<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section240.14a-11(c) or
Section240.14a-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:
-----------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
<PAGE>
LIFE USA HOLDING, INC.
300 SOUTH HIGHWAY 169, SUITE 95
MINNEAPOLIS, MINNESOTA 55426
AUGUST 31, 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 30], 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 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.
<PAGE>
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
2
<PAGE>
LIFE USA HOLDING, INC.
300 SOUTH HIGHWAY 169, SUITE 95
MINNEAPOLIS, MINNESOTA 55426
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [SEPTEMBER 30], 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 30], 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.
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
<PAGE>
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 31,] 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.
2
<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 30], 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.
Q: What happens if I have received Life USA Stock Options?
1
<PAGE>
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 30], 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 30], 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 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.
2
<PAGE>
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.................................................................. 1
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........................................................ 3
General............................................................................ 3
Conditions to the Merger........................................................... 3
No Solicitation.................................................................... 4
Termination........................................................................ 4
Fees and Expenses.................................................................. 4
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................................................ 5
Regulatory Approvals................................................................. 5
Dissenters' Rights................................................................... 5
The Special Meeting.................................................................... 6
General.............................................................................. 6
Proposal to be Considered at the Special Meeting..................................... 6
Record Date; Voting Power; Votes Required............................................ 6
Proxies.............................................................................. 6
Historical Market Information.......................................................... 7
Selected Consolidated Financial Data of Life USA....................................... 8
Special Factors........................................................................ 9
Background of the Merger............................................................. 9
Purpose, Timing and Structure of the Merger.......................................... 14
Reasons for the Merger............................................................... 14
Recommendation of the Board of Directors............................................. 17
Opinion of Financial Advisor......................................................... 18
Fairness Opinion With Respect to the Merger........................................ 18
Opinion of Donaldson, Lufkin & Jenrette............................................ 18
Fees Payable to DLJ................................................................ 26
Perspective of Allianz Life and Acquisition Sub on the Fairness of the Merger........ 26
Plans for Life USA after the Merger.................................................. 27
Certain Effects of the Merger........................................................ 28
Unsolicited Offers From Third Parties................................................ 28
Conflicts of Interest................................................................ 29
Arrangements with Allianz Life..................................................... 29
Directors and Officers of Life USA................................................. 29
Legal Counsel and Consultants; Ownership by Outside Directors...................... 29
Indemnification.................................................................... 30
Summary of Material Features of the Merger............................................. 30
The Merger........................................................................... 30
General............................................................................ 30
Merger Consideration............................................................... 31
Payment for Shares................................................................. 31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Stock Options...................................................................... 31
Closing of Transfer Books.......................................................... 31
Conditions to the Merger........................................................... 31
Representations and Warranties..................................................... 32
Certain Covenants.................................................................. 32
No Solicitation of Transactions.................................................... 33
Voting Rights of Allianz Life...................................................... 34
Termination........................................................................ 34
Termination Fee.................................................................... 35
Indemnification.................................................................... 36
Amendment and Waiver............................................................... 36
Expenses........................................................................... 36
Effective Time....................................................................... 36
Conversion of Common Stock........................................................... 36
Payment for Stock Options............................................................ 37
Conduct of Business Pending the Merger............................................... 37
Regulatory Filings and Approvals..................................................... 37
Conditions to the Merger............................................................. 38
Federal Income Tax Consequences of the Transaction................................... 38
Financing of the Merger; Source of Funds............................................. 38
Anticipated Accounting Treatment..................................................... 38
Dissenters' Rights................................................................... 39
Management of Life USA, Allianz Life and Acquisition Sub............................... 41
Management of Life USA............................................................... 41
Management of Allianz Life and Acquisition Sub....................................... 41
Interest in Securities of Life USA..................................................... 43
Certain Transactions in Common Stock and Stock Options................................. 45
Expenses of the Transaction............................................................ 46
Independent Auditors................................................................... 47
Where You Can Find More Information.................................................... 47
Incorporation of Certain Documents by Reference........................................ 48
Shareholder Proposals.................................................................. 48
Other Matters.......................................................................... 48
Appendix to the Proxy Statement........................................................ 49
</TABLE>
<TABLE>
<S> <C> <C>
APPENDICES
APPENDIX A-- Agreement and Plan of Merger........................................... A-1
APPENDIX B-- Opinion of Donaldson Lufkin & Jenrette Securities Corporation.......... B-1
APPENDIX C-- Text of Sections 302A.471 and 302A.473 of the Minnesota Business
Corporations Act..................................................... C-1
</TABLE>
ii
<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
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 30], 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
1
<PAGE>
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 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.
2
<PAGE>
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.
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;
3
<PAGE>
- 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;
- 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.
4
<PAGE>
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.
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.
5
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Life USA for a Special Meeting of
Shareholders of Life USA to be held on [September 30], 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 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.
6
<PAGE>
IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT, FOR POSTPONEMENT OR ADJOURNMENT OF THE SPECIAL
MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES FOR APPROVAL OF 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 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>
HIGH LOW
--------- ---------
<S> <C> <C>
1999:
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>
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
7
<PAGE>
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 -- -- -- --
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>
8
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The relationship between Allianz Life and Life USA spans the history of Life
USA.
In 1988, soon after the founding of Life USA, Allianz Life and Life USA
entered into a service agreement (the "1988 Service Agreement") under which Life
USA marketed and serviced Allianz Life products in nine states (Connecticut,
Maryland, Massachusetts, New Hampshire, New Jersey, Ohio, Pennsylvania, Rhode
Island and Vermont) where LifeUSA Insurance was not authorized to issue
insurance policies. In 1990, LifeUSA Insurance began to assume a portion of the
business produced by Life USA for Allianz Life.
In 1995, in order to provide additional capital and surplus to LifeUSA
Insurance, Allianz Life purchased a 15-year $30 million convertible debenture
from Life USA. In addition, Life USA issued Allianz Life a warrant to purchase
Common Stock to enable Allianz Life to maintain its ownership in Life USA at
10.5% of the outstanding Common Stock if Life USA issued additional shares of
Common Stock after Allianz Life bought the convertible debenture. Life USA paid
Allianz Life interest of $1.5 million in 1997 and $715,000 in 1998 on the
debenture. As part of the debenture purchase, Life USA agreed to expand and
extend the 1988 Service Agreement by entering into a new joint marketing
agreement (the "1995 Marketing Agreement"). Under the 1995 Marketing Agreement,
life insurance agents of Life USA Insurance are also licensed as agents of
Allianz Life and sell Allianz Life products similar to Life USA products in all
states other than New York. In connection with the sale of Allianz Life products
under the 1995 Marketing Agreement, Life USA provides all administrative and
other home office services, pays commissions due agents and pays applicable
premium taxes on the business produced for Allianz Life ("Allianz/LUSA
Business"). Allianz Life pays Life USA service fees on the business produced for
Allianz Life under the 1995 Marketing Agreement. In addition, LifeUSA Insurance
assumes 25% of the Allianz/LUSA Business and pays commission and expense
allowances on the assumed business to Allianz Life. For the years 1997 and 1998
and for the first six months of 1999, premiums of approximately $549.3 million,
$439.2 million and $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, 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
9
<PAGE>
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 purchase price per
share in August 1998 ($24.625) represented 250% of average GAAP book value for
the previous six months; the purchase price did not exceed 200% of the average
market price per share for the last 20 trading days ($27.14). The purchase price
per share in February 1999 ($25.3125) represented a discount of $1.00 per share
to the price per share calculated using 250% of average GAAP book value for the
previous six months ($26.3125) because that calculated price exceeded 200% of
the average market price of the Common Stock for the last 20 trading days
preceding the calculation ($26.14). Rather than decline to purchase the Common
Stock and be required to purchase a $10 million convertible debenture at a
conversion price of $26.14 per share, as provided in the STEP Agreement, Allianz
Life negotiated the purchase of 395,062 shares of Common Stock at $25.3125 per
share. The purchase price did not exceed 200% of the average market price per
share for the last 20 trading days ($26.14). 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 Merger was
$10.388 per share, and the average market price for the Common Stock during the
period from January 1, 1999 through May 14, 1999 was $11.16.
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), the per share price of the
Common Stock calculated at 250% of average GAAP book value would have been
$27.53, which would have been more than $20.78, which represents 200% of the
average market price of the Common Stock for the last 20 trading days (using the
last 20 trading days preceding the announcement of the transaction).
Accordingly, 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
10
<PAGE>
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 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.
11
<PAGE>
On April 21, 1999, Mr. MacDonald met with Messrs. Saffert, James and Bonach
at the Allianz Life offices in Minneapolis. Leading the meeting, Mr. Saffert
indicated that Allianz Life did have a serious interest in acquiring all of the
outstanding Common Stock. He indicated that, "while he was not authorized to
make an offer," preliminary analysis by Allianz Life indicated a potential
offering price "in the mid-teens." Mr. MacDonald responded that he would not
recommend any offer in the mid-teens to the Life USA Board of Directors. Mr.
MacDonald indicated that, for an offer from Allianz Life to be considered, "it
must be at least $20 per share." On April 30, 1999, Mr. MacDonald received a
telephone call from Mr. Saffert who indicated that Allianz Life "might be able
to offer $20 per share," for all of the outstanding Common Stock. He sought to
determine if such an offer would be acceptable to the Life USA Board of
Directors. Mr. MacDonald responded that he believed that the Board of Directors
"would be more comfortable at $21 per share." During this conversation, Mr.
Saffert also indicated that any offer, should it be forthcoming, would be
conditioned on Mr. MacDonald agreeing to remain with Life USA and assume
responsibilities as the chief executive officer for Allianz Life as well.
At a closing price for the Common Stock of $10.875 per share on April 21,
1999, Allianz Life's indication of a potential purchase price "in the mid-teens"
per share represented a premium to market in the range of 29% ($14) to 47%
($16). The premium to market represented by the indication of potential purchase
price was comparable to the premium to market represented by the pricing formula
negotiated in November 1997 between Allianz Life and Life USA and reflected in
the STEP Agreement. At that time, GAAP book value per share was approximately
$9.40 which would have resulted in a per share price of approximately $23 at
250% of GAAP book value, compared to a market price in the $16 to $17 per share
range, approximately a 40% premium to market. If the applicable formulas under
the STEP Agreement had been applied for the six-month period preceding April 21,
1999, Allianz Life would not have been required to purchase the Common Stock at
250% of average GAAP book value ($27.38) because that price exceeded 200% of the
average market price of the Common Stock for the last 20 trading days ($20.92)
and, Allianz Life would therefore have been required to purchase a $10 million
convertible debenture at a conversion price of $20.92. Mr. MacDonald did not
initially seek a price in the $24-$25 per share range because he did not believe
a price in that range was reasonably achievable and, rather than take an
unsustainable position which he believed would terminate further discussion, Mr.
MacDonald indicated a purchase price per share which he unequivocally described
to representatives of Allianz Life as a minimum. Mr. MacDonald's minimum $20 per
share indication of potential purchase price represented a premium to market of
approximately 84% at April 21, 1999. The agreed upon purchase price of $20.75
per share of Common Stock results in a premium to market of 99.8% based on the
20 trading days preceding announcement of the Merger.
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.
12
<PAGE>
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 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
13
<PAGE>
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,
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
14
<PAGE>
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. 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
15
<PAGE>
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 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
16
<PAGE>
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
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
17
<PAGE>
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
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
18
<PAGE>
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;
- 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;
OPINION OF FINANCIAL ADVISOR
FAIRNESS OPINION WITH RESPECT TO THE MERGER
Life USA requested DLJ, in its role as investment banker to Life USA, to
render an opinion to the Board of Directors of Life USA as to the fairness, from
a financial point of view, of the consideration to be received by the
shareholders of Life USA pursuant to the Merger Agreement. On June 7, 1999, DLJ
delivered its opinion to the Life USA Board of Directors that, as of that date,
and based on and subject to the assumptions, limitations and qualifications set
forth in its opinion, the consideration to be received pursuant to the Merger
Agreement is fair to the shareholders of Life USA from a financial point of
view. The full text of the written opinion of DLJ, dated June 7, 1999, which
sets forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Appendix B to this
Proxy Statement. Furthermore, the written opinion to DLJ is available for
inspection and copying at the principal executive offices of Life USA during its
regular business hours by any interested equity security holder of Life USA or
its representative who has been so designated in writing. Shareholders are urged
to read the opinion in its entirety.
19
<PAGE>
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;
- 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 alternate scenarios involving
varying premium growth assumptions and varying risk-based capital levels in
LifeUSA Insurance Company. The variation in premium growth assumptions were as
follows: (a) high-growth--$1.3 billion of premium in 1999 (an increase of 23%
over 1998), increasing approximately 4% annually thereafter, (b)
mid-growth--$1.2 billion of premium in 1999 (an increase of 14% over 1998),
increasing approximately 14% annually thereafter, and (c) low-growth--
20
<PAGE>
$1.1 billion of premium in 1999 (an increase of 4% over 1998), remaining flat
thereafter. The alternative minimum risk-based capital levels were the then
current level of approximately 425%, 400%, 350% and 300%, respectively, of the
"Company Action Level" of capital pursuant to the risk-based capital
requirements of the National Association of Insurance Commissioners. 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.
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.
21
<PAGE>
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;
- 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
22
<PAGE>
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 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
23
<PAGE>
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-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
24
<PAGE>
flow, DLJ developed the following ranges of implied value of the Common Stock,
in each case depending on the discount rate and terminal multiple used:
- $15.39--$17.48, based on a multiple of earnings of 10.0x and discount
rates ranging from 10.0% to 14.0%;
- $19.98--$22.78, based on a multiple of earnings of 14.0x and discount
rates ranging from 10.0% to 14.0%;
- $14.01--$15.89, based on a multiple of book value of 1.10x and discount
rates ranging from 10.0% to 14.0%; and
- $17.68--$20.13, based on a multiple of book value of 1.50x and discount
rates ranging from 10.0% to 14.0%.
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARABLE PUBLIC COMPANIES $14.00 $10.00
<S> <C> <C> <C>
Comparable Transactions $20.00 $13.00
Premiums Paid in Comparable Transactions $16.00 $12.00
Discounted Cash Flow Analysis $20.00 $17.00
Dividend Discount Model $19.00 $16.00
Offer
Price
$20.75
</TABLE>
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. The preparation of a fairness opinion does not involve a
mathematical evaluation or weighing of the results of the individual analyses
performed, but requires DLJ to exercise its professional judgment, based on its
experience and expertise, in considering a wide variety of analyses taken as a
whole. Each of the analyses conducted by DLJ was carried out in order to provide
a different perspective on the transaction and add to the total mix of
information available. DLJ did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness. Rather, in reaching its conclusion, DLJ considered the
results of the analyses in light of each other and did not place particular
reliance or weight on any individual analysis
25
<PAGE>
and ultimately reached its opinion based on the results of all analyses taken as
a whole. Accordingly, notwithstanding the separate factors summarized above, DLJ
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, may create an incomplete view of the evaluation
process underlying its opinion. In performing its analyses, DLJ made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. These assumptions include but are not limited to
assumptions regarding: (a) macro-economic business conditions, (b) competitive
dynamics and general trends in the life insurance and annuity industries, (c)
competition from other industries including the banking and mutual fund
industries, (d) current and projected interest rates, and (e) industry
regulatory environment. The analyses 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
26
<PAGE>
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.
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.
27
<PAGE>
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.
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.
28
<PAGE>
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 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
29
<PAGE>
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 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.
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.
30
<PAGE>
MERGER CONSIDERATION. When the Merger is completed, each share of Common
Stock issued and outstanding immediately prior to the Effective Time will no
longer be outstanding and will automatically be canceled and retired. Each
holder of a Certificate will have only the right to receive an amount in cash
equal to the number of such shares multiplied by $20.75 per share (the "Merger
Consideration") at the time the Certificate is surrendered.
PAYMENT FOR SHARES. Promptly after the Effective Time, Harris Bank and
Trust Company (the "Payment Agent") will mail to each holder of record of a
Certificate a form of letter of transmittal which instructs Life USA
shareholders how to surrender their shares of Common Stock and receive the
Merger Consideration. Risk of loss and title to the Certificate will pass only
when the Payment Agent receives delivery. When a record holder has delivered to
the Payment Agent all Certificates for its shares of Common Stock together with
the duly executed letter of transmittal, the Payment Agent will issue a check
for the Merger Consideration and mail the check to the record holder.
STOCK OPTIONS. The Merger Agreement provides that, immediately prior to the
Effective Time, each outstanding Stock Option will become exercisable in full.
At the Effective Time all Stock Options will be canceled and the holder will
have the right to receive, upon execution and delivery to the Payment Agent of
an option termination agreement, a cash payment equal to the (a) excess of
$20.75 over the exercise price of the Stock Option, multiplied by (b) the total
number of shares of Common Stock under the Stock Option. Promptly after the
Effective Time, the Payment Agent will mail the option termination agreement to
holders of Stock Options. The payment of the consideration for a Stock Option,
net of any withholding or other applicable taxes, upon delivery to the Payment
Agent of an option termination agreement, will constitute full satisfaction of
all rights pertaining to the Stock Option.
CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer books
of Life USA will be closed and no further transfer of shares of Common Stock
will be made on the records of Life USA. On or after the Effective Time, any
Certificates presented to Surviving Corporation or the Payment Agent will be
canceled and exchanged for the Merger Consideration.
CONDITIONS TO THE MERGER. Each party's obligation to complete the Merger is
conditioned upon the following: (a) approval of the Merger Agreement by the vote
of a majority of the outstanding shares of Life USA Common Stock, (b) expiration
or termination of the waiting period (and any extension thereof) applicable to
the Merger under the HSR Act, (c) obtaining of all authorizations, consents,
orders, declarations or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by, any governmental entity, the failure
of which would have the effect of making the Merger or any 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
31
<PAGE>
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.
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
32
<PAGE>
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.
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.
33
<PAGE>
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 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
34
<PAGE>
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 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
35
<PAGE>
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.
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 30], 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
36
<PAGE>
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 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
37
<PAGE>
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 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.
38
<PAGE>
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 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.
39
<PAGE>
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 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.
40
<PAGE>
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 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
41
<PAGE>
five years prior to the date of this Proxy Statement and their business
addresses are Koniginstrasse 28, 80802 Munich, Germany.
Dr. Henning Schulte-Noelle is Chairman of the Board of Management, Allianz
AG and Director, President and Chief Executive Officer, Allianz of America.
Detlev Bremkamp is a Member of the Board of Management, Allianz AG. Dr. Reiner
Hagemann is a Member of the Board of Management, Allianz AG. Dr. Gerhard
Rupprecht is a Chairman, Allianz Lebensversicherungs-AG, P.O. Box D-70151,
Stuttgart, Germany, Member of the Board of Management, Allianz AG, and Director,
Allianz Life. Dr. Diethart Breipohl is a Member of the Board of Management,
Allianz AG and Director, Allianz of America. Dr. Helmut Perlet is a Member of
the Board of Management, Allianz AG. Herbert Hansmeyer is a Member of the Board
of Management, Allianz AG, Director, Allianz of America, and Chairman of the
Board, Fireman's Fund Insurance Company, 777 San Marin Drive, Novato, CA 94998.
ALLIANZ LIFE. The names, positions and five years of employment history of
the directors of Allianz Life are listed below. Unless otherwise specified below
or as indicated above, the directors are United States citizens, have held the
positions listed below since at least five years prior to the date of this Proxy
Statement, and their business addresses are 1750 Hennepin Avenue, Minneapolis,
MN 55403.
Lowell C. Anderson is Chairman of the Board of Directors, President and
Chief Executive Officer of Allianz Life. James R. Campbell is Chairman and CEO
of Norwest Bank MN, N.A., Norwest Center, Sixth and Marquette, Minneapolis, MN
55479-0116 and Director, Allianz Life. Reverend Dennis J. Dease is President,
University of St. Thomas, AQU100 2115 Summit Avenue, St. Paul, MN 55105-1096,
and Director, Allianz Life. Herbert F. Hansmeyer 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
42
<PAGE>
been Second Vice President, Information Systems since August 1, 1995 (Second
Vice President, Information Systems Mass Marketing, April 1, 1994 to August 1,
1995). Edward V. Fitzpatrick has Second Vice President, PreNeed since March 10,
1999 (Assistant Vice President, Human Resources, April 1, 1995 to March 10,
1999; Human Resources Manager, January 1, 1994 to April 1, 1995). Shannon D.
Hendricks has been Vice President, Corporate Controller and Treasurer since
March 10, 1999 (Second Vice President, Corporate Controller, July 1, 1998 to
March 10, 1999; Second Vice President, Controller Mass Marketing, April 1, 1994
to July 1, 1998). Paul M. Howman has been Vice President, Underwriting
Individual Marketing since April 1, 1997 (Vice President, Reinsurance, November
27, 1995 to April 1, 1997; Assistant Vice President, Selection, Mutual of New
York, 1 Mony Plaza, Syracuse, NY 13212, 1992 to 1995). Robert S. James has been
President, Individual Marketing, since April 1, 1995 (President, Financial
Markets, July 1, 1992 to April 1, 1995). James P. Kelso has been Vice President,
Mass Marketing since March 31, 1999 (Vice President, Variable Products, April 1,
1994 to March 31, 1999). Douglas M. Landry is Senior Vice President,
Reinsurance. James A. LoSapio is Vice President, Human Resources. Thomas J.
Lynch is Senior Vice President, Mass Marketing. Christopher H. Pinkerton has
been Vice President, Variable Products since April 12, 1999 (Vice President,
Marketing/Retail Marketing Officer, Nationwide Insurance Enterprise, One
Nationwide Plaza, Columbus, OH 43215, 1996 to 1999; Vice President, Sales
Operations, Nationwide Insurance Enterprise, 1992 to 1996). Kenneth P. Schrapp
has been Second Vice President and Actuary since April 1, 1999 (Second Vice
President and Actuary, Mass Marketing, March 10, 1999 to April 1, 1999;
Assistant Vice President and Actuary, April 1, 1996 to March 10, 1999; Assistant
Vice President, Associate Actuary April 1, 1995 to April 1, 1996; Associate
Actuary February 1, 1994 to April 1, 1995). Carolyn B. Shaw has been Second Vice
President, Individual Marketing Actuary since January 1, 1999 (Second Vice
President, Preferred Life, April 1, 1995 to January 1, 1999; Assistant Vice
President, Preferred Life, January 1, 1993 to April 1, 1995). Timothy J. Tongson
has been Vice President, Individual Marketing since January 1, 1999 (Second Vice
President, Individual Marketing Actuary, October 1, 1995 to January 1, 1999;
Second Vice President and Corporate Actuary, April 1, 1994 to October 1, 1995).
Dr. Robert W. Watson has been Vice President, Chief Medical Director since July
1, 1998 (Vice President, Medical Director, September 16, 1996 to July 1, 1998;
Vice President, Chief Medical Officer, April 1, 1991 to September 16, 1996).
Michael T. Westermeyer has been Vice President, Corporate Legal Officer and
Secretary since July 1, 1997 (Second Vice President and Senior Counsel, April 1,
1997 to July 1, 1997; Vice President and Senior Counsel, April 1, 1994 to April
1, 1997) 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
43
<PAGE>
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.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS NUMBER OF SHARES AS OF NUMBER OF VALUE OF
OF BENEFICIAL OWNER(1) SHARES OWNED AUGUST 20, 1999 OPTIONS OPTIONS
- ------------------------------------------------------ ------------- ----------------- ----------- ------------
<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( ,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
of North America.................................... 5,699,188(13) %
Life USA Holding, Inc.
Employee Savings Plan (401(k))...................... 661,684 %
All Directors and Executive Officers
of Life USA as a Group (11 Persons)................. 2,295,739(14) %
</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 16(th) 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, 11(th) 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., 11(th)
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.
44
<PAGE>
(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.
(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
45
<PAGE>
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
-------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL PURCHASE
QUARTER SHARES PURCHASED PRICE HIGH LOW AVERAGE
- --------------------------------------------- ---------------- ------------------- --------- --------- ---------
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>
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
-------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL PURCHASE
QUARTER SHARES PURCHASED PRICE HIGH LOW AVERAGE
- --------------------------------------------- ---------------- ------------------- --------- --------- ---------
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.
46
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP, independent certified public accountants, are the
independent auditors for Life USA. A representative of Ernst & Young LLP, will
be available at the Special Meeting to answer questions.
WHERE YOU CAN FIND MORE INFORMATION
Life USA files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any such reports,
statements or other information at the Commission's public reference rooms in
Washington, DC, New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Life USA's Commission filings are also available to the public from
commercial document retrieval services and at the world wide web site maintained
by the Commission at HTTP://WWW.SEC.GOV. Reports, proxy statements and other
information concerning Life USA also may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, DC 2006.
The Commission allows Life USA to incorporate by reference information into
this document, which means that Life USA can disclose important information to
you by referring you to another document filed separately with the Commission.
The information incorporated by reference is deemed to be a part of this
document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that Life USA has previously filed with the Commission. These
documents contain important business information about Life USA and its
financial condition.
Life USA may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Life USA or the Commission or
the Commissions World Wide Web site described above. Documents incorporated by
reference are available from Life USA without charge, excluding all exhibits,
unless specifically incorporated by reference as an exhibit to this document.
Shareholders may obtain documents incorporated by reference in this document by
requesting them in writing or by telephone at the following address:
Life USA Holding, Inc.
300 South Highway 169, Suite 95
95 Interchange North Building
Minneapolis, MN 55426
Attention: Mark A. Zesbaugh, Chief Financial Officer
Telephone: (612) 546-7386
Life USA, Allianz Life and Acquisition Sub have filed a Schedule 13E-3 with
the Commission with respect to the Merger. The Schedule 13E-3, including any
amendments and exhibits filed or incorporated by reference as a part thereof, is
available for inspection or copying as set forth above. Statements contained in
this Proxy Statement or in any document incorporated herein by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete and in each instance reference is made to such contract
or other document filed as an exhibit to the Schedule 13E-3 or such other
document, and each such statement shall be deemed qualified in its entirely by
such reference.
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
47
<PAGE>
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 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.
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
48
<PAGE>
APPENDIX TO THE PROXY STATEMENT
<TABLE>
<S> <C> <C> <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>
49
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA,
NOVA NEW CO.
AND
LIFE USA HOLDING, INC.
DATED AS OF MAY 17, 1999
A-1
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<S> <C> <C>
Recitals.............................................................................
ARTICLE I THE MERGER................................................................. A-4
Section 1.1 The Merger.......................................................... A-4
Section 1.2 Effective Time...................................................... A-4
Section 1.3 Effects of the Merger............................................... A-4
Section 1.4 Charter and By-Laws; Directors and Officers......................... A-5
Section 1.5 Conversion of Securities............................................ A-5
Section 1.6 Payment Agent....................................................... A-5
Section 1.7 Transfer Taxes; Withholding......................................... A-6
Section 1.8 Return of Payment Fund.............................................. A-6
Section 1.9 No Further Ownership Rights in Company Common Stock................. A-6
Section
1.10 Closing of Company Transfer Books................................... A-6
Section
1.11 Lost Certificates................................................... A-7
Section
1.12 Further Assurances.................................................. A-7
Section
1.13 Closing............................................................. A-7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.......................... A-7
Section 2.1 Organization, Standing and Power.................................... A-7
Section 2.2 Authority........................................................... A-8
Section 2.3 Consents and Approvals; No Violation................................ A-8
Section 2.4 Proxy Statement..................................................... A-9
Section 2.5 Actions and Proceedings............................................. A-9
Section 2.6 Operations of Sub................................................... A-9
Section 2.7 Brokers............................................................. A-9
Section 2.8 Financing........................................................... A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ A-9
Section 3.1 Organization, Standing and Power.................................... A-9
Section 3.2 Capital Structure................................................... A-10
Section 3.3 Authority........................................................... A-11
Section 3.4 Consents and Approvals; No Violation................................ A-11
Section 3.5 SEC Documents and Other Reports..................................... A-12
Section 3.6 Proxy Statement..................................................... A-12
Section 3.7 Absence of Certain Changes or Events................................ A-13
Section 3.8 Permits and Compliance.............................................. A-13
Section 3.9 Tax Matters......................................................... A-14
Section
3.10 Actions and Proceedings............................................. A-14
Section
3.11 Certain Agreements.................................................. A-15
Section
3.12 ERISA............................................................... A-15
Section
3.13 Compliance with Worker Safety and Environmental Laws................ A-16
Section
3.14 Labor Matters....................................................... A-16
Section
3.15 Intellectual Property............................................... A-17
Section
3.16 State Takeover Statutes; Certain Charter Provisions................. A-17
Section
3.17 Required Vote of Company Stockholders............................... A-17
Section
3.18 Year 2000 Compliance................................................ A-17
Section
3.19 Brokers............................................................. A-17
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
Section
3.20 Insurance Coverage.................................................. A-18
Section
3.21 Conflicts of Interest............................................... A-18
ARTICLE IV COVENANTS................................................................. A-18
Section 4.1 Conduct of Business Pending the Merger.............................. A-18
Section 4.2 No Solicitation..................................................... A-20
Section 4.3 Third Party Standstill Agreements................................... A-21
ARTICLE V ADDITIONAL AGREEMENTS...................................................... A-21
Section 5.1 Stockholder Meeting................................................. A-21
Section 5.2 Preparation of the Proxy Statement.................................. A-21
Section 5.3 Access to Information............................................... A-21
Section 5.4 Fees and Expenses................................................... A-21
Section 5.5 Company Stock Options............................................... A-23
Section 5.6 Best Efforts........................................................ A-23
Section 5.7 Public Announcements................................................ A-23
Section 5.8 Real Estate Transfer and Gains Tax.................................. A-24
Section 5.9 Indemnification; Directors and Officers Insurance................... A-24
Section
5.10 Notification of Certain Matters..................................... A-24
Section
5.11 Employee Benefit Plans and Agreements............................... A-24
Section
5.12 Stock Purchase Agreement............................................ A-25
Section
5.13 Dissenting Shares................................................... A-25
Section
5.14 Chief Executive Officer............................................. A-25
Section
5.15 Change of Control................................................... A-25
Section
5.16 Convertible Debentures.............................................. A-26
Section
5.17 Advance of Funds.................................................... A-26
ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER........................................ A-26
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.......... A-26
Section 6.2 Conditions to Obligation of the Company to Effect the Merger........ A-26
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger.... A-27
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................................ A-27
Section 7.1 Termination......................................................... A-27
Section 7.2 Effect of Termination............................................... A-29
Section 7.3 Amendment........................................................... A-29
Section 7.4 Waiver.............................................................. A-29
ARTICLE VIII GENERAL PROVISIONS...................................................... A-29
Section 8.1 Non-Survival of Representations and Warranties...................... A-29
Section 8.2 Notices............................................................. A-29
Section 8.3 Interpretation...................................................... A-30
Section 8.4 Counterparts........................................................ A-30
Section 8.5 Entire Agreement; No Third-Party Beneficiaries...................... A-30
Section 8.6 Governing Law....................................................... A-30
Section 8.7 Assignment.......................................................... A-31
Section 8.8 Severability........................................................ A-31
Section 8.9 Enforcement of this Agreement....................................... A-31
Signatures........................................................................... A-31
</TABLE>
A-3
<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
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.
A-4
<PAGE>
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.
(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
A-5
<PAGE>
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, 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.
A-6
<PAGE>
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:
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
A-7
<PAGE>
board of directors or other governing body of such corporation, partnership,
limited liability company, joint venture or other legal entity.
Section 2.2 AUTHORITY. On or prior to the date of this Agreement, the
Boards of Directors of Parent and Sub have each declared the merger advisable
and fair to and in the best interest of Parent and Sub, and the Board of
Directors of Sub has recommended the adoption of this Agreement by Parent as
sole stockholder of Sub and Parent has approved this Agreement as sole
stockholder of Sub. Each of Parent and Sub has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Sub and the consummation by Parent and Sub of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Parent or Sub, as the case may be, subject to the filing of the
Articles of Merger with the Secretary of State of the State of Minnesota. This
Agreement has been duly executed and delivered by Parent and Sub and (assuming
the valid authorization, execution and delivery of this Agreement by the Company
and the validity and binding effect of the Agreement on the Company) constitutes
the valid and binding obligations of each of Parent or Sub, as the case may be,
enforceable against them in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
to judicial limitations on the enforcement of specific performance and other
equitable remedies.
Section 2.3 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.3 have been obtained and all filings and obligations described in this Section
2.3 have been made, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, any provision of (i) the Articles of
Incorporation or the By-Laws of Parent or the Articles of Incorporation or
By-Laws of Sub, (ii) any provision of the comparable charter or organization
documents of any of Parent's Subsidiaries, (iii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Subsidiaries
or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clauses (ii), (iii) or (iv),
any such violations, defaults, rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate, would not have a Material
Adverse Effect 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,
A-8
<PAGE>
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, 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
A-9
<PAGE>
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 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.
A-10
<PAGE>
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 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,
A-11
<PAGE>
individually or in the aggregate, have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed all
required documents with the SEC since January 1, 1996 (the "Company SEC
Documents"). Except as set forth in Section 3.5 of the Company Letter, as of
their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and, at the respective times they were filed, none of the Company
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as set forth in Section 3.5 of the Company Letter, the
consolidated financial statements (including, in each case, any notes thereto)
of the Company included in the Company SEC Documents (the "Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles (except, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto), are in accordance
with the books and records of the Company and fairly presented in all material
respects the consolidated financial position of the Company and its consolidated
Subsidiaries as at the respective dates thereof and the consolidated results of
their operations and their consolidated cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein). Except as disclosed
in the Company SEC Documents or as required by generally accepted accounting
principles, the Company has not, since December 31, 1998, made any change in the
accounting practices or policies applied in the preparation of financial
statements. Except as and to the extent set forth in Section 3.5 of the Company
Letter or in the Company Annual Report, neither the Company nor any of its
Subsidiaries had as of December 31, 1998 any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by generally accepted accounting principles to be reflected on the consolidated
balance sheet of the Company and its Subsidiaries (including the notes thereto)
included in the Financial Statements that are not so reflected. The Company has
delivered to Parent the following statutory financial statements of Life USA
Insurance Company (the "Insurance Subsidiary") which have been filed with
insurance regulators (the "Statutory Statements"): (a) the Statutory Quarterly
Statement for the quarter ended March 31, 1999 for the Insurance Subsidiary as
filed with state insurance regulatory authorities, and (b) the Annual Statutory
Statements for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 as
filed with state insurance regulatory authorities. The Statutory Statements (i)
fairly present the financial position of the Insurance Subsidiary and the
results of its operations as of the dates thereof and periods then ended, (ii)
were prepared in accordance with statutory accounting principles prescribed or
permitted at the date of such financial statements by the insurance regulatory
authority of its state of domicile, and (iii) all investments in stocks and
bonds shown thereon were carried at values determined in accordance with the
National Association of Insurance Commissioners' guidelines.
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
A-12
<PAGE>
information supplied by the Company for inclusion or incorporation by reference
in the Schedule 13e-3, at the time its filing, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Effective Time any event with respect to the Company, its
officers and directors or any of its Subsidiaries shall occur which is required
at that time to be described in the Proxy Statement or the Schedule 13e-3, such
event shall be so described, and, in the case of the Proxy Statement, an
appropriate amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company, and, in the
case of the Schedule 13e-3, the Company shall promptly notify Parent of such
event.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Documents filed with the SEC prior to the date of this Agreement
or as disclosed in Section 3.7 of the Company Letter, since December 31, 1998,
(A) the Company and its Subsidiaries have not incurred any material liability or
obligation (indirect, direct or contingent), or entered into any material oral
or written agreement or other transaction, that is not in the ordinary course of
business or that would result in a Material Adverse Effect on the Company, (B)
there has been no change in the capital stock of the Company except for the
issuance of shares of the Company Common Stock pursuant to the Company Stock
Plans or the conversion of the Convertible Debentures and no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its stock, except for the regular quarterly dividend of not more than $.025 per
share of Company Common Stock, (C) there has not been (x) any granting by the
Company or any of its Subsidiaries to any executive officer of the Company or
any of its Subsidiaries of any increase in compensation, except in the ordinary
course of business consistent with prior practice or as was required under
employment agreements in effect as of the date of the most recent audited
financial statements included in the Company SEC Documents, (y) any granting by
the Company or any of its Subsidiaries to any such executive officer of any
increase in severance or termination agreements in effect as of the date of the
most recent audited financial statements included in the Company SEC Documents
or (z) any entry by the Company or any of its Subsidiaries into any employment,
severance or termination agreement with any such executive officer and (D) there
has been no event causing a Material Adverse Effect on the Company, nor any
development that would, individually or in the aggregate, result in a Material
Adverse Effect on the Company.
Section 3.8 PERMITS AND COMPLIANCE. Each of the Company and its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, 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
A-13
<PAGE>
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
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
A-14
<PAGE>
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 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,
A-15
<PAGE>
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, 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
A-16
<PAGE>
business activities of the Company or any of its Subsidiaries, except where such
dispute, strike or work stoppage would not have a Material Adverse Effect on the
Company.
Section 3.15 INTELLECTUAL PROPERTY. To the Knowledge of the Company, the
Company (a) owns or has the exclusive right in the life insurance and annuity
industry to use the "LifeUSA" trademark without infringing upon or otherwise
acting adversely to the right or claimed right of any person under or with
respect to any of the foregoing, (b) owns or has the right in the ordinary
course of its business to use all patents, trademarks, trade names, service
marks, copyrights, trade secrets (including without limitation know-how,
show-how, customer lists, inventions, designs, processes, computer programs and
technical data), and all other intellectual property rights (collectively,
"Proprietary Rights") necessary to its operations and the sale of all products
and services sold or proposed to be sold by it, free and clear of any rights,
liens, or claims of others, except for customary restrictions or provisions
under any agreement pursuant to which any of the foregoing is licensed from a
third party, which restrictions and provisions do not significantly interfere
with the conduct of the Company's business in the ordinary course, and (c) to
the Knowledge of the Company and except as set forth in Section 3.15 of the
Company Letter, is not using any Proprietary Rights of any third party which
violates the rights of such third party.
Section 3.16 STATE TAKEOVER STATUTES; CERTAIN CHARTER
PROVISIONS. Minnesota Statutes Section 302A.671 is not applicable to the
Company, and no charter or by-law takeover provision nor, to the Knowledge of
the Company, any state takeover statute is applicable to the Merger or the
Agreement and the transactions contemplated hereby.
Section 3.17 REQUIRED VOTE OF COMPANY STOCKHOLDERS. The affirmative vote
of the holders of a majority of the outstanding shares of Company Common Stock
is required to adopt this Agreement. No other vote of the security holders of
the Company is required by law, the Articles of Incorporation or By-laws of the
Company or otherwise in order for the Company to consummate the Merger and the
transactions contemplated hereby.
Section 3.18 YEAR 2000 COMPLIANCE. The Company and its Subsidiaries have
established, and are adhering to, a written year 2000 compliance plan to
facilitate the continued, effective operation of the Company's business before
and after January 1, 2000. Such plan includes, without limitation, (a) adequate
procedures for verification that all material software, hardware, systems and
equipment (collectively "Technology") purchased, leased, licensed or otherwise
used by the Company or any of its Subsidiaries is capable of accurately
processing date/time data within, from, into and between the twentieth and
twenty-first centuries, including leap year calculations and the processing of
four-digit date data ("Year 2000 Compliant"), (b) verification of adequate year
2000 planning by all providers of products and services to the Companies, and
(c) adequate contingency plans in the event of a failure of mission-critical
systems or products, or interruption in the provision of mission-critical
services utilized by the Company. The material Technology of the Company and its
Subsidiaries is Year 2000 Compliant, and the Company and its Subsidiaries (i)
have obtained confirmation from their 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.
A-17
<PAGE>
Section 3.20 INSURANCE COVERAGE. There are in full force and effect
policies of insurance issued by insurers of recognized responsibility insuring
the Company and its properties and business against such losses and risks, and
in such amounts, as in the Company's reasonable judgment, are acceptable for the
nature and extent of such business and its resources. A summary of the insurance
policies carried by the Company as of the date hereof has been furnished
previously to Parent.
Section 3.21 CONFLICTS OF INTEREST. As of the date hereof, no officer or
director of the Company or any "Affiliate" (as such term is defined in Rule 405
under the Securities Act) of any such person has any direct or indirect interest
(a) in any entity which does business with the Company, (b) in any property,
asset or right which is used by the Company in the conduct of its business, or
(c) in any contractual relationship with the Company other than as an employee,
except as disclosed in the Company's proxy statement for its 1999 annual
shareholders meeting or except as with Parent or any of Parent's Affiliates.
ARTICLE IV
COVENANTS OF THE COMPANY
Section 4.1 CONDUCT OF BUSINESS PENDING THE MERGER. Except as expressly
permitted by clauses (i) through (xvi) of this Section 4.1, during the period
from the date of this Agreement through the Effective Time, the Company shall,
and shall cause each of its Subsidiaries to, in all material respects carry on
its business in the ordinary course of its business as currently conducted and,
to the extent consistent therewith, use best efforts to preserve intact its
current business organizations, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement or as set forth in the Company Letter (with specific reference to
the applicable subsection below), the Company shall not, and shall not permit
any of its Subsidiaries to, without the prior written consent of Parent (which
consent shall not be unreasonably withheld or delayed):
(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;
A-18
<PAGE>
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any other
manner, any business or any corporation, limited liability company, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, other than transactions that are in the
ordinary course of business consistent with past practice and not material to
the Company and its Subsidiaries taken as a whole;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that are in the
ordinary course of business consistent with past practice;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to, or other
investments in, any other person, other than (A) in the ordinary course of
business consistent with past practices, PROVIDED, THAT the Company may not,
without the written consent of Parent, incur any indebtedness for borrowed
money, other than borrowings under credit facilities existing on the date hereof
and (B) indebtedness, loans, advances, capital contributions and investments
between the Company and any of its wholly owned Subsidiaries or between any of
such wholly owned Subsidiaries;
(vii) alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of the Company or of
any of its Subsidiaries;
(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;
A-19
<PAGE>
(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
(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
A-20
<PAGE>
or which could lead to any Takeover Proposal, (ii) the material terms of such
Takeover Proposal and (iii) the identity of the person making any such Takeover
Proposal or inquiry. The Company will keep Parent fully informed of the status
and details of any such Takeover Proposal or inquiry.
Section 4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality agreement
relating to a Takeover Proposal or standstill agreement to which the Company or
any of its Subsidiaries is a party (other than any involving Parent). During
such period, the Company agrees to enforce, to the fullest extent permitted
under applicable law, the provisions of any such agreements, including, but not
limited to, obtaining injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any court of the
United States or any state thereof having jurisdiction.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 STOCKHOLDER MEETING The Company will, as soon as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a meeting of stockholders (the "Stockholder Meeting") for the purpose of
considering the approval of this Agreement and the transactions contemplated
hereby. The Company will, through its Board of Directors, recommend to its
stockholders the adoption or approval of the Agreement, shall use all reasonable
efforts to solicit such approvals by its stockholders and shall not withdraw
such recommendation. Without limiting the generality of the foregoing, the
Company agrees that its obligations pursuant to the first sentence of this
Section 5.1 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company of a Takeover Proposal.
Section 5.2 PREPARATION OF THE PROXY STATEMENT. The Company and Parent
shall promptly prepare and file with the SEC the Proxy Statement and Parent
shall prepare and file, with the reasonable cooperation and assistance of the
Company, a Schedule 13e-3 with the SEC (the "Schedule 13e-3"). The Company shall
mail the Proxy Statement to its stockholders at the earliest practical date.
Section 5.3 ACCESS TO INFORMATION. Subject to currently existing
contractual and legal restrictions applicable to the Company or any of its
Subsidiaries, the Company shall, and shall cause each of its Subsidiaries to,
afford to the accountants, counsel, financial advisors and other representatives
of Parent hereto reasonable access to, and permit them to make such inspections
as they may reasonably require of, during normal business hours during the
period from the date of this Agreement through the Effective Time, all their
respective properties, books, contracts, commitments and records (including,
without limitation, the work papers of independent accountants, if available and
subject to the consent of such independent accountants) and, during such period,
the Company shall, and shall cause each of its Subsidiaries to, furnish promptly
to Parent (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
or state securities laws and (ii) all other information concerning its business,
properties and personnel as Parent may reasonably request. No investigation
pursuant to this Section 5.3 shall affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the parties
hereto. All information obtained by Parent pursuant to this Section 5.3 shall be
kept confidential in accordance with Section 7.2 of the Stock Purchase
Agreement, dated January 13, 1998 between Parent and the Company (the "Stock
Purchase Agreement").
Section 5.4 FEES AND EXPENSES
(a) EXPENSES. Except as provided in this Section 5.4 and Section 5.7,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
including, without limitation, the fees and disbursements of counsel, financial
advisors and accountants, shall be paid by the party incurring such costs and
expenses, provided that all
A-21
<PAGE>
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 Parent and its Affiliates, to
effect any of
A-22
<PAGE>
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 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
A-23
<PAGE>
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 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.
A-24
<PAGE>
(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.
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
A-25
<PAGE>
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.
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.
A-26
<PAGE>
(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.
(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
A-27
<PAGE>
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 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.
A-28
<PAGE>
(i) by either Parent or the Company prior to June 8, 1998, if the Company
shall have received (A) the written opinion of a nationally recognized
investment bank reasonably acceptable to Parent (the "Opinion Provider") that,
as of the date of the Agreement, the Per Share Amount is unfair to the Company's
stockholders from a financial point of view, a copy of which opinion and other
materials presented to the Company's Board of Directors shall be delivered to
Parent, or (B) a written statement from Opinion Provider that it is not able to
render an opinion that as of the date of the Agreement the Per Share Amount is
fair to the Company's stockholders from a financial point of view, a copy of
which statement and any other materials presented to the Company's Board of
Directors shall be delivered to Parent.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
Section 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers or
directors (except for the last sentence of Section 5.3 and the entirety of
Section 5.4, which shall survive the termination); provided, however, that
nothing contained in this Section 7.2 shall relieve any party hereto from any
liability for any willful breach of a representation or warranty contained in
this Agreement or the breach of any covenant contained in this Agreement.
Section 7.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements 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
A-29
<PAGE>
Minneapolis, Minnesota 55403
Attention: Edward J. Bonach,
Senior Vice President and Chief Financial
Officer
Facsimile No.: (612) 347-6657
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: William B. Payne
Facsimile No.: (612) 340-8738
(b) if to the Company, to
Life USA Holding, Inc.
700 Interchange Building North
300 South Highway 169
Minneapolis, Minnesota 55425
Attention: Robert W. MacDonald
Chairman and CEO
Facsimile No.: (612) 525-6141
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.
A-30
<PAGE>
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.
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
A-31
<PAGE>
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 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.
B-1
<PAGE>
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
B-2
<PAGE>
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 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
C-1
<PAGE>
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.
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
C-2
<PAGE>
(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 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
C-3
<PAGE>
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.
C-4
<PAGE>
PROXY PROXY
Life USA HOLDING, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR THE SPECIAL MEETING OF
SHAREHOLDERS ON SEPTEMBER 30, 1999.
The undersigned, hereby appoints Robert W. MacDonald and Margery G.
Hughes, or either of them, as proxies, each with full power of substitution,
to represent and to vote, as designated below, all the undersigned's shares
of Common Stock of Life USA Holding, Inc., which the undersigned would be
entitled to vote at the Special Meeting of Shareholders to be held on
Thursday, September 30, 1999 at 9:00 a.m., and at any adjournment thereof.
This Proxy, when property executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy
will be voted "FOR" proposal 1.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
LIFE USA HOLDING, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
<TABLE>
<S> <C> <C> <C>
1. To consider and vote upon a proposal to approve For Against Abstain
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 vote to postpone or adjourn the Special / / / / / /
Meeting for the purpose of soliciting additional
proxies for approval of the Merger Agreement.
3. To consider and act upon such other matters as / / / / / /
may properly come before the Special Meeting or any
adjournment or adjournments thereof.
Please vote, date, sign and mail promptly this proxy in the enclosed
envelope. When there is more than one owner, each should sign. When signing
as attorney, administrator, executor, guardian or trustee, please add your
title as such. If executed by a corporation, the full corporation name should
be given, and this proxy should be signed by a duly authorized officer,
showing or her title.
Signature(s) Dated: , 1999
--------------------------- --------------------------
Dated: , 1999
--------------------------- --------------------------
(Please sign exactly as name appears hereon. Joint owners should each
sign.) Where applicable, indicate official position or representative
capacity.
</TABLE>
- -------------------------------------------------------------------------------
TRIANGLE FOLD AND DETACH HERE TRIANGLE
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
