prior to the Closing of the following additional conditions:
PERFORMANCE OF OBLIGATIONS AND REPRESENTATIONS AND WARRANTIES OF HIVT. HIVT
shall have performed in all material respects its agreements contained in the
Merger Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of HIVT contained in the Merger Agreement
shall be true and correct in all material respects on and as of the date made
and on and as of the Closing Date as if made at and as of such date.
LEGAL OPINION. Penn Treaty shall have received an opinion from (i) Gravel
and Shea, counsel to HIVT, dated the Closing Date, reasonably satisfactory to
Penn Treaty and covering the due incorporation of HIVT, the binding nature of
the Merger Agreement and the effectiveness of the Merger; and (ii) Ballard Spahr
Andrews & Ingersoll concerning certain tax matters.
NO MATERIAL CHANGES. After the date of the Merger Agreement, there shall
have been no changes that constitute, and no event or events shall have occurred
which have resulted in or constitute, a material adverse change in the business,
operations, properties, assets, condition (financial or other) or results of
operations of HIVT and its subsidiaries, taken as a whole.
GOVERNMENTAL WAIVERS AND CONSENTS. All governmental waivers, consents,
orders and approvals legally required for the consummation of the Merger and the
transactions contemplated thereby shall have been obtained and be in effect at
the Closing Date, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value to Penn Treaty of the Merger.
The obligation of HIVT to effect the Merger is subject to the following
additional conditions:
PERFORMANCE OF OBLIGATIONS AND REPRESENTATIONS AND WARRANTIES OF PENN
TREATY AND MERGER SUB. Penn Treaty and Merger Sub shall have performed in
all material respects their agreements contained in the Merger Agreement
required to be performed on or prior to the Closing Date and the
representations and warranties of Penn Treaty and Merger Sub contained in
the Merger Agreement shall be true and correct in all material respects on
and as of the date made and on and as of the Closing Date as if made at and
as of such date, and HIVT shall have received a certificate of the Chairman
of the Board and Chief Executive Officer, the President or a Vice President
of Penn Treaty and of the President and Chief Executive Officer or a Vice
President of Merger Sub to that effect.
LEGAL OPINIONS. HIVT shall have received an opinion or opinions from
(i) Ballard Spahr Andrews & Ingersoll, counsel to Penn Treaty and Merger
Sub, dated the Closing Date, reasonably satisfactory to HIVT and covering
the due incorporation of Penn Treaty and Merger Sub, the
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binding nature of the Merger Agreement, the effectiveness of the Merger, the
validity of Penn Treaty Common Stock to be issued in connection with the
Merger and such other matters as may be reasonably requested by HIVT and
(ii) Gravel and Shea concerning certain tax matters.
NO MATERIAL CHANGES. After the date of the Merger Agreement, there
shall have been no changes that constitute, and no event or events shall
have occurred which have resulted in or constitute, a material adverse
change in the business, operations, properties, assets, condition (financial
or other) or results of operations of Penn Treaty and its subsidiaries,
taken as a whole.
GOVERNMENTAL WAIVERS AND CONSENTS. All governmental waivers, consents,
orders, and approvals legally required for the consummation of the Merger
and the transactions contemplated hereby shall have been obtained and be in
effect at the Closing Date, and no governmental authority shall have
promulgated any statute, rule or regulation which, when taken together with
all such promulgations, would materially impair the value to HIVT of the
Merger.
FAIRNESS OPINION. HIVT shall have received from Advest an opinion,
dated as of the date on which the Proxy Statement/Prospectus is first
distributed to the shareholders of HIVT, to the effect that the
consideration to be received by the stockholders of HIVT in the Merger is
fair, from a financial point of view, to the holders of HIVT Common Stock,
and such opinion shall not have been withdrawn.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by each
of Penn Treaty and HIVT relating to, among other things, (i) organization and
qualification to do business, (ii) capitalization, (iii) subsidiaries, (iv)
authority to enter into the Merger; (v) non-contravention of laws or governing
documents and regulatory approvals, (vi) reports and financial statements, (vii)
absence of undisclosed liabilities, (viii) absence of certain changes or events,
(ix) litigation, (x) the Registration Statement and the Proxy
Statement/Prospectus, (xi) no violations of law, (xii) compliance with
agreements, (xiii) taxes, (xiv) employee benefit plans and ERISA matters, (xv)
environmental matters, (xvi) title to assets and (xvii) stockholders' approval.
CERTAIN COVENANTS
Prior to the Effective Date, unless Penn Treaty shall otherwise agree in
writing:
ORDINARY COURSE. HIVT shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted, and shall use its reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it. HIVT shall: (A)
maintain insurance coverage on its own property and assets and maintain its
books, accounts and records in the usual manner consistent with prior
practices; (B) comply in all material respects with all laws, ordinances and
regulations of governmental entities applicable to HIVT; (C) maintain and
keep its properties and equipment in good repair, working order and
condition, ordinary wear and tear excepted; and (D) perform in all material
respects its obligations under all contracts and commitments to which it is
a party or by which it is bound.
CHANGES IN CAPITAL. Except as required by the Merger Agreement, HIVT
shall not: (A) amend its Articles of Incorporation or By-laws; (B) split,
combine or reclassify its outstanding capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of HIVT, or declare, set aside or
pay any dividend or other distribution payable in cash, stock or property or
extend any credit to any officer, director or stockholder; or (C) directly
or indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of HIVT Common Stock.
TRANSACTIONS. Except as required by the Merger Agreement, HIVT shall
not (A) issue, deliver or sell or agree to issue, deliver or sell any
additional shares of, or rights of any kind to
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acquire any shares of, its capital stock of any class, any indebtedness or
any option, rights or warrants to acquire, or securities convertible into,
shares of capital stock other than issuances of HIVT Common Stock pursuant
to the exercise of HIVT Options outstanding on the date hereof; (B) acquire,
lease or dispose or agree to acquire, lease or dispose of any capital assets
or any other assets involving expenditures or proceeds in an amount,
individually or in the aggregate, greater than $50,000; (C) assume, incur or
guarantee additional indebtedness; (D) enter into any contract or commitment
of any kind material, individually or in the aggregate, to other than in the
ordinary course of business and consistent with past practice, or permit or
suffer to be canceled any contract material, individually or in the
aggregate; (E) encumber or grant a security interest in any material asset;
(F) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; (G) decrease any cash reserve or any bulk
reserve other than in the ordinary course of business; (H) make any change
in the underwriting, reserves or claims adjustment practices which would
have a material adverse effect on HIVT; or (I) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing.
BENEFITS. HIVT shall not, except as required to comply with applicable
law and except as provided in the Merger Agreement: (A) adopt, enter into,
terminate or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current
or former employee; (B) increase in any manner the compensation or fringe
benefits of any officer or employee; (C) pay any benefit not provided under
any existing plan or arrangement disclosed to Penn Treaty; (D) grant any
awards under any bonus, incentive, performance or other compensation plan or
arrangement or HIVT benefit plan (including, without limitation, the grant
of stock options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of existing
restrictions in any benefit plans or agreements or awards made thereunder);
(E) take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or HIVT benefit plan other than in the ordinary course of
business consistent with past practice or as required thereunder, or (F)
adopt, enter into, amend or terminate any contract, agreement, commitment or
arrangement to do any of the foregoing.
ACCOUNTING. HIVT shall not take any action with respect to accounting
policies or procedures other than reasonable and usual actions in the
ordinary course and consistent with past practice.
NO SOLICITATION. HIVT shall not, directly or indirectly, (i) take (nor
shall HIVT authorize or permit officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents
or affiliates to take) any action to encourage, solicit or initiate the
submission of any Acquisition Proposal (as defined below), or (ii) enter
into any agreement with respect to any Acquisition Proposal. Notwithstanding
the foregoing, the provisions contained in the Merger Agreement shall not
prohibit the Board of Directors of HIVT from: (i) furnishing information to
or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide written proposal to acquire HIVT pursuant to
a merger, consolidation, share exchange, purchase of a substantial portion
of the assets, business combination or other similar transaction, if the
Board of Directors of HIVT determines in good faith, based as to legal
matters on the written advice of counsel, that such action is required for
the Board of Directors to comply with its fiduciary duties to stockholders
imposed by law (the "HIVT Board Fiduciary Duties"), and (ii) complying with
Rule 14e-2 of the Exchange Act with regard to any Acquisition Proposal, if
applicable. "Acquisition Proposal" shall mean any proposed: (A) merger,
consolidation or similar transaction involving HIVT; (B) sale, lease or
other disposition directly or indirectly by merger, consolidation, share
exchange or otherwise of assets of HIVT representing 50% or more of the
41
<PAGE>
assets of HIVT; (C) issue, sale, or other disposition of (including by way
of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 50% or more of the voting
power of HIVT, or (D) transaction in which any person shall acquire
beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership, or any "group"
(as such term is defined under the Exchange Act) shall have been formed
which beneficially owns or has the right to acquire beneficial ownership, of
50% or more of the outstanding HIVT Common Stock. In the event HIVT shall
determine to provide any information to or negotiate with a person or entity
or receives any offer from such person or entity in connection with an
Acquisition Proposal, HIVT shall immediately (i) provide Penn Treaty a copy
of all information provided to the person or entity (ii) inform Penn Treaty
that information is to be provided, that negotiations are to take place or
that an offer has been received, as the case may be, and (iii) furnish to
Penn Treaty the identity of the New Party and, if an offer has been
received, a description of the material terms thereof.
NOTICE OF BREACH. Each party shall promptly give written notice to the
other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which could cause or
constitute a breach of any of its representations, warranties or covenants
contained or referenced in the Merger Agreement or which could adversely
effect such party, and will use its best efforts to prevent or promptly
remedy the same. No disclosure to, or investigation made by or on behalf of,
any party hereto on or before the Effective Date shall affect or limit the
representations, warranties and covenants of any party under the Merger
Agreement.
ADDITIONAL AGREEMENTS
ACCESS AND INFORMATION. HIVT shall afford to Penn Treaty and to Penn
Treaty's accountants, counsel and other representatives, reasonable access
during normal business hours (and at such other times as the parties may
mutually agree) throughout the period prior to the Effective Date to all of its
properties, books, contracts, commitments, records and personnel and, during
such period, HIVT shall furnish promptly to Penn Treaty all information
concerning its business (including any applications or notifications made to or
by any governmental entity), properties and personnel as Penn Treaty may
reasonably request. In addition, HIVT shall promptly deliver to Penn Treaty all
regulatory reports that are filed with respect to HIVT and any correspondence
between HIVT on the one hand and any state insurance regulatory agency on the
other hand. Penn Treaty shall conduct itself at all times in such a manner so as
not to be disruptive of the ordinary business activities of HIVT. Penn Treaty
shall hold, and shall cause its respective employees and agents to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement dated October 17, 1995 between Penn Treaty and HIVT.
Penn Treaty shall afford to HIVT and to its accountants, counsel and other
representatives the same access it would grant to a significant institutional
investor provided Penn Treaty were acting reasonably. HIVT shall hold, and shall
cause its respective employees and agents to hold, in confidence all information
obtained pursuant to such access.
REGISTRATION STATEMENT/PROXY STATEMENT. As promptly as practicable after
the execution of the Merger Agreement, HIVT and Penn Treaty shall prepare and
file the Proxy Statement/Prospectus and Penn Treaty and HIVT shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon thereafter as practicable.
STOCK EXCHANGE LISTING. Penn Treaty shall list on the Nasdaq, upon official
notice of issuance, the Penn Treaty Common Stock to be issued pursuant to the
Merger.
CONSENTS, APPROVALS AND FILINGS. Penn Treaty and HIVT shall make, and cause
their subsidiaries and affiliates to make, all necessary filings with respect to
the Merger and the other transactions contemplated hereby including, without
limitation, those required under the HSR Act, the Securities Act and the
Exchange Act and the rules and regulations thereunder, under applicable Blue Sky
or similar securities laws and under applicable insurance laws, and shall use
all reasonable efforts to obtain required approvals and clearances with respect
thereto to (i) comply as promptly as practicable
42
<PAGE>
with all governmental requirements applicable to the Merger and the other
transactions contemplated hereby, and (ii) obtain promptly all necessary
permits, orders and other consents of governmental entities and consents of
third parties necessary for the consummation of the Merger and the other
transactions contemplated hereby.
HSR ACT. HIVT and Penn Treaty shall use, and shall cause their "ultimate
parent entities" (if applicable) to use, their best efforts, if required, to
file by April 15, 1996 notifications under the HSR Act in connection with the
Merger and the transactions contemplated hereby and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Antitrust Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any state attorney general or other governmental entity
in connection with antitrust matters.
COOPERATION. Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Merger Agreement, including
using all reasonable efforts to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings (including, but not
limited to, filings under the HSR Act and with all applicable governmental
entities) and to lift any injunction or other legal bar to the Merger (and, in
such case, to proceed with the Merger as expeditiously as possible), subject,
however, to the appropriate vote of stockholders of HIVT. In case at any time
after the Effective Date any further action is necessary or desirable to carry
out the purposes of this Merger Agreement, the proper officers and/or directors
of Penn Treaty, and HIVT shall take all such necessary action.
REORGANIZATION. Following the Effective Date, Penn Treaty shall conduct its
business, and shall cause the Surviving Corporation to conduct its business, in
a manner which would not jeopardize the characterization of the Merger as a
reorganization within the meaning of Section 368(a)(1)(A) and 368(a)(2)(E) of
the Code. Penn Treaty will provide HIVT with certain factual representations of
Penn Treaty, and Penn Treaty will use its best efforts to cause Merger Sub to
provide HIVT with certain factual representations of Merger Sub, reasonably
requested by HIVT as necessary to confirm that Penn Treaty and Merger Sub will
not take any action on or after the Effective Date that would jeopardize the tax
free nature of the transaction. HIVT will provide Penn Treaty and Merger Sub
with certain factual representations of HIVT reasonably requested by Penn Treaty
as necessary to confirm that HIVT will not take any action on or after the
Effective Date that would jeopardize the tax free nature of the transaction.
INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENTS, ETC.. Penn
Treaty and HIVT agree that none of the information supplied by it for inclusion
in: (i) the Registration Statement, and (ii) the Proxy Statement/Prospectus
will, at the time it becomes effective and at the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Penn
Treaty agrees that the Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations promulgated thereunder. HIVT agrees that the Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
INDEMNIFICATION. From and after the Effective Date, Penn Treaty shall, to
the fullest extent permitted under applicable law, indemnify, defend and hold
harmless each present and former director and officer of HIVT (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties") against all
losses, expenses, claims, damages or liabilities, including those arising out of
the transactions contemplated by this Merger Agreement (excluding criminal
liabilities), based in whole or in part on any action or omission, except any
action or omission which was grossly negligent, reckless, wanton or intentional,
occurring prior to the Effective Date in connection with such person's assigned
responsibilities in serving as an officer or director of HIVT. In the event of
any such loss, expense,
43
<PAGE>
claim, damage or liability (whether arising before or after the Effective Date):
(i) Penn Treaty shall pay the reasonable fees and expenses of the Indemnified
Party's counsel, provided such counsel is reasonably acceptable to Penn Treaty,
promptly after statements therefor are received, (ii) Penn Treaty and the
Indemnified Parties will cooperate in the defense of any such matter, and (iii)
any determination required to be made with respect to whether an Indemnified
Party is entitled to indemnification shall be made to the fullest extent
permitted under Vermont Law consistent with the standards set forth in the first
sentence of this Section, by independent legal counsel acceptable to Penn Treaty
and the Indemnified Party; provided, however, that Penn Treaty shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld). Penn Treaty agrees that all rights to
indemnification existing in favor of the directors, officers or employees of
HIVT as provided in HIVT's Articles of Incorporation or Bylaws, as in effect as
of the date hereof, with respect to matters occurring through the Effective
Date, shall survive the Merger and shall continue in full force and effect for a
period of six years from the Effective Date.
EMPLOYEE BENEFITS. With respect to benefit plans available to employees of
HIVT, for at least one year from and after the Effective Date, Penn Treaty shall
cause the Surviving Corporation to either: (i) maintain all employee benefits of
HIVT, as the case may be, including, without limitation, benefits under employee
benefit plans, policies and arrangements, existing on the Effective Date, or
(ii) provide benefits to employees and former employees, as applicable, of the
Surviving Corporation that are, taken as a whole, substantially equivalent to or
better than the benefits offered to such persons by HIVT, as the case may be,
immediately prior to the Effective Date; provided, however, that neither Penn
Treaty nor the Surviving Corporation shall be required to adopt or maintain any
plan or arrangement providing for the sale of the Penn Treaty Common Stock or
HIVT Common Stock.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated by the mutual consent of the parties
or at any time prior to the Closing Date, whether before or after approval by
the stockholders of HIVT or Penn Treaty, (i) by either HIVT or Penn Treaty, if
the Merger is not completed by August 31, 1996 for a reason other than on
account of delay or default on the part of the terminating party, or (ii) by
HIVT if the Merger is enjoined by a final, unappealable court order not entered
at the request or with the support of HIVT or Penn Treaty or any of their
respective 5% stockholders, affiliates or associates; if a proposal for a
qualifying acquisition transaction is received or if Penn Treaty (A) fails to
perform in any material respect any of its material covenants in the Merger
Agreement and (B) does not cure such default in all material respects within 10
days after written notice of such default is given to Penn Treaty by HIVT and by
Penn Treaty if HIVT (A) fails to perform in any material respect any of its
material covenants in the Merger Agreement and (B) does not cure such default in
all material respects within 10 days after written notice of such default is
given to HIVT by Penn Treaty.
The Merger Agreement may not be amended except by action taken by the
parties' respective Boards of Directors or duly authorized committees thereof
and then only by an instrument in writing signed on behalf of each of the
parties to the Merger Agreement and in compliance with applicable law. Following
approval of the Merger Agreement by HIVT's stockholders, no amendment may be
made to the Merger Agreement without stockholder approval which would: (i)
change the conversion ratios set forth in Section 3.1 of the Merger Agreement,
(ii) change the per share cash consideration under Section 3.2 of the Merger
Agreement, or (iii) otherwise materially affect the rights of HIVT's
stockholders.
At any time prior to the Effective Time, the parties to the Merger Agreement
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties to the Merger Agreement, (b) waive any inaccuracies in
the representations and warranties contained therein or in any document
delivered pursuant thereto and/or (c) waive compliance with any of the
agreements or conditions contained therein. Any such waiver shall not be deemed
to be continuing or to apply to any future obligation or requirement of another
party to the Merger Agreement. Any agreement on the part of a party to the
Merger Agreement to any such extension or waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party.
44
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements
reflect the Merger of Penn Treaty and HIVT. The Merger will be accounted for as
a "purchase" of HIVT by Penn Treaty under generally accepted accounting
principles. The pro forma combined condensed financial statements are unaudited
and combine the operations of Penn Treaty and HIVT for the year ended December
31, 1995. The pro forma balance sheet assumes the Merger occurred at December
31, 1995. The pro forma statement of income assumes the Merger occurred on
January 1, 1995.
The historical financial information of Penn Treaty as of and for the year
ended December 31, 1995, have been derived from the Penn Treaty financial
statements which are incorporated by reference herein. The historical financial
information of HIVT as of and for the year ended December 31, 1995 have been
derived from the HIVT financial statements which are incorporated by reference
herein. The pro forma financial statements should be read in conjunction with
the accompanying notes and with the historical financial statements of Penn
Treaty and HIVT included herein or incorporated herein by reference as the case
may be.
The unaudited pro forma combined condensed financial statements have been
included as required by the Commission and are provided for comparative purposes
only. The pro forma financial statements do not purport to be indicative of the
financial position or operating results that would have been achieved had the
Merger been consummated as of the date indicated and should not be construed as
representative of future financial position or operating results.
The pro forma financial statements are based upon available information and
certain assumptions that Penn Treaty believes are reasonable in the
circumstances. Penn Treaty's preliminary allocation of purchase price was based
upon the estimated fair value of assets acquired and liabilities assumed. The
actual allocation will be based upon further studies and valuations as of the
closing dates of the Merger and, accordingly, the final allocations will be
different from the amounts herein.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------
HIVT PRO FORMA
PTAC HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Assets:
Cash and investments.................... $ 153,809,418 $ 13,748,354 $ (560,000)(1) 164,805,830
(2,200,380)(2)
8,438 (3) $
Unamortized deferred policy acquisition
costs.................................. 63,133,759 4,013,804 (4,013,804 (4) 63,133,759
Present value of future profits
acquired............................... 5,000,000(5) 5,000,000
Intangible assets....................... 2,192,455(6) 2,192,455
Other assets............................ 20,801,093 3,375,646 24,176,739
---------------- -------------- ------------------ ----------------
Total assets.......................... $ 237,744,270 $ 21,137,804 $ 426,709 $ 259,308,783
---------------- -------------- ------------------ ----------------
---------------- -------------- ------------------ ----------------
Liabilities and Shareholders' Equity:
Policyholder reserves and other
policyholder liabilities............... $ 119,359,392 $ 11,781,960 $ 131,141,352
Deferred Income Taxes................... 16,206,959 205,491 345,169(7) 16,757,619
Other liabilities....................... 5,070,865 430,373 5,501,238
---------------- -------------- ------------------ ----------------
Total Liabilities..................... 140,637,216 12,417,824 345,169 153,400,209
Shareholders' equity.................. 97,107,054 8,719,980 8,438 (3) 105,908,574
(8,728,418)(8)
8,801,520 (9)
---------------- -------------- ------------------ ----------------
Total liabilities & shareholders'
equity................................... $ 237,744,270 $ 21,137,804 $ 426,709 $ 259,308,783
---------------- -------------- ------------------ ----------------
---------------- -------------- ------------------ ----------------
</TABLE>
- ------------------------
(1) To reflect estimated direct out-of-pocket costs of merger
(2) To reflect cash paid to HIVT's shareholders
(3) To reflect the exercise of HIVT outstanding stock options prior to the
consummation of the Merger (1,000 options)
(4) To eliminate HIVT's deferred acquisition costs
(5) To reflect present value of future profits acquired
(6) Purchase price and present value of future profits acquired:
<TABLE>
<S> <C>
Cash portion of purchase price.................... $ 2,200,380
Stock portion of purchase price................... 8,801,520
-----------
Total purchase price.............................. 11,001,900
Deduct: book value of HIVT (after exercise of
options)......................................... 8,728,418
Add: direct out-of-pocket costs of the Merger..... 560,000
Add: elimination of HIVT's deferred acquisition
costs............................................ 4,013,804
Deduct: present value of future profits acquired,
net of deferred taxes............................ 4,654,831
-----------
Intangible assets................................. $ 2,192,455
-----------
-----------
</TABLE>
(7) To reflect deferred taxes on present value of future profits acquired
(8) To eliminate HIVT's shareholders' equity
(9) Issuance of Penn Treaty shares to HIVT shareholders
46
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------
HIVT PRO FORMA
PTAC HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenue:
Insurance premiums........................ $ 102,366,605 $ 6,284,099 $ 108,650,704
Net investment income..................... 8,102,809 778,276 8,881,085
Net realized capital gains................ 46,431 46,431
Other income.............................. 347,113 347,113
---------------- ------------- ----------------- ----------------
110,862,958 7,062,375 0 117,925,333
---------------- ------------- ----------------- ----------------
Benefits and expenses:
Benefits to policyholders................. 64,879,275 3,453,126 68,332,401
Commissions............................... 36,351,140 785,965 37,137,105
Net policy acquisition costs deferred..... (15,303,161) (348,296) (694,256)(1) (16,345,713)
General and administrative expense........ 12,170,913 2,852,645 15,023,558
Other operating expenses.................. 326,908 89,424 1,081,214(2) 1,497,546
---------------- ------------- ----------------- ----------------
98,425,075 6,832,864 386,958 105,644,897
---------------- ------------- ----------------- ----------------
Operating income.......................... 12,437,883 229,511 (386,958 ) 12,280,436
Income taxes.............................. 3,609,000 39,017 (135,435 (3) 3,512,582
---------------- ------------- ----------------- ----------------
Net income................................ $ 8,828,883 $ 190,494 ($ 251,523 ) $ 8,767,854
---------------- ------------- ----------------- ----------------
---------------- ------------- ----------------- ----------------
Earnings per share........................ 1.53 0.35 1.38
Weighted average number of shares
outstanding.............................. 5,771,558 549,565 6,359,011
</TABLE>
- ------------------------
(1) Elimination of amortization of historical HIVT deferred acquisition costs
(2) Amortization of present value of future profits acquired and intangible
assets
(3) Tax effect of entry (1) and (2)
47
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION -- PENN TREATY
The following selected consolidated statement of operations data and balance
sheet data of the Company as of and for the years ended December 31, 1991, 1992,
1993, 1994 and 1995, have been derived from the Consolidated GAAP or Statutory
Financial Statements of Penn Treaty which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in Penn Treaty's Annual Report on Form 10-K, incorporated
herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1991 (1) 1992 (1) 1993 1994 1995
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Accident and health:
First year premiums........................... $ 20,926 $ 22,477 $ 25,836 $ 26,968 $ 36,770
Renewal premiums.............................. 30,654 37,507 43,615 52,237 62,402
Life:
First year premiums........................... 1 4 361 2,149 1,701
Renewal premiums.............................. 342 248 169 481 1,494
---------- ---------- ---------- ---------- -----------
Total premiums.............................. 51,923 60,236 69,981 81,835 102,367
Investment income, net.......................... 3,844 4,398 4,979 5,946 8,103
Net realized gains (losses)..................... (5) 173 182 8 46
Other income.................................... 356 371 321 305 347
---------- ---------- ---------- ---------- -----------
Total revenues.............................. 56,118 65,178 75,463 88,094 110,863
---------- ---------- ---------- ---------- -----------
Benefits and expenses:
Benefits to policyholders..................... 25,031 34,285 40,829 48,757 64,879
First year commissions........................ 12,922 14,282 16,722 19,365 26,223
Renewal commissions........................... 5,946 6,004 7,060 7,866 10,128
Acquisition costs deferred (2)................ (13,820) (15,745) (18,145) (20,656) (27,024)
Acquisition costs amortized................... 8,157 9,913 11,505 13,013 11,721
General and administrative expense............ 8,105 8,511 9,350 10,262 12,171
Interest expense.............................. 237 192 184 162 327
---------- ---------- ---------- ---------- -----------
Total benefits and expenses................. 46,578 57,442 67,505 78,769 98,425
---------- ---------- ---------- ---------- -----------
Income before federal income taxes............ 9,540 7,736 7,958 9,325 12,438
Provision for federal income taxes............ 2,845 2,436 2,137 2,562 3,609
Net income.................................... $ 6,695 $ 5,300 $ 5,821 $ 6,763 $ 8,829
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
$ 1.42 $ 1.12 $ 1.24 $ 1.45 $ 1.53
Net income per share (3)......................
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Weighted average shares outstanding (3)........... 4,705 4,732 4,689 4,669 5,772
GAAP Ratios:
Loss ratios..................................... 48.2% 56.9% 58.3% 59.5% 63.4%
Expense ratio................................... 41.5 38.4 38.1 36.7 32.8
---------- ---------- ---------- ---------- -----------
Total....................................... 89.7% 95.3% 96.4% 96.2% 96.2%
Selected Statutory Data:
Net premiums written............................ $ 52,290 $ 60,385 $ 69,898 $ 81,878 $ 102,145
Statutory surplus (beginning of period)......... $ 8,595 $ 10,688 $ 12,301 $ 17,256 $ 21,067
Ratio of net premiums written to statutory
surplus........................................ 6.1x 5.6x 5.7x 4.7x 4.8x
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1991 (1) 1992 (1) 1993 1994 1995
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total investments............................... $ 52,515 $ 60,685 $ 77,981 $ 91,490 $ 144,928
Total assets.................................... 92,466 115,699 136,948 164,346 237,744
Total debt...................................... 2,384 2,625 2,516 6,372 2,206
Total liabilities............................... 51,941 69,327 85,599 108,903 140,637
Shareholders' equity (4)........................ 40,525 46,070 51,349 55,444 97,107
Book value per share (3)(4)..................... $ 8.61 $ 9.72 $ 11.00 $ 11.87 $ 13.93
</TABLE>
- ------------------------
(1) Restated to reflect adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," a of January 1, 1990. The effect of
adoption is a follows:
<TABLE>
<CAPTION>
1991 1992
----------- ------------
<S> <C> <C>
Net income (reduction) addition................................. $180,000 $(116,000)
Net income per share (reduction) addition....................... $.04 $(.02)
</TABLE>
(2) For a discussion of policy acquisition costs, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
(3) Adjusted to give effect to 50% stock dividend on the Common Stock declared
on April 19, 1995, payable to shareholders of record on May 3, 1995 and
distributed on May 15, 1995.
(4) The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994. The cumulative effect of this adoption was an increase on
January 1, 1994 in shareholders' equity of $3,529,000 to reflect the net
gain (net of $1,512,000 in deferred income taxes) on investment securities
classified or available for sale. As of December 31, 1994, shareholders'
equity was decreased by $2,714,000 due to unrealized losses of $4,112,000 in
the Company's investment portfolio. As of December 31, 1995, shareholders'
equity was increased by $4,056,000 due to gains of $6,146,000 in the
Company's investment portfolio. These increases were caused primarily by
decreases in interest rates.
49
<PAGE>
SELECTED FINANCIAL CONSOLIDATED FINANCIAL
INFORMATION -- HEALTH INSURANCE OF VERMONT, INC. (HIVT)
The following selected statement of income data and balance sheet data of
HIVT as of and for the years ended December 31, 1991, 1992, 1993, 1994 and 1995,
have been derived from the GAAP Financial Statements of HIVT which have been
audited by Coopers & Lybrand L.L.P., independent accountants. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth in HIVT's Annual Report
on Form 10-KSB, incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 (1) 1994 (2) 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Accident and health:
First year premiums................................ $ 1,118 $ 1,020 $ 1,011 $ 1,458 $ 1,432
Renewal premiums................................... 3,308 3,754 4,050 4,368 4,852
--------- --------- --------- --------- ---------
Total premiums................................... 4,426 4,774 5,061 5,826 6,284
Investment income, net............................. 642 573 576 659 778
Net realized gains (losses)........................ 275 100 8 (9) 0
--------- --------- --------- --------- ---------
Total revenues 5,343 5,447 5,645 6,476 7,062
--------- --------- --------- --------- ---------
Benefits, Losses and Expenses:
Benefits, claims, losses and settlement expenses..... 2,357 2,289 2,485 3,250 3,453
First year commissions............................... 217 206 200 313 319
Renewal commissions.................................. 341 373 393 417 466
Acquisition costs amortized.......................... 545 513 462 609 694
Underwriting and insurance expenses.................. 1,132 1,200 1,286 1,415 1,900
Interest expense..................................... 17 4 0 0 0
--------- --------- --------- --------- ---------
Total benefits and expenses...................... 4,609 4,585 4,826 6,004 6,832
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income before income tax expense....................... 734 862 819 472 230
Income tax expense..................................... 143 148 63 80 39
--------- --------- --------- --------- ---------
Net income............................................. $ 591 $ 714 $ 756 $ 392 $ 191
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
$ 1.12 $ 1.36 $ 1.44 $ 0.74 $ 0.35
Earnings per share
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
526 524 527 529 550
Weighted average shares outstanding....................
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Balance Sheet Data (at period end):
Total investments.................................... $ 4,766 $ 10,322 $ 11,596 $ 11,994 $ 12,676
Total assets......................................... 13,377 16,644 18,126 19,067 21,138
Total long term debt................................. 133 0 0 0 0
Total liabilities.................................... 7,165 9,731 10,456 11,222 12,418
Shareholders' equity................................. 6,212 6,913 7,670 7,845 8,720
Book value per share................................. $ 11.81 $ 13.19 $ 14.55 $ 14.83 $ 15.88
GAAP Ratios:
Loss and loss adjustment expense ratio (3)........... 53.3% 47.9% 49.1% 55.8% 54.9%
Underwriting expense ratio (4)....................... 50.9 48.1 46.3 47.3 53.8
--------- --------- --------- --------- ---------
Combined ratio (5)............................... 104.2% 96.0% 95.4% 103.1% 108.7%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 (1) 1994 (2) 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
Selected Statutory Data:
<S> <C> <C> <C> <C> <C>
Net premium written.................................. $ 4,426 $ 4,774 $ 5,061 $ 5,826 $ 6,284
Statutory surplus (beginning of period).............. $ 3,664 $ 4,062 $ 4,718 $ 5,221 $ 5,589
Ratio of annual statutory net premiums written to
statutory surplus................................... 1.2x 1.2x 1.1x 1.1x 1.1x
</TABLE>
- ------------------------
(1) The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", as of January 1, 1993. The impact upon
adoption of this statement was immaterial to the Company's financial
statements.
(2) The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", on
January 1, 1994. The cumulative effect of this adoption was an increase on
January 1, 1994 in shareholders' equity of $288,051 to reflect the net
unrealized gain net of deferred income taxes, on investment securities
classified or available for sale that were previously carried at amortized
cost. As of December 31, 1994, shareholders' equity was decreased by
$236,889, net of deferred income taxes, due to unrealized losses of $524,940
in the Company's investment portfolio. As of December 31, 1995,
shareholders' equity was increased by $282,893, net of deferred income taxes
due to unrealized gains of $519,782 in the Company's investment portfolio.
These increases were caused primarily by decreases in interest rates.
(3) Calculated by dividing losses and loss adjustment expenses by total
premiums.
(4) Calculated by dividing underwriting expenses by total premiums.
(5) The sum of loss and loss adjustment expense ratio and underwriting expense
ratios.
51
<PAGE>
LEGAL MATTERS
The validity of the Penn Treaty Common Stock offered hereby will be passed
upon for Penn Treaty by Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania. Certain tax matters will be passed upon for HIVT by Gravel and
Shea, Burlington, Vermont.
EXPERTS
The consolidated financial statements and schedule of Penn Treaty
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Coopers & Lybrand L.L.P., independent accountants, as set forth in their
report, which is included in the Annual Report on Form 10-K for the year ended
December 31, 1995. The financial statements and schedule referred to above have
been incorporated herein by reference in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The consolidated financial statements of HIVT incorporated by reference in
this Proxy Statement/Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report, which is included in the
Annual Report on Form 10-KSB for the year ended December 31, 1995. The financial
statements referred to above have been incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
52
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Bylaws of the Registrant provide for
indemnification of directors and officers of the registrant in accordance with
the indemnification provisions of the PBCL. Sections 1741-50 of the PBCL permit
indemnification of directors, officers, employees and agents of a corporation
under certain conditions and subject to certain limitations.
The Registrant has directors' and officers' liability insurance insuring its
directors and officers against liability incurred in their capacities as
directors and officers and providing for reimbursement of the registrant for any
indemnification payments made by it to directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<C> <S>
4. Form of Penn Treaty American Corporation Common Stock Certificate (incorporated by reference to
Registration Statement No. 33-92690)
5. Opinion of Ballard Spahr Andrews & Ingersoll
8. Opinion of Gravel and Shea
13. Annual Report on Form 10-K (incorporated by reference to Registrant's Annual Report on Form 10-K,
File No. 0-15972)
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion filed as Exhibit 5)
23.4 Consent of Gravel and Shea (included in its opinion filed as Exhibit 8)
24. Power of Attorney (included in signature page)
99.1 Form of Proxy
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-1
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
person who may be deemed underwriters, in addition to the information called for
by the other Items of the applicable form.
The Registrant hereby undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933, as amended
(the "Securities Act"), and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final application of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Allentown, Commonwealth of
Pennsylvania, on May 14, 1996.
PENN TREATY AMERICAN CORPORATION
By: /s/ A.J. CARDEN
-----------------------------------
A. J. Carden
EXECUTIVE VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irving Levit and A.J. Carden and each or any one
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, registration
statement has been signed on by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
<C> <S> <C>
Chairman of the Board,
/s/ IRVING President and Chief
LEVIT Executive Officer May 14, 1996
- ----------------------------------- (Principal Executive
Irving Levit Officer)
/s/ MICHAEL F. Treasurer and Director
GRILL (Principal Financial
- ----------------------------------- Officer and Principal May 14, 1996
Michael F. Grill Accounting Officer)
/s/ A. J.
CARDEN Executive Vice President
- ----------------------------------- and Director May 14, 1996
A. J. Carden
/s/ DOMENIC P.
STANGHERLIN
- ----------------------------------- Secretary and Director May 14, 1996
Domenic P. Stangherlin
/s/ JACK D.
BAUM Vice President, Marketing
- ----------------------------------- and Director May 14, 1996
Jack D. Baum
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ EMILE G.
ILCHUK
- ----------------------------------- Director May 14, 1996
Emile G. Ilchuk
<C> <S> <C>
/s/ C. MITCHELL
GOLDMAN
- ----------------------------------- Director May 14, 1996
C. Mitchell Goldman, Esquire
- ----------------------------------- Director May 14, 1996
Stuart H. Shapiro, M.D.
/s/ GLEN A.
LEVIT
- ----------------------------------- Director May 14, 1996
Glen A. Levit
</TABLE>
II-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
MARCH 15, 1996
BETWEEN
PENN TREATY AMERICAN CORPORATION
AND
HEALTH INSURANCE OF VERMONT, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1. The Merger................................................................................ 1
Section 1.2. Effective Date of the Merger.............................................................. 1
Section 1.3. Conversion of Shares...................................................................... 1
Section 1.4. Tax-Free Reorganization................................................................... 1
Section 1.5. Dissenters' Rights........................................................................ 1
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. Articles of Incorporation................................................................. 2
Section 2.2. By-laws................................................................................... 2
Section 2.3. Board of Directors; Officers.............................................................. 2
Section 2.4. Effects of the Merger..................................................................... 2
ARTICLE III
CONVERSION OF SHARES
Section 3.1. Exchange Rate............................................................................. 2
Section 3.2 Cash Consideration for Shares............................................................. 3
Section 3.3. Payment for Shares in the Merger.......................................................... 3
Section 3.4. Dividends; Transfer Taxes................................................................. 4
Section 3.5. No Fractional Shares...................................................................... 5
Section 3.6. Stock Options............................................................................. 5
Section 3.7. Stockholder Approval...................................................................... 5
Section 3.8. Closing of the Companys Transfer Books.................................................... 5
Section 3.9. Assistance in Consummation of the Merger.................................................. 6
Section 3.10. Closing................................................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1. Organization and Qualification............................................................ 6
Section 4.2. Capitalization............................................................................ 6
Section 4.3. Authority Relative to this Merger Agreement............................................... 7
Section 4.4. Statutory Reports and Financial Statements................................................ 8
Section 4.5. Absence of Certain Changes or Events...................................................... 9
Section 4.6 Availability of Sufficient Funds.......................................................... 9
Section 4.7. Financial Advisor......................................................................... 9
Section 4.8. Principal Office.......................................................................... 9
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1. Organization and Qualification............................................................ 10
Section 5.2. Capitalization............................................................................ 10
Section 5.3. Subsidiaries.............................................................................. 10
Section 5.4. Authority Relative to this Merger Agreement............................................... 10
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
Section 5.5. Reports and Financial Statements.......................................................... 11
<S> <C> <C>
Section 5.6. Absence of Certain Changes or Events...................................................... 12
Section 5.7. Litigation................................................................................ 12
Section 5.8. Loss Reserves; Statutory Capital.......................................................... 12
Section 5.9. Reinsurance............................................................................... 12
Section 5.10. Compliance with Applicable Laws........................................................... 13
Section 5.11. Liabilities............................................................................... 13
Section 5.12. Written Insurance Policies; Regulatory Filings............................................ 13
Section 5.13. Agents.................................................................................... 13
Section 5.14. Taxes..................................................................................... 13
Section 5.15. Certain Agreements........................................................................ 14
Section 5.16. Premium Balances Receivable............................................................... 15
Section 5.17. Investment Portfolio and Other Assets..................................................... 15
Section 5.18. Intellectual Property..................................................................... 15
Section 5.19. Licenses.................................................................................. 15
Section 5.20. Intercompany and Affiliate Transactions; Insider Interests................................ 15
Section 5.21. Employee Benefit Plans.................................................................... 16
Section 5.22. ERISA..................................................................................... 16
Section 5.23. Officers, Directors and Employees......................................................... 16
Section 5.24. Company Action............................................................................ 16
Section 5.25. Pending Claims............................................................................ 16
Section 5.26. Insurance for the Benefit of the Company.................................................. 16
Section 5.27. Title to Assets; Liens.................................................................... 17
Section 5.28. Ability to Conduct Business............................................................... 17
Section 5.29. Financial Advisor......................................................................... 17
Section 5.30. Fairness Opinion.......................................................................... 17
Section 5.31. Disclosure................................................................................ 17
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. Conduct of Business by the Company Pending the Merger..................................... 17
Section 6.2. No Solicitation........................................................................... 18
Section 6.3. Notice of Breach.......................................................................... 19
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Access and Information.................................................................... 19
Section 7.2. Registration Statement/Proxy Statement.................................................... 19
Section 7.3. Stock Exchange Listing.................................................................... 20
Section 7.4. Consents, Approvals and Filings........................................................... 20
Section 7.5. HSR Act................................................................................... 20
Section 7.6. Additional Agreements..................................................................... 20
Section 7.7. Information in Disclosure Documents, Registration Statements, Etc......................... 21
Section 7.8. Indemnification........................................................................... 21
Section 7.9. Employee Benefits......................................................................... 21
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. Conditions to Each Partys Obligation to Effect the Merger................................. 22
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
Section 8.2. Conditions to Obligation of the Company to Effect the Merger.............................. 22
<S> <C> <C>
Section 8.3. Conditions to Obligations of Parent and Merger Sub to Effect the Merger................... 23
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. Termination............................................................................... 24
Section 9.2. Effect of Termination..................................................................... 25
Section 9.3. Amendment................................................................................. 25
Section 9.4. Waiver.................................................................................... 25
ARTICLE X
GENERAL PROVISIONS
Section 10.1. Non-Survival of Representations, Warranties and Agreements................................ 25
Section 10.2. Notices................................................................................... 25
Section 10.3. Fees and Expenses......................................................................... 26
Section 10.4. Publicity................................................................................. 26
Section 10.5. Specific Performance...................................................................... 27
Section 10.6. Interpretation............................................................................ 27
Section 10.7. Miscellaneous............................................................................. 27
</TABLE>
(iii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Merger Agreement") is by and between
PENN TREATY AMERICAN CORPORATION, a Pennsylvania corporation ("Parent") and
HEALTH INSURANCE OF VERMONT, INC., a Vermont corporation (the "Company").
BACKGROUND
A. The Boards of Directors of Parent and the Company have approved the
merger of a wholly-owned subsidiary of Parent to be formed as soon as
practicable following the execution of this Merger Agreement ("Merger Sub") with
and into the Company upon the terms and subject to the conditions set forth
herein (the "Merger").
B. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
C. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase of the Company.
N O W T H E R E F O R E,
In consideration of the foregoing premises and the representations,
warranties and agreements contained herein, the parties hereto intending to be
legally bound agree as follows.
ARTICLE I
THE MERGER
Section 1.1. THE MERGER. Upon the terms and subject to the conditions
hereof, on the Effective Date (as defined in Section 1.2), Merger Sub shall be
merged with and into the Company and the separate existence of Merger Sub shall
thereupon cease, and the Company shall be the surviving corporation in the
Merger, (the "Surviving Corporation") and the name of the Company shall be
changed to "American Network Life Insurance Company".
Section 1.2. EFFECTIVE DATE OF THE MERGER. The Merger shall become
effective when a properly executed Certificate of Merger is duly filed with the
Secretary of State of the State of Vermont, which filing shall be made
concurrently with the closing of the transactions contemplated by this Merger
Agreement in accordance with Section 3.10. When used in this Merger Agreement
the term the "Effective Date" shall mean the date and time at which such
Certificate of Merger is so filed or at such time thereafter as is provided in
such Certificate of Merger.
Section 1.3. CONVERSION OF SHARES. As of the Effective Date, each share of
Company Common Stock (as defined herein) shall be converted into shares of
Parent Common Stock (as defined herein) plus $4.00 of Per Share Cash
Consideration (as defined herein) pursuant to the terms set forth in Article III
of this Agreement.
Section 1.4. TAX-FREE REORGANIZATION. The parties intend to adopt this
Merger Agreement as a tax-free plan of reorganization and to consummate the
Merger in accordance with the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
Section 1.5. DISSENTERS' RIGHTS. Notwithstanding any other provision of
this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Date and which are held by
shareholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly appraisal for such
shares in accordance with the Vermont Business Corporation Act (the "VBCA") and
who shall not have withdrawn such demand
<PAGE>
or otherwise have forfeited appraisal rights (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
consideration described in Section 1.4 above (the "Merger Consideration"). Such
shareholders shall be entitled to receive payment of the appraised value of such
shares of Company Common Stock held by them in accordance with the VBCA, except
any shareholders who have failed to perfect or shall have withdrawn or lost
their rights to appraisal of such shares shall be deemed to have been converted
into and to have become exchangeable, as of the Effective Date, for the right to
receive, without interest, the Merger Consideration, in the manner set forth
elsewhere herein.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. ARTICLES OF INCORPORATION. The Articles of Incorporation of
the Company as in effect immediately prior to the Effective Date shall be the
Articles of Incorporation of the Surviving Corporation until duly amended,
except that the Articles of Incorporation of the Surviving Corporation shall be
amended, in accordance with the terms thereof and of the Vermont Business
Corporation Act ("VBCA"), to provide that the name of the Surviving Corporation
shall be "American Network Life Insurance Company".
Section 2.2. BY-LAWS. The By-laws of Merger Sub as in effect immediately
prior to the Effective Date shall be the By-laws of the Surviving Corporation,
and thereafter may be amended in accordance with its terms and as provided by
law.
Section 2.3. BOARD OF DIRECTORS; OFFICERS. The directors of Merger Sub
immediately prior to the Effective Date and John W. Mahoney shall be the
directors of the Surviving Corporation and the officers of Merger Sub
immediately prior to the Effective Date, John W. Mahoney and David Lesperance
shall be the officers of the Surviving Corporation, in each case until their
respective successors are duly elected and qualified.
Section 2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 11.06 of the VBCA.
ARTICLE III
CONVERSION OF SHARES
Section 3.1. EXCHANGE RATE.
(a) As of the Effective Date, by virtue of the Merger and without any action
on the part of any holder of any shares of the Companys Common Stock, $3.00 par
value ("Company Common Stock"):
(i) All shares of Company Common Stock which are held by the Company or
any other subsidiary shall be canceled without any conversion thereof and no
consideration shall be given with respect thereto.
(ii) Subject to Section 3.5, each remaining outstanding share of Company
Common Stock shall be converted into the number of fully paid and
nonassessable shares of the Common Stock, $.10 par value, of Parent ("Parent
Common Stock") multiplied by the Exchange Rate (as defined below) and the
cash consideration set forth in Section 3.2.
(iii) In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or
rights issued in respect of, Parent Common Stock after the date hereof and
prior to or as of the Effective Date, the Exchange Rate shall be adjusted
accordingly.
(iv) Each issued and outstanding share of Common Stock of Merger Sub
("Merger Sub Common Stock") shall be converted into and become one fully
paid and nonassessable share of Common Stock, $.01 par value, of the
Surviving Corporation.
2
<PAGE>
(b) The Exchange Rate shall mean:
(i) The quotient of the Base Price (as defined below) divided by the
Final Price (as defined below).
(ii) Assuming all Company Options (as defined in Section 3.6 below) have
been exercised, the "Base Price" shall mean $8,801,520 divided by the number
of shares of Company Common Stock outstanding on the Effective Date. If all
Company Options have not been exercised as of the Effective Date, the Base
Price shall reduced by $16.00 for each share of Company Common Stock not
purchased pursuant to the Company Options which remain outstanding and
unexercised.
(iii) The "Final Price" shall mean the average closing bid price of
Parent Common Stock on the Nasdaq National Market during the period
comprised of the twenty consecutive trading days immediately preceding the
fifth business day immediately preceding the Effective Date (siuch period is
hereinafter referred to as the "Measurement Period"), as such closing bid
prices are reported in THE WALL STREET JOURNAL, or if not so published in
such newspaper, in any other newspaper of general circulation selected by
the Company, provided, however, that if the average closing price of Parent
Common Stock, determined in accordance with the first clause of this
sentence, during the Measurement Period is more than $.20 per share higher
than the average closing bid price of Parent Common Stock during the
Measurement Period, the Final Price shall equal the average closing price
per share minus $.20 per share but this adjustment shall not cause the Final
Price to be reduced to a price per share less than the average closing bid
price of Parent Common Stock during the Measurement Period. If the Final
Price of Parent Common Stock, determined in accordance with the immediately
preceding sentence, is less than $16.00 or greater than $18.00, this Merger
Agreement shall terminate; provided, however, that the parties hereto may
waive this termination provision in writing.
Section 3.2. CASH CONSIDERATION FOR SHARES. At the Effective Date, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company, or the holders of any shares of Company Common Stock: Each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Date (other than any shares of Company Common Stock to be canceled pursuant to
Section 3.1(a)(i) shall be converted into the right to receive $4.00 per share
in cash (the "Per Share Cash Consideration") (to be paid in addition to Parent
Common Stock, as described in Section 3.1 hereof). Assuming all Company Options
(as defined in Section 3.6 below) have been exercised, the aggregate amount of
cash consideration paid for all shares of Company Common Stock (the "Cash
Consideration") will be Two Million Two Hundred Thousand Three Hundred Eighty
Dollars ($2,200,380). If all Company Options have not been exercised, the Cash
Consideration shall be reduced by $4.00 for each share of Company Common Stock
not purchased pursuant to the outstanding Company Options which remain
outstanding and unexercised.
Section 3.3. PAYMENT FOR SHARES IN THE MERGER. The manner of making
payment for Company Common Stock in the Merger shall be as follows:
(a) On the Effective Date, Parent shall make available to the Company or
such other exchange agent as selected by the Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of each
holder of exercised Company Common Stock and each holder of Company Options
(as defined in Section 3.6(a)): (i) a sufficient number of certificates
representing Parent Common Stock required to effect the delivery of Parent
Common Stock required to be issued pursuant to Sections 3.1 and 3.6, and
(ii) cash in the amount of the Cash Consideration (such cash, the "Payment
Fund") required to be paid pursuant to Section 3.2. The Exchange Agent
shall, pursuant to irrevocable instructions, deliver the Parent Common Stock
contemplated to be issued and the Per Share Cash Consideration contemplated
to be paid pursuant to Sections 3.1 and 3.6.
(b) Promptly after the Effective Date, the Exchange Agent shall mail to
each holder of record (as shown on the books of the Companys transfer agent
as of the Effective Date) of a
3
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certificate or certificates which immediately prior to the Effective Date
represented outstanding shares of Company Common Stock (individually, a
"Certificate" and collectively, the "Certificates") (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon
surrender of Certificates for cancellation to the Exchange Agent, together
with such transmittal letter duly executed and any other required documents,
the holder of such Certificates shall be entitled to receive for each share
of the Company Common Stock represented by such Certificates the number of
shares of Parent Common Stock into which such shares of Company Common stock
are converted in the Merger and the Per Share Cash Consideration, and the
Certificates so surrendered shall be canceled. Until so surrendered,
Certificates shall represent solely the right to receive the number of
shares of Parent Common Stock into which such shares of Company Common Stock
are converted in the Merger, any cash in lieu of fractional shares of Parent
Common Stock as contemplated by Section 3.5 with respect to each of the
shares of Company Common Stock represented thereby and the Per Share Cash
Consideration. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the Parent Common Stock held by it
from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such
Parent Common Stock for the account of the persons entitled thereto.
(c) Any portion of the Payment Fund which remains undistributed to the
holders of Company Common Stock for twelve months after the Effective Date
shall be delivered to Parent upon demand, and any holders of Company Common
Stock who have not theretofore complied with this Article shall thereafter
look only to Parent for the Cash Consideration to which they are entitled
pursuant to this Article. If any Certificates shall not have been
surrendered prior to five years after the Effective Date (or immediately
prior to such earlier date on which any Cash Consideration in respect of
such Certificate would otherwise escheat to or become the property of any
government entity), any cash or other consideration payable in respect of
such Certificate shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
(d) None of Parent, Merger Sub or the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any cash from the
Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(e) Parent or the Exchange Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of shares of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld and paid over to
the appropriate taxing authority by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in
respect of which such deduction and withholding was made by Parent or the
Exchange Agent.
Section 3.4. DIVIDENDS; TRANSFER TAXES. No dividends or other
distributions that are declared or made on Parent Common Stock will be paid to
persons entitled to receive certificates representing Parent Common Stock
pursuant to this Merger Agreement until such persons: (i) surrender their
Certificates representing Company Common Stock, or (ii) surrender their option
award agreements or provide other satisfactory evidence of the cancellation of
Company Options, as applicable. Upon such surrender, there shall be paid to the
person in whose name the certificates representing such Parent Common Stock
shall be issued any dividends or other distributions which shall have become
payable with respect to such Parent Common Stock in respect of a record date
after the Effective Date. In no event shall the person entitled to receive such
dividends be entitled to receive interest on such dividends. If any Per Share
Cash Consideration, any cash in lieu of fractional shares or any certificate
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representing Parent Common Stock is to be paid to or issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of certificates for such Parent
Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Company Options or shares of Company Common Stock for any shares of
Parent Common Stock or dividends thereon delivered to a public official pursuant
to any applicable escheat laws.
Section 3.5. NO FRACTIONAL SHARES. No certificates or scrip representing
less than one share of Parent Common Stock shall be issued upon the surrender
for exchange of (i) Certificates representing Company Common Stock pursuant to
Sections 3.1(b) and 3.2 or (ii) option award agreements or other evidence of
cancellation of Company Options pursuant to Section 3.6. In lieu of any such
fractional share, each holder of Company Common Stock or Company Options who
would otherwise have been entitled to a fraction of a share of Parent Common
Stock upon surrender of (i) Certificates for exchange pursuant to Sections
3.1(b) and 3.2, or (ii) option award agreements or other evidence of
cancellation of Company Options pursuant to Section 3.6 shall be paid upon such
surrender, cash (without interest) in an amount equal to such fractional
interest multiplied by the Final Price (or the Base Price, if the Final Price is
lower than the Base Price) plus an amount equal to such fractional interest
multiplied by the Per Share Cash Consideration. As soon as practicable after the
determination of the amount of cash to be paid to former stockholders or option
holders of the Company in lieu of any fractional interests, Parent shall make
available to the Exchange Agent, which shall in turn make available in
accordance with this Merger Agreement, such amounts to such former stockholders
and option holders.
Section 3.6. STOCK OPTIONS.
Prior to the Effective Date, the Company shall use its best efforts to cause
the holders of each unexpired and unexercised option (each a "Company Option")
under the Company's 1985 Incentive Stock Option Plan (the "Stock Option Plan")
to exercise such options. At the Effective Date, Parent shall issue to holders
of any unexercised Company Options an option (each a "Parent Option") under
Parent's employee stock option plan to purchase a number of shares of Parent
Common Stock equal to the Exchange Rate (as defined in Section 3.1(b)) for the
number of shares of the Company Common Stock that could have been purchased
under the Company Option, at a price per share of Parent Common Stock equal to
the option exercise price determined pursuant to the Company Option divided by
the Exchange Rate. Parent shall, from and after the Effective Date, reserve and
make available for issuance upon exercise of Parent Options all shares of Parent
Common Stock covered thereby and amend its Registration Statement on Form S-8,
such amendment to be declared effective within twenty (20) days after the
Effective Date, or file a new Form S-8 within twenty (20) days after the
Effective Date, to cover the additional shares of Parent Common Stock subject to
the Parent Options granted in replacement of the Company Options and shall use
reasonable efforts to cause such shares to be listed on Nasdaq National Market.
Section 3.7. STOCKHOLDER APPROVAL. The Company shall take all action
necessary, in accordance with applicable law and its Articles of Incorporation
and By-laws, to convene a special meeting of the holders of Company Common Stock
(the "Company Meeting") as promptly as practicable for the purpose of
considering and taking action upon this Merger Agreement. Subject to Section
6.2, the Board of Directors of the Company will recommend that holders of
Company Common Stock vote in favor of the approval of the Merger and the
adoption of this Merger Agreement at the Company Meeting.
Section 3.8. CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective
Date, the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall be
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made thereafter. In the event that, after the Effective Date, Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged for
Parent Common Stock and/or cash as provided in Sections 3.1(a), 3.2, 3.3, 3.4
and 3.5.
Section 3.9. ASSISTANCE IN CONSUMMATION OF THE MERGER. Parent and the
Company shall provide all reasonable assistance to and shall cooperate with,
each other to bring about the consummation of the Merger as soon as practicable
in accordance with the terms and conditions of this Merger Agreement. Parent
shall cause Merger Sub to perform all of its obligations in connection with this
Merger Agreement.
Section 3.10. CLOSING. The closing of the transactions contemplated by
this Merger Agreement shall take place at the offices of Ballard Spahr Andrews &
Ingersoll,1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103-7599,
at 10:00 A.M. local time on the day which is five business days after the day on
which the last of the conditions set forth in Article VIII (other than those
requiring an exchange of certificates, or other documents, or the taking of
other action, at the Closing) is fulfilled or waived or (ii) at such other time
and place as Parent and the Company shall agree in writing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to, and agrees with, the Company as follows:
Section 4.1. ORGANIZATION AND QUALIFICATION. Parent is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Pennsylvania. Parent shall use its best efforts to cause Merger Sub to be, as of
the Effective Date, a corporation duly organized, validly existing and in good
standing under the laws of the State of Vermont. Parent has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted or
currently proposed to be conducted. Parent shall use its best efforts to cause
Merger Sub to have, as of the Effective Date, the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it will then be conducted or then be proposed to be conducted.
Parent is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities make such qualification
necessary, except where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on the business, properties,
assets, condition (financial or otherwise), liabilities or operations of Parent
and its subsidiaries taken as a whole (a "Parent Material Adverse Effect").
Parent shall use its best efforts to cause Merger Sub not to have engaged, as of
the Effective Date, in any business (other than certain organizational matters
and matters relating to this Merger Agreement) since the date of its
incorporation. Complete and correct copies as of the date hereof of the Articles
of Incorporation and By-laws of Parent have been provided to the Company and
complete and correct copies as of the date hereof of the Articles of
Incorporation and By-laws of Merger Sub shall have been provided to the Company
prior to the Effective Date.
Section 4.2. CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Parent consists
of 10,000,000 shares of Parent Common Stock and 5,000,000 shares of Preferred
Stock, $1.00 par value ("Parent Preferred Stock"). As of December 31, 1995,
there were: (i) 6,971,283 shares of Parent Common Stock validly issued and
outstanding (all of which are fully paid and nonassessable), and (ii) no shares
of Parent Preferred Stock validly issued and outstanding. As of the date hereof,
except for 396,015 shares, there are no options, warrants, calls or other
rights, agreements or commitments presently outstanding obligating Parent to
issue, deliver or sell shares of its capital stock, or obligating Parent to
grant, extend or enter into any such option, warrant, call or other such right,
agreement or commitment. All of the shares of Parent Common Stock issuable in
accordance with this Merger Agreement in exchange for Company Common Stock or
Company Options at the Effective Date will be, when so issued,
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duly authorized, validly issued, fully paid and nonassessable. Parent has not
issued any securities in violation of any preemptive or similar rights. Except
as set forth in this Section 4.2(a), and as of the date hereof, there are no
options, warrants, calls, rights or other securities, agreements or commitments
of any character obligating Parent to grant, extend or enter into any such
option, warrant, call or other such right, agreement or commitment. Parent shall
use its best efforts to cause all of the shares of issued outstanding Merger Sub
Common Stock to be owned by Parent. Parent shall use its best efforts to cause
Merger Sub not to have any plan or intention to issue shares of stock that would
result in Parent losing "control" of Merger Sub within the meaning of Section
368(c)(1) of the Code.
(b) Parent shall use its best efforts to cause, as of the Effective Date,
all of the issued and outstanding shares of Merger Sub common stock to be
validly issued and outstanding, fully paid and nonassessable. Parent shall use
its best efforts to cause, as of the Effective Date, Merger Sub not to have
issued any securities in violation of any preemptive or similar rights, and
Parent shall use its best efforts to cause Merger Sub not to issue any options,
warrants, calls, rights or other securities, agreements or commitments of any
character obligating Merger Sub to grant, extend or enter into any such option,
warrant, call or other such right, agreement or commitment.
Section 4.3. AUTHORITY RELATIVE TO THIS MERGER AGREEMENT.
(a) Parent has the corporate power to enter into this Merger Agreement and
the agreements contemplated hereby and to carry out its obligations hereunder
and thereunder. The execution and delivery of this Merger Agreement and the
agreements contemplated hereby and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent. Parent shall use its best efforts to cause the Board of Directors of
Merger Sub to duly authorize, as of the Effective Date, the agreements
contemplated hereby and the consummation of the transactions contemplated
hereby. This Merger Agreement constitutes a valid and binding obligation of
Parent and is enforceable against it in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. No other corporate proceedings on the part of Parent are necessary to
authorize this Merger Agreement and the transactions contemplated hereby, except
for proceedings by Parent to become the sole stockholder of Merger Sub.
(b) The execution, delivery and performance of this Merger Agreement by
Parent and the consummation by Parent of the transactions contemplated hereby do
not and will not: (i) conflict with or violate the Articles of Incorporation or
By-laws of Parent; (ii) violate or conflict with any permit, order, license,
decree, judgment, statute, law, ordinance, rule or regulation applicable to
Parent or by which any of its properties are bound or affected, or (iii) result
in any breach or violation of, or constitute a default (with or without notice
or lapse of time or both) under, or give to others any rights of termination,
cancellation or acceleration of, or result in the creation of any lien or
encumbrance on any of the properties or assets of Parent pursuant to, any note,
bond, mortgage, indenture or other loan document, contract, agreement, lease,
instrument or franchise to which Parent or any of its properties are bound or
affected other than: (A) any breaches, violations, conflicts, defaults,
terminations, cancellations, accelerations, liens or encumbrances referred to in
subparagraphs (ii) and (iii) of this Section 4.3(b) which would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby, and (B) the
laws and regulations referred to in subparagraph (d) of this Section 4.3.
(c) Parent shall use its best efforts to cause the consummation by Merger
Sub of the transactions contemplated hereby not to: (i) conflict with or violate
the Articles of Incorporation or By-laws of Merger Sub; (ii) violate or conflict
with any permit, order, license, decree, judgment, statute, law, ordinance, rule
or regulation applicable to Merger Sub or by which any of its properties are
bound or affected, or (iii) result in any breach or violation of, or constitute
a default (with or without notice or lapse of time or both) under, or give to
others any rights of termination, cancellation or acceleration of,
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or result in the creation of any lien or encumbrance on any of the properties or
assets of Merger Sub pursuant to, any note, bond, mortgage, indenture or other
loan document, contract, agreement, lease, instrument or franchise to which
Merger Sub or any of its properties are bound or affected other than: (A) any
breaches, violations, conflicts, defaults, terminations, cancellations,
accelerations, liens or encumbrances referred to in subparagraphs (ii) and (iii)
of this Section 4.3(c) which would not, individually or in the aggregate, have a
Parent Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby, and (B) the laws and regulations referred to in
subparagraph (d) of this Section 4.3.
(d) Except as referred to herein or, in connection, or in compliance, with
the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
corporation, securities or Blue Sky laws or regulations of the various states,
and Applicable Insurance Laws (as defined in Section 5.8) including, without
limitation, 8 V.S.A. Sections 3431(a) and 3683, no filing or registration with,
or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Parent, and Parent shall use its best efforts
to ensure that consummation by Merger Sub, of the Merger or the other
transactions contemplated by this Merger Agreement, other than filings,
registrations, authorizations, consents or approvals which if not obtained or
made would not, individually or in the aggregate, have a Parent Material Adverse
Effect or prevent the consummation of the transactions contemplated hereby.
Section 4.4. STATUTORY REPORTS AND FINANCIAL STATEMENTS.
(a) Parent has made, and will prior to the Effective Date make, available to
the Company true, complete and correct copies of its consolidated Annual
Statements as filed with the regulatory authorities in Pennsylvania and any
other state in which such statements are required to be filed for the three
years ended December 31, 1993, December 31, 1994 and December 31, 1995. The
consolidated balance sheets of Parent and its subsidiaries included therein as
of December 31, 1995, and the related summaries of operations and statement of
cash flows for the year then ended, included in the Annual Statements of Parent
and its subsidiaries for the year then ended, were prepared in all material
respects in conformity with statutory accounting practices prescribed or
permitted by the applicable insurance regulatory authorities ("Statutory
Accounting Principles") consistently applied for the periods covered thereby,
were prepared in accordance with the books and records of Parent and its
subsidiaries and present fairly in all material respects the consolidated
statutory financial position of Parent and its subsidiaries as at the date
thereof and the consolidated statutory results of operations of Parent and its
subsidiaries and other data contained therein for the period then ended. The
consolidated balance sheets of Parent and its subsidiaries included therein in
respect of any period ending after December 31, 1995, and the related summaries
of operations and statements of cash flows for the periods then ended included
in the Quarterly Statements, were prepared in conformity with Statutory
Accounting Principles applicable to interim financial statements consistently
applied during the periods involved, subject to normal year-end adjustments, and
fairly present in all material respects the consolidated statutory financial
position of Parent and its subsidiaries at the respective dates and the
consolidated results of operations of Parent and its subsidiaries for the
periods then ended.
(b) Parent has furnished the Company with true and complete copies of its:
(i) Annual Reports on Form 10-K for the three fiscal years ended December 31,
1992, December 31, 1993 and December 31, 1994, as filed with the Securities and
Exchange Commission (the "Commission"); (ii) Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995, as
filed with the Commission; (iii) proxy statements related to all meetings of its
shareholders (whether annual or special) since December 31, 1993, and (iv) all
other reports or registration statements filed by Parent with the Commission
since December 31, 1994, except registration statements on Form S-8, in each
case relating to employee benefit plans (the documents described in clauses (i)
through (iv) being referred to herein collectively as the "Parent SEC Reports").
As of their
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respective filing dates, the Parent SEC Reports complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the Commission thereunder
applicable to such Parent SEC Reports. As of their respective filing dates, the
Parent SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of Parent included in the Parent SEC
Reports comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto, and the financial statements included in the Parent SEC Reports
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present in all material respects the financial
position of Parent as at the dates thereof and the results of its operations and
changes in financial position for the periods then ended subject, in the case of
the unaudited interim financial statements, to normal year-end audit adjustments
and any other adjustments described therein.
Section 4.5. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Reports, since September 30, 1995, there has not been: (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which would, individually or in the aggregate, have a Parent Material Adverse
Effect (other than as a result of changes in laws or regulations of general
applicability or changes in general economic or market conditions); (ii) any
damage, destruction or loss, whether or not covered by insurance, which, insofar
as reasonably can be foreseen, in the future would, individually or in the
aggregate, have a Parent Material Adverse Effect, or (iii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the capital stock of Parent other than
regular quarterly dividends.
Section 4.6 AVAILABILITY OF SUFFICIENT FUNDS. Parent has or will have at
the Effective Date sufficient funds available to consummate the transactions
contemplated hereby.
Section 4.7. FINANCIAL ADVISOR. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection with
the Merger or the transactions contemplated by this Merger Agreement based upon
arrangements made by or on behalf of Parent.
Section 4.8. PRINCIPAL OFFICE. Parent intends to cause the principal
office of the Surviving Corporation to remain in Colchester, Vermont.
Section 4.9. NO LIQUIDATION OF COMPANY. Parent has no plan or intention to
liquidate the Company, to merge the Company with or into another corporation, to
sell or otherwise dispose of the stock of the Company except for transfers of
stock to corporations controlled by Parent or to cause the Company to sell or
otherwise dispose of any of its assets or any of the assets acquired from Merger
Sub, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled by the Company.
Section 4.10. NO LIABILITIES. Following the Merger, the Company will
continue its historic business or use a significant portion of its historic
business assets in a business.
Section 4.11. NO OWNERSHIP OF COMPANY STOCK. Parent does not own nor has
it owned during the past five years, any shares of stock of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule identified as such and dated
the date hereof (the "Company Disclosure Schedule"), the Company represents and
warrants to Parent as follows:
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Section 5.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Vermont and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted or currently proposed to be conducted. The Company is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or held under
lease or the nature of such activities make such qualification necessary except
where the failure to so qualify would not, individually or in the aggregate,
have a Material Adverse Effect on the business, properties, assets, condition
(financial or otherwise), liabilities or operations of the Company taken as a
whole (a "Company Material Adverse Effect"). Complete and correct copies as of
the date hereof of the Articles of Incorporation and By-laws of the Company have
been provided to Parent.
Section 5.2. CAPITALIZATION. The authorized capital stock of the Company
consists of 1,000,000 shares of Company Common Stock, $3.00 par value. There are
(i) 549,095 shares of Company Common Stock validly issued and outstanding (all
of which are fully paid and nonassessable), and (ii) 1,000 shares of Company
Common Stock reserved for issuance under the 1985 Plan. Except as set forth on
Section 5.2 of the Company Disclosure Schedule, there are no options, warrants,
calls or other rights, agreements or commitments presently outstanding
obligating the Company to issue, deliver or sell shares of its capital stock, or
obligating the Company to grant, extend or enter into any such option, warrant,
call or other such right, agreement or commitment. There are no bonds,
debentures, notes or other indebtedness having the right to vote on any matters
on which the Company's stockholders may vote that are issued or outstanding. The
Company has not issued any securities in violation of any preemptive or similar
rights and, except for the Company Options, there are no options, warrants,
calls, rights or other securities, agreements or commitments of any character
obligating or committing the Company to issue, deliver or sell shares of its
capital stock or debt securities, or obligating the Company to grant, extend or
enter into any such option. warrant, call or other such right, agreement or
commitment.
Section 5.3. SUBSIDIARIES. he Company has no subsidiaries or other
corporations in which it holds more than ten (10%) percent of the issued and
outstanding shares of capital stock.
Section 5.4. AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. The Company has
the corporate power to enter into this Merger Agreement and, subject to the
requisite approval of this Merger Agreement by the holders of Company Common
Stock, to carry out its obligations hereunder. The execution and delivery of
this Merger Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Company's Board of Directors. This
Merger Agreement constitutes a valid and binding obligation of the Company
enforceable against it in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought. Except for the
requisite approval of the holders of Company Common Stock, no other corporate
proceedings on the part of the Company are necessary to authorize this Merger
Agreement and the transactions contemplated hereby. The execution, delivery and
performance of this Merger Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and will not: (i)
conflict with or violate the Articles of Incorporation or By-laws of the
Company; (ii) violate or conflict with any permit, order, license, decree,
judgment, statute, law, ordinance, rule or regulation applicable to the Company
or by which any of its properties are bound or affected, or (iii) result in any
breach or violation of, or constitute a default (with or without notice or lapse
of time or both) under, or give to others any rights of termination,
cancellation or acceleration of, or result in the creation of any lien or
encumbrance on any of the properties or assets of the Company pursuant to any
note, bond, mortgage, indenture or other loan document, contract, agreement,
lease instrument or franchise to which the Company or its properties is bound or
affected other than: (A) any breaches, violations, defaults, terminations,
cancellations, accelerations, liens or encumbrances which would not,
individually or in the aggregate,
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have a Company Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby, and (B) the laws and regulations referred to
in the next sentence. Except as referred to herein or, in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act, the Exchange
Act, the corporation, securities or Blue Sky laws or regulations of the various
states, and Applicable Insurance Laws including, without limitation, 8 V.S.A.
Sections 3431(a) and 3683, and other similar requirements in states in which the
Company is licensed as an insurance company or agency, no filing or registration
with, or authorization, consent or approval of, any public body or authority is
necessary for the consummation by the Company of the Merger or the other
transactions contemplated hereby, other than filings, registrations,
authorizations, consents or approvals which if not obtained or made would not,
individually or in the aggregate, have a Company Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby and thereby.
Section 5.5. REPORTS AND FINANCIAL STATEMENTS.
(a) The Company has made, and will prior to the Effective Date make,
available to Parent true, complete and correct copies of the Annual Statements
of the Company as filed with the insurance regulatory authorities in Vermont and
any other state in which such statements are required to be filed for the three
years ended December 31, 1993, December 31, 1994 and December 31, 1995. The
balance sheets of the Company as of December 31, 1995, and the related summaries
of operations and statement of cash flows for the year then ended, included in
the Annual Statements of the Company for the year then ended, were prepared in
all material respects in conformity with Statutory Accounting Principles
consistently applied for the period covered thereby, were prepared in accordance
with the books and records of the Company, as the case may be, and present
fairly in all material respects the statutory financial position of the Company,
as the case may be, as at the date thereof and the statutory results of
operations of the Company, as the case may be, and other data contained therein
for the period then ended. The balance sheets of the Company in respect of any
period ending after December 31, 1995, and the related summaries of operations
and statements of cash flows for the periods then ended included in the
Quarterly Statements, were prepared in conformity with Statutory Accounting
Principles applicable to interim financial statements consistently applied
during the periods involved, subject to normal year-end adjustments, and fairly
present in all material respects their respective statutory financial positions
at the respective dates and the results of the Company's respective operations
for the periods then ended.
(b) The Company has previously furnished Parent with true and complete
copies of its (i) Annual Reports on Form 10-KSB for the three fiscal years ended
December 31, 1992, December 31, 1993 and December 31, 1994, as filed with the
Commission; (ii) Quarterly Reports an Form 10-QSB for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995, as filed with the Commission;
(iii) proxy statements related to all meetings of its stockholders (whether
annual or special) since December 31, 1993, and (iv) all other reports or
registration statements filed by the Company with the Commission since December
31, 1994, except registration statements on Form S-8, which are all the
documents (other than preliminary material) that the Company was required to
file with the Commission since that date (the documents described in clauses (i)
through (iv) being referred to herein collectively as the "Company SEC
Reports"). As of their respective dates, the Company SEC Reports complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
thereunder applicable to such Company SEC Reports. As of their respective dates,
the Company SEC Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of the Company included in the Company
SEC Reports comply as to form with applicable accounting requirements and with
the published rules and regulations of the Commission with respect thereto and
the financial statements included in the Company SEC Reports have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis
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(except as may be indicated therein or in the notes thereto) and fairly present
in all material respects the financial position of the Company as at the dates
thereof and the results of their operations and changes in financial position
for the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and any other
adjustments described therein.
Section 5.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports or as contemplated by this Merger Agreement, since
September 30, 1995, there has not been: (i) any transaction, commitment, dispute
or other event or condition (financial or otherwise) of any character (whether
or not in the ordinary course of business) individually or in the aggregate
having, or likely to have, or which, with or without notice or lapse of time or
both, would have, a Company Material Adverse Effect (other than as a result of
changes in laws or regulations of general applicability or changes in general
economic or market conditions); (ii) any damage, destruction or loss, whether or
not covered by insurance, which, insofar as reasonably can be foreseen, in the
future would have a Company Material Adverse Effect; (iii) any entry into any
commitment or transaction material to the Company taken as a whole (including,
without limitation, any borrowing or sale of assets) except in the ordinary
course of business consistent with past practice, or (iv) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the capital stock of the Company. Since
September 30, 1995, the Company has not made any change in its underwriting,
reserves, or claims adjustment practices which, individually or in the
aggregate, would have a Company Material Adverse Effect. The Company is not
aware of any fact or facts which, with or without notice or lapse of time or
both, would, individually or in the aggregate, result in a Company Material
Adverse Effect.
Section 5.7. LITIGATION. There are no claims, suits, actions or
proceedings pending or, to the knowledge of the Company threatened, against or
affecting the Company, which, individually or in the aggregate could have a
Company Material Adverse Effect.
Section 5.8. LOSS RESERVES; STATUTORY CAPITAL. The reserves of the Company
including, but not limited to, the reserves for incurred losses, incurred loss
adjustment expenses, incurred but not reported losses and loss adjustment
expenses for incurred but not reported losses (the "Loss Reserves") as set forth
in the audited consolidated financial statements and unaudited interim financial
statements of the Company included in the Company SEC Reports were determined in
good faith by the Company in accordance with generally accepted accounting
principles and were believed by the Company to be reasonable when made. The Loss
Reserves attributable to the Company's insurance business, including without
limitation reserve and other liability amounts in respect of insurance policies,
whether direct or assumed by reinsurance, established or reflected in the
respective statutory annual statements for the three years ended December 31,
1994, of the Company were determined in accordance with generally accepted
actuarial standards consistently applied and are in compliance, in all material
respects, with the requirements of the insurance laws, rules and regulations of
Vermont as well as those of any other applicable jurisdictions (collectively,
"Applicable Insurance Laws"). To the Company's knowledge, the Loss Reserves were
adequate to cover the total amount of all matured and unmatured liabilities and
obligations of the Company under all their respective outstanding insurance
policies, funding agreements and annuity, guaranteed interest, reinsurance,
coinsurance and other similar contracts at September 30, 1995. The Company owns
assets that qualify as admitted assets under Applicable Insurance Laws in an
amount at least equal to the sum of all such reserves and liability amounts and
its minimum statutory capital and surplus as required by the insurance laws,
rules and regulations of Vermont or, to the extent material to the Company, any
other jurisdiction.
Section 5.9. REINSURANCE. None of the reinsurance treaties and contracts
applicable to the Company (individually, a "Reinsurance Agreement" and
collectively, the "Reinsurance Agreements") will terminate because of a change
in control of the Company. No other party to any Reinsurance
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Agreement has given notice to the Company that it intends to terminate or cancel
any such Reinsurance Agreement as a result of the Merger or the contemplated
operations of the Company after the Merger is consummated, which termination or
change could have a Company Material Adverse Effect.
Section 5.10. COMPLIANCE WITH APPLICABLE LAWS. The business of the Company
is not being conducted in violation of any law, ordinance or regulation of any
legislative, executive, judicial, federal, state or local governmental or
regulatory agency or authority in the United States or any other jurisdiction
("Governmental Entities"), except where such violation would not have a Company
Material Adverse Effect. Other than routine periodic reviews, no investigation
or review by any Governmental Entity with respect to the Company is pending, nor
has any Governmental Entity indicated to the Company an intention to conduct the
same.
Section 5.11. LIABILITIES. The Company does not have any material
indebtedness or liability, absolute, accrued, contingent or otherwise, whether
due or to become due (and there is no basis for any such liability), which is
not shown or provided for in the audited financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1994 (the
"1994 Financial Statements") other than liabilities incurred or accrued in the
ordinary course of business and consistent with past practice since December 31,
1994.
Section 5.12. WRITTEN INSURANCE POLICIES; REGULATORY FILINGS.
(a) All policies and contracts of insurance and reinsurance entered into or
issued, as the case may be, by the Company or which are being entered into or
issued by the Company as of the date hereof, are in compliance, and at the
respective dates of issuance were in compliance, with all applicable laws and,
to the extent required under applicable law, are on forms approved by the
appropriate Governmental Entities in the jurisdictions where issued or have been
filed with and not objected to by such Governmental Entity within the period
provided for objection. Any premium rates with respect to insurance or
reinsurance policies or contracts currently issued by the Company which are
required to be filed with or approved by any Governmental Entity have been so
filed or approved in accordance with applicable law, and the premiums charged
thereon conform thereto. The Company shall not be deemed to have breached all or
any portion of this Section 5.12 unless such breach or breaches, individually,
or in the aggregate, would result in a Company Material Adverse Effect.
(b) Each Reinsurance Agreement to which the Company is a party is valid and
binding on the Company and, to the knowledge of the Company, in full force and
effect in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which the enforcement of any proceeding therefor may be brought. To
the knowledge of the Company, it is not in default in any material respect with
respect to any such Reinsurance Agreement, and no such Reinsurance Agreement
contains any provision providing that the other party thereto may terminate the
same by reason of the transactions contemplated by this Merger Agreement, or
contains any other provision which would be altered or otherwise become
applicable by reason of such transactions.
Section 5.13. AGENTS. As of the date hereof, the Company is unaware of any
Agent which is not duly licensed (to the extent that such licenses are required)
in the jurisdictions in which the Agent places or sells insurance on behalf of
the Company and each Agent is duly authorized and appointed by the Company
pursuant to Applicable Insurance Laws. To the best knowledge of the Company, all
written contracts or agreements between any Agent, on one hand, and the Company,
on the other hand, are in compliance with Applicable Insurance Laws. The Company
shall not be deemed to have breached all or any portion of this Section 5.13
unless such breach or breaches, individually or in the aggregate, would result
in a Company Material Adverse Effect.
Section 5.14. TAXES.
(a) The Company has timely filed all tax returns required to be filed by it
and has paid, or has set up an adequate reserve for the payment of, all taxes
attributable to all periods ending on or before the
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date hereof, other than nonpayments which would not have a Company Material
Adverse Effect. The information shown on such tax returns is true, accurate and
complete, and the Company is not aware of any basis upon which any assessment
for any additional taxes could be made, other than assessments that would not
have a Company Material Adverse Effect. All positions taken in such tax returns
that could give rise to a substantial understatement penalty within the meaning
of Code Section 6662 have been disclosed therein or the Company has substantial
authority for taking such positions. No deficiencies for any taxes have been
proposed, asserted or assessed against the Company that have not been finally
settled or paid in full. Neither the Company nor any of its present or former
subsidiaries (A) has been a member of an "affiliated group" filing a
consolidated federal income tax return or (B) has any liability for the taxes of
any person under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise. For the purposes of this Merger Agreement, the term "tax" shall
include all taxes, however denominated, including any interest, penalties or
other additions to tax that may become payable in respect thereof, imposed by
any federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income taxes),
estimated taxes, payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
capital stock or franchise taxes, gross receipts taxes, taxes imposed on
premiums paid, business license taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which a corporation may be required to pay, withhold or
collect.
(b) There are no waivers or extensions of any applicable statute of
limitations for the assessment or collection of such taxes with respect to the
Companys returns, which waivers or extensions are currently in effect. The
Company has not received notice of any actions, suits, proceedings,
investigations, audits, claims or assessments in connection with any taxes that
are presently pending.
(c) The Company has not received a Tax Ruling or entered into a Tax Closing
Agreement with any taxing authority that would have a continuing material effect
after the Effective Date. For purposes of the preceding sentence, the term "Tax
Ruling" shall mean a written ruling of a taxing authority relating to taxes, and
the term "Tax Closing Agreement" shall mean a written agreement with a taxing
authority relating to taxes.
(d) The Company is not required to make any adjustment pursuant to Section
481 of the Code by reason of a change in accounting method or otherwise.
(e) There are no liens, pledges, security interests or mortgages for taxes
(other than for taxes not yet due and payable) upon the assets of the Company.
(f) The Company is not a party to any agreement providing for the allocation
or sharing of taxes with any entity.
(g) The Company has not entered into any compensatory agreements with
respect to the performance of services for which payment thereunder would result
in a nondeductible expense to Company pursuant to Section 280G of the Code.
Section 5.15. CERTAIN AGREEMENTS. The Company is not a party to any
material oral or written: (i) agreement, contract, indenture or other instrument
relating to indebtedness, or (ii) agreement which, after giving effect to the
transactions contemplated by this Merger Agreement, purports to restrict or bind
Parent or any of its subsidiaries, other than the Surviving Corporation, in any
respect. The Company is not in default (or in default with notice or lapse of
time, or both) under any indenture, note, credit agreement, loan document,
lease, license or other agreement including, but not limited to, any Company
Benefit Plan (as defined in Section 5.21), whether or not such default has been
waived, which default has or would have, if not waived, a Company Material
Adverse Effect.
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Section 5.16. PREMIUM BALANCES RECEIVABLE. The premium balances receivable
of the Company as reflected in its September 30, 1995 Quarterly Financial
Statements, to the extent uncollected on the date hereof, and the premium
balances receivable reflected on the books of the Company as of the date hereof,
are, to the Companys knowledge, valid and existing and represent monies due, and
the Company has made reserves reasonably considered adequate for receivables not
collectible in the ordinary course of business, and (subject to the aforesaid
reserves) are subject to no material refunds or other adjustments and to no
defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any material amount
thereof.
Section 5.17. INVESTMENT PORTFOLIO AND OTHER ASSETS. The Company owns an
investment portfolio acquired in the ordinary course of business, and a true and
complete list of the securities and other investments in such investment
portfolio, as of December 31, 1995, is listed in Section 5.17 of the Company
Disclosure Schedule. As of the date hereof, to the Company's knowledge: (i) none
of the investments included in such investment portfolio is in default in the
payment of principal or interest or dividends or impaired to any extent, and
(ii) all investments included in such investment portfolio comply with all
insurance laws and regulations of each of the states to which the Company is
subject relating thereto.
Section 5.18. INTELLECTUAL PROPERTY. All Intellectual Property, as defined
below, listed is owned by the Company free and clear of all liens, claims,
licenses or other encumbrances and is not known by the Company to be the subject
of any challenge. There are no unresolved claims made and there has not been
communicated to the Company the threat of any claim that the holder of such
Intellectual Property is in violation or infringement of any trademark, service
mark, patent, trade name, copyright, trade secret or copyright registration of
any other person. The Company is the owner of the patents, patent licenses,
trade names, trademarks, service marks, trade secrets, pending trademark
applications, pending copyright applications, copyrights, know-how and other
proprietary rights necessary for the conduct of its business as now conducted,
and without any known conflict with the rights of others. For purposes of this
Merger Agreement, "Intellectual Property" shall mean all letters patent, patent
applications, trademarks, service marks, trade names, copyrights, pending
trademark applications, pending copyright applications and licenses and rights
with respect to the foregoing that the Company owns or possesses.
Section 5.19. LICENSES. The Company has obtained all licenses,
certificates of authority, permits, authorizations, orders and approvals of, and
have made all registrations or filings with, all Governmental Entities as
required in connection with the conduct of the businesses of the Company other
than licenses, certificates, permits, authorizations, orders, approvals,
registrations or filings which if not obtained or made would not have a Company
Material Adverse Effect (collectively, the "Licenses"). Section 5.19 of the
Company Disclosure Schedule sets forth a true and complete list of the Companys
Licenses (including the jurisdictions in which the Company possesses Licenses or
other approvals to conduct its insurance businesses) together with a description
of the nature thereof. The Company is not transacting any insurance business in
any jurisdiction in which it is not authorized or permitted to transact such
business. All Licenses are valid and in full force and effect. No such License
is the subject of a proceeding for suspension or revocation or similar
proceedings, and to the Company's knowledge no such proceeding is threatened.
Section 5.20. INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) Except as otherwise disclosed in the Company SEC Reports, Section 5.20
of the Company Disclosure Schedule lists all intercompany agreements or
arrangements of any kind between or among the Company on the one hand, and the
Company's officers, directors or stockholders owning more than 5% of Company
Common Stock, on the other hand.
(b) Except as otherwise disclosed in the Company SEC Reports, to the
knowledge of the Company, none of the Companys officers or directors has any
direct or indirect interest, either by way of stock ownership or otherwise, in
any firm, corporation, association or business enterprise, which competes with
the Company, is a supplier, client, customer, agent or broker of the Company, or
is
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otherwise engaged in the business engaged in by the Company. Ownership of
capital stock listed on a national securities exchange or traded in the
over-the-counter market of any corporation shall not be deemed a violation of
this Section, provided the owner thereof and his affiliates do not own more than
an aggregate of ten percent of the capital stock of such corporation.
Section 5.21. EMPLOYEE BENEFIT PLANS. Section 5.21 of the Company
Disclosure Schedule lists all employee benefit or compensation plans, agreements
or arrangements, of any kind whatsoever, including "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, ("ERISA"), and including, but not limited to, plans, agreements or
arrangements relating to former employees, maintained, contributed to, or
sponsored by the Company (together, the "Company Benefit Plans"). Except to the
extent that a breach of the following representations would not, in the
aggregate, have a Company Material Adverse Effect: (a) the consummation of the
Merger does not trigger any payment obligations (contingent or otherwise) by, or
increase any liabilities of, the Company under any Company Benefit Plan; (b) no
default exists with respect to the obligations of the Company under any Company
Benefit Plan; (c) there have been no disputes or grievances subject to any
grievance procedure, unfair labor practice proceedings, arbitration or
litigation under any Company Benefit Plan, which have not been finally resolved,
settled or otherwise disposed of, nor is there any default, or any condition
which, with notice or lapse of time or both, would constitute such a default,
under any Company Benefit Plan, by the Company or any other party thereto, and
(d) there have been no strikes, lockouts or work stoppages, slowdowns,
jurisdictional disputes or organizing activity occurring or threatened with
respect to the business or operations of the Company. All Company Benefit Plans
have been administered in accordance, and are in compliance, with all applicable
provisions of ERISA, the Code and other applicable law.
Section 5.22. ERISA. Each of the Company Benefit Plans which is intended
to meet the requirements of Section 401(a) of the Code has been determined by
the Internal Revenue Service to be "qualified" within the meaning of such
section of the Code, and the Company knows of no fact which would have an
adverse effect on the qualified status of such plans. There are not now, nor
have there been, any non-exempt "prohibited transactions," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, involving the
Company Benefit Plans which could subject the Company, Parent or the Surviving
Corporation to any liability under Title I of ERISA or to any penalty or tax
imposed under Section 502(i) of ERISA or Section 4975 of the Code. The Company
has never maintained, sponsored, or contributed to any plan subject to Title IV
of ERISA, and the Company, has not otherwise incurred any liability under Title
IV of ERISA.
Section 5.23. OFFICERS, DIRECTORS AND EMPLOYEES. Except as otherwise
disclosed in the Company SEC Reports, Section 5.23 of the Company Disclosure
Schedule sets forth the names of and total cash compensation paid by the Company
to (a) the Companys officers and directors, and (b) each other employee whose
salary for the fiscal year ended December 31, 1995, equaled or exceeded $50,000
or who received or has accrued in respect of such period a cash bonus equal to
or in excess of $10,000 or who will receive a salary for the fiscal year ended
December 31, 1995 equal to or in excess of $50,000.
Section 5.24. COMPANY ACTION. The Board of Directors of the Company (at a
meeting duly called and held at which a quorum was present) has by the requisite
vote of all directors present (i) determined that the Merger is advisable and
fair and in the best interests of the Company and its stockholders, (ii)
approved the merger in accordance with the provisions of Section 11.03 of the
VBCA, and (iii) recommended the approval of this Merger Agreement and the Merger
by the stockholders of the Company and directed that the Merger be submitted for
consideration by its stockholders.
Section 5.25. PENDING CLAIMS. Section 5.25 of the Company Disclosure
Schedule lists all pending claims arising from insurance or reinsurance policies
issued by the Company for which, as of the date hereof, amounts reserved by the
Company exceed $50,000.
Section 5.26. INSURANCE FOR THE BENEFIT OF THE COMPANY. The Company has,
and will make provision through the Effective Date for, usual insurance coverage
on its property and assets customary for businesses similar to the Company and
consistent with past practice.
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Section 5.27. TITLE TO ASSETS; LIENS. The Company has good and marketable
title to all of its respective premium balances receivable, property, equipment
and other assets, and such assets are free and clear of any mortgages, liens,
charges, encumbrances or title defects which would materially interfere with the
conduct of the business of the Company. To the knowledge of the Company, after
due inquiry, the Company has valid and enforceable leases for the premises and
the equipment, furniture and fixtures purported to be leased by it.
Section 5.28. ABILITY TO CONDUCT BUSINESS. The Company is unaware of any
fact, other than circumstances, matters or events attributable, directly or
indirectly, to Parent which, with or without the passage of time, would prevent
Parent from conducting the business of the Company substantially as it is
currently being conducted, except as otherwise contemplated hereby and except
with respect to regulatory notices, filings and applications that Parent is
required to make in connection with the consummation of the transactions
contemplated hereby and with such other exceptions as would not, individually or
in the aggregate, have a Company Material Adverse Effect.
Section 5.29. FINANCIAL ADVISOR. Except for Advest, Inc. ("Advest"), no
broker, finder or investment banker is entitled to any brokerage, finders or
other fee or commission in connection with the Merger or the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company, and the fees and commissions payable to Advest as
contemplated by this Section will be payable by the Company.
Section 5.30. FAIRNESS OPINION. The Company has received the opinion of
Advest, financial advisor to the Company, dated the date hereof, to the effect
that the Exchange consideration is fair to the holders of Company Common Stock
from a financial point of view. The Company will deliver a copy of the written
opinion of Advest to Parent promptly after receipt thereof.
Section 5.31. DISCLOSURE. The representations and warranties of the
Company in this Merger Agreement, modified by the Disclosure Schedule, to the
Company's knowledge, do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained herein
not misleading.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Prior
to the Effective Date, unless Parent shall otherwise agree in writing:
(a) The Company shall carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted,
and shall use its reasonable efforts to preserve intact its present business
organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers and
others having business dealings with it. The Company shall: (A) maintain
insurance coverage on its own property and assets and its books, accounts
and records in the usual manner consistent with prior practices; (B) comply
in all material respects with all laws, ordinances and regulations of
Governmental Entities applicable to the Company; (C) maintain and keep its
properties and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (D) perform in all material respects
its obligations under all contracts and commitments to which it is a party
or by which any of them is bound.
(b) Except as required by this Merger Agreement, the Company shall not:
(A) amend its Articles of Incorporation or By-laws; (B) split, combine or
reclassify its outstanding capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of the Company, or declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property or extend any credit to any officer, director or stockholder; or
(C) directly or indirectly redeem, purchase or otherwise acquire or agree to
redeem, purchase or otherwise acquire any shares of Company Common Stock.
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(c) Except as required by this Merger Agreement, the Company shall not
(A) issue, deliver or sell or agree to issue, deliver or sell any additional
shares of, or rights of any kind to acquire any shares of, its capital stock
of any class, any indebtedness or any option, rights or warrants to acquire,
or securities convertible into, shares of capital stock other than issuances
of Company Common Stock pursuant to the exercise of Company Options
outstanding on the date hereof; (B) acquire, lease or dispose or agree to
acquire, lease or dispose of any capital assets or any other assets
involving expenditures or proceeds in an amount, individually or in the
aggregate, greater than $50,000; (C) assume, incur or guarantee additional
indebtedness; (D) enter into any contract or commitment of any kind
material, individually or in the aggregate, to the Company other than in the
ordinary course of business and consistent with past practice, or permit or
suffer to be canceled any contract material, individually or in the
aggregate, to the Company; (E) encumber or grant a security interest in any
material asset; (F) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof; (G) decrease any cash reserve or
any bulk reserve other than in the ordinary course of business; (H) make any
change in the underwriting, reserves or claims adjustment practices which
would have a Company Material Adverse Effect; or (I) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing.
(d) The Company shall not, except as required to comply with applicable
law and except as provided in Section 3.6 hereof or elsewhere in this Merger
Agreement: (A) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other Company Benefit Plan,
agreement, trust, fund or other arrangement for the benefit or welfare of
any director, officer or current or former employee; (B) increase in any
manner the compensation or fringe benefits of any officer or employee; (C)
pay any benefit not provided under any existing plan or arrangement
heretofore disclosed to Parent; (D) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Company
Benefit Plan (including, without limitation, the grant of stock options,
stock appreciation rights, stock based or stock related awards, performance
units or restricted stock, or the removal of existing restrictions in any
benefit plans or agreements or awards made thereunder); (E) take any action
to fund or in any other way secure the payment of compensation or benefits
under any employee plan, agreement, contract or arrangement or Company
Benefit Plan other than in the ordinary course of business consistent with
past practice or as required thereunder, or (F) adopt, enter into, amend or
terminate any contract, agreement, commitment or arrangement to do any of
the foregoing.
(e) The Company shall not take any action with respect to accounting
policies or procedures other than reasonable and usual actions in the
ordinary course and consistent with past practice.
Section 6.2. NO SOLICITATION. The Company shall not, directly or
indirectly, (i) take (nor shall the Company authorize or permit officers,
directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or affiliates to take) any action to encourage,
solicit or initiate the submission of any Acquisition Proposal (as defined in
this Section 6.2), or (ii) enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, neither the provisions
contained in this Section 6.2 or elsewhere in this Merger Agreement shall
prohibit the Board of Directors of the Company from: (i) furnishing information
to or entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide written proposal to acquire the Company pursuant
to a merger, consolidation, share exchange, purchase of a substantial portion of
the assets, business combination or other similar transaction, if the Board of
Directors of the Company determines in good faith, based as to legal matters on
the written advice of counsel, that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders imposed by law
(the "Company Board Fiduciary Duties"), and (ii) complying with Rule 14e-2 of
the Exchange Act with regard to any Acquisition Proposal, if applicable.
"Acquisition Proposal" shall mean any proposed: (A) merger, consolidation or
similar transaction involving the Company; (B) sale,
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lease or other disposition directly or indirectly by merger, consolidation,
share exchange or otherwise of assets of the Company representing 50% or more of
the assets of the Company; (C) issue, sale, or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 50% or more of the voting power
of the Company, or (D) transaction in which any person shall acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership, or any "group" (as such term is defined
under the Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership, of 50% or more of the outstanding
Company Common Stock. In the event the Company shall determine to provide any
information to or negotiate with a person or entity or receives any offer from
such person or entity in connection with an Acquisition Proposal, Company shall
immediately (i) provide Parent a copy of all information provided to the person
or entity (ii) inform Parent that information is to be provided, that
negotiations are to take place or that an offer has been received, as the case
may be, and (iii) furnish to Parent the identity of the New Party and, if an
offer has been received, a description of the material terms thereof.
Section 6.3. NOTICE OF BREACH. Each party shall promptly give written
notice to the other party upon becoming aware of the occurrence or, to its
knowledge, impending or threatened occurrence, of any event which could cause or
constitute a breach of any of its representations, warranties or covenants
contained or referenced in this Merger Agreement or which could cause a Company
Material Adverse Effect or a Parent Material Adverse Effect, and will use its
best efforts to prevent or promptly remedy the same. No disclosure to, or
investigation made by or on behalf of, any party hereto on or before the
Effective Date shall affect or limit the representations, warranties and
covenants of any party under this Merger Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. ACCESS AND INFORMATION. The Company shall afford to Parent
and to Parents accountants, counsel and other representatives, reasonable access
during normal business hours (and at such other times as the parties may
mutually agree) throughout the period prior to the Effective Date to all of its
properties, books, contracts, commitments, records and personnel and, during
such period, the Company shall furnish promptly to Parent all information
concerning its business (including any applications or notifications made to or
by any Governmental Entity), properties and personnel as Parent may reasonably
request. In addition, the Company shall promptly deliver to Parent all
regulatory reports that are filed with respect to the Company and any
correspondence between the Company on the one hand and any state insurance
regulatory agency on the other hand. Parent shall conduct itself at all times in
such a manner so as not to be disruptive of the ordinary business activities of
the Company. Parent shall hold, and shall cause its respective employees and
agents to hold, in confidence all such information in accordance with the terms
of the Confidentiality Agreement dated October 17, 1995 between Parent and the
Company. Parent shall afford to the Company and to its accountants, counsel and
other representatives the same access it would grant to a significant
institutional investor provided Parent were acting reasonably. The Company shall
hold, and shall cause its respective employees and agents to hold, in confidence
all information obtained pursuant to such access.
Section 7.2. REGISTRATION STATEMENT/PROXY STATEMENT.
(a) As promptly as practicable after the execution of this Merger Agreement,
and following preparation of the Company's and the Parent's audited financial
statements for the year ended December 31, 1995, the Company and Parent shall
prepare and file with the Commission preliminary proxy materials which shall
constitute the preliminary Proxy Statement (as defined in Section 7.7) and a
preliminary prospectus with respect to the Parent Common Stock to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the Commission with
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respect to the preliminary proxy materials and after the furnishing by the
Company and Parent of all information required to be contained therein, the
Company shall file with the Commission the definitive Proxy Statement and Parent
shall file with the Commission the Registration Statement (as defined in Section
7.7) and Parent and the Company shall use all reasonable efforts to cause the
Registration Statement to become effective as soon thereafter as practicable.
(b) Parent and the Company shall make all necessary filings with respect to
the Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder, under applicable Blue Sky or similar securities laws,
and shall use all reasonable efforts to obtain required approvals and clearances
with respect thereto.
Section 7.3. STOCK EXCHANGE LISTING. Parent shall list on the Nasdaq
National Market, upon official notice of issuance, the Parent Common Stock to be
issued pursuant to the Merger.
Section 7.4. CONSENTS, APPROVALS AND FILINGS. Parent and the Company shall
make, and cause their subsidiaries and affiliates to make, all necessary filings
with respect to the Merger and the other transactions contemplated hereby
including, without limitation, those required under the HSR Act, the Securities
Act and the Exchange Act and the rules and regulations thereunder, under
applicable Blue Sky or similar securities laws and under Applicable Insurance
Laws, and shall use all reasonable efforts to obtain required approvals and
clearances with respect thereto to (i) comply as promptly as practicable with
all governmental requirements applicable to the Merger and the other
transactions contemplated hereby, and (ii) obtain promptly all necessary
permits, orders and other consents of Governmental Entities and consents of
third parties necessary for the consummation of the Merger and the other
transactions contemplated hereby.
Section 7.5. HSR ACT. The Company and Parent shall use, and shall cause
their "ultimate parent entities" (if applicable) to use, their best efforts, if
required, to file by April 15, 1996 notifications under the HSR Act in
connection with the Merger and the transactions contemplated hereby and to
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any state attorney
general or other Governmental Entity in connection with antitrust matters.
Section 7.6. ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Merger Agreement, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings (including, but not limited to,
filings under the HSR Act and with all applicable Governmental Entities) and to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible), subject, however, to the
appropriate vote of stockholders of the Company.
(b) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Merger Agreement, the
proper officers and/or directors of Parent, the Company and the Surviving
Corporation shall take all such necessary action.
(c) Following the Effective Date, Parent shall conduct its business, and
shall cause the Surviving Corporation to conduct its business, in a manner which
would not jeopardize the characterization of the Merger as a reorganization
within the meaning of Section 368(a)(1)(A) and 368(a)(2)(E) of the Code. Parent
will provide the Company with certain factualy representations of Parent, and
Parent will use its best efforts to cause Merger Sub to provide the Company with
certain factual representations of Merger Sub, reasonably requested by the
Company as necessary to confirm that Parent and Merger Sub will not take any
action on or after the Effective Date that would jeopardize the tax free
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nature of the transaction. Company will provide Parent and Merger Sub with
certain factual representations of Company reasonably requested by parent as
necessary to confirm that Company will not take any action on or after the
Effective Date that would jeopardize the tax free nature of the transaction.
Section 7.7. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENTS,
ETC. Parent and the Company agree that none of the information supplied by it
for inclusion in: (i) the Registration Statement to be filed with the Commission
by Parent on Form S-4 under the Securities Act for the purpose of registering
the shares of Parent Common Stock to be issued in the Merger (the "Registration
Statement"), and (ii) the prospectus/proxy statement of the Company and Parent
(the "Proxy Statement") required to be mailed to the stockholders of the Company
in connection with the Merger will, in the case of the Proxy Statement or any
amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of the
Company Meeting to be held in connection with the Merger, or, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. Parent agrees that the Registration Statement will comply as to form
in all material respects with the provisions of the Securities Act and the rules
and regulations promulgated thereunder. The Company agrees that the Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
Section 7.8. INDEMNIFICATION. From and after the Effective Date, Parent
shall, to the fullest extent permitted under applicable law, indemnify, defend
and hold harmless each present and former director and officer of the Company
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") against all losses, expenses, claims, damages or liabilities,
including those arising out of the transactions contemplated by this Merger
Agreement (excluding criminal liabilities), based in whole or in part on any
action or omission, except any action or omission which was grossly negligent,
reckless, wanton or intentional, occurring prior to the Effective Date in
connection with such person's assigned responsibilities in serving as an officer
or director of the Company ("Claims"). In the event of any such loss, expense,
claim, damage or liability (whether arising before or after the Effective Date):
(i) Parent shall pay the reasonable fees and expenses of the Indemnified Party's
counsel,provided such counsel is reasonably acceptable to Parent, promptly after
statements therefor are received, (ii) Parent and the Indemnified Parties will
cooperate in the defense of any such matter, and (iii) any determination
required to be made with respect to whether an Indemnified Party is entitled to
indemnification shall be made to the fullest extent permitted under the VBCA
consistent with the standards set forth in the first sentence of this Section,
by independent legal counsel acceptable to Parent and the Indemnified Party;
provided, however, that Parent shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld).
Parent agrees that all rights to indemnification existing in favor of the
directors, officers or employees of the Company as provided in the Company's
Articles of Incorporation or Bylaws, as in effect as of the date hereof, with
respect to matters occurring through the Effective Date, shall survive the
Merger and shall continue in full force and effect for a period of six years
from the Effective Date.
Section 7.9. EMPLOYEE BENEFITS. With respect to benefit plans available to
employees of the Company, for at least one year from and after the Effective
Date, Parent shall cause the Surviving Corporation to either: (i) maintain all
employee benefits of the Company, as the case may be, including, without
limitation, benefits under employee benefit plans, policies and arrangements,
existing on the Effective Date, or (ii) provide benefits to employees and former
employees, as applicable, of the Surviving Corporation that are, taken as a
whole, substantially equivalent to or better than the benefits offered to such
persons by the Company, as the case may be, immediately prior to the Effective
Date; provided, however, that neither Parent nor the Surviving Corporation shall
be required to adopt or maintain any plan or arrangement providing for the sale
of the Parent Common Stock or Company Common Stock.
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ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) This Merger Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the holders of the
Company Common Stock.
(b) The Parent Common Stock issuable in the Merger shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and remain in effect.
(d) Merger Sub shall have been incorporated in the State of Vermont as a
wholly-owned subsidiary of Parent and as an insurance holding company, if
required under Vermont law.
(e) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and all approvals
necessary for the consummation of the transactions contemplated by this
Merger Agreement including, without limitation, any approval required by the
Vermont Department of Banking, Insurance and Securities and any other state
regulatory authority, shall have been obtained from the insurance
commissioners, directors or superintendents, as the case may be, of the
applicable state insurance departments, and any such approvals shall be in
full force and effect.
(f) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any Governmental
Entity shall be in effect, which (i) prevents or materially delays the
consummation of the merger, (ii) would impose any material limitation on the
ability of Parent to exercise full rights of ownership of the Common Stock
of the Surviving Corporation or any material portion of the assets or
business of the Company or (ii) makes such consummation illegal.
Section 8.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following additional
conditions, unless waived by the Company:
(a) Parent shall have performed in all material respects its agreements
contained in this Merger Agreement required to be performed on or prior to
the Effective Date, and except as contemplated or permitted by this Merger
Agreement, the representations and warranties of Parent contained in this
Merger Agreement that are subject to a Parent Material Adverse Effect
qualifier shall be true and correct when made and on and as of the Effective
Date as if made on and as of such date, and the representations and
warranties of Parent contained in this Merger Agreement that are not subject
to such a qualifier shall be true and correct (except where the failure to
be true and correct, alone or taken together with other failures to be true
and correct, would not have a Parent Material Adverse Effect) when made and
on and as of the Effective Date as if made on and as of such date.
(b) The Company shall have received an opinion from Gravel and Shea,
Burlington, Vermont, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, which
opinion may be based upon reasonable representations of fact provided by
officers of Parent and the Company.
(c) The Company shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, Philadelphia, Pennsylvania, substantially to the effect
set forth in EXHIBIT 8.2(C) hereto.
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(d) The Company shall have received a certificate, dated the Effective
Date, signed by the President or Chief Executive Officer of Parent and
Merger Sub, certifying that the conditions specified in Section 8.2(a) have
been fulfilled.
(e) From the date hereof to the Effective Date, there shall not have
occurred any material adverse change (other than one resulting from or
relating to this Merger Agreement or the transactions contemplated hereby)
in the business, properties, assets, conditions (financial or otherwise),
executive management, liabilities or operations of Parent and its
subsidiaries, taken as a whole.
Section 8.3. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB TO EFFECT
THE MERGER. The obligations of Parent and Merger Sub to effect the Merger shall
be subject to the fulfillment at or prior to the Effective Date of the following
additional conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Merger Agreement required to be performed on or
prior to the Effective Date, and except as contemplated or permitted by this
Merger Agreement, the representations and warranties of the Company
contained in this Merger Agreement that are subject to a Company Material
Adverse Effect qualifier shall be true and correct when made and on and as
of the Effective Date as if made on and as of such date, and the
representations and warranties of the Company contained in this Merger
Agreement that are not subject to such a qualifier shall be true and correct
(except where the failure to be true and correct, alone or taken together
with other failures to be true and correct, would not have a Company
Material Adverse Effect) when made and on and as of the Effective Date as if
made on and as of such date, except: (i) in the case of Section 5.2, for any
failure to be true and correct resulting from the exercise of Company
Options; (ii) in the case of Section 5.20(a), for any failure to be true and
correct resulting from a change following the date hereof in the persons
owning more than 5% of Company Common Stock, and (iii) for the
representations and warranties set forth in 5.5, 5.13(a), 5.17 and 5.25
which were true in all material respects at such time as stated therein.
(b) Parent shall have received the resignations of every officer and
director of the Company from their officer and director positions (except
John W. Mahoney, who will continue to serve as President and a director of
the Surviving Corporation and David Lesperance, who will continue to serve
as Treasurer of the Surviving Corporation).
(c) Parent and Merger Sub shall have obtained, or obtained the transfer
of, any licenses and other regulatory approvals necessary to allow the
Surviving Corporation to operate the Company's business, unless the failure
to obtain such transfer or approval would not have a material adverse effect
on the Surviving Corporation.
(d) Parent shall have received an opinion from Ballard Spahr Andrews &
Ingersoll, Philadelphia, Pennsylvania, to the effect that the merger will
constitute a reorganization within the meaning of Section 368(a) of the
Code, which opinion may be based upon reasonable representations of fact
provided by officers of Parent and the Company.
(e) Parent shall have received an opinion from Gravel and Shea,
Burlington, Vermont, substantially to the effect set forth in EXHIBIT 8.3(E)
hereto.
(f) All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of
this Agreement and Plan of Merger shall have been obtained or made, except
for filings in connection with the Merger and any other documents required
to be filed after the Effective Date.
(g) Parent and Merger Sub shall have received a certificate, dated the
Effective Date, signed by the President or Chief Executive Office of the
Company, certifying that the conditions specified in Section 8.3(a) have
been fulfilled.
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(h) From the date hereof to the Effective Date, there shall not have
occurred any material adverse change (other than one resulting from or
relating to this Merger Agreement or the transactions contemplated hereby)
in the business, properties, assets, condition (financial or otherwise),
liabilities or operations of the Company taken as a whole.
(i) Parent shall have received a letter from Coopers and Lybrand,
L.L.P., the Company's independent auditors, dated a date within two business
days before the date on which the Registration Statement shall become
effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1. TERMINATION. This Merger Agreement may be terminated at any
time prior to the Effective Date:
(a) By mutual consent of the Board of Directors of Parent and the Board
of Directors of the Company.
(b) By either Parent or the Company if the Merger shall not have been
consummated on or before July 31, 1996 (provided the terminating party is
not otherwise in material breach of its representations, warranties or
obligations under this Merger Agreement or responsible for the failure of
the Merger to occur on or before such date).
(c) By the Company if any of the conditions specified in Sections 8.1
and 8.2 have not been met or waived by the Company at such time as such
condition is no longer capable of satisfaction.
(d) By Parent if any of the conditions specified in Sections 8.1 and 8.3
have not been met or waived by Parent at such time as such condition is no
longer capable of satisfaction.
(e) By Parent if the net worth (notwithstanding unrealized gains or
losses in connection with the Company's bond portfolio or expenses
associated with the Merger) of the Company is less than $8,650,000, based on
general accepted accounting principles consistently applied, as determined
by the Company's regularly utilized independent certified public accounting
firm as of the last business day of the last month prior to the Effective
Date, unless such date is within fifteen (15) calendar days of the Effective
Date, in which case such determination shall be made as of the last day of
the second to last month prior to the Effective Date.
(f) By either Parent or the Company if the other party shall have
breached this Merger Agreement in any material respect and such breach
either continues for a period of ten days after the receipt of notice of the
breach from the non-breaching party or is not susceptible to cure.
(g) By either the Company or Parent, if: (i) the Board of Directors of
the Company shall have withdrawn or modified in a manner adverse to Parent
its approval or recommendation to the Company's stockholders of this Merger
Agreement or the Merger or shall have approved or recommended to the
Companys stockholders that they accept the terms of any Acquisition Proposal
or shall have resolved to take any of the foregoing actions; provided,
however, that reasonable delay required to comply with the Company Board
Fiduciary Duties shall not be deemed to be a withdrawal or a modification
adverse to Parent, or (ii) a Third Party Acquisition shall have occurred.
"Third Party Acquisition" means the occurrence of any of the following
events: (w) the acquisition of the Company by merger, tender offer or
otherwise by any person other than Parent, Merger Sub or any affiliate
thereof (a "Third Party"); (x) the acquisition by a Third Party of 50% or
more of the total assets of the Company taken as a whole; or (y) the
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acquisition by a Third Party of beneficial ownership, or the right to
acquire beneficial ownership, of 50% or more of the outstanding Company
Common Stock or other voting power of the Company.
Section 9.2. EFFECT OF TERMINATION. In the event of termination of this
Merger Agreement by either Parent or the Company, as provided above, this Merger
Agreement shall forthwith become void and (except for the willful breach of this
Merger Agreement by any party hereto) there shall be no liability on the part of
the Company, Parent or Merger Sub or their respective officers or directors;
provided that Section 4.7, Section 5.29, the antepenultimate and last sentences
of Section 7.1 and Section 10.3 shall survive the termination of this Merger
Agreement.
Section 9.3. AMENDMENT. This Merger Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, at any time before or after approval hereof by the stockholders of
the Company, but, after such approval, no amendment shall be made which changes
the ratios at which Company Common Stock is to be converted into Parent Common
Stock as provided in Section 3.1, which changes the Per Share Cash Consideration
as provided in Section 3.2, or which in any way materially adversely affects the
rights of such stockholders, without the further approval of such stockholders.
This Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 9.4. WAIVER. At any time prior to the Effective Date, the parties
hereto may: (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions contained herein provided, however, that no such waiver shall
materially adversely affect the rights of the Company's and Parent's
stockholders. Any agreement on the part of a party hereto to any such extension,
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. No representations, warranties or agreements in this Merger
Agreement shall survive the Merger, except for the agreements contained in
Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 7.6, 7.8, 7.9, 10.1, 10.3 and 10.7.
Section 10.2. NOTICES. All notices or other communications under this
Merger Agreement shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), or
upon transmission thereof if by facsimile, addressed as follows:
If to the Company: Health Insurance of Vermont, Inc.
One Roosevelt Highway
Colchester, VT 05446
Attention: President
Facsimile No.: (802) 655-1570
and to: Robert S.W. Leong
Chairman of the Board of Directors of
Health Insurance of Vermont, Inc.
6200 Sandpoint Way, N.E. #305
Seattle WA 98115
Facsimile No.: (206) 525-6369
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With a copy to: Peter S. Erly, Esq.
Gravel and Shea
76 St. Paul Street, 7th Floor
P.O. Box 369
Burlington, VT 05402-0369
Facsimile No.: (802) 658-1456
If to Parent or Merger
Sub: Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
Attention: President
Facsimile No.: (610) 967-4616
With a copy to: Justin P. Klein, Esq.
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Facsimile No.: (215) 864-8999
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 10.2.
Section 10.3. FEES AND EXPENSES.
(a) Except as provided below in this Section 10.3, all costs and expenses
incurred in connection with this Merger Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Notwithstanding the provisions of the preceding sentence, in any action, suit or
other proceeding under or to enforce any provision of this Merger Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys fees and
other out-of-pocket expenses from the losing party.
(b) (i) If this Merger Agreement is terminated by Parent pursuant to
Section 9.1(d), (e) or (f) hereof as a result of any willful breach by the
Company of any of the representations, warranties, covenants or agreements of
the Company contained in this Merger Agreement, the Company shall pay, or cause
to be paid to Parent within five (5) business days of a demand therefor, all
actual out-of-pocket costs, expenses and fees (including, without limitation,
fees payable to all investment banking firms and other institutions, and their
respective agents, and including attorneys fees and expenses and other
professional or service fees and expenses) incurred or to be incurred by Parent
or Merger Sub in connection with this Merger Agreement and the transactions
contemplated hereby.
(ii) If this Merger Agreement is terminated by the Company pursuant to
Section 9.1(c) or (f) hereof as a result of any willful breach by Parent or
Merger Sub of any of the representations, warranties, covenants or agreements of
Parent or Merger Sub contained in this Merger Agreement, Parent shall pay, or
cause to be paid, in same day funds to the Company upon demand, all actual out-
of-pocket costs, expenses and fees (including, without limitation, fees payable
to all investment banking firms and other institutions, and their respective
agents, and including attorneys fees and expenses and other professional or
service fees and expenses) incurred or to be incurred by the Company in
connection with this Merger Agreement and the transactions contemplated hereby.
Section 10.4. PUBLICITY. So long as this Merger Agreement is in effect,
Parent and the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Merger Agreement, and none of them shall issue
any such press release or make any such public statement prior to such
consultation, except as may be required bylaw or by obligations pursuant to any
listing agreement with any national securities
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exchange. The commencement of litigation relating to this Merger Agreement or
the transactions contemplated hereby or any proceedings in connection therewith
shall not be deemed a violation of this Section 10.4.
Section 10.5. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Merger Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Merger
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
Section 10.6. INTERPRETATION. The headings contained in this merger
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Merger Agreement.
Section 10.7. MISCELLANEOUS. This Merger Agreement (including the
documents and instruments referred to herein): (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof (other than as provided in the Confidentiality Agreement between
the Company and Parent dated October 17, 1995, as the same may be amended); (b)
except as provided in Section 7.10, is not intended to confer upon any other
person any rights or remedies hereunder; (c) shall not be assigned by operation
of law or otherwise, except that Merger Sub shall have the right to assign to
Parent any and all rights and obligations of Merger Sub under this Merger
Agreement, and (d) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Vermont (without giving
effect to the provisions thereof relating to conflicts of law). This Merger
Agreement may be executed in two or more counterparts which together shall
constitute a single agreement.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Merger Agreement to be signed by their respective officers thereunder duly
authorized all as of the 15th day of March, 1996.
"Company"
HEALTH INSURANCE OF VERMONT, INC.
By: _______/s/ Robert S.W. Leong______
Title: Chairman and Chief Executive
Officer
"Parent"
PENN TREATY AMERICAN CORPORATION
By: _________/s/ Irving Levit_________
Title: Chairman of the Board,
President and Chief Executive
Officer
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AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1, dated as of May 10, 1996 (the "Amendment"), to the
Agreement and Plan of Merger (the "Agreement"), dated as of March 15, 1996,
between Penn Treaty American Corporation ("Parent") and Health Insurance of
Vermont, Inc. (the "Company").
W I T N E S S E T H:
WHEREAS, the Agreement provides, among other things, for the merger of a
wholly-owned subsidiary of Parent to be formed as soon as practicable following
the execution of the Agreement ("Merger Sub") with and into the Company upon the
terms and subject to the conditions set forth in the Agreement (the "Merger");
and
WHEREAS, Parent and the Company have mutually agreed to amend the Agreement
to, among other things, modify the acceptable range of the average bid price per
share of Parent Common Stock, which is used in the computation of the Final
Price (as defined in the Agreement), from no less than $16.00 or no greater than
$18.00 to no less than $15.00 or no greater than $20.00 and to extend the date
by which the Merger must be consummated from July 31, 1996 to August 31, 1996.
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, and intending to be legally bound, Parent and the Company
agree as follows:
1. Subsection 3.1(b)(iii) of the Agreement is hereby amended and
restated in its entirety as follows:
"(iii) The "Final Price" shall mean the average closing bid price of
Parent Common Stock on the Nasdaq National Market during the period
comprised of the twenty consecutive trading days immediately preceding
the fifth business day immediately preceding the Effective Date (such
period is hereinafter referred to as the "Measurement Period"), as such
closing bid prices are published by the National Association of
Securities Dealers Automated Quotation Service; provided, however, that
if the average closing price of Parent Common Stock, determined in
accordance with the first clause of this sentence, during the Measurement
Period is more than $.20 per share higher than the average closing bid
price of Parent Common Stock during the Measurement Period, the Final
Price shall equal the average closing price per share minus $.20 per
share but this adjustment shall not cause the Final Price to be reduced
to a price per share less than the average closing bid price of Parent
Common Stock during the Measurement Period. If the Final Price of Parent
Common Stock, determined in accordance with the immediately preceding
sentence, is less than $15.00 or greater than $20.00, this Merger
Agreement shall terminate; provided, however, that the parties hereto may
waive this termination provision in writing."
2. Subsection 9.1(b) of the Agreement is hereby amended and restated in
its entirety as follows:
"(b) By either Parent or the Company if the Merger shall not have
been consummated on or before August 31, 1996 (provided the terminating
party is not otherwise in material breach of its representations,
warranties or obligations under this Merger Agreement or responsible for
the failure of the Merger to occur on or before such date)."
3. Except as provided herein, the Agreement shall remain unchanged and
in full force and effect.
4. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the day and year first above written.
"Company"
HEALTH INSURANCE OF VERMONT, INC.
By: /s/ John W. Mahoney_______________
Title: President
"Parent"
PENN TREATY AMERICAN CORPORATION
By: /s/ A. J. Carden__________________
Title: Executive Vice President
<PAGE>
March 15, 1996
Board of Directors
Health Insurance of Vermont, Inc.
One Roosevelt Highway
Colchester, VT 05446-0630
Dear Sirs:
We understand that Penn Treaty American Corporation ("PTAC") has proposed to
acquire Health Insurance of Vermont, Inc. ("HIVT" or the "Company") by means of
a statutory merger of a wholly-owned subsidiary of PTAC to be formed in
connection with this transaction with and into HIVT, resulting in HIVT becoming
a wholly-owned subsidiary of PTAC (the "Proposed Acquisition"). The purchase
price of the transaction is $20 per share based on 550,095 shares outstanding
(assuming exercise of all outstanding options for HIVT common stock) consisting
of: (a) Two Million Two Hundred Thousand Three Hundred Eighty Dollars in cash
consideration ($2,200,380); and (b) Eight Million Eight Hundred One Thousand
Five Hundred Twenty Dollars in common stock consideration ($8,801,520). The
terms and conditions of the Proposed Acquisition are set forth in more detail in
the Agreement and Plan of Merger dated as of March 15, 1996 (the "Agreement").
Advest, Inc. is an investment bank regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions. We
have acted as financial advisor to the Board of Directors of the Company in
connection with the transaction contemplated by the Agreement.
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company's stockholders of
the consideration to be offered in the Proposed Acquisition.
In arriving at our opinion, we reviewed and analyzed: (1) documents used in
connection with the Proposed Acquisition including the Agreement and other
publicly available information concerning the Company which we believe to be
relevant to our inquiry, (2) financial and operating information with respect to
the business operations and prospects of the Company including annual reports,
10-KSB filings, 10-QSB filings, and annual and quarterly statutory statements,
(3) a trading history of the Company's common shares from 1990 to the present
and a comparison of that trading history with those of companies we deemed
comparable, and (4) a comparison of the financial terms of the Proposed
Acquisition with the terms of certain other recent transactions which we deemed
relevant. In addition, we have had discussions with the management of the
Company concerning its business and operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as we deemed appropriate.
Since PTAC is a publicly traded corporation and is issuing shares of common
stock to the stockholders of HIVT as a portion of the merger consideration, it
was also necessary to review certain relevant information with respect to PTAC.
Accordingly, we reviewed and analyzed: (1) financial and operating information
with respect to the business operations and prospects of PTAC including annual
reports, 10-K filings, 10-Q filings and annual and quarterly statutory
statements, (2) a trading history of PTAC common shares from 1990 to present,
(3) as analysis of the financial performance of PTAC as compared to its
comparable peer group, and (4) an analysis of the financial effects of the
Proposed Acquisition on the Balance Sheet and Income Statement of PTAC. In
addition, we have had discussions with the management of PTAC concerning its
business and operations, assets, present condition and future prospects and
undertook such other studies, analyses and investigations as we deemed
appropriate.
<PAGE>
Board of Directors
Health Insurance of Vermont, Inc.
March 15, 1996
Page 2
We have relied upon the accuracy and completeness of the financial and other
information used by us in arriving at our opinion without independent
verification. In arriving at our opinion, we have conducted only a limited
physical inspection of the properties and facilities of HIVT and of PTAC. We
have not made nor obtained any evaluations or appraisals of the assets of HIVT
or PTAC. Our opinion is necessarily based upon conditions as they exist and can
be evaluated as of the date of this letter. Based upon and subject to the
foregoing, we are of the opinion that, from a financial point of view, the
consideration to be offered in the Proposed Acquisition is fair to the
stockholders of HIVT.
Very truly yours,
ADVEST, INC.
By: __________________________________
Name: David T. W. Minot
Title: Managing Director
<PAGE>
HEALTH INSURANCE OF VERMONT, INC.
ANNUAL MEETING OF STOCKHOLDERS
, 1996
THE UNDERSIGNED HEREBY APPOINTS ROBERT S.W. LEONG AND JOHN W. MAHONEY, AND EACH
OF THEM, WITH FULL POWER OF SUBSTITUTION, AS PROXIES TO REPRESENT THE
UNDERSIGNED AT THE ANNUAL MEETING OF STOCKHOLDERS OF HEALTH INSURANCE OF
VERMONT, INC. TO BE HELD , 1996, AT 12:00 P.M. AT THE
, , VERMONT, AND AT ANY ADJOURNMENT OR ADJOURNMENTS
THEREOF, TO VOTE IN THE NAME AND PLACE OF THE UNDERSIGNED, WITH ALL POWERS WHICH
THE UNDERSIGNED WOULD POSSESS IF PERSONALLY PRESENT, ALL OF THE SHARES OF HEALTH
INSURANCE OF VERMONT, INC., STANDING IN THE NAME OF THE UNDERSIGNED UPON SUCH
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AS FOLLOWS:
<TABLE>
<S> <C>
1. Approve of and adopt the Merger Agreement by and between Health Insurance of Vermont, Inc. and Penn Treaty American
Corporation, and, pursuant thereto, the merger of Health Insurance of Vermont, Inc. with a wholly-owned subsidiary of
Penn Treaty American Corporation.
</TABLE>
/ / For / / Against / / Abstain
<TABLE>
<S> <C>
2. Elect the following Directors:
Term to Expire
Robert J. Kecseg 1999
David W. Menard 1999
</TABLE>
/ / For / / Withhold / / For All Except
<TABLE>
<S> <C>
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, MARK THE "FOR ALL EXCEPT" BOX AND WRITE THE NAME(S) OF THE
NOMINEE(S) FOR WHOM YOUR VOTE IS TO BE WITHHELD IN THE SPACE PROVIDED BELOW.
3. Elect James L. Fraser as Secretary of Health Insurance of Vermont, Inc.
</TABLE>
/ / For / / Against
<TABLE>
<S> <C>
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR MR. FRASER AND VOTE FOR ANOTHER PERSON, MARK THE "AGAINST" BOX AND WRITE
THE NAME OF THE PERSON FOR WHOM YOU WISH TO VOTE IN THE SPACE PROVIDED BELOW.
4. Ratify and approve the reimbursement by the Board of Directors of out-of pocket expenses incurred by Robert S.W. Leong
and the Committee to Maximize Shareholder Value at Health Insurance of Vermont, Inc. in connection with the proxy
solicitation and other actions taken by such persons during the period December 1994 through September 1995.
</TABLE>
/ / For / / Against / / Abstain
(CONTINUED ON REVERSE SIDE)
<PAGE>
Hereby ratifying and confirming all that said proxies may do or cause to be done
by virtue hereof. Said proxies are hereby authorized to execute all of the
powers that the undersigned would possess if personally present at said meeting
or any adjournment thereof. The undersigned hereby revokes all proxies by the
undersigned heretofore given for any meeting of stockholders of Health Insurance
of Vermont, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS AFFIRMATIVE VOTES ON PROPOSALS ONE, TWO, THREE AND FOUR. SHARES WILL
BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED WILL
BE VOTED IN FAVOR OF PROPOSALS ONE, TWO, THREE AND FOUR.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON. YOUR VOTE
MUST BE RECEIVED PRIOR TO THE ANNUAL MEETING OF SHAREHOLDERS ON ,
1996.
Mark the box at the right if you plan to attend the meeting in person: / /
__________________________________
RECORD DATE SHARES
(Signature)
X:__________________________________ DATE:___________________________
(Signature)
X:__________________________________ DATE:___________________________
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
<PAGE>
Exhibit 5
May 14, 1996
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, Pennsylvania 18103
Gentlemen:
We have acted as your counsel in connection with the
proposed issuance of shares of common stock in connection with
the proposed merger (the "Merger") pursuant to which a wholly
owned subsidiary of Penn Treaty American Corporation (the
"Company"), will be merged with and into Health Insurance of
Vermont, Inc. ("HIVT") and pursuant to which HIVT will become a
wholly owned subsidiary of the Company, as more fully described in
the Registration Statement on Form S-4 filed with the Securities and
Exchange Commission under the Securities Act of 1933 on May 14, 1996.
In this connection, we have examined and relied upon
such corporate records and other documents, instruments and
certificates and have made such other investigation as we deemed
appropriate as the basis for the opinion set forth below.
Based upon the foregoing, we are of the opinion that
the shares of common stock to be issued by you have been duly
authorized and, when duly executed, delivered and paid for in
accordance with the terms of the Merger, and upon satisfaction of
all applicable conditions, will be duly and validly issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to
this firm under the caption "Legal Matters" in the Prospectus
forming a part thereof.
Very truly yours,
Ballard Spahr Andrews & Ingersoll
<PAGE>
[Form of Opinion of Gravel and Shea]
__________________, 1996
Health Insurance of Vermont, Inc.
One Roosevelt Highway
Colchester, VT 05446
Ladies and Gentlemen:
This letter is in response to your request for our opinion with respect to
certain federal income tax consequences of the proposed merger (the "Merger") of
"Merger Sub", a Vermont corporation to be incorporated as a wholly-owned
subsidiary of Penn Treaty American Corporation, a Pennsylvania corporation
("Penn Treaty"), with and into Health Insurance of Vermont, Inc. ("HIVT"), a
Vermont corporation, pursuant to the Agreement and Plan of Merger dated as of
March 15, 1996 (the "Merger Agreement"). The facts concerning the Merger are
described in the Proxy Statement/Prospectus of HIVT and Penn Treaty filed with
the Securities and Exchange Commission on ______________, 1996. Unless
otherwise specified, capitalized terms used herein are as defined in the Proxy
Statement/Prospectus.
In connection with the proposed Merger, we understand the following:
1. Merger Sub will be duly incorporated in the State of Vermont.
2. Pursuant to the laws of the State of Vermont, Merger Sub will merge
with and into HIVT, which will be the surviving corporation.
3. At the Effective Date, each outstanding share of HIVT Common Stock
will be converted into a right to receive $4 in cash (hereafter the
"Cash Boot") and shares of Penn Treaty Common Stock as determined in
accordance with the Exchange Rate.
4. At the Effective Date, each holder of HIVT Common Stock who otherwise
would have been entitled to a fractional share of Penn Treaty Common
Stock will receive cash in lieu thereof.
5. As soon as practicable on or after the Effective Date, the Exchange
Agent will distribute Penn Treaty Common Stock, the Cash Boot and cash
in lieu of fractional shares to holders of HIVT Common Stock.
<PAGE>
Health Insurance of Vermont, Inc. ______________, 1996
Page 2
6. Penn Treaty will cause HIVT to continue to conduct the historic
business of HIVT or use a significant portion of HIVT's historic
business assets in a business within the meaning of Treasury
Regulation Section 1.368-1(d).
In connection herewith, we have examined the Merger Agreement, the
Registration Statement on Form S-4 filed by Penn Treaty with the Securities and
Exchange Commission (which contains a Proxy Statement/Prospectus of HIVT) and
such other information as we have deemed relevant. As to questions of fact
material to the opinions herein, we have relied upon representations of HIVT and
Penn Treaty set forth in certificates executed by their respective officers, as
well Penn Treaty's covenant in the Merger Agreement that it will not take any
action, nor will it cause HIVT to take any action, following the Effective Date
of the merger, that would jeopardize the characterization of the Merger as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code. Moreover, we have assumed that the Merger will be completed in the
manner set forth in the Proxy Statement/Prospectus, and that the representations
and covenants made by the parties to the Merger are accurate and complete and
that such representations and covenants will continue to be accurate and
complete as of the Effective Date of the Merger. On the basis of the foregoing
and subject to the conditions, qualifications and limitations set forth herein,
we are of the opinion that for federal income tax purposes:
1. The Merger will qualify as a tax-free reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code 1986, as amended (the "Code"), and HIVT and Penn Treaty
will each be a party to the reorganization.
2. No gain or loss will be recognized by HIVT as a result of the Merger.
3. Gain, if any, will be recognized by a shareholder of HIVT upon the
exchange of HIVT Common Stock for Penn Treaty Common Stock and Cash
Boot to the extent of the lesser of (i) the Cash Boot or (ii) the
excess of the fair market value of the Penn Treaty Common Stock, the
Cash Boot and all other property received by an HIVT shareholder over
that shareholder's basis in his HIVT stock. Otherwise, no other gain
or loss will be recognized by a shareholder of HIVT upon the exchange
of shares of HIVT Common Stock for Penn Treaty Common Stock, except
that gain or loss will be recognized by a shareholder of HIVT upon the
receipt of cash in lieu of a fractional share interest in Penn Treaty
Common Stock.
4. The adjusted tax basis of the Penn Treaty Common Stock received by a
shareholder of HIVT pursuant to the Merger (including fractional share
interests deemed received) will be equal to the adjusted tax basis of
the shares of HIVT Common Stock surrendered in exchange therefor,
decreased by the amount of Cash Boot received in the exchange and any
loss recognized on the exchange, and
<PAGE>
Health Insurance of Vermont, Inc. ______________, 1996
Page 3
increased by the amount of gain, if any, recognized on the exchange by
the HIVT shareholder.
5. The holding period of the Penn Treaty Common Stock received by a
shareholder of HIVT as a result of the Merger (including fractional
share interests deemed received) will include the holding period of
the shares of HIVT Common Stock surrendered in exchange therefor,
provided that such HIVT Common Stock is held as a capital asset by the
HIVT shareholder at the consummation of the Merger.
6. Any cash payment received by a holder of HIVT Common Stock in lieu of
a fractional share of Penn Treaty Common Stock will be treated as if
such fractional share of Penn Treaty Common Stock had been issued in
the Merger and then redeemed by Penn Treaty.
The opinions expressed above are based upon our opinion that the continuity
of interest requirement of Treasury Regulations Section 1.368-1(b) will be
satisfied. The continuity of interest requirement will be satisfied if HIVT's
shareholders receive in the Merger and retain Penn Treaty Common Stock equal in
value, as of the Effective Date, to at least 50% of the value of all of the
formerly outstanding shares of HIVT Common Stock as of that date. The Internal
Revenue Service (the "Service") established in Revenue Procedure 77-37, as
modified to the date hereof, ruling guidelines with respect to satisfying the
continuity of interest requirement. In order to satisfy those guidelines in
connection with a ruling request, a publicly traded company must represent to
the Service that there is no plan or intention by the company's shareholders who
own 5 percent or more of the company's stock, and to the best of the knowledge
of the management of the company, there is no plan or intention on the part of
the remaining shareholders of the company, to sell, exchange, or otherwise
dispose of a number of shares of the acquiring parent's stock received in the
transaction that would reduce the company's shareholders' ownership of the
acquiring parent's stock to a number of shares having a value, as of the date of
the transaction, of less than fifty percent of the value of all of the formerly
outstanding stock of the company as of the same date. The Service has adopted a
no-ruling policy with respect to transactions such as the Merger, stating that
it believes that the tax consequences of such transactions are adequately
addressed in the tax law, including but not limited to the Revenue Procedure.
Management of HIVT has represented to us, based upon HIVT's absence of knowledge
as to any plan or intention on the part of the shareholders, that there is no
plan or intention by shareholders of HIVT who own 5 percent or more of its stock
and, to the best of management's knowledge, there is no plan or intention on the
part of the remaining HIVT shareholders, to sell, exchange or otherwise dispose
of such number of shares of Penn Treaty Common Stock received in the Merger that
would result in a failure to satisfy the continuity of interest requirement as
prescribed in the Treasury Regulations and the Service ruling guidelines as set
forth in Revenue Procedure 77-37, as modified to the date hereof. Our opinion
that the continuity of interest requirement will be satisfied is based upon
management's representation to us, the ruling guidelines as set forth in
<PAGE>
Health Insurance of Vermont, Inc. ______________, 1996
Page 4
Revenue Procedure 77-37 and on the expressed reasoning of the Service for its
adoption of the no-ruling policy.
This opinion does not relate to or purport to cover any matters other than
the ones expressly stated herein. The opinion expressed herein is limited to
the consequences of the Merger under current federal income tax law (including
the Code, the Treasury Regulations promulgated thereunder, and administrative
and judicial interpretations thereof) as of the date of this opinion letter. No
opinion is expressed with respect to state, local, foreign or other tax laws.
Moreover, this opinion does not apply to (i) holders of HIVT Common Stock
subject to special tax treatment under the federal income tax laws or (ii)
holders of HIVT Common Stock who acquired their stock pursuant to the exercise
of an employee stock option or otherwise as compensation or in exchange for HIVT
options. We assume no obligation to revise or supplement this opinion should
the present federal income tax laws be changed by any legislation, judicial
decisions, or otherwise.
This opinion is based upon existing law, regulations, administrative
rulings and judicial opinions. No assurance can be given that changes in law or
regulation or forthcoming opinions or decisions may not modify the conclusions
expressed in this opinion. Further, no assurance can be given that the service
will not apply stricter standards than set forth in its advance ruling
guidelines or that it will not challenge the conclusions stated in this opinion.
We hereby consent to the reference to us under "Certain Federal Income Tax
Consequences" in the Proxy Statement/Prospectus forming a part of the
Registration Statement and to the filing of a copy of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
GRAVEL AND SHEA
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Penn Treaty American Corporation on Form S-4 of our report dated March 6,
1996, on our audits of the consolidated financial statements and financial
statement schedule of Penn Treaty American Corporation as of December 31,
1995 and 1994, and for the years ended December 31, 1995, 1994, and 1993,
which report is incorporated by reference in this Annual Report on Form 10-K.
We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Philadephia, Pennsylvania
May 13, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Penn Treaty American Corporation on Form S-4 of our report dated February 9,
1996, on our audits of the financial statements of Health Insurance of
Vermont, Inc. as of December 31, 1995 and 1994, and for the years ended
December 31, 1995, 1994 and 1993, which report is included in this Annual
Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Albany, New York
May 13, 1996
