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Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 24.14a-12
Life USA Holding, Inc.
(Name of Registrant as Specified In Its Charter)
------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock
(2) Aggregate number of securities to which transaction applies:
18,143,982
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
$20.75 per share
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(4) Proposed maximum aggregate value of transaction:
$418,509,457*
(5) Total fee paid:
$83,702.00
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
* For purposes of calculting fee only. Assumed the purchase at $20.75 per
share of 18,143,982 outstanding shares of Registrant's Common Stock and
payment of $42,021,831 in settlement of shares subject to stock options.
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LIFE USA HOLDING, INC.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
_______ ___, 1999
To Our Shareholders:
You are cordially invited to attend a Special Meeting of
Shareholders of Life USA Holding, Inc. ("Life USA"), to be held on
__________, 1999 at 9:00 a.m., local time, in the Training Center located on
the second floor of Life USA's offices at 300 South Highway 169, Minneapolis,
Minnesota 55426. Shareholders of record as of _________, 1999 are entitled to
vote at the Special Meeting.
At the Special Meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger, dated May 17, 1999 (the
"Merger Agreement"), among Life USA, Allianz Life Insurance Company of North
America ("Allianz Life") and Nova New Co., a wholly-owned subsidiary of
Allianz Life ("Acquisition Sub"). After receipt of regulatory approvals,
approval by the shareholders of Life USA and satisfaction of other
conditions, the Merger Agreement provides for the merger of Acquisition Sub
with and into Life USA (the "Merger"). If the proposed Merger is completed,
each issued and outstanding share of common stock of Life USA (the "Common
Stock") (other than shares owned by Life USA or its wholly-owned
subsidiaries, by Allianz Life and by shareholders who exercise their
dissenters' rights) will be converted into the right to receive $20.75 in
cash.
In the Merger, Life USA will be the surviving corporation. After the
Merger, Life USA will be a wholly-owned subsidiary of Allianz Life, and Life
USA will no longer be publicly traded. As of April 30, 1999, Allianz Life
beneficially owned 5,699,118 shares of Common Stock, or approximately 24.2%,
of the outstanding shares of the Common Stock. A copy of the Merger Agreement
is attached as Appendix A to the accompanying Proxy Statement. The Merger
Agreement is also described in the Proxy Statement.
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THE TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT, INCLUDING THE ACCOMPANYING PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Life USA Board of Directors approved the Merger after
negotiations with Allianz Life. Although the Board of Directors did not
solicit any other offers, the Board of Directors considered the Merger to be the
most effective means to maximize value for Life USA shareholders. The Merger
Agreement provides that Life USA and its affiliates are not permitted to
solicit, initiate or encourage discussions, offers or proposals for an
alternative transaction to the Merger, except if necessary to permit the Life
USA Board of Directors to satisfy its fiduciary duties to Life USA
shareholders. The Merger Agreement allows Life USA to terminate the Merger
Agreement under certain conditions to pursue a superior acquisition proposal
with another party upon payment of a $20 million termination fee to Allianz
Life.
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In connection with its evaluation of the Merger, the Board of
Directors engaged Donaldson Lufkin & Jenrette Securities Corporation ("DLJ")
to act as its investment banker. DLJ has rendered its opinion that, as of the
date of the opinion, based upon and subject to the assumptions, limitations
and qualifications in the opinion, the consideration to be received by the
holders of the Common Stock in the Merger is fair to the holders from a
financial point of view. The written opinion of DLJ is attached as Appendix B
to and is described in the accompanying Proxy Statement.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO AND IN
THE BEST INTEREST OF THE SHAREHOLDERS OF LIFE USA. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE MERGER AGREEMENT.
Approval of the Merger Agreement at the Special Meeting requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Special Meeting. The accompanying Proxy
Statement provides a summary of the proposed Merger and additional
information about the parties involved and their interests.
Whether or not you plan to attend the Special Meeting in person, it
is important that your shares are represented. Accordingly, please promptly
complete, sign and date the enclosed proxy card and return it in the envelope
provided whether or not you plan to attend the Special Meeting. This will not
prevent you from voting your shares in person if you later choose to attend
the Special Meeting. If the Merger is approved by the shareholders, you will
receive instructions as soon as practicable after completion of the Merger on
how to receive payment for your shares by surrendering the shares.
Sincerely,
Robert W. MacDonald, CLU
Chairman and Chief Executive Officer
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LIFE USA HOLDING, INC.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________, 1999
TO THE SHAREHOLDERS OF LIFE USA HOLDING, INC.
Notice is hereby given that a Special Meeting of shareholders of
Life USA Holding, Inc. ("Life USA"), will be held on ___________, 1999 at
9:00 a.m., local time, in the Training Center located on the second floor of
Life USA's offices at 300 South Highway 169, Minneapolis, Minnesota 55426 for
the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement
and Plan of Merger, dated as of May 17, 1999 (the "Merger
Agreement"), pursuant to which Nova New Co., a Minnesota
corporation ("Acquisition Sub") and wholly-owned subsidiary
of Allianz Life Insurance Company of North America,
a Minnesota corporation ("Allianz Life"), will be merged (the
"Merger") with and into Life USA, and each outstanding share
of Life USA common stock, $.01 par value (the "Common Stock"),
will be converted into the right to receive $20.75 in cash,
other than shares owned by Life USA or its wholly-owned
subsidiaries, by Allianz Life and by shareholders who exercise
their dissenters' rights. A copy of the Merger Agreement is
attached as Appendix A to the accompanying Proxy Statement.
The Merger Agreement is also summarized in the Proxy
Statement.
(2) To consider and act upon such other matters as may properly
come before the Special Meeting or any adjournment or
adjournments thereof.
A Proxy Card and a Proxy Statement containing more detailed
information with respect to the matters to be considered at the Special
Meeting accompany this Notice.
THE BOARD OF DIRECTORS OF LIFE USA HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE MERGER AGREEMENT.
Only holders of Common Stock of record at the close of business on
_______, 1999, are entitled to notice of, and to vote at, the Special
Meeting. The quorum required to hold the Special Meeting is a majority of the
shares of Common Stock entitled to vote at the meeting, present in person or
by proxy. If a quorum is present, the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock is required to approve the
Merger Agreement. Each shareholder who signs and returns a proxy in the form
enclosed with this Proxy Statement may revoke the same at any time prior to
its use by giving notice of such revocation to Life USA in writing or in
person at the Special Meeting. Unless so revoked, the shares represented by
each proxy will be voted at the Special Meeting and at any adjournments
thereof. Presence at the Special Meeting of a shareholder who has signed a
proxy does not alone revoke that proxy.
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Holders of Common Stock who do not vote their shares in favor of the
Merger Agreement and who strictly comply with Sections 302A.471 and 302A.473
of the Minnesota Business Corporation Act (the "MBCA") have the right to
dissent from the Merger Agreement and make written demand for payment of the
"fair value" of their shares (the "Dissenting Shares"). For a description of
the rights of holders of Dissenting Shares, see Sections 302A.471 and
302A.473 of the MBCA, a copy of which is attached as Appendix C to the
accompanying Proxy Statement. In addition, the description of the procedures
to be followed in order to obtain payment for Dissenting Shares is set forth
in the accompanying Proxy Statement.
It is very important that your shares be represented at the Special
Meeting. You are urged to complete and sign the accompanying Proxy Card,
which is solicited by the Board of Directors of Life USA, and mail it
promptly in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
Robert W. MacDonald
Chairman and Chief Executive Officer
Minneapolis, Minnesota
_____________, 1999
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
STOCK CERTIFICATES.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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LIFE USA HOLDING, INC.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _________, 1999
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will happen in the Merger?
A: In the Merger, Acquisition Sub will be merged into Life USA, and Life USA
will be the surviving corporation (the "Surviving Corporation"). Each share
of Life USA Common Stock at the time of the Merger (other than shares owned
by Life USA and its wholly-owned subsidiaries, by Allianz Life and by
shareholders who exercise their dissenters' rights) will be converted into
the right to receive $20.75 per share in cash. After the Merger, Life USA
will no longer be publicly traded and will be a wholly-owned subsidiary of
Allianz Life. To review the structure of the Merger in greater detail, see
pages ___ through ____ of this Proxy Statement.
Q: What risks are associated with the Merger for shareholders of Life USA?
A: Upon completion of the Merger, you will no longer have an equity interest
in Life USA and will no longer participate in any future earnings or growth
of Life USA. You might receive a greater return if Life USA were to remain a
public company rather than entering into the Merger Agreement. Also, the
"fair value" of any dissenting shares has not been determined and may be
greater than $20.75 per share. To review special factors concerning the
Merger, including the background of and reasons for the Merger, see pages
____ through ____ of this Proxy Statement. To review the rights of dissenting
shareholders, see pages ___ through ___ of this Proxy Statement and Appendix
C setting forth the text of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporations Act.
Q: Why is Life USA being acquired?
A: The Board of Directors believes that the acquisition of Life USA is in
the best interests of shareholders of Life USA other than Allianz Life by
providing the right to receive $20.75 per share in cash to Life USA's
shareholders and that, as a private company, Life USA will have greater
operating flexibility to focus on long-term profitability while continuing to
operate as an independent enterprise. To review the background of and reasons
for the Merger in greater detail, see pages ___ through ___ of this Proxy
Statement.
Q: What will I receive in the Merger?
A: You will have the right to receive $20.75 in cash, without interest, for
each share of Life USA Common Stock that you own. This amount is called the
"Per Share Amount," and the aggregate amount you will receive for your shares
of Common Stock is called the "Merger Consideration." For example: If you own
100 shares of Life USA Common Stock, the Merger Consideration you will have a
right to receive $2,075.00 in cash upon completion of the Merger and
surrender of your stock certificates.
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Q: What happens if I have received Life USA Stock Options?
A: Upon completion of the Merger, your options to purchase Life USA Common
Stock ("Stock Options") will be exercisable in full (whether or not then
vested), and each Stock Option will be converted into the right to receive a
cash payment equal to (a) the excess of $20.75 over the exercise price of the
Stock Option, multiplied by (b) the number of shares of Common Stock
purchasable upon exercise of the Stock Option, net of withholding and
applicable taxes.
Q: When do you expect the Merger to be completed?
A: We are working to complete the Merger by __________, 1999.
Q: What are the tax consequences of the Merger to me?
A: The Merger will be a taxable transaction for federal income tax purposes
to Life USA shareholders and option holders. To review the federal income tax
consequences to you in greater detail, see pages ___ through ___ of this
Proxy Statement. Your tax consequences will depend on your personal
situation. You should consult your tax advisor for a full understanding of
the tax consequences of the Merger to you.
Q: What am I being asked to vote upon?
A: You are being asked to approve the Merger Agreement which provides for
the merger of Acquisition Sub into Life USA so that Life USA becomes a
wholly-owned subsidiary of Allianz Life. After the Merger, Life USA will be a
privately held company and you will no longer own an equity interest in Life
USA. Following completion of the Merger, you will have a right to receive the
Merger Consideration for your shares of Common Stock from funds deposited in
trust by Allianz Life for approximately six months and, thereafter, directly
from Allianz Life. The Board of Directors has approved the Merger Agreement
and recommended that the Life USA shareholders vote to approve the Merger
Agreement.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote and sign, date and
mail the Proxy Card in the enclosed envelope as soon as possible so that your
shares will be represented at the Special Meeting.
Approval of the proposal requires the affirmative vote of a majority of
the outstanding shares of Life USA Common Stock. A failure to vote or a vote
to abstain will have the same legal effect as a vote against the Merger.
The Special Meeting will be held on ___________, 1999 at 9:00 a.m., local
time, in the Training Center located on the second floor of Life USA's
offices at 300 South Highway 169, Minneapolis, Minnesota 55426. You may
attend the Special Meeting and vote your shares in person, rather than voting
by proxy. In addition, you may withdraw your proxy up to and including the
day of the Special Meeting and either change your vote or attend the Special
Meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares of Common Stock only if you provide
instructions on how to vote. You should instruct your broker how to vote your
shares by following the directions your broker
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provides to you. If you do not provide instructions to your broker, your
shares will not be voted and they will be counted as votes against the
proposal to approve and adopt the Merger Agreement.
Q: Should I send in my stock certificates now?
A: No. After the Merger is completed we will send you written instructions
for exchanging your Common Stock certificates for the Merger Consideration.
Q: Whom can I contact if I have additional questions or would like
additional copies of the Proxy Statement or Proxy Card?
A: If you have additional questions or would like additional copies of this
Proxy Statement or the Proxy Card you should contact:
Mark A. Zesbaugh, Chief Financial Officer
Life USA Holding, Inc.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
Telephone: (612) 546-7386
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT, THE SCHEDULE 13E-3 TRANSACTION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND OTHER STATEMENTS MADE FROM
TIME TO TIME BY LIFE USA, ALLIANZ LIFE, ACQUISITION SUB OR THEIR
REPRESENTATIVES CONTAIN FORWARD-LOOKING STATEMENTS. THOSE STATEMENTS INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF LIFE USA,
ALLIANZ LIFE AND ACQUISITION SUB AND MEMBERS OF THEIR RESPECTIVE MANAGEMENT
TEAMS, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS
CURRENTLY KNOWN TO MANAGEMENT OF LIFE USA, ALLIANZ LIFE AND ACQUISITION SUB
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS
DETAILED IN THIS PROXY STATEMENT AND THE SCHEDULE 13E-3 TRANSACTION
STATEMENT, AND THOSE FACTORS SET FORTH FROM TIME TO TIME IN REPORTS OF LIFE
USA FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE PROTECTION FROM
LIABILITY OF THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS CONTAINED IN THE
PRIVATE SECURITIES REFORM ACT OF 1995 IS NOT APPLICABLE TO THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT OR THE SCHEDULE 13E-3 TRANSACTION STATEMENT
OR IN STATEMENTS INCORPORATED BY REFERENCE IN EITHER DOCUMENT.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary................................................................. 1
The Companies........................................................ 1
The Special Meeting.................................................. 2
Record Date; Voting Power; Votes Required........................... 2
Recommendation of the Board of Directors............................. 2
Opinion of Financial Advisor......................................... 2
Terms of the Merger Agreement........................................ 3
General........................................................... 3
Conditions to the Merger.......................................... 3
No Solicitation................................................... 3
Termination....................................................... 3
Fees and Expenses................................................. 4
Accounting Treatment................................................. 4
Conflicts of Interests............................................... 4
Allianz Life...................................................... 4
Board of Directors and Officers of Life USA....................... 4
Counsel and Consultants to Life USA............................... 4
Regulatory Approvals................................................. 5
Dissenters' Rights................................................... 5
The Special Meeting..................................................... 6
General.............................................................. 6
Proposal to be Considered at the Special Meeting..................... 6
Record Date; Voting Power; Votes Required............................ 6
Proxies.............................................................. 6
Historical Market Information........................................... 7
Selected Consolidated Financial Data of Life USA........................ 8
Special Factors......................................................... 9
Background of the Merger............................................. 9
Purpose and Structure of the Merger.................................. 13
Reasons for the Merger............................................... 13
Recommendation of the Board of Directors............................. 15
Opinion of Financial Advisor......................................... 15
Fairness Opinion With Respect to the Merger....................... 15
Opinion of Donaldson, Lufkin & Jenrette........................... 15
Fees Payable to DLJ............................................... 23
Perspective of Allianz Life on the Merger............................ 23
Plans for Life USA after the Merger.................................. 23
Certain Effects of the Merger........................................ 23
Conflicts of Interest................................................ 24
Arrangements with Allianz Life.................................... 24
Directors and Officers of Life USA................................ 24
Legal Counsel and Consultants; Ownership by Outside Directors..... 25
Indemnification................................................... 25
</TABLE>
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<TABLE>
<S> <C>
Summary of Material Features of the Merger............................. 26
The Merger.......................................................... 26
General.......................................................... 26
Merger Consideration............................................. 26
Payment for Shares............................................... 26
Stock Options.................................................... 26
Closing of Transfer Books........................................ 26
Conditions to the Merger......................................... 26
Representations and Warranties................................... 27
Certain Covenants................................................ 28
No Solicitation of Transactions.................................. 28
Voting Rights of Allianz Life.................................... 29
Termination...................................................... 29
Termination Fee.................................................. 30
Indemnification.................................................. 31
Amendment and Waiver............................................. 31
Expenses......................................................... 32
Effective Time...................................................... 32
Conversion of Common Stock.......................................... 32
Payment for Stock Options........................................... 33
Conduct of Business Pending the Merger.............................. 33
Regulatory Filings and Approvals.................................... 33
Conditions to the Merger............................................ 33
Federal Income Tax Consequences of the Transaction.................. 33
Financing of the Merger; Source of Funds............................ 34
Anticipated Accounting Treatment.................................... 34
Dissenters' Rights.................................................. 34
Management of Life USA, Allianz Life and Acquisition Sub............... 37
Management of Life USA.............................................. 37
Management of Allianz Life and Acquisition Sub...................... 37
Interest in Securities of Life USA..................................... 38
Certain Transactions in Common Stock and Stock Options................. 40
Expenses of the Transaction............................................ 40
Independent Auditors................................................... 41
Where You Can Find More Information.................................... 41
Incorporation of Certain Documents by Reference........................ 42
Shareholder Proposals.................................................. 42
Other Matters.......................................................... 43
Appendix to the Proxy Statement........................................ 44
APPENDICES
APPENDIX A -- Agreement and Plan of Merger............................. A-1
APPENDIX B -- Opinion of Donaldson Lufkin & Jenrette Securities
Corporation............................................ B-1
APPENDIX C -- Text of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporations Act.............................. C-1
</TABLE>
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SUMMARY
This summary highlights selected information from this Proxy
Statement and may not contain all of the information that is important to
you. For a more complete understanding of the Merger and for a more complete
description of the legal terms of the Merger, you should read this Proxy
Statement carefully, as well as the appendices to this Proxy Statement,
including the Merger Agreement. For additional information on Life USA, see
"Where You Can Find More Information" (page __).
THE COMPANIES
Life USA Holding, Inc.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
Telephone: (612) 546-7386
Life USA is a national financial services holding and marketing
company with $5.53 billion in consolidated assets and three wholly-owned
subsidiaries. LifeUSA Insurance Company, its largest and most significant
wholly-owned subsidiary ("LifeUSA Insurance"), is licensed to write and sell
life insurance and several forms of annuities in the District of Columbia and
all states except New York and is represented by over 150 marketing
organizations and 70,000 independent agents nationwide. LifeUSA Marketing,
Inc. conducts a variety of marketing activities, including acquiring equity
interests in independent marketing organizations. LifeUSA Securities, Inc. is
a retail broker-dealer that processes general securities transactions and
distributes a full range of securities products, including non-proprietary
mutual funds, variable life insurance and annuity contracts. The common
stock, $.01 par value, of Life USA (the "Common Stock") trades on Nasdaq
National Market tier of The Nasdaq Stock Market under the symbol LUSA.
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Telephone: (612) 347-6500
Allianz Life is a leading provider of life, health and annuity
products through independent distribution networks and financial institutions
in the United States and Canada. Allianz Life is a wholly-owned subsidiary of
Allianz of America, Inc., the holding company for the North American
companies of Allianz Aktiengescllshaft ("Allianz AG"), an international
insurance holding company headquartered in Munich, Germany (collectively,
the "Allianz Group"). The Allianz Group is ranked as one of the five largest
insurance groups in the world. As of April 30, 1999, Allianz Life beneficially
owned 5,699,118 shares of Life USA Common Stock or approximately 24.2% of the
outstanding shares.
Nova New Co.
1750 Hennepin Avenue
Minneapolis, MN 55403
Telephone: (612) 347-6500
Nova New Co., a Minnesota corporation ("Acquisition Sub"), is a
wholly-owned subsidiary of Allianz Life. Allianz Life formed Acquisition Sub
for the purpose of carrying out the Merger.
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THE SPECIAL MEETING (PAGE ___)
The Special Meeting will be held on ______________, 1999 at 9:00
a.m., local time, in the Training Center on the second floor of Life USA's
offices at 300 South Highway 169, Minneapolis, Minnesota 55426. At the
Special Meeting, Life USA shareholders will be asked to consider and vote
upon a proposal to approve the Merger Agreement. The Special Meeting has been
called by order of the Board of Directors of Life USA.
RECORD DATE; VOTING POWER; VOTES REQUIRED (PAGE ___)
Holders of record of Common Stock at the close of business on
______________, 1999 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. As of the Record Date, there were ________
shares of Common Stock issued and outstanding held by approximately _____
holders of record. Holders of record of Common Stock on the Record Date are
entitled to one vote per share on any matter that may properly come before
the Special Meeting. On the Record Date, Allianz Life owned 5,699,118 shares
of Common Stock or approximately ___% of the outstanding shares of Common
Stock; Allianz Life will vote its shares of Common Stock for approval of the
Merger Agreement. Five executive officers of Life USA own an aggregate of
1,680,431 shares of Common Stock or ___% of the outstanding shares of Common
Stock; these executive officers have agreed to vote their shares of Common
Stock for approval of the Merger Agreement.
Approval by the Life USA shareholders of the Merger Agreement
requires the affirmative vote of a majority of the shares of Common Stock
outstanding on the Record Date.
RECOMMENDATION OF THE BOARD OF DIRECTORS (PAGE ____)
At a special meeting held on May 16, 1999, the Life USA Board of
Directors determined that the Merger is in furtherance of and consistent with
the long-term business strategies of Life USA and is fair to and in the best
interest of Life USA shareholders other than Allianz Life. The Board of
Directors recommends that the Life USA shareholders approve the Merger
Agreement. You should refer to the matters considered by the Board of
Directors in determining whether to approve the Merger Agreement, beginning
at page ____.
OPINION OF FINANCIAL ADVISOR (PAGE ___)
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), a
nationally recognized investment banking firm, rendered an opinion to the
Board of Directors dated June 7, 1999, that, based upon and subject to the
assumptions, limitations and qualifications in the opinion, the consideration
to be received by the holders of the Common Stock in the Merger is fair to
the holders from a financial point of view. A summary of the procedures
followed, findings and recommendations, basis for and methods of arriving at
the findings and recommendations and additional information concerning the
preparation of the opinion of the financial advisor is included in this Proxy
Statement. A copy of the fairness opinion, setting forth the information
reviewed, assumptions made and matters considered, is attached to this Proxy
Statement as Appendix B. You should read the fairness opinion of DLJ in its
entirety.
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TERMS OF THE MERGER AGREEMENT (PAGE ___)
The Merger Agreement is attached to this Proxy Statement as Appendix
A. You should read the Merger Agreement in its entirety. It is the legal
document that governs the Merger.
GENERAL. The Merger Agreement provides that Acquisition Sub will be
merged into Life USA and Life USA will be the Surviving Corporation. As a
result of the Merger, the shareholders of Life USA will have the right to
receive $20.75 in cash, without interest, for each share of Common Stock that
they own, other than shares owned by Life USA or its wholly-owned
subsidiaries, by Allianz Life or by shareholders who exercise their
dissenter's rights.
CONDITIONS TO THE MERGER. The completion of the Merger depends upon
the satisfaction of a number of conditions, including:
- approval of the Merger Agreement by the holders of a majority
of the outstanding shares of Life USA Common Stock;
- receipt of all necessary orders and consents of governmental
authorities and other persons and the expiration of any
regulatory waiting periods;
- accuracy of the representations and warranties of the parties;
- absence of any court or governmental entity rendering the
Merger illegal; and
- absence of litigation having a material adverse effect on Life
USA or Allianz Life.
Each party may waive the satisfaction of any condition to its obligations
under the Merger Agreement, other than approval of the Merger Agreement by
the Life USA shareholders. EVEN IF THE SHAREHOLDERS APPROVE THE MERGER, THERE
CAN BE NO ASSURANCE THAT THE MERGER WILL BE COMPLETED.
NO SOLICITATION. Until completion or abandonment of the Merger, Life
USA and its affiliates are not permitted to solicit any acquisition proposals
from any other party, except that Life USA may furnish information in
response to unsolicited requests and enter into discussions with a third
party that wants to make an acquisition proposal if the Board of Directors
determines the discussions are necessary to fulfill its fiduciary obligations
after receiving the advice of counsel.
TERMINATION. Either Life USA or Allianz Life may terminate the
Merger Agreement under certain circumstances, including if:
- Life USA and Allianz Life mutually consent in writing;
- the Merger is not completed by the close of business on
December 31, 1999;
- legal constraints or prohibitions prevent the completion of
the Merger;
- Life USA shareholders do not approve the Merger Agreement;
- the other party breaches in a material manner any of its
representations, warranties or covenants under the Merger
Agreement and the breach is not cured within 30 days after
notice; or
3
<PAGE>
- Life USA enters into or its Board of Directors approves an
agreement for Life USA to be acquired by another party for
consideration to Life USA shareholders that is superior to the
consideration to Life USA shareholders under the Merger
Agreement (a "Superior Proposal") if (a) Life USA notifies
Allianz Life of the Superior Proposal, (b) Allianz Life has an
opportunity to respond, and (c) Life USA pays Allianz Life a
termination fee of $20 million.
In addition, Allianz Life may terminate the Merger Agreement if the
Life USA Board of Directors withdraws or modifies its recommendation that
Life USA shareholders approve the Merger Agreement, recommends an alternative
acquisition proposal or fails to recommend against a tender or exchange offer
by another party for 20% or more of the Common Stock.
FEES AND EXPENSES. Whether or not the Merger is consummated, each of
Life USA and Allianz Life will pay its own fees and expenses, except that (a)
all printing expenses and filing fees will be divided equally, (b) Life USA
will pay out-of-pocket fees of Allianz Life if the Merger Agreement is
terminated by reason of a Superior Proposal permitting termination of the
Merger Agreement by Life USA or Allianz Life or is terminated by Allianz Life
because the Life USA Board of Directors does not recommend approval of the
Merger Agreement to the Life USA shareholders, recommends a tender offer or
acquisition proposal by another party, or does not recommend against a tender
offer by another party for more than 20% of Life USA's outstanding Common
Stock, and (c) Life USA will pay a termination fee of $20,000,000 to Allianz
Life if the Merger Agreement is terminated by reason of a Superior Proposal
permitting termination of the Merger Agreement or if Life USA is acquired by
another party within 18 months following termination of the Merger Agreement
under specified circumstances.
ACCOUNTING TREATMENT (PAGE ___)
Life USA believes that the Merger will be accounted for by Allianz
Life using the purchase method of accounting in accordance with generally
accepted accounting principles.
CONFLICTS OF INTERESTS (PAGE ___)
ALLIANZ LIFE. As of the close of business on April 30, 1999, Allianz
Life beneficially owned 5,699,118 shares of Life USA Common Stock or
approximately 24.2% of the outstanding shares of Common Stock. In January
1998, Life USA and Allianz Life entered into an agreement for Allianz Life to
purchase $100 million of Life USA Common Stock over five years in semi-annual
installments of $10 million. In addition, Allianz Life is a party to
marketing, administration and reinsurance agreements with Life USA or its
subsidiaries, and two executives of Allianz Life are members of the Life USA
Board of Directors.
BOARD OF DIRECTORS AND OFFICERS OF LIFE USA. Five members of the
Board of Directors are senior executives of Life USA, own or have options to
purchase a substantial number of shares of Common Stock and, except for one
officer, are parties to employment agreements which will continue in effect
following the consummation of the Merger. All four outside directors of Life
USA own or have options to purchase a substantial number of shares of Common
Stock.
COUNSEL AND CONSULTANTS TO LIFE USA. Three outside directors of Life
USA receive fees for providing legal or consulting services to Life USA.
4
<PAGE>
REGULATORY APPROVALS (PAGE ____)
Life USA is required to make filings with or obtain approvals from
regulatory authorities in connection with the Merger. These filings and
approvals include filings with the Federal Trade Commission, the Department
of Justice and the Minnesota Department of Commerce. An application and
notice was filed with the Federal Trade Commission and the Department of
Justice as required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") on ___________, 1999. The necessary application was
filed with the Minnesota Department of Commerce on ________, 1999.
Life USA cannot predict whether or when it will obtain all required
regulatory approvals or the timing of these approvals.
DISSENTERS' RIGHTS (PAGE ___)
Any shareholder of Life USA who does not vote in favor of the
proposal to approve the Merger Agreement and who strictly complies with the
applicable provisions of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporation Act (the "MBCA") has the right to dissent and be paid
cash for the "fair value" for such holder's shares of Common Stock, which may
be more than, the same as, or less than the agreed consideration of $20.75 a
share. "Fair value" will be determined based on the value of the dissenting
shares immediately before completion of the Merger without any appreciation
or depreciation in anticipation of the Merger. If Life USA and a dissenting
shareholder are unable to agree upon the "fair value" for the holder's shares
of Common Stock, the District Court of Hennepin County, Minnesota, will
determine the "fair value." To perfect dissenters rights with respect to the
Merger, you must follow the required procedures precisely, which include the
requirement to give written notice to Life USA before the Special Meeting of
your intent to demand payment. The provisions of Sections 302A.471 and
302A.473 of the MBCA are attached to this Proxy Statement as Appendix C.
5
<PAGE>
THE SPECIAL MEETING
GENERAl
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Life USA for a Special
Meeting of Shareholders of Life USA to be held on __________, 1999 at 9:00
a.m., local time, in the Training Center located on the second floor of Life
USA's offices at 300 South Highway 169, Minneapolis, Minnesota 55426, and at
any adjournments thereof.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the shareholders will be asked to consider
and vote upon the approval of the Merger Agreement. Subject to the receipt of
regulatory approvals, approval by the shareholders of Life USA and
satisfaction of other conditions, the Merger Agreement provides for the
merger of Acquisition Sub with and into Life USA. If the proposed Merger is
completed, each issued and outstanding share of Common Stock at the effective
time of the Merger (other than shares owned by Life USA or its wholly-owned
subsidiaries, by Allianz Life and by shareholders who exercise their
dissenters' rights) will be converted into the right to receive $20.75 in
cash.
RECORD DATE; VOTING POWER; VOTES REQUIRED
Only holders of record of Common Stock at the Record Date are
entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were ________ shares of Common Stock issued and outstanding held
by approximately _____ holders of record. Holders of record of Common Stock
on the Record Date are entitled to one vote per share on any matter that may
properly come before the Special Meeting. The quorum required to hold the
Special Meeting is a majority of the shares of Common Stock entitled to vote
at the meeting, present in person or by proxy. If a quorum is present, the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required to approve the Merger Agreement.
On the Record Date, Allianz Life owned 5,699,118 shares of Common
Stock or approximately _____% of the outstanding shares of Common Stock.
Allianz Life will vote its shares of Common Stock for approval of the Merger
Agreement. Five executive officers of Life USA owned an aggregate of
1,680,431 shares of Common Stock or approximately ___% of the outstanding
shares of Common Stock; these executive officers have agreed to vote their
shares of Common Stock for approval of the Merger Agreement.
Approval by the Life USA shareholders of the Merger Agreement will
require the affirmative vote of a majority of the shares of Common Stock
outstanding on the Record Date.
PROXIES
Each shareholder who signs and returns a proxy in the form enclosed
with this Proxy Statement may revoke the same at any time prior to its use by
giving notice of such revocation to Life USA in writing or in person at the
Special Meeting. Presence at the Special Meeting of a shareholder who has
signed a proxy does not alone revoke that proxy. Unless so revoked, all of
the shares represented by each proxy will be voted at the Special Meeting and
at any adjournments thereof. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES
WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND, IN THE
DISCRETION OF THE PERSONS NAMED IN THE PROXY, ON SUCH OTHER MATTERS AS MAY
PROPERLY BE PRESENTED AT THE SPECIAL MEETING.
6
<PAGE>
The cost of preparing, assembling and mailing this Proxy Statement,
the notice, the form of Proxy and other material which may be sent to the
shareholders will be borne by Life USA, except that Allianz Life will share
the cost of printing this Proxy Statement. In addition, directors, officers
and regular employees of Life USA and its subsidiaries, at no additional
compensation, may solicit proxies by telephone, telegram or in person. Upon
request, Life USA will reimburse brokers and other persons holding shares for
the benefit of others for their expenses in forwarding proxies and
accompanying material and in obtaining authorization from beneficial owners
of Common Stock to give proxies.
In order to assure the presence of the necessary quorum at the
Annual Meeting, please sign and mail the enclosed Proxy promptly in the
envelope provided. No postage is required if mailed within the United States.
The signing of the Proxy will not prevent you from attending the meeting and
voting in person, should you so desire.
HISTORICAL MARKET INFORMATION
The Common Stock is traded on Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol LUSA. The following table sets forth the
high and low bid quotations for each quarterly period since January 1, 1997,
and for the current fiscal year to date from the quotations published in THE
WALL STREET JOURNAL.
<TABLE>
<CAPTION>
1999: HIGH LOW
---- ---
<S> <C> <C>
First Quarter....................................... $12.75 $ 9.88
Second Quarter...................................... $20.22 $ 9.75
1998:
First Quarter....................................... $17.56 $12.50
Second Quarter...................................... $17.00 $11.13
Third Quarter....................................... $14.00 $10.75
Fourth Quarter...................................... $13.75 $ 9.50
1997:
First Quarter....................................... $11.88 $ 9.00
Second Quarter...................................... $14.25 $ 9.13
Third Quarter....................................... $17.25 $13.75
Fourth Quarter...................................... $18.00 $16.00
</TABLE>
On May 14, 1999, the last trading day prior to announcement of the
execution of the Merger Agreement, the closing sale price per share of Common
Stock as reported by The Nasdaq Stock Market was $10.25. On _________, 1999,
the closing sale price per share of Common Stock as reported by The Nasdaq
Stock Market was $________.
Prior to April 1998, Life USA had not paid any cash dividends on its
Common Stock. In April 1998 Life USA began paying regular quarterly cash
dividends of $.025 per share. The Merger Agreement permits, and Life USA
intends to continue, the regular quarterly dividend declarations. Under the
Merger Agreement, Life USA has agreed not to pay any other dividends on the
Common Stock prior to completion of the Merger. In addition, applicable laws
generally limit the ability of Life USA's
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<PAGE>
subsidiaries to pay dividends to the extent that required regulatory capital
would be impaired, which could limit Life USA's ability to pay dividends.
SELECTED CONSOLIDATED FINANCIAL DATA OF LIFE USA
The following selected consolidated historical financial data of
Life USA as of December 31, 1998, 1997, 1996, 1995 and 1994 and for each of
the years then ended has been derived from the audited financial statements
of Life USA, except that the data as of March 31, 1999 and 1998 and for each
of the three months then ended is unaudited. The selected financial data
should be read in conjunction with the Consolidated Financial Statements of
Life USA, related notes and other financial information incorporated by
reference into this Proxy Statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues $ 92,532 $ 92,078 $ 362,648 $ 369,903 $ 316,898 $ 272,781 $ 206,313
Net income 4,001 6,009 21,907 26,978 23,454 19,097 14,469
PER COMMON SHARE DATA:
Net income:
Basic $ 0.16 $ 0.23 $ 0.85 $ 1.24 $ 1.13 $ 0.94 $ 0.72
Diluted 0.16 0.23 0.83 1.11 1.04 0.88 0.71
Dividends declared 0.025 - 0.075 - - - -
BALANCE SHEET DATA:
At period end:
Total assets $5,526,760 $5,219,459 $5,458,719 $5,062,774 $4,386,723 $3,867,539 $3,065,271
Long-term debt 15,000 5,000 15,000 5,000 - - -
Convertible subordinated
Debentures 5,898 6,021 5,898 36,030 36,030 36,030 6,041
Total shareholders' equity 273,039 269,278 279,985 222,400 172,615 156,896 106,916
Book value per common
Share 11.41 10.38 11.30 9.77 8.23 7.72 5.30
RATIO OF EARNINGS TO FIXED CHARGES 1009% 1824% 1784% 1925%
</TABLE>
8
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The relationship between Allianz Life and Life USA spans the history
of Life USA.
In 1988, soon after the founding of Life USA, Allianz Life and Life
USA entered into a service agreement (the "1988 Service Agreement") under
which Life USA marketed and serviced Allianz Life products in nine states
(Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, Ohio,
Pennsylvania, Rhode Island and Vermont) where LifeUSA Insurance was not
authorized to issue insurance policies. In 1990, LifeUSA Insurance began to
assume a portion of the business produced by Life USA for Allianz Life.
In 1995, in order to provide additional capital and surplus to
LifeUSA Insurance, Allianz Life purchased a 15-year $30 million convertible
debenture from Life USA. In addition, Life USA issued Allianz Life a warrant
to purchase Common Stock to enable Allianz Life to maintain its ownership in
Life USA at 10.5% of the outstanding Common Stock if Life USA issued
additional shares of Common Stock after Allianz Life bought the convertible
debenture. Life USA paid Allianz Life interest of $1.5 million in 1997 and
$715,000 in 1998 on the debenture. As part of the debenture purchase, Life
USA agreed to expand and extend the 1988 Service Agreement by entering into a
new joint marketing agreement (the "1995 Marketing Agreement"). Under the
1995 Marketing Agreement, life insurance agents of Life USA Insurance are
also licensed as agents of Allianz Life and sell Allianz Life products
similar to Life USA products in all states other than New York. In connection
with the sale of Allianz Life products under the 1995 Marketing Agreement,
Life USA provides all administrative and other home office services, pays
commissions due agents and pays applicable premium taxes on the business
produced for Allianz Life ("Allianz/LUSA Business"). Allianz Life pays Life
USA service fees on the business produced for Allianz Life under the 1995
Marketing Agreement. In addition, LifeUSA Insurance assumes 25% of the
Allianz/LUSA Business and pays commission and expense allowances on the
assumed business to Allianz Life. For the years 1997 and 1998 and for the
first six months of 1999, premiums of approximately $549.3 million, $439.2
million and $____ million, respectively, were collected on the Allianz/LUSA
Business and LifeUSA Insurance assumed approximately $132.1 million, $115.5
million and $___ million, respectively, of the Allianz/LUSA Business. For the
years 1997 and 1998 and for the first six months of 1999, commission and
expense allowances paid to Life USA by Allianz Life for the production of
Allianz/LUSA Business were approximately $80.3 million, $69.6 million and
$___ million, respectively, and commission and expense allowances paid to
Allianz Life by LifeUSA Insurance for the Allianz/LUSA Business assumed by
LifeUSA Insurance were approximately $21.7 million, $18.8 million and $____
million, respectively.
In early 1998, Allianz Life and Life USA entered into a sequentially
timed equity placement agreement (the "STEP Agreement") under which Allianz
Life converted the debenture purchased in 1995 and agreed to provide Life USA
with $100 million of capital over a period of five years through $10 million
semi-annual purchases of Common Stock. Under the STEP Agreement, Life USA
issues Common Stock to Allianz Life at a per share price equal to 250% of the
average GAAP book value per share of Life USA for the previous six months,
unless the per share price is more than 200% of the current market price, in
which case Allianz Life could decline the purchase but Life USA could instead
require Allianz Life to purchase a convertible debenture. As part of the STEP
Agreement, Life USA extended the 1995 Marketing Agreement through 2001, and
Allianz Life is entitled to 37.5% of the total new life insurance and annuity
business produced by LifeUSA Insurance under the 1995 Marketing Agreement. As
a result, Allianz Life assumed $40.6 million of the new business produced by
LifeUSA Insurance in 1998 and approximately $____ million for the first six
months of 1999, and Allianz Life paid
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<PAGE>
commissions and allowances to LifeUSA Insurance of $7.0 million in 1998 and
$____ million for the first six months of 1999 for the assumed business. The
STEP Agreement also gave Allianz Life the right to purchase, from management
and on the open market, up to 10% of the outstanding Common Stock. It was
anticipated that once the STEP Agreement was fully funded in 2002, Allianz
Life would own up to 35% of Life USA's outstanding Common Stock. The STEP
Agreement also granted Allianz Life the right to nominate two members of the
Life USA Board of Directors and to receive information about any possible
sale of Life USA.
Pursuant to the STEP Agreement, in February 1998 Allianz Life
converted its debenture into 2,431,118 shares of Common Stock at a conversion
price of $12.34 per share, exercised its warrant to purchase 241,846 shares
of Common Stock at $12.36 per share from Life USA, and purchased 925,000
shares of Common Stock at $16.44 per share from Life USA management. In
addition, Allianz Life purchased 1,300,000 shares of Common Stock in the open
market during the period from February 10, 1998 through July 29, 1998. Also,
under the terms of the STEP Agreement, Life USA sold Allianz Life 406,092
shares of Common Stock at $24.625 per share in August 1998, and 395,062
shares at $25.3125 per share in February 1999. From February 1998 through
February 1999, an aggregate of 5,669,118 shares of Common Stock were acquired
by Allianz Life.
As of April 30, 1999, Allianz Life owned slightly more than 24.2% of
the outstanding Common Stock of Life USA and two representatives of Allianz
Life served on the Life USA Board of Directors. LifeUSA Insurance
administered 125,700 Allianz Life policies representing $2.8 billion of
reserves, and most of the independent agents contracted by LifeUSA Insurance
were authorized to sell both LifeUSA Insurance and Allianz Life products.
Prior to 1999, Life USA had held informal discussions with various
investment bankers and companies about industry consolidation and possible
transactions or relationships, but it had not received any proposals or
undertaken substantive negotiations of any possible transaction. On January
25, 1999, Mr. MacDonald and Ralph Strangis, a director of Life USA and a
member of the law firm serving as general counsel to Life USA, met with
representatives of an investment banking firm that had not been engaged by
Life USA. An objective of the meeting was for the investment banking firm to
present its views as to the prospects for a transaction with Allianz Life. At
the meeting, based upon available public information, the investment banking
firm also presented its informal and preliminary view of the perceived value for
Life USA in the event of a sale. Messrs. MacDonald and Strangis concluded
that a sale of Life USA to a party other than Allianz Life would not achieve
an amount that would be fully reflective of the inherent value of Life USA.
They decided not to pursue any discussions for a sale of Life USA other than
as might emanate from direct discussions with Allianz Life. This decision was
based on the belief that the close relationship between the two companies
would enable Allianz Life to better understand the inherent value of Life USA
and to make an offer consistent with that understanding. Also, the dependence
of Allianz Life on the volume of business produced by Life USA would provide
additional incentive on the part of Allianz Life to assure continuation of
the relationship, an incentive not available to any other company interested
in the acquisition of Life USA. Messrs. MacDonald and Strangis concluded that
any "public auction" of Life USA would fail to bring an acceptable value and
would have a damaging effect on the performance of Life USA and its employees
and agents and that any discussions with Allianz Life should occur through
direct communications by Mr. MacDonald.
As the decade-long relationship between Allianz Life and Life USA
developed and expanded, there were occasional informal discussions regarding
the benefits of combining the two companies. None of these discussions were
substantive until January 1999, when Robert MacDonald, Chairman and Chief
Executive Officer of Life USA, responded in a positive manner to comments
made by Robert James and Edward Bonach, Allianz Life executives who are the
representatives of Allianz Life on the Life USA Board of Directors,
concerning the possibility of Allianz Life acquiring Life USA. No
10
<PAGE>
specifics of a potential offer were discussed at that time. The average
trading price of Common Stock during January 1999 was $11.31 per share.
In mid-February 1999, Mr. MacDonald again met with Mr. James. During
the meeting Mr. James indicated that Allianz Life may be interested in more
substantive discussions concerning the acquisition of Life USA and sought
assurances that any such approach would be welcome. Mr. MacDonald gave such
assurances, conditioned on an offering price at a significant premium to
current market. In late February, Messrs. MacDonald, James and Bonach met in
Naples, Florida. The February meeting did not deal with the specifics of a
potential offer, but rather centered on an outline of the manner in which any
discussions would proceed. While in Naples, Mr. MacDonald also met with
Lowell Anderson, Chairman, President and Chief Executive Officer of Allianz
Life, who indicated his interest in a potential transaction.
On March 10, 1999, Mr. MacDonald met in Minneapolis with Mr. Herbert
Hansmeyer, director of American insurance operations for Allianz AG, and Paul
Saffert, Chief Financial Officer of Allianz of America, Inc. ("Allianz of
America"), the holding company for the North American companies of Allianz
AG. Mr. Hansmeyer was clear that the purpose of the meeting was not to
discuss the acquisition of Life USA, but rather to determine Mr. MacDonald's
willingness to enter into discussions and his interest in remaining with Life
USA should an acquisition be completed. Toward the end of March, Mr. Bonach
telephoned Mr. MacDonald and indicated that Allianz AG had authorized
specific discussions that could lead to an offer to acquire Life USA.
Mr. Bonach advised Mr. MacDonald that Mr. Saffert would represent Allianz Life
in the early discussions.
On April 21, 1999, Mr. MacDonald met with Messrs. Saffert, James and
Bonach at the Allianz Life offices in Minneapolis. Leading the meeting, Mr.
Saffert indicated that Allianz Life did have a serious interest in acquiring
all of the outstanding Common Stock. He indicated that, "while he was not
authorized to make an offer," preliminary analysis by Allianz Life indicated
a potential offering price "in the mid-teens." Mr. MacDonald responded that
he would not recommend any offer in the mid-teens to the Life USA Board of
Directors. Mr. MacDonald indicated that, for an offer from Allianz Life to be
considered, "it must be at least $20 per share." On April 30, 1999, Mr.
MacDonald received a telephone call from Mr. Saffert who indicated that
Allianz Life "might be able to offer $20 per share," for all of the
outstanding Common Stock. He sought to determine if such an offer would be
acceptable to the Life USA Board of Directors. Mr. MacDonald responded that
he believed that the Board of Directors "would be more comfortable at $21 per
share." During this conversation, Mr. Saffert also indicated that any offer,
should it be forthcoming, would be conditioned on Mr. MacDonald agreeing to
remain with Life USA and assume responsibilities as the chief executive
officer for Allianz Life as well.
Soon after the telephone conversation between Messrs. MacDonald and
Saffert, Messrs. MacDonald and Strangis met to discuss options for Life USA.
While no specific offer from Allianz Life to acquire Life USA had been made,
Messrs. MacDonald and Strangis determined that discussions had become
substantive in nature and that the outside directors of Life USA should be
notified of the discussions between Life USA and Allianz Life. The outside
directors of Life USA responded favorably to the discussions with Allianz
Life, conditioned on an offer of at least $20 per share for the Common Stock
and receipt of a fairness opinion from an investment banking firm. Based upon
the desire to keep negotiations confidential, Messrs. MacDonald and Strangis
decided that no significant benefit could be derived from engaging an
investment banking firm to participate in continuing discussions with Allianz
Life.
With all parties apparently in general agreement as to the outline
of an offer from Allianz Life to purchase all of the outstanding Common
Stock, a meeting was scheduled between Messrs. Hansmeyer and MacDonald for
May 12, 1999. During a flight from Washington, DC to Milan, Italy, Messrs.
11
<PAGE>
Hansmeyer and MacDonald discussed the details of an offer and the management
structure of the companies should a transaction be completed. Mr. Hansmeyer
initially offered $20.00 per share and Mr. MacDonald counter offered $21.00
per share. Subsequently, Mr. Hansmeyer increased Allianz Life's offer to
$20.50 per share. After further discussions, Mr. MacDonald stated that he
would not be comfortable with less than $20.75 per share, and Mr. Hansmeyer
then offered $20.75 per share. At the conclusion of the meeting with Mr.
Hansmeyer, Mr. MacDonald agreed to recommend that the Life USA Board of
Directors accept the Allianz Life offer of $20.75 per share in cash for all
of the outstanding Common Stock.
On May 13, 1999, Life USA received a draft of the Merger Agreement
from Allianz Life. From May 13 through 15, 1999, the document was reviewed
and revised. The May 13, 1999 draft of the Merger Agreement was air expressed
to all members of the Life USA Board of Directors; they received the draft on
May 14, 1999. Agreement on the final form of the Merger Agreement was reached
on the afternoon of May 16, 1999 and presented to the Life USA Board of
Directors during a telephonic board meeting that evening. At the meeting,
counsel reviewed the terms of the Merger Agreement and the changes that had
been made to the May 13, 1999 draft of the agreement previously received by
the directors. Mark A. Zesbaugh, Life USA's Chief Financial Officer, provided
a financial analysis of the proposed transaction with Allianz. At a price of
$20.75 per share, the total value of Life USA, including in-the-money Stock
Options, implicit in the transaction was approximately $540 million. Based on
an implicit value of $540 million, Mr. Zesbaugh indicated that the proposed
transaction was (a) 1.86 times Life USA's book value as of March 31, 1999,
(b) 27.3 times the earnings of Life USA during the last twelve months ending
March 31, 1999, and (c) 22 to 23 times the 1999 earnings estimates for Life
USA by the two analysts covering Life USA. In addition, Mr. Zesbaugh
determined that Allianz Life's offer of the $20.75 per share represented a
102% premium to the closing price of $10.25 per share for Life USA Common
Stock on May 14, 1999, which was the last trading day preceding the Board
meeting. The premium to the average closing price for both the five and
thirty trading days ending on May 14, 1999 was also 102%. Mr. Zesbaugh
generally discussed information on merger and acquisition transactions
involving life insurance companies since January 1, 1995 prepared by
Mergerstat, a service bureau that compiles publicly available information for
a fee. The Life USA Board of Directors, with Messrs. Bonach and James
(Allianz Life's representatives on the Life USA Board of Directors) absent
from the meeting, unanimously approved the Merger Agreement, conditioned on
receipt of a "fairness opinion" from an investment banking firm, and the
Board of Directors recommended that the Life USA shareholders approve the
Merger Agreement. All non-employee directors (other than Messrs. Bonach and
James who did not participate in the vote) voted to approve the Merger
Agreement.
On June 7, 1999, the Life USA Board of Directors held another
telephonic meeting. At this meeting representatives of DLJ, Life USA's
investment banker, presented DLJ's analysis and delivered an opinion
addressed to the Life USA Board of Directors that, based upon and subject to
the assumptions, limitations and qualifications in the opinion, the
consideration to be received by the holders of Life USA Common Stock in the
Merger is fair to the holders from a financial point of view. See "Special
Factors -- Opinion of Financial Advisor" for a further discussion of the DLJ
analysis and fairness opinion. Following the presentation, the Life USA Board
of Directors, with Messrs. Bonach and James not voting due to their conflict
of interest, unanimously confirmed its recommendation that Life USA
shareholders approve the Merger Agreement. Messrs. Bonach and James attended
portions of the June 7, 1999 meeting of the Board of Directors of Life USA,
but excused themselves before, and were absent during, the DLJ presentation
and the discussion by the other directors on DLJ's analysis and opinion.
12
<PAGE>
PURPOSE AND STRUCTURE OF THE MERGER
The purpose for the Merger is to enable Allianz Life to acquire the
entire equity interest in Life USA. The transaction is structured as a cash
merger in order to provide the shareholders of Life USA with cash for all
their shares and to provide a prompt and orderly transfer of ownership of
Life USA from the shareholders of Life USA to Allianz Life.
The primary benefit of the Merger to Life USA's shareholders other
than Allianz Life is the opportunity to sell all of their Common Stock at a
price which represents a substantial premium over trading prices in effect
immediately prior to the announcement of the Merger. The structure of the
transaction as a cash merger provides a cash payment at a premium price to
all holders of outstanding Common Stock (other than Life USA and its wholly
owned subsidiaries and Allianz Life) and ensures the acquisition by Allianz
Life of all the outstanding shares of Life USA.
REASONS FOR THE MERGER
The Life USA Board of Directors has determined that the Merger is in
furtherance of and consistent with the long-term business strategies of Life
USA and is fair to and in the best interest of the shareholders of Life USA.
In approving the Merger, the Board of Directors considered and analyzed a
number of factors, including those described below.
1. The equities market has failed to adequately value Life
USA's Common Stock. Recognizing that fact, the Life USA Board of Directors
authorized repurchases by Life USA of its Common Stock in July 1998
(4,000,000 shares) and April, 1999 (an additional 2,500,000 shares). Pursuant
to the authorizations, Life USA purchased an aggregate of 3,385,000 shares
for $41,091,582 or an average of $12.139 per share.
2. A decision by Life USA to retain additional business in
order to enhance the long-term profitability of Life USA would have an
adverse effect on short-term profitability over the next three or four years
and potentially reduce the market price of Life USA's Common Stock in a stock
market environment emphasizing earnings growth.
3. Information was presented to the Board by Mark A. Zesbaugh,
Chief Financial Officer of Life USA, analyzing the financial aspects of the
terms of the Merger and reviewing comparable market data of recent insurance
company merger and acquisition transactions available through Mergerstat. The
information indicated that the terms of the Merger were favorable by
comparing key financial valuation indicators, including premium to market (1
day, 5 day and 30 day averages), price to book multiple and price to trailing
earnings multiple. The Board also conditioned its approval of the Merger
Agreement upon receiving a fairness opinion from an investment banking firm
that would provide a more detailed financial analysis.
4. The Board of Directors has received an opinion dated June
7, 1999 from DLJ, its investment banker, to the effect that the consideration
to be received by the holders of Life USA Common Stock in the Merger is fair
to the holders from a financial point of view. The full text of the opinion,
setting forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Appendix B.
The shareholders of Life USA are urged to read the opinion in its entirety.
In reaching its opinion as to the fairness from a financial point of view of
the Merger Consideration, DLJ employed generally accepted valuation methods.
These methods included an analysis of comparable public company trading
multiples, which indicated a range of implied value of $10 to $14 per share;
a discounted cash flow analysis, which indicated a range of implied value of
$17 to $20 per
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share; a comparable transactions analysis, which indicated a range of implied
value of $13 to $20 per share; a premiums paid in comparable transactions
analysis, which indicated a range of implied value of $12 to $16 per share;
and a dividend discount model, which indicated a range of implied value of
$16 to $19 per share. These analyses are all described further under "Opinion
of the Financial Advisor" (page ___).
5. Life USA's relationship with Allianz Life has expanded
throughout Life USA's history from an initial service agreement in 1988 to
the 1998 $100 million STEP Agreement. In addition, the businesses of Life USA
and Allianz Life complement each other: Life USA offers Allianz Life a large
distribution network, innovative fixed annuity products, experienced
management, a creative corporate culture and efficient policy service
personnel, and Allianz Life offers Life USA a source of capital for growth
and retention of new business, variable annuity products and a long term care
group to enhance Life USA's emerging long term care business.
6. Allianz Life is willing to pay an amount for each share of
Common Stock that is reflective of the long-term relationship and potential
benefits of a combination of Life USA and Allianz Life and that is not likely
to be matched by another party.
7. Allianz Life has the financial ability to complete the
Merger so that the Merger is not conditioned on financing. In addition,
Allianz Life has committed to advance to Life USA funds necessary to pay or
discharge all indebtedness for borrowed money under Life USA's existing
credit facility and to retire Life USA's convertible subordinated debentures
prior to the Merger if Life USA does not have sufficient funds available.
8. The Merger Agreement provides for acceleration of all
options to purchase shares of Common Stock (the "Stock Options") granted to
employees and agents of Life USA and payment to the holders of Stock Options
of the difference between $20.75 and the exercise price per share of the
options, thereby rewarding the employees and agents who have built the value
of Life USA.
9. The Merger Agreement permits the Life USA Board of
Directors to provide responsive information for a takeover proposal from
another party that is superior to Allianz Life's proposal and allows the Life
USA Board of Directors to terminate the Merger Agreement in the event it
determines to accept a Superior Proposal upon notice to Allianz Life and
payment to Allianz Life of a $20 million termination fee.
10. The Merger must be approved by a majority of the
outstanding shares of Common Stock. At April 30, 1999, approximately 7.4% of
the shares of outstanding Common Stock were held by directors and executive
officers of Life USA and approximately 24.2% of the shares of outstanding
Common Stock were held by Allianz Life. Five executive officers of Life USA,
representing beneficial ownership of 7.1% of the shares outstanding, have
executed agreements agreeing to vote in favor of the Merger. Approval of a
majority of unaffiliated shareholders is not required to approve the Merger.
11. Shareholders of Life USA who do not support the Merger or
are dissatisfied with the consideration to be received by the holders of
Common Stock are able to obtain "fair value" for their shares if they
properly exercise their dissenters' rights under Minnesota law.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Board of Directors found it impracticable to,
and did not, quantify, rank or otherwise assign relative weights to the
reasons for the Merger described above or determine that any reason was of
particular importance in reaching its determination that the Merger is in
furtherance of and consistent with the long-term business strategies of Life
USA and is fair to and in the best interest of the shareholders of Life
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<PAGE>
USA. Rather, the Board of Directors viewed its recommendation as being based
upon its judgment, in light of the totality of the information presented and
considered, as summarized in the reasons for the Merger described above, and
the overall effect of the Merger on Life USA's shareholders compared to
continuing the business of Life USA in the ordinary course or seeking other
potential parties to effect a business combination.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On May 16, 1999, the Board of Directors approved the Merger
Agreement conditioned on receipt of a fairness opinion from its investment
banker. Following a presentation by and receipt of a fairness opinion from
DLJ on June 7, 1999, the Board confirmed its earlier approval and recommended
that Life USA shareholders approve the Merger Agreement. Messrs. Bonach and
James, the Allianz Life executives who serve on the Life USA Board at Allianz
Life's request were not present at the May 16th meeting and were present at
the June 7th meeting but did not participate in the Board deliberations or
vote. All other directors of Life USA who are not employees of Life USA
joined in the approval of the Merger Agreement and recommendation to Life USA
shareholders. A majority of directors who are not employees of Life USA did
not retain an unaffiliated representative to act solely on behalf of
unaffiliated shareholders to negotiate the terms of the Merger or prepare a
report concerning the fairness of the Merger. All non-employee directors
(other than Messrs. Bonach and James who did not participate in the vote)
voted to approve the Merger Agreement.
THE BOARD OF DIRECTORS OF LIFE USA HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
FAIRNESS OPINION WITH RESPECT TO THE MERGER
Life USA requested DLJ, in its role as investment banker to Life
USA, to render an opinion to the Board of Directors of Life USA as to the
fairness, from a financial point of view, of the consideration to be received
by the shareholders of Life USA pursuant to the Merger Agreement. On June 7,
1999, DLJ delivered its opinion to the Life USA Board of Directors that, as
of that date, and based on and subject to the assumptions, limitations and
qualifications set forth in its opinion, the consideration to be received
pursuant to the Merger Agreement is fair to the shareholders of Life USA
from a financial point of view. The full text of the written opinion of DLJ,
dated June 7, 1999, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as Appendix B to this Proxy Statement. Furthermore, the written
opinion to DLJ is available for inspection and copying at the principal
executive offices of Life USA during its regular business hours by any
interested equity security holder of Life USA or its representative who has
been so designated in writing. Shareholders are urged to read the opinion in
its entirety.
OPINION OF DONALDSON, LUFKIN & JENRETTE
GENERAL. DLJ delivered a written opinion to the Life USA Board of
Directors that, as of the date of the opinion, the consideration to be
received by the shareholders of Life USA pursuant to the Merger Agreement is
fair to the shareholders from a financial point of view. The full text of the
written opinion of DLJ, dated June 7, 1999, which sets forth assumptions
made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix B to this Proxy
Statement. The summary below is qualified in its entirety
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<PAGE>
by reference to the full text of the opinion. Shareholders are urged to read
the opinion in its entirety.
DLJ is an internationally recognized investment banking firm and, as
part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, distributions of securities and similar
activities. DLJ was selected by the Life USA Board of Directors on the basis
of its experience and expertise relating to the life insurance and annuity
industry.
DLJ was engaged by the Life USA Board of Directors only to render
its written opinion. DLJ did not participate on behalf of Life USA in
negotiations with Allianz Life, nor did it consider or evaluate other
strategic alternatives. The opinion relates only to the fairness of the
consideration to be received by the shareholders of Life USA from a financial
point of view. The opinion does not address the merits of the underlying
decision of Life USA to engage in the merger and does not constitute a
recommendation to any Life USA shareholder as to how such shareholder should
vote on the proposed merger. The opinion is necessarily based on information
available, and financial, stock market, economic and other conditions and
circumstances as they existed and could be calculated as of the date of the
opinion. Although subsequent developments may affect the opinion, DLJ does
not have any obligation to update, revise or reaffirm the opinion. DLJ will
receive a fee from Life USA for its services. In addition, Life USA has
agreed to indemnify DLJ for certain liabilities arising out of its
engagement. See "Fees payable to DLJ" below.
MATERIALS AND INFORMATION CONSIDERED WITH RESPECT TO THE MERGER. No
restrictions or limitations were imposed on DLJ by the Life USA Board of
Directors with respect to the investigations made or the procedures followed
by DLJ in rendering its opinion. In arriving at its opinion, DLJ reviewed
financial and other information that was publicly available or furnished to
it by Life USA, including information provided during discussions with its
management. In addition, DLJ:
- reviewed the historical stock prices and trading volumes of
Common Stock;
- compared certain financial and securities data of Life USA
with such data of selected companies whose securities are
traded in public markets;
- reviewed prices and premiums paid in certain other selected
business combinations in the life insurance and annuity
industry;
- performed a discounted cash flow analysis of Life USA; and
- performed a discounted dividend analysis of Common Stock.
DLJ also discussed the past and current operations, financial
condition and prospects of Life USA with management of Life USA, received
financial projections for Life USA from its management, and conducted such
other financial studies, analyses and investigations as DLJ deemed
appropriate for purposes of rendering its opinion. DLJ also reviewed the
Merger Agreement in connection with its analysis.
In rendering its opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that
was available to it from public sources, that was provided to DLJ by Life USA
or its representatives or that was otherwise reviewed by DLJ. With respect to
the
16
<PAGE>
financial projections supplied to DLJ, DLJ has assumed that they were
reasonably prepared and reflected the best currently available estimates and
judgments of the management of Life USA as to the future operating and
financial performance of Life USA. DLJ did not assume any responsibility for
making and did not make any independent evaluation of Life USA's assets or
liabilities or any independent verification of any of the information
reviewed by DLJ. DLJ did not express any opinion with respect to legal
matters relating to the Merger.
The following is a summary of the material factors considered and
principal financial analyses performed by DLJ in connection with rendering
the DLJ opinion. The analysis provides the resulting ranges of implied share
prices of Common Stock based on DLJ's analyses and compares these ranges with
the consideration to be received by Life USA shareholders pursuant to the
Merger Agreement. For a detailed description of each of DLJ's analyses, see
the individual analysis discussions in the following paragraphs.
STOCK TRADING HISTORY. To provide contextual data and comparative
market data, DLJ reviewed the daily closing prices during the period from
June 4, 1998 to June 4, 1999 and compared the closing stock prices during
such period with the S&P 500 Index and an index comprised of publicly traded
peer insurance companies. In addition, DLJ analyzed the consideration to be
received by the shareholders pursuant to the Merger Agreement in relation to
the market price of the Common Stock at various dates before the announcement
of the Merger. Such analysis indicated that the price per share to be
received by the shareholders pursuant to the Merger Agreement represents a
premium of 102.4% to the closing price of $10.25 per share on May 14, 1999,
and a premium of 112.8% to the closing price of $9.75 per share on April 5,
1999 (30 trading days prior to the announcement of the Merger) and a premium
of 76.6% to the closing price of $11.75 per share on January 6, 1999 (90
trading days prior to the announcement of the Merger). In addition, the price
represents a premium of 85.9% to the year to date average closing price prior
to the announcement of the Merger Agreement (as of May 14, 1999) of $11.16
per share and a premium of 48.9% to the 1998 average closing price of $13.94
per share.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. DLJ compared the
consideration to be received to the range of values of Common Stock implied
by the relative valuation multiples of the following publicly traded peer
insurance companies:
- Guarantee Life Companies Inc.,
- ARM Financial Group Inc.,
- Kansas City Life Insurance Co.,
- American Annuity Group Inc.,
- Presidential Life Corp.,
- FBL Financial Group Inc.,
- AmerUS Life Holdings Inc.,
- Liberty Financial Companies, and
- MONY Group Inc.
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<PAGE>
DLJ analyzed the equity value of each of the peer companies, using
trading valuations as of June 4, 1999 as a multiple of selected financial
data, including (a) earnings per share for the last twelve months ended March
31, 1999, (b) estimated 1999 and 2000 earnings per share and (c) March 31,
1999 book value per share. The 1999 and 2000 estimated earnings per share for
the peer companies were provided by Institutional Brokers Estimating Service
(IBES). Based on this analysis, DLJ developed the following ranges of
valuation multiples:
- 6.9x -- 18.2x, with a mean of 12.7x and a median of 12.0x,
for last twelve months earnings per share compared to 28.4x
for the Merger;
- 6.3x -- 13.3x, with a mean of 11.1x and a median of 11.9x,
for estimated 1999 earnings per share compared to 21.6x for
the Merger;
- 5.8x -- 11.5x, with a mean of 9.8x and a median of 10.6x,
for estimated 2000 earnings per share compared to 20.1x for
the Merger; and
- 0.75x -- 1.83x, with a mean of 1.14x and a median of 0.99x,
for March 31, 1999 book value per share compared to 1.86x
for the Merger.
These valuation multiples were then applied to Life USA's actual
last twelve months earnings and March 31, 1999 book value per share and
management's estimates for 1999 and 2000 earnings to determine the range of
implied equity values of Life USA. This analysis resulted in the following
ranges of implied Life USA value per share:
- $5.02 -- $13.27, based on last twelve months earnings per
share;
- $6.08 -- $12.80, based on estimated 1999 earnings per
share;
- $5.63 -- $12.22, based on estimated 2000 earnings per
share; and
- $8.81 -- $20.64, based on March 31, 1999 book value per
share.
TRANSACTION ANALYSIS. DLJ compared the consideration to be received
by Life USA shareholders pursuant to the Merger Agreement to the range of
values of Common Stock implied by the relative purchase price multiples
generated from 13 selected acquisitions of life insurance companies with
significant annuity operations that have occurred since January 1, 1995 with
total transaction values less than $2 billion. DLJ analyzed the equity value
of each of the acquired companies, measured as a multiple of selected
financial data, including (a) last twelve months operating earnings, (b) next
twelve months estimated earnings and (c) March 31, 1999 book value. Based on
this analysis, DLJ developed the following ranges of acquisition multiples:
- 10.4x -- 22.4x, with a mean of 16.2x and a median of 14.6x,
for latest twelve months earnings per share ending March 31,
1999 compared to 28.4x for the Merger;
- 9.3x -- 18.8x, with a mean of 13.5x and a median of 12.8x,
for estimated next twelve months earnings per share compared
to 19.8x for the Merger; and
- 0.70x -- 2.50x, with a mean of 1.33x and a median of 1.20x
for March 31, 1999 book value per share compared to 1.86x
for the Merger.
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<PAGE>
These acquisition multiples were then compared with the
corresponding multiples based on Life USA's actual last twelve months
earnings and March 31, 1999 book value and management's estimates for next
twelve months earnings to determine the range of implied equity values of
Life USA. This analysis resulted in the following ranges of implied Life USA
value per share:
- $7.59 -- $16.35, based on the latest twelve months earnings
per share as of March 31, 1999;
- $9.77 -- $19.74 , based on estimated next twelve months
earnings per share; and
- $7.80 -- $27.86, based on March 31, 1999 book value per
share.
PREMIUMS PAID ANALYSIS. DLJ compared the consideration to be
received by Life USA's shareholders to the range of values of the Common
Stock implied by the relative premiums paid over current market prices paid
in selected recent acquisitions of life insurance and annuity companies. DLJ
analyzed 17 selected acquisitions of life insurance and annuity publicly
traded companies that have occurred since January 1, 1996. DLJ analyzed the
equity value of each of the acquired companies, measured as a percentage of
the premiums paid over the acquired companies' common stock closing prices
for the following periods: (a) one day prior, (b) one week prior, and (c)
three months prior to the announcement of the transaction. Based on this
analysis, DLJ developed the following ranges of premiums paid percentages:
- (6.1%) -- 51.1%, with a mean of 15.4% and a median of 6.7%,
over the closing price one day prior to the announcement
compared to 102.4% for the Merger;
- (6.8%) -- 51.1%, with a mean of 18.5% and a median of 20.4%,
over the closing price one week prior to the announcement
compared to 107.5% for the Merger; and
- (29.2%) -- 74.7%, with a mean of 39.0% and a median of
43.8%, over the closing price three months prior to the
announcement compared to 112.8% for the Merger.
These premium paid percentages were then applied to Life USA's
Common Stock closing prices prior to the Merger to determine the range of
implied equity values of Life USA. This analysis resulted in the following
ranges of implied Life USA value per share:
- $9.62 -- $15.49, based on premiums paid over the closing
price 1 day prior to the Merger;
- $9.32 -- $15.11 , based on premiums paid over the closing
price 1 week prior to the Merger; and
- $6.90 -- $17.03, based on premiums paid over the closing
price 3 months prior to the Merger.
No company or transaction used in the Transaction Analysis, the
Analysis of Certain Publicly Traded Companies or Premiums Paid Analysis
described above was directly comparable to Life USA or the Merger.
Accordingly, an analysis of the results of the foregoing was not simply
mathematical nor necessarily precise; rather, it involved complex
considerations and judgments concerning differences in financial and
operating characteristics of companies, the form of consideration and the
date of the respective transaction, and other factors that could affect the
transaction values and trading prices. For example, many qualitative factors
are involved in valuing a company or analyzing a transaction in the life
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<PAGE>
insurance and annuity industries including assessments of the quality of
management, the attractiveness of the company's target market, the economics
of the products being sold and the company's market position relative to its
competitors. Other factors that could affect the transaction values or
trading prices include differences in distribution, products, geographic or
demographic customer concentration, size, accounting practices, asset
portfolio quality, interest rate sensitivity and other factors. These factors
may affect transaction values or trading prices in each case by affecting in
varying degrees investors' expectations of such factors as the company's risk
and future operating profitability.
DISCOUNTED CASH FLOW ANALYSIS. DLJ performed a discounted cash flow
analysis of Life USA assuming a range of capital levels, estimated gross
written premiums for 1999 and expense savings which may be able to be
achieved by a buyer of the company. DLJ relied on cash flows as projected by
Life USA management under different scenarios. The discounted cash flow
analysis was based on discount rates ranging from 10.0% to 14.0%, and
assuming risk based capital levels of 400%, 350% and 300%, respectively of
the "Company Action Level" of capital required pursuant to the risk based
capital requirements of the National Association of Insurance Commissioners.
Statutory dividends were estimated to include amounts of capital generated in
excess of that required under the respective risk-based capital levels. The
terminal value for this analysis was computed by multiplying Life USA's
projected terminal earnings and book value by a range of multiples. DLJ
relied on its understanding of required equity returns in the life insurance
and annuity business to derive discount rates and on the public equity market
analysis of selected life insurance and annuity companies and selected merger
market transactions to derive the multiples used to calculate terminal
values. Based on its analysis of discounted flow, DLJ developed the following
ranges of implied value of the Common Stock, in each case depending on the
discount rate and terminal multiple used:
- $14.19 -- $21.82, based on a multiple of earnings ranging
from 10.0x to 14.0x and discount rates ranging from 10.0% to
14.0% at a risk based capital level of 400%;
- $12.12 -- $17.96, based on a multiple of book value ranging
from 1.10x to 1.50x at discount rates ranging from 10.0% to
14.0% at a risk based capital level of $400%;
- $14.97 -- $22.61, based on a multiple of earnings ranging
from 10.0x to 14.0x and discount rates ranging from 10.0% to
14.0% at a risk based capital level of 350%;
- $12.39 -- $17.92, based on a multiple of book value ranging
from 1.10x to 1.50x at discount rates ranging from 10.0% to
14.0% at a risk based capital level of 350%;
- $15.75 -- $23.40, based on a multiple of earnings ranging
from 10.0x to 14.0x and discount rates ranging from 10.0% to
14.0% at a risk based capital level of 300%; and
- $12.90 -- $18.29, based on a multiple of book value ranging
from 1.10x to 1.50x at discount rates ranging from 10.0% to
14.0% at a risk based capital level of 300%.
DIVIDEND DISCOUNT ANALYSIS. DLJ also performed a dividend discount
analysis of Life USA on a stand-alone basis assuming, among other things,
Life USA management's projections, continued payment of dividends to common
shareholders, common equity issuances under the STEP Agreement with Allianz
Life and repurchases of Life USA shares in the open market with excess
capital. The dividend discount analysis was based on discount rates ranging
from 10.0% to 14.0%. The terminal value for this analysis was computed by
multiplying Life USA's projected terminal earnings and book value by a range
of multiples. DLJ relied on its understanding of required equity returns in
the life insurance and annuity business to derive discount rates and the
public equity market analysis of selected life insurance and annuity
companies and selected merger market transactions to derive the multiples of
earnings and book
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<PAGE>
value used to calculate terminal values. Based on its analysis discounted
flow, DLJ developed the following ranges of implied value of the Common
Stock, in each case depending on the discount rate and terminal multiple used:
- $15.39 -- $17.48, based on a multiple of earnings of 10.0x
and discount rates ranging from 10.0% to 14.0%;
- $19.98 -- $22.78, based on a multiple of earnings of 14.0x
and discount rates ranging from 10.0% to 14.0%;
- $14.01 -- $15.89, based on a multiple of book value of 1.10x
and discount rates ranging from 10.0% to 14.0%; and
- $17.68-- $20.13, based on a multiple of book value of 1.50x
and discount rates ranging from 10.0% to 14.0%.
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<PAGE>
Based on the valuation methodologies discussed above, DLJ developed
a selected summary valuation range. The chart below sets forth the range of
implied values under the various methodologies compared to the consideration
of $20.75 per share pursuant to the Merger.
[CHART]
<TABLE>
<CAPTION>
<S> <C>
Range Per Share
Comparable Public Companies $10.00 - $14.00
Comparable Transactions $13.00 - $20.00
Premiums Paid in Comparable Transactions $12.00 - $16.00
Discounted Cash Flow Analysis $17.00 - $20.00
Dividend Discount Model $16.00 - $19.00
</TABLE>
The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. The preparation of a fairness
opinion does not involve a mathematical evaluation or weighing of the results
of the individual analyses performed, but requires DLJ to exercise its
professional judgment, based on its experience and expertise, in considering
a wide variety of analyses taken as a whole. Each of the analyses conducted
by DLJ was carried out in order to provide a different perspective on the
transaction and add to the total mix of information available. DLJ did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness. Rather,
in reaching its conclusion, DLJ considered the results of the analyses in
light of each other and did not place particular reliance or weight on any
individual analysis and ultimately reached its opinion based on the results
of all analyses taken as a whole. Accordingly, notwithstanding the separate
factors summarized above, DLJ believes that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all analyses and factors, may create an
incomplete view of the evaluation process underlying its opinion. In
performing its analyses, DLJ made numerous assumptions with respect to
industry performance, business and economic conditions and other matters.
These assumptions include but are not limited to assumptions regarding: (a)
macro-economic business conditions, (b) competitive dynamics and general
trends in the life insurance and annuity industries, (c) competition from
other industries including the banking and mutual fund industries, (d)
current and projected interest rates, and (e) industry regulatory
environment. The analyses
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<PAGE>
performed by DLJ are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
FEES PAYABLE TO DLJ The Life USA Board of Directors selected DLJ as
its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger and is familiar with Life USA, its businesses and the annuity
industry. Pursuant to the terms of an engagement letter dated May 20, 1999
between Life USA and DLJ, Life USA paid DLJ a fee of $350,000 for the DLJ
opinion. Life USA also agreed to reimburse DLJ for all out-of-pocket expenses
(including the reasonable fees and out-of-pocket expenses of counsel)
incurred by DLJ in connection with its engagement not in excess of $25,000 in
the aggregate, and to indemnify DLJ and certain related persons against
certain liabilities in connection with its engagement, including liabilities
under the federal securities laws. The terms of the fee arrangement with DLJ,
which DLJ and Life USA believe are customary in transactions of this nature,
were negotiated at arm's length between Life USA and DLJ, and the Life USA
Board of Directors was aware of such arrangement.
PERSPECTIVE OF ALLIANZ LIFE ON THE MERGER
As discussed under "Special Factors--Background of the Merger" on
page ___, the determination of the Per Share Amount resulted from extensive
arm's-length negotiation between Life USA and Allianz Life and their
respective representatives. At the conclusion of the negotiation process,
Allianz Life offered to acquire Life USA for a price of $20.75 per share.
Allianz Life did not undertake any formal or informal evaluation of
its own as to the fairness of the Per Share Amount to Life USA's unaffiliated
shareholders. Based solely upon the determination by Life USA's Board of
Directors that the Merger is fair to, and in the best interest of, the
shareholders of Life USA other than Allianz Life, Allianz Life believes that
the Per Share Amount is fair to such shareholders from a financial point of
view. Allianz Life did not attach specific weights to any factors in reaching
its belief as to fairness. Messrs. Bonach and James, Allianz Life's
representatives on Life USA's Board of Directors, abstained from, and did not
participate in, discussion by the Board of Directors of Life USA concerning
the fairness of the Per Share Amount.
PLANS FOR LIFE USA AFTER THE MERGER
After the Merger, Allianz Life anticipates that it will continue its
review of Life USA and its assets, businesses, operations, properties,
policies, corporate structure, dividend policy, capitalization and management
and consider whether any changes would be desirable in light of the
circumstances then existing. Effective upon the completion of the Merger, the
directors of Acquisition Sub will be the initial directors of the Surviving
Corporation.
Except for the foregoing, and as otherwise indicated in this Proxy
Statement, Allianz Life does not have any other present plans or proposals
which relate to or would result in an extraordinary corporate transaction,
such as a merger, reorganization or liquidation, involving Life USA or any of
its subsidiaries, a sale or transfer of a material amount of assets of Life
USA or any of its subsidiaries or any material change in Life USA's
capitalization or any other material changes in Life USA's corporate
structure or business.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest of Life USA
will be owned by Allianz Life, and the current shareholders other than
Allianz Life will have no continuing interest in Life USA. Therefore,
following the Merger, the shareholders of Life USA other than Allianz Life
will no longer
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benefit from any increases in the value of Life USA and will no longer bear
the risk of any decreases in the value of Life USA. Following the Merger,
Allianz Life will own 100% of Life USA and will have complete control over
the management and conduct of Life USA's business, all income generated by
Life USA and any future increase in Life USA's value. Similarly, Allianz Life
will also bear the risk of any losses incurred in the operation of Life USA
and any decrease in the value of Life USA.
Following the Merger, the Common Stock will no longer meet the
requirements of the Nasdaq National Market for continued listing and will,
therefore, be delisted from The Nasdaq National Market.
The Common Stock is currently registered as a class of securities
under the Securities Exchange Act of 1934 (the "Exchange Act"). Registration
of the Common Stock under the Exchange Act may be terminated upon application
of Life USA to the Commission if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market and there are
fewer than 300 record holders of the Common Stock. Termination of
registration of the Common Stock under the Exchange Act would substantially
reduce the information required to be furnished by Life USA to its
shareholders and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing trading provisions of Section 16(b),
the requirement of furnishing a proxy statement in connection with the
shareholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private"
transactions, no longer applicable to Life USA. It is the present intention
of Allianz Life to cause Life USA to make an application for the termination
of the registration of the Common Stock under the Exchange Act as soon as
practicable after completion of the Merger.
CONFLICTS OF INTEREST
In considering the recommendations of the Board of Directors of Life
USA with respect to the Merger, shareholders should be aware that directors
and officers of Life USA, as well as Allianz Life, have interests in
connection with the Merger which may present them with actual or potential
conflicts of interest as summarized below. The Board was aware of these
interests and considered them among the other matters described, but such
conflicts, individually or in the aggregate, did not have a negative impact
on the determination of the Board of Directors of Life USA that the Merger is
fair to and in the best interests of the shareholders.
ARRANGEMENTS WITH ALLIANZ LIFE. As of the close of business on May
17, 1999, Allianz Life beneficially owned 5,699,118 shares of Common Stock,
or approximately 24.2% of the outstanding shares of Common Stock (based on
23,593,716 shares outstanding on April 30, 1999), including shares of Common
Stock Allianz Life purchased pursuant to the STEP Agreement with Life USA
entered into in January 1998. The commitment of Allianz Life to purchase
Common Stock under the STEP Agreement, and the resulting purchases during
1998, as well as marketing, service and insurance agreements between Allianz
Life and Life USA, are described under "Background of the Merger" (page ___).
In connection with the STEP Agreement, Allianz Life nominated two persons to
Life USA's Board of Directors, Edward J. Bonach and Robert S. James, who are
executives of Allianz Life. Messrs. Bonach and James were elected directors
of Life USA in April 1998. In January 1999, Life USA entered into an
investment management agreement with Allianz Investment Corporation with
respect to a portion of its assets.
DIRECTORS AND OFFICERS OF LIFE USA. Five members of the Board of
Directors are executive officers of Life USA, own or have options to purchase
an aggregate of 2,131,069 shares of Common Stock and, except for Daniel
Rourke, are parties to employment agreements which will continue in effect
following completion of the Merger. In addition, the Merger Agreement
provides that Robert W. MacDonald will be the Chief Executive Officer of
Allianz Life and a member of the Board of Directors of Allianz Life and of
Life USA, in addition to continuing as Chief Executive Officer of Life USA
after the
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Merger. None of the executive officers of Life USA will receive any payment
under the "change of control provisions" of their respective employment
agreement as a result of the Merger since their employment agreements have
been amended to provide that the Merger does not constitute a change of
control under the employment agreements. The five executive officers of Life
USA who are also directors and who own a total of 1,680,481 shares of Common
Stock have also agreed to vote their shares for approval of the Merger
Agreement.
LEGAL COUNSEL AND CONSULTANTS; OWNERSHIP BY OUTSIDE DIRECTORS. Three
of the four outside directors of Life USA receive fees for providing legal or
consulting services to Life USA, and all four outside directors own or have
options to purchase a substantial number of shares of Common Stock. Ralph
Strangis is a member of Kaplan, Strangis and Kaplan, P.A., a law firm which
provides general counsel legal services to Life USA and received $680,000 in
legal fees from Life USA for 1998. Mr. Strangis owns 58,000 shares of Common
Stock and options to purchase 21,000 shares of Common Stock, and other
members of the law firm beneficially own an aggregate of 223,830 shares of
Common Stock. Hugh Alexander is a member of Alexander & Crabtree, P.C., a law
firm which provides legal services to Life USA and received $127,172 in legal
fees from Life USA for 1998. Mr. Alexander owns 7,300 shares of Common Stock
and options to purchase 27,202 shares of Common Stock. Barbara Lautzenheiser
is a member of Lautzenheiser & Associates, a consulting firm which provides
actuarial and other consulting services to Life USA and received $941,641 in
consulting fees and expenses for 1998. Ms. Lautzenheizer owns 3,500 shares of
Common Stock and options to purchase 23,000 shares of Common Stock. Jack
Blaine, the fourth outside director, does not provide legal or consulting
services to Life USA. Mr. Blaine owns 3,000 shares of Common Stock and
options to purchase 25,368 shares of Common Stock.
INDEMNIFICATION. Section 302A.521 of the MBCA provides that a
Minnesota corporation will indemnify directors and officers against expenses
and liabilities in connection with any proceeding by reason of his or her
being or having been a director or officer if (a) such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed
to the best interest of the corporation and (b) with respect to any criminal
proceeding, he or she had no reasonable cause to believe his or her conduct
was unlawful, unless a corporation's articles of incorporation or by-laws
prohibit or limit indemnification. Life USA's Articles of Incorporation and
By-laws do not prohibit or limit the indemnification under Section 302A.521
of the MBCA.
In addition, the Articles of Incorporation of Life USA provide that
a director or officer of Life USA will not be personally liable to Life USA
or its shareholders for damages arising from a breach of any duty owed to
Life USA or its shareholders, except for any breach of duty based upon an act
or omission (a) in breach of his or her duty of loyalty to Life USA or its
shareholders, (b) not in good faith or involving a knowing violation of law
or (c) resulting in receipt of an improper personal benefit.
The Merger Agreement provides that for six years after the Merger,
Allianz Life will cause Life USA to indemnify all past and present officers
and directors of Life USA and its subsidiaries to the same extent as is
indemnified at the date of the Merger Agreement for acts or omissions
occurring at or prior to the Merger. Allianz Life also agrees to provide, for
not less than six years after the Merger, a directors' and officers'
insurance and indemnification policy providing coverage for events occurring
prior to the Merger with coverage substantially similar to Life USA's
existing policy or, if substantially similar coverage is unavailable, then
best available coverage. Allianz Life is not required to pay premiums
aggregating more than $1,750,000 during the six-year period.
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SUMMARY OF MATERIAL FEATURES OF THE MERGER
THE MERGER
GENERAL The Merger Agreement provides that, subject to its
conditions and in accordance with the MBCA, Acquisition Sub will be merged
into Life USA when the Articles of Merger are filed with the Minnesota
Secretary of State or such other date or time as is stated in the Articles of
Merger (the "Effective Time"). Following the Merger, the separate existence
of Acquisition Sub will cease, and Life USA will continue as the surviving
corporation and will be a wholly-owned subsidiary of Allianz Life. At the
Effective Time, each issued and outstanding share of Common Stock, other than
shares owned by Life USA or its wholly-owned subsidiaries, by Allianz Life or
by shareholders who exercise their dissenters' rights, will be converted into
the right to receive, upon surrender of the certificate formerly representing
the shares of Common Stock (the "Certificate"), $20.75 in cash. As a result
of the Merger, the Common Stock will no longer be publicly traded and the
equity of the Surviving Corporation will be 100% owned by Allianz Life.
MERGER CONSIDERATION. When the Merger is completed, each share of
Common Stock issued and outstanding immediately prior to the Effective Time
will no longer be outstanding and will automatically be canceled and retired.
Each holder of a Certificate will have only the right to receive an amount in
cash equal to the number of such shares multiplied by $20.75 per share (the
"Merger Consideration") at the time the Certificate is surrendered.
PAYMENT FOR SHARES. Promptly after the Effective Time, Harris Bank
and Trust Company (the "Payment Agent") will mail to each holder of record of
a Certificate a form of letter of transmittal which instructs Life USA
shareholders how to surrender their shares of Common Stock and receive the
Merger Consideration. Risk of loss and title to the Certificate will pass
only when the Payment Agent receives delivery. When a record holder has
delivered to the Payment Agent all Certificates for its shares of Common
Stock together with the duly executed letter of transmittal, the Payment
Agent will issue a check for the Merger Consideration and mail the check to
the record holder.
STOCK OPTIONS. The Merger Agreement provides that, immediately prior
to the Effective Time, each outstanding Stock Option will become exercisable
in full. At the Effective Time all Stock Options will be canceled and the
holder will have the right to receive, upon execution and delivery to the
Payment Agent of an option termination agreement, a cash payment equal to the
(a) excess of $20.75 over the exercise price of the Stock Option, multiplied
by (b) the total number of shares of Common Stock under the Stock Option.
Promptly after the Effective Time, the Payment Agent will mail the option
termination agreement to holders of Stock Options. The payment of the
consideration for a Stock Option, net of any withholding or other applicable
taxes, upon delivery to the Payment Agent of an option termination agreement,
will constitute full satisfaction of all rights pertaining to the Stock
Option.
CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of Life USA will be closed and no further transfer of shares of Common
Stock will be made on the records of Life USA. On or after the Effective
Time, any Certificates presented to Surviving Corporation or the Payment
Agent will be canceled and exchanged for the Merger Consideration.
CONDITIONS TO THE MERGER. Each party's obligation to complete the
Merger is conditioned upon the following: (a) approval of the Merger
Agreement by the vote of a majority of the outstanding shares of Life USA
Common Stock, (b) expiration or termination of the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act, (c) obtaining
of all authorizations, consents, orders, declarations or approvals of, or
filings with, or terminations or expirations of waiting periods imposed by,
any governmental entity, the failure of which would have the effect of making
the Merger or any
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transaction described in the Merger Agreement illegal or would have,
individually or in the aggregate, a material adverse effect on Allianz Life
(assuming the Merger has taken place), and (d) the absence of any law, rule,
regulation, order, decree, injunction or other order making the Merger
illegal promulgated, enforced or entered by any court or other governmental
entity.
The obligation of Life USA to complete the Merger is subject to the
satisfaction of the following conditions at or prior to the Effective Time:
(a) each of Allianz Life and Acquisition Sub has performed in all material
respects each of its agreements contained in the Merger Agreement and the
representations and warranties of Allianz Life and Acquisition Sub contained
in the Merger Agreement are true and complete in all material respects, and
Life USA has received officers' certificates signed on behalf of Allianz Life
and Acquisition Sub to that effect, (b) all approvals or consents required
for the Merger have been obtained, and (c) no governmental entity has imposed
any requirement which, individually or in the aggregate, would have a
material adverse effect on Allianz Life.
The obligations of Allianz Life and Acquisition Sub to complete the
Merger are subject to the satisfaction of the following conditions at or
prior to the Effective Time: (a) Life USA has performed in all material
respects each of its agreements contained in the Merger Agreement and the
representations and warranties of Life USA contained in the Merger Agreement
are true and complete in all material respects, and Allianz Life has received
an officers' certificate signed on behalf of Life USA to that effect, (b)
Life USA has obtained the consent or approval of each person or governmental
entity whose consent or approval is required in connection with the Merger
under any loan or credit agreement or other agreement of Life USA or any
subsidiary or any law, rule or regulation applicable to Life USA or any of
its subsidiaries, except if failure to obtain such consents and approvals
would not, individually or in the aggregate, have a material adverse effect
on Life USA or Allianz Life or upon completion of the Merger, (c) no
governmental entity has imposed any requirement which, individually or in the
aggregate, would have a material adverse effect on Life USA or Allianz Life,
and (d) there has not been instituted any proceeding before any governmental
entity as a result of the Merger Agreement or any transactions contemplated
therein which would have a material adverse effect on Life USA or Allianz
Life.
EVEN IF THE SHAREHOLDERS APPROVE THE MERGER AS PROVIDED IN THE
MERGER AGREEMENT, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE COMPLETED.
REPRESENTATIONS AND WARRANTIES. Life USA made representations and
warranties in the Merger Agreement, qualified in certain instances by
materiality or as disclosed in Life USA's disclosure letter (the "Life USA
Letter") regarding the following: its organization and good standing;
authority to enter into the Merger Agreement and complete the transactions
contemplated by the Merger Agreement; capital structure of Life USA and its
subsidiaries; noncontravention of the Merger Agreement to Life USA's Articles
of Incorporation, Bylaws, any contract or law; requisite governmental and
other consents and approvals; compliance with the Securities and Exchange
Commission (the "Commission") filing requirements; its financial statements;
the accuracy of information in this Proxy Statement and compliance with the
Exchange Act; the absence of certain material changes since December 31,
1998; possession of permits and compliance with governing documents and laws;
absence of undisclosed material contracts; absence of material events of
default or basis for material events of default; requisite tax filings and
examinations; absence of outstanding orders, judgments, injunctions and
similar actions and absence of disputes involving Life USA or its
subsidiaries or their businesses; agreements relating to certain employment,
consulting and benefit matters of Life USA; compliance with worker safety,
labor and employment and environmental laws; ownership of intellectual
property rights; absence of state takeover laws applicable to Life USA; the
required vote of shareholders of Life USA necessary to approve the Merger
Agreement; Year 2000 compliance; absence of brokers or similar fees other
than the investment banker giving the fairness opinion; insurance coverage;
and conflicts of interest.
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CERTAIN COVENANTS.
Until the Merger is completed, Life USA has agreed that Life USA and
its subsidiaries will conduct their business in the ordinary course and use
their best efforts to preserve their current business organizations, keep
available the services of its current officers and employees and preserve
their third party relationships.
Life USA has also agreed that, without the consent of Allianz Life,
neither Life USA nor its subsidiaries will: (a) declare or pay any dividend
on or make any other distribution in respect of its capital stock other than
the regular quarterly dividend of not more than $.025 per share by Life USA
and distributions by wholly-owned subsidiaries with respect to specified
equity interests, or split, combine or reclassify any class of stock of Life
USA or purchase, redeem or acquire any shares of capital stock of Life USA;
(b) issue or encumber any shares of its capital stock or other securities
other than the issuance of shares of Common Stock upon the exercise of Stock
Options, to Life USA's Employee Savings Plan (401(k) Plan), upon conversion
of Life USA's outstanding convertible debentures, and the issuance of shares
of capital stock of its long term care subsidiary; (c) amend its governing
documents; (d) acquire by merger or consolidation or asset purchase or equity
purchase any entity or division other than transactions in the ordinary
course of business consistent with past practice which are not material to
Life USA; (e) sell or otherwise dispose of assets other than in the ordinary
course of business consistent with past practice; (f) incur indebtedness for
borrowed money or make loans or investments other than in the ordinary
course, except for borrowings under existing credit facilities and
transactions between or among Life USA and its subsidiaries; (g) alter the
corporate structure or ownership of Life USA or its subsidiaries; (h) adopt
or amend existing benefit plans, severance plans or employment or consulting
agreements, except as required by applicable law; (i) increase compensation
to directors, officers or employees (except in the case of non-officer
employees in the ordinary course of business consistent with past practice),
grant severance or termination pay or enhance or accelerate rights under any
plan or arrangement for the benefit of any director, officer or employee; (j)
knowingly violate or fail to perform any obligation imposed by material
federal, state or local law rule or regulation; (k) change any accounting
policies or procedures, except as required to by generally accepted
accounting principles; (l) file tax returns inconsistent with past practice
or take any position inconsistent with prior positions; (m) make tax election
or settle or compromise any material tax liability; (n) enter into or amend
any material contract except in the ordinary course or make or agree to make
new capital expenditures in excess of $4 million in the aggregate, including
capital expenditures since December 31, 1998; or (n) pay or discharge any
obligations other than the payment or discharge of obligations in the
ordinary course of business consistent with past practice that are reflected
in or as contemplated by the most recent financial statements, or the payment
of indebtedness owed by Life USA or a subsidiary under an existing credit
facility.
NO SOLICITATION OF TRANSACTIONS. The Merger Agreement provides that
Life USA will not, directly or indirectly (a) solicit, initiate or encourage
the submission of, any Takeover Proposal (as defined below), (b) enter into
any agreement with respect to any Takeover Proposal, or (c) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal. If, prior to the Special
Meeting, the Board of Directors of Life USA reasonably determines the
Takeover Proposal constitutes a Superior Proposal (as defined below), then,
to the extent required by the fiduciary obligations of the Board of Directors
of Life USA, as determined in good faith by a majority of the disinterested
members after receiving the advice of independent counsel, Life USA may, in
response to an unsolicited request, furnish information with respect to Life
USA to, and enter into discussions with, any person pursuant to a customary
confidentiality agreement.
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The Merger Agreement defines a "Takeover Proposal" to mean any
proposal for a merger or other business combination involving Life USA or any
of its subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, a substantial equity interest in, a substantial
portion of the voting securities of, or a substantial portion of the assets
of Life USA or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement. A "Superior Proposal" means a bona fide
Takeover Proposal made by a third party which a majority of the disinterested
members of the Board of Directors of Life USA determines in its reasonable
good faith judgment to be more favorable to Life USA's shareholders than the
Merger, and for which financing, to the extent required, is then committed or
which, in the reasonable good faith judgment of a majority of such
disinterested members is highly likely to be financed by the third party. In
making these determinations and judgments, the Life USA Board of Directors
must receive a written opinion from its independent financial advisor that
the value of the consideration provided for in alternative proposal exceeds
the value of the consideration provided for in the Merger and written advice
as to the likelihood of the third party obtaining any necessary financing.
The Merger Agreement requires Life USA to advise Allianz Life of (a)
any Takeover Proposal or inquiry with respect to or which could lead to any
Takeover Proposal, (b) the material terms of such Takeover Proposal, and (c)
the identity of the person making any such Takeover Proposal or inquiry. The
Merger Agreement also requires Life USA to keep Allianz Life fully informed
of the status and details of any such Takeover Proposal or inquiry. Under the
Merger Agreement, Life USA may not terminate, amend, modify or waive any
provision of any confidentiality agreement relating to a Takeover Proposal or
standstill agreement to which Life USA or any of its subsidiaries is a party
(other than any involving Allianz Life). During such period, Life USA agrees
to enforce, to the fullest extent permitted under applicable law, the
provisions of any such agreements, including, but not limited to, obtaining
injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions of such agreements in any court of the
United States or any state thereof having jurisdiction.
VOTING RIGHTS OF ALLIANZ LIFE. The Merger Agreement provides that
notwithstanding certain restrictions placed on Allianz Life's ability to vote
its shares of Common Stock by the STEP Agreement, until the earlier of (a)
the Effective Time, or (b) termination of the Merger Agreement, Allianz Life
may vote all of its shares of Common Stock in any and all matters presented
to the shareholders of Life USA, may solicit proxies and may attempt to
influence the vote of other shareholders of Life USA as Allianz Life deems
appropriate.
TERMINATION. The Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of Life USA:
1. by mutual consent of Allianz Life and Life USA;
2. by either Allianz Life or Life USA if the other party fails
to comply in any material respect with any of its covenants or agreements in
the Merger Agreement, and the failure is not cured within 30 business days
following receipt of notice, except for a breach by Life USA discussed in
item 7 below;
3. by either Allianz Life or Life USA if there has been (a) a
breach by the other party (in the case of Allianz Life including a material
breach by Acquisition Sub) of any representation or warranty that is not
qualified as to materiality which has the effect of making such
representation or warranty not true and correct in all material respects or
(b) a breach by the other party (in the case of Allianz Life including a
material breach by Acquisition Sub) of any representation or warranty that is
qualified as to
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materiality, in each case which breach has not been cured within 30 business
days following receipt of notice;
4. by Allianz Life or Life USA if (a) the Merger has not been
effected on or prior to December 31, 1999 for a reason other than the failure
of the terminating party to comply with its obligations under the Merger
Agreement, or (b) any court or other governmental entity having jurisdiction
has issued an order or taken other action permanently enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
action has become final and nonappealable;
5. by Allianz Life or Life USA if the shareholders of Life USA
do not approve the Merger Agreement at the Special Meeting or any adjournment
or postponement thereof;
6. by Allianz Life or Life USA if Life USA enters into a
merger, acquisition or other agreement to effect a Superior Proposal or the
Board of Directors of Life USA resolves to do so, provided that Life USA has
(a) delivered to Allianz Life a written notice of intent to enter into an
agreement to effect a Superior Proposal, (b) five business days have elapsed
following the notice, (c) Life USA has cooperated with Allianz Life during
the notice period and informed Allianz Life of the terms and conditions of
the Takeover Proposal and the identity of the person making the proposal with
the intent of enabling Allianz Life to agree to a modification of the terms
and conditions of the Merger Agreement, (d) the Board of Directors of Life
USA has continued reasonably to believe following the notice period that the
Takeover Proposal constitutes a Superior Proposal, and (e) Life USA has paid
Allianz Life a termination fee of $20,000,000; or
7. by Allianz Life if (a) the Board of Directors of Life USA
has not recommended or has resolved not to recommend or has qualified,
modified or withdrawn its recommendation of the Merger Agreement or
declaration that the Merger is advisable and fair to and in the best interest
of Life USA and its shareholders or has resolved to do so, (b) the Board of
Directors of Life USA has recommended to the shareholders of Life USA any
Takeover Proposal or has resolved to do so, or (c) a third party tender offer
or exchange offer for 20% or more of the outstanding Common Stock is
commenced and the Board of Directors of Life USA has failed to recommend
against acceptance of such tender offer or exchange by its shareholders
(including by taking no position with respect to the acceptance of the offer
by its shareholders).
The Merger Agreement could also have been terminated (a) by Allianz
Life on or prior to June 1, 1999 if the Merger Agreement and the transactions
contemplated under the Merger Agreement had not been duly approved by the
Board of Management of Allianz AG, or (b) by either Allianz Life or Life USA
prior to June 8, 1998 if Life USA had received either the written opinion of
its investment banker that the Per Share Amount is unfair to Life USA's
shareholders from a financial point of view or a written statement of its
investment banker that the investment banker is not able to render an opinion
that the Per Share Amount is fair to Life USA's shareholders from a financial
point of view. The Board of Management of Allianz AG approved the Merger
Agreement and the transactions contemplated under the Merger Agreement on May
31, 1999, and, as discussed under "Fairness of the Transaction" (page __) and
"Opinion of Financial Advisor" (page __), on June 7, 1999 Life USA received a
written opinion of its investment banker that the consideration to be
received by the holders of the Common Stock in the Merger is fair to the
holders from a financial point of view.
TERMINATION FEE. If (a) the Merger Agreement is terminated by Life
USA or Allianz Life at a time when Allianz Life is entitled to terminate this
Agreement pursuant to paragraphs 2, 3 or 5 of the preceding section and,
concurrently with or within 18 months after such a termination a Third Party
Acquisition Event (as defined below) occurs, or (b) the Merger Agreement is
terminated pursuant to paragraphs 6 or 7 of the preceding section or by Life
USA or Allianz Life at a time when Allianz Life is
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entitled to terminate pursuant to such paragraphs then, in each case Life USA
will pay to Allianz Life a termination fee of $20,000,000 in cash (the
"Termination Fee"), in addition to any obligation of Life USA to pay expenses
upon termination and without prejudice to any other rights Allianz Life may
have against Life USA for breach of the Merger Agreement. In the case of
clause (a) of the preceding sentence, but only with respect to a termination
of the Merger Agreement by Life USA or Allianz Life as a result of a breach
of a representation or warranty where the representations and warranties of
Life USA were true and correct in all material respect as of the date of the
Merger Agreement or a termination where the Third Party Acquisition Event
constitutes an event described in clause (d) of the definition of that term,
Life USA will be required to pay the Termination Fee to Allianz Life only if
the Takeover Proposal giving rise to the Third Party Acquisition Event
constitutes a Superior Proposal.
A "Third Party Acquisition Event" means any of the following events:
(a) any person other than Allianz Life or its affiliates acquires or becomes
the beneficial owner of 20% of more of the outstanding shares of Common
Stock, (b) any group (other than a group which includes Allianz Life or any
affiliate) is formed which, at the time of formation, beneficially owns 20%
or more of the outstanding shares of Common Stock, (c) any person (other than
Allianz Life or its affiliates) has commenced a tender or exchange offer for
20% or more of the then outstanding shares of Common Stock or publicly
proposed any bona fide merger, consolidation or acquisition of all or
substantially all of the assets of Life USA, or other similar business
combination involving Life USA, (d) Life USA enters into or announces that it
proposes to enter into an agreement (including an agreement in principle)
providing for a merger or other business combination involving Life USA or a
"significant subsidiary" (as defined in Rule 1.02(v) of Regulation S-X as
promulgated by the SEC) of Life USA or the acquisition of a substantial
interest in or substantial portion of the assets, business or operations of
Life USA or a significant subsidiary (other than the transactions
contemplated by the Merger Agreement), (e) any person (other than Allianz
Life or its affiliates) is granted any option or right to become the
beneficial owner of shares of Common Stock which, together with all shares of
Common Stock beneficially owned by such person, results or would result in
such person being the beneficial owner of 20% or more of the outstanding
shares of Common Stock, or (f) there is a public announcement with respect to
a plan by Life USA or any person, other than Allianz Life and its affiliates,
to effect any of the foregoing.
INDEMNIFICATION. The Merger Agreement provides that for six years
from the Effective Time, Allianz Life will cause the Surviving Corporation to
indemnify and hold harmless all past and present officers and directors of
Life USA to the same extent as such persons are indemnified at the date of
the Merger Agreement for acts or omissions occurring at or prior to the
Effective Time. Allianz Life has agreed to provide for not less than six
years from the Effective Time a directors and officers insurance and
indemnification policy providing coverage for events occurring prior to the
Effective Time with coverage substantially similar to Life USA's existing
policy or if substantially similar coverage is unavailable, then best
available, provided that Allianz Life shall not be required to pay premiums
aggregating more than $1,750,000 for the six year period.
AMENDMENT AND WAIVER. The Merger Agreement may be amended pursuant
to action taken or authorized by the respective Boards of Directors of
Allianz Life and Life USA at any time prior to or after approval of the
Merger Agreement by the shareholders of Allianz Life and Life USA but, after
such approval, no amendment will be made without the further approval of the
shareholders if further approval is required by law. At any time prior to the
Effective Time, either of the parties to the Merger Agreement may extend, in
writing, the time for performance of any obligations or other acts of the
other party, waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or any document delivered pursuant to the
Merger Agreement and waive compliance with any of the agreements or
conditions contained in the Merger Agreement.
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EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expense, except that all printing expenses and all filing fees (including
filing fees under the Exchange Act and the HSR Act) will be divided equally
between Allianz Life and Life USA. If the Merger Agreement is terminated by
Life USA or Allianz Life pursuant to paragraph 6 of the Termination section
above, by Allianz Life pursuant to paragraph 7 of the Termination section
above or by Life USA or Allianz Life at a time when Allianz Life is entitled
to terminate pursuant to paragraphs 6 or 7 of the Termination section above,
Life USA must reimburse Allianz Life for out-of-pocket fees and expenses,
without prejudice to any other rights Allianz Life may have against Life USA
for breach of the Merger Agreement.
EFFECTIVE TIME
The Merger will become effective at the Effective Time. It is
expected that the Effective Time will be the date of closing of the Merger,
which is expected to be _______, 1999, or as soon thereafter as is
practicable subject to satisfaction or waiver of the conditions to closing.
Subject to certain limitations, the Merger Agreement may be terminated by
either party if, among other reasons, the Merger has not been completed by
December 31, 1999.
CONVERSION OF COMMON STOCK
As of the Effective Time, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares owned
by Life USA or its wholly-owned subsidiaries, by Allianz Life or by
shareholders who exercise their dissenters' rights) will be converted into
the right to receive the Merger Consideration when the Certificate formerly
representing such share of Common Stock is surrendered and a duly executed
letter of transmittal is delivered to the Payment Agent. The Payment Agent
will mail to each record holder of Common Stock, as soon as practicable after
the Effective Time, a letter of transmittal which will contain instructions
for surrendering the Certificates for Common Stock in exchange for the Merger
Consideration. When so converted, all such shares of Common Stock will no
longer be outstanding and will automatically be canceled and retired and each
holder of a Certificate formerly representing any such shares will have only
the right to receive the Merger Consideration in cash (without interest) upon
the surrender of the Certificate. Holders of Stock Options will receive
payment in accordance with the procedures described below under "Payment for
Stock Options."
As soon as practicable after the Effective Time, Allianz Life will
deposit with the Payment Agent, in trust for the holders of the Common Stock
converted in the Merger and holders of Stock Options, an amount of cash equal
to or exceeding the aggregate Merger Consideration and the consideration for
the Stock Options.
LIFE USA'S SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES
TO THE PAYMENT AGENT WITHOUT A LETTER OF TRANSMITTAL. STOCK CERTIFICATES
SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY CARD.
The payment of the Merger Consideration upon surrender of any
Certificate will be deemed to constitute full satisfaction of all rights
pertaining to the shares of Common Stock represented by the Certificate.
Until surrendered as contemplated by the Merger Agreement, each Certificate
for Common Stock will be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration upon surrender;
no interest will be paid or will accrue on any Merger Consideration payable
to shareholders. At the Effective Time, the stock transfer books of Life USA
will be closed. Neither Allianz Life nor the Surviving Corporation will be
liable to any former shareholder or holder of a
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<PAGE>
Stock Option for any cash held in the payment fund which is delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
PAYMENT FOR STOCK OPTIONS
Each Stock Option which is outstanding immediately prior to the
Effective Time will become exercisable in full (to the extent not previously
exercised) and will be canceled, and the holder will have the right to
receive, upon execution and delivery to the Payment Agent of an option
termination agreement, a cash payment equal to the (a) excess of $20.75 over
the exercise price of the Stock Option, multiplied by (b) the total number of
shares of Common Stock purchasable upon exercise of the Stock Option. The
payment of the consideration for a Stock Option, net of any withholding or
other applicable taxes, upon delivery to the Payment Agent of an option
termination agreement signed by the holder of the Stock Option, will
constitute full satisfaction of all rights pertaining to the Stock Option.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Life USA has agreed to carry on
its business prior to the Effective Time in all material respects in the
ordinary course of its business as conducted on the date of the Merger
Agreement, subject to certain covenants by Life USA in the Merger Agreement.
REGULATORY FILINGS AND APPROVALS
Life USA believes that the following filings and approvals are
required with respect to the Merger: (a) filings with and/or approvals of
state insurance regulatory authorities, (b) filings by Life USA and Allianz
Life with the Federal Trade Commission and the Department of Justice pursuant
to the requirements of the HSR Act, (c) filings by Life USA and Allianz Life
with the Securities and Exchange Commission pursuant to the Exchange Act, and
(d) filing of Articles of Merger with the Secretary of State of the State of
Minnesota and appropriate documents with the relevant authorities of other
states in which Life USA is qualified to do business.
CONDITIONS TO THE MERGER
The obligations of Allianz Life, Acquisition Sub and Life USA to
effect the Merger are subject to the fulfillment of certain conditions
described more fully under "Summary of Material Features of the Merger
Agreement--Conditions to the Merger" (page ___).
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to
holders of Common Stock and Stock Options. This discussion is based on
currently existing provisions of the Internal Revenue Code, existing and
proposed Treasury Regulations and current administrative rulings and court
decisions, all of which are subject to change. Any change, which may or may
not be retroactive, could alter the tax consequences to the holders of the
Common Stock or Stock Options as described here. Special tax consequences not
described below may be applicable to particular classes of taxpayers,
including financial institutions, broker-dealers, persons who are not
citizens or residents of the United States or who are foreign corporations,
foreign partnerships or foreign estates or trusts and shareholders who
acquired Common Stock through the exercise of Stock Options or otherwise as
compensation prior to the Effective Time of the Merger.
The conversion of the Common Stock at the Effective Time of the Merger
into the right to receive the Merger Consideration will be a taxable transaction
for federal income tax purposes and may
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<PAGE>
also be a taxable transaction under applicable state and other tax laws. In
general, a shareholder will recognize gain or loss equal to the difference
between the tax basis of the Common Stock and the amount of Merger
Consideration received in exchange for the Common Stock. The gain or loss
will be treated as capital gain or loss if the Common Stock is a capital
asset in the hands of the shareholder.
The receipt of the consideration for Stock Options upon delivery to
the Payment Agent of an option termination agreement will be taxable as
ordinary income for federal and state income and other tax purposes. The
consideration for Stock Options will be paid to the holders of Stock Options
net of withholding and other applicable taxes.
The federal income tax consequences set forth above are for general
information only. Each shareholder and each holder of Stock Options is urged
to consult his or her own tax advisor to determine the particular tax
consequences to him or her of the Merger, including the applicability and
effect of state and other tax laws.
FINANCING OF THE MERGER; SOURCE OF FUNDS
Allianz Life has represented in the Merger Agreement that it has
sufficient capital resources necessary to perform its obligations under the
Merger Agreement. Allianz Life intends to finance the transaction with
working capital funds and a capital contribution from Allianz of America.
ANTICIPATED ACCOUNTING TREATMENT
Life USA believes that the Merger will be accounted for by Allianz
Life using the purchase method of accounting in accordance with generally
accepted accounting principles.
DISSENTERS' RIGHTS
Sections 302A.471 and 302A.473 of the MBCA provide each shareholder
the right to dissent from the Merger, and obtain payment for the "fair value"
of the shareholder's shares following the consummation of the Merger.
The following summary of the applicable provisions of Sections
302A.471 and 302A.473 of the MBCA is not intended to be a complete statement
of the provisions and is qualified in its entirety, by reference to the full
texts of the Sections attached as Appendix C to this Proxy Statement. These
sections should be reviewed carefully by any shareholder who wishes to
exercise dissenters' rights or who wishes to preserve the right to do so,
since failure to comply with the procedures set forth in the Sections will
result in the loss of dissenters' rights.
Under the MBCA, holders of Life USA's Common Stock have the right,
by fully complying with the applicable provisions of Sections 302A.471 and
302A.473, to dissent with respect to the Merger and to receive from the
Surviving Corporation payment in cash of the "fair value" of their shares of
Common Stock after the Merger is completed. The term "fair value" means the
value of the shares of Common Stock immediately before the Effective Time
without any appreciation or depreciation in anticipation of the Merger.
All references in Sections 302A.471 and 302A.473 and in this summary
to a "shareholder" are to a record holder of the shares of Common Stock as to
which dissenters' rights are asserted. A person having beneficial ownership
of shares of Common Stock that are held of record in the name of another
person, such as a broker, nominee, trustee or custodian, must act promptly to
cause the record holder to
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<PAGE>
follow the steps summarized below properly and in a timely manner in order to
perfect whatever dissenters' rights the beneficial owner may have.
Shareholders of record who desire to exercise their dissenters'
rights must satisfy all of the following conditions. A written notice of
intent to demand fair value for shares must be delivered to the executive
offices of Life USA before the taking of the shareholder vote on the Merger.
This written demand must be in addition to and separate from any proxy or
vote against the Merger. Voting against, abstaining from voting or failing to
vote on the Merger does not constitute a demand for appraisal within the
meaning of the MBCA.
Shareholders electing to exercise their dissenters' rights under the
MBCA must not vote for approval of the Merger Agreement. A shareholder's
failure to vote against the Merger will not constitute a waiver of
dissenters' rights. However, if a shareholder returns a signed proxy but does
not specify a vote against adoption of the Merger or direction to abstain,
the proxy will be voted for adoption of the Merger, which will have the
effect of waiving that shareholder's dissenters' rights.
Company shareholders may not assert dissenters' rights as to less
than all of the shares registered in such holder's name except where certain
shares are beneficially owned by another person but registered in such
holder's name. If a record owner, such as a broker, nominee, trustee or
custodian, wishes to dissent with respect to shares beneficially owned by
another person, such shareholder must dissent with respect to all of such
shares and must disclose the name and address of the beneficial owner on
whose behalf the dissent is made. A beneficial owner of shares of Common
Stock who is not the record owner of such shares may assert dissenters'
rights as to shares held on such person's behalf, provided that such
beneficial owner submits a written consent of the record owner to Life USA at
or before the time such rights are asserted.
A shareholder who elects to exercise dissenters' rights must send
his or her written demand, before the taking of the vote on the Merger, to
the Secretary of Life USA Holding, Inc., 300 South Highway 169, Suite 95,
Minneapolis, Minnesota 55426. The written demand should specify the
shareholder's name and mailing address, the number of shares owned and that
the shareholder intends to demand the value of his or her shares.
After approval of the Merger Agreement by the shareholders at the
Special Meeting, the Surviving Corporation will send a written notice to each
shareholder who filed a written demand for dissenters' rights. The notice
will contain the address to which the shareholder must send a demand for
payment and the stock certificates in order to obtain payment and the date by
which they must be received and other related information.
In order to receive fair value for his or her shares, a dissenting
shareholder must, within 30 days after the date the Surviving Corporation
gives the notice described in the preceding paragraph, send his or her stock
certificates, and all other information specified in the notice from the
Surviving Corporation, to the address specified in the notice. A dissenting
shareholder will retain all rights as a shareholder until the Effective Time.
After a valid demand for payment and the related stock certificates and other
information are received, or after the Effective Time, whichever is later,
the Surviving Corporation will remit to each dissenting shareholder who has
complied with statutory requirements the amount that the Surviving
Corporation estimates to be the fair value of the dissenting shareholder's
shares, with interest commencing five days after the Effective Time at a rate
prescribed by statute. The Surviving Corporation will also send its closing
balance sheet and statement of income for a fiscal year ending not more than
16 months before the Effective Time, together with the latest available
interim financial statements, an estimate of the fair value of the
shareholder's shares and a brief description of the method used to reach the
estimate, a brief description of the procedure to be followed if the
dissenting shareholder decides to
35
<PAGE>
make a demand for a supplemental payment and copies of Sections 302A.471 and
302A.473 of the MBCA.
If the dissenting shareholder believes that the amount remitted by
the Surviving Corporation is less than the fair value of such holder's
shares, plus interest, the shareholder may give written notice to the
Surviving Corporation of such holder's own estimate of the fair value of the
shares, plus interest, within 30 days after the mailing date of the
remittance and demand payment of the difference. Such notice must be given at
the executive offices of Company at the address set forth above. A
shareholder who fails to give such written notice within this time period is
entitled only to the amount remitted by the Surviving Corporation.
Within 60 days after receipt of a demand for supplemental payment,
the Surviving Corporation must either (a) pay the shareholder the amount
demanded or agreed to by the shareholder after discussion with the Surviving
Corporation, or (b) petition a court for the determination of the fair value
of the shares, plus interest. The petition must name as parties all
shareholders who have demanded supplemental payment and have not reached an
agreement with the Surviving Corporation. The court, after determining that
the shareholder or shareholders in question have complied with all statutory
requirements, may use any valuation method or combination of methods it deems
appropriate to use, whether or not used by the Surviving Corporation or the
dissenting shareholder, and may appoint appraisers to recommend the amount of
the fair value of the shares. The court's determination will be binding on
all Company shareholders who properly exercised dissenters' rights and did
not agree with the Surviving Corporation as to the fair value of the shares.
Dissenting shareholders are entitled to judgment for the amount by which the
court-determined fair value per share, plus interest, exceeds the amount per
share, plus interest, remitted to the shareholders by the Surviving
Corporation. The shareholders shall not be liable to the Surviving
Corporation for any amounts paid by the Surviving Corporation which exceed
the fair value of the shares as determined by the court, plus interest. The
costs and expenses of such a proceeding, including the expenses and
compensation of any appraisers, will be determined by the court and assessed
against the Surviving Corporation, except that the court may, in its
discretion, assess part or all of those costs and expenses against any
shareholder whose action in demanding supplemental payment is found to be
arbitrary, vexatious or not in good faith. The court may award fees and
expenses to an attorney for the dissenting shareholders out of the amount, if
any, awarded to such shareholders. Fees and expenses of experts or attorneys
may also be assessed against any person who acted arbitrarily, vexatiously or
not in good faith in bringing the proceeding.
Life USA may withhold the remittance of the estimated fair value,
plus interest, for any shares owned by any person who was not a shareholder
or who is dissenting on behalf of a person who was not a beneficial owner on
May 17, 1999, the date on which the proposed Merger was first announced to
the public (the "Public Announcement Date"). The Surviving Corporation will
forward to any dissenting shareholder who has complied with all requirements
in exercising dissenters' rights the notice and all other materials sent
after shareholder approval of the Merger to all shareholders who have
properly exercised dissenters' rights, together with a statement of the
reason for withholding the remittance and an offer to pay the dissenting
shareholder the amount listed in the materials if the shareholder agrees to
accept that amount in full satisfaction. The shareholder may decline this
offer and demand payment by following the same procedure as that described
for demand of supplemental payment by shareholders who owned their shares as
of the Public Announcement Date. Any shareholder who did not own shares on
the Public Announcement Date and who fails properly to demand payment will be
entitled only to the amount offered by Life USA. Upon proper demand by any
shareholder, rules and procedures applicable in connection with receipt by
Life USA of the demand for supplemental payment given by a dissenting
shareholder who owned shares on the Public Announcement Date will also apply
to any shareholder properly giving a demand but who did not own shares of
record or beneficially on the Public Announcement Date, except that any such
shareholder is not entitled to receive any remittance from Life
36
<PAGE>
USA until the fair value of the shares, plus interest, has been determined
pursuant to such rules and procedures.
Shareholders considering exercising dissenters' rights should bear
in mind that the fair value of their shares determined under Sections
302A.471 and 302A.473 of the MBCA could be more than, the same as or, in
certain circumstances, less than the consideration they would receive
pursuant to the Merger Agreement if they do not seek appraisal of their
shares.
Cash received pursuant to the exercise of dissenters' rights may be
subject to federal or state income tax. See "Federal Income Tax Consequences"
(page ___).
ANY HOLDER WHO FAILS TO COMPLY FULLY WITH THE STATUTORY PROCEDURE
SUMMARIZED ABOVE WILL FORFEIT HIS OR HER RIGHTS OF DISSENT AND WILL RECEIVE
THE MERGER CONSIDERATION FOR HIS OR HER SHARES. SEE APPENDIX C.
MANAGEMENT OF LIFE USA, ALLIANZ LIFE AND ACQUISITION SUB
MANAGEMENT OF LIFE USA
Information concerning the management of Life USA, the names,
principal occupations and employment history of the directors and executive
officers of Life USA, is provided in Life USA's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 that is incorporated by reference in
this Proxy Statement. All of the directors and executive officers of Life USA
are citizens of the United States. The business addresses of each director
and executive officer of Life USA is listed in footnote 1 to the table under
"Interests in Securities of Life USA."
MANAGEMENT OF ALLIANZ LIFE AND ACQUISITION SUB
Allianz Life is a wholly owned subsidiary of Allianz of America.
Allianz AG holds 90% of the voting securities of Allianz of America. Allianz
AG's business address is Koniginstrasse 28, 80802 Munich, Federal Republic of
Germany. Allianz of America's business address is 55 Green Farms Road,
Westport, Connecticut 06881.
ALLIANZ AG. The names, positions and five years of employment
history of the directors and executive officers of Allianz AG are listed
below. Unless otherwise specified below, the directors and executive officers
of Allianz AG are German citizens, have held the positions listed below since
at least five years prior to the date of this Proxy Statement and their
business addresses are Koniginstrasse 28, 80802 Munich, Germany.
Dr. Henning Schulte-Noelle is Chairman of the Board of Management,
Allianz AG and Director, President and Chief Executive Officer, Allianz of
America. Detlev Bremkamp is a Member of the Board of Management, Allianz AG.
Dr. Reiner Hagemann is a Member of the Board of Management, Allianz AG. Dr.
Gerhard Rupprecht is a Chairman, Allianz Lebensversicherungs-AG, P.O. Box
D-70151, Stuttgart, Germany, Member of the Board of Management, Allianz AG,
and Director, Allianz Life. Dr. Diethart Breipohl is a Member of the Board of
Management, Allianz AG and Director, Allianz of America. Dr. Helmut Perlet is
a Member of the Board of Management, Allianz AG. Herbert Hansmeyer is a
Member of the Board of Management, Allianz AG, Director, Allianz of America,
and Chairman of the Board, Fireman's Fund Insurance Company, 777 San Marin
Drive, Novato, CA 94998.
ALLIANZ LIFE. The names, positions and five years of employment
history of the directors of Allianz Life are listed below. Unless otherwise
specified below or as indicated above, the directors are United States
citizens, have held the positions listed below since at least five years
prior to the date of this Proxy Statement, and their business addresses are
1750 Hennepin Avenue, Minneapolis, MN 55403.
Lowell C. Anderson is Chairman of the Board of Directors, President
and Chief Executive Officer of Allianz Life. James R. Campbell is Chairman
and CEO of Norwest Bank MN, N.A., Norwest Center, Sixth and Marquette,
Minneapolis, MN 55479-0116 and Director, Allianz Life. Reverend Dennis J.
Dease is President, University of St. Thomas, AQU100 2115 Summit Avenue, St.
Paul, MN 55105-1096, and Director, Allianz Life. Herbert F. Hansmayer is
Chairman, Allianz of America, Member of the Board of Management of Allianz
AG, and Director, Allianz Life. Robert M. Kimmitt, Esq. is a Partner of
Wilmer, Cutler & Pickering, 2445 M Street, NW, Washington, DC 20037-1420
(prior to May of 1997 Mr. Kimmitt held the position of Managing Director,
Lehman Brothers, 3 World Financial Center, New York, NY 10285), and Director,
Allianz Life. Michael P. Sullivan is President and Chief Executive Officer,
International Dairy Queen, Inc., 7505 Metro Boulevard, Minneapolis, MN 55439,
and Director, Allianz Life. Dr. Gerhard G. Rupprecht is Chairman, Allianz
Lebensversicherungs-AG, P.O. Box D-70151, Stuttgart, Germany, Member of the
Board of Management of Allianz AG, and Director, Allianz Life.
The names, positions and five years of employment history of the
executive officers of Allianz Life are set forth below. Unless otherwise
specified below or as indicated above, the executive officers of Allianz Life
are United States citizens, have held the positions listed below since at
least five years prior to the date of this Proxy Statement and their business
addresses are 1750 Hennepin Avenue, Minneapolis, MN 55403.
Lowell C. Anderson is Chairman of the Board of Directors, President
and Chief Executive Officer of Allianz Life. Thomas D. Barta has been Vice
President, Controller Mass Marketing since March 10, 1999 (Second Vice
President, Controller Mass Marketing, July 1, 1998 to March 10, 1998; Second
37
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Vice President, Corporate Controller and Treasurer, October 17, 1996 to July
1, 1998; Second Vice President, Corporate Controller, April 1, 1994 to
October 17, 1996). Stephen P. Blaske has been Second Vice President and
Corporate Actuary since March 10, 1999 (Assistant Vice President, Corporate
Actuary, March 11, 1996 to March 10, 1999; Associate Actuary, September, 1991
to January, 1996, Aegon USA, 4333 Edgewood Road NE, Cedar Rapids, Iowa
52499). Edward J. Bonach has been Executive Vice President, Chief Financial
Officer since March 10, 1999 (Senior Vice President, Chief Financial Officer,
February 1, 1997 to March 10, 1999; Senior Vice President, Chief Financial
Officer and Treasurer, April 1, 1994 to February 1, 1997). Carol J. Buteyn
has been Second Vice President, Mass Marketing since April 1, 1998 (Assistant
Vice President, Director Mass Marketing, December 1, 1997 to April 1, 1998;
Assistant Vice President, Mass Marketing Insurance, April 1, 1996 to December
1, 1997; Senior Marketing Manager, Mass Marketing, January 1, 1994 to April
1, 1996). Timothy W. Edelbrock has been Second Vice President, Information
Systems since August 1, 1995 (Second Vice President, Information Systems Mass
Marketing, April 1, 1994 to August 1, 1995). Edward V. Fitzpatrick has Second
Vice President, PreNeed since March 10, 1999 (Assistant Vice President, Human
Resources, April 1, 1995 to March 10, 1999; Human Resources Manager, January
1, 1994 to April 1, 1995). Shannon D. Hendricks has been Vice President,
Corporate Controller and Treasurer since March 10, 1999 (Second Vice
President, Corporate Controller, July 1, 1998 to March 10, 1999; Second Vice
President, Controller Mass Marketing, April 1, 1994 to July 1, 1998). Paul M.
Howman has been Vice President, Underwriting Individual Marketing since April
1, 1997 (Vice President, Reinsurance, November 27, 1995 to April 1, 1997;
Assistant Vice President, Selection, Mutual of New York, 1 Mony Plaza,
Syracuse, NY 13212, 1992 to 1995). Robert S. James has been President,
Individual Marketing, since April 1, 1995 (President, Financial Markets, July
1, 1992 to April 1, 1995). James P. Kelso has been Vice President, Mass
Marketing since March 31, 1999 (Vice President, Variable Products, April 1,
1994 to March 31, 1999). Douglas M. Landry is Senior Vice President,
Reinsurance. James A. LoSapio is Vice President, Human Resources. Thomas J.
Lynch is Senior Vice President, Mass Marketing. Christopher H. Pinkerton has
been Vice President, Variable Products since April 12, 1999 (Vice President,
Marketing/Retail Marketing Officer, Nationwide Insurance Enterprise, One
Nationwide Plaza, Columbus, OH 43215, 1996 to 1999; Vice President, Sales
Operations, Nationwide Insurance Enterprise, 1992 to 1996). Kenneth P.
Schrapp has been Second Vice President and Actuary since April 1, 1999
(Second Vice President and Actuary, Mass Marketing, March 10, 1999 to April
1, 1999; Assistant Vice President and Actuary, April 1, 1996 to March 10,
1999; Assistant Vice President, Associate Actuary April 1, 1995 to April 1,
1996; Associate Actuary February 1, 1994 to April 1, 1995). Carolyn B. Shaw
has been Second Vice President, Individual Marketing Actuary since January 1,
1999 (Second Vice President, Preferred Life, April 1, 1995 to January 1,
1999; Assistant Vice President, Preferred Life, January 1, 1993 to April 1,
1995). Timothy J. Tongson has been Vice President, Individual Marketing since
January 1, 1999 (Second Vice President, Individual Marketing Actuary, October
1, 1995 to January 1, 1999; Second Vice President and Corporate Actuary,
April 1, 1994 to October 1, 1995). Dr. Robert W. Watson has been Vice
President, Chief Medical Director since July 1, 1998 (Vice President, Medical
Director, September 16, 1996 to July 1, 1998; Vice President, Chief Medical
Officer, April 1, 1991 to September 16, 1996). Michael T. Westermeyer has
been Vice President, Corporate Legal Officer and Secretary since July 1, 1997
(Second Vice President and Senior Counsel, April 1, 1997 to July 1, 1997;
Vice President and Senior Counsel, April 1, 1994 to April 1, 1997). Ronald L.
Wobbeking is President, Mass Marketing.
The sole director of Acquisition Sub is Edward J. Bonach. The
officers of Acquisition Sub are as follows: Edward J. Bonach, President, and
Michael T. Westermeyer, Secretary and Treasurer
INTEREST IN SECURITIES OF LIFE USA
The following table sets forth certain information with respect to
the beneficial ownership of the Common Stock as of April 30, 1999 by (a) all
persons known to Life USA to own beneficially more than 5% of the Common
Stock, (b) each executive officer and each director of Life USA, (c) all
executive officers and directors of Life USA as a group, (d) the Employee
Savings Plan (401(k) Plan) of Life USA, (e) Allianz Life and (f) the
executive officers of Allianz Life (two of whom are also directors of Life
USA.) No other executive officer or director of Allianz Life or its ultimate
parent, Allianz AG, beneficial owns the Common Stock. As of April 30, 1999,
there were 23,593,716 outstanding shares of Common Stock.
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<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OWNED PERCENTAGE OF OUTSTANDING SHARES AS
OF BENEFICIAL OWNER(1) OF APRIL 30, 1999
<S> <C> <C>
Hugh Alexander 34,502 (2) *
Stephen P. Blaske 250 (3) *
Jack H. Blaine 28,368 (4) *
Edward J. Bonach 300 *
Margery G. Hughes 261,592 (5) 1.1%
Robert S. James -- --
Barbara J. Lautzenheiser 26,500 (6) *
Robert W. MacDonald 793,963 3.4%
Daniel J. Rourke 429,533 1.8%
Ralph Strangis 79,000 (7, 8) *
Donald J. Urban 435,965 1.8%
Mark A. Zesbaugh 210,016 (9) *
FMR Corporation 1,960,000 (10) 8.3%
David L. Babson & Company, Inc. 2,132,977 (11) 9.0%
Dimensional Fund Advisors 1,280,900 (12) 5.4%
Allianz Life Insurance Company of 5,699,188 (13) 24.2%
North America
Life USA Holding, Inc. Employee 661,684 2.8%
Savings Plan (401(k))
All Directors and Executive Officers 2,299,739 (14) 9.8%
of Life USA as a Group (11 Persons)
</TABLE>
39
<PAGE>
- ------------------------------
* Indicates less than one percent (1%) of Common Stock outstanding on
April 30, 1999.
(1) The address of Messrs. MacDonald, Rourke, Urban, and Zesbaugh and Ms.
Hughes and the 401k Employee Savings Plan is Interchange North Building, 300
South Highway 169, Minneapolis, MN 55426. The address of Mr. Alexander is 216
16th Street, Suite 1300, Denver, CO 80202. The address of Mr. Blaine is 2864
Sutton Oaks Lane, Vienna, VA 22181. The address of Ms. Lautzenheiser is City
Place II, 11th Floor, Hartford, CT 06103. The address of Mr. Strangis is 5500
Norwest Center, 90 South Seventh Street, Minneapolis, MN 55402. The address
for Messrs. Blaske, Bonach and James and Allianz Life Insurance Company of
North America is 1750 Hennepin Avenue, Minneapolis, MN 55403. The principal
address of FMR corporation is 82 Devonshire Street, Boston, MA 02109. The
principal address for David L. Babson & Company, Inc. is One Memorial Drive,
Cambridge, MA 02142. The principal address of Dimensional Fund Advisors is
1299 Ocean Ave., 11th Floor, Santa Monica, CA 90401.
(2) Includes shares issuable upon the exercise of options to acquire 26,202
shares of Common Stock at prices ranging from $6.00 to $17.75 per share which
are presently exercisable and options to acquire 1,000 shares of Common Stock
at $10.25 which vest on July 14, 1999. Excludes shares issuable upon the
exercise of options to acquire 1,000 shares of Common Stock at $10.3125 which
vest on October 13, 1999.
(3) Mr. Blaske is a Second Vice President and Corporate Actuary of Allianz Life.
(4) Includes shares issuable upon the exercise of options to acquire 24,368
shares of Common Stock at prices ranging from $6.00 to $16.25 per share which
are presently exercisable. Includes 1,000 shares at $10.25 which vest on July
14, 1999. Excludes share issuable upon the exercise of options to acquire
1,000 shares of Common Stock at $10.3125 which vest on October 13, 1999.
(5) Includes shares issuable upon the exercise of options to acquire 252,000
shares of Common Stock at prices ranging from $10.50 to $24.00 per share
which are presently exercisable. Excludes shares issuable upon the exercise
of options to acquire 25,000 shares of Common Stock at $16.3125 which vest on
December 22, 2000.
(6) Includes shares issuable upon the exercise of options to acquire 22,000
shares of Common Stock at prices ranging from $8.25 to $17.75 per share which
are presently exercisable and options to acquire 1,000 shares of Common Stock
at $10.25 per share which vest on July 14, 1999. Excludes shares issuable
upon the exercise of options to acquire 1,000 shares of Common Stock at
$10.3125 which vest on October 13, 1999.
(7) Includes shares issuable upon the exercise of options to acquire 20,000
shares of Common Stock at prices ranging from $8.25 to $17.75 per share which
are presently exercisable and options to acquire 1,000 shares of Common Stock
at $10.25 per share which vest on July 14, 1999. Excludes shares issuable
upon the exercise of options to acquire 1,000 shares of Common Stock at
$10.3125 which vest on October 13, 1999.
(8) Other members of the law firm of Kaplan, Strangis and Kaplan, P.A., of
which Mr. Strangis is a member and which serves as counsel for Life USA,
beneficially own an aggregate of 225,830 shares of Common Stock or, with Mr.
Strangis' shares, including the shares issuable upon exercise of options
presently exercisable or exercisable on July 14, 1999, 302,830 shares
(approximately 1.0% of the outstanding shares of Common Stock at February 12,
1999).
(9) Includes shares issuable upon the exercise of options to acquire 198,638
shares of Common Stock at prices ranging from $6.00 to $18.75 per share which
are presently exercisable. Excludes shares issuable upon the exercise of the
following options: options to acquire 33,334 shares of Common Stock at
$11.5625 per share which vest on January 15, 2000.
(10) The information set forth herein is based on a Schedule 13G, dated
February 11, 1999, filed with the Securities and Exchange Commission.
(11) The information set forth herein is based on a Schedule 13G, dated
January 21, 1999, filed with the Securities and Exchange Commission.
(12) The information set forth herein is based on a Schedule 13G, dated
February 11, 1999, filed with the Securities and Exchange Commission.
(13) The information set forth herein is based on a Schedule 13D, dated
February 26, 1999, filed with the Securities and Exchange Commission.
(14) Includes 547,208 shares issuable upon the exercise of options presently
exercisable or exercisable within 60 days.
40
<PAGE>
CERTAIN TRANSACTIONS IN COMMON STOCK AND STOCK OPTIONS
No transactions in Common Stock or Stock Options have been effected
during the 60 days preceding the date of the Proxy Statement by Life USA or
by the persons named in the "Interest in Securities of Life USA" section
except that Hugh Alexander, Jack Blaine, Barbara Lautzenheiser and Ralph
Strangis have exercised the following stock options:
[DESCRIBE WHEN PROXY DATE IS KNOWN].
The following table sets forth shares of Common Stock purchased by Life USA
under its stock repurchase program since the commencement of Life USA's
second full fiscal year preceding the date of this Proxy Statement, the
amount of shares purchased, the range of prices paid for the shares and the
average purchase price per share for each quarterly period:
<TABLE>
<CAPTION>
Purchase Price
---------------------------------------------------------
Quarter Shares Purchased Total Purchase Price High Low Average
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
First Quarter: 1,440,100 $ 16,959,409 $ 12.88 $ 10.70 $ 11.78
Second Quarter
(through April 22,
1999): 119,200 $ 1,305,623 $ 11.17 $ 10.50 $ 10.95
1998
Third Quarter: 1,297,400 $ 16,030,182 $ 13.94 $ 11.29 $ 12.36
Fourth Quarter: 528,300 $ 6,796,369 $ 13.56 $ 12.06 $ 12.86
TOTAL: 3,385,000 $ 41,091,583
</TABLE>
The following table sets forth shares of Common Stock purchased or acquired
by Allianz Life since the commencement of Life USA's second full fiscal year
preceding the date of this Proxy Statement, the amount of shares purchased,
the range of prices paid for the shares and the average purchase price per
share for each quarterly period:
<TABLE>
<CAPTION>
Purchase Price
---------------------------------------------------------
Quarter Shares Purchased Total Purchase Price High Low Average
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
First Quarter: 395,062 $ 10,000,006.88 $25.3125 $25.3125 $25.3125
1998
First Quarter: 4,597,964 $ 65,107,439.42 $ 17.06 $ 12.34 $ 14.16
Second Quarter: 200,000 $ 2,840,950.50 $15.3125 $ 12.04 $ 14.20
Third Quarter: 506,092 $ 11,142,015.50 $ 24.63 $ 11.42 $ 22.02
TOTAL: 5,699,118 $ 89,090,412
</TABLE>
EXPENSES OF THE TRANSACTION
The aggregate fees and expenses paid and estimated to be paid by
Life USA and Allianz Life in connection with the Merger and related
transactions are as follows:
<TABLE>
<S> <C>
Investment Banking Fee $ 350,000 (1)
Legal and Accounting 775,000 (2)
Printing and Distribution 40,000
SEC and Regulatory Filings 128,702
Miscellaneous 20,000
------------
Total $ 1,213,702
</TABLE>
(1) DLJ is entitled to reimbursement of out-of-pocket expenses incurred in
connection with its engagement (including fees and expenses of counsel) not
in excess of $25,000.
(2) Includes an estimated $650,000 payable to Kaplan, Strangis & Kaplan, P.A.
of which Ralph Strangis, a director of Life USA, and Bruce J. Parker and
Catherine A. Bartlett, Assistant Secretaries of Life USA, are members.
Under the Merger Agreement, the printing expenses and SEC and
regulatory filing fees are shared equally by Life USA and Allianz Life
regardless of which party incurred the expense or fee.
41
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP, independent certified public accountants, are the
independent auditors for Life USA. A representative of Ernst & Young, LLP,
will be available at the Special Meeting to answer questions.
WHERE YOU CAN FIND MORE INFORMATION
Life USA files annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy
any such reports, statements or other information at the Commission's public
reference rooms in Washington, DC, New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. Life USA's Commission filings are also available to
the public from commercial document retrieval services and at the world wide
web site maintained by the Commission at http://www.sec.gov. Reports, proxy
statements and other information concerning Life USA also may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, DC 2006.
The Commission allows Life USA to incorporate by reference
information into this document, which means that Life USA can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be a part of this document, except for any information superseded
by information contained directly in this document. This document
incorporates by reference certain documents that Life USA has previously
filed with the Commission. These documents contain important business
information about Life USA and its financial condition.
Life USA may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Life USA or the Commission
or the Commissions World Wide Web site described above. Documents
incorporated by reference are available from Life USA without charge,
excluding all exhibits, unless specifically incorporated by reference as an
exhibit to this document. Shareholders may obtain documents incorporated by
reference in this document by requesting them in writing or by telephone at
the following address:
Life USA Holding, Inc.
300 South Highway 169, Suite 95
95 Interchange North Building
Minneapolis, MN 55426
Attention: Mark A. Zesbaugh, Chief Financial Officer
Telephone: (612) 546-7386
Life USA, Allianz Life and Acquisition Sub have filed a Schedule
13E-3 with the Commission with respect to the Merger. The Schedule 13E-3,
including any amendments and exhibits filed or incorporated by reference as a
part thereof, is available for inspection or copying as set forth above.
Statements contained in this Proxy Statement or in any document incorporated
herein by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete and in each
instance reference is made to such contract or other document filed as an
exhibit to the Schedule 13E-3 or such other document, and each such statement
shall be deemed qualified in its entirely by such reference.
42
<PAGE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM LIFE USA, PLEASE DO SO
AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER
TO RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Special Meeting. Life
USA has not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
_______, 1999. You should not assume that the information contained in this
document is accurate as of any date other than that date, and the mailing of
this document to shareholders does not create any implication to the
contrary. This Proxy Statement does not constitute a solicitation of a proxy
in any jurisdiction where, or to or from any person to whom, it is unlawful
to make such proxy solicitation in such jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Life
USA are incorporated by reference in this Proxy Statement:
(i) Life USA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(ii) Life USA's Quarterly Report on Form 10-Q for quarter ended March
31, 1999; and
(iii) Life USA's Current Report on Form 8-K filed on May 19, 1999.
All documents filed by Life USA with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of
this document and prior to the date of the Special Meeting will be deemed to
be incorporated by reference in this document. Information filed with the
Commission in future documents will automatically update and supersede the
information in this document.
SHAREHOLDER PROPOSALS
If the Merger is not completed for any reason, proposals of
shareholders intended to be presented at the 2000 Annual Meeting of
Shareholders must be received by Mark A. Zesbaugh, Executive Vice President
and Chief Financial Officer, Life USA Holding, Inc., 300 North Highway 169,
Suite 95, Minneapolis, Minnesota 55426 on or prior to November 5, 1999 to be
eligible for inclusion in Life USA's Proxy Statement and Proxy Card relating
to that meeting. Life USA is not required to include in its Proxy Statement
and Proxy Card for the 2000 Annual Meeting any shareholder proposals which
do not meet all of the requirements then in effect for inclusion.
43
<PAGE>
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting. If other matters do properly come before the meeting, or any
adjournment or adjournments thereof, it is the intention of the persons named
in the proxy to vote on such matters according to their best judgment unless
the authority to do so is withheld in such proxy.
By Order of the Board of Directors
Robert W. MacDonald
Chairman and Chief Executive Officer
44
<PAGE>
APPENDIX TO THE PROXY STATEMENT
<TABLE>
<S> <C>
APPENDIX A -- Agreement and Plan of Merger......................................... A-1
APPENDIX B -- Opinion of Donaldson Lufkin & Jenrette Securities Corporation........ B-1
APPENDIX C -- Text of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporations Act............................................ C-1
</TABLE>
45
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA,
NOVA NEW CO.
AND
LIFE USA HOLDING, INC.
DATED AS OF MAY 17, 1999
A-1
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<S> <C>
Recitals A-5
ARTICLE I THE MERGER A-5
Section 1.1 The Merger A-5
Section 1.2 Effective Time A-6
Section 1.3 Effects of the Merger A-6
Section 1.4 Charter and By-Laws; Directors and Officers A-6
Section 1.5 Conversion of Securities A-6
Section 1.6 Payment Agent A-7
Section 1.7 Transfer Taxes; Withholding A-8
Section 1.8 Return of Payment Fund A-8
Section 1.9 No Further Ownership Rights in Company Common Stock A-8
Section 1.10 Closing of Company Transfer Books A-8
Section 1.11 Lost Certificates A-8
Section 1.12 Further Assurances A-9
Section 1.13 Closing A-9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB A-10
Section 2.1 Organization, Standing and Power A-10
Section 2.2 Authority A-10
Section 2.3 Consents and Approvals; No Violation A-10
Section 2.4 Proxy Statement A-11
Section 2.5 Actions and Proceedings A-11
Section 2.6 Operations of Sub A-12
Section 2.7 Brokers A-12
Section 2.8 Financing A-12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY A-12
Section 3.1 Organization, Standing and Power A-12
Section 3.2 Capital Structure A-13
Section 3.3 Authority A-13
Section 3.4 Consents and Approvals; No Violation A-14
Section 3.5 SEC Documents and Other Reports A-15
Section 3.6 Proxy Statement A-16
Section 3.7 Absence of Certain Changes or Events A-16
Section 3.8 Pen-nits and Compliance A-16
Section 3.9 Tax Matters A-17
Section 3.10 Actions and Proceedings A-18
Section 3.11 Certain Agreements A-18
Section 3.12 ERISA A-19
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
Section 3.13 Compliance with Worker Safety and Environmental Laws A-20
Section 3.14 Labor Matters. A-20
Section 3.15 Intellectual Property A-21
Section 3.16 State Takeover Statutes; Certain Charter Provisions A-21
Section 3.17 Required Vote of Company Stockholders A-21
Section 3.18 Year 2000 Compliance A-21
Section 3.19 Brokers A-22
Section 3.20 Insurance Coverage A-22
Section 3.21 Conflicts of Interest A-22
ARTICLE IV COVENANTS A-22
Section 4.1 Conduct of Business Pending the Merger A-22
Section 4.2 No Solicitation A-25
Section 4.3 Third Party Standstill Agreements A-26
ARTICLE V ADDITIONAL AGREEMENTS A-26
Section 5.1 Stockholder Meeting. A-26
Section 5.2 Preparation of the Proxy Statement. A-26
Section 5.3 Access to Information A-26
Section 5.4 Fees and Expenses A-27
Section 5.5 Company Stock Options A-28
Section 5.6 Best Efforts A-28
Section 5.7 Public Announcements A-29
Section 5.8 Real Estate Transfer and Gains Tax A-29
Section 5.9 Indemnification; Directors and Officers Insurance A-30
Section 5.10 Notification of Certain Matters A-30
Section 5.11 Employee Benefit Plans and Agreements A-30
Section 5.12 Stock Purchase Agreement A-31
Section 5.13 Dissenting Shares A-31
Section 5.14 Chief Executive Officer A-32
Section 5.16 Convertible Debentures A-32
Section 5.17 Advance of Funds A-32
ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER A-32
Section 6.1 Conditions to Each Party's Obligation to Effect
the Merger A-32
Section 6.2 Conditions to Obligation of the Company to Effect
the Merger A-33
Section 6.3 Conditions to Obligations of Parent and Sub to Effect
the Merger A-34
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER A-34
Section 7.1 Termination A-34
Section 7.2 Effect of Termination A-36
Section 7.3 Amendment A-36
Section 7.4 Waiver A-36
ARTICLE VIII GENERAL PROVISIONS A-37
Section 8.1 Non-Survival of Representations and Warranties. A-37
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
Section 8.2 Notices. A-38
Section 8.3 Interpretation A-38
Section 8.4 Counterparts A-38
Section 8.5 Entire Agreement; No Third-Party Beneficiaries A-38
Section 8.6 Governing Law A-38
Section 8.7 Assignment A-38
Section 8.8 Severability A-38
Section 8.9 Enforcement of this Agreement A-39
Signatures A-39
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1999 (the
"Agreement"), is executed by and among ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA, a Minnesota corporation ("Parent"), NOVA NEW CO., a Minnesota
corporation and a wholly owned subsidiary of Parent ("Sub"), and LIFE USA
HOLDING, INC., a Minnesota corporation (the "Company") (Sub and the Company
being hereinafter collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have approved and declared advisable the merger of Sub with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth herein, whereby each issued and outstanding share of common stock, par
value $.01 per share, of the Company ("Company Common Stock") not owned
directly or indirectly by Parent or the Company other than Dissenting Shares
(as hereinafter defined) will be converted into a right to receive $20.75 per
share; and
WHEREAS, the respective Boards of Directors of Parent and the
Company have determined that the Merger is in furtherance of and consistent
with their respective long-term business strategies and is in the best
interest of their respective stockholders.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions hereof, and in accordance with the Minnesota Business Corporation
Act (the "MBCA"), Sub shall be merged with and into the Company at the
Effective Time (as hereinafter defined). Following the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub in accordance with the MBCA.
Notwithstanding anything to the contrary herein, at the election of Parent,
any direct wholly owned Subsidiary (as hereinafter defined) of Parent may be
substituted for Sub as a constituent corporation in the Merger; provided that
such substituted corporation is a Minnesota corporation which is formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement and has engaged in
A-5
<PAGE>
no other business activities. In such event, the parties agree to execute an
appropriate amendment to this Agreement, in form and substance reasonably
satisfactory to Parent and the Company, in order to reflect such
substitution.
Section 1.2 EFFECTIVE TIME. The Merger shall become effective
when Articles of Merger (the "Articles of Merger"), executed in accordance
with the relevant provisions of the MBCA, are filed with the Secretary of
State of the State of Minnesota; PROVIDED, HOWEVER, that, upon the mutual
consent of the Constituent Corporations, the Articles of Merger may provide
for a later date or time of effectiveness of the Merger. When used in this
Agreement, the term "Effective Time" shall mean the date and time at which
the Articles of Merger are accepted for record or such later date or time
established by the Articles of Merger. The filing of the Articles of Merger
shall be made on the date of the Closing (as hereinafter defined).
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in Section 302A.641 subd. 2 of the MBCA.
Section 1.4 CHARTER AND BY-LAWS; DIRECTORS AND OFFICERS
(a) ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended so that (i) Article III of such Articles
of Incorporation reads in its entirety as follows: "The aggregate number of
shares of common stock which this corporation shall have authority to issue
is One Hundred (100) shares, par value $.01 per share." and (ii) Article IV
of such Articles of Incorporation is deleted in its entirety. As so amended,
such Articles of Incorporation of the Company shall be the Articles of
Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law. At the Effective Time, the
By-Laws of the Company, as in effect immediately prior to the Effective Time,
shall be amended and restated to read as did the By-Laws of Sub immediately
prior to the Effective Time, except that the name of the Surviving
Corporation shall remain unchanged. As so amended and restated, such By-Laws
of the Company shall be the By-Laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(b) DIRECTORS. The directors of Sub at the Effective Time of the
Merger shall be the directors of the Surviving Corporation, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be. The officers of the Company at
the Effective Time of the Merger shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
Section 1.5 CONVERSION OF SECURITIES. As of the Effective Time,
by virtue of the Merger and without any action on the part of Sub, the
Company or the holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value
$.01 per share, of Sub shall be converted into one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation.
A-6
<PAGE>
(b) All shares of Company Common Stock that are held in the
treasury of the Company or by any wholly owned Subsidiary of the Company and
any shares of Company Common Stock owned by Parent shall be canceled and no
cash or other consideration shall be delivered in exchange therefor.
(c) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled in
accordance with Section 1.5(b) and Dissenting Shares) shall be converted into
the right to receive, upon surrender of the certificate (the "Certificate")
formerly representing such share of Company Common Stock, an amount of cash
equal to $20.75 (the "Per Share Amount"). All such shares of Company Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a Certificate or
Certificates formerly representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the cash to be paid
to such holder pursuant to Article I hereof (the "Merger Consideration")
upon the surrender of a Certificate or Certificates in accordance with
Section 1.6 hereof.
(d) Each Convertible Debenture (as hereinafter defined) shall
cease to be convertible into shares of Company Common Stock and instead shall
only be convertible into a right to receive from Parent an amount of cash
equal to the Merger Consideration the holder of such Convertible Debenture
would have received pursuant to Article I hereof had such Convertible
Debenture been converted into Company Common Stock immediately prior to the
Effective Time.
(e) The Dissenting Shares shall be handled in accordance with
Section 5.13 hereof.
Section 1.6 PAYMENT AGENT
(a) EXCHANGE OF CERTIFICATES. Parent shall authorize a commercial
bank (or such other person or persons as shall be reasonably acceptable to
Parent and the Company) to act as Payment Agent hereunder (the "Payment
Agent"). As soon as practicable after the Effective Time, Parent shall
deposit with the Payment Agent, in trust for the holders of shares of Company
Common Stock converted in the Merger and holders of Company Stock Options (as
hereinafter defined), an amount of cash equal to or exceeding the aggregate
Merger Consideration to be paid to holders of Company Common Stock pursuant
to Article I hereof and any Option Consideration (as hereinafter defined) to
be paid to holders of Company Stock Options pursuant to the terms of Section
5.5 (such amount hereinafter the "Payment Fund").
(b) EXCHANGE PROCEDURES. Parent shall instruct the Payment Agent,
as soon as practicable after the Effective Time, to mail to each record
holder of a Certificate or Certificates a letter of transmittal, which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Payment Agent, and shall contain instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender for cancellation to the Payment Agent of all Certificates held by
any record holder of a Certificate, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a check representing the Merger Consideration, and any
Certificate so surrendered shall forthwith
A-7
<PAGE>
be canceled. Holders of Company Stock Options shall receive payment, if any,
for such Company Stock Options pursuant to the procedures set forth in
Section 5.5.
Section 1.7 TRANSFER TAXES; WITHHOLDING. If any Merger
Consideration is to be paid to any person other than to the person named in
the Certificate surrendered in exchange therefor, 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 Payment Agent any transfer or other taxes required
by reason of the payment of the Merger Consideration to a person other than
to the person named in the Certificate surrendered, or shall establish to the
satisfaction of the Payment Agent that such tax has been paid or is not
applicable. Parent or the Payment 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 or holder of a Company Stock
Option such amounts as Parent or the Payment Agent is required to deduct and
withhold with respect to the making of such payment under the Internal
Revenue Code of 1986, as amended (the "Code") or under any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
by Parent or the Payment 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 or the holder of a Company Stock Option in
respect of which such deduction and withholding was made by Parent or the
Payment Agent.
Section 1.8 RETURN OF PAYMENT FUND. Any portion of the Payment
Fund which remains undistributed for six months after the Effective Time
shall be delivered to Parent, upon demand of Parent, and any such former
stockholders who have not theretofore complied with this Article I and
holders of Company Stock Options who have not theretofore complied with
Section 5.5 hereof shall thereafter look only to Parent for payment of their
claim for any Merger Consideration or Option Consideration, as the case may
be. Neither Parent nor the Surviving Corporation shall be liable to any
former holder of Company Common Stock or holder of a Company Stock Option for
any cash held in the Payment Fund which is delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.
The payment of the Merger Consideration upon surrender of any Certificate
shall be deemed to constitute full satisfaction of all rights pertaining to
the shares of Company Common Stock represented by such Certificate.
Section 1.10 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective
Time, the stock transfer books of the Company shall be closed and no transfer
of shares of Company Common Stock shall thereafter be made on the records of
the Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, the Payment Agent or the Parent, such Certificates
shall be canceled and exchanged as provided in this Article I.
Section 1.11 LOST CERTIFICATES. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed and,
if required by Parent or the Payment Agent, the posting by such person of a
bond, in such reasonable amount as Parent or the Payment Agent may direct as
A-8
<PAGE>
indemnity against any claim that may be made against them with respect to
such Certificate, the Payment Agent will pay the Merger Consideration in
exchange for such lost, stolen or destroyed Certificate.
Section 1.12 FURTHER ASSURANCES. If at any time after the
Effective Time the Surviving Corporation shall consider or be advised that
any deeds, bills of sale, assignments or assurances or any other acts or
things are necessary, desirable or proper (a) to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of either of the Constituent Corporations, or (b)
otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of either of the
Constituent Corporations, all such deeds, bills of sale, assignments and
assurances and to do, in the name and on behalf of either Constituent
Corporation, all such other acts and things as may be necessary, desirable or
proper to vest, perfect or confirm the Surviving Corporation's right, title
or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and
otherwise to carry out the purposes of this Agreement.
Section 1.13 CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") and all actions specified in
this Agreement to occur at the Closing shall take place at the offices of
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota, at
10:00 a.m., local time, no later than the second business day following the
day on which the last of the conditions set forth in Article VI shall have
been fulfilled or waived (if permissible) or at such other time and place as
Parent and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 2.1 ORGANIZATION, STANDING AND POWER. Each of Parent
and Sub is a corporation duly organized, validly existing and in good
standing under the laws of its place of incorporation and has the requisite
corporate power and authority to carry on its business as now being
conducted. Parent is duly qualified to do business, and is in good standing
in each jurisdiction where the character of the properties owned or held
under lease by it or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect (as
hereinafter defined) on Parent. For purposes of this Agreement (a) "Material
Adverse Change" or "Material Adverse Effect" means, when used with respect to
Parent or the Company, as the case may be, any change or effect that is or
could reasonably be expected (as far as can be foreseen at the time) to be
materially adverse to the business, assets, liabilities, financial condition
or results of operations of Parent and its Subsidiaries, taken as a whole, or
the Company and its Subsidiaries, taken as a whole, as the case may be;
PROVIDED, HOWEVER, that in determining whether a Material Adverse Change or
Material Adverse Effect has occurred with respect to either referenced party,
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any change or effect, to the extent it is attributable to changes in
prevailing interest rates or to any change in general economic conditions
affecting companies in industries similar to the industries in which the
Company and its Subsidiaries or Parent and its Subsidiaries, as the case may
be, operate, shall not be considered when determining if a Material Adverse
Change or Material Adverse Effect has occurred; and (b) "Subsidiary" means
any corporation, partnership, limited liability company, joint venture or
other legal entity of which Parent or the Company, as the case may be (either
alone or through or together with any other Subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation, partnership, limited
liability company, joint venture or other legal entity.
Section 2.2 AUTHORITY. On or prior to the date of this
Agreement, the Boards of Directors of Parent and Sub have each declared the
merger advisable and fair to and in the best interest of Parent and Sub, and
the Board of Directors of Sub has recommended the adoption of this Agreement
by Parent as sole stockholder of Sub and Parent has approved this Agreement
as sole stockholder of Sub. Each of Parent and Sub has the requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent or Sub, as the case may be,
subject to the filing of the Articles of Merger with the Secretary of State
of the State of Minnesota. This Agreement has been duly executed and
delivered by Parent and Sub and (assuming the valid authorization, execution
and delivery of this Agreement by the Company and the validity and binding
effect of the Agreement on the Company) constitutes the valid and binding
obligations of each of Parent or Sub, as the case may be, enforceable against
them in accordance with its terms, except as the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and to judicial limitations on
the enforcement of specific performance and other equitable remedies.
Section 2.3 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that
all consents, approvals, authorizations and other actions described in this
Section 2.3 have been obtained and all filings and obligations described in
this Section 2.3 have been made, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give to others a
right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets
of Parent or any of its Subsidiaries under, any provision of (i) the Articles
of Incorporation or the By-Laws of Parent or the Articles of Incorporation or
By-Laws of Sub, (ii) any provision of the comparable charter or organization
documents of any of Parent's Subsidiaries, (iii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or
any of its Subsidiaries or (iv) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or any of its Subsidiaries
or any of their respective properties or assets, other than, in the case of
clauses (ii), (iii) or (iv), any such violations, defaults, rights, liens,
security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect
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on Parent, materially impair the ability of Parent or Sub to perform their
respective obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state),
foreign or supranational court, commission, governmental body, regulatory
agency, authority or tribunal (a "Governmental Entity") is required by or
with respect to Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Parent or Sub or is necessary for
the consummation of the Merger and the other transactions contemplated by
this Agreement, except for (i) in connection, or in compliance, with the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the
"Exchange Act"), (ii) the filing of the Articles of Merger with the Secretary
of State of the State of Minnesota and appropriate documents with the
relevant authorities of other states in which the Company or any of its
Subsidiaries is qualified to do business, (iii) such filings, authorizations,
orders, notices and approvals as may be required by state takeover laws (the
"State Takeover Approvals") and state insurance laws (the "State Insurance
Approvals"), and (iv) such consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent, materially impair the ability of Parent or Sub to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby.
Section 2.4 PROXY STATEMENT. None of the information to be
supplied by Parent or Sub for inclusion or incorporation by reference in the
Schedule 13e-3 (as hereinafter defined) or the proxy statement relating to
the Stockholder Meeting (as hereinafter defined) (together with any
amendments or supplements thereto, the "Proxy Statement") will, (i) in the
case of the Schedule 13e-3, at the time of its filing, 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 not
misleading or (ii) in the case of the Proxy Statement, at the time of the
mailing of the Proxy Statement, at the time of the Stockholder Meeting and at
the Effective Time, 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. If at any time prior to the Effective
Time any event with respect to Parent, its officers and directors or any of
its Subsidiaries shall occur, which is required to be described in the
Schedule 13e-3 or the Proxy Statement, such event shall be so described, and,
in the case of the Schedule 13e-3, an appropriate amendment or supplement
shall be promptly filed with the SEC and, in the case of the Proxy Statement,
Parent will promptly give notice of such event to the Company.
Section 2.5 ACTIONS AND PROCEEDINGS. There are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving Parent or any of its Subsidiaries, or against or
involving any of the present or former directors, officers, employees,
consultants, agents or stockholders of Parent or any of its Subsidiaries, as
such, or any of its or their properties, assets or business that,
individually or in the aggregate, would materially impair the ability of
Parent to perform its obligations hereunder. As of the date of this
Agreement, there are no actions, suits or claims or legal, administrative or
arbitrative proceedings or investigations pending or, to the Knowledge of
Parent, threatened against or
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involving Parent or any of its Subsidiaries or any of its or their present or
former directors, officers, employees, consultants, agents or stockholders,
as such, or any of its or their properties, assets or business that,
individually or in the aggregate, would materially impair the ability of
Parent to perform its obligations hereunder. As of the date hereof, there
are no actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending or, to the
Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries or any of its or their present or former officers, directors,
employees, consultants, agents or stockholders, as such, or any of its or
their properties, assets or business relating to the transactions
contemplated by this Agreement. For purposes of this Agreement, "Knowledge
of Parent" means the actual knowledge of the executive officers of Parent.
Section 2.6 OPERATIONS OF SUB. Sub is a direct, wholly owned
subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
Section 2.7 BROKERS. No broker, investment banker or other
person is entitled to any broker's, finder's or other similar fee or
commission in connection with the transaction contemplated by this Agreement
based upon the arrangements made by or on behalf of Parent or Sub.
Section 2.8 FINANCING. Parent has sufficient capital resources
necessary to perform its obligations under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 ORGANIZATION, STANDING AND POWER. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota and has the requisite corporate power and
authority to carry on its business as now being conducted. Each Subsidiary
of the Company is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
corporate (in the case of a Subsidiary that is a corporation) or other power
and authority to carry on its business as now being conducted, except where
the failure to be so organized, existing or in good standing or to have such
power or authority would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company and each of its
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes 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 Company.
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Section 3.2 CAPITAL STRUCTURE. As of the date hereof, the
authorized capital stock of the Company consists of 60,000,000 shares of
Company Common Stock and 15,000,000 shares of undesignated preferred stock,
par value $.01 per share ("Company Preferred Stock"). At the close of
business on March 31, 1999, (i) 23,920,839 shares of Company Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable and free of preemptive rights, (ii) no shares of Company Common
Stock were held in the treasury of the Company or by Subsidiaries of the
Company and (iii) 5,695,790 shares of Company Common Stock were reserved for
issuance pursuant to outstanding options under the Company's stock plans
described under Section 3.2 of the letter dated the date hereof and delivered
on the date hereof by the Company to Parent, which letter relates to this
Agreement and is designated therein as the Company Letter (the "Company
Letter") (collectively, the "Company Stock Plans"). Except as set forth in
Section 3.2 of the Company Letter, no options have been granted since March
31, 1999. At the close of business on March 31, 1999, the Company's
outstanding 8% convertible subordinated debentures (the "Convertible
Debentures") were convertible into approximately 231,373 shares of Company
Common Stock. Except as set forth in Section 3.2 of the Company Letter, the
Company Stock Plans are the only benefit plans of the Company or its
Subsidiaries under which any securities of the Company or any of its
Subsidiaries are issuable. No shares of Company Preferred Stock are
outstanding. As of the date of this Agreement, except (i) as set forth above
or (ii) as set forth in Section 3.2 of the Company Letter, no shares of
capital stock or other voting securities of the Company or any Subsidiary
were issued, reserved for issuance or outstanding. As of the date of this
Agreement, except as set forth in Section 3.2 of the Company Letter, there
are no options, warrants, calls, rights or agreements to which the Company or
any of its Subsidiaries is a party or by which any of them is bound
obligating the Company or any of its Subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock
of the Company or any of its Subsidiaries or obligating the Company or any of
its Subsidiaries to grant, extend or enter into any such option, warrant,
call, right or agreement. Each outstanding share of capital stock of each
Subsidiary of the Company that is a corporation is duly authorized, validly
issued, fully paid and nonassessable and, except as set forth in Section 3.2
of the Company Letter, each such share is owned by the Company or another
Subsidiary of the Company, free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever.
Other than the Convertible Debentures, the Company does not have any
outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on
any matter. Exhibit 21 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, as filed with the SEC (the "Company Annual
Report"), is a true, accurate and correct statement in all material respects
of all of the information as of December 31, 1998 required to be set forth
therein by the regulations of the SEC.
Section 3.3 AUTHORITY. On or prior to the date of this
Agreement, the Board of Directors of the Company has declared the Merger
advisable and fair to and in the best interest of the Company and its
stockholders, approved this Agreement in accordance with the MBCA, resolved
to recommend the adoption of this Agreement by the Company's stockholders and
directed that this Agreement be submitted to the Company's stockholders for
adoption. The Company has all requisite corporate power and authority to
enter into this Agreement and,
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subject to approval by the stockholders of the Company of this Agreement, to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to (x) approval of this
Agreement by the stockholders of the Company and (y) the filing of the
Articles of Merger with the Secretary of State of the State of Minnesota.
This Agreement has been duly executed and delivered by the Company and
(assuming the valid authorization, execution and delivery of this Agreement
by Parent and Sub and the validity and binding effect of the Agreement on
Parent and Sub) constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and to judicial limitations on the enforcement of specific performance and
other equitable remedies. The filing of the Proxy Statement with the SEC has
been duly authorized by the Company's Board of Directors.
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that
all consents, approvals, authorizations and other actions described in this
Section 3.4 have been obtained and all filings and obligations described in
this Section 3.4 have been made, except as set forth in Section 3.4 of the
Company Letter, the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give to others a right
of termination, cancellation or acceleration of any obligation or the loss of
a material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under, any provision of (i) the Articles
of Incorporation or By-Laws of the Company, (ii) any provision of the
comparable charter or organization documents of any of the Company's
Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its Subsidiaries or
(iv) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (ii),
(iii) or (iv), any such violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company, materially impair
the ability of the Company to perform its obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby or thereby.
No filing or registration with, or authorization, consent or approval of, any
Governmental Entity is required by or with respect to the Company or any of
its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or is necessary for the consummation of the Merger
and the other transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the HSR Act, the
Securities Act and the Exchange Act, (ii) the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota and appropriate
documents with the relevant authorities of other states in which the Company
or any of its Subsidiaries is qualified to do business, (iii) such filings,
authorizations, notices, orders and approvals as may be required to obtain
the State Takeover Approvals and State Insurance Approvals, (iv) applicable
requirements, if any, of Blue Sky Laws and the Nasdaq National Market or as
may be required pursuant to the laws, rules and regulations of states and
state
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commissions regulating the business of securities broker-dealers, and (v)
such other consents, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not, individually
or in the aggregate, have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has
filed all required documents with the SEC since January 1, 1996 (the "Company
SEC Documents"). Except as set forth in Section 3.5 of the Company Letter,
as of their respective dates, the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and, at the respective times they were filed, none
of the Company SEC Documents contained any untrue statement of a material
fact or omitted 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. Except as set forth in Section 3.5 of
the Company Letter, the consolidated financial statements (including, in each
case, any notes thereto) of the Company included in the Company SEC Documents
(the "Financial Statements") complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles (except, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto), are in accordance with the books and
records of the Company and fairly presented in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as at the respective dates thereof and the consolidated results
of their operations and their consolidated cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein). Except as
disclosed in the Company SEC Documents or as required by generally accepted
accounting principles, the Company has not, since December 31, 1998, made any
change in the accounting practices or policies applied in the preparation of
financial statements. Except as and to the extent set forth in Section 3.5
of the Company Letter or in the Company Annual Report, neither the Company
nor any of its Subsidiaries had as of December 31, 1998 any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that would be required by generally accepted accounting principles to be
reflected on the consolidated balance sheet of the Company and its
Subsidiaries (including the notes thereto) included in the Financial
Statements that are not so reflected. The Company has delivered to Parent the
following statutory financial statements of Life USA Insurance Company (the
"Insurance Subsidiary") which have been filed with insurance regulators (the
"Statutory Statements"): (a) the Statutory Quarterly Statement for the
quarter ended March 31, 1999 for the Insurance Subsidiary as filed with state
insurance regulatory authorities, and (b) the Annual Statutory Statements for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 as filed with
state insurance regulatory authorities. The Statutory Statements (i) fairly
present the financial position of the Insurance Subsidiary and the results of
its operations as of the dates thereof and periods then ended, (ii) were
prepared in accordance with statutory accounting principles prescribed or
permitted at the date of such financial statements by the insurance
regulatory authority of its state of domicile, and (iii) all investments in
stocks and bonds shown thereon were carried at values determined in
accordance with the National Association of Insurance Commissioners'
guidelines.
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Section 3.6 PROXY STATEMENT. The Proxy Statement will comply in
all material respects with the provisions of the Exchange Act. Neither the
Proxy Statement (other than with respect to information contained in the
Proxy Statement that is provided to the Company by Parent for inclusion in
the Proxy Statement) nor any of the information supplied by the Company for
inclusion or incorporation by reference in the Schedule 13e-3, together with
any amendments or supplements thereto, will (i) in the case of the Proxy
Statement, at the time of the mailing of the Proxy Statement, at the time of
the Stockholder Meeting and at the Effective Time, 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, and
(ii) in the case of information supplied by the Company for inclusion or
incorporation by reference in the Schedule 13e-3, at the time its filing,
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 not misleading. If at any time prior to the Effective
Time any event with respect to the Company, its officers and directors or any
of its Subsidiaries shall occur which is required at that time to be
described in the Proxy Statement or the Schedule 13e-3, such event shall be
so described, and, in the case of the Proxy Statement, an appropriate
amendment or supplement shall be promptly filed with the SEC and, as required
by law, disseminated to the stockholders of the Company, and, in the case of
the Schedule 13e-3, the Company shall promptly notify Parent of such event.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the Company SEC Documents filed with the SEC prior to the date
of this Agreement or as disclosed in Section 3.7 of the Company Letter, since
December 31, 1998, (A) the Company and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not
in the ordinary course of business or that would result in a Material Adverse
Effect on the Company, (B) there has been no change in the capital stock of
the Company except for the issuance of shares of the Company Common Stock
pursuant to the Company Stock Plans or the conversion of the Convertible
Debentures and no dividend or distribution of any kind declared, paid or made
by the Company on any class of its stock, except for the regular quarterly
dividend of not more than $.025 per share of Company Common Stock, (C) there
has not been (x) any granting by the Company or any of its Subsidiaries to
any executive officer of the Company or any of its Subsidiaries of any
increase in compensation, except in the ordinary course of business
consistent with prior practice or as was required under employment agreements
in effect as of the date of the most recent audited financial statements
included in the Company SEC Documents, (y) any granting by the Company or any
of its Subsidiaries to any such executive officer of any increase in
severance or termination agreements in effect as of the date of the most
recent audited financial statements included in the Company SEC Documents or
(z) any entry by the Company or any of its Subsidiaries into any employment,
severance or termination agreement with any such executive officer and (D)
there has been no event causing a Material Adverse Effect on the Company, nor
any development that would, individually or in the aggregate, result in a
Material Adverse Effect on the Company.
Section 3.8 PERMITS AND COMPLIANCE. Each of the Company and its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances,
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exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for the Company or any of its Subsidiaries to own, lease and
operate its properties or to carry on its business as it is now being
conducted (the "Company Permits"), except where the failure to have any of
the Company Permits would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, and, as of the date of this
Agreement, no suspension or cancellation of any of the Company Permits is
pending or, to the Knowledge of the Company (as hereinafter defined),
threatened, except where the suspension or cancellation of any of the Company
Permits would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. Neither the Company nor any of its Subsidiaries is in
violation of (A) its Articles of Incorporation, by-laws or other
organizational documents, (B) any applicable law, ordinance, administrative
or governmental rule or regulation or (C) any order, decree or judgment of
any Governmental Entity having jurisdiction over the Company or any of its
Subsidiaries, except, in the case of clauses (B) and (C), for any violations
that, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or as disclosed in Section 3.8 of
the Company Letter, as of the date hereof there is no contract or agreement
that is material to the business, properties, assets, liabilities, condition
(financial or otherwise), results of operations or prospects of the Company
and its Subsidiaries, taken as a whole. Except as set forth in the Company
SEC Documents filed prior to the date of this Agreement or as disclosed in
Section 3.8 of the Company Letter, no event of default or event that, but for
the giving of notice or the lapse of time or both, would constitute an event
of default exists or, upon the consummation by the Company of the
transactions contemplated by this Agreement, will exist under any indenture,
mortgage, loan agreement, note or other agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
lease, contractual license or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any
such Subsidiary is bound or to which any of the properties, assets or
operations of the Company or any such Subsidiary is subject, other than any
defaults that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. As of the date of this Agreement, set forth
in Section 3.8 of the Company Letter is a description of any material changes
to the amount and terms of the indebtedness of the Company and its
Subsidiaries as described in the Company Annual Report. For purposes of this
Agreeent, "Knowledge of the Company" means the actual knowledge of the
executive officers of the Company.
Section 3.9 TAX MATTERS. Except as otherwise set forth in
Section 3.9 of the Company Letter, (i) the Company and each of its
Subsidiaries have filed all federal, and all material state, local, foreign
and provincial, Tax Returns required to have been filed or appropriate
extensions therefor have been properly obtained, and such Tax Returns are
correct and complete, except to the extent that any failure to so file or any
failure to be correct and complete would not, individually or in the
aggregate, have a Material Adverse Effect on the Company; (ii) all Taxes
shown to be due on such Tax Returns have been timely paid or extensions for
payment have been properly obtained, or such Taxes are being timely and
properly contested; (iii) the Company and each of its Subsidiaries have
complied in all material respects with all rules and regulations relating to
the withholding of Taxes except to the extent that any failure to comply with
such rules and regulations would not, individually or in the aggregate, have
a Material Adverse Effect on the Company; (iv) neither the Company nor any of
its Subsidiaries has waived
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any statute of limitations in respect of its Taxes; (v) any Tax Returns
referred to in clause (i) relating to federal and state income Taxes have
been examined by the IRS or the appropriate state taxing authority or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (vi) no material issues that have been
raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently
pending; (vii) all deficiencies asserted or assessments made as a result of
any examination of such Tax Returns by any taxing authority have been paid in
full or are being timely and properly contested; and (viii) no withholding is
required under Section 1445 of the Code in connection with the Merger. For
purposes of this Agreement: (i) "Taxes" means any federal, state, local,
foreign or provincial income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or added
minimum, ad valorem, value-added, transfer or excise tax, or other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty imposed by any Governmental
Entity, and (ii) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any
Tax, including, without limitation, any information return, claim for refund,
amended return or declaration of estimated Tax.
Section 3.10 ACTIONS AND PROCEEDINGS. Except as set forth in the
Company SEC Documents filed prior to the date of this Agreement or in Section
3.10 of the Company Letter, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or
involving (i) the Company or any of its Subsidiaries, (ii) to the Knowledge
of the Company, any of the present or former directors, officers, employees,
consultants, agents or stockholders of the Company or any of its
Subsidiaries, as such, (iii) any of the properties, assets or businesses of
the Company or any of its Subsidiaries or (iv) any Company Plan (as
hereinafter defined) that, individually or in the aggregate, would have a
Material Adverse Effect on the Company or materially impair the ability of
the Company to perform its obligations hereunder. As of the date of this
Agreement, there are no actions, suits or claims or legal, administrative or
arbitrative proceedings or investigations pending or, to the Knowledge of the
Company, threatened against or involving (i) the Company or any of its
Subsidiaries, (ii) to the Knowledge of the Company, any of its or their
present or former directors, officers, employees, consultants, agents or
stockholders, as such, (iii) any of the properties, assets or businesses of
the Company or any of its subsidiaries or (iv) any Company Plan (as
hereinafter defined) that, individually or in the aggregate, would have a
Material Adverse Effect on the Company or materially impair the ability of
the Company to perform its obligations hereunder. As of the date hereof,
there are no actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending or, to the
Knowledge of the Company, threatened against or affecting (i) the Company or
any of its Subsidiaries, (ii) to the Knowledge of the Company, any of its or
their present or former officers, directors, employees, consultants, agents
or stockholders, as such, (iii) any of the properties, assets or businesses
of the Company or ay of its Subsidiaries or (iv) any Company Plan, in each
case relating to the transactions contemplated by this Agreement. The
Company is not in default with respect to any material final judgment, order
or decree of any court or any governmental agency or instrumentality.
Section 3.11 CERTAIN AGREEMENTS. Except as set forth in Section
3.11 of the Company Letter or as provided pursuant to Section 5.5 hereof,
neither the Company nor any of its
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Subsidiaries is a party to any oral or written agreement or plan, including
any employment agreement, severance agreement, stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement (collectively, "Transaction Agreements"). No holder of any
option to purchase shares of Company Common Stock, or shares of Company
Common Stock granted in connection with the performance of services for the
Company or its Subsidiaries, is or will be entitled to receive cash from the
Company or any Subsidiary in lieu of or in exchange for such option or shares
as a result of the transactions contemplated by this Agreement, other than
the Stock Option Consideration to be paid to holders of Company Stock Options
pursuant to Section 5.5. Section 3.11 of the Company Letter sets forth (i)
for each officer, director or employee who is a party to, or will receive
benefits under, any Transaction Agreement, the total amount that each such
person may receive, or is eligible to receive, if this Agreement were to be
consummated on the date hereof and whether such amount (or portion thereof)
constitutes or will constitute a "parachute payment" to a "disqualified
individual" as those terms are defined in section 280G of the Code, and (ii)
the total amount of indebtedness owed to the Company or its Subsidiaries as
of April 30, 1999 from each officer or director of the Company and its
Subsidiaries.
Section 3.12 ERISA
(a) COMPANY PLANS. Each Company Plan (as hereinafter defined) is
listed in Section 3.12(a) of the Company Letter. Except as would not have a
Material Adverse Effect on the Company, each Company Plan complies in all
respects with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and all other applicable statutes and governmental rules
and regulations, and (i) no "reportable event" (within the meaning of Section
4043 of ERISA) has occurred with respect to any Company Plan that is likely
to have individually or in the aggregate, a Material Adverse Effect on the
Company, and (ii) no action has been taken, or is currently being considered,
to terminate any Company Plan subject to Title IV of ERISA. No Company Plan,
nor any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
(b) PLAN LIABILITIES. Except as listed in Section 3.12(b) of the
Company Letter, with respect to the Company Plans, no event has occurred and,
to the Knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any ERISA Affiliate or
Company Plan fiduciary could be subject to any liability under the terms of
such Company Plans, ERISA, the Code or any other applicable law, other than
liabilities for benefits payable in the normal course, which would have a
Material Adverse Effect on the Company. All Company Plans that are intended
to be qualified under Section 401(a) of the Code have been determined by the
IRS to be so qualified, or a timely application for such determination is now
pending or a request for such a determination filed within the remedial
amendment period of Section 401(b) of the Code is pending, and the Company is
not aware of any reason why any such Company Plan is not so qualified in
operation. Neither the Company nor any entity which is treated as a single
employer along with the Company under Section 414(b), (c), (m) or (o) of the
Code maintains or contributes to, or has ever maintained or
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contributed to, or been required to contribute to a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or any plan subject to Title IV
of ERISA. Except as disclosed in Section 3.12(b) of the Company Letter,
neither the Company nor any of its ERISA Affiliates has any liability or
obligation under any welfare plan to provide benefits after termination of
employment to any employee or dependent other than as required by Section
4980B of the Code.
(c) DEFINITIONS. As used herein, (i) "Company Plan" means a
"pension plan" (as defined in Section 3(2) of ERISA), a "welfare plan" (as
defined in Section 3(1) of ERISA), or any bonus, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, holiday pay, vacation, severance, death benefit, sick
leave, fringe benefit, personnel policy, insurance or other plan, arrangement
or understanding, in each case established or maintained by the Company or
any of its ERISA Affiliates or as to which the Company or any of its ERISA
Affiliates has contributed or otherwise may have any liability.
(d) EMPLOYMENT AGREEMENTS. Section 3.12(d) of the Company Letter
contains a list of all (i) severance and employment agreements with employees
of the Company and each ERISA Affiliate, (ii) severance programs and policies
of the Company and each ERISA Affiliate with or relating to its employees and
(iii) plans, programs, agreements and other arrangements of the Company and
each ERISA Affiliate with or relating to its employees containing change of
control or similar provisions.
Section 3.13 COMPLIANCE WITH WORKER SAFETY AND ENVIRONMENTAL
LAWS. The properties, assets and operations of the Company and its
Subsidiaries are in compliance with all applicable federal, state, local and
foreign laws, rules and regulations, orders, decrees, judgments, permits and
licenses relating to public and worker health and safety (collectively,
"Worker Safety Laws") and the protection and clean-up of the environment and
activities or conditions related thereto, including, without limitation,
those relating to the generation, handling, disposal, transportation or
release of hazardous materials (collectively, "Environmental Laws"), except
for any violations that, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. With respect to such properties,
assets and operations, including any previously owned, leased or operated
properties, assets or operations, there are no events, conditions,
circumstances, activities, practices, incidents, actions or plans of the
Company or any of its Subsidiaries that may interfere with or prevent
compliance or continued compliance with applicable Worker Safety Laws and
Environmental Laws, other than any such interference or prevention as would
not, individually or in the aggregate with any such other interference or
prevention, have a Material Adverse Effect on the Company.
Section 3.14 LABOR MATTERS. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or labor
contract. Neither the Company nor any of its Subsidiaries has engaged in any
unfair labor practice with respect to any persons employed by or otherwise
performing services primarily for the Company or any of its Subsidiaries (the
"Company Business Personnel"), and there is no unfair labor practice
complaint or grievance against the Company or any of its Subsidiaries by the
National Labor Relations Board or any comparable state agency pending or
threatened in writing with respect to the Company Business Personnel, except
where such unfair labor practice, complaint or grievance would not have a
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Material Adverse Effect on the Company. There is no labor strike, dispute,
slowdown or stoppage pending or, to the Knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries which may
interfere with the respective business activities of the Company or any of
its Subsidiaries, except where such dispute, strike or work stoppage would
not have a Material Adverse Effect on the Company.
Section 3.15 INTELLECTUAL PROPERTY. To the Knowledge of the
Company, the Company (a) owns or has the exclusive right in the life
insurance and annuity industry to use the "LifeUSA" trademark without
infringing upon or otherwise acting adversely to the right or claimed right
of any person under or with respect to any of the foregoing, (b) owns or has
the right in the ordinary course of its business to use all patents,
trademarks, trade names, service marks, copyrights, trade secrets (including
without limitation know-how, show-how, customer lists, inventions, designs,
processes, computer programs and technical data), and all other intellectual
property rights (collectively, "Proprietary Rights") necessary to its
operations and the sale of all products and services sold or proposed to be
sold by it, free and clear of any rights, liens, or claims of others, except
for customary restrictions or provisions under any agreement pursuant to
which any of the foregoing is licensed from a third party, which restrictions
and provisions do not significantly interfere with the conduct of the
Company's business in the ordinary course, and (c) to the Knowledge of the
Company and except as set forth in Section 3.15 of the Company Letter, is not
using any Proprietary Rights of any third party which violates the rights of
such third party.
Section 3.16 STATE TAKEOVER STATUTES; CERTAIN CHARTER PROVISIONS.
Minnesota Statutes Section 302A.671 is not applicable to the Company, and no
charter or by-law takeover provision nor, to the Knowledge of the Company,
any state takeover statute is applicable to the Merger or the Agreement and
the transactions contemplated hereby.
Section 3.17 REQUIRED VOTE OF COMPANY STOCKHOLDERS. The
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock is required to adopt this Agreement. No other vote of
the security holders of the Company is required by law, the Articles of
Incorporation or By-laws of the Company or otherwise in order for the Company
to consummate the Merger and the transactions contemplated hereby.
Section 3.18 YEAR 2000 COMPLIANCE. The Company and its
Subsidiaries have established, and are adhering to, a written year 2000
compliance plan to facilitate the continued, effective operation of the
Company's business before and after January 1, 2000. Such plan includes,
without limitation, (a) adequate procedures for verification that all
material software, hardware, systems and equipment (collectively
"Technology") purchased, leased, licensed or otherwise used by the Company or
any of its Subsidiaries is capable of accurately processing date/time data
within, from, into and between the twentieth and twenty-first centuries,
including leap year calculations and the processing of four-digit date data
("Year 2000 Compliant"), (b) verification of adequate year 2000 planning by
all providers of products and services to the Companies, and (c) adequate
contingency plans in the event of a failure of mission-critical systems or
products, or interruption in the provision of mission-critical services
utilized by the Company. The material Technology of the Company and its
Subsidiaries is Year 2000 Compliant, and the Company and its Subsidiaries (i)
have obtained confirmation from their
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respective providers of material products and services that such products and
services are Year 2000 Compliant in all material respects or (ii) the Company
has alternative providers of such products or services such that, to the
Knowledge of the Company, any interruption or failure of such third party
products or services would not have a Material Adverse Effect on the Company.
Section 3.19 BROKERS. No broker, investment banker or other
person, other than a nationally recognized investment bank, reasonably
acceptable to Parent and the fees and expenses of which will be paid by the
Company, that may be retained by the Company to opine as to the "fairness" of
the transaction contemplated hereunder, is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of the Company.
Section 3.20 INSURANCE COVERAGE. There are in full force and
effect policies of insurance issued by insurers of recognized responsibility
insuring the Company and its properties and business against such losses and
risks, and in such amounts, as in the Company's reasonable judgment, are
acceptable for the nature and extent of such business and its resources. A
summary of the insurance policies carried by the Company as of the date
hereof has been furnished previously to Parent.
Section 3.21 CONFLICTS OF INTEREST. As of the date hereof, no
officer or director of the Company or any "Affiliate" (as such term is
defined in Rule 405 under the Securities Act) of any such person has any
direct or indirect interest (a) in any entity which does business with the
Company, (b) in any property, asset or right which is used by the Company in
the conduct of its business, or (c) in any contractual relationship with the
Company other than as an employee, except as disclosed in the Company's proxy
statement for its 1999 annual shareholders meeting or except as with Parent
or any of Parent's Affiliates.
ARTICLE IV
COVENANTS OF THE COMPANY
Section 4.1 CONDUCT OF BUSINESS PENDING THE MERGER. Except as
expressly permitted by clauses (i) through (xvi) of this Section 4.1, during
the period from the date of this Agreement through the Effective Time, the
Company shall, and shall cause each of its Subsidiaries to, in all material
respects carry on its business in the ordinary course of its business as
currently conducted and, to the extent consistent therewith, use best efforts
to preserve intact its current business organizations, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it to the
end that its goodwill and ongoing business shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, and except
as otherwise expressly contemplated by this Agreement or as set forth in the
Company Letter (with specific reference to the applicable subsection below),
the Company shall not, and shall not permit any of its Subsidiaries to,
without the prior written consent of Parent (which consent shall not be
unreasonably withheld or delayed):
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(i) (A) declare, set aside or pay any dividends on, or make any
other actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than (1) regular quarterly dividends of not more than
$.025 per share of Company Common Stock declared and paid on dates consistent
with past practice and (2) dividends and other distributions by wholly owned
Subsidiaries or LifeSales, LLC), (B) other than in the case of any
Subsidiary, split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities, equity equivalent or
convertible securities, other than (A) the issuance of shares of Company
Common Stock (x) upon the exercise of Company Stock Options outstanding on
the date of this Agreement in accordance with their current terms, (y) to the
401k plan of the Company pursuant to its current terms and in accordance with
past practices, (z) upon the conversion of Convertible Debentures outstanding
on the date of this Agreement in accordance with their current terms or (B)
the issuance by LTCAmerica, Inc. of securities and rights pursuant to the
programs described in Section 4.1 of the Company Letter.
(iii) amend its Articles of Incorporation or charter or By-Laws;
(iv) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, limited liability company,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets, other than transactions
that are in the ordinary course of business consistent with past practice and
not material to the Company and its Subsidiaries taken as a whole;
(v) sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its assets, other than transactions that are
in the ordinary course of business consistent with past practice;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
other investments in, any other person, other than (A) in the ordinary course
of business consistent with past practices, PROVIDED, THAT the Company may
not, without the written consent of Parent, incur any indebtedness for
borrowed money, other than borrowings under credit facilities existing on the
date hereof and (B) indebtedness, loans, advances, capital contributions and
investments between the Company and any of its wholly owned Subsidiaries or
between any of such wholly owned Subsidiaries;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or ownership
of the Company or of any of its Subsidiaries;
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(viii) enter into or adopt any, or amend any existing, severance
plan, agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, except as required by applicable law;
(ix) increase the compensation payable or to become payable to its
directors, officers or employees (except for increases in the ordinary course
of business consistent with past practice in salaries or wages of employees
of the Company or any of its Subsidiaries who are not officers of the Company
or any of its Subsidiaries) or grant any severance or termination pay to, or
enter into or amend any employment or severance agreement with, any director
or officer of the Company or any of its Subsidiaries, or establish, adopt,
enter into, or, except as may be required to comply with applicable law,
amend in any material respect or take action to enhance in any material
respect or accelerate any rights or benefits under, any labor, collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(x) knowingly violate or knowingly fail to perform any obligation
or duty imposed upon it or any of its Subsidiaries by any applicable material
federal, state or local law, rule, regulation, guideline or ordinance;
(xi) make any change to accounting policies or procedures (other
than actions required to be taken by generally accepted accounting
principles);
(xii) prepare or file any Tax Return inconsistent with past practice
or, on any such Tax Return, take any position, make any election, or adopt
any method that is inconsistent with positions taken, elections made or
methods used in preparing or filing similar Tax Returns in prior periods;
(xiii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(xiv) enter into or amend any agreement or contract material to the
Company and its Subsidiaries, taken as a whole, except in the ordinary course
of business consistent with past practices; or make or agree to make any new
capital expenditure or expenditures which in the aggregate together with all
capital expenditures made by the Company or any of its Subsidiaries since
December 31, 1998 are in excess of $4,000,000;
(xv) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than (a) the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent financial statements (or the notes thereto)
of the Company included in the Company SEC Documents or incurred in the
ordinary course of business consistent with past practice or (b) the payment,
discharge or satisfaction of any indebtedness owed by the Company or any of
its Subsidiaries under any existing credit facility; or
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(xvi) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.2 NO SOLICITATION
(a) TAKEOVER PROPOSALS. The Company shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any
officer, director or employee of or any financial advisor, attorney or other
advisor or representative of, the Company or any of its Subsidiaries to, (i)
solicit, initiate or encourage the submission of, any Takeover Proposal (as
hereafter defined), (ii) enter into any agreement with respect to any
Takeover Proposal or (iii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; PROVIDED, HOWEVER, that prior to the Stockholder Meeting (as
hereinafter defined), if the Board of Directors of the Company reasonably
determines the Takeover Proposal constitutes a Superior Proposal (as defined
below), then, to the extent required by the fiduciary obligations of the
Board of Directors of the Company, as determined in good faith by a majority
of the disinterested members thereof after receiving the advice of
independent counsel, the Company may, in response to an unsolicited request
therefor, furnish information with respect to the Company to, and enter into
discussions with, any person pursuant to a customary confidentiality
agreement. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
executive officer of the Company or any of its Subsidiaries or any financial
advisor, attorney or other advisor or representative of the Company or any of
its Subsidiaries, whether or not such person is purporting to act on behalf
of the Company or any of its Subsidiaries or otherwise, shall be deemed to be
a breach of this Section 4.2(a) by the Company. For purposes of this
Agreement, "Takeover Proposal" means any proposal for a merger or other
business combination involving the Company or any of its Subsidiaries or any
proposal or offer to acquire in any manner, directly or indirectly, a
substantial equity interest in, a substantial portion of the voting
securities of, or a substantial portion of the assets of the Company or any
of its Subsidiaries, other than the transactions contemplated by this
Agreement, and "Superior Proposal" means a bona fide Takeover Proposal made
by a third party which a majority of the disinterested members of the Board
of Directors of the Company determines in its reasonable good faith judgment
to be more favorable to the Company's stockholders than the Merger (after
receiving the written opinion, with only customary qualifications, of the
Company's independent financial advisor that the value of the consideration
provided for in such proposal exceeds the value of the consideration provided
for in the Merger) and for which financing, to the extent required, is then
committed or which, in the reasonable good faith judgment of a majority of
such disinterested members (after receiving the written advice of the
Company's independent financial advisor), is highly likely to be financed by
such third party.
(b) RECOMMENDATION OF THE BOARD OF DIRECTORS. Neither the Board
of Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or
Sub, the approval or recommendation by such Board of Directors or any such
committee of this Agreement or the Merger or (ii) approve or recommend, or
propose to approve or recommend, any Takeover Proposal.
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(c) NOTICE OF TAKEOVER PROPOSAL. The Company shall advise Parent
orally (within one business day) and in writing (as promptly as practicable)
of (i) any Takeover Proposal or any inquiry with respect to or which could
lead to any Takeover Proposal, (ii) the material terms of such Takeover
Proposal and (iii) the identity of the person making any such Takeover
Proposal or inquiry. The Company will keep Parent fully informed of the
status and details of any such Takeover Proposal or inquiry.
Section 4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the
period from the date of this Agreement through the Effective Time, the
Company shall not terminate, amend, modify or waive any provision of any
confidentiality agreement relating to a Takeover Proposal or standstill
agreement to which the Company or any of its Subsidiaries is a party (other
than any involving Parent). During such period, the Company agrees to
enforce, to the fullest extent permitted under applicable law, the provisions
of any such agreements, including, but not limited to, obtaining injunctions
to prevent any breaches of such agreements and to enforce specifically the
terms and provisions thereof in any court of the United States or any state
thereof having jurisdiction.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 STOCKHOLDER MEETING The Company will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of stockholders (the "Stockholder Meeting") for
the purpose of considering the approval of this Agreement and the
transactions contemplated hereby. The Company will, through its Board of
Directors, recommend to its stockholders the adoption or approval of the
Agreement, shall use all reasonable efforts to solicit such approvals by its
stockholders and shall not withdraw such recommendation. Without limiting
the generality of the foregoing, the Company agrees that its obligations
pursuant to the first sentence of this Section 5.1 shall not be affected by
the commencement, public proposal, public disclosure or communication to the
Company of a Takeover Proposal.
Section 5.2 PREPARATION OF THE PROXY STATEMENT. The Company and
Parent shall promptly prepare and file with the SEC the Proxy Statement and
Parent shall prepare and file, with the reasonable cooperation and assistance
of the Company, a Schedule 13e-3 with the SEC (the "Schedule 13e-3"). The
Company shall mail the Proxy Statement to its stockholders at the earliest
practical date.
Section 5.3 ACCESS TO INFORMATION. Subject to currently
existing contractual and legal restrictions applicable to the Company or any
of its Subsidiaries, the Company shall, and shall cause each of its
Subsidiaries to, afford to the accountants, counsel, financial advisors and
other representatives of Parent hereto reasonable access to, and permit them
to make such inspections as they may reasonably require of, during normal
business hours during the period from the date of this Agreement through the
Effective Time, all their respective properties, books, contracts,
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commitments and records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of such
independent accountants) and, during such period, the Company shall, and
shall cause each of its Subsidiaries to, furnish promptly to Parent (i) a
copy of each report, schedule, registration statement and other document
filed by it during such period pursuant to the requirements of federal or
state securities laws and (ii) all other information concerning its business,
properties and personnel as Parent may reasonably request. No investigation
pursuant to this Section 5.3 shall affect any representation or warranty in
this Agreement of any party hereto or any condition to the obligations of the
parties hereto. All information obtained by Parent pursuant to this Section
5.3 shall be kept confidential in accordance with Section 7.2 of the Stock
Purchase Agreement, dated January 13, 1998 between Parent and the Company
(the "Stock Purchase Agreement").
Section 5.4 FEES AND EXPENSES
(a) EXPENSES. Except as provided in this Section 5.4 and Section
5.7, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby including, without limitation, the fees and disbursements of counsel,
financial advisors and accountants, shall be paid by the party incurring such
costs and expenses, provided that all printing expenses and all filing fees
(including, without limitation, filing fees under the Exchange Act and the
HSR Act) shall be divided equally between Parent and the Company.
(b) EXPENSES UPON TERMINATION. Notwithstanding any provision in
this Agreement to the contrary, if this Agreement is terminated (A) by the
Company or Parent pursuant to Section 7.1(f), (B) by Parent pursuant to
Section 7.1(g) or (C) by the Company or Parent at a time when Parent is
entitled to terminate this Agreement pursuant to Section 7.1(f) or 7.1(g),
then, in each case, the Company shall (without prejudice to any other rights
Parent may have against the Company for breach of this Agreement) reimburse
Parent upon demand for all out-of-pocket fees and expenses incurred or paid
by or on behalf of Parent or any Affiliate of Parent in connection with this
Agreement and the transactions contemplated herein, including all fees and
expenses of counsel, investment banking firms, accountants and consultants.
(c) TERMINATION FEE. Notwithstanding any provision in this
Agreement to the contrary, if (i) this Agreement is terminated by the Company
or Parent at a time when Parent is entitled to terminate this Agreement
pursuant to Section 7.1(b), (c), (e) or (i), and, concurrently with or within
eighteen months after such a termination a Third Party Acquisition Event (as
defined below) occurs, or (ii) this Agreement is terminated pursuant to
Section 7.1(f) or 7.1(g) or by the Company or Parent at a time when Parent is
entitled to terminate this Agreement pursuant to Section 7.1(f) or 7.1(g),
then, in each case, the Company shall (in addition to any obligation under
this Section 5.4(b) and without prejudice to any other rights that Parent may
have against the Company for a breach of this Agreement) pay to Parent a
termination fee of $20,000,000 in cash (the "Termination Fee"), such payment
to be made promptly, but in no event later than the second business day
following, in the case of clause (i), the later to occur of such termination
and such Third Party Acquisition Event or, in the case of clause (ii), such
termination; provided, however, that in the case of clause (i) but only with
respect to a termination of this Agreement by the Company or Parent pursuant
to Section 7.1(c) (in the circumstance where the representations
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and warranties of the Company are true and correct in all material respects
as of the date hereof), (e) or (i) where the applicable Third Party
Acquisition Event constitutes an event described under clause (D) of the
definition of such term, the Company shall only be required to pay the
Termination Fee to Parent if the Takeover Proposal relating or giving rise to
such Third Party Acquisition Event constitutes a Superior Proposal.
A "Third Party Acquisition Event" means any of the following
events: (A) any person (other than Parent or its Affiliates) acquires or
becomes the beneficial owner of 20% or more of the outstanding shares of
Company Common Stock; (B) any group (other than a group which includes or may
reasonably be deemed to include Parent or any of its Affiliates) is formed
which, at the time of formation, beneficially owns 20% or more of the
outstanding shares of Company Common Stock; (C) any person (other than Parent
or its Affiliates) shall have commenced a tender or exchange offer for 20% or
more of the then outstanding shares of Company Common Stock or publicly
proposed any bonafide merger, consolidation or acquisition of all or
substantially all the assets of the Company, or other similar business
combination involving the Company; (D) the Company enters into, or announces
that it proposes to enter into, an agreement, including, without limitation,
an agreement in principle, providing for a merger or other business
combination involving the Company or a "significant subsidiary" (as defined
in Rule 1.02(v) of Regulation S-X as promulgated by the SEC) of the Company
or the acquisition of a substantial interest in, or a substantial portion of
the assets, business or operations of, the Company or a significant
subsidiary (other than the transactions contemplated by this Agreement); (E)
any person (other than Parent or its Affiliates) is granted any option or
right, conditional or otherwise, to acquire or otherwise become the
beneficial owner of shares of Company Common Stock which, together with all
shares of Company Common Stock beneficially owned by such person, results or
would result in such person being the beneficial owner of 20% or more of the
outstanding shares of Company Common Stock; or (F) there is a public
announcement with respect to a plan or intention by the Company or any
person, other than Parent and its Affiliates, to effect any of the foregoing
transactions. For purposes of this Section 5.4(c), the terms "group,"
"beneficial owner" and "person" shall be defined by reference to Section
13(d) of the Exchange Act.
Section 5.5 COMPANY STOCK OPTIONS. Immediately prior to the
Effective Time, each Company Stock Option which is outstanding immediately
prior to the Effective Time shall become exercisable in full (to the extent
not previously exercised), and shall be canceled and the holder thereof shall
have the right to receive upon execution and delivery to the Payment Agent of
an option termination agreement, in form and substance reasonably acceptable
to Parent (which agreement shall be mailed by the Payment Agent to holders of
Company Stock Options promptly following the Effective Time), an amount of
cash equal to the result of (x) the Merger Consideration such holder would
have received pursuant to Article I hereof had such Company Stock Option been
exercised immediately prior to the Effective Time LESS (y) the exercise price
of such Company Stock Option (such amount hereinafter the "Option
Consideration"). The payment of the Option Consideration, net of any
withholding or other applicable taxes, upon delivery to the Payment Agent of
an option termination agreement shall be deemed to constitute full
satisfaction of all rights pertaining to such Company Stock Option.
Section 5.6 BEST EFFORTS
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(a) CONSUMMATION OF THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including, but not limited to:
(i) the obtaining of all necessary actions or non-actions, waivers, consents
and approvals from all Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities) and
the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental
Entity (including those in connection with the HSR Act, State Takeover
Approvals and State Insurance Approvals), (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement and the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed, (iv) the taking of all reasonable actions to minimize the
effects of any State Takeover Approval or State Insurance Approval on the
transactions contemplated hereby, and (v) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated
by this Agreement. No party to this Agreement shall consent to any voluntary
delay of the consummation of the Merger at the behest of any Governmental
Entity without the consent of the other parties to this Agreement, which
consent shall not be unreasonably withheld.
(b) REPRESENTATIONS AND WARRANTIES. Each party shall not take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or
result in a breach of any covenant made by it in this Agreement.
(c) DIVESTITURE. Notwithstanding anything to the contrary
contained in this Agreement, in connection with any filing or submission
required or action to be taken by either Parent or the Company to effect the
Merger and to consummate the other transactions contemplated hereby, the
Company shall not, without Parent's prior written consent, commit to any
divestiture transaction, and neither Parent nor any of its Affiliates shall
be required to divest or hold separate or otherwise take or commit to take
any action that limits its freedom of action with respect to, or its ability
to retain, the Company or any of the material businesses, product lines or
assets of Parent or any of its Subsidiaries or that otherwise would have a
Material Adverse Effect on Parent.
Section 5.7 PUBLIC ANNOUNCEMENTS. Parent and the Company will
not issue any press release with respect to the transactions contemplated by
this Agreement or otherwise issue any written public statements with respect
to such transactions without prior consultation with the other party, except
as may be required by applicable law or by obligations pursuant to any
listing agreement with any national securities exchange or the Nasdaq
National Market.
Section 5.8 REAL ESTATE TRANSFER AND GAINS TAX. Parent and the
Company agree that either the Company or the Surviving Corporation will pay any
state or local tax which is attributable to the transfer of the beneficial
ownership of the Company's or its Subsidiaries' real
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property, if any (collectively, the "Gains Taxes"), and any penalties or
interest with respect to the Gains Taxes, payable in connection with the
consummation of the Merger. The Company and Parent agree to cooperate with
the other in the filing of any returns with respect to the Gains Taxes,
including supplying in a timely manner a complete list of all real property
interests held by the Company and its Subsidiaries and any information with
respect to such property that is reasonably necessary to complete such
returns. The portion of the consideration allocable to the real property of
the Company and its Subsidiaries shall be determined by Parent in its
reasonable discretion.
Section 5.9 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE.
For six years from and after the Effective Time, Parent agrees to cause the
Surviving Corporation to, and shall guarantee the obligation of the Surviving
Corporation to, indemnify and hold harmless all past and present officers and
directors of the Company and of its Subsidiaries to the same extent such
persons are indemnified as of the date of this Agreement by the Company
pursuant to the Company's Articles of Incorporation, By-Laws or agreements in
existence on the date hereof for acts or omissions occurring at or prior to
the Effective Time. Parent shall provide, or shall cause the Surviving
Corporation to provide, for an aggregate period of not less than six years
from the Effective Time, the Company's current directors and officers an
insurance and indemnification policy that provides coverage for events
occurring prior to the Effective Time (the "D&O Insurance") that is
substantially similar (with respect to limits and deductibles) to the
Company's existing policy or, if substantially equivalent insurance coverage
is unavailable, the best available coverage; PROVIDED, HOWEVER, that the
Surviving Corporation shall not be required to pay premiums aggregating more
than $1,750,000 for D&O Insurance for the six year period commencing on the
Effective Time.
Section 5.10 NOTIFICATION OF CERTAIN MATTERS. Parent shall use
its best efforts to give prompt notice to the Company, and the Company shall
use its best efforts to give prompt notice to Parent, of: (i) the
occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which it is aware and which would be reasonably likely to
cause (x) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect or (y) any covenant, condition
or agreement contained in this Agreement not to be complied with or satisfied
in all material respects, (ii) any failure of Parent or the Company, as the
case may be, to comply in a timely manner with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder or
(iii) any change or event which would be reasonably likely to have a Material
Adverse Effect on the Company; PROVIDED, HOWEVER, that the delivery of any
notice pursuant to this Section 5.10 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.11 EMPLOYEE BENEFIT PLANS AND AGREEMENTS
(a) COMPANY PLANS. Except as set forth in Section 5.11(b), Parent
agrees that it will cause the Surviving Corporation from and after the
Effective Time to honor all Company Plans (other than the Company Stock
Plans) and all employment agreements entered into by the Company prior to the
date hereof; PROVIDED, HOWEVER, that nothing in this Agreement shall be
interpreted as limiting the power of Parent or the Surviving Corporation to
amend or terminate any Company Plan or any other individual employee benefit
plan, program, agreement or policy
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or as requiring Parent or the Surviving Corporation to offer to continue
(other than as required by its terms) any written employment contract.
(b) 401(k) PLAN. Effective as of the Closing Date, the 401(k)
plan of the Company shall be amended to terminate and discontinue the stock
participation feature in Company Common Stock of such plan.
(c) CREDIT FOR PRIOR SERVICE. In the event that Parent shall
merge any Company Plan with any benefit plan of Parent, pre-Closing service
with the Company or any of its Subsidiaries will be counted for purposes of
employee eligibility, seniority and vesting under such benefit plan, and any
pre-existing condition shall be waived.
Section 5.12 STOCK PURCHASE AGREEMENT. The Company and Parent
agree that, notwithstanding the provisions of Section 11.2(b) of the Stock
Purchase Agreement, from the date hereof until the earlier to occur of (i)
the Effective Time or (ii) termination of this Agreement, Parent and any
Restricted Holder (as defined in the Stock Purchase Agreement) may vote any
shares of Common Stock held by Parent or such Restricted Holder in any and
all matters presented to the stockholders of the Company, may solicit proxies
and may attempt to influence the vote of other stockholders of the Company as
Parent, or such Restricted Holder, as applicable, deems appropriate. None of
the execution or performance of this Agreement, the execution or performance
of agreements between Parent and certain officers and directors of the
Company concerning the voting of shares of Common Stock held by such officers
and directors or the consummation of the transactions contemplated herein by
the Company or its Subsidiaries or by Parent or Sub shall constitute a breach
or other default under the terms of the Stock Purchase Agreement by Company
and its Subsidiaries or by Parent and Sub, as the case may be.
Section 5.13 DISSENTING SHARES.
(a) DISSENTERS' RIGHTS. Notwithstanding any provisions of this
Agreement to the contrary, any shares of Company Common Stock held by a
holder who has exercised such holder's dissenters' rights in accordance with
the MBCA and who, as of the Effective Time, has not effectively withdrawn or
lost such dissenters' rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the Merger Consideration, but the holder
of the Dissenting Shares shall only be entitled to such rights as are granted
by the MBCA.
(b) WITHDRAWAL OF DISSENTERS' RIGHTS. Notwithstanding the
provisions of subsection (a) above, if any holder of shares of Company Common
Stock who demands dissenters' rights with respect to such shares shall
effectively withdraw or lose (through the failure to perfect or otherwise)
such holder's dissenters' rights under the MBCA, then, as of the Effective
Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration upon surrender of the applicable Certificate(s) as
provided herein.
(c) DEMAND FOR PAYMENT. The Company shall give Parent (i) prompt
written notice of any written demands for payment with respect to any shares
of Company Common Stock pursuant to dissenters' rights, and any withdrawals
of such demands or losses of such rights, and any other instruments served
pursuant to the MBCA, and (ii) the opportunity to participate in all
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negotiations and proceedings with respect to demands for dissenters' rights.
The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to demands for dissenters' rights
or offer to settle or settle any such demands.
Section 5.14 CHIEF EXECUTIVE OFFICER. As promptly as practicable
following the Effective Time, Robert W. MacDonald shall be appointed and
elected by the Board of Directors of Parent as (i) the Chief Executive
Officer of Parent and (ii) a member of the Board of Directors of Parent and
the Company.
Section 5.15 CHANGE OF CONTROL. Following the date hereof, the
Company shall use its best efforts to amend the terms of any employment
agreement and shall take all such action as may be otherwise necessary so
that neither the execution or performance of this Agreement nor the
consummation of the transactions contemplated hereunder shall trigger the
acceleration of any benefit with respect to, or require any severance or
other payment to be paid to, any employee of the Company or any of its
Subsidiaries upon the termination of employment of such employee.
Section 5.16 CONVERTIBLE DEBENTURES. The Company shall redeem
all Convertible Debentures in accordance with their terms as a result of
consummation of the Merger.
Section 5.17 ADVANCE OF FUNDS. Immediately prior to the
Effective Time, Parent shall advance, or shall cause to be advanced, to the
Company funds necessary to pay, discharge and satisfy any indebtedness for
borrowed money under any existing credit facility and to redeem and retire
the Convertible Debentures to the extent such repayment or redemption is
required to be made at or prior to the Effective Time.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 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 Time of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly
approved by the requisite vote of stockholders of the Company in accordance
with applicable law and the Articles of Incorporation and By-laws of the
Company.
(b) HSR AND OTHER APPROVALS. (i) The waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act shall have expired or been terminated.
(ii) All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any Governmental Entity, which the failure to obtain,
make or occur would have the effect of making the Merger or any of the
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transactions contemplated hereby illegal or would have, individually or in
the aggregate, a Material Adverse Effect on Parent (assuming the Merger had
taken place), shall have been obtained, shall have been made or shall have
occurred.
(c) NO ORDER. No court or other Governmental Entity having
jurisdiction over the Company or Parent, or any of their respective
Subsidiaries, shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the Merger or any of the transactions contemplated
hereby illegal.
Section 6.2 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 Time of the following
additional conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES.
Each of Parent and Sub shall have performed in all material respects each of
its agreements contained in this Agreement required to be performed on or
prior to the Effective Time, each of the representations and warranties of
Parent and Sub contained in this Agreement that is qualified by materiality
shall be true and correct on and as of the Effective Time as if made on and
as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of the
Effective Time as if made on and as of such date (other than representations
and warranties which address matters
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only as of a certain date which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by this Agreement, and the Company shall have received certificates
signed on behalf of each of Parent and Sub by its Chief Executive Officer and
its Chief Financial Officer to such effect.
(b) CERTAIN CONSENTS. In obtaining any approval or consent
required to consummate any of the transactions contemplated herein, no
Governmental Entity shall have imposed or shall have sought to impose any
condition, penalty or requirement which, in the reasonable opinion of the
Company, individually or in the aggregate, would have a Material Adverse
Effect on Parent (assuming the consummation of the Merger).
(b) CONSENTS. (i) The Company shall have obtained the consent or
approval (or, with respect to any agreement concerning indebtedness for
borrowed money owed by the Company or any of its Subsidiaries to any
reinsurer of the Company or any of its Subsidiaries, paid such indebtedness
in full) (and shall have provided Parent with evidence, reasonably
satisfactory to Parent, of such consent, approval or payment) of each person
or Governmental Entity whose consent or approval shall be required in
connection with the transactions contemplated hereby under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument
of the Company or any Subsidiary or any law, rule or regulation applicable to
the Company or any of its Subsidiaries, except as to which the failure to
obtain such consents and approvals would not, in the reasonable opinion of
Parent, individually or in the aggregate, have a Material Adverse Effect on
the Company or Parent or upon the consummation of the transactions
contemplated in this Agreement.
(ii) In obtaining any approval or consent required to consummate
any of the transactions contemplated herein, no Governmental Entity shall
have imposed or shall have sought to impose any condition, penalty or
requirement which, in the reasonable opinion of Parent, individually or in
aggregate would have a Material Adverse Effect on the Company or Parent.
(c) LITIGATION. There shall not be instituted or pending any
suit, action or proceeding before any Governmental Entity as a result of this
Agreement or any of the transactions contemplated herein or therein which
would have a Material Adverse Effect on the Company or Parent.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after any approval of
the matters presented in connection with the Merger by the stockholders of
the Company or Parent:
(a) by mutual written consent of Parent and the Company;
(b) except for a breach by the Company of Section 5.1, by either
Parent or the Company if the other party shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with prior to the date of such termination,
which failure to comply has not been cured within thirty business days
following receipt by such other party of written notice from the
non-breaching party of such failure to comply;
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(c) by either Parent or the Company if there has been (i) a breach
by the other party (in the case of Parent, including any material breach by
Sub) of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty
not true and correct in all material respects or (ii) a breach by the other
party (in the case of Parent, including any material breach by Sub) of any
representation or warranty that is qualified as to materiality, in each case
which breach has not been cured within thirty business days following receipt
by the breaching party from the non-breaching party of written notice of the
breach;
(d) by Parent or the Company if: (i) the Merger has not been
effected on or prior to the close of business on December 31, 1999; PROVIDED,
HOWEVER, that the right to terminate this Agreement pursuant to this Section
7.1(d)(i) shall not be available to any party whose failure to fulfill any of
its obligations contained in this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or prior to the
aforesaid date; or (ii) any court or other Governmental Entity having
jurisdiction over a party hereto shall have issued an order, decree or ruling
or taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable;
(e) by Parent or the Company if the stockholders of the Company do
not approve this Agreement at the Stockholder Meeting or at any adjournment
or postponement thereof;
(f) by Parent or the Company if the Company enters into a merger,
acquisition or other agreement (including an agreement in principle) to
effect a Superior Proposal or the Board of Directors of the Company resolves
to do so; PROVIDED, HOWEVER, that the Company may not terminate this
Agreement pursuant to this Section 7.1(f) unless (i) the Company has
delivered to Parent a written notice of the Company's intent to enter into
such an agreement to effect the Superior Proposal, (ii) five business days
have elapsed following delivery to Parent of such written notice by the
Company and (iii) during such five business day period the Company has fully
cooperated with Parent, including, without limitation, informing Parent of
the terms and conditions of the Takeover Proposal and the identity of the
person making the Takeover Proposal, with the intent of enabling Parent to
agree to a modification of the terms and conditions of this Agreement so that
the transactions contemplated hereby may be effected; PROVIDED, FURTHER, that
the Company may not terminate this Agreement pursuant to this Section 7.1(f)
unless at the end of such five business day period the Board of Directors of
the Company continues reasonably to believe that the Takeover Proposal
constitutes a Superior Proposal and prior to such termination the Company
pays to Parent the amounts specified under Sections 5.4(a), (b) and (c);
(g) by Parent if (i) the Board of Directors of the Company, in
breach of Section 5.1, shall not have recommended, or shall have resolved not
to recommend, or shall have qualified, modified or withdrawn its
recommendation of the Merger or declaration that the Merger is advisable and
fair to and in the best interest of the Company and its stockholders, or
shall have resolved to do so, (ii) the Board of Directors of the Company
shall have recommended to the stockholders of the Company any Takeover
Proposal or shall have resolved to do so or (iii) a
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third party tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of the Company is commenced, and the Board of
Directors of the Company fails to recommend against acceptance of such tender
offer or exchange offer by its stockholders (including by taking no position
with respect to the acceptance of such tender offer or exchange offer by its
stockholders);
(h) by Parent on or prior to June 1, 1999, if this Agreement and
the consummation of the transactions contemplated hereunder shall not have
been duly approved by the Board of Management of Allianz Aktiengesellschaft,
the indirect parent company of Parent.
(i) by either Parent or the Company prior to June 8, 1998, if the
Company shall have received (A) the written opinion of a nationally
recognized investment bank reasonably acceptable to Parent (the "Opinion
Provider") that, as of the date of the Agreement, the Per Share Amount is
unfair to the Company's stockholders from a financial point of view, a copy
of which opinion and other materials presented to the Company's Board of
Directors shall be delivered to Parent, or (B) a written statement from
Opinion Provider that it is not able to render an opinion that as of the date
of the Agreement the Per Share Amount is fair to the Company's stockholders
from a financial point of view, a copy of which statement and any other
materials presented to the Company's Board of Directors shall be delivered to
Parent.
The right of any party hereto to terminate this Agreement pursuant
to this Section 7.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers or
directors, whether prior to or after the execution of this Agreement.
Section 7.2 EFFECT OF TERMINATION. In the event of termination
of this Agreement by either Parent or the Company, as provided in Section
7.1, this Agreement shall forthwith become void and there shall be no
liability hereunder on the part of the Company, Parent, Sub or their
respective officers or directors (except for the last sentence of Section 5.3
and the entirety of Section 5.4, which shall survive the termination);
PROVIDED, HOWEVER, that nothing contained in this Section 7.2 shall relieve
any party hereto from any liability for any willful breach of a
representation or warranty contained in this Agreement or the breach of any
covenant contained in this Agreement.
Section 7.3 AMENDMENT. This 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 of the matters presented in
connection with the Merger by the stockholders of Parent and the Company,
but, after any such approval, no amendment shall be made which by law
requires further approval by such stockholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
Section 7.4 WAIVER. At any time prior to the Effective Time,
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
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements
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or conditions contained herein which may legally be waived. 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 VIII
GENERAL PROVISIONS
Section 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES The
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall terminate at the Effective Time.
Section 8.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered
personally, one day after being delivered to an overnight courier or when
sent via facsimile (with a confirmatory copy sent by overnight courier) to
the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Sub, to
Allianz Life Insurance Company of North America
1750 Hennepin Avenue South
Minneapolis, Minnesota 55403
Attention: Edward J. Bonach,
Senior Vice President and Chief Financial Officer
Facsimile No.: (612) 347-6657
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: William B. Payne
Facsimile No.: (612) 340-8738
(b) if to the Company, to
Life USA Holding, Inc.
700 Interchange Building North
300 South Highway 169
Minneapolis, Minnesota 55425
Attention: Robert W. MacDonald
Chairman and CEO
Facsimile No.: (612) 525-6141
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with a copy to:
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center
Minneapolis, Minnesota 55402
Attention: Bruce J. Parker
Facsimile No.: (612) 375-1143
Section 8.3 INTERPRETATION. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation."
Section 8.4 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
Section 8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement, except and as provided in the last sentence of Section 5.3,
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. Except as provided pursuant to Section 5.9 and 5.11,
this Agreement is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.6 GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Minnesota,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
Section 8.7 ASSIGNMENT. Subject to Section 1.1, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties.
Section 8.8 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other terms, conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic and legal substance of the transactions contemplated hereby are not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
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Section 8.9 ENFORCEMENT OF THIS AGREEMENT. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific wording or were otherwise breached. It is accordingly agreed that
the parties hereto shall be entitled to seek an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, such remedy being in addition to any other remedy to which any
party is entitled at law or in equity.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
By: /s/ Edward J. Bonach
--------------------------------
Name: Edward J. Bonach
Title: Senior Vice President and Chief
Financial Officer
NOVA NEW CO.
By: /s/ Edward J. Bonach
--------------------------------
Name: Edward J. Bonach
Title: President
LIFE USA HOLDING, INC.
By: /s/ Robert W. Macdonald
--------------------------------
Name: Robert W. MacDonald
Title: Chairman and Chief Executive
Officer
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APPENDIX B
[FAIRNESS OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
June 7, 1999
Board of Directors
Life USA Holdings, Inc.
300 South Highway 169
Suite #600
Minneapolis MN 55426
Attention: Robert W. MacDonald
Chairman
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the stockholders of Life USA Holdings, Inc. (the "Company")
of the consideration to be received by the Company's stockholders pursuant to
the terms of the Agreement and Plan of Merger, dated as of May 17, 1999 (the
"Agreement"), by and among Allianz Life Insurance Company of North America
("Allianz Life"), Nova New Co. ("Merger Sub"), a wholly owned subsidiary of
Allianz Life and the Company, pursuant to which Merger Sub will be merged
(the "Merger") with and into the Company.
Pursuant to the Agreement, each share of common stock, par value $.01
per share, ("Company Common Stock") of the Company will be converted (other
than shares owned by Allianz Life and subject to certain other exceptions)
into the right to receive $20.75 per share in cash.
In arriving at our opinion, we have reviewed the Agreement. We also
have reviewed financial and other information that was publicly available or
furnished to us by the Company including information provided during
discussions with management. Included in the information provided during
discussions with management were certain financial projections of the Company
prepared by the management of the Company. In addition, we have compared
certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of Company Common Stock, reviewed
prices and premiums paid in certain other business combinations and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company
or its representatives, or that was otherwise reviewed by us. With respect
to the financial projections supplied to us, we have assumed that they have
been reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the
information reviewed by us.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to
us as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any
obligation to update, revise or reaffirm this opinion. Our opinion does not
address the relative merits of the Merger and the other business strategies
being considered by the Company's Board of Directors, nor does it address the
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Board's decision to proceed with the Merger. Our opinion does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the proposed Merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
been retained by the Company to serve as its exclusive financial advisor in
connection with the evaluation of the fairness, from a financial point of
view, of the consideration to be received in connection with the Merger.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the consideration to be received by the holders of
Company Common Stock pursuant to the Agreement is fair to such holders from a
financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ David M. Platter
--------------------------------
David M. Platter
Managing Director
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APPENDIX C
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA
BUSINESS CORPORATION ACT - DISSENTERS' APPRAISAL RIGHTS
302A.471. Rights of dissenting shareholders.
Subdivision 1. Actions creating rights. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase shares
or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class or
series with similar or different voting rights; except that an amendment to
the articles of an issuing public corporation that provides that section
302A.671 does not apply to a control share acquisition does not give rise to
the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or
a disposition for cash on terms requiring that all or substantially all of
the net proceeds of disposition be distributed to the shareholders in
accordance with their respective interests within one year after the date of
disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
Subdivision 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name
of the shareholder, unless the shareholder dissents with respect to all the
shares that are beneficially owned by another person but registered in the
name of the shareholder and discloses the name and address of each beneficial
owner on whose behalf the shareholder
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dissents. In that event, the rights of the dissenter shall be determined as
if the shares as to which the shareholder has dissented and the other shares
were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits
to the corporation at the time of or before the assertion of the rights a
written consent of the shareholder.
Subdivision 3. Rights not to apply. (a) Unless the articles, the
bylaws, or a resolution approved by the board otherwise provide, the right to
obtain payment under this section does not apply to a shareholder of the
surviving corporation in a merger, if the shares of the shareholder are not
entitled to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to receive notice of and to
vote on an action described in subdivision 1, only shareholders as of the
date fixed, and beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise dissenters' rights.
Subdivision 4. Other rights. The shareholders of a corporation who
have a right under this section to obtain payment for their shares do not
have a right at law or in equity to have a corporate action described in
subdivision 1 set aside or rescinded, except when the corporate action is
fraudulent with regard to the complaining shareholder or the corporation.
302A.473. Procedures for asserting dissenters' rights.
Subdivision 1. Definitions. (a) For purposes of this section, the
terms defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1,
up to and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
Subdivision 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is
to be voted upon, the notice of the meeting shall inform each shareholder of
the right to dissent and shall include a copy of section 302A.471 and this
section and a brief description of the procedure to be followed under these
sections.
Subdivision 3. Notice of dissent. If the proposed action must be
approved by the shareholders, a shareholder who is entitled to dissent under
section 302A.471 and who wishes to exercise dissenters' rights must file with
the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and
must not vote the shares in favor of the proposed action.
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Subdivision 4. Notice of procedure; deposit of shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have
complied with subdivision 3 and to all shareholders entitled to dissent if no
shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) in order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice required by paragraph (a) was given, but the dissenter
retains all other rights of a shareholder until the proposed action takes
effect.
Subdivision 5. Payment; return of shares. (a) After the corporate
action takes effect, or after the corporation receives a valid demand for
payment, whichever is later, the corporation shall remit to each dissenting
shareholder who has complied with subdivisions 3 and 4 the amount the
corporation estimates to be the fair value of the shares, plus interest,
accompanied by:
(1) The corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a) a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the
amount listed in the materials if the dissenter agrees to accept that amount
in full satisfaction. The dissenter may decline the offer and demand payment
under subdivision 6. Failure to do so entitles the dissenter only to the
amount offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
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cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
Subdivision 6. Supplemental payment; demand. If a dissenter believes
that the amount remitted under subdivision 5 is less than the fair value of
the shares plus interest, the dissenter may give written notice to the
corporation of the dissenter's own estimate of the fair value of the shares,
plus interest, within 30 days after the corporation mails the remittance
under subdivision 5, and demand payment of the difference. Otherwise, a
dissenter is entitled only to the amount remitted by the corporation.
Subdivision 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the
demand, either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus
interest. The petition shall be filed in the county in which the registered
office of the corporation is located, except that a surviving foreign
corporation that receives a demand relating to the shares of a constituent
domestic corporation shall file the petition in the county in this state in
which the last registered office of the constituent corporation was located.
The petition shall name as parties all dissenters who have demanded payment
under subdivision 6 and who have not reached agreement with the corporation.
The corporation shall, after filing the petition, serve all parties with a
summons and copy of the petition under the rules of 180 civil procedure.
Nonresidents of this state may be served by registered or certified mail or
by publication as provided by law. Except as otherwise provided, the rules of
civil procedure apply to this proceeding. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the
shares, taking into account any and all factors the court finds relevant,
computed by any method or combination of methods that the court, in its
discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is
binding on all shareholders, wherever located. A dissenter is entitled to
judgment in cash for the amountby which the fair value of the shares as
determined by the court, plus interest, exceeds the amount, if any, remitted
under subdivision 5, but shall not be liable to the corporation for the
amount, if any, by which the amount, if any, remitted to the dissenter under
subdivision 5 exceeds the fair value of the shares as determined by the
court, plus interest.
Subdivision 8. Costs; fees; expenses. (a) The court shall determine
the costs and expenses of a proceeding under subdivision 7, including the
reasonable expenses and compensation of any appraisers appointed by the
court, and shall assess those costs and expenses against the corporation,
except that the court may assess part or all of those costs and expenses
against a dissenter whose action in demanding payment under subdivision 6 is
found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to Comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
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