<PAGE>
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
/ / 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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
<PAGE>
(5) Total fee paid:
/X/ 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:
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LIFE USA HOLDING, INC.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
August 23, 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 [September 22, 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 August 20, 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 August 20, 1999, Allianz Life
beneficially owned 5,699,118 shares of Common Stock, or approximately ____%, 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
<PAGE>
superior acquisition proposal with another party upon payment of a $20 million
termination fee to Allianz Life.
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 [SEPTEMBER 22,] 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 [September 22,] 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
August 20, 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.
<PAGE>
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
[August 23,] 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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<PAGE>
LIFE USA HOLDING, INC.
300 South Highway 169, Suite 95
Minneapolis, Minnesota 55426
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [SEPTEMBER 22,] 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. 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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<PAGE>
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 [September 22,] 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 [September 22,] 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
2
<PAGE>
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.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary......................................................................................1
The Companies.............................................................................1
The Special Meeting.......................................................................2
Record Date; Voting Power; Votes Required.................................................2
Potential Benefits and Detriments of the Merger to Unaffiliated Shareholders; Benefits to
Insiders................................................................................2
Recommendation of the Board of Directors..................................................3
Opinion of Financial Advisor..............................................................3
Terms of the Merger Agreement.............................................................4
General.................................................................................4
Conditions to the Merger................................................................4
No Solicitation.........................................................................4
Termination.............................................................................4
Fees and Expenses.......................................................................5
Accounting Treatment......................................................................5
Conflicts of Interests....................................................................5
Allianz Life............................................................................5
Board of Directors and Officers of Life USA.............................................5
Counsel and Consultants to Life USA.....................................................6
Regulatory Approvals......................................................................6
Dissenters' Rights........................................................................6
The Special Meeting..........................................................................7
General...................................................................................7
Proposal to be Considered at the Special Meeting..........................................7
Record Date; Voting Power; Votes Required.................................................7
Proxies...................................................................................7
Historical Market Information................................................................8
Selected Consolidated Financial Data of Life USA.............................................9
Special Factors.............................................................................11
Background of the Merger.................................................................11
Purpose, Timing and Structure of the Merger..............................................15
Reasons for the Merger...................................................................16
Recommendation of the Board of Directors.................................................18
Opinion of Financial Advisor.............................................................19
Fairness Opinion With Respect to the Merger............................................19
Opinion of Donaldson, Lufkin & Jenrette................................................20
Fees Payable to DLJ....................................................................28
Perspective of Allianz Life and Acquisition Sub on the Fairness of the Merger............28
Plans for Life USA after the Merger......................................................29
Certain Effects of the Merger............................................................29
Unsolicited Offers From Third Parties....................................................30
Conflicts of Interest....................................................................30
Arrangements with Allianz Life.........................................................30
Directors and Officers of Life USA.....................................................30
Legal Counsel and Consultants; Ownership by Outside Directors..........................31
Indemnification........................................................................31
<PAGE>
Summary of Material Features of the Merger.................................................33
The Merger...............................................................................33
General................................................................................33
Merger Consideration...................................................................33
Payment for Shares.....................................................................33
Stock Options..........................................................................33
Closing of Transfer Books..............................................................33
Conditions to the Merger...............................................................33
Representations and Warranties.........................................................34
Certain Covenants......................................................................35
No Solicitation of Transactions........................................................35
Voting Rights of Allianz Life..........................................................36
Termination............................................................................36
Termination Fee........................................................................37
Indemnification........................................................................38
Amendment and Waiver...................................................................38
Expenses...............................................................................39
Effective Time...........................................................................39
Conversion of Common Stock...............................................................39
Payment for Stock Options................................................................40
Conduct of Business Pending the Merger...................................................40
Regulatory Filings and Approvals.........................................................40
Conditions to the Merger.................................................................40
Federal Income Tax Consequences of the Transaction.......................................40
Financing of the Merger; Source of Funds.................................................41
Anticipated Accounting Treatment.........................................................41
Dissenters' Rights.......................................................................41
Management of Life USA, Allianz Life and Acquisition Sub....................................44
Management of Life USA...................................................................44
Management of Allianz Life and Acquisition Sub...........................................44
Interest in Securities of Life USA..........................................................46
Certain Transactions in Common Stock and Stock Options......................................48
Expenses of the Transaction.................................................................49
Independent Auditors........................................................................50
Where You Can Find More Information.........................................................50
Incorporation of Certain Documents by Reference.............................................51
Shareholder Proposals.......................................................................51
Other Matters...............................................................................52
Appendix to the Proxy Statement.............................................................53
</TABLE>
APPENDICES
<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>
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<PAGE>
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 $5.62 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 160 marketing organizations and 75,000
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. ("Allianz of America"), 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 August 20, 1999, Allianz Life beneficially
owned 5,699,118 shares of Life USA Common Stock or approximately _____% of the
outstanding shares.
Nova New Co.
1750 Hennepin Avenue
Minneapolis, MN 55403
Telephone: (612) 347-6500
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Nova New Co., a Minnesota corporation ("Acquisition Sub"), is a
wholly-owned subsidiary of Allianz Life. Allianz Life formed Acquisition Sub
shortly before execution of the Merger Agreement for the purpose of carrying out
the Merger.
THE SPECIAL MEETING (PAGE____)
The Special Meeting will be held on [September 22,] 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 August 20,
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. 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. On
the Record Date, five executive officers of Life USA owned 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. If a majority of the shares of Common Stock outstanding on the
Record Date vote against the merger, fail to vote or abstain from voting, the
Merger Agreement will not be approved, the Merger will not be completed, Life
USA will remain a public company and the shareholders of Life USA will not have
the right to receive $20.75 per share for the Common Stock. A shareholder who
wishes to exercise dissenters' rights under the MBCA must vote against or fail
to vote for approval of the Merger Agreement.
POTENTIAL BENEFITS AND DETRIMENTS OF THE MERGER TO UNAFFILIATED SHAREHOLDERS;
BENEFITS TO INSIDERS (PAGES ___, ____ AND ___)
The primary benefit of the Merger to Life USA's shareholders other
than Allianz Life is the opportunity to sell all of their shares of Common
Stock at a cash price which represents a substantial premium over predominate
historical trading prices. The merger consideration of $20.75 per share in
cash represents a premium of approximately 99.8% over the average market
price for the Common Stock for the 20 trading days preceding the announcement
of the execution of the Merger Agreement. As a result of the Merger, however,
the shareholders of Life USA will not be entitled to participate in future
earnings or growth of Life USA. The unaffiliated shareholders of Life USA
might receive a
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<PAGE>
greater return if Life USA were to remain a public company. In addition, the
unaffiliated shareholders of Life USA may be required to recognize a taxable
gain as a result of the Merger.
Upon completion of the Merger, Allianz Life will own the entire equity
interest of Life USA. As the sole shareholder of Life USA, Allianz Life 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.
Like the other unaffiliated shareholders of Life USA, the executive
officers and directors of Life USA will have the right to receive $20.75 per
share for their shares of Common Stock. In addition, the officers and directors
of Life USA who hold Stock Options will have the right to receive (a) the excess
of $20.75 over the exercise price of each such 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.
The executive officers and directors of Life USA beneficially owned or
had stock options for 2,355,073 shares of Common Stock at August 20, 1999,
representing an aggregate cash payment to such persons upon completion of the
Merger of $42,059,084.
After completion of the Merger, Life USA will continue to conduct its
business and the executive officers of Life USA will continue their
responsibilities and receive compensation pursuant to current arrangements. In
addition, Robert W. MacDonald, Edward J. Bonach, Margery G. Hughes, Robert S.
James and Mark A. Zesbaugh will be members of a management team which will
manage both Allianz Life and Life USA. As of the date of this Proxy Statement,
there have been no agreements or discussion with respect to any additional
compensation for the additional duties of the executive officers.
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 the unaffiliated shareholders of Life USA. 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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<PAGE>
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 dissenters' rights. Approximately
$340,000,000 of the funds required by Allianz Life to complete the Merger will
be contributed to Allianz Life by its parent, Allianz of America. The remaining
funds (approximately $80,000,000) are available to Allianz Life from its working
capital.
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 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 OF LIFE USA 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;
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- 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
- 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, Allianz Life and Acquisition Sub 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 and its affiliates 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 August 20, 1999, Allianz
Life beneficially owned 5,699,118 shares of Life USA Common Stock or
approximately ____% 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.
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<PAGE>
COUNSEL AND CONSULTANTS TO LIFE USA. Three outside directors of Life USA
receive fees for providing legal or consulting services to Life USA.
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 June 30, 1999 and Life USA received early termination
on July 15, 1999. The Minnesota Department of Commerce approved the Merger on
August ___, 1999.
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.
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<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 [September 22,] 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 of Life USA 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. On
the Record Date, 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. If a majority of the shares of Common Stock
outstanding on the Record Date vote against the merger, fail to vote or abstain
from voting, the Merger Agreement will not be approved, the Merger will not be
completed, Life USA will remain a public company and the shareholders of Life
USA will not have the right to receive $20.75 per share for the Common Stock. A
shareholder who wishes to exercise dissenters' rights under the MBCA must vote
against or fail to vote for approval of the Merger Agreement.
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
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writing or in person at the Special Meeting. Signing and returning a later
dated proxy in the form enclosed with this Proxy Statement will revoke a
prior proxy. 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. The persons named in the Proxy
also have the discretion to vote such proxies to adjourn the Special Meeting
for the purpose of soliciting additional proxies for approval of the Merger
Agreement.
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
Third Quarter (through August 20, 1999).................................$ $
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>
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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 $________. The high and low bid quotations during the period from May
17, 1999 (the date the Merger was announced) through _______, 1999 were $_______
and $_______, respectively.
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 until completion of the
Merger. 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 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 June 30, 1999 and 1998 and for each of the six-month
periods 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>
SIX MONTHS
ENDED
JUNE 30,
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 $ 186,438 $ 181,775 $ 362,648 $ 369,903 $ 316,898 $ 272,781 $ 206,313
Net income 8,501 11,583 21,907 26,978 23,454 19,097 14,469
PER COMMON SHARE DATA:
Net income:
Basic $ 0.35 $ 0.45 $ 0.85 $ 1.24 $ 1.13 $ 0.94 $ 0.72
Diluted 0.34 0.43 0.83 1.11 1.04 0.88 0.71
Dividends declared 0.05 0.025 0.075 - - - -
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BALANCE SHEET DATA:
At period end:
Total assets $5,617,788 $5,295,809 $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 - 6,015 5,898 36,030 36,030 36,030 6,041
Total shareholders' equity 267,653 278,316 279,985 222,400 172,615 156,896 106,916
Book value per common Share 11.04 10.72 11.30 9.77 8.23 7.72 5.30
RATIO OF EARNINGS TO FIXED CHARGES 1097% 1740% 1784% 1925%
</TABLE>
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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 $207.8 million, respectively, were collected on the
Allianz/LUSA Business and LifeUSA Insurance assumed approximately $132.1
million, $115.5 million and $43.6 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 $33.6 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 $9.0
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 issued Common Stock to Allianz Life at a per share price
equal to 250% of the average GAAP book value per share for the previous six
months, except that if the per share price was more than 200% of the average
market price of the Common Stock for the last 20 trading days, Allianz Life
could decline the purchase but Life USA would have the option to require
Allianz Life to purchase a $10 million convertible debenture at a conversion
price equal to 200% of the average market price of the Common Stock for the
last 20 trading days. 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,
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Allianz Life assumed $40.6 million of the new business produced by LifeUSA
Insurance in 1998 and approximately $25.1 million for the first six months of
1999, and Allianz Life paid commissions and allowances to LifeUSA Insurance
of $7.0 million in 1998 and $5.5 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.
During the period from February 1998 through February 1999,
Allianz Life made the following purchases of Common Stock: (1) 2,431,118
shares from conversion of its debenture at a conversion price of $12.34 per
share in February 1998, (2) 241,846 shares from exercise of its warrant at
$12.36 per share in February 1998, (3) 925,000 shares purchased from Life USA
management at $16.44 per share in February 1998, (4) 406,092 shares purchased
in the first STEP installment in August 1998 at $24.625 per share, (5)
395,062 shares purchased in the second STEP installment in February 1999 at
$25.3125 per share, and (6) 1,300,000 shares purchased in open market
transactions from February 1998 through July 1998 at an average of $16.07 per
share. The average price per share of all purchases by Allianz Life from Life
USA during the period from February 1998 through February 1999 was $15.63.
The average market price for the Common Stock during the last 20 trading days
preceding the announcement of the transaction was $10.388 per share. As a
result of the pending Merger, Life USA and Allianz have agreed to suspend
investments by Allianz under the STEP Agreement, subject to reinstatement
should the Merger Agreement be terminated. If STEP Agreement investments had
not been suspended and the applicable formulas under the STEP Agreement had
been applied for the six month period from December 31, 1998 through June 30,
1999 (calculated using the market price of the Common Stock prior to the
announcement of the proposed merger), Allianz Life would not have been
required to purchase Common Stock in August 1999, but Life USA would have had
the option to require Allianz Life to purchase a $10 million convertible
debenture with a conversion price of $20.78 per share.
As of June 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 and wished to
secure an engagement. 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. Life USA viewed the purpose of the
meeting as an effort by the investment banking firm to secure engagement by Life
USA and viewed the preliminary view of value as inadequate. Messrs. MacDonald
and Strangis concluded that a sale of Life USA to a party other than Allianz
Life would not achieve a valuation that would be fully reflective of the
inherent value of Life USA, and they decided not to pursue any discussions for a
sale of Life USA other than as might emanate from direct discussions with
Allianz Life. Messrs. MacDonald and Strangis concluded that any "public auction"
of Life USA could not be expected
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to attract bidders with the same incentives as Allianz Life to pay a premium
for Life USA reflective of Allianz Life's understanding of the inherent value
of Life USA. In addition, Allianz Life was dependent on the volume of
profitable current and future production, servicing, reinsurance and
marketing relationships. These conclusions were supported by the inadequacy
of the informal and preliminary view of value presented by the
representatives of the investment banking firm seeking engagement by Life
USA. In addition, Messrs. MacDonald and Strangis believed that a public
auction would greatly increase the costs of a transaction, distract
management from the business of Life USA for an extended period, involve an
extended process of educating investment bankers and interested acquirers,
negatively affect the focus of the Life USA field force during the period of
uncertainty that is a necessary byproduct of a public auction and place at
risk the corporate culture of Life USA, all with the possible result of
decreasing the value of the enterprise to a bidder and the value of Life USA
to its shareholders.
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 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., 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
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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. Messrs.
MacDonald and Strangis believed that if Allianz Life was agreeable to a price
in excess of $20.00 per share, no significant benefit could be derived from
engaging an investment banking firm to participate in continuing Life USA
discussions with Allianz Life because (a) the representatives of the two
companies were entirely capable of developing and deciding critical elements
of the transaction directly, (b) any intermediary would have had less
understanding of the business and the relationships than the parties
themselves and actually could have the effect of placing the negotiations
between Life USA and Allianz Life at risk, and (c) engagement of an
investment banker would greatly increase the cost of the transaction.
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. 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
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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"
(page __) 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. Mr. MacDonald did not excuse himself due to conflict of
interest, nor did the remaining members of the Board of Directors deem Mr.
MacDonald to have a conflict of interest with respect to the proposed Merger
because Mr. MacDonald's substantial direct ownership of Common Stock placed his
interests parallel to the interests of the unaffiliated shareholders of Life USA
in wishing to secure the best possible price for the Common Stock. In addition,
Mr. MacDonald's employment arrangement with Life USA will continue pursuant to
the terms of an employment agreement executed in January 1998. Furthermore, Mr.
MacDonald and Life USA amended the employment agreement on the date of execution
of the Merger Agreement to state that the Merger would not constitute a "change
of control" under such agreement, thereby restricting certain benefits that
might otherwise have been available to Mr. MacDonald following the Merger, and
to state that the services to be provided under the employment agreement also
include Mr. MacDonald's services to any direct or indirect parent of Life USA
and any subsidiary of such parent. Although Mr. MacDonald had agreed that he
would serve as CEO of Allianz Life following the Merger in addition to
continuing as CEO of Life USA, no discussions or negotiations had taken place
between Allianz Life and him regarding additional compensation for assuming the
additional duties.
PURPOSE, TIMING AND STRUCTURE OF THE MERGER
The purpose for the Merger is to enable Allianz Life to acquire the
entire equity interest of Life USA in a transaction which provides the
shareholders of Life USA, other than Life USA or its wholly-owned subsidiaries
or Allianz Life, with the opportunity to sell all of their Common Stock at a
price which represents a substantial premium over market prices in effect
immediately prior to the announcement of the Merger.
The timing of the execution of the Merger Agreement resulted from a
recognition by Allianz Life and Life USA of consolidations occurring in the
insurance industry in the United States and worldwide requiring both potential
acquirers and potential acquisition candidates to take appropriate action,
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consideration by Life USA of the efficacy of using the additional capital
available to it from Allianz Life pursuant to the STEP Agreement with Allianz
Life to increase long-term profitability by retaining additional new business
in light of the likely short-term negative effects of increased retention on
Life USA's shareholders, and Allianz Life's increasing equity position in
Life USA as a result of transactions relating to the STEP Agreement. For
further discussion, see "Reasons for the Merger" immediately below.
The acquisition by Allianz Life of all of the entire equity interest of
Life USA was structured as a cash merger in order to accommodate the desire of
Allianz Life to ensure its acquisition of all of the outstanding shares of
Common Stock in a single transaction, while at the same time facilitating a
direct cash payment at a premium price to all holders of Common Stock (other
than Life USA and its wholly-owned subsidiaries and Allianz Life). Allianz Life
did not wish to engage in a transaction involving a tender offer followed by a
merger. Life USA wished to have its shareholders presented with a simple
transaction dealing equally with all unaffiliated shareholders.
Acquisition Sub is a wholly-owned subsidiary of Allianz Life. Allianz
Life formed Acquisition Sub shortly before execution of the Merger Agreement for
the purpose of carrying out the Merger.
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 all of the shareholders of Life USA
(other than Life USA and its wholly-owned subsidiaries and Allianz Life),
including the unaffiliated shareholders of Life USA. In approving the Merger,
the Board of Directors considered and analyzed a number of factors; all of the
material factors considered by the Board are described below.
1. The equities market has failed consistently 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. For example, the average market
price for the Common Stock for the 20 trading days preceding the announcement of
the execution of the Merger Agreement was $10.388. Net book value per share of
Common Stock at June 30, 1999 was $11.04 per share of Common Stock. The Board
did not consider liquidation value. The liquidation value of an enterprise whose
primary subsidiary is a life insurance company would normally focus on the value
of its in force business. As a result, the liquidation value of Life USA would
fail to assign value to intangibles such as the distribution channels Life USA
has developed, the experience of the Life USA management team and the potential
of Life USA's start-up subsidiaries (LifeUSA Securities, Inc. and LTCAmerica
Holding, Inc.) that are currently experiencing operating losses.
2. The additional capital being infused into Life USA by Allianz Life
would be best employed to retain all or a greater portion of new life insurance
and annuity business rather than reinsure the business. Retaining additional
business would have the long term effect of increasing Life USA's participation
in the profitability of the business, but retaining additional business would
have the effect over the next three or four years of reducing earnings because
of the reduction in the commissions and expense allowances paid by the
reinsurers primarily in the first policy year and because of additional capital
requirements.
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These reductions in earnings would potentially reduce the market price of the
Common Stock below current levels in a stock market environment emphasizing
earnings growth. The Board believed it to be preferable that the shareholders
of Life USA have the opportunity to receive a price per share of Common Stock
at a substantial premium to market rather than incur further diminution in
value during the period Life USA applied the Allianz Life capital infusion to
increasing retention.
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 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 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 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. Although Life USA shareholders would receive a substantial premium to
market for the Common Stock upon completion of the Merger, the shareholders
would not be entitled to participate in any future earnings or growth of Life
USA. The unaffiliated shareholders of Life USA might receive a greater return if
Life USA were to remain a public company. In addition, the unaffiliated
shareholders of Life USA may be required to recognize a taxable gain as a result
of the Merger.
6. Life USA's relationship with Allianz Life has expanded throughout
Life USA's history from the 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.
7. 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
the combination of the Life USA and Allianz Life businesses and would not likely
to be matched by another party.
8. 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
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facility and to retire Life USA's convertible subordinated debentures prior
to the Merger if Life USA does not have sufficient funds available.
9. 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.
10. A part of the corporate philosophy of Life USA has been to share
value with the people who help build value by making Common Stock and Stock
Option bonuses available to the employees and agents of Life USA. Although the
Merger Agreement permits employees and agents of Life USA to obtain value for
the Common Stock and Stock Options awarded to them, no further equity
participation will be available to employees and agents when Life USA is no
longer a public company following completion of the Merger.
11. 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.
12. The Merger must be approved by a majority of the outstanding shares
of Common Stock. At July 30, 1999, approximately ___% of the shares of
outstanding Common Stock were held by directors and executive officers of Life
USA and approximately ___% of the shares of outstanding Common Stock were held
by Allianz Life. Five executive officers of Life USA, representing beneficial
ownership of ___% 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.
13. 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.
14. Life USA has developed a unique corporate culture emphasizing highly
responsive service, cooperativeness, broad-based information availability and
ownership of work and work product. Management will be challenged to preserve
that culture following completion of the Merger.
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 USA (other than Life USA
and its wholly-owned subsidiaries and Allianz Life), including the unaffiliated
shareholders of Life 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
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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. The Board's approval of the Merger
Agreement and recommendation of approval by the shareholders is based on the
conclusion of the Board that the proposed Merger is fair to the shareholders of
Life USA. In reaching that conclusion, the Board relied on consideration of the
material factors presented in this Proxy Statement in "Special Factors--Reasons
for the Merger" (page ____) and on the opinion of DLJ that the consideration to
be received by the shareholders of Life USA (other than Life USA and its
wholly-owned subsidiaries and Allianz Life) pursuant to the Merger Agreement is
fair to the shareholders from a financial point of view. The conclusion of the
Board as to the fairness of the proposed Merger encompasses the interests of all
shareholders, including unaffiliated shareholders of Life USA. The Merger and
the Merger Agreement were negotiated on an arm's-length basis by the parties. At
completion of the Merger, each share of Common Stock (other than shares held by
Life USA and its wholly-owned subsidiaries and Allianz Life) is converted into
the right to receive $20.75, a price per share which represents a premium of
approximately 99.8% over the average market price per share for the Common Stock
for the 20 trading days preceding the announcement of the execution of the
Merger Agreement and which the Board believed could not be obtained from any
source other than Allianz Life for the reasons described in "Special
Factors--Background of the Merger" and "Special Factors--Reasons for the
Merger." Upon completion of the Merger, all unaffiliated shareholders of Life
USA will have the opportunity for immediate liquidity for the Common Stock.
The Board of Directors of Life USA concluded that the Per Share
Amount is fair to the unaffiliated shareholders of Life USA even though
Allianz Life had purchased shares of Common Stock under the STEP Agreement at
$24.625 per share in February 1998 and $25.3125 per share in August 1998. The
pricing formula for the 1998 purchases of Common Stock by Allianz Life was
negotiated at the end of November 1997 when the market price of the Common
Stock was in the $16 to $17 range and GAAP book value per share was
approximately $9.40 (which at the time would have resulted in a per share
price of approximately $23 at 250% of GAAP book value). The pricing formula
under the STEP Agreement at the time it was negotiated would have resulted in
a premium to market of approximately 40%, compared to the premium to market
as a result of the Merger of 99.8% based on the average of the 20 trading
days preceding announcement of the Merger. Furthermore to protect Allianz
Life against substantial reduction in the market price of the Common Stock
over the term of the STEP Agreement, the STEP Agreement contains a provision
permitting Allianz Life to decline to purchase the Common Stock at 250% of
GAAP book value if the per share price of the Common Stock was more than 200%
of the average market price of the Common Stock for the 20 trading days
preceding an investment under the STEP Agreement. In addition, Allianz Life
received additional inducements under the STEP Agreement, including a
five-year extension of a marketing agreement and an entitlement to 37.5% of
the total new life insurance and annuity business produced by Life USA
Insurance under the marketing agreement. Finally, purchases under the STEP
Agreement were infusions of capital into Life USA which benefited Allianz
Life's position as a substantial shareholder of Life USA, as compared to
payment of the Merger Consideration only to the unaffiliated shareholders of
Life USA.
While members of the Board of Directors who are not employees of Life
USA did not retain an unaffiliated representative to act solely on behalf of the
unaffiliated shareholders of Life USA and the completion of the Merger does not
require the approval of a majority of the unaffiliated shareholders of Life USA,
the Board of Directors of Life USA believes that the Merger is procedurally fair
to the unaffiliated shareholders of Life USA because (a) all unaffiliated
shareholders of Life USA (other than any who exercise dissenters' rights) are
treated equally under the cash merger structure; at completion of the Merger,
each share of Common Stock (other than shares held by Life USA and its
subsidiaries, by Allianz Life and by shareholders of Life USA who exercise their
dissenters' rights) is converted into the right to receive $20.75, a price per
share which represents a substantial premium to the market price of the Common
Stock immediately before the announcement of the proposed Merger, (b) the Merger
and the Merger Agreement were negotiated on an arm's-length basis and (c)
unaffiliated shareholders of Life USA who object to the Merger may obtain "fair
value" for their shares if they exercise and perfect their dissenters' rights
under the MBCA.
All directors of Life USA, including all non-employee directors other
than Messrs. Bonach and James, unanimously approved the Merger Agreement and
recommended approval by the shareholders. 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 16 meeting; they were present at the June 7 meeting but
did not participate in the Board's deliberations or vote.
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
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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 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;
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- 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 and received financial
projections for Life USA from its management. Life USA provided DLJ with
projected financial statements for 1999 through 2002, using assumptions
consistent with its current business plan. DLJ requested and received projected
financial statements and related data under several DLJ defined scenarios. The
focus of these alternate scenarios primarily involved varying premium and growth
assumptions (e.g., high-growth, mid-growth and low-growth) and varying invested
capital levels in LifeUSA Insurance Company. DLJ also conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of rendering its opinion and 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
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.
DLJ performed a number of financial analyses to compare the value of the
Allianz Life offer (the "Offer") to the valuations implied by such analyses. The
valuation methodologies used by DLJ are those generally used by investment
bankers in valuation exercises. DLJ reviewed the analyses and no individual
methodology was conclusive. Rather, DLJ reviewed the results of its analyses
taking into account the basis for the underlying data and circumstances
particular to Life USA.
Certain of the methodologies used resulted in per share valuations above
the level of the Offer before adjustments to account for differences between,
for example, the underlying companies or transaction structures and the
operations of Life USA. DLJ then developed a range of valuations based on data
and companies, which in its judgment, were comparable to Life USA and the Offer.
DLJ's opinion was ultimately based on a review of all of the valuation analyses,
the Company's business plan and prospects and competitive and market conditions.
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.
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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.
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;
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- 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.
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
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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 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
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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 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
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- $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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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]
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)
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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
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 AND ACQUISITION SUB ON THE FAIRNESS OF THE MERGER
As discussed under "Special Factors--Background of the Merger," the
determination of the Per Share Amount resulted from extensive arm's-length
negotiation between the representatives of Life USA and Allianz Life. At the
conclusion of the negotiation process, Allianz Life offered to acquire Life USA
for a price of $20.75 per share.
Allianz Life and Acquisition Sub believe that the Merger is fair to the
shareholders of Life USA, including the unaffiliated shareholders of Life USA.
Neither Allianz Life nor Acquisition Sub undertook any formal or informal
evaluation of its own as to the fairness of the Merger to the shareholders of
Life USA. Allianz Life and Acquisition Sub base this belief solely on (i) the
factors cited by the Board of Directors of Life USA and its determination that
the Merger is fair to, and in the best interest of, the shareholders of Life USA
other than Allianz Life (see "Special Factors--Reasons for the Merger" and
"--Recommendation of the Board of Directors"), (ii) the fact that the Per Share
Amount of $20.75 represents a premium of approximately 99.8% over the average
market price for the Common Stock for the 20 trading days preceding the
announcement of the execution of the Merger Agreement, (iv) the fact that the
terms of the Merger and the Merger Agreement were negotiated on an arm's-length
basis, (v) the fact that the Merger and the Merger Agreement provide the
unaffiliated shareholders of Life USA the opportunity to have immediate
liquidity for their Common Stock and (vi) notwithstanding the fact that the
opinion of DLJ as to fairness of the Merger was provided solely for the
information and assistance of the Board of Directors of Life USA and Allianz
Life and Acquisition Sub are not entitled to rely on such opinion, the fact that
the Board of Directors received an opinion from DLJ that the Per Share Amount of
$20.75 is fair to the shareholders of Life USA from a financial point of view.
In concluding that the terms of the Merger are fair to the unaffiliated
shareholders of Life USA, neither Allianz Life nor Acquisition Sub attach
specific weights to any factors in reaching its belief as to fairness.
Allianz Life and Acquisition Sub concluded that the Per Share Amount
is fair to the unaffiliated shareholders of Life USA even though Allianz Life
had purchased shares of Common Stock under the STEP Agreement at $24.625 per
share in February 1998 and $25.3125 per share in August 1998. The pricing
formula for the 1998 purchases of Common Stock by Allianz Life was negotiated
at the end of November 1997 when the market price of the Common Stock was in
the $16 to $17 range and GAAP book value per share was approximately $9.40
(which at the time would have resulted in a per share price of approximately
$23 at 250% of GAAP book value). The pricing formula under the STEP Agreement
at the time it was negotiated would have resulted in a premium to market of
approximately 40%, compared to the premium to market as a result of the
Merger of 99.8% based on the average of the 20 trading days preceding
announcement of the Merger. Furthermore to protect Allianz Life against
substantial reduction in the market price of the Common Stock over the term
of the STEP Agreement, the STEP Agreement contains the provision permitting
Allianz Life to decline to purchase the Common Stock at 250% of GAAP book
value if the per share price of the Common Stock was more than 200% of the
average market price of the Common Stock for the 20 trading days preceding an
investment under the STEP Agreement. In addition, Allianz Life received
additional inducements under the STEP Agreement, including a five-year
extension of a marketing agreement and an entitlement to 37.5% of the total
new life insurance and annuity business produced by Life USA Insurance under
the marketing agreement. Finally, purchases under the STEP Agreement were
infusions of capital into Life USA which benefited Allianz Life's position as
a substantial shareholder of Life USA, as compared to payment of the Merger
Consideration only to the unaffiliated shareholders of Life USA.
All directors of Life USA, including all non-employee directors other
than Messrs. Bonach and James unanimously approved the Merger Agreement and
recommended approval by the shareholders of Life USA. Messrs. Bonach and James,
the Allianz Life executives who serve and the Life USA Board at Allianz Life's
request, were not present at the May 16 meeting; they were present at the June 7
meeting but did not participate in the Board's deliberations or vote.
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While Allianz Life and Acquisition Sub recognize that the directors
who are not employees of Life USA did not retain an unaffiliated
representative to act solely on behalf of the unaffiliated shareholders of
Life USA and the completion of the Merger does not require the approval of a
majority of the unaffiliated shareholders of Life USA, Allianz Life and
Acquisition Sub believe that the Merger is procedurally fair to such
shareholders because (a) all unaffiliated shareholders of Life USA (other
than any who exercise dissenters' rights) are treated equally under the cash
merger structure; at completion of the Merger, each share of Common Stock
(other than shares held by Life USA and its subsidiaries, by Allianz Life and
by shareholders of Life USA who exercise their dissenters' rights) is
converted into the right to receive $20.75, a price per share which
represents a substantial premium to the market price of the Common Stock
immediately before the announcement of the proposed Merger, (b) the Merger
and the Merger Agreement were negotiated on an arm's-length basis and (c)
unaffiliated shareholders of Life USA who object to the Merger may obtain
"fair value" for their shares if they exercise and perfect their dissenters'
rights under the MBCA. See "Special Factors--Recommendation of the Board of
Directors."
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.
After completion of the Merger, Life USA will continue to conduct its
business and the executive officers of Life USA will continue their
responsibilities and receive compensation pursuant to current arrangements. In
addition, Robert W. MacDonald, Edward J. Bonach, Margery G. Hughes, Robert S.
James and Mark A. Zesbaugh will be members of a management team which will
manage both Allianz Life and Life USA. As of the date of this Proxy Statement,
there have been no agreements or discussion with respect to any additional
compensation for the additional duties of the executive officers.
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. At the
Effective Time, Acquisition Sub will merge with Life USA and the separate
existence of Acquisition Sub will cease.
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 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.
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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.
UNSOLICITED OFFERS FROM THIRD PARTIES
Since entering into the Merger Agreement on May 17, 1999 to the date of
this Proxy Statement, Life USA has not received any unsolicited offers from
third parties for a merger or other business combination involving Life USA or
any of its subsidiaries or any unsolicited proposal or offer to acquire in any
manner 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.
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 purchases of Common Stock by
Allianz Life under the STEP Agreement and in the open market during 1998 and
1999, 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
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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 Merger. None of the executive officers of Life USA will
receive any payment under the "change of control provisions" of their
respective employment agreements or additional compensation for their
increased management responsibilities as a result of the Merger. The
employment agreement of each of the executive officers has been amended to
provide that the Merger does not constitute a change of control under the
employment agreement and to provide that the services to be provided under
the employment agreement include services to any direct or indirect parent of
Life USA and any subsidiary of such parent. 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. Two executive officers of Life USA, Margery G. Hughes and Mark A.
Zesbaugh, own an aggregate of 508,972 Stock Options which will be exercisable
in full upon completion of the Merger in a cash amount equal to the excess of
$20.75 over the exercise price of each Stock Option (an aggregate of
$4,733,009). A description of the value of Stock Options for each executive
officer is included under "Interests in Securities of Life USA" (page __).
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 Stock Options for 19,000 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 Stock
Options for 26,202 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 Stock
Options for 21,000 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 Stock Options for 24,368 shares of Common
Stock. Upon completion of the Merger all Stock Options held by the outside
directors will be converted into the right to receive a cash amount equal to
the excess of $20.75 over the exercise price of the Stock Options (an aggregate
of $898,808). A description of the value of Stock Options for each director is
included under "Interests in Securities of Life USA" (page __).
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
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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
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Merger or any 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 OF LIFE USA 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 and its affiliates 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 [September 22, 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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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 as to which Life USA received early termination
on July 15, 1999, (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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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
41
<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
42
<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
43
<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 (Commission File No. 0-18485). 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.
44
<PAGE>
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
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) and since May 16, 1999 has been Director and
President, Acquisition Sub. 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
45
<PAGE>
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) and since May 16, 1999 has been Secretary and
Treasurer, Acquisition Sub. Ronald L. Wobbeking is President, Mass Marketing.
ACQUISITION SUB
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. Messrs. Bonach and Westermeyer are United
States citizens and their business addresses are 1750 Hennepin Avenue,
Minneapolis, MN 55403. Five years of employment history for each of Messrs.
Bonach and Westermeyer are as set forth above under "Management of Life USA,
Allianz Life and Acquisition Sub -- Management of Allianz Life and Acquisition
Sub -- Acquisition Sub."
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 August 20, 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 Common Stock. As of August 20, 1999,
there were ________ outstanding shares of Common Stock. Information presented
with respect to Stock Options for purposes of this Proxy Statement assumes
that, as provided in the Merger Agreement on the date of completion of the
Merger all Stock Options will be converted into the right to receive a cash
amount equal to the excess of $20.75 over the exercise price of the Stock
Options (whether or not Stock Options would otherwise be vested on such
date). Stock Option Value is the aggregate cash amount payable to each owner
of Stock Options upon completion of the Merger.
46
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENTAGE OF NUMBER OF VALUE OF
OF BENEFICIAL OWNER(1) SHARES OWNED OUTSTANDING OPTIONS OPTIONS
SHARES AS OF
AUGUST 20, 1999
<S> <C> <C> <C> <C>
Hugh Alexander 33,502(2) * 26,202 $ 266,805
Stephen P. Blaske 250(3) *
Jack H. Blaine 27,368(4) * 24,368 251,503
Edward J. Bonach 300 *
Margery G. Hughes 261,592(5) ___% 277,000 2,376,563
Robert S. James -- --
Barbara J. Lautzenheiser 25,500(6) * 21,000 200,875
Robert W. MacDonald 793,963 ___%
Daniel J. Rourke 429,533 ___%
Ralph Strangis 78,000(7),(8) * 19,000 179,625
Donald J. Urban 435,965 ___%
Mark A. Zesbaugh 210,016(9) * 231,972 2,356,446
FMR Corporation 1,960,000(10) ___%
David L. Babson & Company, Inc. 2,132,977(11) ___%
Dimensional Fund Advisors 1,280,900(12) ___%
Allianz Life Insurance Company 5,699,188(13) ___%
of North America
Life USA Holding, Inc. Employee 661,684 ___%
Savings Plan (401(k))
All Directors and Executive 2,295,739(14) ___%
Officers of Life USA as a Group
(11 Persons)
</TABLE>
- ---------------
*Indicates less than one percent (1%) of Common Stock outstanding on August 20,
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 25,202
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
$10.3125 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 23,368
shares of Common Stock at prices ranging from $6.00 to $16.25 per share which
are presently exercisable and 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 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 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
$10.3125 which vest on October 13, 1999.
47
<PAGE>
(7) Includes shares issuable upon the exercise of options to acquire 18,000
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
$10.3125 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 October 13, 1999, 302,830 shares (approximately
1.0% of the outstanding shares of Common Stock at _________, 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 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
___________, 1999, filed with the Securities and Exchange Commission.
(11) The information set forth herein is based on a Schedule 13G, dated
___________, 1999, filed with the Securities and Exchange Commission.
(12) The information set forth herein is based on a Schedule 13G, dated
___________, 1999, filed with the Securities and Exchange Commission.
(13) The information set forth herein is based on a Schedule 13D, dated
___________, 1999, filed with the Securities and Exchange Commission.
(14) Includes 541,208 shares issuable upon the exercise of options presently
exercisable or exercisable within 60 days.
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 each of Hugh Alexander, Jack Blaine, Barbara Lautzenheiser and Ralph
Strangis have exercised Stock Options for 1,000 shares at an exercise price of
$10.3750 in order to avoid expiration of the Stock Options on July 19, 1999:
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 such 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 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>
48
<PAGE>
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 such shares
purchased, the range of prices paid for such shares and the average purchase
price 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 $10,000,007 $ 25.31 $ 25.31 $ 25.31
1998
- ----
First Quarter 4,597,964 $65,107,439 $ 17.06 $ 12.34 $ 14.16
Second Quarter 200,000 $ 2,840,951 $ 15.31 $ 12.04 $ 14.20
Third Quarter: 506,092 $11,142,016 $ 24.63 $ 11.42 $ 22.02
--------- -----------
TOTAL: 5,699,118 $89,090,413
--------- -----------
--------- -----------
</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 $ 1,313,702
------------------
------------------
</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.
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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.
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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
(Commission File No. 0-18485) 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 the quarter ended
March 31, 1999;
(iii) Life USA's Current Report on Form 8-K filed on May 19, 1999; and
(iv) Life USA's Quarterly Report on Form 10-Q for the quarter ended
June 30, 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.
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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
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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>
53
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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
1
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TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
Recitals A-5
<TABLE>
<S> <C>
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-9
Section 2.1 Organization, Standing and Power A-9
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 Permits 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
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
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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-29
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-33
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
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ARTICLE VIII GENERAL PROVISIONS A-37
Section 8.1 Non-Survival of Representations and Warranties. A-37
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>
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 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
5
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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.
(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.
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<PAGE>
(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 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,
7
<PAGE>
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
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:
8
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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, 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
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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 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 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,
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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.
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
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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, 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
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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 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
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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.
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
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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, 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 Agreement, "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 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
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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 any 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 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
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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 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,
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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
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.
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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 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.
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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):
(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)
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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;
(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.
(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.
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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,
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,
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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 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 bona fide 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
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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
(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
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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 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
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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 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
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.
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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 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.
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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 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).
Section 6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT
THE MERGER. The obligations of Parent and Sub 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. The
Company 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 the Company
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 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 Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its Chief
Financial Officer to such effect.
(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.
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(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;
(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
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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 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
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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 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
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Chairman and CEO
Facsimile No.: (612) 525-6141
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 amount by 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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