<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE NWNL COMPANIES, INC.
(Exact name of the Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6311 41-1620373
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
20 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55401
(612) 372-5432
(Address and telephone number
of the Registrant's principal executive offices)
--------------------------
ROYCE N. SANNER
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
THE NWNL COMPANIES, INC.
20 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55401
(612) 372-5601
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
Gerald T. Flom Richard R. Crowl Paul C. Meyer
Thomas G. Morgan Vice President and Associate General Rogers & Wells
Counsel
Faegre & Benson Professional The NWNL Companies, Inc. 200 Park Avenue
Limited Liability Partnership 20 Washington Avenue South New York, New York 10166
2200 Norwest Center Minneapolis, Minnesota 55401 (212) 878-8000
Minneapolis, Minnesota 55402 (612) 372-5479
(612) 336-3000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
UPON THE EFFECTIVE TIME OF THE MERGER DESCRIBED HEREIN.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT PRICE (2) FEE (3)
<S> <C> <C> <C> <C>
Common Stock, without par value,
including Rights to Purchase
Preferred Stock (4).............. 8,821,748 N/A $221,835,930 $29,239
<FN>
(1) Based upon the assumed maximum number of shares of NWNL Common Stock that
may be issued pursuant to the Merger described herein, which is based upon
the estimated number of shares of USLICO Common Stock that may be
outstanding immediately prior to the Merger (11,486,650 shares, not
including shares held by a USLICO subsidiary that will become a
wholly-owned subsidiary of the Registrant in the Merger and as to which
there are no rights to vote on the Merger or to receive dividends).
(2) Calculated based upon the market value of shares of USLICO Common Stock to
be converted in the Merger, pursuant to Rule 457(f)(1).
(3) Pursuant to Rule 457(b), the fee is after deduction of $47,257.51 paid with
respect to the transaction pursuant to Section 14(g) of the Securities
Exchange Act of 1934.
(4) Rights to Purchase Preferred Stock are initially attached to and trade with
the NWNL Common Stock. Value attributable to such Rights, if any, is
reflected in the market price for NWNL Common Stock.
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE NWNL COMPANIES, INC.
CROSS-REFERENCE SHEET BETWEEN JOINT PROXY
STATEMENT/PROSPECTUS AND ITEMS IN FORM S-4
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 LOCATION IN
ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Forepart of Registration Statement; Outside Front Cover
Page of Joint Proxy Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Joint Proxy
Statement/Prospectus; Available Information;
Incorporation of Certain Documents by Reference; Table
of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Market Price and Dividend Information for NWNL
and USLICO Common Stock; Otherwise Not Applicable
4. Terms of the Transaction.......................... Outside Front Cover Page of Joint Proxy
Statement/Prospectus; Summary; Background of the
Merger; Recommendations of the Boards of Directors and
Reasons for the Merger; Opinions of Donaldson, Lufkin &
Jenrette Securities Corporation; Opinions of Merrill
Lynch, Pierce, Fenner & Smith, Incorporated; The
Merger; Description of NWNL Capital Stock; Comparative
Rights of Shareholders of USLICO and NWNL
5. Pro Forma Financial Information................... Summary; Unaudited Pro Forma Combined Condensed
Financial Statements
6. Material Contacts with the Company Being
Acquired......................................... Background of the Merger; The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of Named Experts and Counsel............ Summary; Opinions of Donaldson, Lufkin & Jenrette
Securities Corporation; Opinions of Merrill Lynch,
Pierce, Fenner & Smith, Incorporated; Legal Matters;
Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 LOCATION IN
ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
B. INFORMATION ABOUT THE REGISTRANT
<C> <S> <C>
10. Information With Respect to S-3 Registrants....... Available Information; Incorporation of Certain
Documents by Reference; Summary; Business of NWNL;
Management of NWNL
11. Incorporation of Certain Information by
Reference........................................ Available Information; Incorporation of Certain
Documents by Reference
12. Information With Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information With Respect to Registrants Other Than
S-2 or S-3 Registrants........................... Not Applicable
C. INFORMATION ABOUT USLICO
15. Information With Respect to S-3 Companies......... Available Information; Incorporation of Certain
Documents by Reference; Summary; Business of USLICO
16. Information With Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information With Respect to Companies Other Than
S-2 or S-3 Companies............................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Outside Front Cover Page of Joint Proxy
Statement/Prospectus; Available Information;
Incorporation of Certain Documents by Reference;
Summary; General Information; The Merger; Management of
NWNL
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer............................................ Not Applicable
</TABLE>
<PAGE>
[LOGO] The NWNL Companies
The NWNL Companies
20 Washington Avenue South
Minneapolis, Minnesota 55401 December 2, 1994
Dear NWNL Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders to be
held at 9:00 a.m., local time, on January 11, 1995, at the general offices of
the Corporation, 20 Washington Avenue South, Minneapolis, Minnesota.
At the Special Meeting, you will be asked to consider and vote upon a
proposal providing for the Merger of USLICO Corporation, a Virginia corporation,
with and into The NWNL Companies, Inc. pursuant to the terms of an Agreement and
Plan of Merger, dated as of September 11, 1994 (the "Merger Agreement"), by and
between NWNL and USLICO. Under the terms of the Merger Agreement, each
outstanding share of USLICO Common Stock will be converted into and exchanged
for .69 of a share of NWNL Common Stock, subject to adjustment in the event the
average of the per share closing prices of NWNL Common Stock for a period of 20
days prior to the consummation of the Merger is greater than $37.20 or less than
$28.26, all as described in the enclosed Joint Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT YOU VOTE FOR ITS APPROVAL.
The Merger is subject to a number of conditions, including obtaining the
approval of the shareholders of NWNL and USLICO. A special meeting of the
shareholders of each company has been scheduled for January 11, 1995 to consider
the Merger. A summary of the basic terms and conditions of the Merger, a
description of the businesses of NWNL and USLICO, certain financial and other
information relating to NWNL, USLICO and the Merger, and a copy of the Merger
Agreement are set forth in the accompanying Joint Proxy Statement/Prospectus. In
view of the importance of the Merger, please read carefully the enclosed
materials.
The affirmative vote of the holders of a majority of the votes of the
outstanding shares of NWNL Common Stock and NWNL ESOP Preferred stock, voting
together as a class, is required for approval of the Merger. Each share of NWNL
Common Stock is entitled to one vote and each share of NWNL ESOP Preferred Stock
is entitled to two votes at the Special Meeting. The vote of each shareholder is
important. Accordingly, we urge you to complete, sign, date and return the
enclosed proxy immediately whether or not you plan to attend the meeting. You
may, of course, attend the meeting and vote in person even if you have returned
a proxy.
Very truly yours,
[LOGO]
JOHN G. TURNER
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
<PAGE>
[LOGO] The NWNL Companies
The NWNL Companies
20 Washington Avenue South
Minneapolis, Minnesota 55401 December 2, 1994
------------------------
NOTICE OF SPECIAL MEETING
TO BE HELD ON JANUARY 11, 1995
------------------------
A Special Meeting of Shareholders of The NWNL Companies, Inc. ("NWNL") will
be held on January 11, 1995, at 9:00 a.m., local time, at the general offices of
the Corporation, 20 Washington Avenue South, Minneapolis, Minnesota 55401, for
the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of September 11, 1994 (the "Merger
Agreement"), by and between NWNL and USLICO Corporation, a Virginia
corporation ("USLICO"), and, as contemplated thereby, the Merger of
USLICO with and into NWNL, in connection with which each outstanding
share of USLICO Common Stock, $1 par value, will be converted into .69 of
a share of NWNL Common Stock, without par value, subject to adjustment in
the event that the average of the per share closing prices of NWNL Common
Stock for a period of 20 trading days prior to the consummation of the
Merger is greater than $37.20 or less than $28.26, all as more fully set
forth in the accompanying Joint Proxy Statement/Prospectus and in the
Merger Agreement, a copy of which is attached thereto as Exhibit A; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Holders of record of Common Stock and ESOP Preferred Stock at the close of
business on December 1, 1994 are the only shareholders entitled to vote at the
Special Meeting and any adjournment thereof.
All shareholders are cordially invited to attend the Special Meeting. Even
if you plan to be present, the Board of Directors requests that you promptly
complete, sign, date and mail the enclosed proxy. If you attend the meeting, you
may vote either in person or by your proxy.
[LOGO]
JOHN G. TURNER
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING.
<PAGE>
[LOGO]
December 2, 1994
Dear USLICO Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders to be
held at 10:00 a.m., local time, on January 11, 1995, in the auditorium of the
United Services Life Insurance Company Building, 3rd Floor, 950 North Glebe
Road, Arlington, Virginia.
The Board of Directors has approved a Merger Agreement pursuant to which the
Corporation will be merged with and into The NWNL Companies, Inc. Under the
terms of the Merger Agreement, each outstanding share of USLICO Common Stock
will be converted into and exchanged for .69 of a share of NWNL Common Stock,
subject to adjustment in the event the average of the per share closing prices
of NWNL Common Stock for a period of 20 days prior to the consummation of the
Merger is greater than $37.20 or less than $28.26, all as described in the
enclosed Joint Proxy Statement/Prospectus.
If the Merger is approved by the NWNL and USLICO shareholders, USLICO
intends to pay a special cash dividend of $0.45 per share of USLICO Common Stock
and to redeem the Rights under the USLICO Share Rights Plan at a redemption
price of $0.05 per Right. As a result of these payments, each holder of record
of USLICO Common Stock on a record date to be set by the USLICO Board will
receive an aggregate payment of $0.50 per share of USLICO Common Stock. If the
Merger is not approved, USLICO does not intend to make such payment.
The Merger represents a strategic opportunity for the shareholders of USLICO
to participate in what your Board of Directors believes will be the enhanced
value of the combined entity.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF USLICO AND THE USLICO
SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
The Merger is subject to a number of conditions, including obtaining the
approval of the shareholders of USLICO and NWNL. A special meeting of the
shareholders of each company has been scheduled for January 11, 1995 to consider
the Merger. A summary of the basic terms and conditions of the Merger, a
description of the businesses of USLICO and NWNL, certain financial and other
information relating to USLICO, NWNL and the Merger and a copy of the Merger
Agreement are set forth in the accompanying Joint Proxy Statement/Prospectus.
Please review and consider the enclosed materials carefully.
The affirmative vote of more than two-thirds of the outstanding shares of
USLICO Common Stock is required for approval of the Merger. Whether or not you
are able to attend the meeting, it is important that your shares be represented.
An abstention or failure to vote will have the same effect as a vote against the
Merger. Therefore, please promptly complete, sign, date and return the enclosed
proxy card in the postage-paid envelope provided. If the Merger is approved, you
will be sent a letter of transmittal with instructions for surrendering your
stock certificates. Please do not send your certificates until you receive these
materials.
Sincerely,
[LOGO]
DANIEL J. CALLAHAN, III
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
<PAGE>
USLICO CORPORATION
------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 11, 1995
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of USLICO
Corporation ("USLICO") will be held at 10:00 a.m., local time, on January 11,
1995, in the auditorium of the United Services Life Insurance Company Building,
3rd Floor, 950 North Glebe Road, Arlington, Virginia 22203, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of September 11, 1994 (the "Merger
Agreement"), by and between USLICO and The NWNL Companies, Inc., a
Delaware corporation ("NWNL"), and, as contemplated thereby, the Merger
of USLICO with and into NWNL, in connection with which each outstanding
share of USLICO Common Stock, $1 par value, will be converted into .69 of
a share of NWNL Common Stock, without par value, subject to adjustment in
the event that the average of the per share closing prices of NWNL Common
Stock for a period of 20 trading days prior to the consummation of the
Merger is greater than $37.20 or less than $28.26, all as more fully set
forth in the accompanying Joint Proxy Statement/Prospectus and in the
Merger Agreement, a copy of which is attached thereto as Exhibit A; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Only shareholders of record at the close of business on November 2, 1994 are
entitled to vote at the Special Meeting or any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. THE AFFIRMATIVE
VOTE OF MORE THAN TWO-THIRDS OF THE OUTSTANDING SHARES OF COMMON STOCK IS
REQUIRED FOR APPROVAL OF THE MERGER. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENVELOPE PROVIDED, AS IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED. AN ABSTENTION OR FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE MERGER. NO POSTAGE IS NEEDED IF MAILED IN THE UNITED STATES.
December 2, 1994 BY ORDER OF THE BOARD OF DIRECTORS
[LOGO]
JEFFREY P. HAHN
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
---------------------
PROXY STATEMENT OF THE NWNL COMPANIES, INC. AND
USLICO CORPORATION
SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON JANUARY 11, 1995
---------------------
PROSPECTUS OF THE NWNL COMPANIES, INC.
SHARES OF COMMON STOCK
---------------------
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of The NWNL Companies, Inc., a Delaware corporation ("NWNL"), and the
shareholders of USLICO Corporation, a Virginia corporation ("USLICO"), in
connection with the solicitation of proxies by their respective Boards of
Directors for use at a special meeting of shareholders of NWNL (the "NWNL
Special Meeting") and at a special meeting of shareholders of USLICO (the
"USLICO Special Meeting"), each of which has been called to consider and vote on
a proposal to approve and adopt an Agreement and Plan of Merger by and between
NWNL and USLICO, dated as of September 11, 1994 (the "Merger Agreement"), and,
as contemplated thereby, the merger of USLICO with and into NWNL (the "Merger").
Upon consummation of the Merger, each outstanding share of Common Stock, $1 par
value per share, of USLICO ("USLICO Common Stock") at the Effective Time (as
defined herein) will be converted into a fraction of a share of Common Stock,
without par value, of NWNL ("NWNL Common Stock"), and, in certain circumstances,
the right to be paid cash in certain amounts, to be determined as follows (the
"Exchange Ratio"): (i) if the average of the per share closing sale prices of
NWNL Common Stock on the New York Stock Exchange, Inc. ("NYSE") Composite Tape
for the 20 trading days immediately prior to the Approval Date (as defined
herein) (the "Exchange Price") is equal to or greater than $28.26 and not
greater than $37.20, the fraction of a share of NWNL Common Stock to be received
for each share of USLICO Common Stock shall be .69, (ii) if the Exchange Price
is greater than $37.20, the fraction of a share of NWNL Common Stock to be
received for each share of USLICO Common Stock shall be the quotient (determined
to the third decimal place without rounding) obtained by dividing $25.669 by the
Exchange Price, or (iii) if the Exchange Price is less than $28.26 and greater
than $25.36, the fraction of a share of NWNL Common Stock to be received for
each share of USLICO Common Stock shall be calculated in accordance with one of
the alternatives, as designated by NWNL, set forth in the following sentence.
The ratio shall be (A) a number equal to the quotient (determined to the third
decimal place without rounding) obtained by dividing $19.50 by the Exchange
Price (the "Revised Exchange Ratio"); or (B) .69, in which event there shall be
payable in cash by NWNL as additional consideration for each share of USLICO
Common Stock an amount equal to (x) the Revised Exchange Ratio less .69,
multiplied by (y) the Exchange Price; or (C) a number greater than .69 and less
than the Revised Exchange Ratio as shall be designated by NWNL (the "Designated
Exchange Ratio"), in which event there shall be payable in cash by NWNL as
additional consideration for each share of USLICO Common Stock an amount equal
to (x) the Revised Exchange Ratio less the Designated Exchange Ratio, multiplied
by (y) the Exchange Price. If the Exchange Price is equal to or less than
$25.36, either NWNL or USLICO may terminate the Merger Agreement or NWNL and
USLICO may mutually agree to a revised ratio calculated under the methodology
contained in alternative (A), (B) or (C) as discussed in the preceding sentence,
using such Exchange Price to compute the Revised Exchange Ratio and any
Designated Exchange Ratio. The Approval Date is the date when certain conditions
precedent to the Merger have been satisfied and is expected to be three days
prior to the Effective Time of the Merger. Cash will be paid in lieu of the
issuance of fractional shares. Each outstanding USLICO employee stock option
that is not purchased by USLICO prior to the Effective Time will be assumed by
NWNL and will be exercisable on the same terms and conditions as under the
USLICO option plan under which such option was granted and related stock option
agreement, except that each such option will be exercisable for the number of
shares of NWNL
(CONTINUED ON THE FOLLOWING PAGE)
<PAGE>
Common Stock (and, in certain circumstances, the right to be paid cash in
certain amounts) as would have been received pursuant to the Merger for the
shares of USLICO Common Stock subject to the option had the option been
exercisable and exercised immediately prior to the Effective Time, and the
exercise price of such option will be correspondingly adjusted. Upon
consummation of the Merger, the shareholders of NWNL will continue to hold their
shares of NWNL Common Stock, ESOP Convertible Preferred Stock ("NWNL ESOP
Preferred Stock") and 10% Senior Cumulative Preferred Stock ("NWNL Senior
Preferred Stock"), without any change in number, designation, terms or rights.
See "The Merger" and the Merger Agreement, which is attached as Exhibit A to
this Joint Proxy Statement/Prospectus.
If the Merger is approved by the NWNL and USLICO shareholders, USLICO
intends to pay a special cash dividend of $0.45 per share of USLICO Common Stock
and to redeem the Rights under the USLICO Share Rights Plan at a redemption
price of $0.05 per Right, aggregating cash distributions equivalent to $0.50 per
share of USLICO Common Stock. Such payments will be made to holders of record of
USLICO Common Stock on a record date to be set by the USLICO Board. If the
Merger is not approved, USLICO does not intend to make such payments.
The consummation of the Merger is subject to obtaining requisite approvals
from the respective shareholders of NWNL and USLICO, necessary regulatory
approvals and certain other conditions, all as more fully described in this
Joint Proxy Statement/Prospectus. See "General Information" and "The Merger --
Conditions to Consummation of the Merger".
THE RESPECTIVE BOARDS OF DIRECTORS OF NWNL AND USLICO HAVE UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER AND RECOMMEND THAT THEIR RESPECTIVE
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND
THE MERGER.
This Joint Proxy Statement/Prospectus is being mailed or delivered to
shareholders of NWNL and USLICO on or about December 5, 1994. This Joint Proxy
Statement/Prospectus also constitutes the prospectus of NWNL with respect to
shares of NWNL Common Stock, including Rights to Purchase Preferred Stock of
NWNL (see "Description of NWNL Capital Stock -- Share Rights Plan"), to be
issued in connection with the Merger.
The consideration receivable by USLICO shareholders upon exchange of their
shares of USLICO Common Stock for shares of NWNL Common Stock will vary
depending on the Exchange Price, as discussed above. For example, if the
Exchange Price is $37.20, shareholders of USLICO will be entitled to receive
NWNL Common Stock and cash distributions with an aggregate value of $26.17 in
exchange for each share of USLICO Common Stock held by them. If the Exchange
Price is $28.26, USLICO shareholders will be entitled to receive NWNL Common
Stock and cash distributions with an aggregate value of $20.00 in exchange for
each share of USLICO Common Stock held by them. If the Exchange price is $25.37,
shareholders of USLICO will be entitled to receive, at the designation of NWNL,
NWNL Common Stock and cash distributions with an aggregate value of $20.00 in
exchange for each share of USLICO Common Stock held by them. On December 1,
1994, the last full trading day for which closing sale prices were available at
the time of the printing of this Joint Proxy Statement/ Prospectus, the closing
sale price per share of NWNL Common Stock on the NYSE Composite Tape was
$ and the closing sale price per share of USLICO Common Stock on the NYSE
Composite Tape was $ . Based on the closing sale price per share of NWNL
Common Stock on December 1, 1994, and including the cash distributions, as a
result of the Merger shareholders of USLICO would be entitled to receive NWNL
Common Stock and cash with an aggregate value of $ in exchange for each
share of USLICO Common Stock held by them. See the above discussion of the
determination of the Exchange Price, Exchange Ratio, Revised Exchange Ratio and
Designated Exchange Ratio. USLICO shareholders will not be furnished information
from NWNL regarding the actual Exchange Price, which will be determinable from
publicly-available information.
THE SHARES OF NWNL COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DECEMBER 2, 1994.
2
<PAGE>
AVAILABLE INFORMATION
NWNL and USLICO are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facility of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained by mail from the public reference section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information filed by
NWNL and USLICO may be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-4 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") filed by NWNL with the SEC under
the Securities Act of 1933, as amended (the "Securities Act"). This Joint Proxy
Statement/Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement for further information with respect to NWNL and the NWNL securities
offered hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of the document filed as an exhibit to the Registration Statement or
otherwise filed with the SEC. Each such statement is qualified in its entirety
by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. NWNL WILL PROVIDE WITHOUT
CHARGE TO EACH PERSON TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR
ALL OF SUCH DOCUMENTS RELATING TO NWNL (OTHER THAN EXHIBITS TO SUCH DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED THEREIN BY REFERENCE), AND
SUCH REQUESTS SHOULD BE DIRECTED TO THE NWNL COMPANIES, INC., 20 WASHINGTON
AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55401, ATTN: SECRETARY, TELEPHONE (612)
372-5601. USLICO WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF SUCH DOCUMENTS RELATING TO
USLICO (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED THEREIN BY REFERENCE), AND SUCH REQUESTS SHOULD BE
DIRECTED TO USLICO CORPORATION, 4601 FAIRFAX DRIVE, P.O. BOX 3700, ARLINGTON,
VIRGINIA 22203, ATTN: SECRETARY, TELEPHONE (703) 875-3600. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE NWNL SPECIAL MEETING AND THE
USLICO SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY JANUARY 6, 1995.
The following documents filed with the SEC by NWNL (File No. 1-10640)
pursuant to the Exchange Act are incorporated herein by reference:
(i) NWNL's Annual Report on Form 10-K for the year ended December 31,
1993 (which incorporates by reference certain portions of NWNL's 1993 Annual
Report to Shareholders, including financial statements and accompanying
information, and certain portions of NWNL's definitive proxy statement for
NWNL's 1994 Annual Meeting of Shareholders) (the "NWNL 10-K"), Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1994, June 30, 1994
and September 30, 1994 (the "NWNL 10-Qs") and Current Reports on Form 8-K
dated September 12, 1994 and September 28, 1994; and
(ii) NWNL's Form 8-K/A dated May 20, 1993 to NWNL's Current Report on
Form 8-K dated January 17, 1989 filed by NWNL in lieu of a Registration
Statement on Form 8-B and NWNL's Amendment on Form 8A/A dated September 12,
1994 to a Registration Statement on Form 8-A
3
<PAGE>
dated October 4, 1989, as amended on February 15, 1990 (File No. 0-17441),
which contain a description of the NWNL Common Stock and related Rights to
Purchase Preferred Stock of NWNL.
The following documents filed with the SEC by USLICO (File No. 0-12694)
pursuant to the Exchange Act are incorporated herein by reference: USLICO's
Annual Report on Form 10-K for the year ended December 31, 1993 (which
incorporates by reference certain portions of USLICO's 1993 Annual Report to
Shareholders, including financial statements and accompanying information, and
certain portions of USLICO's definitive proxy statement for USLICO's 1994 Annual
Meeting of Shareholders) and Amendment No. 1 thereto on Form 10-K/A filed on
December 1, 1994 (the "USLICO 10-K") and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1994, June 30, 1994 and September 30, 1994 (the "USLICO
10-Qs").
All documents filed by NWNL or USLICO pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the NWNL Special Meeting or the USLICO Special
Meeting shall be deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus and to be made a part hereof from the date of the filing of
such documents. Any statement contained in a document incorporated herein by
reference shall be deemed to be modified or superseded for the purposes hereof
to the extent that a statement contained herein (or in any subsequently filed
document which also is incorporated herein by reference) modifies or supersedes
such statement. Any such statement so modified or superseded shall not be deemed
to constitute a part hereof except as so modified or superseded.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NWNL OR USLICO OR ANY OTHER
PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF NWNL OR USLICO SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN BY
REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS SUCH
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION.......................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................... 3
SUMMARY........................................ 6
General...................................... 6
The Parties to the Merger.................... 6
The Special Meetings......................... 6
Required Vote................................ 7
Recommendations of the Boards of Directors... 8
Fairness Opinions With Respect to the
Merger...................................... 8
Payment by USLICO of Special Distributions... 8
The Merger................................... 8
Certain Investment Considerations............ 11
No Dissenters' Rights in the Merger.......... 11
Certain Federal Income Tax Consequences...... 11
Comparative Rights of USLICO Shareholders
Before and After the Merger................. 11
Market Price and Dividend Data............... 11
Selected Historical Financial Data........... 12
Unaudited Pro Forma Combined Selected
Financial Data.............................. 17
Comparative Unaudited Per Share Data......... 18
GENERAL INFORMATION............................ 19
The Special Meetings......................... 19
Vote Required at NWNL Special Meeting........ 19
Vote Required at USLICO Special Meeting...... 20
Solicitation of Proxies...................... 21
Other Matters................................ 22
BACKGROUND OF THE MERGER....................... 22
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND
REASONS FOR THE MERGER....................... 26
NWNL......................................... 26
USLICO....................................... 27
OPINIONS OF DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION....................... 31
OPINIONS OF MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED........................... 35
General...................................... 35
Materials and Information Considered With
Respect to the Merger....................... 35
Written Opinion for Joint Proxy Statement/
Prospectus.................................. 39
Limitations on Opinions...................... 39
Fees Payable to Merrill Lynch................ 39
THE MERGER..................................... 40
General...................................... 40
Effective Time and Effect of the Merger...... 40
Exchange of Shares........................... 41
Payment by USLICO of Special Distributions... 41
Employee Benefit Plans and Stock Options..... 41
Conditions to Consummation of the Merger..... 42
Representations, Warranties and Covenants.... 43
Amendment, Termination and Waiver............ 44
Expenses and Termination Payments............ 44
USLICO Stock Option.......................... 45
Stock Exchange Listing....................... 45
Certain Legal Matters........................ 46
Conduct of Business Prior to the Merger...... 46
No Solicitation of Acquisition
Transactions................................ 47
Indemnification and Insurance................ 47
Interests of Certain Persons in the Merger... 47
Litigation................................... 49
Federal Income Tax Consequences.............. 49
Business and Management After the Merger..... 51
Debt Assumption and Refinancing.............. 51
Resale of Shares by USLICO Affiliates........ 51
<CAPTION>
PAGE
---------
<S> <C>
NO DISSENTERS' RIGHTS.......................... 51
NWNL Shareholders............................ 51
USLICO Shareholders.......................... 51
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS......................... 52
BUSINESS OF NWNL............................... 59
Overview..................................... 59
Individual Insurance......................... 59
Employee Benefits............................ 61
Life and Health Reinsurance.................. 61
Pension...................................... 62
Investments.................................. 63
Competition.................................. 63
Health Care Proposals........................ 64
BUSINESS OF USLICO............................. 65
Overview..................................... 65
Individual Life Insurance.................... 65
Payroll Deduction and Group Life Insurance... 65
Individual Annuities......................... 66
Investments.................................. 66
Competition and Regulation................... 66
MANAGEMENT OF NWNL............................. 67
General...................................... 67
New Director................................. 67
DESCRIPTION OF NWNL CAPITAL STOCK.............. 68
General...................................... 68
Preferred Stock.............................. 68
Dividends.................................... 69
Voting Rights................................ 70
Share Rights Plan............................ 70
Liquidation.................................. 71
Limitations on Change in Control............. 71
Limitation on Certain Liability of Directors
and Indemnification......................... 72
Transfer Agent............................... 72
MARKET PRICE AND DIVIDEND INFORMATION FOR NWNL
AND USLICO COMMON STOCK...................... 72
COMPARATIVE RIGHTS OF SHAREHOLDERS OF USLICO
AND NWNL..................................... 73
General...................................... 73
NWNL Preferred Stock......................... 73
Voting Rights................................ 74
Amendment of the NWNL Certificate............ 74
Transactions with Interested Shareholders.... 75
Anti-Takeover Provisions..................... 75
NWNL Share Rights Plan....................... 76
Consideration of Other Constituencies........ 76
Dissenters' Rights........................... 77
Requirement for Advance Notification for
Shareholder Nominations and Proposals....... 77
Restrictions on Dividend Payments and the
Repurchase of Stock......................... 77
Limitations on Liability and Indemnification
of Directors................................ 77
LEGAL MATTERS.................................. 78
EXPERTS........................................ 78
SHAREHOLDER PROPOSALS.......................... 79
NWNL Shareholder Proposals................... 79
USLICO Shareholder Proposals................. 79
INDEPENDENT ACCOUNTANTS........................ 79
EXHIBIT A -- Agreement and Plan of Merger...... A-1
EXHIBIT B -- Opinion of Donaldson, Lufkin &
Jenrette Securities Corporation.............. B-1
EXHIBIT C -- Opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.................. C-1
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS
SUMMARY ARE DEFINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS EXHIBIT A TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND REFERENCE IS MADE THERETO FOR A COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER. ALL INFORMATION CONCERNING NWNL INCLUDED
OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN
FURNISHED BY NWNL AND ALL INFORMATION CONCERNING USLICO INCLUDED OR INCORPORATED
HEREIN BY REFERENCE HAS BEEN FURNISHED BY USLICO. EACH SHAREHOLDER SHOULD READ
CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE EXHIBITS HERETO IN THEIR
ENTIRETY.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed Merger of
USLICO with and into NWNL pursuant to the Merger Agreement. See "The Merger".
THE PARTIES TO THE MERGER
NWNL. NWNL is a holding company whose subsidiaries specialize in the life
insurance business. Through Northwestern National Life Insurance Company and
other subsidiaries, NWNL issues and distributes individual life insurance and
annuities, group life and health insurance, life and health reinsurance, and
markets and manages mutual funds. As used herein, the term NWNL refers to The
NWNL Companies, Inc. and its subsidiaries, unless the context otherwise
requires. The principal executive offices of NWNL are located at 20 Washington
Avenue South, Minneapolis, Minnesota 55401, and its telephone number at that
address is (612) 372-5432. See "Business of NWNL".
USLICO. USLICO is an insurance holding company whose primary subsidiaries,
United Services Life Insurance Company and Bankers Security Life Insurance
Society, are engaged in the life insurance business. USLICO's life insurance
companies offer primarily life insurance and annuity products, with
specialization in the military and payroll deduction life insurance markets and
distribution of annuities through banks. USLICO also has several smaller
subsidiaries that provide investment management services and sell insurance and
other financial products. As used herein, the term USLICO refers to USLICO
Corporation and its subsidiaries, unless the context otherwise requires. The
principal executive offices of USLICO are located at 4601 Fairfax Drive,
Arlington, Virginia 22203, and its telephone number at that address is (703)
875-3600. See "Business of USLICO".
THE SPECIAL MEETINGS
TIME, DATE AND PLACE. The NWNL Special Meeting will be held on January 11,
1995, at the general offices of NWNL, 20 Washington Avenue South, Minneapolis,
Minnesota 55401, at 9:00 a.m., local time.
The USLICO Special Meeting will be held on January 11, 1995, in the
auditorium of the United Services Life Insurance Company Building, 3rd Floor,
950 North Glebe Road, Arlington, Virginia 22203, at 10:00 a.m., local time.
RECORD DATE, QUORUM AND SHARES ENTITLED TO VOTE. Only holders of record of
shares of NWNL Common Stock and NWNL ESOP Preferred Stock at the close of
business on December 1, 1994 are entitled to vote at the NWNL Special Meeting
and any and all adjournments thereof. Holders of NWNL Senior Preferred Stock are
not entitled to vote at the NWNL Special Meeting. As of December 1, 1994, there
were outstanding 29,759,085 shares of NWNL Common Stock and 1,306,333 shares of
NWNL ESOP Preferred Stock which are entitled to vote at the NWNL Special
Meeting. Each share of NWNL Common Stock is entitled to one vote and each share
of NWNL ESOP Preferred Stock is entitled to two votes at the NWNL Special
Meeting.
6
<PAGE>
Only holders of record of shares of USLICO Common Stock at the close of
business on November 2, 1994 are entitled to vote at the USLICO Special Meeting.
At the close of business on November 2, 1994, there were outstanding 10,763,132
shares of USLICO Common Stock which are entitled to vote at the USLICO Special
Meeting. Each share of USLICO Common Stock is entitled to one vote at the USLICO
Special Meeting.
The presence either in person or by properly executed proxy of the holders
of a majority of the outstanding shares of NWNL Common Stock and NWNL ESOP
Preferred Stock and of the outstanding shares of USLICO Common Stock entitled to
vote, respectively, at the NWNL Special Meeting and the USLICO Special Meeting
is necessary to constitute a quorum at each such special meeting.
If a quorum is not present at such a special meeting, the shareholders
present, by vote of a majority of the votes cast by shareholders entitled to
vote thereon, may adjourn the meeting, and at any such adjourned meeting at
which a quorum is present any business may be transacted which might have been
transacted at the meeting as originally held and proxies will be voted thereat
as directed.
PROXIES AND REVOCATION OF PROXIES. The enclosed proxy card permits each
shareholder to specify that shares be voted "FOR" or "AGAINST" (or "ABSTAIN"
from) approval and adoption of the Merger Agreement and the Merger. If properly
executed and returned, such proxy will be voted in accordance with the choice
specified. Where a signed proxy card is returned, but no choice is specified,
the shares will be voted FOR approval and adoption of the Merger Agreement and
the Merger.
A proxy relating to the NWNL Special Meeting or USLICO Special Meeting may
be revoked by the shareholder at any time before it is exercised; however, mere
attendance at a special meeting will not itself have the effect of revoking the
proxy. NWNL shareholders may revoke a proxy before being voted by filing written
notice with NWNL, by executing and filing a subsequently dated proxy with NWNL,
or by voting in person at the NWNL Special Meeting. A USLICO shareholder may
revoke a proxy by a subsequently dated proxy, by written notice of revocation
received by USLICO not later than the close of business on January 10, 1994, or
by the holder of record voting in person at the USLICO Special Meeting.
PURPOSE OF SPECIAL MEETINGS. At the NWNL and USLICO Special Meetings,
shareholders of NWNL and USLICO, respectively, will be asked to consider and
vote on a proposal to approve and adopt the Merger Agreement and the Merger and
such other matters as may be properly brought before such special meetings.
CERTAIN VOTING INFORMATION. As of October 31, 1994, NWNL's directors and
executive officers, as a group, beneficially owned 916,044 shares (or
approximately 3.1%) of the outstanding NWNL Common Stock and less than one
percent of the outstanding NWNL ESOP Preferred Stock entitled to vote at the
NWNL Special Meeting. All directors and executive officers of NWNL have
indicated that they will vote all outstanding shares of NWNL Common Stock and
NWNL ESOP Preferred Stock beneficially owned by them for approval and adoption
of the Merger Agreement and the Merger.
As of October 31, 1994, USLICO's directors and executive officers, as a
group, beneficially owned 370,925 shares (or approximately 3.5%) of the
outstanding USLICO Common Stock entitled to vote at the USLICO Special Meeting.
All directors and executive officers of USLICO have indicated that they will
vote all outstanding shares of USLICO Common Stock beneficially owned by them
for approval and adoption of the Merger Agreement and the Merger.
OTHER MATTERS. Representatives of the independent auditors of NWNL and
USLICO are expected to be present at the NWNL and USLICO Special Meetings,
respectively. See "Independent Accountants".
REQUIRED VOTE
NWNL. The affirmative vote of the holders of a majority of the votes of the
outstanding shares of NWNL Common Stock and NWNL ESOP Preferred Stock, voting
together as a class, is required to approve and adopt the Merger Agreement and
the Merger. Each share of NWNL Common Stock is entitled to one vote and each
share of NWNL ESOP Preferred Stock is entitled to two votes at the NWNL Special
Meeting. See "General Information -- Vote Required at NWNL Special Meeting".
7
<PAGE>
USLICO. The affirmative vote of the holders of more than two-thirds of the
outstanding shares of USLICO Common Stock is required to approve and adopt the
Merger Agreement and the Merger. Each share of USLICO Common Stock is entitled
to one vote at the USLICO Special Meeting. See "General Information -- Vote
Required at USLICO Special Meeting".
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The respective Boards of Directors of NWNL and USLICO have determined that
the Merger is advisable and in the best interests of their respective
corporations and shareholders and have unanimously recommended that their
shareholders vote for the proposal to approve and adopt the Merger Agreement and
the Merger. See "Background of the Merger" and "Recommendations of the Boards of
Directors and Reasons for the Merger". In considering the recommendation of the
Board of Directors of USLICO with respect to the Merger, USLICO shareholders
should be aware that certain directors and officers of USLICO have interests in
the Merger different from the interests of other USLICO shareholders. See "The
Merger -- Interests of Certain Persons in the Merger".
FAIRNESS OPINIONS WITH RESPECT TO THE MERGER
NWNL. The Board of Directors of NWNL has received opinions of Donaldson,
Lufkin & Jenrette Securities Corporation, NWNL's financial advisor in connection
with the Merger, that, as of a date prior to the date of the Merger Agreement
and as of the date of this Joint Proxy Statement/ Prospectus, the consideration
to be paid by NWNL pursuant to the Merger Agreement is fair to the shareholders
of NWNL from a financial point of view. A copy of such opinion dated as of the
date of this Joint Proxy Statement/Prospectus is attached as Exhibit B to this
Joint Proxy Statement/Prospectus and should be read in its entirety for
information with respect to the assumptions made, and matters considered, by DLJ
in rendering such opinion. For a discussion of certain relationships of DLJ with
NWNL, see "Opinions of Donaldson, Lufkin & Jenrette Securities Corporation".
USLICO. The Board of Directors of USLICO has received opinions of Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, USLICO's
financial advisor in connection with the Merger, that, as of the date of the
Merger Agreement and as of the date of this Joint Proxy Statement/Prospectus,
the consideration to be received by holders of shares of USLICO Common Stock
pursuant to the Merger (including the special cash dividend and redemption
payment described below in "Payment by USLICO of Special Distributions") is fair
to such shareholders from a financial point of view. A copy of such opinion
dated as of the date of this Joint Proxy Statement/Prospectus is attached as
Exhibit C to this Joint Proxy Statement/Prospectus and should be read in its
entirety for information with respect to the assumptions made, and matters
considered, by Merrill Lynch in rendering such opinion. For a discussion of
certain relationships of Merrill Lynch with NWNL and USLICO, see "Opinions of
Merrill Lynch, Pierce, Fenner & Smith Incorporated".
PAYMENT BY USLICO OF SPECIAL DISTRIBUTIONS
If the Merger is approved by the NWNL and USLICO shareholders, USLICO
intends to pay a special cash dividend of $0.45 per share of USLICO Common Stock
and to redeem the Rights under the USLICO Share Rights Plan at a redemption
price of $0.05 per Right, aggregating cash distributions equivalent to $0.50 per
share of USLICO Common Stock. Such payments will be made to holders of record of
outstanding USLICO Common Stock on a record date to be set by the USLICO Board.
If the Merger is not approved, USLICO does not intend to make such payments.
THE MERGER
CONVERSION OF SHARES. At the Effective Time of the Merger, each outstanding
share of USLICO Common Stock will be converted into such fraction of a share of
NWNL Common Stock, and, in certain circumstances, the right to be paid cash in
certain amounts, determined pursuant to the Exchange Ratio, Revised Exchange
Ratio or Designated Exchange Ratio, as the case may be. See the cover page of
this Joint Proxy Statement/Prospectus. The shareholders of NWNL will continue to
hold their shares of capital stock of NWNL without any change in number,
designation, terms or rights. For a summary of various differences between the
rights of USLICO shareholders and the rights of holders of NWNL Common Stock,
see "Comparative Rights of Shareholders of USLICO and NWNL".
8
<PAGE>
EFFECTIVE TIME OF THE MERGER. Subject to the terms and conditions of the
Merger Agreement, the Merger is expected to become effective in early 1995. See
"The Merger -- Effective Time and Effect of the Merger".
CONDITIONS TO THE MERGER. The obligations of NWNL and USLICO to effect the
Merger are subject to certain conditions, including, among other things, that
certain regulatory approvals shall have been obtained and that the Merger
Agreement and the Merger shall have been approved and adopted by the holders of
NWNL Common Stock and NWNL ESOP Preferred Stock and the holders of USLICO Common
Stock. See "The Merger -- Conditions to Consummation of the Merger" for a
discussion of other conditions to the Merger. Any of the conditions to the
obligation of NWNL or USLICO to consummate the Merger may be waived or modified
by the party that is, or whose shareholders are, entitled to the benefits
thereof. Neither NWNL nor USLICO has any present intention to waive or modify
any such condition that it deems material.
USLICO EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS. Pursuant to the Merger
Agreement, NWNL has agreed to assume, in accordance with their respective terms,
certain of USLICO's benefit plans, programs and arrangements.
Pursuant to the Merger Agreement, USLICO shall, at the election of the
optionee, purchase, prior to the Effective Time, each unexercised USLICO
employee stock option at a price based upon the average of the per share closing
prices of USLICO Common Stock for the three trading days prior to the Effective
Time. Any option not so purchased will be assumed by NWNL and will be
exercisable upon the same terms and conditions as under the USLICO option plan
under which such option was granted and the related stock option agreement,
except that each such option will be exercisable for such number of shares of
NWNL Common Stock (and, in certain circumstances, the right to be paid cash in
certain amounts) as would have been received pursuant to the Merger for the
shares of USLICO Common Stock subject to the option had the option been
exercisable and exercised immediately prior to the Effective Time, and the
exercise price of such option will be correspondingly adjusted. See "The Merger
- -- Employee Benefit Plans and Stock Options".
AMENDMENT, TERMINATION AND WAIVER. The Merger Agreement may be amended at
any time, provided that after the Merger Agreement has been approved and adopted
by the shareholders, it may be amended only as permitted by applicable law.
Under certain conditions, the Merger Agreement may be terminated prior to the
Effective Time, whether prior to or after approval by the NWNL or USLICO
shareholders. The conditions under which the Merger Agreement may be terminated
include termination by mutual consent of the Boards of Directors of NWNL and
USLICO, termination by either party if the Merger has not been consummated on or
before June 30, 1995, termination by either party upon the failure of either
NWNL or USLICO to receive the requisite shareholder approval at the NWNL Special
Meeting or the USLICO Special Meeting, or adjournments thereof, termination by
either party upon the failure to meet any condition to the terminating party's
obligation to consummate the Merger that has not been waived or cured within the
prescribed cure period, or termination by either party if a final unappealable
order to prevent the Merger or an award of substantial damages is entered. The
Merger may also be terminated by either NWNL or USLICO if the recommendation of
the Merger by the USLICO Board is withdrawn or modified in a manner detrimental
to NWNL or the Exchange Price is equal to or less than $25.36. See "The Merger
- -- Conditions to Consummation of the Merger" and "The Merger -- Amendment,
Termination and Waiver".
EXPENSES. If the Merger Agreement is terminated, the Merger Agreement
provides, in certain specified circumstances, for the payment by USLICO to NWNL
of $1 million to reimburse NWNL's expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby. USLICO has also
agreed, upon the occurrence of certain events, to pay NWNL an additional $9
million if an acquisition of USLICO, other than the Merger, is consummated
within 12 months of such termination. NWNL has agreed to pay USLICO $1 million
to reimburse USLICO's expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby if USLICO terminates the Merger
Agreement because the Merger has not been approved by the shareholders of NWNL
at the NWNL Special Meeting. See "The Merger -- Expenses and Termination
Payments".
USLICO STOCK OPTION. Prior to and in connection with the execution of the
Merger Agreement, NWNL and USLICO executed the USLICO Option Agreement, pursuant
to which USLICO granted to
9
<PAGE>
NWNL an option to purchase up to 1,065,552 newly issued shares of USLICO Common
Stock at a price of $24 per share, subject to adjustment under certain
circumstances. The USLICO Option Agreement is exercisable, provided it has not
terminated in accordance with its terms, only in the event that USLICO, in
accordance with the terms of the Merger Agreement, is obligated to pay NWNL a
cumulative amount of $10 million in connection with the termination of the
Merger Agreement. See "The Merger -- Expenses and Termination Payments". The
USLICO Option Agreement is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms set forth in the Merger
Agreement and may discourage offers by other parties to acquire USLICO. See "The
Merger -- USLICO Stock Option".
SOLICITATION OF THIRD-PARTY OFFERS. In the Merger Agreement, USLICO has
agreed not to solicit, initiate or intentionally encourage proposals or offers,
or take certain other actions, relating to any merger, consolidation, share
exchange, purchase or other acquisition of all or (other than in the ordinary
course of business) any substantial portion of the assets or any substantial
equity interest in USLICO or any subsidiary of USLICO or any business
combination with USLICO or any subsidiary of USLICO but is permitted to supply
information to third parties and cooperate or assist or engage in discussions or
negotiations with third parties relating to such merger and acquisition
transaction, or modify or withdraw its recommendation of the Merger, if the
USLICO Board determines (after consultation with legal counsel) that such action
is necessary in order for the USLICO Board to act in accordance with its
fiduciary obligations under applicable law. See "The Merger -- No Solicitation
of Acquisition Transactions".
REGULATORY APPROVALS. Consummation of the Merger is conditioned upon, among
other things, the receipt of all consents or approvals of governmental agencies,
including insurance regulatory authorities, that are necessary for the
consummation of the Merger and the transactions contemplated thereby, without
conditions that would result in a material adverse change in the financial
condition, results of operations or businesses of either NWNL or USLICO. NWNL
and USLICO believe that the required regulatory approvals are likely to be
secured without the imposition of any conditions that would result in such a
material adverse change. See "The Merger -- Certain Legal Matters".
SURRENDER OF SHARE CERTIFICATES. After the Effective Time, each shareholder
of USLICO will be entitled to receive, upon surrender of certificates previously
representing shares of USLICO Common Stock, certificates representing the number
of full shares of NWNL Common Stock to which such shareholder is entitled
pursuant to the Merger Agreement. In certain instances, each USLICO shareholder
may also be entitled to receive cash as a result of adjustments to the Exchange
Ratio in accordance with the terms of the Merger Agreement. See the cover page
of this Joint Proxy Statement/ Prospectus. No fractional shares of NWNL Common
Stock will be issued, and holders of USLICO Common Stock will be entitled to
receive an amount in cash equal to the value of any such fraction of a share
based upon the Exchange Price and the Exchange Ratio, Revised Exchange Ratio or
Designated Exchange Ratio, as the case may be. SHAREHOLDERS OF USLICO SHOULD NOT
SURRENDER THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE TRANSMITTAL MATERIALS,
WHICH WILL BE MAILED FOLLOWING THE EFFECTIVE TIME. See "The Merger -- Exchange
of Shares".
ACCOUNTING TREATMENT. The Merger will be accounted for under the purchase
method of accounting. See "Unaudited Pro Forma Combined Condensed Financial
Statements".
BUSINESS AND MANAGEMENT AFTER THE MERGER. After the Effective Time, the
NWNL Board and current executive officers of NWNL will continue as the Board of
Directors and executive officers of NWNL, as the surviving corporation. At the
Effective Time, the NWNL Board will be increased by one position and Mr. Daniel
J. Callahan, III, currently Chairman and Chief Executive Officer of USLICO, will
become a member of the NWNL Board. NWNL anticipates certain operational and
organizational changes to the businesses of the surviving corporation as a
result of the Merger. See "Recommendations of the Boards of Directors and
Reasons for the Merger", "The Merger -- Business and Management After the
Merger" and "Management of NWNL -- New Director".
After the Effective Time, the principal executive offices of NWNL, as the
surviving corporation, will continue to be at 20 Washington Avenue South,
Minneapolis, Minnesota 55401.
10
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS
The Merger will be a material transaction to NWNL, and the future financial
performance of the USLICO businesses will have a material impact on the future
earnings of NWNL. NWNL expects to realize reductions in USLICO expenses due to
the elimination of certain duplicative facilities, equipment and other personnel
and functions. If these expected savings are not realized, the earnings of the
combined company would be less than currently expected by NWNL. See "Unaudited
Pro Forma Combined Financial Statements". NWNL also believes that the combined
company will realize marketing and distribution synergies through the joint
distribution of NWNL and USLICO insurance products. See "Recommendations of the
Boards of Directors and Reasons for the Merger". The market for insurance
products is, however, very competitive, and there can be no assurance that the
expected synergies will be realized.
A shareholder of USLICO has filed suit in Virginia against USLICO, its
directors, certain of its executive officers and NWNL arising out of the
proposed Merger seeking damages and injunctive relief. See "The Merger --
Litigation".
NO DISSENTERS' RIGHTS IN THE MERGER
NWNL shareholders and USLICO shareholders will NOT be entitled to demand
appraisal of, or to receive any appraisal payment for, their shares. See "No
Dissenters' Rights".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
At the Effective Time, the USLICO Board is to receive the opinion of its
counsel, Rogers & Wells, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that
no gain or loss will be recognized by the holders of shares of USLICO Common
Stock on the receipt of shares of NWNL Common Stock in exchange therefor
pursuant to the Merger, except with respect to cash received as a result of
certain adjustments to the Exchange Ratio in accordance with the terms of the
Merger Agreement or in lieu of fractional shares. The NWNL Board also is to
receive the opinion of its counsel, Faegre & Benson, to the effect that the
Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code. See "The Merger -- Federal Income Tax Consequences".
COMPARATIVE RIGHTS OF USLICO SHAREHOLDERS BEFORE AND AFTER THE MERGER
The rights of the shareholders of USLICO are currently governed by Virginia
Law and by USLICO's Articles of Incorporation and Bylaws. At the Effective Time,
USLICO shareholders will become shareholders of NWNL, a Delaware corporation,
and their rights as NWNL shareholders will be governed by Delaware Law and by
NWNL's Certificate of Incorporation and By-Laws. There are various differences
between the rights of USLICO shareholders and the rights of holders of NWNL
Common Stock, including, among others, the rights and privileges accorded
holders of NWNL Preferred Stock and certain shareholder voting provisions. See
"Comparative Rights of Shareholders of USLICO and NWNL".
MARKET PRICE AND DIVIDEND DATA
The shares of NWNL Common Stock and the shares of USLICO Common Stock are
each listed and principally traded on the NYSE. The following table sets forth
for the periods indicated the high and low sale prices of NWNL Common Stock and
USLICO Common Stock, as reported in published financial sources, and the cash
dividends paid per share (as adjusted to give effect to the two-for-one stock
split of NWNL Common Stock effected on May 21, 1993):
<TABLE>
<CAPTION>
NWNL COMMON STOCK USLICO COMMON STOCK
------------------------------ -----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1992................................................... $25 9/16 $14 13/16 $ 0.73 $20 3/8 $16 3/4 $ 1.00
1993................................................... 38 3/4 24 5/16 0.785 20 15 0.24
1994
First Quarter........................................ 34 1/4 27 0.20 17 1/2 15 3/4 0.06
Second Quarter....................................... 34 1/2 27 7/8 0.225 20 1/2 17 0.06
Third Quarter........................................ 34 1/2 29 1/2 0.225 22 3/8 17 5/8 0.06
Fourth Quarter (through December 1)..................
</TABLE>
On September 9, 1994, the last trading day prior to the public announcement
of the Merger, the closing sale prices per share of NWNL Common Stock and USLICO
Common Stock as reported on the
11
<PAGE>
NYSE Composite Tape were $31 1/4 and $21 1/4, respectively. On December 1, 1994,
the last trading day for which closing sale prices were available at the time of
the printing of this Joint Proxy Statement/ Prospectus, the closing sale prices
per share of NWNL Common Stock and USLICO Common Stock as reported on the NYSE
Composite Tape were $ and $ , respectively. See "Market Price and Dividend
Information for NWNL and USLICO Common Stock". Pursuant to the Merger,
shareholders of USLICO who are to receive shares of NWNL Common Stock would be
entitled to receive shares of NWNL Common Stock as set forth on the cover page
of this Joint Proxy Statement/Prospectus, and USLICO shareholders of record as
of a record date to be set by the USLICO Board will also receive special cash
distributions in the aggregate amount of $0.50 per share of USLICO Common Stock.
Based on the closing sale price per share of NWNL Common Stock on December 1,
1994, as a result of the Merger each USLICO shareholder would be entitled to
receive NWNL Common Stock and cash with an aggregate value of $ per share
of USLICO Common Stock. See the discussion of the determination of the actual
Exchange Price and Exchange Ratio (and Revised Exchange Ratio and Designated
Exchange Ratio) on the cover page of this Joint Proxy Statement/Prospectus.
USLICO shareholders will not be furnished information from NWNL regarding the
actual Exchange Price, which will be determinable from publicly-available
information.
Listing on the NYSE of the shares of NWNL Common Stock issuable in
connection with the Merger is a condition to consummation of the Merger.
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data of NWNL
and USLICO for each of the years in the five year period ended December 31, 1993
and selected unaudited historical financial data for the nine-month periods
ended September 30, 1993 and 1994. The balance sheet data are as of December 31
and September 30 of the indicated periods. The selected historical financial
data as of and for each of the five years in the period ended December 31, 1993
shown below have been derived from the consolidated financial statements of NWNL
and USLICO. The selected historical financial data for NWNL for the nine-month
periods ended September 30, 1993 and 1994 have been derived from NWNL's
unaudited financial statements and reflect all adjustments and accruals,
consisting only of normal, recurring adjustments and accruals which are, in the
opinion of NWNL management, necessary for a fair statement of the results for
the interim periods presented. The selected historical financial data for USLICO
for the nine-month periods ended September 30, 1993 and 1994 have been derived
from USLICO's unaudited financial statements and, in the opinion of USLICO
management, include all adjustments and accruals, consisting only of normal
recurring adjustments and accruals, considered necessary for a fair presentation
of the interim periods presented. These historical data are not necessarily
indicative of results to be expected after the Merger is consummated and should
be read in conjunction with the information set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the NWNL and USLICO 10-Ks and 10-Qs and the separate consolidated
financial statements and the notes thereto of NWNL and USLICO incorporated
herein by reference.
12
<PAGE>
NWNL
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------------- ----------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Premiums........................... $ 536,975 $ 482,835 $ 659,600 $ 589,920 $ 547,994 $ 517,649 $ 527,071
Net Investment Income.............. 465,655 478,907 634,986 606,666 616,124 637,758 640,815
Realized Investment Losses......... (22,585) (25,131) (32,389) (33,667) (34,112) (36,609) (17,350)
Other Income....................... 181,420 168,433 228,243 215,085 209,784 181,337 167,577
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenues................... 1,161,465 1,105,044 1,490,440 1,378,004 1,339,790 1,300,135 1,318,113
Benefits and Expenses.............. 1,041,043 1,010,674 1,361,849 1,288,440 1,269,445 1,239,801 1,234,068
Income Taxes....................... 42,652 33,966 46,132 29,001 23,114 8,061 28,408
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from Continuing
Operations........................ 77,770 60,404 82,459 60,563 47,231 52,273 55,637
Loss from Discontinued
Operations........................ -- -- -- -- (350) (2,618) (2,153)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Charges
and Cumulative Effect of
Accounting Changes................ 77,770 60,404 82,459 60,563 46,881 49,655 53,484
Extraordinary Charges.............. -- (1,443) (9,694) (1,251) -- -- --
Cumulative Effect of Accounting
Changes........................... -- (7,464) (7,464) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 77,770 $ 51,497 $ 65,301 $ 59,312 $ 46,881 $ 49,655 $ 53,484
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Available to Common
Shareholders...................... $ 71,533 $ 45,274 $ 57,008 $ 50,067 $ 40,943 $ 49,655 $ 53,484
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Primary:
Income from Continuing Operations.......... $ 2.37 $ 1.96 $ 2.63 $ 2.07 $ 1.72 $ 2.09 $ 2.15
Loss from Discontinued Operations.......... -- -- -- -- (0.02) (0.10) (0.08)
-------- --------- --------- -------- -------- --------- --------
Income Before Extraordinary Charges and
Cumulative Effect of Accounting Changes... 2.37 1.96 2.63 2.07 1.70 1.99 2.07
Extraordinary Charges...................... -- (0.05) (0.34) (0.05) -- -- --
Cumulative Effect of Accounting Changes.... -- (0.27) (0.26) -- -- -- --
-------- --------- --------- -------- -------- --------- --------
Net Income................................... $ 2.37 $ 1.64 $ 2.03 $ 2.02 $ 1.70 $ 1.99 $ 2.07
-------- --------- --------- -------- -------- --------- --------
-------- --------- --------- -------- -------- --------- --------
Fully Diluted:
Income from Continuing Operations.......... $ 2.22 $ 1.81 $ 2.45 $ 1.93 $ 1.61 $ 2.09 $ 2.15
Loss from Discontinued Operations.......... -- -- -- -- (0.01) (0.10) (0.08)
-------- --------- --------- -------- -------- --------- --------
Income Before Extraordinary Charges and
Cumulative Effect of Accounting Changes... 2.22 1.81 2.45 1.93 1.60 1.99 2.07
Extraordinary Charges...................... -- (0.05) (0.31) (0.05) -- -- --
Cumulative Effect of Accounting Changes.... -- (0.24) (0.24) -- -- -- --
-------- --------- --------- -------- -------- --------- --------
Net Income................................... $ 2.22 $ 1.52 $ 1.90 $ 1.88 $ 1.60 $ 1.99 $ 2.07
-------- --------- --------- -------- -------- --------- --------
-------- --------- --------- -------- -------- --------- --------
DIVIDENDS PAID PER COMMON SHARE.............. $ 0.65 $ 0.585 $ 0.785 $ 0.73 $ 0.69 $ 0.645 $ 0.59
</TABLE>
13
<PAGE>
NWNL
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
----------------------- ----------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
----------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Invested Assets.................... $ 7,869,769 $7,677,451 $7,716,264 $7,159,565 $7,053,798 $6,869,555 $6,715,463
Other Assets....................... 2,475,657 2,084,965 2,196,653 1,915,617 1,716,493 1,604,095 1,555,281
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets..................... $10,345,426 $9,762,416 $9,912,917 $9,075,182 $8,770,291 $8,473,650 $8,270,744
----------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ---------- ----------
Notes and Mortgages Payable........ 210,109 302,670 230,349 220,472 295,923 327,151 322,743
Other Liabilities.................. 9,331,518 8,736,049 8,881,958 8,174,958 7,880,316 7,633,147 7,447,910
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities................ $ 9,541,627 $9,038,719 $9,112,307 $8,395,430 $8,176,239 $7,960,298 $7,770,653
----------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ---------- ----------
Shareholders' Equity:
Preferred........................ 67,776 66,425 66,746 65,799 64,999 -- --
Common........................... 736,023 657,272 733,864 613,953 529,053 513,352 500,091
Book Value per Common Share........ $24.75 $23.97 $24.92 $22.81 $22.21 $20.93 $19.35
</TABLE>
14
<PAGE>
USLICO
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------------- ----------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Premiums........................... $ 136,571 $ 141,984 $ 191,239 $ 177,124 $ 208,381 $ 150,416 $ 144,245
Net Investment Income.............. 150,597 148,553 197,891 188,063 173,642 149,617 129,654
Realized Investment Gains.......... 2,294 9,651 14,717 5,432 2,376 558 9,454
Other Income....................... 9,201 11,168 13,691 8,168 8,906 12,649 12,970
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenues................... 298,663 311,356 417,538 378,787 393,305 313,240 296,323
Benefits and Expenses (a).......... 275,460 295,884 393,767 423,926 406,077 284,587 260,588
Income Tax Expense (Benefit)....... 7,755 (2,761) 191 (8,908) (2,288) 9,297 11,769
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations........................ 15,448 18,233 23,580 (36,231) (10,484) 19,356 23,966
Gain (Loss) from Discontinued
Operations........................ -- -- -- (9,954) 21,720 5,328 7,290
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Cumulative
Effect of Accounting Changes...... 15,448 18,233 23,580 (46,185) 11,236 24,684 31,256
Cumulative Effect of Accounting
Changes........................... -- -- -- (9,828) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).................. $ 15,448 $ 18,233 $ 23,580 $ (56,013) $ 11,236 $ 24,684 $ 31,256
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE:
Primary:
Income (Loss) from Continuing
Operations...................... $1.44 $1.70 $2.19 $(3.37) $(0.98) $1.79 $2.20
Gain (Loss) from Discontinued
Operations...................... -- -- -- (0.93) 2.02 0.49 0.67
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Cumulative
Effect of Accounting Changes.... 1.44 1.70 2.19 (4.30) 1.04 2.28 2.87
Cumulative Effect of Accounting
Changes......................... -- -- -- (0.91) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)................ $1.44 $1.70 $2.19 $(5.21) $1.04 $2.28 $2.87
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fully Diluted:
Income (Loss) from Continuing
Operations...................... $1.37 $1.57 $2.04 $(3.37) $(0.98) $1.74 $2.14
Gain (Loss) from Discontinued
Operations...................... -- -- -- (0.93) 2.02 0.37 0.60
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Cumulative
Effect of Accounting Changes.... 1.37 1.57 2.04 (4.30) 1.04 2.11 2.74
Cumulative Effect of Accounting
Changes......................... -- -- -- (0.91) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)................ $1.37 $1.57 $2.04 $(5.21) $1.04 $2.11 $2.74
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
DIVIDENDS PAID PER COMMON SHARE.... $0.18 $0.18 $0.24 $1.00 $1.00 $1.00 $1.00
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Invested Assets.................... $2,527,769 $2,491,120 $2,522,953 $2,309,238 $2,099,758 $1,726,569 $1,543,354
Other Assets....................... 915,493 915,988 889,142 884,403 836,967 991,336 936,385
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets..................... $3,443,262 $3,407,108 $3,412,095 $3,193,641 $2,936,725 $2,717,905 $2,479,739
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Notes Payable...................... 96,050 96,050 96,050 96,050 96,050 96,050 97,750
Other Liabilities.................. 3,090,203 3,039,947 3,040,223 2,843,644 2,520,138 2,304,334 2,075,192
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities................ $3,186,253 $3,135,997 $3,136,273 $2,939,694 $2,616,188 $2,400,384 $2,172,942
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Common Shareholders' Equity........ 257,009 271,211 275,822 253,947 320,537 317,521 306,797
Book Value per Common Share........ $23.88 $25.22 $25.63 $23.61 $29.80 $29.44 $28.27
<FN>
- ------------------------------
(a) 1991 included a loss of $7,189,000 related to writing down a foreign
investment.
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following table presents unaudited pro forma combined selected financial
data for NWNL and USLICO after giving effect to the Merger. These pro forma data
are presented for illustrative purposes only and are not necessarily indicative
of the results that would have been obtained if the Merger had been consummated
on January 1, 1993 (in the case of income statement items) or September 30, 1994
(in the case of balance sheet items), or that may be obtained in the future.
These pro forma data are derived from the Unaudited Pro Forma Combined Condensed
Financial Statements appearing elsewhere herein and should be read in
conjunction with those statements and the notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues................................................................... $ 1,450,903 $ 1,895,678
Income from Continuing Operations.......................................... 91,995 108,857
Income from Continuing Operations per Common Share (Fully Diluted)......... $2.16 $2.67
Common Shares Used in Calculation of Above per Common Share Amount......... 40,186 38,255
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
--------------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Assets...................................................................................... $ 13,738,648
Notes and Mortgages Payable................................................................. 309,459
Shareholders' Equity
Preferred................................................................................. 67,776
Common.................................................................................... 958,821
Book Value per Common Share................................................................. $25.80
Common Shares Used in Calculation of Above Book Value per Common Share Amount............... 37,166
</TABLE>
17
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth (i) the historical income from continuing
operations per common share, the historical dividends paid per common share, the
historical book value per common share and the historical market value per
common share data for NWNL and USLICO; (ii) the unaudited pro forma combined
income from continuing operations per common share, the unaudited pro forma
combined dividends per common share and the unaudited pro forma combined book
value per common share data after giving effect to the proposed Merger; and
(iii) the unaudited pro forma equivalent combined income from continuing
operations per common share, the unaudited pro forma equivalent combined
dividends per common share, the unaudited pro forma equivalent combined book
value per common share and the unaudited pro forma equivalent combined market
value per common share of USLICO Common Stock, all based upon an Exchange Ratio
of .69. The information presented in the table should be read in conjunction
with the Unaudited Pro Forma Combined Condensed Financial Statements appearing
elsewhere herein and the notes thereto and the separate historical consolidated
financial statements and the notes thereto of NWNL and USLICO incorporated
herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS:
Primary Earnings per Common Share:
Historical NWNL........................................................ $ 2.37 $ 2.63
Historical USLICO...................................................... 1.44 2.19
Pro Forma Combined..................................................... 2.28 2.83
Pro Forma Equivalent for One Share of USLICO Common Stock.............. 1.57 1.95
Fully Diluted Earnings per Common Share:
Historical NWNL........................................................ $ 2.22 $ 2.45
Historical USLICO...................................................... 1.37 2.04
Pro Forma Combined..................................................... 2.16 2.67
Pro Forma Equivalent for One Share of USLICO Common Stock.............. 1.49 1.84
DIVIDENDS PAID PER COMMON SHARE:
Historical NWNL.......................................................... $ 0.650 $ 0.785
Historical USLICO........................................................ 0.180 0.240
Pro Forma Combined (a)................................................... 0.650 0.785
Pro Forma Equivalent for One Share of USLICO Common Stock................ 0.45 0.542
</TABLE>
<TABLE>
<CAPTION>
BOOK VALUE PER SHARE MARKET VALUE PER SHARE
OF COMMON STOCK OF COMMON STOCK
SEPTEMBER 30, 1994 NOVEMBER 21, 1994
-------------------- ----------------------
<S> <C> <C>
Historical NWNL..................................................... $ 24.75 $ 28.375
Historical USLICO................................................... 23.88 20.375
Pro Forma Combined.................................................. 25.80 N/A
Pro Forma Equivalent for One Share of USLICO Common Stock........... 17.80 20.08(b)
<FN>
- ------------------------
(a) The pro forma dividends per common share are assumed to be the same as the
historical NWNL dividends per common share.
(b) The pro forma equivalent market value per common share is the NWNL
historical market value per common share multiplied by an Exchange Ratio of
.69 plus special cash distributions of $0.50 per share of USLICO Common
Stock.
</TABLE>
18
<PAGE>
GENERAL INFORMATION
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the respective Boards of Directors of NWNL and USLICO
for use at the NWNL and USLICO Special Meetings to be held on January 11, 1995,
and at any adjournments of such meetings. This Joint Proxy Statement/Prospectus
also constitutes the Prospectus of NWNL with respect to the shares of NWNL
Common Stock, including Rights to Purchase Preferred Stock of NWNL (see
"Description of NWNL Capital Stock"), to be issued in connection with the Merger
described herein.
The NWNL and USLICO Special Meetings have been called for the purpose of
considering and voting upon a proposal to approve and adopt the Merger Agreement
and the Merger, whereby USLICO will be merged with and into NWNL, and such other
matters as may be properly brought before such special meetings. The Merger will
be accomplished pursuant to the Merger Agreement described herein by a statutory
merger of USLICO with and into NWNL in which all the outstanding shares of
USLICO Common Stock will be converted into NWNL Common Stock (and, in certain
circumstances, the right to be paid cash in certain amounts). In the Merger, the
shareholders of NWNL will continue to hold their shares of NWNL Common Stock,
NWNL ESOP Preferred Stock and NWNL Senior Preferred Stock, without any change in
number, designation, terms or rights. Pursuant to the Merger Agreement, holders
of USLICO Common Stock will become shareholders of NWNL and will receive a
fraction of a share of NWNL Common Stock for each outstanding share of USLICO
Common Stock determined pursuant to the Exchange Ratio, Revised Exchange Ratio
or Designated Exchange Ratio, as the case may be, as set forth on the cover page
of this Joint Proxy Statement/Prospectus. The Merger Agreement also provides
that USLICO shall, at the election of the optionee, purchase, prior to the
Effective Time, each unexercised USLICO employee stock option at a price based
upon the average of the per share closing prices of USLICO Common Stock on the
NYSE Composite Tape for the three trading days prior to the Effective Time. Any
option not so purchased will be assumed by NWNL and will be exercisable upon the
same terms and conditions as under the USLICO option plan under which such
option was granted and the related stock option agreement, except that each such
option will be exercisable for such number of shares of NWNL Common Stock (and,
in certain circumstances, the right to be paid in cash certain amounts) as would
have been received pursuant to the Merger for the shares of USLICO Common Stock
subject to the option had the option been exercisable and exercised immediately
prior to the Effective Time, and the exercise price of such option will be
correspondingly adjusted. See "The Merger -- Exchange of Shares" and "The Merger
- -- Employee Benefit Plans and Stock Options".
VOTE REQUIRED AT NWNL SPECIAL MEETING
Approval and adoption of the Merger Agreement and the Merger will require
the affirmative vote of the holders of a majority of the votes of the
outstanding shares of NWNL Common Stock and NWNL ESOP Preferred Stock, voting
together as a class. Holders of NWNL Common Stock have one vote per share and
holders of NWNL ESOP Preferred Stock have two votes per share. Holders of NWNL
Senior Preferred Stock are not entitled to vote at the NWNL Special Meeting.
Shareholders do not have any appraisal rights. See "No Dissenters' Rights".
The Board of Directors of NWNL (the "NWNL Board") has fixed the close of
business on December 1, 1994 as the record date for the determination of
shareholders entitled to vote at the NWNL Special Meeting or any and all
adjournments thereof. At that date, there were outstanding 29,759,085 shares of
NWNL Common Stock and the record holders of such stock on that date will be
entitled to one vote for each share of such stock held by them. On that same
date, there were outstanding 1,306,333 shares of NWNL ESOP Preferred Stock and
the record holders of such stock on that date will be entitled to two votes for
each share of such stock held by them. Each share of NWNL ESOP Preferred Stock
is convertible into two shares of NWNL Common Stock. All shares of NWNL ESOP
Preferred Stock are held by the trustee of The NWNL Companies Success Sharing
Plan and ESOP ("ESOP"). Participants in the ESOP are entitled to instruct the
trustee of the ESOP on how to
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vote all shares of NWNL Common Stock and NWNL ESOP Preferred Stock allocated to
their accounts under such plan and will receive an instruction form for
directing the voting of such shares. The ESOP provides that shares for which the
trustee receives no voting instructions from participants, including unallocated
shares held in the ESOP, will be voted by the trustee in the same proportion as
shares for which instructions are received.
Based on filings with the SEC, as of December 31, 1993 Neuberger & Berman is
known by NWNL management to be the beneficial owner of more than 5% of the
outstanding shares of NWNL Common Stock. Neuberger & Berman is deemed to be a
beneficial owner of such shares under the Exchange Act since it has the power to
make investment decisions over securities for many unrelated clients. Neuberger
& Berman does not, however, have any economic interest in such shares. The
interest of any Neuberger & Berman client does not exceed 5% of the outstanding
shares of NWNL Common Stock. On October 31, 1994, NWNL's directors and executive
officers, as a group, beneficially owned 916,044 (or approximately 3.1%) of the
outstanding shares of NWNL Common Stock on such date (including 508,645 shares
held under options exercisable within 60 days). Such directors and executive
officers, as a group, own less than one percent of the NWNL ESOP Preferred
Stock. All directors and executive officers of NWNL have indicated that they
will vote all outstanding shares of NWNL Common Stock and NWNL ESOP Preferred
Stock beneficially owned by them for approval and adoption of the Merger
Agreement and the Merger. For information with respect to the beneficial
ownership of shares of NWNL Common Stock and NWNL ESOP Preferred Stock by each
of NWNL's directors and all directors and executive officers of NWNL as a group
and each person known to NWNL to be the beneficial owner of more than 5% of the
outstanding shares of NWNL Common Stock or NWNL ESOP Preferred Stock, see Item
12 of the NWNL 10-K (which incorporates certain portions of NWNL's definitive
proxy statement for NWNL's 1994 Annual Meeting of Shareholders), which is
incorporated herein by reference.
The presence in person or by proxy of the holders of a majority of the
outstanding NWNL capital stock entitled to vote is required to constitute a
quorum to transact business at the NWNL Special Meeting. Votes cast by proxy or
in person at the NWNL Special Meeting will be tabulated by the election
inspectors appointed for the NWNL Special Meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of the Merger or
any other matter submitted to the shareholders of NWNL for a vote. If a broker
indicates on the proxy that it does not have discretionary authority to vote
certain shares, those shares will not be considered as present and entitled to
vote with respect to approval of the Merger or any other matter.
If a quorum is not present at the NWNL Special Meeting, the shareholders
present, by vote of a majority of the votes cast by shareholders entitled to
vote thereon, may adjourn the meeting, and at any such adjourned meeting at
which a quorum is present any business may be transacted which might have been
transacted at the meeting as originally called and proxies will be voted thereat
as directed.
VOTE REQUIRED AT USLICO SPECIAL MEETING
Approval and adoption of the Merger Agreement and the Merger will require
the affirmative vote of the holders of more than two-thirds of the outstanding
shares of USLICO Common Stock entitled to vote thereon. Holders of USLICO Common
Stock who dissent from the approval and adoption of the Merger Agreement and the
Merger do not have any appraisal rights. See "No Dissenters' Rights".
The Board of Directors of USLICO (the "USLICO Board") has fixed the close of
business on November 2, 1994 as the record date for the determination of
shareholders entitled to notice of and to vote at the USLICO Special Meeting or
any and all adjournments thereof. At that date, there were outstanding
10,763,132 shares of USLICO Common Stock entitled to vote at the Special Meeting
and the record holders of such stock on that date will be entitled to one vote
for each share of such stock held by them.
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Based on filings with the SEC, as of September 11, 1994 NWNL, Mr. George
Olmsted and Corbyn Investment Management, Inc. are each known by USLICO
management to be the beneficial owner of more than 5% of the outstanding shares
of USLICO Common Stock. NWNL is deemed to be the beneficial owner of shares of
USLICO Common Stock under the Exchange Act as a result of the Stock Option
Agreement, dated as of September 11, 1994, by and between NWNL and USLICO (the
"USLICO Option Agreement"). See "The Merger -- USLICO Stock Option". On October
31, 1994, USLICO's directors and executive officers, as a group, beneficially
owned 370,925 shares (or approximately 3.5%) of the outstanding shares of USLICO
Common Stock on such date (including 336,000 shares held under options
exercisable within 60 days). All directors and executive officers of USLICO have
indicated that they will vote all outstanding shares of USLICO Common Stock
beneficially owned by them for approval and adoption of the Merger Agreement and
the Merger. For information with respect to the beneficial ownership of shares
of USLICO Common Stock by each of USLICO's directors and all directors and
executive officers of USLICO as a group and each person (other than NWNL) known
to USLICO to be the beneficial owner of more than 5% of the outstanding shares
of USLICO Common Stock, see Item 12 of the USLICO 10-K (which incorporates
certain portions of USLICO's definitive proxy statement for USLICO's 1994 Annual
Meeting of Shareholders), which is incorporated herein by reference.
The presence in person or by proxy of the holders of record of a majority of
the outstanding shares of USLICO Common Stock entitled to vote is required to
constitute a quorum to transact business at the USLICO Special Meeting. For
these purposes, shares of USLICO Common Stock that are present, or represented
by proxy, at the USLICO Special Meeting will be counted for quorum purposes
regardless of whether the holder of the shares or proxy fails to vote on the
Merger ("abstentions") or whether a broker with discretionary authority fails to
exercise its discretionary authority to vote shares with respect to the Merger
("broker non-votes"). For voting purposes, only shares of USLICO Common Stock
voted for the approval of the Merger, and neither abstentions nor broker
non-votes, will be counted as voting for approval in determining whether the
Merger is approved by the shareholders of USLICO. As a consequence, abstentions
and broker non-votes will have the same effect as votes against approval of the
Merger.
If a quorum is not present at the USLICO Special Meeting, the shareholders
present, by vote of a majority of the votes cast by shareholders entitled to
vote thereon, may adjourn the meeting, and at any such adjourned meeting at
which a quorum is present any business may be transacted which might have been
transacted at the meeting as originally called and proxies will be voted thereat
as directed.
SOLICITATION OF PROXIES
NWNL has retained Georgeson & Co., Inc. to assist it in the solicitation of
proxies for a total estimated fee of $9,000 plus expenses. USLICO has retained
Corporate Investors Communications to assist it in the solicitation of proxies
for a total estimated fee of approximately $10,000 plus expenses. Directors,
officers and employees of NWNL and USLICO may solicit proxies from their
respective shareholders on behalf of such companies by personal interview,
special letter, telephone or facsimile transmission. Each company will bear the
expenses of such solicitation on its behalf. Directors, officers and other
employees of NWNL and USLICO will not be specifically compensated for the
solicitation of proxies. Brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward soliciting materials to the beneficial
owners of NWNL Common Stock, NWNL ESOP Preferred Stock and USLICO Common Stock
owned of record by such organizations, and NWNL or USLICO, as the case may be,
will pay the reasonable expenses incurred in forwarding such materials.
A proxy relating to the NWNL Special Meeting or USLICO Special Meeting may
be revoked by the shareholder at any time before it is exercised; however, mere
attendance at a special meeting will not itself have the effect of revoking the
proxy. An NWNL shareholder may revoke a proxy before being voted by filing
written notice of revocation with NWNL, by executing and filing a subsequently
dated proxy with NWNL, or by the holder of record voting in person at the NWNL
Special Meeting. A
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USLICO shareholder may revoke a proxy before being voted by executing and filing
a subsequently dated proxy with USLICO, by written notice of revocation received
by USLICO not later than the close of business on January 10, 1994, or by the
holder of record voting in person at the USLICO Special Meeting.
A proxy in the accompanying form, when properly executed and returned, will
be voted in accordance with the instructions contained therein. A proxy on which
no instruction has been indicated will be voted for approval and adoption of the
Merger Agreement and the Merger.
OTHER MATTERS
At the date of this Joint Proxy Statement/Prospectus, the respective Boards
of Directors of NWNL and USLICO do not know of any business to be presented at
their respective meetings other than as set forth in the respective notice
accompanying this Joint Proxy Statement/Prospectus. If any other matters should
properly come before the respective meetings, it is intended that the shares
represented by proxies will be voted with respect to such matters in accordance
with the judgment of the persons voting such proxies.
BACKGROUND OF THE MERGER
The terms and conditions of the Merger were determined through arm's-length
negotiations between the senior managements and Boards of Directors of NWNL and
USLICO. In determining the form of the transaction and the form and amount of
the consideration, numerous factors were reviewed by the senior managements and
Boards of Directors of NWNL and USLICO. See "Recommendations of the Boards of
Directors and Reasons for the Merger". The following is a brief discussion of
those negotiations and certain related events.
In late 1991, USLICO engaged Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") to render general financial
advisory and investment banking services to USLICO. USLICO's senior management
and Merrill Lynch thereafter engaged in discussions about alternative futures
for USLICO. In addition, USLICO retained Tillinghast, a Towers Perrin Company
("Tillinghast") as an independent consultant with respect to various actuarial
and valuation matters, including the profitability of USLICO's lines of
insurance business in force. In late 1992, the USLICO Board directed USLICO
senior management and Merrill Lynch to evaluate all strategic alternatives
available to USLICO, including strategies for continuing to operate
independently as well as possible business combination transactions. Pursuant to
these instructions, Merrill Lynch and USLICO management had discussions with
more than 20 insurance companies over the course of the following 18 months to
explore possible strategic transactions. Confidentiality agreements were signed
with at least 10 companies who expressed preliminary interest in considering a
transaction with USLICO, and information concerning USLICO's businesses was
provided to these companies. USLICO pursued a strategy of contacting third
parties who might be interested in strategic transactions on a confidential
basis, both directly and through Merrill Lynch, because a more public approach
could cause USLICO's sales force to lose incentive to market and distribute
USLICO's products, undermine the confidence of USLICO's existing customer base,
and create instability among USLICO's employees. Such developments would have
adversely affected USLICO's operations and strategic options.
On January 25, 1993, USLICO issued a press release announcing accounting
charges that resulted in a significant loss in earnings to USLICO for the year
ended December 31, 1992, a reduction in the dividends per share of USLICO Common
Stock and a statement by Mr. Daniel J. Callahan, III, Chairman and Chief
Executive Officer of USLICO, that "Management continues to carefully review
strategic and capital alternatives and has been working with Merrill Lynch & Co.
as its financial advisor". USLICO senior management and Merrill Lynch continued
to contact and hold discussions with other insurance companies, and in May 1993
discussions with one company resulted in a proposal for a possible combination
transaction that was considered by the USLICO Board in which USLICO shareholders
would receive consideration which the other party valued at between $24.25 and
$24.50 per share of USLICO Common Stock. The proposed transaction contained
conditions that, among
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other things, would have required USLICO to restructure or sell certain
subsidiaries, resolve ongoing litigation and reimburse the other party for
certain expenses incurred, whether or not a transaction was completed. Both the
USLICO Board and USLICO senior management found these conditions unacceptable.
Thereafter, contacts continued from time to time with potential parties to
strategic business combination transactions. In October 1993, Mr. Glenn H.
Gettier, Jr., Executive Vice President and Chief Financial Officer of USLICO,
contacted Mr. John H. Flittie, President and Chief Operating Officer of NWNL, to
inquire about NWNL's possible interest in a business combination of the two
companies. NWNL was contacted because of potential synergies identified by
USLICO management between its lines of business and areas of operation and those
of USLICO. Later that month, Mr. Gettier and Mr. Callahan personally visited
with NWNL senior management to explore on a preliminary basis a possible
business combination. In November 1993, NWNL senior management visited the
executive offices of USLICO and met with USLICO senior management to discuss
further the feasibility of a business combination of NWNL and USLICO. Shortly
thereafter, NWNL and USLICO signed confidentiality agreements pursuant to which
each party agreed, among other things, to keep confidential information
furnished to such party by the other for the purpose of evaluating a possible
business combination. Following the November 1993 meeting, the NWNL Board was
informed of these discussions with USLICO, and in January 1994 Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") was retained by NWNL to provide senior
management and the NWNL Board with advice concerning a possible business
combination. NWNL selected DLJ to advise it regarding a possible business
combination in recognition of DLJ's expertise in business valuation generally,
DLJ's expertise in transactions involving insurance companies, and DLJ's
experience and familiarity with the business, financial performance and
personnel of NWNL. Also in January 1994, the actuarial consulting firm of
Milliman & Robertson, Inc. ("M&R") was engaged by NWNL to assist with NWNL's
actuarial and financial analyses of USLICO.
Discussions between the companies and their financial advisors to explore in
more detail a possible business combination continued through August 1994. These
discussions addressed, among other things, generally the form and amount of
consideration to be paid to USLICO shareholders in the event of any transaction,
the benefits to both companies and their shareholders of a business combination,
the potential integration of USLICO, its subsidiaries and personnel into NWNL,
and the operations and financial condition of, and prospects for, the businesses
of each company. Managements of NWNL and USLICO and their financial advisors and
legal counsel were involved in various of these discussions and engaged in due
diligence reviews. As these discussions between the companies progressed, the
Boards of Directors of NWNL and USLICO, or committees thereof, were periodically
advised of the principal discussions.
On June 29, 1994, a meeting of the Executive Committee of the NWNL Board
(the "NWNL Executive Committee") was held during which NWNL senior management
provided a detailed report on the status of the principal discussions with
USLICO and their evaluation of the strategic and financial impact of a possible
business combination. Representatives from DLJ were also present at this meeting
and supplemented the information provided by NWNL senior management. At the
conclusion of this meeting, the NWNL Executive Committee authorized senior
management to communicate to USLICO the interest of NWNL in a business
combination with USLICO and to proceed with negotiations. Negotiations were held
between senior managements of both companies and additional actuarial valuations
of USLICO were conducted by NWNL with the assistance of M&R. On July 29, 1994,
the NWNL Executive Committee held a telephonic meeting and was apprised of the
status of the negotiations to date. Representatives from DLJ were also present
to discuss the financial analyses of the proposed transaction and
representatives from M&R were present to answer questions concerning NWNL's
actuarial analyses. At the conclusion of this meeting, the NWNL Executive
Committee authorized Mr. John G. Turner, Chairman and Chief Executive Officer of
NWNL, and persons delegated by him, to continue with negotiations toward a
possible business combination with USLICO on terms consistent with those
discussed at this meeting. After the July 29, 1994 meeting of
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the NWNL Executive Committee, senior managements of NWNL and USLICO negotiated
the final terms of the Merger Agreement and their financial and legal advisors
conducted due diligence investigations at the offices of each company. On
September 8, 1994, after reviewing the terms of the transaction with senior
management, legal counsel and DLJ, and after reviewing and considering the
fairness opinion of DLJ (see "Opinions of Donaldson, Lufkin & Jenrette
Securities Corporation"), the NWNL Board unanimously voted to approve the Merger
Agreement, the USLICO Option Agreement and the Merger, subject to the approval
of the USLICO Board, recommend that shareholders of NWNL approve and adopt the
Merger Agreement and the Merger and call a special meeting of the shareholders
of NWNL to consider and vote on the Merger.
At a June 21, 1994 meeting of the USLICO Board, Merrill Lynch updated the
USLICO Board on the status of discussions with NWNL and distributed and reviewed
information concerning NWNL and analyzing its financial condition and results of
operations.
After this meeting, USLICO senior management continued to evaluate the
proposed transaction with NWNL and had discussions with other companies, while
also re-evaluating the merits of continuing on a stand-alone basis. At a meeting
of the USLICO Board on August 2, 1994, USLICO senior management and Merrill
Lynch presented an analysis of and reviewed with the USLICO Board three
proposals for possible transactions. The NWNL proposal and one other proposal
involved stock-for-stock combinations valued at a premium to USLICO's then
current market price. The other strategic combination involved a company smaller
than NWNL without as many apparent geographic and product line synergies with
USLICO. The third proposal discussed at the meeting involved a proposed cash
acquisition of USLICO at a price lower than the estimated value of the NWNL
proposal. At this meeting, USLICO senior management also presented an overview
of USLICO's financial condition, results of operations and future challenges and
opportunities of continuing on a stand-alone basis. Legal counsel to USLICO,
Rogers & Wells, advised the USLICO Board with respect to the fiduciary duties
applicable to the consideration of multiple possible transactions. Following its
review, the USLICO Board rejected the terms of the proposed cash purchase
transaction and instructed USLICO senior management, Merrill Lynch and its legal
counsel to pursue further discussions with NWNL and the other party proposing a
strategic business combination. The USLICO Board also instructed its senior
management and financial and legal advisors to complete certain due diligence.
On August 9, 1994, a meeting of the USLICO Board was held to evaluate
enhanced proposals for business combinations from NWNL and the other company.
Each of the combination proposals had been modified to enhance the proposed
exchange ratios. The consideration to be received by USLICO shareholders under
each of the proposals was valued within a range that Merrill Lynch had
preliminarily indicated to the USLICO Board would be fair to USLICO
shareholders, although Merrill Lynch rendered no fairness opinion on any of the
proposals at that time. The Board was presented with various scenarios and,
based on certain assumptions, the enhanced proposal from the other party could
have provided USLICO shareholders with consideration valued more highly than the
consideration offered under the enhanced NWNL proposal. Merrill Lynch valued the
stock component of the other party's proposal between $20.93 and $22.00 per
share of USLICO Common Stock based upon recent trading prices. The other
proposal also contained a contingent value right that would produce a future
payment to USLICO shareholders under certain circumstances, and Merrill Lynch
placed a present value on the contingent value right of $2.61 per share of
USLICO Common Stock. Merrill Lynch valued the consideration to be paid in the
NWNL proposal between $22.21 and $23.33 per share of USLICO Common Stock based
upon trading prices over the same preceding period. Merrill Lynch also noted
that the NWNL proposal was projected to produce dividends of $0.63 per share of
USLICO Common Stock per year compared to $0.05 per share of USLICO Common Stock
per year for the other proposal. Legal counsel again advised the USLICO Board
with respect to its fiduciary duties. Extensive discussion and consultation with
USLICO senior management and its financial and legal advisors was held by the
Board. The Board discussed the benefits and risks associated with each of the
proposed transactions. Among the factors discussed were the likely value of the
alternative proposals to USLICO's shareholders over various time horizons, the
differing business plans for the combined
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companies, the geographic and product line synergies, efficiencies likely to be
realized, projected earnings and dividend yields of the combined entities, and a
variety of other factors including specific contingencies and conditions
relating to each of the revised proposals. See "Recommendations of the Boards of
Directors and Reasons for the Merger -- USLICO". Management also presented to
the Board its strategic plan detailing the steps that would be taken if USLICO
were to continue on a stand-alone basis. After lengthy consideration of the
alternatives, the USLICO Board authorized USLICO senior management to engage in
negotiations with representatives of NWNL with a view to presenting the USLICO
Board with a definitive proposal for a business combination between USLICO and
NWNL.
Subsequently, the party that had previously expressed interest in a cash
purchase transaction orally suggested continuing interest in discussing such a
possible transaction at a price of $24.00 per share of USLICO Common Stock. The
party, however, declined to put such interest in writing and continued to impose
various conditions on any such transaction, including a requirement for a 45 day
exclusive negotiating period. At a telephonic meeting of the USLICO Board on
August 11, 1994, the USLICO Board received from Merrill Lynch an evaluation of
this preliminary oral proposal, including its view that the price offered was
within a range that Merrill Lynch preliminarily considered to be fair to the
USLICO shareholders, although Merrill Lynch rendered no fairness opinion at that
time. The USLICO Board considered the conditions and contingencies to this
expression of interest including that any transaction would be subject to due
diligence and financing and that USLICO must agree to negotiate exclusively with
this third party for 45 days before it would commit its oral proposal to
writing. In particular, the USLICO Board discussed at length USLICO management's
belief that NWNL would withdraw its proposal if USLICO agreed to an exclusive
negotiating period with this third party. After consultation with legal counsel,
the USLICO Board determined not to pursue this potential transaction.
An initial draft of a merger agreement was furnished by NWNL to USLICO on
August 9, 1994. The USLICO Board had a telephonic meeting on August 26, 1994 to
authorize certain amendments to executive severance and employment contracts
(which amendments had been previously discussed with NWNL) and to discuss the
status of negotiations with NWNL. In August 1994, the independent directors of
USLICO retained the law firm of Hazel & Thomas, a Professional Corporation, as
separate legal counsel to advise them in their deliberations. The USLICO Board
received revised drafts of a merger agreement on September 2, 1994. On September
7, 1994, the USLICO Board had a telephonic meeting to review the provisions of
the draft merger agreement, discuss outstanding issues relating thereto and
receive a report from USLICO senior management and legal counsel as to the
status of their due diligence reviews. Merrill Lynch participated in this
meeting and answered certain questions from the USLICO Board concerning the
Merger. A substantially final draft of the merger agreement was distributed to
the USLICO Board on September 8, 1994.
On the morning of September 9, 1994, the volume of shares of USLICO Common
Stock traded on the NYSE increased to 65,000 shares, far in excess of its
average daily trading volume of 11,039 shares per day during the 90 days prior
to September 9, 1994, and the price escalated to $23.75 per share. Trading was
halted at the request of USLICO. Shortly thereafter USLICO issued a press
release stating that it was in advanced discussions with a larger insurance
holding company regarding a possible stock-for-stock merger transaction. The
press release also stated that the current market value of the consideration
being discussed was below the trading price of USLICO Common Stock at the time
trading was halted. After trading resumed that same day, USLICO Common Stock
declined in price and closed at $21.25 per share.
The USLICO Board met on September 11, 1994 to consider the Merger. After
reviewing the findings of the management, financial and legal due diligence
investigations of NWNL, discussing with USLICO senior management a long-term
strategic plan for continued operation of USLICO on a stand-alone basis,
reviewing the terms of the Merger Agreement and USLICO Option Agreement with
USLICO senior management, legal counsel and Merrill Lynch, and reviewing and
considering the
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fairness opinion of Merrill Lynch (see "Opinions of Merrill Lynch, Pierce,
Fenner & Smith Incorporated"), the USLICO Board determined that the Merger was
fair to, and in the best interests of, USLICO and its shareholders and
unanimously voted to approve and adopt the Merger Agreement, the USLICO Option
Agreement and the Merger and call a special meeting of the shareholders of
USLICO to consider and vote on the Merger. The Merger Agreement and the USLICO
Option Agreement were executed that day. See "Recommendations of the Boards of
Directors and Reasons for the Merger".
Subsequent to the public announcement of the execution of the Merger
Agreement, USLICO has received two unsolicited letters from other third parties
indicating a possible interest in a business combination or acquisition of
USLICO, but neither of these parties has made a specific proposal.
Certain directors and officers of USLICO have interests in the Merger
different from the interests of other USLICO shareholders. See "The Merger --
Interests of Certain Persons in the Merger" and "Management of NWNL -- New
Director".
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
AND REASONS FOR THE MERGER
NWNL
The NWNL Board believes that the terms of the Merger are fair to, and in the
best interests of, NWNL and its shareholders. ACCORDINGLY, THE NWNL BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF NWNL COMMON STOCK AND NWNL ESOP PREFERRED STOCK VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
The NWNL Board believes that the Merger will create a stronger combined
company from marketing, operational and financial perspectives. The Merger will
allow NWNL to add new markets for its life insurance and annuity products and
increase NWNL's distribution channels. In particular, the Merger will allow NWNL
to expand into the military market established through USLICO's subsidiary
United Services Life Insurance Company ("USL") and to take advantage of the
payroll deduction business (worksite marketing) and bank distribution system
maintained by USL and, in the State of New York, by USLICO's subsidiary Bankers
Security Life Insurance Society ("BSL"). The agents of the combined company will
have the opportunity to distribute the full range of NWNL's and USLICO's
products. The Merger will also allow NWNL to obtain additional distribution of
its variable life products and mutual funds through the acquisition of USLICO's
subsidiary, USLICO Securities Corporation ("USC"), and take advantage of BSL's
market for such products in the State of New York, where NWNL currently is not
marketing a variable product. The Merger is also expected to give rise to
certain operational efficiencies, including the maintenance of a combined data
center and investment advisor and shared utilization of operating systems and
service capabilities. In the opinion of the NWNL Board, the Merger will provide
various financial benefits to shareholders of NWNL, including faster growth in
asset size through the acquisition of over $2 billion of investment grade
assets, an expected $15 million in expense reductions during 1996 resulting from
the integration of operations, and more rapid profit growth through anticipated
economies of scale in all major operations.
Prior to recommending action on the Merger, the NWNL Board reviewed various
materials and engaged in discussions with NWNL staff and retained consultants
regarding the businesses, operations and financial condition of USLICO. The NWNL
Board also reviewed the terms and conditions of the transactions contemplated by
the Merger Agreement with NWNL's senior management, legal counsel and financial
advisor DLJ. The presentation at the September 8, 1994 meeting of the NWNL Board
included a discussion of NWNL's long-term strategic objectives, general
information regarding USLICO's businesses, particularly with regard to its
product lines, markets and distribution system, as well as USLICO's historic net
operating income, projected operating earnings and investment assets. NWNL's
legal counsel discussed the terms of the Merger Agreement and the fiduciary
duties of the NWNL Board with respect to the Merger. Senior management of NWNL
discussed with the
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NWNL Board their belief, based on certain Exchange Price assumptions, that the
Merger's effect on fully diluted operating earnings per share would be
non-dilutive in 1995 and accretive in 1996. NWNL senior management also
presented pro forma financial information which set forth financial data and
ratios for the combined company.
During the September 8, 1994 meeting of the NWNL Board, DLJ made a detailed
presentation regarding the proposed transaction. Representatives of DLJ
discussed, among other things: (i) analyses and comparisons of certain financial
information of USLICO; (ii) historical price and trading information for NWNL
and USLICO Common Stock; (iii) a comparison of USLICO's businesses and
historical results with those of other comparable publicly traded life insurance
companies; (iv) a comparison of transaction data of recently acquired life
insurance companies with data for the proposed Merger with USLICO; (v) an
analysis of the financial effects of the Merger from the perspective of the
shareholders of NWNL; and (vi) a comparison of the relative contributions of
NWNL and USLICO based on operating income, shareholders' equity and assets. On
the basis of the foregoing and the other factors and assumptions set forth in
its written opinion to the NWNL Board dated September 7, 1994, the
representatives of DLJ advised the NWNL Board at the NWNL Board meeting of
September 8, 1994 that, as of the date of such meeting, the consideration to be
paid by NWNL pursuant to the Merger Agreement was fair to the shareholders of
NWNL from a financial point of view. DLJ has subsequently delivered to the NWNL
Board a substantially identical opinion, dated the date of this Joint Proxy
Statement/Prospectus, reaffirming its earlier opinion. See "Opinions of
Donaldson, Lufkin & Jenrette Securities Corporation".
In deciding to approve the Merger Agreement, the NWNL Board considered the
items set forth above and a number of factors, including, but not limited to the
following: (i) the current and historical market price of, and dividends on,
NWNL Common Stock and the fact that USLICO shareholders would receive a premium
over the historical USLICO market price; (ii) the impact of potential operating
efficiencies and other synergies which could result from the Merger; (iii) the
expansion of NWNL's distribution system and markets for its life insurance and
annuity products; (iv) the potential for enhanced profitability through
achieving economies of scale; (v) the expected accounting treatment of the
Merger; (vi) the terms and conditions of the Merger Agreement; (vii) the tax
treatment of the Merger; and (viii) the advice of its actuarial consultant, and
presentations and advice of its financial advisor and legal counsel, as
discussed above. The NWNL Board did not assign any relative or specific weights
to these factors and individual directors may have given different weights to
different factors. However, the decision of the NWNL Board gave particular
consideration to the strategic marketing and operating efficiencies that it
expects to occur if the Merger is consummated.
USLICO
The USLICO Board believes that the terms of the Merger are fair to, and in
the best interests of, USLICO and its shareholders. ACCORDINGLY, THE USLICO
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF USLICO COMMON STOCK VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. USLICO has the right, under
certain circumstances, to withdraw, modify or amend the foregoing recommendation
of the USLICO Board (see "The Merger -- No Solicitation of Acquisition
Transactions").
The USLICO Board believes that the Merger will permit the shareholders of
USLICO to participate in a financially stronger, better diversified, cost
efficient and more competitive combined company through a tax-free
reorganization, with taxes incurred only on income recognized upon receipt by
USLICO shareholders of the special cash distributions or other cash in the
Merger. See "Federal Income Tax Consequences" below. Based on projections
prepared by the managements of USLICO and NWNL, as adjusted by Merrill Lynch,
the combined company resulting from the Merger is expected to produce greater
earnings and dividends on a USLICO Common Stock share equivalent basis and
achieve a higher return on equity than are estimated to be produced by USLICO on
a stand-alone basis. See "Opinions of Merrill Lynch, Pierce, Fenner & Smith
Incorporated -- Materials and Information Considered With Respect to the Merger
- -- Historical and Pro Forma Projected Financial
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Data Analysis" and "-- Earnings Per Share and Dividend Enhancement Analysis".
The USLICO Board believes that the Merger will produce significant synergies and
cost savings of the combined company of an expected $15 million during 1996
(although there can be no assurance that such cost savings will be realized).
The USLICO Board also believes that a business combination of NWNL and USLICO
represents a strong strategic fit and creates numerous strategic benefits
including: diversification of NWNL's and USLICO's respective businesses;
providing a more attractive array of insurance products to a larger sales force
through more channels of distribution; the potential for a merger of the New
York insurance subsidiaries of NWNL and USLICO to obtain critical mass and
efficiencies in the New York market; consolidation of the annuity operations in
the State of Washington; and cost reductions through elimination of duplicative
support services and functions, the consolidation of data processing and certain
other operations and the elimination of redundant facilities.
In deciding to pursue a strategic business combination with NWNL instead of
remaining independent, at its August 2, 1994 and August 8, 1994 meetings the
USLICO Board carefully evaluated with USLICO senior management their strategic
plans for the conduct of USLICO's businesses on a stand-alone basis. The
analysis included a thorough review of the historical financial condition and
results of operations of USLICO and its insurance subsidiaries, the
profitability of various lines of business, the current competitive environment
in the life insurance industry, the significant changes required to be
implemented to achieve satisfactory profitability, the achievability of
strategic goals, the risks associated with the strategic plan, and the potential
shareholder values created (and the timing thereof) if the strategic plan were
successfully implemented. On those dates, Merrill Lynch reviewed with the USLICO
Board analyses conducted as of such dates under various valuation methodologies
respecting the value of USLICO. The implications of staying independent were
then compared to the impact of possible strategic transactions.
In determining to pursue a transaction with NWNL and not other parties with
whom USLICO had discussions, the USLICO Board also carefully considered: the
terms of the proposals made by such companies; the historical financial
condition and results of operations of such companies; the historical market
prices and daily trading volumes for the stock of such companies; the lines of
business of such companies; the strategic fit with such companies; the
synergies, economic efficiencies and cost savings from any transaction with such
companies; the debt and claims paying ratings of such companies and the impact
of such ratings on various lines of business of USLICO and its insurance
subsidiaries; the tax impact of proposed forms of transactions; the opportunity
for USLICO shareholders to participate in any future growth in values after
business combination transactions; due diligence previously conducted by the
companies; the degree to which such proposals were tentative or incomplete and
contained significant contingencies or conditions to closing (including
completion of due diligence, negotiation of definitive agreements, financing or
other contingencies); the perceived risk and impact of failure to consummate a
particular transaction; perceived risks concerning the regulatory approval
process with respect to particular transactions; and the potential loss or
material modification of transactions in an advanced stage of negotiation if
other transactions at a preliminary stage were pursued.
At its meeting on September 11, 1994, the USLICO Board considered a report
from USLICO senior management concerning its management and financial due
diligence review of NWNL. In addition, the USLICO Board received a report from
its general counsel and outside counsel concerning their legal due diligence
review of NWNL. The USLICO Board then reviewed in detail the proposed terms of
the Merger Agreement and USLICO Option Agreement with senior management and its
financial and legal advisors. Merrill Lynch then delivered its written opinion
that the consideration to be received in the Merger was fair to the shareholders
of USLICO from a financial point of view (see "Opinions of Merrill Lynch,
Pierce, Fenner & Smith Incorporated") and answered questions from the USLICO
Board concerning Merrill Lynch's analysis of the financial terms of the Merger.
USLICO had selected Merrill Lynch to act as USLICO's financial adviser and
render such fairness opinion based on Merrill Lynch's expertise and its
familiarity with USLICO, having provided investment banking
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services to USLICO since 1991. After deliberating with respect to the Merger and
the other transactions contemplated by the Merger Agreement, considering, among
other things, the matters discussed herein and the opinion and presentation of
Merrill Lynch, the USLICO Board unanimously determined the Merger to be
advisable and in the best interests of USLICO and its shareholders and approved
the Merger Agreement, the USLICO Option Agreement and the transactions
contemplated thereby. Merrill Lynch has subsequently delivered to the USLICO
Board a substantially identical opinion, dated the date of this Joint Proxy
Statement/Prospectus, to the same effect.
In reaching its decision to approve and adopt the Merger Agreement on
September 11, 1994, the USLICO Board consulted with USLICO senior management and
financial and legal advisors and considered many factors, including, but not
limited to, those listed above and the following:
(i) that the shareholders of USLICO would have an opportunity to
participate in the combined company in the Merger which was expected to have
a greater potential for profits and growth and future increase in
shareholder value than USLICO could have alone, and that there would be a
number of benefits that could reasonably be expected to be realized by the
shareholders of USLICO from their continuing interest in the combined
company, including but not limited to (A) the financial and managerial
strength of the combined company and its consequent enhanced ability to
realize the potential of the businesses contributed by USLICO, (B) the
potential for growth in the businesses of the combined company as a result
of the possibility of cross-marketing products of each company to the
policyholder base of the other, (C) the business synergies that might be
realized, and the consequent expense savings, cost reductions and operating
efficiencies, (D) the opportunity to diversify earnings, and (E) the
potential effect of the Merger on the perception by the ratings agencies of
the businesses of the combined company, USL and BSL; the USLICO Board
considered that as a result of the foregoing factors, the Merger was
expected to position the USLICO businesses to better realize their potential
and thus to enhance their growth prospects, while at the same time
diversifying the operations of the combined company; the USLICO Board also
considered that because of their continuing interest in the combined
company, the shareholders of USLICO would be able to share in and benefit
from such growth and diversification;
(ii) historical information on both a line of business and company-wide
basis regarding the financial condition, capital levels, asset quality, cash
flow, operations, earnings, and the businesses and prospects of NWNL, the
recent and historic trading value and average trading volume of NWNL Common
Stock, and presentations by USLICO senior management concerning its
financial and management due diligence review of NWNL and by legal counsel
concerning its legal due diligence review of NWNL;
(iii) historical information on both a line of business and company-wide
basis regarding the financial condition, capital levels, asset quality, cash
flow, operations, earnings, businesses and prospects of USLICO, and the
recent and historic trading value and average trading volume of USLICO
Common Stock;
(iv) the detailed financial analyses and pro forma and other information
with respect to USLICO and NWNL presented by USLICO management and Merrill
Lynch (see "Incorporation of Certain Documents by Reference" and "Opinions
of Merrill Lynch, Pierce, Fenner & Smith Incorporated"), as well as the
USLICO Board's own knowledge of USLICO and its businesses;
(v) the strategic fit of the USLICO and NWNL businesses, the compatible
operating philosophies of the two companies and the synergies and potential
operating efficiencies which could result from combining USLICO and NWNL;
(vi) based upon projections prepared by the managements of USLICO and
NWNL, as adjusted by Merrill Lynch, that the combined company was projected
to produce higher estimated earnings per share in 1995, 1996 and 1997 and
pay higher dividends per share on a USLICO share equivalent basis (out of
funds that NWNL currently expects to be legally-available for the
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<PAGE>
payment of dividends in such years), and that the combined company was also
projected to earn a higher return on equity than USLICO on a stand-alone
basis (see "Opinions of Merrill Lynch Pierce Fenner & Smith Incorporated --
Materials and Information Considered With Respect to the Merger --
Historical and Pro Forma Projected Data Analysis" and "-- Earnings Per Share
and Dividend Enhancement Analysis");
(vii) the current economic and competitive operating environment,
including but not limited to greater public and regulatory concerns about
the financial stability of insurance companies, increased customer
sensitivity to ratings, intense competition in the traditional individual
life insurance lines of business, and the impact of potential federally
sponsored health care legislation, and that the combined company will be
able to compete more effectively in the rapidly changing marketplace for
insurance products and to take advantage of opportunities for growth and
diversification that would not be available to USLICO on its own;
(viii) the effect on shareholder value of USLICO continuing as an
independent entity compared to the effect of its combining with NWNL in
light of the factors summarized herein with respect to the financial
condition and prospects of USLICO in the current economic environment,
including but not limited to (A) other possible strategic alternatives, (B)
uncertainties involved in the ability to realize the benefits of a strategic
plan on a stand-alone basis, and (C) exposure of a smaller and less
diversified independent entity to adverse external developments (including
risks arising in connection with general industry conditions, general
economic conditions and general financial market conditions);
(ix) the USLICO Board's review with its legal and financial advisors of
the provisions of the Merger Agreement and USLICO Option Agreement,
including provisions which would permit the USLICO Board in the exercise of
its fiduciary duties (after consultation with outside legal counsel) to
supply information to, and cooperate and negotiate an acquisition
transaction with, third parties following execution of the Merger Agreement,
and to withdraw or modify its recommendation of the Merger, subject under
certain circumstances to the payment of certain amounts and the effect of
the USLICO Option Agreement (see "The Merger -- No Solicitation of
Acquisition Transactions");
(x) the presentations made by Merrill Lynch and the opinion of Merrill
Lynch that the consideration to be received in the Merger is fair, from a
financial point of view, to the holders of USLICO Common Stock;
(xi) the expectation that the Merger would be tax free for federal income
tax purposes to USLICO and its shareholders (other than in respect of any
cash paid as partial consideration or in lieu of fractional shares) and
would be accounted for under the purchase method of accounting;
(xii) that the Merger is conditioned upon approval by the holders of more
than two-thirds of the shares of USLICO Common Stock; and
(xiii) the advice of legal counsel that it could be reasonably expected
that the necessary regulatory approvals for the Merger would be obtained.
The foregoing discussion of the information and factors considered and given
weight by the USLICO Board is not intended to be exhaustive, but is believed to
include all material factors considered by the USLICO Board. In reaching the
determination to approve and recommend the Merger, the USLICO Board did not
assign any relative or specific weights to the foregoing factors and individual
directors may have given different weights to different factors. The USLICO
Board is unanimous in its recommendation to the shareholders of USLICO that the
Merger be approved.
THE BOARDS OF DIRECTORS OF NWNL AND USLICO HAVE UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AS BEING IN THE BEST INTERESTS OF THEIR
RESPECTIVE SHAREHOLDERS AND RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
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OPINIONS OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As part of its role as financial advisor to NWNL, DLJ was asked by NWNL to
render an opinion to the NWNL Board as to the fairness, from a financial point
of view, to the shareholders of NWNL of the consideration to be paid by NWNL
pursuant to the Merger Agreement. DLJ delivered to the NWNL Board a written
opinion, dated as of September 7, 1994, that, as of such date, based upon and
subject to the matters set forth in such opinion, the consideration to be paid
by NWNL pursuant to the Merger Agreement is fair to the shareholders of NWNL
from a financial point of view. DLJ orally confirmed its opinion to the NWNL
Board on September 8, 1994. This opinion was subsequently reaffirmed by a DLJ
opinion dated the date of this Joint Proxy Statement/Prospectus. The assumptions
made, matters considered and limits of review contained in the September 7, 1994
opinion are substantially the same as those contained in the opinion dated the
date of this Joint Proxy Statement/Prospectus. In considering the DLJ opinions,
shareholders may want to take into account DLJ's fee arrangements with NWNL with
respect to such opinions and the Merger, under which DLJ's fees are
substantially greater if the Merger is consummated, as set forth in the final
paragraph under this heading.
THE FULL TEXT OF THE WRITTEN OPINION OF DLJ DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ATTACHED AS EXHIBIT B AND IS INCORPORATED HEREIN BY
REFERENCE. NWNL SHAREHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY
FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW OF DLJ. ANY
SUMMARY OF THE DLJ OPINION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The DLJ opinions do not constitute a recommendation to any shareholder as to
how such shareholder should vote at either the NWNL Special Meeting or the
USLICO Special Meeting. DLJ did not and was not requested by the NWNL Board to
make any recommendation as to the form or amount of consideration to be paid by
NWNL in the Merger, which issues were resolved through negotiations between
USLICO and NWNL, in which DLJ assisted NWNL. No restrictions or limitations were
imposed by the NWNL Board upon DLJ with respect to the investigation made or the
procedures followed by DLJ in rendering its opinions.
In arriving at its September 7, 1994 opinion, DLJ reviewed a draft of a
merger agreement dated August 30, 1994. In arriving at its opinion dated the
date of this Joint Proxy Statement/Prospectus, DLJ reviewed the Merger Agreement
and a current draft of this Joint Proxy Statement/Prospectus. In addition, in
arriving at its opinions, DLJ reviewed financial and other information that was
publicly available or furnished to it by NWNL and USLICO including information
provided during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of USLICO for fiscal years 1994 through 1996
prepared by USLICO management, certain financial projections of NWNL for fiscal
years 1995 through 1999 prepared by NWNL management, certain financial
projections of USLICO for fiscal years 1995 through 1999 prepared by NWNL
management and certain projections of expense savings for fiscal years 1995
through 1999 prepared by NWNL management. In addition, DLJ compared certain
financial and securities data of NWNL and USLICO with certain financial and
securities data of various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of USLICO
Common Stock and NWNL Common Stock, reviewed prices and premiums paid in other
business combinations and conducted such other financial studies, analyses and
investigations as it deemed appropriate for purposes of its opinions, including
utilizing materials prepared by M&R to determine the value of USLICO's in-force
business and projected future results.
In rendering its opinions, DLJ relied upon and assumed, without independent
verification, 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 it by NWNL and USLICO or their respective representatives, or that
was otherwise reviewed by it. In particular, DLJ relied, without independent
investigation, upon the estimates of NWNL management of the expense savings
achievable as a result of the
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Merger and upon DLJ's discussion of such expense savings with USLICO management.
With respect to the financial projections supplied to DLJ, it assumed that they
were based upon reasonable assumptions and reflected the best currently
available estimates and judgments of the managements of NWNL and USLICO as to
the future operating and financial performance of NWNL and USLICO. DLJ did not
assume any responsibility for making an independent evaluation of NWNL's or
USLICO's assets or liabilities or for making an independent verification of any
of the information reviewed by it. DLJ relied as to all legal matters relating
to the Merger on advice of legal counsel to NWNL.
DLJ's opinions are necessarily based on general economic, market, financial
and other conditions as they existed on, and on the information made available
to it as of, the dates thereof. It should be understood that, although
subsequent developments may affect its opinion dated the date of this Joint
Proxy Statement/Prospectus, DLJ does not have any obligation to update, revise
or reaffirm such opinion. DLJ is expressing no opinion as to the prices at which
shares of NWNL Common Stock will actually trade at any time.
The following is a summary of the material factors considered and principal
financial analyses performed by DLJ in connection with its fairness opinion
dated the date of this Joint Proxy Statement/Prospectus. DLJ performed certain
procedures, including each of the financial analyses described below, and
reviewed with the managements of NWNL and USLICO the assumptions on which such
analyses were based and other factors, including the current and projected
financial results of such companies.
EFFECT OF MERGER ON NWNL'S PROJECTED EARNINGS AND FINANCIAL POSITION. DLJ
was provided with earnings projections for NWNL and USLICO by NWNL management.
The NWNL projections were based on NWNL's most current operating plan. The
USLICO projections were derived from actuarial projections provided by USLICO's
outside actuarial firm, Tillinghast, and were adjusted by NWNL with the
assistance of its outside actuarial firm, M&R, based, in part, on their
investigation of USLICO. Since the Merger will be accounted for as a purchase,
the USLICO projections included purchase accounting adjustments required by
generally accepted accounting principles ("GAAP"). Due to similarities in their
lines of business and the significant geographic overlap between NWNL and
USLICO, NWNL has informed DLJ that it expects to realize expense savings from
consolidation. DLJ incorporated NWNL's estimates of these expense savings in its
analyses. In addition, based on discussions with NWNL, DLJ assumed that NWNL
would redeem USLICO's outstanding convertible debentures immediately after the
Merger and replace them with fixed rate debt.
The number of shares of NWNL Common Stock issued by NWNL to USLICO
shareholders and the amount of amortization of the present value of future
profits asset which will be created through purchase accounting will vary
depending on the average per share closing sales prices of NWNL Common Stock on
the NYSE Composite Tape for the 20 trading days ending three days prior to the
closing of the Merger (the Exchange Price). As a result, the earnings per share
of the combined post-merger company will vary depending on the Exchange Price.
As a result, DLJ analyzed the effect of the transaction on NWNL's projected
earnings per share and financial leverage over a range of Exchange Prices. The
transaction that is most dilutive to earnings per share from NWNL shareholders'
perspective occurs if the Exchange Price is $37.20 or higher, in which case the
Exchange Ratio would be .69 and NWNL would be required to issue approximately
7,426,000 shares. Under this scenario, NWNL shareholders would realize earnings
per share dilution in 1995 and earnings per share pick up in 1996 through 1999.
At lower Exchange Prices, the effect of the Merger on earnings per share is more
beneficial to NWNL shareholders. Under all of the Exchange Price scenarios
analyzed by DLJ, NWNL shareholders would realize an earnings per share pick up
in 1996 and thereafter.
The effect of the Merger on NWNL's ratio of debt plus 50% of preferred stock
to total capitalization is to increase it slightly from approximately 16.2%
before the Merger to between 19.0% and 20.0% after the Merger, depending on the
Exchange Price.
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PUBLIC MARKET VALUATION ANALYSIS. DLJ reviewed and compared certain actual
and estimated financial and operating information of USLICO to the corresponding
information of certain publicly traded life insurance and annuity companies,
including American Heritage Life Investment Corporation, First Colony
Corporation, Kansas City Life Insurance Company, Life Partners Group, Inc.,
Protective Life Corporation and USLIFE Corporation (together, the "Selected
Insurers"). The comparison was made through various analyses of relevant
financial ratios of USLICO and the Selected Insurers. The ratio analyses
included the public stock prices of USLICO and the Selected Insurers as a
multiple of GAAP operating earnings for the latest 12 months ("LTM") ended
September 30, 1994 (excluding non-recurring items) and for projected fiscal year
1995. Additional ratios reviewed included the ratios of the public stock prices
of USLICO and the Selected Insurers to (i) GAAP book value as of September 30,
1994, (ii) statutory net earnings for the fiscal year ended December 31, 1993,
and (iii) statutory capital and surplus as of December 31, 1993. The projected
1995 operating earnings of USLICO included purchase accounting adjustments and
the expense savings projected by NWNL management. Closing prices as of November
29, 1994 were used in this analysis.
The average ratio of public stock price to GAAP operating earnings for the
LTM ended September 30, 1994 was 9.5x for the Selected Insurers. Based on a
range of NWNL Exchange Prices between $25.36 and $37.20, the implied multiples
of transaction value to USLICO's GAAP operating earnings for the LTM ended
September 30, 1994 were between 12.2x and 16.0x. The average ratio of public
stock price to projected 1995 GAAP operating earnings was 8.2x for the Selected
Insurers. Based on the same range of NWNL Exchange Prices, the implied multiples
of transaction value to USLICO's projected 1995 GAAP operating earnings were
between 6.5x and 10.6x. The average ratio of public stock price to GAAP book
value as of September 30, 1994 was 1.4x for the Selected Insurers. Based on the
same range of NWNL Exchange Prices, the implied multiples of transaction value
to USLICO's GAAP book value as of September 30, 1994 were between 0.8x and 1.1x.
The average ratio of public stock price to statutory net earnings for the fiscal
year ended December 31, 1993 was 14.5x for the Selected Insurers. Based on the
same range of NWNL Exchange Prices, the implied multiples of transaction value
to USLICO's statutory net earnings for the fiscal year ended December 31, 1993
were between 19.4x and 25.4x. The average ratio of public stock price to
statutory capital and surplus as of December 31, 1993 was 2.5x for the Selected
Insurers. Based on the same range of NWNL Exchange Prices, the implied multiples
of transaction value to USLICO's statutory capital and surplus as of December
31, 1993 were between 1.7x and 2.2x.
COMPARATIVE TRANSACTION ANALYSIS. DLJ reviewed publicly available
information for selected transactions involving the acquisition of life
insurance and annuity companies since January 1, 1992. In reviewing these
transactions, several factors were considered including: (i) the lack of public
information for subsidiary and private company transactions which represent a
significant portion of the merger and acquisition activity; (ii) the lack of
directly comparable transactions; and (iii) the generally larger size of several
of the transactions. For the selected transactions DLJ reviewed the multiples of
transaction value to GAAP operating earnings, GAAP book value, statutory
operating earnings and adjusted statutory capital and surplus. The average
multiples of transaction value to these four financial results were 12.6x, 1.6x,
11.3x and 2.5x, respectively.
The average ratio of transaction value to GAAP operating earnings for the
fiscal year immediately preceding the transaction for the selected transactions
was 12.6x. Based on a range of NWNL Exchange Prices between $25.36 and $37.20,
the implied multiples of transaction value to USLICO's GAAP operating earnings
for the LTM ended September 30, 1994 were between 12.2x and 16.0x. The average
ratio of transaction value to GAAP book value for the selected transactions was
1.6x. Based on the same range of NWNL Exchange Prices, the implied multiples of
transaction value to USLICO's GAAP book value as of September 30, 1994 were
between 0.8x and 1.1x. The average ratio of transaction value to statutory
operating income for the selected transactions was 11.3x. Based on the same
range of NWNL Exchange Prices, the implied multiples of transaction value to
USLICO's 1993 statutory operating income were between 19.4x and 25.4x. The
average ratio of transaction value to
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adjusted statutory capital and surplus for the selected transactions was 2.5x.
Based on the same range of NWNL Exchange Prices, the implied multiples of
transaction value to USLICO's adjusted statutory capital and surplus as of
December 31, 1993 were between 1.5x and 1.9x.
DLJ's analysis also determined the percentage premium of the transaction
value over the public market trading prices one day, one week and one month
prior to the announcement date of stock-for-stock life insurance company
acquisitions, all life insurance company acquisitions, all stock-for-stock
acquisitions and all acquisitions from 1990 to the present for which the premium
offered was between 0% and 100%. The premiums of the transaction value over the
public market trading prices one day, one week and one month prior to the
announcement for selected stock-for-stock life insurance company acquisitions
were 22.0%, 26.0% and 34.5%, respectively. The premiums of the transaction value
over the public market trading prices one day, one week and one month prior to
announcement for all life insurance company acquisitions were 21.6%, 26.5% and
28.4%, respectively. The premiums of the transaction value over the public
market trading prices one day, one week and one month prior to announcement for
all stock-for-stock acquisitions were 34.9%, 38.3% and 43.2%, respectively. The
premiums of the transaction value over the public market trading prices one day,
one week and one month prior to announcement for all acquisitions were 35.2%,
38.9% and 42.6%, respectively. Based on a range of NWNL Exchange Prices between
$25.36 and $37.20, the consideration being paid by NWNL represents between a
5.3% discount and a 23.9% premium to the closing price of USLICO Common Stock
one week before announcement of the Merger and between a 0.6% discount and a
30.0% premium to the closing price of USLICO Common Stock on November 29, 1994.
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. Furthermore, in arriving at its opinions, DLJ did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. 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, could create an incomplete or
misleading view of the evaluation process underlying its opinions. In performing
its analyses, DLJ made numerous assumptions with respect to industry
performance, business and economic conditions and other matters. 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.
The projections reviewed by DLJ were prepared by the senior managements of
NWNL and USLICO. Neither NWNL nor USLICO publicly discloses internal management
projections of the type provided to the NWNL Board and to DLJ in connection with
their review of the Merger. Such projections were not prepared with a view
towards public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections.
The NWNL Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm and the principals of DLJ have
substantial experience in transactions similar to the Merger and are familiar
with NWNL and its businesses. As part of its investment banking business, DLJ is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Pursuant to the terms of an engagement letter dated January 4, 1994, NWNL
has agreed to pay to DLJ a quarterly $25,000 retainer beginning January 1994
(payable up to an aggregate of $100,000) and $600,000 upon the delivery of its
fairness opinion dated September 7, 1994 to the NWNL Board. In addition, as a
financial advisory fee, at the Effective Time DLJ will receive cash compensation
equal
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to .625% of the aggregate amount of the consideration received by the
shareholders of USLICO, including the assumption of USLICO debt by NWNL, less
the retainer and $600,000 fee. Such financial advisory fee will be payable only
if the Merger is consummated. Based on the closing sale price of NWNL Common
Stock on November 29, 1994, DLJ's fee would be approximately $1,900,000. Over
the past five years, DLJ has worked on a number of transactions for NWNL,
including the sale of its property and casualty insurance and reinsurance
subsidiaries, two common stock offerings and a debt offering. In the ordinary
course of its business, DLJ may trade securities of NWNL or USLICO for its own
account or for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities.
OPINIONS OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
GENERAL
Merrill Lynch has rendered written opinions to the USLICO Board that, as of
the date of the Merger Agreement and as of the date of this Joint Proxy
Statement/Prospectus, respectively, the consideration to be received in the
Merger (including a special dividend of $0.45 per share of USLICO Common Stock
and a payment of $0.05 per Right, aggregating cash distributions equivalent to
$0.50 per share of USLICO Common Stock) was fair, from a financial point of
view, to the holders of the USLICO Common Stock. The full text of Merrill
Lynch's opinion dated the date of this Joint Proxy Statement/Prospectus is
attached as Exhibit C. The description of the written opinion set forth herein
is qualified in its entirety by reference to the full text of the opinion
attached as Exhibit C. The shareholders of USLICO are urged to read the opinion
in its entirety for a description of the procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken,
by Merrill Lynch in connection therewith. In considering the Merrill Lynch
opinions, shareholders may want to take into account Merrill Lynch's fee
arrangements with USLICO with respect to the Merger, under which Merrill Lynch's
fees are substantially greater if the Merger is consummated, as set forth below
under "Fees Payable to Merrill Lynch".
Merrill Lynch's opinions are directed only to the fairness of the
consideration to be received by USLICO shareholders in the Merger and do not
constitute a recommendation to any USLICO shareholder as to how such shareholder
should vote at the USLICO Special Meeting.
Merrill Lynch was engaged by the USLICO Board to provide general financial
advisory and investment banking services with respect to the consideration of
USLICO's strategic alternatives, including the Merger. In such role, Merrill
Lynch participated on behalf of USLICO in various negotiations with NWNL.
Merrill Lynch is a globally 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. Merrill Lynch
was selected by the USLICO Board on the basis of its experience and expertise.
Merrill Lynch acted as financial advisor to USLICO in connection with, and
participated in certain of the negotiations leading to, the Merger Agreement. No
limitations were placed on Merrill Lynch by USLICO with respect to the
investigation made or the procedures followed by Merrill Lynch in preparing and
rendering its opinion. Merrill Lynch will receive a fee from USLICO for its
services described below in "Fees Payable to Merrill Lynch", substantially all
of which is contingent upon consummation of the Merger. In the course of its
activities, Merrill Lynch has in the past provided certain investment banking
services to both USLICO and NWNL for which it received customary compensation.
MATERIALS AND INFORMATION CONSIDERED WITH RESPECT TO THE MERGER
In connection with its opinions, Merrill Lynch, among other things: (i)
reviewed USLICO's Annual Reports, Forms 10-K and related financial information
for the five fiscal years ended December 31, 1993, and USLICO 10-Qs; (ii)
reviewed NWNL's Annual Reports, Forms 10-K and related financial information for
the five fiscal years ended December 31, 1993, and NWNL 10-Qs;
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(iii) reviewed the December 31, 1993 draft Actuarial Valuation of the Business
in Force Only of USLICO Life Insurance Companies (the "Actuarial Valuation")
prepared by Ronald M. Wolf, F.S.A., M.A.A.A., of Tillinghast; (iv) reviewed
certain information, including financial forecasts relating to the business,
earnings, cash flow, assets and prospects of USLICO and NWNL, furnished to
Merrill Lynch by USLICO and NWNL, respectively; (v) conducted discussions with
members of senior management of USLICO and NWNL concerning their respective
businesses, financial condition and prospects; (vi) reviewed the historical
market prices and trading activity for the USLICO Common Stock and the NWNL
Common Stock; (vii) compared the results of operations and historical market
prices of USLICO and NWNL with those of certain companies which Merrill Lynch
deemed to be reasonably similar to USLICO and NWNL, respectively; (viii)
compared the proposed financial terms of the Merger with the financial terms of
certain other mergers and acquisitions in the insurance industry specifically
and other industries generally which Merrill Lynch deemed to be relevant; (ix)
reviewed the Merger Agreement and the USLICO Option Agreement; (x) reviewed a
then-current draft of this Joint Proxy Statement/Prospectus; and (xi) reviewed
such other financial studies and analyses and performed such other
investigations and analyses and took into account such other matters as Merrill
Lynch deemed necessary, including its assessment of general economic, market and
monetary conditions.
In preparing its opinions, Merrill Lynch relied, without independent
verification, upon the accuracy and completeness of all of the financial and
other information supplied or otherwise made available to it by USLICO or NWNL.
Merrill Lynch did not undertake an independent appraisal of the assets and
liabilities of USLICO and NWNL. With respect to the financial forecasts
furnished by USLICO and NWNL, Merrill Lynch assumed that they had been
reasonably prepared and reflected the best currently available estimates and
judgment of senior managements of USLICO or NWNL as to the expected future
financial performance of USLICO or NWNL, as the case may be.
Set forth below is a brief summary setting forth the material analyses
presented by Merrill Lynch to the USLICO Board in connection with its written
opinion as to the fairness, from a financial point of view, of the consideration
to be received by holders of USLICO Common Stock on the date the USLICO Board
approved the Merger Agreement. Unless otherwise specified, all ratios and other
financial information described below are based on financial data as of or for
the 12 months ended June 30, 1994. The procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken
contained in the opinion dated the date of the Merger Agreement are
substantially the same as, and not materially different from, those contained in
the opinion dated the date of this Joint Proxy Statement/Prospectus and attached
as Exhibit C.
TRANSACTION SUMMARY. Merrill Lynch calculated the imputed value of the
Merger to holders of USLICO Common Stock. This analysis showed a value of $22.32
per share of USLICO Common Stock based upon a .69 Exchange Ratio, the closing
price of $31.625 per share of NWNL Common Stock on September 8, 1994, as well as
the average of the closing prices of NWNL Common Stock for the 20 trading days
ending September 8, 1994, and $0.50 per share in special cash distributions.
Merrill Lynch also calculated the multiple which the Merger consideration
represents, based on the $22.32 per share purchase price, when compared to the
USLICO Common Stock closing market price on August 9, 1994 (the day after the
USLICO Board authorized senior management to negotiate a possible business
combination with NWNL), August 29, 1994 (eight trading days prior to the USLICO
press release relating to merger discussions) and September 8, 1994 (the last
trading day prior to the public announcement that USLICO was in advanced
discussions concerning a possible stock-for-stock merger transaction). Merrill
Lynch calculated the premium on August 9, 1994 to be 14.46% and 27.83% based on
a single and 20 day average, respectively, 2.41% to 9.80% based on market value
on August 29, 1994 on a single and 20 day average and (0.24)% to 4.67% based on
market value on September 8, 1994 on a single and 20 day average.
HISTORICAL AND PRO FORMA PROJECTED FINANCIAL DATA ANALYSIS. Merrill Lynch
analyzed certain historical income statement and balance sheet data for USLICO
and NWNL. Based upon the imputed value of $22.32 per share of USLICO Common
Stock, the consideration to be received in the Merger is
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11.2 times the earnings for the 12 months ended June 30, 1994, 13.5 times
estimated 1994 earnings, 10.1 times estimated 1995 earnings and 0.92 times book
value at June 30, 1994. Merrill Lynch also analyzed certain pro forma projected
financial data for USLICO on a stand-alone basis as well as on a combined
company basis for the projected four year period from 1995 through 1998. This
pro forma projected analysis was prepared by Merrill Lynch after discussions
with the senior managements of USLICO and NWNL and was based upon certain
assumptions which reflected estimated cost savings projected from combining the
two companies. Merrill Lynch examined the pro forma earnings per share,
dividends per share, fully-diluted book value per share, return on assets and
return on common equity of the pro forma combined company and the pro forma
increase in projected earnings per share and dividends per share for the
shareholders of USLICO.
EARNINGS PER SHARE AND DIVIDEND ENHANCEMENT ANALYSIS. Merrill Lynch
analyzed the accretion in estimated future earnings per share and dividends per
share on a share of USLICO Common Stock equivalent basis, comparing projected
results for the combined company (including estimated cost savings from the
Merger) with results projected for USLICO on a stand-alone basis. This analysis
showed a projected increase in estimated 1995 fully-diluted earnings per share
of 31.2%, in estimated 1996 fully-diluted earnings per share of 40.1% and in
estimated 1997 fully-diluted earnings per share of 45.5%, as well as a projected
increase in dividends per share of 158.8%, when comparing projections for the
combined company with the projections for USLICO on a stand-alone basis.
CONTRIBUTION ANALYSIS. Merrill Lynch analyzed the relative contribution of
each of USLICO and NWNL to certain balance sheet and income statement items,
including assets, common equity, revenues, income before tax and net income.
Merrill Lynch then calculated the ownership percentages of the combined company
represented by the relative contributions of such balance sheet and income
statement items, to the ownership percentage for holders of USLICO Common Stock
to be approximately 19.9% based upon either the 20 day average price at
September 8, 1994 or a price per share of NWNL Common Stock of $37.20 or more.
The contribution analysis showed that USLICO would contribute approximately
24.2% of total assets, 28.3% of common equity, 21.3% of total revenues, 16.7% of
income before taxes and 24.0% of net income on a pro forma basis for the 12
months ended June 30, 1994.
ADJUSTED ACTUARIAL VALUATION. The Actuarial Valuation was prepared for the
use of USLICO's management and incorporated certain agreed upon assumptions that
were appropriate for that purpose. Merrill Lynch analyzed the Actuarial
Valuation and made certain adjustments to the Actuarial Valuation it believed
were necessary (and beyond the scope of the engagement of Tillinghast in
preparing the Actuarial Valuation) to reflect as of December 31, 1993 the value
of USLICO, including its insurance subsidiaries on a consolidated basis. Such
adjustments included reductions to reflect revised assumptions regarding future
expenses and interest rates and debt at the holding company and increases for
cash and other assets at the holding company and the present value of dividends
from USLICO's subsidiaries USC and International Risks, Inc. Valuations were
then computed using 11%, 13% and 15% discount rates. This analysis resulted in
an adjusted actuarial value reference range per share of USLICO Common Stock of
from $16.73 to $21.28.
COMPARABLE COMPANY ANALYSIS. In performing the comparable company analysis
for USLICO, Merrill Lynch reviewed and compared the financial, operating and
market performance of the following group of nine publicly traded life insurance
companies with that of USLICO: Equitable of Iowa Companies, First Colony
Corporation, Kansas City Life Insurance Company, Life Partners Group Inc., Life
USA Holding Inc., Presidential Life Corp., Sunamerica Inc., USLIFE Corporation
and Washington National Corporation (the "Comparable Companies"). Merrill Lynch
selected the Comparable Companies on the basis of various characteristics,
including primarily the type of life insurance business written by each company,
and, additionally, the size of each company and the historical and expected
financial condition and performance of each company. Merrill Lynch considered
certain financial data of the Comparable Companies, including common stock
prices, earnings per share for the last 12 months and estimated for 1994 and
1995 (as compiled by the Institutional Brokers' Estimate System, August 1994),
book value as of June 30, 1994, last 12 months and estimated 1994
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and 1995 multiples of price to earnings and multiples of price to book value.
Merrill Lynch also examined the history of trading prices for USLICO, NWNL and
the Comparable Companies for the four-year period from September 1990 to
September 1994 and for the one-year period from September 1993 to September
1994. This analysis showed that the market price of NWNL Common Stock had
significantly outperformed the stock of the Comparable Companies, and that
USLICO Common Stock had significantly underperformed the stock of the Comparable
Companies, during such four-year period. Both USLICO Common Stock and NWNL
Common Stock had outperformed the stock of the Comparable Companies during such
one-year period. Merrill Lynch applied multiples based on the multiples of the
Comparable Companies to financial data of USLICO for estimated 1994 and 1995
earnings per share and book value as of June 30, 1994. This analysis resulted in
a Comparable Companies market trading reference range per share of USLICO Common
Stock from $15.30 to $17.00 on the basis of price to earnings per share
multiples and from $21.99 to $24.43 on the basis of price to book value
multiples.
COMPARABLE TRANSACTIONS ANALYSIS. Merrill Lynch reviewed the value of the
consideration paid in certain acquisition or business combination transactions
in the life insurance industry involving companies having characteristics deemed
to be similar to USLICO. Merrill Lynch selected such companies on the basis of
various characteristics, including primarily the type of business of each
company, and, additionally, the historical financial condition and performance
of each company. The transactions included (acquiror/acquiree): General Electric
Capital Corp./Harcourt General Insurance, Inc.; Conseco, Inc./Statesman Group;
Penn Corp Financial Group Inc./American Amicable Life Insurance Company of
Texas; Morgan Stanley Leveraged Equity Fund II and ARM Financial
Corporation/Integrity Life Insurance Company; Protective Life Corp./Wisconsin
National Life; General Electric Capital Corp./United Pacific Life Insurance
Company; Capital Holdings/Academy Life Insurance Company; Conseco Capital
Partners LP/Jefferson National Life Insurance Company; Liberty National Life
Insurance Company/Family Service Life Insurance Company; Conseco Capital
Partners LP/Great American Reserve Insurance Company; Hicks, Muse &
Co./Philadelphia Life Insurance Company; Legal and General Group PLC
(UK)/William Penn Life Insurance Company of New York; National
Nederlander/Southland Life; Washington National Corp./United Presidential Corp.;
and Conseco Inc./Bankers National Life. Merrill Lynch calculated and evaluated
on statutory accounting based acquisition multiples of: equity value to capital
and surplus; transaction value to capital and surplus; transaction value less
capital and surplus to total premiums; transaction value to pre-tax income;
transaction value to operating income; and transaction value less capital and
surplus to premiums less 80% of annuity fund deposits. Merrill Lynch then
applied multiples based upon these multiples to USLICO's 1993 statutory
operating income and capital surplus. This analysis resulted in a comparable
acquisition reference range per share of USLICO Common Stock of from $20.45 to
$24.95.
STOCK PRICE PRESENT VALUE ANALYSIS. Using a discounted earnings to
shareholders analysis, Merrill Lynch estimated the net present value of future
cash flows to shareholders of USLICO that USLICO might be expected to produce,
using estimates provided by USLICO senior management for 1994, 1995 and 1996 and
assumptions relating to earnings per share, dividends and terminal values and
discount rates, if USLICO were to perform on a stand-alone basis (without giving
effect to any operating or other efficiencies pursuant to the Merger). This
analysis resulted in a discounted earnings stream reference range per share of
USLICO Common Stock from $20.79 to $25.59 on a price to multiple of earnings
basis and from $20.55 to $25.30 on a price to multiple of book value basis.
OVERALL REFERENCE RANGE. Finally, Merrill Lynch analyzed the per share
reference ranges for USLICO Common Stock derived from the adjusted actuarial
valuation analysis, comparable company analysis, comparable transactions
analysis and discounted cash flow analysis in order to derive an overall
reference range per share of USLICO Common Stock of from $20.00 to $24.00.
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WRITTEN OPINION FOR JOINT PROXY STATEMENT/PROSPECTUS
In connection with its written opinion dated as of the date of this Joint
Proxy Statement/ Prospectus, Merrill Lynch confirmed the appropriateness of its
reliance on the analyses used to render its September 11, 1994 opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith.
LIMITATIONS ON OPINIONS
The information above summarized the material analyses prepared by Merrill
Lynch in connection with its opinions. This summary does not purport to be a
complete description of the analyses performed by Merrill Lynch in connection
with the rendering of its fairness opinions. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. Merrill Lynch believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or selecting part or all of the above summary,
without considering all factors and analyses, would create an incomplete view of
the process underlying the analyses set forth in the Merrill Lynch presentations
and opinions. With respect to the comparable company analysis and comparable
transactions analysis summarized above, no public company utilized as a
comparison is identical to USLICO and such analyses involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Companies and other factors that could affect
the acquisition or public trading value of the Comparable Companies. The range
in calculations resulting from any particular analyses described above should
not be taken to be Merrill Lynch's view of the actual value of USLICO, which may
be significantly more or less favorable than as set forth therein. The fact that
any specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given more weight than any other analyses.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of USLICO or NWNL. Such
analyses were prepared solely as part of Merrill Lynch's analysis of the
fairness of the consideration in the Merger, from a financial point of view, to
the shareholders of USLICO and were provided to the USLICO Board in connection
with the delivery of Merrill Lynch's opinions. Because any estimates contained
in the analyses performed by Merrill Lynch are inherently subject to
uncertainty, none of the USLICO Board, Merrill Lynch or any other person assumes
responsibility for the accuracy of such estimates. The analyses do not purport
to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may be traded in the future.
The projections reviewed by Merrill Lynch were prepared by the senior
managements of USLICO and NWNL. Neither USLICO nor NWNL publicly discloses
internal management projections of the type provided to the USLICO Board and to
Merrill Lynch in connection with their review of the Merger. Such projections
were not prepared with a view towards public disclosure. The projections were
based on numerous variables and assumptions which are inherently uncertain,
including without limitation, factors related to general economic and
competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such projections.
As described above, Merrill Lynch's opinions and presentation to the USLICO
Board is just one of the many factors taken into consideration by the USLICO
Board.
FEES PAYABLE TO MERRILL LYNCH
USLICO's engagement of Merrill Lynch provides for (i) a fee of $100,000 paid
upon execution of the Merrill Lynch engagement letter, (ii) an additional fee of
$200,000 paid upon execution of the definitive Merger Agreement and (iii) a
transaction fee equal to 1% of the aggregate purchase price in the Merger,
contingent and payable upon consummation of the Merger, less any amounts
previously paid to Merrill Lynch pursuant to clauses (i) and (ii) above. Based
upon a closing sale price of $ for the NWNL Common Stock on December 1,
1994, Merrill Lynch's fee payable upon
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consummation of the Merger would be approximately $ million. USLICO has also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses,
including reasonable attorneys' fees, and to indemnify Merrill Lynch against
certain liabilities, including certain liabilities under the federal securities
laws.
Merrill Lynch has been engaged from time to time to underwrite debt
securities of USLICO and to provide other financial advisory services to USLICO,
including having acted as financial advisor in connection with and having
participated in certain negotiations leading to the Merger Agreement. All such
relationships with USLICO have been in the ordinary course of business of
Merrill Lynch, and fees paid in connection therewith were negotiated on an
arm's-length basis. Merrill Lynch also has been engaged from time to time to
underwrite debt and equity securities of NWNL and to provide other financial
services to NWNL, including the issuance of a fairness opinion in connection
with NWNL's demutualization in 1988. All such relationships with NWNL have been
in the ordinary course of business of Merrill Lynch, and fees paid in connection
therewith were negotiated on an arm's-length basis.
Merrill Lynch has advised USLICO that, in the ordinary course of business,
it may, subject to certain restrictions, actively trade the equity and/or debt
securities of USLICO or NWNL for its own account or for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
THE MERGER
GENERAL
The respective Boards of Directors of NWNL and USLICO, meeting separately,
each authorized the execution and performance of the USLICO Option Agreement and
the Merger Agreement.
THE FOLLOWING SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF THE MERGER
AGREEMENT, WHICH IS ATTACHED AS EXHIBIT A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS.
EFFECTIVE TIME AND EFFECT OF THE MERGER
If the Merger Agreement and the Merger are approved and adopted by the
requisite vote of the respective shareholders of NWNL and USLICO and all other
conditions to the obligations of the parties to consummate the Merger are
satisfied or waived, the Merger will become effective upon the appropriate
filings being made with the Secretary of State of the State of Delaware and with
the State Corporation Commission of the Commonwealth of Virginia and the
issuance by such Commission of a Certificate of Merger (the later of the time of
such filings or the effective time of the Certificate of Merger issued by such
Commission being the "Effective Time"). The Effective Time is expected to occur
in early 1995. As of the Effective Time, USLICO will be merged with and into
NWNL and NWNL, as the surviving corporation, will possess USLICO's assets and
will be responsible for USLICO's liabilities, including the USLICO Debentures.
The separate corporate existence of USLICO will terminate upon consummation of
the Merger, and pursuant to the Merger Agreement and applicable law each then
outstanding share of USLICO Common Stock will be converted automatically into a
fraction of a share of NWNL Common Stock equal to the Exchange Ratio, Revised
Exchange Ratio or Designated Exchange Ratio, as the case may be, and, in certain
circumstances, the right to be paid cash in certain amounts. Thereafter, holders
of certificates formerly representing outstanding shares of USLICO Common Stock
at the Effective Time will be entitled to surrender such certificates to Norwest
Bank Minnesota, National Association, NWNL's stock transfer agent (the "Exchange
Agent"), who will act as the exchange agent for purposes of exchanging such
certificates for certificates representing shares of NWNL Common Stock. The
Exchange Ratio is subject to appropriate adjustment to reflect the effect of any
stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into NWNL Common Stock or USLICO Common
Stock), exchange of shares, reclassification, reorganization, recapitalization
or other like change with respect to the NWNL Common Stock or the USLICO Common
Stock prior to the Effective Time.
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EXCHANGE OF SHARES
After the Effective Time, each record holder at the Effective Time of a
certificate or certificates theretofore representing shares of outstanding
USLICO Common Stock will be entitled, upon the surrender of such certificate or
certificates to the Exchange Agent, promptly to receive in exchange therefor a
certificate or certificates representing the number of whole shares of NWNL
Common Stock into which the shares of USLICO Common Stock previously represented
by the certificate or certificates so surrendered shall have been converted
pursuant to the Merger Agreement. From and after the Effective Time, until
surrendered, each certificate theretofore representing shares of USLICO Common
Stock will be deemed for all corporate purposes, other than payment of
dividends, to evidence the ownership of the number of whole shares of NWNL
Common Stock into which such shares of USLICO Common Stock shall have been
converted. Unless and until any such certificate shall be so surrendered, the
holder of such certificate will not be entitled to receive payment of any
dividends on such shares of NWNL Common Stock payable to the holder thereof
after the Effective Time. Upon the surrender of a certificate previously
representing shares of USLICO Common Stock, the holder thereof will receive a
certificate representing the number of whole shares of NWNL Common Stock to
which such holder shall be entitled and the amount of any dividends or other
distributions that shall have been payable to holders of record of NWNL Common
Stock on or after the Effective Time with respect to such shares of NWNL Common
Stock, without interest. Any dividends payable to holders of record of NWNL
Common Stock as of any record date prior to the Effective Time will not be
payable to holders of certificates previously representing USLICO's Common
Stock.
No fractional shares of NWNL Common Stock will be issued upon consummation
of the Merger. In lieu thereof, each USLICO shareholder who would otherwise be
entitled to a fractional share will be paid an amount of cash, without interest,
equal to the value of such fractional share based upon the Exchange Ratio,
Revised Exchange Ratio or Designated Exchange Ratio, as the case may be. In
addition, as a result of certain adjustments to the Exchange Ratio in accordance
with the terms of the Merger Agreement (see the cover page of this Joint Proxy
Statement/Prospectus), holders of USLICO Common Stock may receive certain
specified cash payments as partial consideration for their shares.
Detailed instructions and transmittal materials will be mailed to USLICO
shareholders following the Effective Time as to the method of exchanging
certificates formerly representing shares of USLICO Common Stock for
certificates representing shares of NWNL Common Stock. HOLDERS OF CERTIFICATES
REPRESENTING SHARES OF USLICO COMMON STOCK SHOULD NOT SURRENDER SUCH
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE THE APPROPRIATE TRANSMITTAL
MATERIALS.
The shareholders of NWNL will continue to hold their shares of capital stock
of NWNL without any change in number, designation, terms or rights.
PAYMENT BY USLICO OF SPECIAL DISTRIBUTIONS
If the Merger is approved by both the NWNL and USLICO shareholders, USLICO
intends to pay a special cash dividend of $0.45 per share of USLICO Common Stock
and to redeem the Rights under the USLICO Share Rights Plan at a redemption
price of $0.05 per Right, aggregating cash distributions equivalent to $0.50 per
share of USLICO Common Stock. Such payments will be made to holders of record of
outstanding USLICO Common Stock on a record date to be set by the USLICO Board.
If the Merger is not approved, USLICO does not intend to make such payments.
EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS
Pursuant to the Merger Agreement, NWNL has agreed to assume, except to the
extent provided in the Merger Agreement, all of USLICO's employee benefit plans
and other arrangements and has agreed to maintain each such plan and arrangement
on substantially the same terms as in effect at the Effective Time for a period
of 90 days after the Effective Time or until replaced by an NWNL employee
benefit plan. Thereafter, USLICO employees will be covered under NWNL's employee
benefit plans and arrangements on a basis no less favorable than apply to other
similarly situated employees of NWNL. Except to the extent otherwise provided in
the Merger Agreement, USLICO employees will
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receive full credit for all service with USLICO for purposes of all material
employee benefit plans and arrangements. Payouts under the USLICO executive
incentive compensation plan for 1994 will be determined pursuant thereto
(adjusted to exclude costs attributable to the Merger) and, if the Effective
Time occurs before December 31, 1994, pro-rated based on the portion of the year
that has expired prior to the Effective Time. In connection with the Merger,
NWNL has made no commitments with respect to the continued employment of any
employee of NWNL or USLICO or, except as expressly provided in the Merger
Agreement, the continuation of any NWNL or USLICO employee benefit plan.
Pursuant to the Merger Agreement, USLICO shall purchase, at the election of
the optionee, prior to the Effective Time, each unexercised employee stock
option to acquire shares of USLICO Common Stock (a "USLICO Option") at a cash
purchase price per share of USLICO Common Stock equal to the excess of the
average of the per share closing prices of USLICO Common Stock on the NYSE
Composite Tape for the three trading days immediately preceding the Effective
Time, over the exercise price per share subject to such USLICO Option. Any
USLICO Option not so purchased will be assumed by NWNL and will be exercisable
upon the same terms and conditions as under the USLICO option plan under which
such USLICO Option was granted and the related stock option agreement, except
that each USLICO Option will be exercisable for such number of shares of NWNL
Common Stock (and, in certain circumstances, the right to be paid in cash
certain amounts) as would have been received pursuant to the Merger for the
shares of USLICO Common Stock subject to the USLICO Option had the USLICO Option
been exercisable and exercised immediately prior to the Effective Time, and the
exercise price per share of such USLICO Option will be equal to the option price
per share under the USLICO Option in effect immediately prior to the Effective
Time divided by the Exchange Ratio, Revised Exchange Ratio or Designated
Exchange Ratio, as the case may be, rounded up to the nearest full cent.
Promptly after the Effective Time, NWNL has agreed to file and use all
reasonable efforts in obtaining effectiveness of a registration statement with
respect to the shares issuable upon exercise of such assumed options. For a
description of the terms of the stock option plan of USLICO and certain of the
USLICO Options outstanding thereunder, see Item 11 of the USLICO 10-K (which
incorporates certain portions of USLICO's definitive proxy statement for
USLICO's 1994 Annual Meeting of Shareholders), which is incorporated herein by
reference.
As of October 31, 1994, the aggregate number of shares of USLICO Common
Stock subject to outstanding USLICO Options was 423,500, at exercise prices
which ranged from $16.375 to $18.25 per share, and of which USLICO Options to
purchase 336,000 shares were vested.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of NWNL and USLICO to consummate the Merger are
subject to (a) obtaining the requisite approvals of the Merger Agreement and the
Merger from the respective shareholders of NWNL and USLICO, (b) the expiration
or termination of the waiting period applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (c) the absence of any judicial, governmental,
regulatory or administrative order preventing or making illegal the consummation
of the Merger, (d) the effectiveness of the Registration Statement (of which
this Joint Proxy Statement/Prospectus constitutes a part) and all requisite
post-effective amendments thereto and the absence of any stop-orders suspending
the effectiveness thereof or proceedings initiated or, to the knowledge of the
parties, threatened by the SEC for such purpose, (e) the listing (subject to
official notice of issuance) on the NYSE of the shares of NWNL Common Stock
issuable upon consummation of the Merger, and (f) the receipt of all permits,
consents and approvals of insurance, securities or "blue sky" commissions or
agencies of any jurisdiction and of any other governmental body or agency that
may be reasonably deemed necessary so that the consummation of the Merger and
related transactions will comply with applicable laws, without conditions which,
in the judgment of NWNL, reasonably exercised, would reasonably be expected to
result in a material adverse change in the financial condition, results of
operations or businesses of either NWNL on a consolidated basis or USLICO on a
consolidated basis,
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or in the judgment of USLICO, reasonably exercised, would reasonably be expected
to result in a material adverse change in the financial condition, results of
operations or businesses of NWNL on a consolidated basis. The HSR Act waiting
period terminated on October 12, 1994.
Additional conditions to NWNL's obligation to consummate the Merger include
(a) the accuracy, as of the date of the Merger Agreement and the closing date of
the Merger, of the representations and warranties of USLICO (except for
inaccuracies that individually or in the aggregate do not constitute a material
adverse change in the financial condition, results of operations or businesses
of USLICO on a consolidated basis) and the compliance with and performance of,
in all material respects, all of the terms, covenants and conditions of the
Merger Agreement to be complied with and performed by USLICO prior to the
consummation of the Merger, (b) the non-occurrence of any material adverse
change in the financial condition, results of operations or businesses of USLICO
on a consolidated basis since the date of the Merger Agreement (except the
effect of any conditions, events and developments adversely affecting the life
insurance industry generally), (c) the absence of any dissenters' rights with
respect to the Merger by the holders of USLICO Common Stock, (d) the receipt of
an opinion of Rogers & Wells, counsel to USLICO, and Jeffrey P. Hahn, Senior
Vice President, General Counsel and Secretary of USLICO, and (e) the receipt by
the NWNL Board of a tax opinion of Faegre & Benson Professional Limited
Liability Partnership ("Faegre & Benson"), counsel to NWNL, in form and
substance reasonably satisfactory to the NWNL Board.
Additional conditions to USLICO's obligations to consummate the Merger
include (a) the accuracy, as of the date of the Merger Agreement and the closing
date of the Merger, of the representations and warranties of NWNL (except for
inaccuracies that individually or in the aggregate do not constitute a material
adverse change in the financial condition, results of operations or businesses
of NWNL on a consolidated basis) and the compliance with and performance of, in
all material respects, all of the terms, covenants and conditions of the Merger
Agreement to be complied with and performed by NWNL prior to the consummation of
the Merger, (b) the non-occurrence of any material adverse change in the
financial condition, results of operations or businesses of NWNL on a
consolidated basis since the date of the Merger Agreement (except the effect of
any conditions, events or developments adversely affecting the life insurance
industry generally), (c) the taking by NWNL of such action as may be necessary
to appoint or elect the person designated by USLICO, and reasonably acceptable
to NWNL, to the NWNL Board effective as of the Effective Time, (d) the receipt
of an opinion of Faegre & Benson, counsel to NWNL, and of Royce N. Sanner,
Senior Vice President, General Counsel and Secretary, or Richard R. Crowl, Vice
President and Associate General Counsel of NWNL, and (e) the receipt by the
USLICO Board of a tax opinion of Rogers & Wells, counsel to USLICO, in form and
substance reasonably satisfactory to the USLICO Board.
Under the terms of the Merger Agreement, NWNL has no obligation to
consummate the Merger if any condition to its obligation to consummate the
Merger is not satisfied on or prior to the closing date of the Merger and USLICO
has no obligation to consummate the Merger if any condition to its obligation to
consummate the Merger is not satisfied on or prior to the closing date of the
Merger. Any of the conditions to the obligation of NWNL or USLICO to consummate
the Merger may be waived or modified by the party that is, or whose shareholders
are, entitled to the benefits thereof. Neither NWNL nor USLICO has any present
intention to waive or modify any such condition that it deems material.
Reference is made to Article VI of the Merger Agreement for a complete
statement of the conditions precedent to the obligations of the respective
parties to consummate the Merger.
REPRESENTATIONS, WARRANTIES AND COVENANTS
In the Merger Agreement, NWNL and USLICO have made various representations,
warranties, covenants and agreements, relating to, among other things, their
respective businesses and financial condition, the accuracy of their various
filings with the SEC, the satisfaction of certain legal requirements for the
Merger and the absence of certain material litigation. The representations and
warranties of each of the parties to the Merger Agreement will expire upon
consummation of the Merger.
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AMENDMENT, TERMINATION AND WAIVER
The terms of the Merger Agreement may be amended or supplemented at any time
by written agreement of NWNL and USLICO, provided that after the Merger
Agreement has been approved and adopted by the shareholders of NWNL and the
shareholders of USLICO, the Merger Agreement may be amended only as may be
permitted by applicable provisions of the General Corporation Law of the State
of Delaware (the "Delaware Law") and the Virginia Stock Corporation Act (the
"Virginia Law"). Any provision of the Merger Agreement may be waived at any time
by the party that is, or whose shareholders are, entitled to the benefits
thereof.
Notwithstanding prior approval of the Merger Agreement and the Merger by the
shareholders of NWNL or USLICO, the Merger Agreement may be terminated and the
Merger and other transactions contemplated by the Merger Agreement may be
abandoned at any time prior to the Effective Time (a) by the mutual consent of
the Boards of Directors of NWNL and USLICO, (b) by either NWNL or USLICO, if the
Merger shall not have been consummated on or before June 30, 1995, (c) by either
NWNL or USLICO, if the Merger Agreement and the Merger shall have been submitted
to a vote of the shareholders of NWNL at the NWNL Special Meeting, or of USLICO
at the USLICO Special Meeting, or any adjournments thereof, and shall not have
been approved by the requisite votes, (d) by either NWNL or USLICO, if a
condition to the terminating party's obligation to consummate the Merger cannot
be met on the closing date of the Merger and is not waived or cured within the
prescribed time period, (e) by either NWNL or USLICO, if a final unappealable
order to restrain, enjoin or otherwise prevent, or awarding substantial damages
in connection with, the consummation of the Merger Agreement or the transactions
contemplated in connection therewith, shall have been entered, (f) by either
NWNL or USLICO, if the recommendation of the USLICO Board with respect to the
Merger is modified or withdrawn in any way detrimental to NWNL, (g) by either
NWNL or USLICO, if the Exchange Price is equal to or less than $25.36, or (h) by
either NWNL or USLICO, if their respective rights plans are triggered and are
not redeemed prior to the Effective Time.
EXPENSES AND TERMINATION PAYMENTS
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
costs and expenses except as described in the paragraph below.
USLICO has agreed to pay NWNL $1 million to reimburse NWNL's expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby, if there has been no material breach by NWNL of its
representations, warranties, covenants and agreements under the Merger Agreement
and NWNL elects to terminate the Merger Agreement on the bases that (i) the
Merger has not been approved by the USLICO shareholders at the USLICO Special
Meeting or any adjournment thereof, and at the time of the USLICO Special
Meeting an Acquisition Proposal is outstanding, or (ii) the USLICO Board
modifies (in a way detrimental to NWNL) or withdraws its recommendation of the
Merger. In addition to the foregoing payment, if the termination of the Merger
Agreement entitles NWNL to the payment of $1 million and an Acquisition Proposal
is consummated within 12 months of the termination of the Merger Agreement,
USLICO has agreed to pay NWNL an additional amount of $9 million. As used in the
Merger Agreement, an "Acquisition Proposal" is a publicly announced offer or a
publicly-announced intent to make an offer from, or a transaction negotiated
with, a party other than NWNL, to acquire USLICO, USL or BSL in a merger,
consolidation, share exchange or other business combination or joint venture, to
acquire all or substantially all of the assets of USLICO or USL or BSL or a
substantial part of the assets of USLICO and its subsidiaries, or to acquire at
least 50% of the outstanding USLICO Common Stock or at least 50% of the equity
interest in USL or BSL.
NWNL has agreed to pay USLICO $1 million to reimburse USLICO for its
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby if there has been
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no material breach by USLICO of its respective representations, warranties,
covenants and agreements under the Merger Agreement and USLICO elects to
terminate the Merger Agreement on the basis that the Merger has not been
approved by the NWNL Shareholders at the NWNL Special Meeting or any adjournment
thereof.
USLICO STOCK OPTION
Prior to and in connection with the execution of the Merger Agreement and as
a condition to such execution, USLICO granted to NWNL an option (the "Option")
to purchase up to 1,065,552 newly issued shares of USLICO Common Stock at a
price of $24 per share (the "Exercise Price"), subject to adjustment under
certain circumstances. Provided the USLICO Option Agreement has not terminated
in accordance with its terms, the Option is exercisable only on or after the
"Commencement Date". As used in the USLICO Option Agreement, the "Commencement
Date" is the date of the consummation of any acquisition of USLICO, other than
the Merger, which entitles NWNL to receive a cumulative amount of $10 million
from USLICO in accordance with the expense provisions of the Merger Agreement.
See "The Merger -- Expenses and Termination Payments".
The USLICO Option Agreement will terminate at the earliest of (i) the
Effective Time, (ii) 60 days after the termination of the Merger Agreement if no
Acquisition Proposal was outstanding on the date of such termination or at any
time during the 60-day period thereafter, (iii) 12 months after termination of
the Merger Agreement if no Acquisition Proposal has been consummated during such
12 months period, or (iv) 30 calendar days after an Acquisition Proposal is
consummated.
The USLICO Option Agreement provides, among other things, that at any time
after consummation of an Acquisition Proposal USLICO may require NWNL to sell
the Option to USLICO. Such repurchase shall be at a price equal to the
difference between (A) the Acquisition Price (as defined below) for shares of
USLICO Common Stock and (B) the Exercise Price (subject to adjustment for stock
dividends, split-ups, recapitalizations and the like), multiplied by the number
of shares of USLICO Common Stock with respect to which the Option may be
exercised, but only if the Acquisition Price is greater than the Exercise Price.
As used in the preceding sentence, "Acquisition Price" means the price per share
of USLICO Common Stock acquired pursuant to the Acquisition Proposal or the fair
market value of securities or other property received pursuant to such
Acquisition Proposal.
The USLICO Option Agreement provides that, at any time after the Exercise
Date and prior to the expiration of 18 months following the first exercise of
the Option, USLICO has the assignable right of first refusal with respect to any
proposed transfer by NWNL of any shares acquired pursuant to the exercise of the
Option, whereby it can purchase such shares from NWNL on the same terms and
conditions and at the same price at which NWNL is proposing to transfer such
shares to a third party; provided that USLICO's right of first refusal does not
apply to (i) any disposition as a result of which the proposed transferee would
beneficially own not more than 2% of USLICO's voting power, (ii) any sale by
means of a registered public offering in which steps are taken to reasonably
assure that no purchaser will acquire more than 2% of the outstanding USLICO
Common Stock, or (iii) any transfer to one or more direct or indirect
wholly-owned subsidiaries of NWNL which agrees to be bound by the terms of the
USLICO Option Agreement. In addition, the USLICO Option Agreement gives NWNL
certain rights to require USLICO to register shares of USLICO Common Stock
acquired pursuant to the exercise of the Option for sale under the Securities
Act.
The Option is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement and
may discourage offers to acquire USLICO.
STOCK EXCHANGE LISTING
NWNL Common Stock is listed on the NYSE, and it is a condition to
consummation of the Merger that the additional shares of NWNL Common Stock
issuable upon consummation of the Merger shall have been approved for listing on
the NYSE subject to official notice of issuance.
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CERTAIN LEGAL MATTERS
Certain acquisition transactions such as the Merger are reviewed by the
Antitrust Division of the Department of Justice (the "Antitrust Division") or
the Federal Trade Commission (the "FTC") to determine whether such transactions
comply with applicable antitrust laws. Under the provisions of the HSR Act, the
Merger may not be consummated until certain information has been furnished to
the Antitrust Division and the FTC and certain waiting period requirements of
the HSR Act have been satisfied. Information was filed with the Antitrust
Division and the FTC under the HSR Act by NWNL and USLICO on September 30, 1994,
and the waiting period under the HSR Act terminated on October 12, 1994.
USLICO is subject to insurance holding company laws of the states in which
its insurance subsidiaries are domiciled. Under those laws, no person or group
may acquire "control" of USLICO or its insurance subsidiaries without first
obtaining the approval of the insurance commissioner in each such state pursuant
to procedures which may require notice to interested parties or a public
hearing. USLICO's insurance subsidiaries are domiciled in Virginia and New York.
Consummation of the Merger is conditioned upon, among other things, the
absence of any judicial, governmental, regulatory or administrative order
preventing or making illegal the consummation of the Merger. In addition,
consummation of the Merger is conditioned upon receipt of all consents or
approvals of governmental agencies, the receipt of which is necessary for the
consummation of the Merger and the transactions contemplated thereby, without
conditions that would result in a material adverse change in the consolidated
financial condition, results of operations or businesses of either NWNL or
USLICO. NWNL and USLICO believe that the required regulatory approvals are
likely to be secured without the imposition of any conditions that would result
in such a material adverse change. See "The Merger -- Conditions to Consummation
of the Merger".
CONDUCT OF BUSINESS PRIOR TO THE MERGER
The Merger Agreement provides that, prior to the Effective Time, USLICO will
conduct its business only in the ordinary course of business and consistent with
prior practice, and generally provides for certain restrictions with respect to
USLICO on, among other things, the issuance or other disposition, encumbrance or
repurchase of capital stock of USLICO or its subsidiaries (other than the
redemption of the Rights under the USLICO Share Rights Plan), certain sales of
assets of USLICO or its subsidiaries, the declaration or payment of dividends
except for a special cash dividend of not more than $0.45 per share of USLICO
Common Stock and regular quarterly cash dividends of not more than $0.06 per
share on USLICO Common Stock, the amendment of the charters or bylaws of USLICO
or subsidiaries of USLICO, the acquisition of any business, the incurrence of
certain indebtedness, the making of certain capital expenditures in excess of
specific dollar amounts, the granting of certain employee benefits or the
adoption or amendment of employee benefit plans, the hiring of certain executive
and management employees or certain actions relating to the entering into,
amendment in any material respect of, or termination or waiver of any material
right under, certain contracts or arrangements material to USLICO.
Pursuant to the Merger Agreement, prior to the Effective Time, USLICO will
redeem all Rights to purchase USLICO Common Stock under a Rights Agreement,
dated as of February 26, 1988, between USLICO and Crestar Bank, National
Association, as amended (the "USLICO Share Rights Plan").
The Merger Agreement further provides that, prior to the Effective Time,
NWNL will conduct its business only in, and will not take any material action
except in, the ordinary course of business and consistent with past practices,
and generally provides for certain restrictions with respect to NWNL on, among
other things, the issuance or other disposition, encumbrance or repurchase of
capital stock, certain sales of assets of NWNL or its subsidiaries, certain
acquisitions of corporations, partnerships or other business organizations, the
incurrence of indebtedness and the issuance of debt securities (except under
existing facilities), the amendment of the Certificate of Incorporation of NWNL
(the "NWNL Certificate") or the By-Laws of NWNL (the "NWNL By-Laws"), the
declaration or payment
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of dividends (except for regular quarterly cash dividends on NWNL Common Stock,
NWNL ESOP Preferred Stock and NWNL Senior Preferred Stock) and the liquidation,
merger or consolidation of NWNL or any of its subsidiaries or the acquisition of
any corporation.
NO SOLICITATION OF ACQUISITION TRANSACTIONS
Pursuant to the terms of the Merger Agreement, USLICO has agreed that it
will not, directly or indirectly, through any director, officer, employee,
agent, representative or otherwise, solicit, initiate or intentionally encourage
submission of any inquiries, proposals or offers from any person or entity
(other than NWNL) relating to any merger, consolidation, share exchange,
purchase or other acquisition of all or (other than in the ordinary course of
business) any substantial portion of the assets of or any substantial equity
interest in USLICO or any subsidiary of USLICO or any business combination with
USLICO or any subsidiary of USLICO (collectively, an "Acquisition Transaction")
or participate in any discussions or negotiations regarding, or furnish to any
other person any information with respect to, USLICO or any subsidiary of USLICO
or afford access to the properties, books or records of USLICO for the purposes
of, or cooperate with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to seek or effect an Acquisition
Transaction; provided however, that USLICO may furnish information relating to
USLICO or any subsidiary of USLICO or afford access to the properties, books or
records of USLICO to a third party interested in an Acquisition Transaction, or
cooperate or assist or engage in discussions or negotiations with any such third
party relating to an Acquisition Transaction, or modify or withdraw the USLICO
Board's recommendation of the Merger, if the USLICO Board determines (after
consultation with outside counsel who is knowledgeable in corporate fiduciary
matters) that such action is necessary in order for the USLICO Board to act in
accordance with its fiduciary duties under applicable law. USLICO has agreed to
promptly notify NWNL if any such inquiry, proposal, offer or interest with
respect to an Acquisition Transaction is made. In addition, following receipt of
a proposal or offer relating to an Acquisition Transaction, USLICO may take and
disclose to the shareholders of USLICO a position contemplated by Rule 14e-2 or
Rule 14d-9 under the Exchange Act or otherwise make disclosure to its
shareholders.
INDEMNIFICATION AND INSURANCE
NWNL has agreed that from and after the Effective Time it will assume and
honor the indemnification obligations of USLICO set forth in the USLICO Bylaws,
as in effect on September 11, 1994, as to any matter arising out of any action
or omission of any person described in such indemnification provisions prior to
the Effective Time (including without limitation any claim based upon or arising
out of the Merger, this Joint Proxy Statement/Prospectus or any of the
transactions contemplated by the Merger Agreement) and such persons shall be
entitled to the full benefits of such provisions as if the provisions continued
in full force and effect after the Effective Time as an obligation of NWNL. NWNL
will also assume and honor any obligation of USLICO under the indemnification
agreements disclosed to NWNL with present or former directors and officers of
USLICO. In addition, NWNL has agreed to provide directors' and officers'
liability insurance coverage for the benefit of USLICO's present or former
directors and officers on substantially the same terms as that provided NWNL's
directors and officers for a period of six years after the Effective Time. See
"The Merger -- Interests of Certain Persons in the Merger".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the USLICO Board with respect to the
Merger, USLICO shareholders should be aware that certain directors and officers
of USLICO have interests in the Merger different from the interests of other
USLICO shareholders.
Mr. Callahan, Chairman and Chief Executive Officer of USLICO, Mr. David H.
Roe, President and Chief Operating Officer of USLICO, and Mr. Glenn H. Gettier,
Jr., Executive Vice President and Chief Financial Officer of USLICO, are each a
party to employment agreements with USLICO. Pursuant to the terms of each
agreement, if such executive officer is terminated for any reason other than
"cause" (as defined in such agreement), or resigns for "good reason", at any
time prior to the expiration of the term of such employment agreement, USLICO
has agreed to pay such officer, as severance, an amount
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equal to such officer's base compensation for the remainder of the term of such
agreement. Each of these employment agreements expires on June 30, 1996. Good
reason includes the assignment to such executive officer of duties or
responsibilities which are materially inconsistent with such officer's current
duties or responsibilities, a change in such officer's current reporting
responsibilities, titles or offices, or requiring such officer to relocate
outside the Washington D.C. metropolitan area. Based upon the base compensation
specified in each agreement, if termination other than for cause or resignation
for good reason were to occur on the date following the consummation of the
Merger, the maximum aggregate amount of severance compensation payable under
such agreements to Messrs. Callahan, Roe and Gettier would be approximately
$1,402,500.
Fourteen executive officers of USLICO and its subsidiaries, including
Messrs. Roe and Gettier, but excluding Mr. Callahan, have change-in-control
agreements. Each of these agreements provides for certain payments in the event
that such officer's employment is involuntarily terminated for any reason other
than for "cause" or because of the officer's death, disability or retirement, or
the officer resigns for "good reason", within two years following a change in
control of USLICO (which, as defined, includes the Merger). A good reason
includes a material reduction in the nature or status of the officer's
responsibilities, a material reduction in compensation or benefits, or a
relocation of the officer's place of employment outside of the Washington D.C.
metropolitan area. Under the agreements, severance compensation is payable at
the option of the officer in either (i) a lump sum, or (ii) in 24 equal monthly
installments, in an aggregate amount equal to two times the base salary (one
times the base salary, in the cases of Messrs. Roe and Gettier) paid during the
12 month period ending on the date immediately prior to the officer's
involuntary termination other than for cause or resignation for good reason. In
addition, each change in control agreement provides that certain life, health
and disability benefits provided by USLICO to such officer will continue for a
period of two years (one year, in the cases of Messrs. Roe and Gettier) after
any involuntary termination or resignation. An officer is not obligated to
mitigate severance compensation by seeking other employment. Assuming that the
rates of base compensation of such officers in effect on November 1, 1994 were
to remain in effect, if such terminations were to occur on the date following
the consummation of the Merger, the maximum severance compensation payable under
such change-in-control agreements to all such officers as a group would be
approximately $3,726,000.
As of the Effective Time, NWNL will assume all of the obligations of USLICO
under each employment and change-in-control agreement discussed above.
John Beck, a director of USLICO, owns 1,000 shares of NWNL Common Stock
which he acquired as a result of the demutualization of NWNL in 1989.
Fioravante G. Perrotta, a director of USLICO, is a member of the law firm of
Rogers & Wells, New York, New York, which has acted as outside counsel to
USLICO, from time to time, including in connection with the Merger. Rogers &
Wells also is assisting NWNL and USLICO in obtaining the approval of the New
York Department of Insurance for the Merger. In addition, Mr. Perrotta has in
the past provided advice to NWNL on certain insurance regulatory matters in the
State of New York.
The USLICO Bylaws provide for indemnification and advancement of expenses to
each director and officer of USLICO. In addition, in the case of present and
former officers and directors who are parties to the indemnification agreements
disclosed to NWNL, USLICO has agreed to indemnify each such director or officer
from and against all losses, costs, damages and expenses incurred in connection
with his or her service to USLICO and its subsidiaries, and to provide for
advancement of expenses. Pursuant to the terms of the Merger Agreement, NWNL has
agreed to assume USLICO's obligations pursuant to the terms of the USLICO Bylaws
and such indemnification agreements. NWNL has also agreed to maintain directors'
and officers' liability insurance coverage for the current and former directors
and officers of USLICO for a period of six years after the Effective Time. See
"The Merger -- Indemnification and Insurance".
The USLICO Board was informed of the interests described herein prior to
approving the Merger Agreement and the Merger.
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In addition to the foregoing benefits, each director or officer of USLICO
who is a participant in USLICO's employee benefit plans and stock option plan
will be entitled to the benefits described under the caption "The Merger --
Employee Benefit Plans and Stock Options".
NWNL has also agreed, effective upon consummation of the Merger, to create
one additional position on the NWNL Board and to elect Mr. Callahan to fill such
vacancy. See "Management of NWNL -- New Director". NWNL anticipates that Mr. Roe
will continue as chief executive officer of USL and BSL. See "The Merger --
Business and Management After the Merger".
Except for the arrangements specifically set forth in this Joint Proxy
Statement/Prospectus and the Merger Agreement, NWNL has made no commitments with
respect to the retention of NWNL or USLICO employees or entities after the
Merger.
LITIGATION
On September 12, 1994, a shareholder of USLICO filed suit in the Circuit
Court of Arlington County, Virginia against USLICO, Daniel J. Callahan, Glenn H.
Gettier, Jr., David H. Roe, John A. Beck, Robert E. Buchanan, Robert F. Cocklin,
William V. McBride, Jack N. Merritt, Thomas H. Moorer, Fioravante G. Perrotta,
David S. Smith, Eli Weinberg and NWNL. Plaintiff alleges inter alia that she is
a shareholder of USLICO, and purports to bring the action on behalf of a class
consisting of all shareholders of USLICO for breach of fiduciary duty in
connection with the proposed Merger. Plaintiff alleges inter alia that the
proposed Merger is "wrongful, unfair and harmful to USLICO's public shareholders
. . . and represents an attempt by defendants to aggrandize the personal and
financial positions and interest of board members at the expense of, and to the
detriment of the stockholders of the Company". Further plaintiff alleges that
the defendants failed to undertake an adequate evaluation of USLICO's worth as a
merger candidate, take adequate steps to enhance USLICO's value, effectively
expose USLICO to an active and open auction or act independently to protect the
interests of the shareholders of USLICO. Plaintiff seeks an order permitting the
action to be maintained as a class action, preliminarily and permanently
enjoining the Merger, awarding compensatory damages, attorneys fees and such
other relief as the court may grant. The absence of an order preventing or
making illegal the consummation of the Merger is a condition to the obligation
of each of NWNL and USLICO to consummate the Merger. See "Conditions to
Consummation of the Merger" above.
On October 24, 1994, USLICO, the only defendant to have been served in the
action, filed a timely demurrer asking that the action be dismissed in its
entirety on several grounds, including that the complaint fails to state a claim
under Virginia law, plaintiff failed to follow the procedures required by
Virginia law in purporting to assert derivative claims on behalf of USLICO, the
complaint improperly seeks to obtain relief for an alleged class of plaintiffs
and the complaint improperly seeks remedies unavailable in equity. Plaintiff has
not responded to the demurrer. If the complaint is not dismissed, the action
will be vigorously defended.
FEDERAL INCOME TAX CONSEQUENCES
USLICO is to receive at the Effective Time an opinion of its counsel, Rogers
& Wells, as described in this paragraph and the paragraphs below, to the effect
that for federal income tax purposes: (i) the merger of USLICO with and into
NWNL, in accordance with the terms of the Merger Agreement, will qualify as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"); (ii) no gain or loss will be
recognized by either USLICO or NWNL as a result of the consummation of the
Merger; (iii) no gain or loss will be recognized by a shareholder of USLICO upon
the receipt by such shareholder solely of shares of NWNL Common Stock (including
any fractional share interest treated as received) in exchange for such
shareholder's shares of USLICO Common Stock in accordance with the terms of the
Merger Agreement; (iv) the aggregate tax bases of the shares of NWNL Common
Stock received by a shareholder of USLICO (including any fractional share
interest treated as received) will be the same as the aggregate tax bases of the
shares of USLICO Common Stock surrendered in exchange therefor decreased by the
amount of any cash received and increased by the amount of any gain recognized;
and (v) the holding period of the shares of NWNL Common Stock received by a
USLICO shareholder (including any fractional share interest treated as received)
in exchange for shares of USLICO Common Stock will include the
49
<PAGE>
period during which the shares of USLICO Common Stock surrendered in exchange
therefor were held, provided the shares of USLICO Common Stock were held as
capital assets at the Effective Time. Such opinion is conditioned upon certain
representations of the managements of NWNL and USLICO as to certain facts and
circumstances regarding the Merger. NWNL will also receive at the Effective Time
an opinion of its counsel, Faegre & Benson, to the effect that for federal
income tax purposes the Merger will qualify as a "reorganization" within the
meaning of Section 368(a)(1)(A) of the Code.
Upon receipt of the special cash dividend and the payments to redeem the
Rights under the USLICO Share Rights Plan (the "Special Distributions")
immediately prior to the Merger, each USLICO shareholder will recognize ordinary
income to the extent of his or her ratable share of USLICO's current or
accumulated earnings and profits ("USLICO's Earnings and Profits"). To the
extent the amount of the Special Distributions exceeds USLICO's Earnings and
Profits, the amount of the Special Distributions will first be treated as a
return of each USLICO shareholder's basis to the extent thereof, and then as
gain from the sale of a capital asset.
In the event that a USLICO shareholder receives a combination of shares of
NWNL Common Stock and cash (other than cash received in lieu of a fractional
share interest) in exchange for such shareholder's shares of USLICO Common Stock
in accordance with the terms of the Merger Agreement, such shareholder will not
recognize any loss realized on such exchange, but will recognize any gain
realized (which gain will be equal to the cash received plus the fair market
value of the NWNL Common Stock received, less such shareholder's basis in the
USLICO Common Stock exchanged) but not in excess of the amount of cash received.
With respect to a USLICO shareholder who receives cash in the Merger as a
result of the rounding off of a fractional share interest in NWNL Common Stock,
such shareholder will be treated as having received such fractional share
interest and then, pursuant to Section 302(a) of the Code, as having received
such cash in exchange therefor. Assuming such treatment, a USLICO shareholder
would recognize gain or loss measured by the difference between the cash
received and the portion of the shareholder's adjusted tax basis in the shares
of USLICO Common Stock allocable to the fractional share (as described below).
Any gain recognized by a USLICO shareholder as a result of receiving cash in
the merger (or any loss recognized in the case of cash received for fractional
shares) will constitute capital gain (or capital loss in the case of a loss
recognized as a result of receiving cash for fractional shares), provided (i)
the USLICO shareholder in question held such shareholder's shares of USLICO
Common Stock as capital assets at the Effective Time, and (ii) the USLICO
shareholder in question exercised no control over the corporate affairs of NWNL.
Any capital gain or loss recognized by a USLICO shareholder will be long-term
capital gain or loss if the shareholder has held such shareholder's shares of
USLICO Common Stock for longer than one year.
The aggregate tax bases of the shares of NWNL Common Stock received by a
shareholder of USLICO (including any fractional share interest treated as
received) who exchanges shares of USLICO Common Stock for a combination of NWNL
Common Stock and cash in accordance with the terms of the Merger Agreement will
be the same as the aggregate tax bases of the shares of USLICO Common Stock
surrendered in exchange therefor, decreased by the amount of cash received and
increased by the amount of gain recognized, if any. The holding period of the
shares of NWNL Common Stock received by a USLICO shareholder (including any
fractional share interest treated as received) will include the period during
which the shares of USLICO Common Stock surrendered in exchange therefor were
held, provided such shares of USLICO Common Stock were held as capital assets at
the Effective Time.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. USLICO SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE FEDERAL INCOME TAX
CONSEQUENCES TO THEM OF THE CONVERSION OF THEIR SHARES OF USLICO COMMON
50
<PAGE>
STOCK PURSUANT TO THE MERGER, AS WELL AS ADVICE AS TO THE APPLICATION AND EFFECT
OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND POSSIBLE AMENDMENTS TO
SUCH LAWS.
BUSINESS AND MANAGEMENT AFTER THE MERGER
NWNL intends to operate USL in a manner substantially consistent with its
current operations. NWNL will carefully review the operations of USL in an
attempt to identify opportunities for expense reduction through the use of
shared resources with NWNL. For example, it is anticipated that USL will
participate in a shared data center maintained by NWNL and will retain a
wholly-owned indirect subsidiary of NWNL as its investment advisor. NWNL also
intends to make certain NWNL insurance products available for sale by USL's
existing agents. Within 24 months of the Effective Time, NWNL intends to merge
its wholly-owned indirect subsidiary The North Atlantic Life Insurance Company
of America with and into BSL. This merger will be subject to the approval of the
New York Department of Insurance. NWNL intends that BSL will continue to operate
in the markets in which it currently participates. NWNL also intends to cause
BSL to distribute insurance products in the State of New York substantially
similar to those sold by Northwestern. See "Recommendations of the Boards of
Directors and Reasons for the Merger".
The current directors and executive officers of NWNL will continue in their
present capacities after consummation of the Merger. Additionally, NWNL will, as
of the Effective Time, increase its number of directors by one. It is
anticipated that Mr. Callahan, currently Chairman and Chief Executive Officer of
USLICO, will be elected to fill the vacancy created by the expansion of the NWNL
Board. See "Management of NWNL -- New Director" for additional information with
respect to Mr. Callahan. It is anticipated that Mr. Roe will continue to serve
as the chief executive officer of USL and BSL.
DEBT ASSUMPTION AND REFINANCING
The Merger Agreement provides that NWNL will assume USLICO's 8% Convertible
Subordinated Debentures due 2011 and its 8 1/2% Convertible Subordinated
Debentures due 2014 (collectively, the "USLICO Debentures"). NWNL proposes to
file with the SEC a registration statement to register under the Securities Act
senior and subordinated debt, preferred stock, common stock, and warrants
exercisable for any of such securities for sale at later dates. NWNL intends to
sell certain of these securities and apply the proceeds therefrom to redeem the
USLICO Debentures following the Effective Time. NWNL may, depending upon market
conditions and other considerations, sell additional securities to restructure
or redeem some or all of its outstanding debt or NWNL Preferred Stock.
RESALE OF SHARES BY USLICO AFFILIATES
The shares of NWNL Common Stock to be received in the Merger will be freely
transferable, except for shares of NWNL Common Stock received by persons who are
deemed to be "affiliates", as that term is defined in the rules under the
Securities Act, of USLICO immediately prior to the Effective Time (or of NWNL
after the Effective Time). Shares of NWNL Common Stock received in the Merger by
persons who are affiliates of USLICO immediately prior to the Effective Time but
do not become affiliates of NWNL may be sold by them only in accordance with the
provisions of Rule 144 under the Securities Act (which imposes certain
limitations on the volume and manner of sales by such affiliates), or pursuant
to an effective registration statement under the Securities Act, or in
transactions exempt from registration thereunder.
NO DISSENTERS' RIGHTS
NWNL SHAREHOLDERS
Under Delaware Law, no holder of NWNL Common Stock or Preferred Stock will
be entitled to demand appraisal of, or to receive payment for, their shares.
USLICO SHAREHOLDERS
Under Virginia Law, no holder of USLICO Common Stock will be entitled to
demand appraisal of, or to receive payment for, their shares.
51
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following pro forma combined condensed financial statements reflect the
Merger of USLICO with NWNL. The Merger will be accounted for as a "purchase" of
USLICO by NWNL under generally accepted accounting principles. The pro forma
combined condensed financial statements are unaudited and combine the operations
of NWNL and USLICO for the nine months ended September 30, 1994 and for the year
ended December 31, 1993. The pro forma balance sheet assumes the Merger occurred
at September 30, 1994. The pro forma statements of operations assume the Merger
occurred on January 1, 1993. The pro forma financial statements have not been
compiled, reviewed or audited by independent accountants.
The historical financial information of NWNL as of and for the nine months
ended September 30, 1994 and for the year ended December 31, 1993 have been
derived from the NWNL financial statements which are incorporated herein by
reference. The historical financial information of USLICO as of and for the nine
months ended September 30, 1994 and for the year ended December 31, 1993 have
been derived from the USLICO financial statements which are incorporated herein
by reference. The pro forma financial statements should be read in conjunction
with the accompanying notes and with the historical financial statements of NWNL
and USLICO incorporated herein by reference.
The unaudited pro forma combined condensed financial statements have been
included as required by the SEC and are provided for comparative purposes only.
As further discussed in the accompanying notes, the pro forma financial
statements do not purport to be indicative of the financial position or
operating results that would have been achieved had the Merger been consummated
as of the dates indicated and should not be construed as representative of
future financial position or operating results.
52
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1994
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS
----------------------- INCREASE NOTE
NWNL USLICO (DECREASE) REFERENCE PRO FORMA
----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments..................................... $ 7,869,769 $2,527,769 $ 5,300 (a) $10,402,838
Deferred Policy Acquisition Costs/
Present Value of Future Profits................ 854,695 435,727 (67,727) (b) 1,222,695
Other Assets.................................... 616,909 140,039 24,400 (c) 769,335
(3,600) (d)
(5,400) (e)
(3,013) (f)
Participation Fund Account Assets............... 322,437 -- -- 322,437
Assets Held in Separate Accounts................ 681,616 339,727 -- 1,021,343
----------- ---------- ----------- -----------
TOTAL ASSETS.................................. $10,345,426 $3,443,262 $ (50,040) $13,738,648
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES
Future Policy and Contract Benefits............. $ 8,061,437 $2,633,037 $ -- $10,694,474
Notes and Mortgages Payable..................... 210,109 96,050 (96,050) (g) 309,459
99,350 (g)
Other Liabilities............................... 266,028 123,776 (20,300) (h) 370,675
-- (i)
(600) (j)
1,771 (k)
Participation Fund Account Liabilities.......... 322,437 -- -- 322,437
Liabilities Related to Separate Accounts........ 681,616 333,390 -- 1,015,006
----------- ---------- ----------- -----------
TOTAL LIABILITIES............................. 9,541,627 3,186,253 (15,829) 12,712,051
----------- ---------- ----------- -----------
SHAREHOLDERS' EQUITY
Preferred Stock, Net............................ 67,776 -- -- 67,776
Common Stock.................................... 293,061 14,435 (14,435 ) (l ) 591,866
222,798 (m )
76,007 (n )
Additional Paid-In Capital...................... -- 159,154 (159,154 ) (l ) --
Net Unrealized Investment Losses................ (54,628) (29,370) 29,370 (l ) (54,628)
Retained Earnings............................... 510,125 210,009 (210,009 ) (l ) 510,125
Other, Net...................................... (12,535) (97,219) 97,219 (l ) (88,542)
(76,007 ) (n )
----------- ---------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY.................... 803,799 257,009 (34,211 ) 1,026,597
----------- ---------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $10,345,426 $3,443,262 $ (50,040 ) $13,738,648
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
53
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
-----------------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS
----------------------- INCREASE NOTE
NWNL USLICO (DECREASE) REFERENCE PRO FORMA
----------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Premiums............................................... $ 536,975 $ 136,571 $ -- $ 673,546
Net Investment Income.................................. 465,655 150,597 (9,225) (o) 607,027
Realized Investment Gains (Losses)..................... (22,585) 2,294 -- (o) (20,291)
Other Income........................................... 181,420 9,201 -- 190,621
----------- --------- ------------ -----------
TOTAL................................................ 1,161,465 298,663 (9,225) 1,450,903
----------- --------- ------------ -----------
BENEFITS AND EXPENSES
Benefits to Policyholders.............................. 755,156 185,466 -- 940,622
Sales and Operating Expenses........................... 218,522 55,171 (150) (p) 273,904
-- (q)
361 (r)
Amortization of Deferred Policy Acquisition Costs/
Present Value of Future Profits....................... 41,320 28,844 (8,100) (s) 62,064
Interest Expense....................................... 10,097 5,979 351 (t) 16,427
Dividends and Experience Refunds to Policyholders...... 15,948 -- -- 15,948
----------- --------- ------------ -----------
TOTAL................................................ 1,041,043 275,460 (7,538) 1,308,965
----------- --------- ------------ -----------
Income Before Income Taxes............................. 120,422 23,203 (1,687) 141,938
Income Tax Expense..................................... 42,652 7,755 (464) (u) 49,943
----------- --------- ------------ -----------
Income from Continuing Operations...................... $ 77,770 $ 15,448 $ (1,223) $ 91,995
----------- --------- ------------ -----------
----------- --------- ------------ -----------
PER COMMON SHARE
Income from Continuing Operations:
Primary.............................................. $2.37 $1.44 N/A $2.28
---- ---- ----
---- ---- ----
Fully Diluted........................................ $2.22 $1.37 N/A $2.16
---- ---- ----
---- ---- ----
WEIGHTED AVERAGE SHARES
Common and Common Equivalent Shares (Primary).......... 30,125 10,763 (3,337) 37,551
Common Shares Assuming Maximum Dilution (Fully
Diluted).............................................. 32,760 14,123 (6,697) 40,186
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
54
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS
----------------------- INCREASE NOTE
NWNL USLICO (DECREASE) REFERENCE PRO FORMA
----------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Premiums............................................... $ 659,600 $ 191,239 $ -- $ 850,839
Net Investment Income.................................. 634,986 197,891 (12,300) (o) 820,577
Realized Investment Gains (Losses)..................... (32,389) 14,717 -- (o) (17,672)
Other Income........................................... 228,243 13,691 -- 241,934
----------- --------- ------------ -----------
TOTAL................................................ 1,490,440 417,538 (12,300) 1,895,678
----------- --------- ------------ -----------
BENEFITS AND EXPENSES
Benefits to Policyholders.............................. 1,006,305 260,766 -- 1,267,071
Sales and Operating Expenses........................... 277,365 83,853 (200) (p) 361,499
-- (q)
481 (r)
Amortization of Deferred Policy Acquisition Costs/
Present Value of Future Profits....................... 41,338 41,131 (17,600) (s) 64,869
Interest Expense....................................... 20,315 8,017 424 (t) 28,756
Dividends and Experience Refunds to Policyholders...... 16,526 -- -- 16,526
----------- --------- ------------ -----------
TOTAL................................................ 1,361,849 393,767 (16,895) 1,738,721
----------- --------- ------------ -----------
Income Before Income Taxes............................. 128,591 23,771 4,595 156,957
Income Tax Expense..................................... 46,132 191 1,777 (u) 48,100
----------- --------- ------------ -----------
Income from Continuing Operations...................... $ 82,459 $ 23,580 $ 2,818 $ 108,857
----------- --------- ------------ -----------
----------- --------- ------------ -----------
PER COMMON SHARE
Income from Continuing Operations
Primary.............................................. $2.63 $2.19 N/A $2.83
---- ---- ----
---- ---- ----
Fully Diluted........................................ $2.45 $2.04 N/A $2.67
---- ---- ----
---- ---- ----
WEIGHTED AVERAGE SHARES
Common and Common Equivalent Shares (Primary).......... 28,151 10,756 (3,330) 35,577
Common Shares Assuming Maximum Dilution (Fully
Diluted).............................................. 30,829 14,116 (6,690) 38,255
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The pro forma combined condensed financial statements reflect the Merger of
USLICO with NWNL. The pro forma combined condensed financial statements have
been prepared under the purchase method of accounting for the acquisition of
USLICO. The pro forma combined condensed balance sheet assumes the Merger
occurred at September 30, 1994. The pro forma combined condensed statements of
operations assume the Merger occurred at January 1, 1993. The pro forma combined
condensed financial statements have not been compiled, reviewed or audited by
independent accountants.
The historical financial information has been derived from the financial
statements incorporated herein by reference. The pro forma combined condensed
financial statements should be read in conjunction with the historical financial
statements of NWNL and USLICO incorporated by reference in this Joint Proxy
Statement/Prospectus.
The pro forma combined condensed financial statements do not purport to be
indicative of the financial position or operating results which would have been
achieved had the Merger been consummated as of the dates indicated and should
not be construed as representative of future financial position or operating
results.
The pro forma financial statements assume all shares of USLICO Common Stock,
as described, are converted, pursuant to the Merger, into shares of NWNL Common
Stock at an exchange ratio of .69 and at an assumed NWNL Common Stock market
price of $30 per share. It is further assumed that cash to be paid for
fractional shares will not be significant.
NWNL management's preliminary allocation of the purchase price was based
upon the estimated fair value of the assets acquired and liabilities assumed.
The actual allocation will be based on further studies and valuations as of the
Effective Time and will be primarily affected by the impact of market interest
rates as of the Effective Time upon the valuation of assets and liabilities of
USLICO, the effect of the NWNL Common Stock price as of the Effective Time upon
the determination of the purchase price and the accrual at the Effective Time of
estimated costs to eliminate duplicative facilities and equipment and to record
the estimated liability for severance and other employee termination costs. The
actual adjustments (other than those related to the accruals of certain costs at
the Effective Time described above) are not, at the present time, expected to be
significantly different; however, there can be no assurance that significant
differences won't arise.
The pro forma combined condensed financial statements do not include
adjustments to conform the accounting policies of USLICO to those followed by
NWNL. The nature and extent of such adjustments, if any, will be based upon
further study and analysis and would not be expected to be significant to the
pro forma financial results.
The following describes the pro forma adjustments reflected in the
accompanying pro forma combined condensed financial statements:
(a) To value USLICO's commercial mortgage loans at estimated fair value.
(b) To eliminate USLICO's deferred policy acquisition costs balance and
to record the present value of future profits of the in force business
acquired. Present value of future profits reflects the estimated fair value
of the business in force and represents the portion of the cost to acquire
USLICO that is allocated to the value of the right to receive future cash
flows from insurance contracts existing at the assumed date of acquisition.
Such value is the present value of the actuarial determined projected cash
flows from the acquired policies.
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The 15% discount rate used to determine such value is the rate of return
required by NWNL to invest in the business being acquired. In determining the
rate of return used to value the policies purchased, the following factors are
considered:
- the magnitude of the risk associated with each of the actuarial
assumptions used in determining expected future cash flows.
- Cost of capital available to fund the acquisition.
- The perceived likelihood of changes in insurance regulations and tax laws.
- Complexity of the acquired company.
The value allocated to present value of future profits is based on a
preliminary determination of such value; accordingly, this allocation may be
adjusted upon final determination of such value. On a pro forma basis, assuming
an acquisition date of September 30, 1994, expected gross amortization using
current assumptions and accretion of interest based on an interest rate equal to
the liability or contract rate (such rates ranging from 5.83% to 7.75% ) on the
cost of policies purchased for each of the years in the five year period ended
September 30, 1999, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
ACCRETION
YEAR ENDED BEGINNING GROSS OF NET ENDING
SEPTEMBER 30 BALANCE AMORTIZATION INTEREST AMORTIZATION BALANCE
- ---------------------------------------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1995.......................................... $ 368,000 $ 58,214 $ 23,357 $ 34,857 $ 333,143
1996.......................................... 333,143 62,214 20,998 41,216 291,927
1997.......................................... 291,927 56,645 18,508 38,137 253,790
1998.......................................... 253,790 50,591 16,209 34,382 219,408
1999.......................................... 219,408 43,559 14,171 29,388 190,020
</TABLE>
(c) To record the excess of the cost to acquire USLICO over the sum of
the amounts assigned to identifiable assets acquired less liabilities
assumed.
(d) To value home office buildings of USLICO at estimated fair value.
(e) To record payment of special distributions of $.50 per share of
USLICO Common Stock.
(f) To record the direct out-of-pocket costs of acquisition.
(g) To record the redemption of the USLICO convertible Debentures and
issuance of new debt of NWNL as part of the purchase transaction.
(h) To adjust the deferred tax liability of USLICO to the tax effected
difference between the estimated fair value of the net assets acquired and
the estimated tax basis of the net assets acquired.
(i) At the Effective Time, the estimated liability for severance and
other employee costs for certain executive officers and employees of USLICO
and the estimated costs to eliminate duplicative facilities and equipment
and merge such operations will be accrued. These estimated costs have not
been accrued on the pro forma balance sheet. The present estimate of these
costs to be accrued at the Effective Time is approximately $24.1 million.
(j) To record the estimated net excess of the fair value of the pension
plan assets over the pension plan liabilities.
(k) To record estimated cost to buy out all outstanding USLICO Options.
(l) To eliminate USLICO equity.
(m) To record fair value of NWNL shares issued to acquire USLICO.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(n) To record the value of shares of NWNL Common Stock issued to USLICO
subsidiaries which hold shares of USLICO Common Stock at the time of the
Merger. These shares will be reflected as treasury shares.
(o) The adjustment to net investment income reflects the amortization of
the pro forma fair value adjustment to investments of USLICO as if the
acquisition had occurred on January 1, 1993. Net realized gains (losses)
have not been adjusted to include the effect of the restatement of fixed
maturity securities and mortgage loan investments to estimated fair value at
January 1, 1993. The amount of the adjustment to realized gains (losses) to
reflect the difference between the actual proceeds received on sales of
investments and the fair value of the investments at the assumed date of
acquisition, adjusted for the accretion of discount or premium based on the
new cost basis would have been $3.4 million and $9.4 million (after tax) for
the nine months ended September 30, 1994 and the year ended December 31,
1993, respectively. The pro forma adjustments to investments are based upon
interest rates at January 1, 1993 and are not likely to be reflective of
future results as the actual fair value adjustment and related future income
statement effects will be dependent upon the interest rate environment at
the time the Merger is completed.
(p) To record the amortization of the fair value adjustment to home
office buildings of USLICO.
(q) It is expected that certain costs and expenses of the combined
companies will be less than those reflected in the accompanying pro forma
combined condensed statements of operations due to consolidation of
operations. The estimated expense reductions are primarily related to the
elimination of duplicative facilities, equipment and other personnel and
functions. For purposes of the pro forma combined condensed statements of
operations, these expense reductions have not been included because they are
not assured until NWNL management takes affirmative action to implement the
cost reductions which cannot take place until the Merger is effective. Until
such time, they are not permitted to be reflected in the pro forma financial
information according to accounting rules.
The pro forma pre-tax expense reductions are estimated to total
$11,250,000 and $5,300,000 for the nine months ended September 30, 1994 and
for the year ended December 31, 1993, respectively.
(r) To record the amortization of goodwill over the estimated periods to
be benefited (40 years).
(s) To record the adjustment to historical amortization of deferred
policy acquisition costs to reflect the new amortization of present value of
future profits intangible asset established on the pro forma opening balance
sheet.
(t) To record the additional interest costs related to the newly issued
debt as compared to the USLICO Debentures assumed to be retired.
(u) To record income tax expense (benefit) of the pro forma adjustments
(excluding goodwill amortization) at the applicable statutory federal
effective rate of 35% for the nine and 12 months ended September 30, 1994
and December 31, 1993, respectively.
58
<PAGE>
BUSINESS OF NWNL
OVERVIEW
NWNL is a holding company whose subsidiaries specialize in life insurance
and related financial services. Through Northwestern National Life Insurance
Company ("Northwestern"), Minneapolis, Minnesota, and other subsidiaries, NWNL
issues and distributes individual life insurance and annuities, group life and
health insurance, life and health reinsurance, and markets and manages mutual
funds. NWNL operates in four business segments: Individual Insurance, Employee
Benefits, Life and Health Reinsurance, and Pension.
Other subsidiaries, each of which is owned by Northwestern, are Northern
Life Insurance Company ("Northern"), Seattle, Washington, and The North Atlantic
Life Insurance Company of America ("North Atlantic"), Jericho, New York
(Northwestern, Northern and North Atlantic are sometimes collectively referred
to as the "Insurers"). Additional subsidiaries include NWNL Benefits
Corporation, Minneapolis, Washington Square Capital, Inc., Minneapolis,
Washington Square Securities, Inc., Minneapolis, Washington Square Mortgage
Company, West Des Moines, Iowa, and NWNL Northstar, Greenwich, Connecticut.
NWNL, which was incorporated in Delaware in 1988, became the parent of
Northwestern and its subsidiaries pursuant to a Plan of Conversion and
Reorganization (the "Plan") which became effective on January 3, 1989. Pursuant
to the Plan, Northwestern, which was organized in 1885, was converted from a
combined stock and mutual life insurance company to a stock life insurance
company.
NWNL's strategy is to compete by focusing on the needs of its customers and
providing innovative products in a service-oriented, cost-efficient manner.
INDIVIDUAL INSURANCE
NWNL's individual life insurance and annuity operations are conducted
through the Insurers. Each of the Insurers maintains separate product portfolios
specifically developed for the market segment which it targets. Each Insurer
also maintains separate contractual arrangements with agents for the
distribution of products within its targeted markets. NWNL provides oversight to
these operations and seeks to achieve efficiencies through shared access to
actuarial data, product design, investment origination and portfolio management,
capital allocation, systems and administrative support and seeks further
opportunities for synergistic benefits.
Northwestern distributes universal life, variable life, fixed and variable
annuities and related products through its independent agents and
representatives. Northwestern maintains relationships with these agents through
a network of 52 regional managers, who recruit, train, and manage the
independent agents in their region. Compensation of these agents and the
regional managers is on a variable basis, dependent upon their sales
performance, which minimizes Northwestern's fixed distribution costs.
Northwestern is committed to maintaining relationships with its sales force by
providing high quality service to its independent agents. Northwestern has
developed quality driven administrative support groups which seek to enhance
agent satisfaction by processing policy applications promptly and accurately and
promoting an attitude of helpfulness and accessibility among home office
personnel. Northwestern focuses on middle-income and small business consumers
and emphasizes quality service to its policyholders.
Northern focuses its marketing efforts on the sale of tax-sheltered
annuities issued pursuant to Section 403(b) of the Code ("TSAs") to public
school teachers and employees of non-profit organizations. The TSA products sold
by Northern are individual annuity contracts designed to provide post-retirement
financial security. The product design provides for significant penalties for
early withdrawal which, coupled with the provisions of the Code, act to minimize
the risk of early surrender. Northern distributes these products through a
specialty field force of independent agents, including former teachers, that
focuses exclusively on TSA sales. Northern sells TSAs to teachers after securing
the approval of a school district. The school district generally provides a
payroll deduction facility for
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premium payments and facilitates access to the individual teachers. Northern's
agents meet with prospective customers on a face-to-face basis. Northern's
compensation structure of level commission payments rewards agents for
persistency in the long-term retention of these contracts.
North Atlantic sells individual life insurance and annuity products
primarily in the State of New York, where neither Northwestern nor Northern is
licensed, and in the States of Connecticut, Florida and New Jersey. The products
which North Atlantic sells are very similar to those sold by Northwestern but
the distribution system structure is different. North Atlantic's sales force
consists of independent agents who are compensated on a variable basis,
dependent upon their sales performance, but who do not primarily market North
Atlantic products. North Atlantic also distributes life insurance and annuity
products through banks and other financial institutions.
Based upon premium volume, the majority of the individual life insurance
sold by the Insurers is universal life insurance. These policies provide for
guaranteed levels of insurance protection and minimum interest rate guarantees.
Within specified parameters, the policyholder may vary the amount of premiums
paid annually, the cash value portion of a policy and the insurance component of
a policy. These policies credit interest in excess of the guaranteed interest
rate in the cash values as determined from time to time by the Insurers. The
Insurers adjust the crediting rates based upon their investment performance,
market interest rates and competitive factors. Profits recognized on
interest-sensitive products are affected by mortality experience, the margin
between interest earned on investments and interest credited to policyholders,
as well as capital gains and losses on investments, persistency and expenses.
The ability of the Insurers to retain their agents is affected by the
competitive position of the Insurer's products, the commission structure and the
support services provided.
The Insurers have attempted to discourage premature surrenders of
interest-sensitive products through contractual surrender charges and the
adjustment of policy crediting rates. The policies and annuities issued by the
Individual Insurance segment contain provisions which allow the contractholder
to withdraw or surrender their contracts under defined circumstances. These
contracts generally contain provisions which apply penalties or otherwise limit
the ability of contractholders to make such withdrawals or surrenders. The
market interest rates that the Insurers might be required to credit under their
interest-sensitive insurance products to forestall surrenders, particularly in a
time of rapidly changing market interest rates, could have a material adverse
effect on operating income.
The Insurer's individual life insurance business is subject to risks in the
event that the Insurer's mortality experience deviates from the assumptions used
in establishing its premium rates. The Insurers also may be affected by adverse
mortality experience related to acquired immune deficiency syndrome ("AIDS").
While the Insurers' pricing assumptions and underwriting criteria take into
consideration expected adverse experience attributable to AIDS, adverse
experience beyond that anticipated by the Insurers could adversely affect
earnings.
Participating whole life and term insurance policies and annuities issued by
Northwestern prior to the effective date of the Plan are segregated as a closed
book of business in a Participation Fund Account ("PFA"). The PFA was
established to provide for the continued maintenance of Northwestern's
policyholder dividend practices relative to these lines of business. Earnings
derived from the operation of the PFA will inure solely to the benefit of the
policyholders covered by the PFA, and no benefit will inure to Northwestern. In
the event the assets ($322.4 million as of September 30, 1994) of the PFA are
insufficient to provide the contractual benefits guaranteed by the affected
policies, Northwestern must provide the contractual benefits from the general
assets of Northwestern. The current level of dividends is well in excess of the
guaranteed contractual benefits. Northwestern is not obligated to support or
maintain a minimum level of dividends on the policies and annuities in the PFA.
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EMPLOYEE BENEFITS
Northwestern offers group life, health and disability insurance and employee
benefit-related services primarily to employers with 200 to 2,500 employees.
Northwestern's employee benefits products are marketed through major brokerage
operations and through direct sales to employers by 67 marketing professionals
employed full-time by Northwestern and located in 15 regional offices throughout
the United States.
Northwestern markets group term life insurance to employer groups in its
target market. Premiums for these policies are largely based upon the experience
of Northwestern and, in some instances, on the experience of the particular
group policyholder. The primary risks related to this line of business include
deviations from expected mortality and assumptions regarding expenses and
investment income. Northwestern seeks to control the mortality risk through
reinsurance treaties that protect Northwestern from catastrophic losses.
Northwestern distributes traditional health insurance and other plans
(generally referred to as split risk) whereby the employer and Northwestern
share the risk of loss. Northwestern also provides administrative services only
and issues indemnity contracts (stop loss or excess risk) to employers who
self-fund their health benefit plans. These contracts provide that Northwestern
will reimburse the employer to the extent its costs exceed specified dollar
amounts, either with respect to any individual or in the aggregate for all the
employer's employees. Northwestern's contracts generally include a managed
health care component.
Northwestern's strategy is to maintain a managed care capability by entering
into contractual or joint venture arrangements with provider and payor groups,
including Private Health Care Systems, Inc., which give Northwestern a national
network of locally based managed care services in targeted geographic markets.
This approach enables Northwestern to distribute managed health care products
without substantial capital investment.
Northwestern's insured health business is subject to risks in the event that
Northwestern's morbidity experience deviates from the assumptions used in
establishing its premium rates. Profitability of this business may be adversely
affected by inflationary trends in the cost of medical treatment,
competition-driven business cycles and the extent to which insureds utilize
health care services. Northwestern may also be affected by adverse morbidity and
mortality experience related to AIDS. While Northwestern's pricing assumptions
and underwriting criteria take into consideration expected adverse experience
attributable to AIDS, adverse experience beyond that anticipated by Northwestern
could adversely affect earnings. Northwestern's health insurance and related
businesses could also be affected by government changes to the health care
delivery system. See "Health Care Proposals" below.
Northwestern also markets group disability income insurance. This coverage
compensates employees for loss of income due to sickness or injury. The
profitability of this business is affected by morbidity experience and the
investment return on assets supporting the policy reserves.
The Employee Benefits segment also markets individual life insurance
policies to employees and members of professional associations and other similar
groups. These policies have been and are being issued on a participating basis.
Amounts earned on these policies, after the payment of dividends, are reflected
in this segment's results.
LIFE AND HEALTH REINSURANCE
The life and health reinsurance business is conducted through Northwestern.
Northwestern reinsures group life and health insurance underwritten by medium to
large United States and foreign insurance companies. This business also includes
the reinsurance of selected "special risk" coverages, principally accident and
accidental death insurance and the assumption of life and health risk components
of insured and self-funded workers compensation plans. Earnings in the
reinsurance business can fluctuate based upon a number of factors including
pricing affected by capacity in the reinsurance market, the loss experience of
the underlying business and the risk profile of the book of business.
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Northwestern has a strategy of maintaining a significant capacity to assume
reinsurance risks from its customers. Northwestern maintains the capacity to
assume comparatively large risk positions from its reinsurance customers through
its retrocession program. Northwestern's retrocession program consists of a
series of reinsurance contracts and treaties under which portions of reinsurance
risks assumed by Northwestern are automatically retroceded to other reinsurers.
These secondary reinsurers (retrocessionnaires) are selected by Northwestern
based upon their capacity and financial stability. In addition to this
retrocession program, Northwestern maintains reinsurance to provide protection
from catastrophic events. Northwestern also maintains a diversified portfolio of
risks to avoid concentrations in any business line, some of which may be subject
to cyclical pricing.
Northwestern markets both treaty (covering portfolios of policies as
underwritten by ceding insurers) and facultative (covering a specific
pre-identified risk) reinsurance. Special risk coverage involves underwriting
unusual accident or accidental death coverages in niche markets less affected by
cyclical competitive pressures. These products are marketed through reinsurance
brokers and through direct sales by employees of Northwestern.
Northwestern reinsures major medical risks of insurers and health
maintenance organizations and maintains expertise in the management of
individual claims involving very large medical expenses. Management believes
that through active intervention in a medical claim it may minimize large losses
and maintain strong relationships with its customers. While Northwestern's
pricing assumptions and underwriting criteria take into consideration expected
adverse experience attributable to AIDS, adverse experience beyond that
anticipated by Northwestern could adversely affect earnings.
Northwestern also participates in the international reinsurance market. The
segment has a branch office in Copenhagen, Denmark, and recently established a
new sales office in Amsterdam, The Netherlands. It writes business in 30
countries worldwide, and Europe is currently the segment's greatest source of
non-U.S. business, but it is expanding relationships in other areas that have
strong growth potential.
PENSION
The Pension segment is composed of the participating pension, Guaranteed
Investment Contract (GIC) and small employer 401(k) lines of business of NWNL.
As of September 30, 1994, the amount of contract liabilities of the
participating pension, GIC and small employer 401(k) lines of business were $719
million, $302 million, and $240 million, respectively. NWNL is not issuing new
participating pension or GIC contracts.
The amount of GICs outstanding has declined from $537 million at December
31, 1993 to $302 million at September 30, 1994, and will continue to decline
over the next several years. The following table sets forth a maturity schedule
of the GIC liability at September 30, 1994 (in millions).
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDING
DECEMBER 31
- ------------------------------------------------------------------------------------
<S> <C>
1994................................................................................ $ 54.2
1995................................................................................ 145.5
1996................................................................................ 44.5
1997................................................................................ 16.6
1998................................................................................ .5
Thereafter.......................................................................... 40.7
</TABLE>
Operating earnings on the GIC product line is largely a function of the
spread between the crediting rates on the GIC liabilities and the assets
supporting this product line. As of September 30, 1994, the average crediting
rate on the GIC liabilities was 9.2% and the crediting rate on the assets
allocated to the GIC product line was 9.4%. Net income on the GIC product line
is affected by interest rate spreads and the incidence of capital gains and
losses. The GIC product line is expected to generate net losses through the next
several years largely due to the fact that the assets allocated to the GIC
product line include a larger proportion of problem investments as compared with
NWNL as a whole.
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Northwestern maintains a closed block of participating pension contracts
with total contract liabilities of $719 million at September 30, 1994. Few
contracts of this type have been issued since 1982, and Northwestern no longer
markets this product line. Northwestern does, however, receive additional
deposits under some of these contracts. Northwestern has issued certain
participating group annuity contracts jointly with another insurance company.
Northwestern has entered into an arrangement with this insurer whereby
Northwestern will gradually transfer these liabilities (approximately $373
million at September 30, 1994) to the other insurer over a ten-year period which
commenced in 1993. The terms of the arrangement specify the interest rate on the
liabilities and provide for a transfer of assets and liabilities scheduled in a
manner consistent with the expected cash flows of the assets allocated to
support the attendant liabilities. Management does not expect this arrangement
to have a material effect on the earnings of NWNL.
The small employer 401(k) business of Northwestern markets a package of
products and services for the employee retirement needs of small and mid-sized
companies. This business seeks to achieve a competitive advantage through
simplicity of product design, flexibility, and quality service provided at a
very competitive cost. Northwestern's strategy is to establish alliances with
high-quality providers who specialize in functions such as plan administration
and fund management.
INVESTMENTS
The current investment strategy for NWNL is designed to continue the effort
of enhancing the overall quality of the portfolios, to maintain an appropriate
liquidity position, to assure appropriate asset/liability structures, to achieve
asset type diversification and to avoid issuer concentration.
NWNL intends to direct most of its new investment cash flow in 1994 to the
acquisition of investment grade marketable and privately placed bonds. The
marketable bonds category includes both corporate issues and structured finance
securities such as collateralized mortgage obligations and other mortgage backed
securities. NWNL may make limited new investments in commercial mortgages and
below investment grade bonds.
The assets held by each of the Insurers are legally segregated and support
only their respective contractual obligations. The investment portfolios of each
Insurer are structured to reflect the characteristics of the liabilities which
they support. NWNL internally allocates assets within Northwestern to facilitate
segment asset/liability matching. These segment allocations are solely for
portfolio management purposes and generally all of the assets allocated to a
segment are available to satisfy the respective liabilities of all segments.
Assets within these portfolios are selected to provide compatible duration, cash
flow and return characteristics. All of the investments in the Insurers'
portfolios are selected to provide compatible duration, cash flow and return
characteristics and are subject to diversification, quality and reserving
requirements of state laws regulating the Insurers.
For additional information regarding the investments of NWNL, see the
information set forth under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the NWNL 10-K and 10-Qs.
COMPETITION
The businesses in which the Insurers engage are all highly competitive. The
Individual insurance segment is characterized by a large number of competitors
with similar products. Competition is based largely upon the crediting rates
under the policies, the credit and claims paying ratings of competing insurers,
the commission structures of competing insurers and the levels of service
afforded agents. Competing investment opportunities are also made available by
mutual funds, banks and other financial intermediaries. The products which the
Insurers offer are not generally eligible for legal protection from being copied
by others, and capital is the most significant barrier to entry by new
competitors. The Insurers have obtained claims paying ratings from public rating
agencies. The Standard & Poor's claims-paying ability ratings for Northwestern
and Northern are A+ and AA-, respectively, and the Duff & Phelps claims-paying
ability ratings for Northwestern, Northern and North Atlantic are AA. The
Moody's
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ratings for Northwestern and Northern are A2 and A1, respectively. The A.M. Best
ratings for Northwestern, Northern and North Atlantic are A, A+ and A,
respectively. Reductions in the ratings of an Insurer could adversely affect its
operations or liquidity positions.
The rating agencies define the above rating categories as follows:
<TABLE>
<S> <C>
STANDARD & POOR'S
AA+ EXCELLENT FINANCIAL SECURITY. Capacity to meet policyholder
AA obligations is strong under a variety of economic and underwriting
AA- conditions. (Category ranks after AAA.)
A+ GOOD FINANCIAL SECURITY, but capacity to meet policyholder
A obligations is somewhat susceptible to adverse economic and
A- underwriting conditions.
DUFF & PHELPS
AA+ Very high claims-paying ability. Protection factors are strong. Risk
AA is modest, but may vary slightly over time due to economic and/or
AA- underwriting conditions. (Category ranks after AAA.)
MOODY'S
A1 Good insurance companies rated A offer good financial security.
A2 However, elements may be present which suggest a susceptibility to
A3 impairment sometime in the future. (Category ranks after Aaa
category and Aa1, 2 and 3 category.)
A.M. BEST
A++ and A+ Assigned to companies which, in A.M. Best's opinion, had
(Superior) demonstrated superior overall performance when compared to the
standards established by the A. M. Best Company. A++ and A+
companies have a very strong ability to meet their obligations to
policyholders over a long period of time. (Highest category.)
A and A- Assigned companies which, in A.M. Best's opinion, have demonstrated
(Excellent) excellent overall performance when compared to the standards
established by the A. M. Best Company. A and A- companies have a
strong ability to meet their obligations to policyholders over a
long period of time.
</TABLE>
The markets served by the Employee Benefits segment are all highly
competitive. Group life insurance is a homogeneous product sold in a highly
competitive market. Northwestern's competitors include all of the largest
insurers doing business in the United States. Northwestern's health insurance
business competes with major commercial insurers, as well as health maintenance
organizations, Blue Cross/Blue Shield organizations and self-insurance sponsored
by employers. The price of health insurance products is cyclical and product
pricing is a significant element of the competitive environment.
HEALTH CARE PROPOSALS
The United States Congress is likely to continue to evaluate legislative
proposals intended to reform the health care delivery system. It is likely that
some of these proposals could significantly affect NWNL's group health insurance
business. Due to the uncertainty regarding the form and timing of any final
legislation, NWNL cannot predict the extent of any impact on future earnings.
The health insurance business of NWNL's Employee Benefits segment has, over the
past three years on average, represented approximately 8.5% of NWNL's after-tax
operating income. In the light of these uncertainties, NWNL has developed new
initiatives to market its expertise in the medical claim administration and
related service businesses to health care providers and intermediaries.
In addition to the federal initiatives, a number of states are considering
legislative programs which are intended to affect the accessibility and
affordability of health care. Some states, including Minnesota, have recently
enacted health care reform legislation. These various state programs (which
could be pre-empted by any federal program) may adversely affect certain
products in NWNL's group health insurance business.
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<PAGE>
BUSINESS OF USLICO
OVERVIEW
USLICO is an insurance holding company whose primary subsidiaries, United
Services Life Insurance Company (USL) and Bankers Security Life Insurance
Society (BSL), are engaged in the life insurance business. USLICO's life
companies offer primarily life insurance and annuity products, with
specialization in the military and payroll deduction life insurance markets and
distribution of annuities through banks. USLICO also has several small
subsidiaries that provide investment management services and sell insurance and
other financial products.
USLICO was incorporated under the laws of the Commonwealth of Virginia in
1983. USLICO's life insurance subsidiaries, however, have served the military
and civilian markets for more than 50 years. Each of USL and BSL is authorized
to write all forms of life insurance, annuities (including variable annuities)
and accident and health insurance. Together these life companies write business
in all U.S. jurisdictions and small amounts of business with U.S. military
personnel in Europe and the Far East. USLICO's life companies offer three major
product lines: individual life insurance, payroll deduction and group life
insurance, and individual annuities.
INDIVIDUAL LIFE INSURANCE
USLICO distributes individual life insurance products through three separate
distribution systems. The USL career field force focuses its marketing
activities primarily on active-duty and retired military officers and
noncommissioned officers and their families. The USL agency field force is
comprised of agents and brokers who market to middle and upper income families
and small businesses in urban, suburban and rural areas in the United States,
with particular concentration in the Midwestern, Western and Southern regions of
the country. The BSL agency field force has a makeup and sales focus similar to
that of the USL agency field force, but concentrates its sales activities in the
Northeastern corridor of the United States, with its primary emphasis in the
State of New York.
Approximately one-half of the new business written in the Individual Life
Insurance division is universal life. Other products sold include variable life,
term and whole life. Marketing support and policyholder services are provided by
service centers in Arlington, Virginia, Bismarck, North Dakota, and Uniondale,
New York. Through significant investments in technology and personnel training,
USLICO seeks to provide a high quality of service and support to its
policyholders and agents. A high percentage of this business is individually
underwritten in order to control USLICO's exposure to mortality risk.
Additionally, USLICO limits its exposure to risk by purchasing reinsurance from
other insurance carriers.
PAYROLL DEDUCTION AND GROUP LIFE INSURANCE
USLICO conducts its mass marketing activities through BSL primarily in the
form of individually-owned, payroll deduction life insurance. The main
distribution channel is through a relatively small group of specialty brokers
located throughout the United States. BSL enjoys a significant position in this
niche market, which it has developed during the past 18 years. The target market
for this business is employee groups in excess of 300 persons.
The primary products are two different versions of universal life. BSL also
markets a new participating whole life plan as well as term life plans and other
auxiliary products tailored for the payroll deduction market, such as disability
income, cancer, and accident-only disability plans. In addition, BSL has been
writing group term life business through various associations for over 40 years,
but has been deemphasizing this line of business for the past five years.
Most of the policies issued by the Payroll Deduction and Group Life
Insurance division involve limited underwriting procedures. Products issued on
this basis are priced appropriately for the greater mortality cost, which is
controlled through sales practices resulting in high rates of participation that
reduce the risk of anti-selection.
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<PAGE>
INDIVIDUAL ANNUITIES
USLICO markets both fixed and variable annuities. Fixed annuities, which
represent approximately 88% of USLICO's annuity business, are distributed by
both USL and BSL. All variable annuities are sold by BSL. Fixed annuities are
marketed through financial institutions and independent agents and brokers.
Variable annuities are sold primarily through financial planners, broker-dealers
and independent agents and brokers.
Over a period of 12 years, USL has developed a significant expertise in
distributing fixed annuities through financial institutions. USL has experience
in working with third-party marketing organizations and others who serve the
financial institutions market. USL has successfully installed administrative
systems and tailored processes and products that respond specifically to the
needs of these customers. Profitability of these products is determined
primarily by the excess of investment earnings over interest credited on
customer account balances. Penalties for early withdrawal which reduce the risk
of premature surrender and good expense management are also important to product
profitability.
INVESTMENTS
Marketable bonds represented 78.8% of USLICO's total invested assets at
September 30, 1994, and 99.5% of USLICO's bond portfolio carried investment
grade ratings. At September 30, 1994, all holdings of marketable bonds were
current as to principal and interest payments.
Commercial mortgage loans are the other significant class of invested assets
and represented 13.2% of USLICO's total investments at September 30, 1994. The
average loan balance of the portfolio is $1.1 million, and over one-half of the
portfolio is invested in warehouse properties. USLICO's conservative loan
underwriting policies have resulted in mortgage delinquency rates that on
average have been 74% below industry rates during the past five years.
Over 70% of USLICO's insurance liabilities are related to interest sensitive
products. In managing these products, the cash flow characteristics of assets
purchased are matched to these liabilities. The process of managing interest
rate spreads is important to maintaining overall corporate profitability. USLICO
seeks to realize acceptable spread margins while controlling interest rate risk
by closely matching the estimated durations of interest sensitive assets and
liabilities.
COMPETITION AND REGULATION
The life insurance industry is highly competitive. There are more than 2,000
legal reserve life insurance companies in the United States, many of which
compete with subsidiaries of USLICO in one or more jurisdictions in which they
are authorized to transact business. Competition in the insurance field is based
upon price, product design, and services rendered to policyholders and agents.
USLICO's insurance subsidiaries are subject to regulation and supervision by
their states of incorporation and by other states in which they do business. The
states generally require the licensing of insurers and their agents and approval
of policy forms, prescribe the form and content of statutory financial
statements, and restrict the type and concentration of investments. USLICO also
is subject to the laws of several states regulating insurance holding companies.
These laws generally impose reporting requirements on such companies and require
that certain transactions involving such companies be submitted to the insurance
authorities for prior review and approval. In addition, state laws generally
provide for a ceiling on dividends which a holding company's operating insurance
subsidiaries can pay without prior approval by state regulatory authorities. USL
must obtain prior regulatory approval from the Virginia Bureau of Insurance for
any dividend if the amount of such dividend, together with all other dividends
paid in the preceding 12 calendar months, exceeds the lesser of (a) 10% of the
statutory policyholders surplus or (b) the net gain from operations for the
prior calendar year. BSL, as a New York domiciled company, must obtain prior
approval of the New York Insurance Department for any dividend. Such approval
generally is granted if dividends paid in the 12 most recent calendar months do
not exceed the lesser of (1) 50% of the net gain from operations for the prior
calendar year or (2) the increase in surplus for the prior calendar year.
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<PAGE>
State insurance regulators monitor the capital adequacy of life insurance
companies by means of Risk-Based Capital ("RBC") ratios that relate each
insurer's actual statutory capital and surplus to a calculated level of capital
needed to support different types of risk inherent in the assets and liabilities
of a life insurance company. RBC ratios below certain levels call for various
forms of regulatory intervention. The ratios at December 31, 1993 for both USL
and BSL were more than double the highest level that would require even the most
minimal level of regulatory action.
MANAGEMENT OF NWNL
GENERAL
The current executive officers of NWNL are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ----------------------- -----------------------------------------------------------------------
<S> <C>
John G. Turner Chairman and Chief Executive Officer
John H. Flittie President and Chief Operating Officer
R. Michael Conley Senior Vice President
Michael J. Dubes Senior Vice President
David F. Hill Senior Vice President
Wayne R. Huneke Senior Vice President, Chief Financial Officer and Treasurer
Craig R. Rodby Senior Vice President, Financial Management
Robert C. Salipante Senior Vice President, Strategic Marketing & Technology
Royce N. Sanner Senior Vice President, General Counsel and Secretary
Steven W. Wishart Senior Vice President and Chief Investment Officer
</TABLE>
For information regarding the ages and business backgrounds of the executive
officers of NWNL, reference is made to the caption "Directors and Executive
Officers of the Registrant" in Part III of the NWNL 10-K. Similar information
regarding NWNL's directors, as well as additional information regarding
directors and executive officers, including executive compensation, securities
ownership of certain beneficial owners and management and certain relationships
and related transactions, is incorporated by reference to Items 10, 11, 12 and
13 of the NWNL 10-K (which incorporates portions of NWNL's definitive proxy
statement for NWNL's 1994 Annual Meeting of Shareholders), which is incorporated
herein by reference.
NEW DIRECTOR
Pursuant to the Merger Agreement, NWNL has agreed to create one additional
position on its Board of Directors, effective as of the Effective Time, and
intends to elect Mr. Daniel J. Callahan, III, who has agreed to serve as a
member of the NWNL Board, to fill such position upon consummation of the Merger.
As provided in the Merger Agreement, Mr. Callahan was designated by the USLICO
Board, his qualifications have been reviewed by the Board Affairs Committee of
the NWNL Board and he will be elected to the NWNL Board upon consummation of the
Merger. Mr. Callahan is to serve until the annual meeting of the NWNL
shareholders to be held in 1995. Subject to the NWNL Board's fiduciary duties,
NWNL has agreed to nominate and solicit proxies for the re-election of Mr.
Callahan for at least three years after consummation of the Merger.
Mr. Callahan, age 61, has been the Chairman and Chief Executive Officer of
USLICO since October 1992, prior to which he was Chairman of USLICO's Executive
Committee in 1992. He has been a director of USLICO since 1986. Mr. Callahan
currently serves as a director of Washington Gas Light Company, Fox Meyer Corp.
and International Registries, Inc. Mr. Callahan does not currently own any
shares of NWNL capital stock. Mr. Callahan owns 2,406 shares of USLICO Common
Stock
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and has USLICO Options to purchase 30,000 shares of USLICO Common Stock.
Additional information regarding Mr. Callahan is incorporated by reference to
Items 10, 11, 12 and 13 of the USLICO 10-K (which incorporates portions of
USLICO's definitive proxy statement for USLICO's 1994 Annual Meeting of
Shareholders), which is incorporated herein by reference.
DESCRIPTION OF NWNL CAPITAL STOCK
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE NWNL CERTIFICATE, THE
NWNL BY-LAWS AND A RIGHTS AGREEMENT BETWEEN NWNL AND NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, AS RIGHTS AGENT (AS AMENDED, THE "NWNL RIGHTS AGREEMENT"),
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH DOCUMENTS, COPIES OF WHICH ARE INCLUDED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS IS A PART.
GENERAL
The authorized capital stock of NWNL consists of 100,000,000 shares of NWNL
Common Stock and 7,000,000 shares of preferred stock ("NWNL Preferred Stock"),
all without par value.
All issued and outstanding shares of NWNL Common Stock are, and the shares
of NWNL Common Stock to be issued in the Merger will be, fully paid and
non-assessable. Holders of shares of NWNL Common Stock and holders of shares of
NWNL Preferred Stock do not have any preemptive rights to subscribe for or
purchase any securities of NWNL except, with respect to shares of NWNL Preferred
Stock, such preemptive rights as may be provided in the resolution or
resolutions of the NWNL Board or a committee designated by the NWNL Board
providing for the issuance thereof. Holders of shares of NWNL Common Stock have
the rights described below under "Share Rights Plan".
PREFERRED STOCK
The NWNL Certificate authorizes the NWNL Board to issue, without action or
approval of the NWNL shareholders, one or more series of NWNL Preferred Stock
with such designations, voting powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance thereof.
NWNL has a series of NWNL Preferred Stock designated 10% Senior Cumulative
Preferred Stock, $100 stated value per share (NWNL Senior Preferred Stock),
632,500 shares of which are currently outstanding and which are held through
ownership of 2,530,000 Depositary Shares. Each Depositary Share represents
ownership of one quarter of a share of NWNL Senior Preferred Stock and entitles
the holder thereof to all proportional rights and preferences of the NWNL Senior
Preferred Stock. Each share of NWNL Senior Preferred Stock has a liquidation
preference over the NWNL Common Stock of $100 (equivalent to $25 per Depositary
Share), plus accrued and unpaid dividends thereon. The NWNL Senior Preferred
Stock is not convertible into NWNL Common Stock or any other security of NWNL
and is not subject to any sinking fund or other obligation of NWNL to repurchase
or retire the NWNL Senior Preferred Stock, and the holders of the NWNL Senior
Preferred Stock do not have any preemptive rights to subscribe for or purchase
any securities of NWNL. The cumulative annual dividend, payable quarterly, on
the NWNL Senior Preferred Stock is $10 per share (equivalent to $2.50 per
Depositary Share). The NWNL Senior Preferred Stock may not be redeemed prior to
July 1, 1996, except under certain circumstances. The NWNL Senior Preferred
Stock is redeemable at the option of NWNL at any time on or after July 1, 1996,
in whole or in part, at a redemption price of $100 per share (equivalent to $25
per Depositary Share), plus accrued and unpaid dividends to the redemption date.
NWNL has a series of NWNL Preferred Stock designated ESOP Convertible
Preferred Stock (NWNL ESOP Preferred Stock), 1,306,333 shares of which are
currently outstanding and are held by the trustee of The NWNL Companies Success
Sharing Plan and ESOP (the ESOP). Each share of NWNL ESOP Preferred Stock has a
liquidation preference over the NWNL Common Stock of $22.42,
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plus accrued and unpaid dividends, and is currently convertible into two shares
of NWNL Common Stock, subject to adjustment. The cumulative annual dividend on
the NWNL ESOP Preferred Stock is currently $2.19 per share. The ESOP can require
the redemption of the NWNL ESOP Preferred Stock, with payment in cash or NWNL
Common Stock at NWNL's option. NWNL can also call the NWNL ESOP Preferred Stock
under certain circumstances. The resolutions providing for the issuance of the
NWNL ESOP Preferred Stock prohibit NWNL, unless approved by holders of at least
two-thirds of the outstanding shares of NWNL ESOP Preferred Stock, from issuing
more than $100 million in aggregate issue price of NWNL Preferred Stock
(including the NWNL Senior Preferred Stock) which, with respect to dividend
rights and rights on liquidation of NWNL, rank senior to the NWNL ESOP Preferred
Stock.
There are also currently reserved for issuance up to 2,500,000 shares of
Series A Junior Participating Preferred Stock ("Junior Participating Preferred
Stock") of NWNL issuable under the NWNL Rights Agreement referred to below under
"Share Rights Plan", which will rank junior to the NWNL Senior Preferred Stock
and the NWNL ESOP Preferred Stock with respect to dividend rights and rights on
liquidation of NWNL.
DIVIDENDS
Under Delaware Law applicable to NWNL, subject to restrictions contained in
the NWNL Certificate discussed in the following paragraph, dividends may be
declared or paid out of surplus of NWNL or, if there is no such surplus, out of
net profits for the fiscal year in which the dividend is declared and/ or the
preceding fiscal year.
The NWNL Certificate provides that so long as there are outstanding any
shares of NWNL Preferred Stock entitled to cumulative dividends, no dividends
(other than dividends payable in shares of NWNL Common Stock) may be paid or
declared, nor may any distribution be made, on shares of NWNL Common Stock, nor
may any shares of NWNL Common Stock be purchased, redeemed or otherwise acquired
for value by NWNL (other than in exchange for, or through application of the
proceeds of the sale of, shares of NWNL Common Stock) if NWNL is in default with
respect to any dividend payable on, or obligation to redeem or to maintain a
purchase, retirement or sinking fund with respect to, shares of NWNL Preferred
Stock.
NWNL is primarily a holding company owning, directly or indirectly, the
capital stock of Northwestern and its other insurance company subsidiaries and
other subsidiaries. There are legal limitations on the extent to which
Northwestern and NWNL's other insurance company subsidiaries may pay dividends
or lend or otherwise supply funds to NWNL or Northwestern.
The payment of future dividends by NWNL will be largely dependent upon the
ability of Northwestern to pay dividends to NWNL. Under Minnesota insurance law
regulating the payment of dividends by Northwestern, any such payments shall be
in an amount deemed prudent by Northwestern's board of directors and, unless
otherwise approved by the Commissioner of the Minnesota Department of Commerce,
must be paid solely from the adjusted earned surplus of Northwestern. Adjusted
earned surplus means the earned surplus as determined in accordance with
statutory accounting principles (unassigned funds) less 25% of the amount of
such earned surplus which is attributable to unrealized capital gains. Further,
without approval of the Commissioner, Northwestern may not pay in any calendar
year any dividend which, when combined with other dividends paid within the
preceding 12 months, exceeds the greater of (i) 10% of Northwestern's statutory
surplus at the prior year end or (ii) 100% of Northwestern's statutory net gain
from operations (not including realized capital gains) for the prior calendar
year.
The payment of future dividends by NWNL may be affected by the foregoing
limitations, further restrictions and limitations in the event of statutory or
regulatory changes and by such other factors as the NWNL Board may deem
relevant.
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VOTING RIGHTS
The NWNL Certificate provides that, except as otherwise provided by law or
the NWNL Certificate, holders of shares of NWNL Common Stock are entitled to one
vote per share. Holders of shares of NWNL Common Stock do not have any
cumulative voting rights.
Except as otherwise provided by law or by the resolution or resolutions
providing for the issuance thereof, holders of shares of NWNL Preferred Stock
have no voting rights.
Pursuant to the resolutions providing for the issuance of the NWNL Senior
Preferred Stock, (i) holders of the NWNL Senior Preferred Stock are entitled to
elect two directors of NWNL when dividends on the NWNL Senior Preferred Stock
are in arrears for at least 540 days, and (ii) the approval of the holders of at
least two-thirds of the NWNL Senior Preferred Stock is required to (a)
authorize, create or issue, or increase the authorized or issued amount of, any
class or series of stock ranking prior to the NWNL Senior Preferred Stock with
respect to the payment of dividends or the distribution of assets upon the
liquidation, dissolution or winding up of NWNL, or (b) amend, alter or repeal
any provision of the NWNL Certificate in a manner that would materially and
adversely affect any right, preference, privilege or voting power of the holders
of the NWNL Senior Preferred Stock.
Pursuant to the resolutions providing for the issuance of the NWNL ESOP
Preferred Stock, holders of the NWNL ESOP Preferred Stock are entitled to vote
on all matters submitted to a vote of the shareholders of NWNL, voting together
with the holders of NWNL Common Stock as one class. Each holder of NWNL ESOP
Preferred Stock is entitled to that number of votes equal to the number of
shares of NWNL Common Stock into which the holder's shares of NWNL ESOP
Preferred Stock are convertible on the record date for determining the
shareholders entitled to vote (presently two shares of NWNL Common Stock per
share of NWNL ESOP Preferred Stock). In addition, the approval of the holders of
at least two-thirds of the NWNL ESOP Preferred Stock is required to amend, alter
or repeal any provision of the NWNL Certificate, if such amendment, alteration
or repeal would alter or change the powers, preferences or special rights of the
shares of NWNL ESOP Preferred Stock so as to affect them adversely.
The NWNL Certificate requires the affirmative vote of 75% of NWNL's
outstanding capital stock entitled to vote, voting as a single class, (i) to
approve certain "Business Combinations" involving an "Interested Shareholder"
unless the transaction is approved by a majority of the "Continuing Directors",
as such terms are defined in the NWNL Certificate (the "NWNL Fair Price
Provision"), (ii) to remove directors, (iii) to effect certain amendments to the
NWNL Certificate, and (iv) in order for the shareholders of NWNL to amend the
NWNL By-Laws.
SHARE RIGHTS PLAN
Pursuant to the NWNL Rights Agreement, each share of NWNL Common Stock
issued by NWNL has attached one preferred share purchase right (an "NWNL
Right"). Each NWNL Right entitles the registered holder to purchase from NWNL
one-twentieth of a share of Junior Participating Preferred Stock at an exercise
price of $100, subject to adjustment.
Until the Distribution Date, the NWNL Rights will be evidenced by
certificates representing shares of NWNL Common Stock and will be transferred
only with the shares of NWNL Common Stock. The NWNL Rights will separate from
the shares of NWNL Common Stock and a Distribution Date for the NWNL Rights will
occur upon the earlier of (i) the close of business on the 15th day following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of NWNL Common
Stock, or (ii) the close of business on the 15th day following the commencement
or announcement of a tender or exchange offer the consummation of which would
result in a person or group of affiliated or associated persons becoming the
beneficial owner of 20% or more of the outstanding shares of NWNL Common Stock.
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The NWNL Rights are not exercisable until the Distribution Date. The NWNL
Rights will expire on September 8, 2004, unless extended or earlier redeemed by
NWNL.
In the event that (i) NWNL is the surviving corporation in a merger,
consolidation or statutory share exchange with an Acquiring Person and
outstanding shares of NWNL are not changed or exchanged, (ii) an Acquiring
Person engages in one of a number of self-dealing transactions specified in the
NWNL Rights Agreement, (iii) an Acquiring Person increases by more than 1% its
proportion of beneficial ownership of the outstanding shares of any class of
equity securities or securities exercisable for or convertible into equity
securities of NWNL or any of its subsidiaries pursuant to a recapitalization,
reclassification or similar transaction, or (iv) a person (other than NWNL and
certain of its affiliates) becomes a beneficial owner of 20% or more of the
outstanding shares of NWNL Common Stock, each holder of an NWNL Right (other
than NWNL Rights beneficially owned by an Acquiring Person or, in certain
circumstances, transferees) will thereafter have the right to receive, upon
exercise thereof at the then current exercise price of the NWNL Right, that
number of shares of NWNL Common Stock having a market value of two times the
exercise price of the NWNL Right, subject to certain possible adjustments.
In the event that NWNL is acquired in a merger or other business combination
transaction or 50% or more of the assets or earning power of NWNL and its
subsidiaries (taken as a whole) are sold after a public announcement that a
person has become an Acquiring Person, each holder of an NWNL Right will
thereafter have the right to receive, upon exercise thereof at the then current
exercise price of the NWNL Right, that number of common shares of the Acquiring
Person (or in certain cases, one of its affiliates) having a market value of two
times the exercise price of the NWNL Right.
In certain instances, NWNL may exchange NWNL Rights for shares of NWNL
Common Stock or reduce the 20% stock ownership threshold to not less than 10%.
The NWNL Rights are redeemable at a price of one cent per NWNL Right at any
time prior to the 30th day after a public announcement that a person has become
an Acquiring Person, provided, however, that such redemption may occur after any
person has become an Acquiring Person only if there has not been a change in
control of the NWNL Board. The redemption period may be extended if no such
change in control has occurred or if no person has become an Acquiring Person.
LIQUIDATION
Subject to preferential payments due or other rights with respect to any
shares of NWNL Preferred Stock that may then be issued and outstanding, in the
event of any liquidation of NWNL the holders of NWNL Common Stock are entitled
to share, in proportion to the number of shares of NWNL Common Stock held, in
the assets remaining after discharge of all obligations and liabilities of NWNL.
LIMITATIONS ON CHANGE IN CONTROL
The NWNL Certificate and the NWNL By-Laws provide that the NWNL Board will
be divided into three classes serving staggered terms, with one class of
directors to be elected for a three-year term at each annual meeting of NWNL
shareholders. As a result, at least two meetings of NWNL shareholders will
generally be required for NWNL shareholders to effect a change in control of the
NWNL Board. The NWNL Certificate and the NWNL By-Laws also provide that
shareholder action may be taken only at annual or special meetings of
shareholders, and may not be taken by shareholder consent, and that shareholders
are not permitted to call, or to require the NWNL Board to call, special
meetings of shareholders. The NWNL Certificate provides that, when considering a
merger, consolidation, sale of assets, business combination (including a
Business Combination under the NWNL Fair Price Provision) or other transaction
(including a tender or exchange offer), the NWNL Board and any committee
thereof, the directors and the officers of NWNL may, in considering the best
interests of NWNL and NWNL's shareholders, consider the interests of and the
effects of such transaction upon the employees, customers and suppliers of NWNL
and its subsidiaries and upon communities in which NWNL and its subsidiaries are
located or do business. The NWNL By-Laws provide that advance
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notice of nominations for the election of directors to be made at, and business
to be brought before, an annual meeting of shareholders by an NWNL shareholder
must be received by the Secretary of NWNL not less than 60 days in advance of
such meeting (except that if public disclosure of such meeting is made less than
75 days prior to the meeting, the notice need only be received within 15 days
following such public disclosure). NWNL has entered into agreements with certain
of its executive employees for certain financial arrangements that NWNL will
provide upon termination of employment under certain circumstances following a
change in control of NWNL. In addition, certain retirement and other employee
benefit arrangements provide for accelerated vesting of benefits and allocation
to participants of surplus retirement plan benefits upon a change in control of
NWNL. The foregoing provisions and agreements, the voting provisions, including
the NWNL Fair Price Provision, referred to above under "Voting Rights", the NWNL
Rights Agreement and the authority of the NWNL Board to issue additional shares
of capital stock, without action or approval of the NWNL shareholders, could
have the effect of discouraging, delaying or preventing a tender or exchange
offer, proxy contest or other attempt to gain control of or change the
management of NWNL.
LIMITATION ON CERTAIN LIABILITY OF DIRECTORS AND INDEMNIFICATION
The NWNL Certificate and NWNL By-Laws contain provisions limiting the
liability of directors for monetary damages to NWNL and its shareholders for
breach of fiduciary duty of care to NWNL and authorizing the indemnification of
directors, officers and employees to the fullest extent permitted by Delaware
Law. NWNL maintains a directors' and officers' liability insurance policy.
TRANSFER AGENT
The Transfer Agent for the NWNL Common Stock is Norwest Bank Minnesota,
National Association.
MARKET PRICE AND DIVIDEND INFORMATION
FOR NWNL AND USLICO COMMON STOCK
The NWNL Common Stock and USLICO Common Stock are each listed and
principally traded on the NYSE under the symbols "NWN" and "USC", respectively.
The following table shows, for the periods indicated, the reported high and
low sale prices on the NYSE Composite Tape and dividends for the NWNL Common
Stock (as adjusted to give effect to the two-for-one stock split effected in the
form of a 100% stock distribution made on May 21, 1993) and USLICO Common Stock:
<TABLE>
<CAPTION>
NWNL USLICO
COMMON STOCK COMMON STOCK
------------------------------ ------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1992:
First Quarter........................................ 19 1/4 14 13/16 0.175 20 3/8 17 3/4 0.25
Second Quarter....................................... 19 3/16 16 0.185 18 7/8 17 1/4 0.25
Third Quarter........................................ 21 7/8 18 1/4 0.185 18 1/2 17 1/8 0.25
Fourth Quarter....................................... 25 9/16 18 1/8 0.185 19 16 3/4 0.25
1993:
First Quarter........................................ 32 7/16 24 5/16 0.185 20 15 0.06
Second Quarter....................................... 31 3/4 26 1/2 0.20 18 1/2 16 5/8 0.06
Third Quarter........................................ 38 3/4 28 3/4 0.20 19 16 7/8 0.06
Fourth Quarter....................................... 38 1/4 27 7/8 0.20 17 3/4 16 1/8 0.06
1994:
First Quarter........................................ 34 1/4 27 0.20 17 1/2 15 3/4 0.06
Second Quarter....................................... 34 1/2 27 7/8 0.225 20 1/2 17 0.06
Third Quarter........................................ 34 1/2 29 1/2 0.225 22 3/8 17 5/8 0.06
Fourth Quarter (through December 1)..................
</TABLE>
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On September 12, 1994, public announcement of the Merger was made. The
closing sale price per share of NWNL Common Stock on the NYSE Composite Tape on
September 9, 1994 (the last trading day prior to the public announcement of the
Merger) was $31 1/4, and the closing sale price per share of USLICO Common Stock
on the NYSE Composite Tape on such date was $21 1/4. On December 1, 1994, the
closing sale price per share on the NYSE Composite Tape of NWNL Common Stock was
$ and of USLICO Common Stock was $ . Pursuant to the Merger,
shareholders of USLICO who are to receive shares of NWNL Common Stock would be
entitled to receive shares of NWNL Common Stock as set forth on the cover page
of this Joint Proxy Statement/Prospectus, and USLICO shareholders of record as
of a record date to be set by the USLICO Board will also receive special cash
distributions of $0.50 per share of USLICO Common Stock. Based on the closing
sale price per share of NWNL Common Stock on December 1, 1994, as a result of
the Merger each USLICO shareholder would be entitled to receive NWNL Common
Stock and cash with an aggregate value of $ per share of USLICO Common
Stock. See the discussion of the determination of the actual Exchange Price and
Exchange Ratio (and Revised Exchange Ratio and Designated Exchange Ratio) on the
cover page of this Joint Proxy Statement/Prospectus.
COMPARATIVE RIGHTS OF SHAREHOLDERS
OF USLICO AND NWNL
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
COMPARATIVE RIGHTS OF THE HOLDERS OF USLICO COMMON STOCK AND NWNL COMMON STOCK
OR A COMPLETE DESCRIPTION OF THE SPECIFIC PROVISIONS REFERRED TO HEREIN. THE
IDENTIFICATION OF SPECIFIC DIFFERENCES IS NOT MEANT TO INDICATE THAT OTHER
DIFFERENCES DO NOT EXIST. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO USLICO'S ARTICLES OF INCORPORATION (THE "USLICO ARTICLES") AND BYLAWS (THE
"USLICO BYLAWS"), THE NWNL CERTIFICATE, BY-LAWS AND RIGHTS AGREEMENT, VIRGINIA
LAW AND DELAWARE LAW, TO WHICH THE HOLDERS OF USLICO COMMON STOCK ARE REFERRED.
GENERAL
USLICO is incorporated under Virginia Law, and NWNL is in incorporated under
Delaware Law. Holders of USLICO Common Stock, whose rights as shareholders are
currently governed by Virginia Law, the USLICO Articles and the USLICO Bylaws,
will, at the Effective Time of the Merger, become holders of NWNL Common Stock
and their rights as such will be governed by Delaware Law, the NWNL Certificate
and the NWNL By-Laws. In addition, USLICO shareholders have Rights under the
USLICO Share Rights Plan which will be redeemed prior to the Effective Time,
when, as holders of NWNL Common Stock, they will become holders of NWNL Rights
pursuant to the NWNL Rights Agreement. Certain differences between the rights of
holders of USLICO Common Stock and NWNL Common Stock are summarized below.
Certain provisions contained in Delaware Law, the NWNL Certificate, the NWNL
By-Laws and the NWNL Rights Agreement discourage transactions involving an
actual or threatened change in control of NWNL. To the extent any of these
provisions has such an effect, shareholders might thereby be deprived of an
opportunity to sell their shares at a premium above the market price. These
provisions could thus be considered to be anti-takeover measures. See the
discussion below and "Description of NWNL Capital Stock -- Share Rights Plan"
and " -- Limitations on Change in Control" for a description of existing
provisions in the NWNL Certificate, the NWNL By-Laws and the NWNL Rights
Agreement that may be viewed as having anti-takeover effects. The NWNL Rights
Agreement was not adopted in response to any efforts, of which NWNL management
was or is aware, to accumulate NWNL Common Stock or to obtain control of NWNL,
and NWNL management has no knowledge of any present effort to accumulate NWNL
Common Stock or to obtain control of NWNL.
NWNL PREFERRED STOCK
At the Effective Time, the holders of USLICO Common Stock will become
holders of NWNL Common Stock, subject to the preferences of the NWNL Senior
Preferred Stock and NWNL ESOP Preferred Stock. See "Description of NWNL Capital
Stock -- Preferred Stock", " -- Dividends",
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"-- Voting Rights" and " -- Liquidation". Further, each share of NWNL Common
Stock received by the present holders of USLICO Common Stock in the Merger will
have attached one Right to purchase from NWNL one-twentieth of a share of Junior
Participating Preferred Stock at an exercise price of $100, subject to
adjustment, as described above under "Description of NWNL Capital Stock -- Share
Rights Plan". The USLICO Articles do not authorize the issuance of any shares of
preferred stock.
In addition to the designated series of NWNL Preferred Stock, NWNL is
authorized to issue up to 2,529,410 shares of additional NWNL Preferred Stock.
The NWNL Board, without any further vote or action by the shareholders, has
authority to issue the additional NWNL Preferred Stock in one or more series
with such designations, voting powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof as the NWNL Board shall determine. The issuance of NWNL
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of NWNL without further action by the shareholders and may
adversely affect the voting and other rights of the holders of NWNL Common
Stock. At present, NWNL has no plans to issue any additional shares of NWNL
Preferred Stock.
VOTING RIGHTS
The NWNL Certificate generally provides that, except as otherwise provided
therein or by law, holders of the shares of NWNL Common Stock are entitled to
one vote per share. Holders of shares of NWNL Common Stock do not have any
cumulative voting rights. Except as otherwise provided by law and in the
resolution or resolutions providing for the issuance thereof, holders of shares
of NWNL Preferred Stock have no voting rights. For a description of the voting
rights of NWNL Preferred Stock, see "Description of NWNL Capital Stock -- Voting
Rights".
The USLICO Articles provide that, except as otherwise provided by law,
holders of shares of USLICO Common Stock are entitled to one vote per share.
Holders of shares of USLICO Common Stock do not have any cumulative voting
rights.
Under Delaware Law, the following actions, among others, require the
affirmative vote of the holders of a majority of the outstanding stock entitled
to vote thereon, unless a greater vote is required by the certificate of
incorporation: (i) amendments to a certificate of incorporation, (ii) certain
mergers, consolidations and sales of all or substantially all of the assets of a
corporation, and (iii) plans of dissolution. Unless otherwise provided for in
the certificate of incorporation or by-laws, most other corporate actions may be
approved by a majority of the shares present and voting at any meeting of
shareholders, provided that a quorum (a majority of the shares entitled to be
voted on any matter) is present. The NWNL Certificate requires the affirmative
vote of 75% of the outstanding capital stock entitled to vote, voting as a
single class: (i) to approve certain business combinations, (ii) to remove
directors, (iii) to amend certain provisions of the NWNL Certificate, and (iv)
in order for the shareholders to amend the NWNL By-Laws.
Under Virginia Law, after approval by the USLICO Board, and unless the
USLICO Board requires a greater vote, the affirmative vote of more than
two-thirds of the shares of USLICO Common Stock is required for the approval of
(i) any amendment to the USLICO Articles, (ii) certain mergers or statutory
share exchanges, (iii) the sale, lease, exchange or other disposition of all or
substantially all of USLICO's assets other than in the ordinary course of
business, and (iv) the voluntary dissolution of USLICO. Unless otherwise
provided for in a corporation's articles or by-laws, most other corporate
actions may be approved by a majority of the shares present and voting at any
meeting of shareholders, provided that a quorum (a majority of the shares
entitled to be voted on any matter) is present. The USLICO Bylaws specify that
they may be amended by a majority of the votes entitled to be cast in the
election of directors.
AMENDMENT OF THE NWNL CERTIFICATE
As stated above, the NWNL Certificate requires the approval of 75% of the
shares of NWNL capital stock entitled to vote in order to amend certain
provisions of the NWNL Certificate, as compared with the more-than-two-thirds
vote required under Virginia Law to amend the USLICO
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Articles. The provisions of the NWNL Certificate that may be amended only by a
75% vote are: Article Fourth (setting forth, among other things, the authorized
capital stock of NWNL and authorizing the NWNL Board, without a vote of
shareholders, to issue NWNL Common Stock and NWNL Preferred Stock and to fix the
terms of series of the NWNL Preferred Stock); the following sections of Article
Sixth: Section 2 (providing for classification of the NWNL Board), Section 4
(governing removal of the directors by shareholders), Section 7 (limiting
personal monetary liability of directors for breach of the fiduciary duty of
care), Section 8 (authorizing the NWNL Board to adopt or amend the NWNL By-Laws
and requiring a vote of 75% of the outstanding shares of voting stock in order
for shareholders to amend the NWNL By-Laws), Section 9 (providing that the NWNL
Board may consider the interests of and effects on employees, customers and
suppliers and communities in which NWNL and its subsidiaries are located or do
business when considering a merger, sale of assets, business combination or
other transaction), Section 10 (authorizing the NWNL Board to determine certain
matters with respect to shareholder inspections of books and records), Section
11 (providing that the directors are empowered to exercise all powers and to do
all acts that may be done by NWNL) and Section 12 (preventing shareholders from
taking action by written consent and providing that the procedures for calling,
and persons entitled to call, a special meeting of shareholders shall be
specified by the NWNL By-Laws); Article Seventh (the NWNL Fair Price Provisions
(see "Transactions with Interested Shareholders" below); and Article Tenth
(requiring a 75% vote to amend the foregoing provisions of the NWNL
Certificate).
The requirement of an increased shareholder vote to amend certain provisions
of the NWNL Certificate and the NWNL By-Laws is designed to prevent a
shareholder who controls a majority of the voting power of NWNL from avoiding
the requirements of such provisions by simply amending or replacing such
provisions and to make it more difficult for such a shareholder to circumvent
certain of the other provisions contained in the NWNL Certificate, such as the
classification of the NWNL Board, by adopting by-laws restricting the power of
the NWNL Board or the ability of NWNL to operate its business in the interests
of all of its shareholders. These provisions, however, will also make it more
difficult for shareholders to amend the NWNL Certificate and the NWNL By-Laws
even if a majority of the shareholders deem such amendment to be in their best
interests.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS
The NWNL Fair Price Provision requires the approval of Business Combinations
(as defined) involving Interested Shareholders (as defined) by a vote of the
holders of at least 75% of NWNL's outstanding capital stock entitled to vote,
unless either the transaction is approved by a majority of the Continuing
Directors (as defined) or the transaction meets certain fair price and
procedural requirements. The purpose of this provision is to prevent an
Interested Shareholder from taking advantage of its position as a substantial,
if not controlling, shareholder and from engaging in "self-dealing" transactions
with the corporation which may not be fair to other shareholders and to give
greater assurance to the holders of the NWNL capital stock that they will
receive fair and equitable treatment in the event of a Business Combination
involving the Interested Shareholder. This is accomplished by requiring Business
Combinations to meet certain fair price and procedural requirements or to be
approved either by a majority of the Continuing Directors or 75% of the
outstanding shares entitled to vote on the matter, voting as a single class. For
similar reasons however, this provision makes more difficult and discourages a
merger or takeover of NWNL or the acquisition of control of NWNL and thus the
removal of incumbent management. In addition, to the extent that these
provisions discourage a takeover that would result in a change of NWNL
management, those changes may be less likely to occur. The USLICO Articles
contain no such provision.
ANTI-TAKEOVER PROVISIONS
Delaware Law includes an anti-takeover provision pursuant to which a
corporation may not engage in a business combination (as defined) with a
shareholder holding 15% or more of the outstanding voting stock (a "15%
shareholder") for a period of three years following the 15% acquisition, unless:
(i) prior to the time the acquiror becomes a 15% shareholder, the board of
directors of the corporation being acquired approves the business combination or
stock acquisition; (ii) the acquiror
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obtains, as part of the transaction in which the acquiror becomes a 15%
shareholder, at least 85% of the outstanding voting stock of the target
corporation, not including stock held by directors who are also officers and
certain employee stock plans; or (iii) on or after the date the acquiror becomes
a 15% shareholder, the business combination is approved by the board of
directors and authorized by the holders of two-thirds of the outstanding shares
entitled to vote on the matter, not including shares owned by the 15%
shareholder. A corporation may opt out of the statute by including language to
that effect in its certificate of incorporation or by vote of a majority of the
shares entitled to vote. The effect of shareholder action in this regard is
delayed by 12 months and does not apply to any business combination between the
corporation and any person who became a 15% shareholder on or prior to the date
of such action. NWNL has not opted out of the Delaware Law anti-takeover
provision.
Virginia Law includes an anti-takeover provision pursuant to which a
corporation may not engage in an affiliated transaction (as defined, including a
merger, share exchange, sale of assets or dissolution transaction) with a
shareholder holding more than 10% of any class of the outstanding voting shares
(a "10% shareholder") for a period of three years following the date the
shareholder became a 10% shareholder, unless the affiliated transaction is
approved by a majority of the disinterested directors and two-thirds of the
shares entitled to vote, not including shares owned by the 10% shareholder. If
the affiliated transaction is not previously approved, the 10% shareholder may
effect a combination after the three-year period only if (i) it receives
approval from either two-thirds of the shares entitled to vote, not including
shares owned by the 10% shareholder, or a majority of the disinterested
directors, or (ii) the aggregate amount of the offer meets certain fair price
and procedural criteria. A corporation may opt out of this statute by amendment
of its articles of incorporation or by-laws approved by a majority of the
outstanding shares entitled to vote not owned by a 10% shareholder. The effect
of shareholder action in this regard is delayed by 18 months following its
passage. USLICO has not opted out of the Virginia Law anti-takeover provision.
Virginia Law includes a control share law pursuant to which shares of a
Virginia corporation acquired in a transaction that would cause the acquiring
person's voting strength to meet or exceed any of three thresholds (20%, 33 1/3%
or 50%) have no voting rights, unless granted by a majority vote of shares not
owned by the acquiring person or any officer or employee-director of the
Virginia corporation. This provision grants an acquiring person the right to
require the Virginia corporation to hold a special meeting of shareholders to
consider the matter within 50 days of its request.
NWNL SHARE RIGHTS PLAN
A substantial body of case law in Delaware supports a corporation's right to
adopt share purchase rights plans, such as the NWNL Rights Agreement. The NWNL
Rights Agreement could have the effect of delaying, deferring or preventing a
change in control of NWNL. See "Description of NWNL Capital Stock -- Share
Rights Plan".
CONSIDERATION OF OTHER CONSTITUENCIES
The NWNL Certificate provides that, when considering a merger,
consolidation, sale of assets, business combination (including a Business
Combination involving an Interested Shareholder as described above) or other
transaction (including a tender or exchange offer), the NWNL Board and any
committee thereof, the directors and the officers of NWNL may, in considering
the best interests of NWNL and its shareholders, consider the interests of and
the effects of such transaction upon the employees, customers and suppliers of
NWNL and its subsidiaries and upon communities in which NWNL and its
subsidiaries are located or do business.
This provision in the NWNL Certificate will not make a Business Combination
or other transaction regarded by the NWNL Board as being in the interests of
NWNL and its shareholders more difficult to accomplish, but it would permit the
NWNL Board to determine that a Business Combination or other transaction is not
in the best interests of NWNL or its shareholders (and thus oppose it) on the
basis of various factors deemed relevant. In some cases, such opposition by the
NWNL Board might have the effect of maintaining the position of incumbent
management.
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Neither Virginia Law nor the USLICO Articles or Bylaws contain a similar
provision regarding the consideration of other constituencies by the USLICO
Board in making a decision whether to proceed with a business combination or
other transaction.
DISSENTERS' RIGHTS
Both Delaware Law and Virginia Law provide that dissenters' rights of
appraisal are not available to shareholders of a corporation listed on a
national securities exchange. Both NWNL and USLICO are listed on the NYSE and
therefore the shareholders of neither corporation are entitled to dissenters'
rights in connection with the Merger.
REQUIREMENT FOR ADVANCE NOTIFICATION FOR SHAREHOLDER NOMINATIONS AND PROPOSALS
NWNL's By-Laws provide that advance notice of shareholder nominations for
the election of directors to be made at, and business to be brought before, an
annual shareholders' meeting by a shareholder must be received by the Secretary
of NWNL not less than 60 days in advance of such meeting (except that if public
disclosure of such meeting is given or made less than 75 days prior to the
meeting, the notice need only be received within 15 days following such public
disclosure). The USLICO Bylaws contain no such provision.
NWNL's notice provision could preclude a contest for the election of
directors or consideration of shareholders' proposals if the procedures
established by NWNL's By-Laws are not followed, and could discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its proposals, without regard to whether consideration
of such nominees or proposals might be harmful or beneficial to NWNL and its
shareholders.
RESTRICTIONS ON DIVIDEND PAYMENTS AND THE REPURCHASE OF STOCK
Under Delaware Law, NWNL may declare and pay dividends either out of its
surplus, or, if there is no such surplus, out of net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year, subject to
certain limitations for the benefit of the NWNL Preferred Stock. See
"Description of NWNL Capital Stock -- Dividends". NWNL may also repurchase
shares of its capital stock upon compliance with similar statutory standards.
Under Virginia Law, USLICO may make distributions to its shareholders and
repurchase its own outstanding shares unless, after giving effect to a
distribution, (i) USLICO would not be able to pay its debts as they become due
in the usual course of business or (ii) USLICO's total assets would be less than
the sum of its total liabilities.
Both NWNL and USLICO are primarily holding companies owning, directly or
indirectly, the capital stock of insurance company subsidiaries and other
subsidiaries. The laws of the domiciliary states of the insurance company
subsidiaries place legal limitations on the extent to which the insurance
company subsidiaries may pay dividends or lend or otherwise supply funds to
their parent companies. See "Description of NWNL Capital Stock -- Dividends".
The USLICO Articles contain an "anti-greenmail" provision that restricts the
ability of USLICO to repurchase shares of USLICO Common Stock from a person or
group that has held the shares for less than two years. Neither Delaware Law nor
the NWNL Certificate contain a similar provision.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS
The NWNL Certificate provides that no director shall be liable to NWNL or
its shareholders for monetary damages for breach of fiduciary duty by the
director as a director, except that such provision shall not eliminate or limit
the liability of the director to the extent provided by applicable law (i) for
any breach of the duty of loyalty of the director to NWNL or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any unlawful action under
Section 174 of Delaware Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
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Pursuant to Virginia Law, damages assessed against a director or officer
arising out of a single transaction may not exceed the lesser of (i) the
monetary amount specified in the articles of incorporation or, if approved by
the shareholders, the bylaws, as a limitation on, or the elimination of,
liability of directors and officers or (ii) the greater of (a) $100,000 or (b)
the amount of cash compensation received by the director or officer from the
corporation during the last 12 months immediately preceding the act or omission
for which liability is imposed. Neither the USLICO Articles nor the USLICO
Bylaws contain any provision limiting or eliminating the liability of directors
and/or officers.
Delaware Law and Virginia Law have similar provisions regarding
indemnification by a corporation of its directors, officers and employees. In
general, under both Delaware Law and Virginia Law, the indemnification provided
for therein is not deemed to be exclusive of any nonstatutory indemnification
rights provided to directors, officers and employees under any by-law, agreement
or vote of shareholders or disinterested directors. The NWNL By-Laws and the
USLICO Bylaws provide for the indemnification of directors and officers (and, in
the case of the NWNL By-Laws, employees), to the fullest extent permitted by
Delaware Law and Virginia Law, respectively, against liability arising by reason
of the fact that such individual was a director, officer or employee of NWNL or
USLICO, as the case may be.
LEGAL MATTERS
The validity of the shares of NWNL Common Stock to be issued in the Merger
will be passed upon for NWNL by Faegre & Benson Professional Limited Liability
Partnership, Minneapolis, Minnesota. Certain tax consequences of the Merger will
be passed upon for NWNL by Faegre & Benson and for USLICO by Rogers & Wells, New
York, New York.
EXPERTS
The consolidated financial statements of NWNL and related financial
statement schedules as of December 31, 1993 and 1992 and for each of the three
years in the period ended December 31, 1993, incorporated herein by reference to
the NWNL 10-K, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports, which are incorporated herein by reference. Such
consolidated financial statements and schedules are so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing. The reports of Deloitte & Touche LLP covering the
December 31, 1993 and 1992 consolidated financial statements refer to a change
in NWNL's method of accounting for income taxes by adopting the provisions of
the Financial Accounting Standards Board's Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes", in 1993, and the adoption of
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for Post
Retirement Benefits Other Than Pensions", in 1993.
The consolidated financial statements and the related financial statement
schedules of USLICO as of December 31, 1993 and 1992 and for each of the years
in the three-year period ended December 31, 1993, incorporated by reference
herein to the USLICO 10-K, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in their reports with
respect thereto. Such financial statements and schedules are incorporated by
reference herein in reliance upon the reports of KPMG Peat Marwick LLP and upon
the authority of said firm as experts in accounting and auditing. The reports of
KPMG Peat Marwick LLP covering the December 31, 1993 and 1992 financial
statements refer to a change in USLICO's method of accounting for income taxes
by adopting the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", in 1992, and the adoption of the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post Retirement Benefits Other Than Pensions", in
1992.
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<PAGE>
SHAREHOLDER PROPOSALS
NWNL SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at NWNL's 1995 Annual Meeting of
Shareholders must be received by NWNL not later than November 29, 1994, if they
are to be considered for inclusion in the proxy materials for that meeting.
USLICO SHAREHOLDER PROPOSALS
If the shareholders of USLICO do not approve and adopt the Merger Agreement
and the Merger or if the Merger is not consummated, USLICO anticipates holding
its next annual meeting of shareholders on April 28, 1995. Shareholder proposals
intended to be presented at that meeting must be submitted by December 15, 1994
for consideration by USLICO for possible inclusion in the proxy materials for
that meeting.
INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP and KPMG Peat Marwick LLP are
expected to be present at the NWNL and USLICO Special Meetings, respectively,
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE NWNL COMPANIES, INC.
AND
USLICO CORPORATION
DATED AS OF
SEPTEMBER 11, 1994
<PAGE>
TABLE OF CONTENTS
(NOT PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C> <C>
INTRODUCTION AND RECITALS............................................................................................. 1
I. CONTEMPLATED BUSINESS COMBINATION.......................................................................... A-1
1.1 The Merger...................................................................................... A-1
1.2 Effect of the Merger............................................................................ A-1
1.3 Consummation of the Merger...................................................................... A-2
1.4 Closing......................................................................................... A-2
1.5 Certificate of Incorporation and By-Laws........................................................ A-2
1.6 Conversion of Securities........................................................................ A-2
1.7 Letters of Transmittal.......................................................................... A-5
1.8 Lost, Stolen or Destroyed Certificate........................................................... A-5
1.9 Further Action.................................................................................. A-5
1.10 Certain Agreements.............................................................................. A-5
II. REPRESENTATIONS AND WARRANTIES............................................................................. A-5
2.1 Representations and Warranties of NCI........................................................... A-5
(a) Organization and Compliance with Law................................................. A-5
(b) Capitalization....................................................................... A-6
(c) Authorization and Validity of Agreements............................................. A-7
(d) No Notices or Approvals Required and No Conflicts.................................... A-7
(e) NCI Reports and Financial Statements................................................. A-8
(f) Conduct of Business in the Ordinary Course and Absence of Certain Changes and
Events............................................................................... A-9
(g) Certain Fees......................................................................... A-9
(h) Insurance Holding Company System..................................................... A-10
(i) Litigation........................................................................... A-10
(j) Employee Benefit Plans............................................................... A-10
(k) Taxes................................................................................ A-11
(l) Intellectual Property................................................................ A-12
(m) Opinion of Financial Advisor......................................................... A-12
2.2 Representations and Warranties of USLICO........................................................ A-12
(a) Organization and Compliance with Law................................................. A-12
(b) Capitalization....................................................................... A-13
(c) Authorization and Validity of Agreements............................................. A-14
(d) No Notices or Approvals Required and No Conflicts.................................... A-14
(e) USLICO Reports and Financial Statements.............................................. A-15
(f) Conduct of Business in the Ordinary Course and Absence of Certain Changes and
Events............................................................................... A-16
(g) Certain Fees......................................................................... A-17
(h) Insurance Holding Company System..................................................... A-17
(i) Litigation........................................................................... A-17
(j) Employee Benefit Plans............................................................... A-17
(k) Taxes................................................................................ A-18
(l) Intellectual Property................................................................ A-19
(m) No Secured Debt...................................................................... A-19
(n) Opinion of Financial Advisor......................................................... A-19
III. COVENANTS OF USLICO........................................................................................ A-19
3.1 Conduct of Business by USLICO and USLICO Subsidiaries Pending the Merger........................
A-19
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C> <C>
3.2 Joint Proxy Statement........................................................................... A-21
3.3 Meeting of Shareholders of USLICO............................................................... A-21
3.4 No Solicitation of Acquisition Transactions..................................................... A-22
3.5 Access to Information........................................................................... A-22
3.6 Dissenters' Rights.............................................................................. A-23
3.7 Redemption of USLICO Rights..................................................................... A-23
3.8 Tax Certificate................................................................................. A-23
IV. COVENANTS OF NCI........................................................................................... A-23
4.1 Conduct of Business by NCI and NCI Subsidiaries Pending the Merger.............................. A-23
4.2 Joint Proxy Statement........................................................................... A-24
4.3 Meeting of Stockholders of NCI.................................................................. A-24
4.4 Registration Statement.......................................................................... A-24
4.5 Assumption of Certain Obligations............................................................... A-25
4.6 Access to Information........................................................................... A-25
4.7 Reservation of NCI Capital Stock................................................................ A-25
4.8 Tax Certificate................................................................................. A-25
4.9 Employee Benefits............................................................................... A-25
4.10 Continuing Director............................................................................. A-26
4.11 Indemnification................................................................................. A-26
4.12 USLICO Options.................................................................................. A-27
V. MUTUAL COVENANTS........................................................................................... A-27
5.1 Expenses........................................................................................ A-27
5.2 Additional Agreements........................................................................... A-28
5.3 Notification of Certain Matters................................................................. A-28
5.4 Agreement to Defend............................................................................. A-28
5.5 Compliance with HSR Act......................................................................... A-28
5.6 Securities Laws................................................................................. A-29
VI. CONDITIONS................................................................................................. A-29
6.1 Conditions to Obligations of Each Party to Effect the Merger.................................... A-29
6.2 Additional Conditions to Obligations of NCI..................................................... A-30
6.3 Additional Conditions to Obligations of USLICO.................................................. A-31
VII. MISCELLANEOUS.............................................................................................. A-31
7.1 Termination..................................................................................... A-31
7.2 Effect of Termination........................................................................... A-32
7.3 Waiver and Amendment............................................................................ A-32
7.4 Nonsurvival of Representations and Warranties................................................... A-32
7.5 Public Statements............................................................................... A-32
7.6 Knowledge....................................................................................... A-32
7.7 Assignment...................................................................................... A-32
7.8 Notices......................................................................................... A-33
7.9 Governing Law................................................................................... A-33
7.10 Severability.................................................................................... A-33
7.11 Counterparts.................................................................................... A-33
7.12 Headings........................................................................................ A-33
7.13 Entire Agreement................................................................................ A-34
</TABLE>
A-ii
<PAGE>
INDEX OF DEFINED TERMS
(NOT PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
SECTION
---------------
<S> <C>
Acquisition Proposal............................................................................. 5.1
Acquisition Transaction.......................................................................... 3.4
Agreement........................................................................................ Introduction
Approval Date.................................................................................... 1.4
BSLIS............................................................................................ 2.2(a)
By-Laws.......................................................................................... 1.5
Certificate...................................................................................... 2.1(a)
Closing.......................................................................................... 1.4
Closing Date..................................................................................... 1.4
Code............................................................................................. Recitals
Common Stock of the Surviving Corporation........................................................ 1.6(a)
Constituent Corporations......................................................................... 1.2
Delaware Law..................................................................................... 1.1
Designated Exchange Ratio........................................................................ 1.6(b)(iii)
Effective Time................................................................................... 1.3
ERISA............................................................................................ 2.1(j)(i)
Exchange Agent................................................................................... 1.6(b)
Exchange Price................................................................................... 1.6(b)(i)
Exchange Ratio................................................................................... 1.6(b)
HSR Act.......................................................................................... 2.1(d)(iii)
IRS.............................................................................................. 2.1(j)(iii)
Indemnitees...................................................................................... 4.11(a)
Joint Proxy Statement............................................................................ 3.2
Material Breach.................................................................................. 5.1
Merger........................................................................................... Recitals
NALIC............................................................................................ 2.1(a)
NCI.............................................................................................. Introduction
NCI Board........................................................................................ Recitals
NCI Common Stock................................................................................. Recitals
NCI Disclosure Letter............................................................................ 2.1(a)
NCI Drip......................................................................................... 2.1(b)(ii)
NCI Employee Plans............................................................................... 2.1(j)(i)
NCI ESOP Preferred Stock......................................................................... 1.6(a)
NCI Insurance Filings............................................................................ 2.1(e)(v)
NCI Junior Preferred Stock....................................................................... 2.1(b)(i)
NCI Pension Plans................................................................................ 2.1(j)(i)
NCI Plans........................................................................................ 4.9(b)
NCI Proxy Statement.............................................................................. 2.1(b)(ii)
NCI Rights Agreement............................................................................. 2.1(b)(i)
NCI SEC Reports.................................................................................. 2.1(e)(i)
NCI Senior Preferred Stock....................................................................... 1.6(a)
NCI Subsidiaries................................................................................. 2.1(a)
NCI Subsidiary Shares............................................................................ 2.1(b)(iii)
NCI 10-K......................................................................................... 2.1(b)(ii)
NCI 10-Qs........................................................................................ 2.1(e)(iii)
1933 Act......................................................................................... 2.1(e)(i)
1934 Act......................................................................................... 2.1(e)(i)
1986 Debentures.................................................................................. 2.2(b)(iv)
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
SECTION
---------------
<S> <C>
1989 Debentures.................................................................................. 2.2(b)(iv)
NLIC............................................................................................. 2.1(a)
NWNL............................................................................................. 2.1(a)
PBGC............................................................................................. 2.1(j)(ii)
Registration Statement........................................................................... 4.4
Revised Exchange Ratio........................................................................... 1.6(b)(iii)
Rights........................................................................................... 2.1(b)(i)
SEC.............................................................................................. 2.1(e)(i)
Section 2.1(k) Investor.......................................................................... 2.1(k)(iv)
Section 2.2(k) Investor.......................................................................... 2.2(k)(iv)
Surviving Corporation............................................................................ 1.1
Tax or Taxes..................................................................................... 2.1(k)(i)
Tax Returns...................................................................................... 2.1(k)(i)
USLIC............................................................................................ 2.2(a)
USLICO........................................................................................... Introduction
USLICO Board..................................................................................... Recitals
USLICO Common Stock.............................................................................. Recitals
USLICO Debentures................................................................................ 2.2(b)(iv)
USLICO Disclosure Letter......................................................................... 2.2(a)
USLICO Employee Plans............................................................................ 2.2(j)(i)
USLICO Insurance Filings......................................................................... 2.2(e)(vi)
USLICO Option Agreement.......................................................................... Recitals
USLICO Option Plans.............................................................................. 2.2(b)(ii)
USLICO Option Shares............................................................................. Recitals
USLICO Options................................................................................... 2.2(b)(ii)
USLICO Pension Plans............................................................................. 2.2(j)(i)
USLICO Plans..................................................................................... 4.9(a)
USLICO Rights.................................................................................... 2.2(b)(i)
USLICO Rights Agreement.......................................................................... 2.2(b)(i)
USLICO SEC Reports............................................................................... 2.2(e)(i)
USLICO Subsidiaries.............................................................................. 2.2(a)
USLICO Subsidiary Shares......................................................................... 2.2(b)(iii)
USLICO 10-K...................................................................................... 2.2(e)(iv)
USLICO 10-Qs..................................................................................... 2.2(e)(iv)
Virginia Law..................................................................................... 1.1
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September 11,
1994, by and between The NWNL Companies, Inc., a Delaware corporation ("NCI"),
and USLICO Corporation, a Virginia corporation ("USLICO").
WHEREAS, the Board of Directors of NCI (the "NCI Board") and the Board of
Directors of USLICO (the "USLICO Board") respectively believe it is in the
long-term strategic interests of NCI and its stockholders and of USLICO and its
shareholders that NCI and USLICO effect the transactions contemplated hereby;
and
WHEREAS, NCI and USLICO desire to adopt a plan of reorganization pursuant to
the provisions of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), providing for the merger of USLICO with and into NCI (the
"Merger") pursuant to which all of the issued and outstanding shares of Common
Stock, $1 par value per share, of USLICO ("USLICO Common Stock") will be
converted into and exchanged for shares of Common Stock, without par value, of
NCI ("NCI Common Stock") (and, in certain circumstances, the right to be paid
cash in certain amounts), all pursuant to the plan of reorganization set forth
herein; and
WHEREAS, NCI and USLICO have entered into a Stock Option Agreement of even
date herewith (the "USLICO Option Agreement") pursuant to which USLICO has
granted to NCI an option under the circumstances set forth therein to purchase
up to the number of shares of USLICO Common Stock provided therein (the "USLICO
Option Shares") at the cash purchase price per share provided therein; and
WHEREAS, the NCI Board and the USLICO Board have each approved this
Agreement, the Merger and the other transactions contemplated hereby; and
WHEREAS, NCI and USLICO desire to effect the Merger and the other
transactions contemplated hereby; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties, covenants and agreements made by each to the other as an inducement
to the consummation of the Merger and the other transactions contemplated
hereby;
NOW, THEREFORE, in consideration of the premises and of the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
I. CONTEMPLATED BUSINESS COMBINATION
In accordance with the terms and subject to the conditions of this
Agreement, NCI and USLICO shall effect the Merger as follows:
1.1 THE MERGER. At the Effective Time, in accordance with this Agreement,
the General Corporation Law of the State of Delaware (the "Delaware Law") and
the Virginia Stock Corporation Act (the "Virginia Law"), USLICO shall be merged
with and into NCI, the separate existence of USLICO shall cease, and NCI shall
continue as the surviving corporation under the corporate name it possesses
immediately prior to the Effective Time and shall be governed by the laws of the
State of Delaware. NCI is herein sometimes referred to as the "Surviving
Corporation".
1.2 EFFECT OF THE MERGER. At the Effective Time, the Surviving Corporation
shall thereupon and thereafter possess all the rights, privileges, powers and
franchises, as well of a public as of a private nature, of each of NCI and
USLICO (collectively, the "Constituent Corporations") and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
all and singular, the rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property of each of the Constituent
Corporations, real, personal and mixed, and all debts due to each of the
Constituent Corporations on whatever account, as well for stock subscriptions as
all other things in action or belonging to each of the Constituent Corporations,
shall be vested in the Surviving Corporation; all assets, property, rights,
privileges, powers and franchises and all and every other interest of
A-1
<PAGE>
each of the Constituent Corporations shall be thereafter as effectually the
property of the Surviving Corporation as they were of the respective Constituent
Corporations; and the title to any real estate vested by deed or otherwise under
the laws of the State of Delaware, the Commonwealth of Virginia or other
jurisdiction in each of the Constituent Corporations shall be vested in the
Surviving Corporation and shall not revert or be in any way impaired by reason
of the Merger; but all rights of creditors and all liens upon any property of
the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities, obligations and duties of each of the Constituent Corporations
shall thenceforth attach to the Surviving Corporation and may be enforced
against it to the extent as if such debts, liabilities, obligations and duties
had been incurred or contracted by it; all in accordance with Section 259(a) of
the Delaware Law and Section 13.1-721A of the Virginia Law.
1.3 CONSUMMATION OF THE MERGER. As soon as is practicable on the Closing
Date (as defined in Section 1.4) after all conditions to the consummation of the
Merger set forth herein have been satisfied or duly waived, the parties hereto
shall cause the Merger to be consummated by filing (a) with the Secretary of
State of the State of Delaware, a Certificate of Merger in such form as is
required by, and executed, acknowledged and certified in accordance with, the
relevant provisions of the Delaware Law, and (b) with the State Corporation
Commission of Virginia, Articles of Merger in such form as is required by, and
executed, acknowledged and certified in accordance with, the relevant provisions
of the Virginia Law (the later of the time of such filings or the effective time
of the Certificate of Merger issued by such Commission pursuant to Section
13.1-720B of the Virginia Law is herein referred to as the "Effective Time").
1.4 CLOSING. The closing of the Merger (the "Closing") shall take place
(a) at the offices of Faegre & Benson, 2200 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402, at 10:00 a.m. Minneapolis time on the
third business day following (i) the date of the last to occur of compliance
with the conditions to the Closing set forth in Section 6.1(a), (b), (d), (e)
and (h), (ii) if any order referred to in Section 6.1(c) shall be in effect on
the date described in the foregoing Clause (i), the date such order ceases to be
in effect, or (iii) if any condition set forth in Section 6.2(a) or Section
6.3(a) is not satisfied or waived on the date described in the foregoing Clause
(i) or (ii) and the expiration of any 30-day cure period contemplated by Section
7.1(d) or 7.1(e) has not theretofore expired, the date on which such cure period
expires or such earlier date on which the cure is effected (the "Approval
Date"), or (b) at such other time and place or on such other date as NCI and
USLICO shall mutually agree (such third business day following the Approval Date
or such other mutually agreed to date is herein referred to as the "Closing
Date").
1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Certificate of
Incorporation of NCI (the "Certificate") and the By-Laws of NCI (the "By-Laws"),
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation and By-Laws of the Surviving Corporation and thereafter shall
continue to be its Certificate of Incorporation and By-Laws until amended as
provided therein and in accordance with the Delaware Law.
1.6 CONVERSION OF SECURITIES. In accordance with the terms and subject to
the conditions of this Agreement, at the Effective Time, by virtue of the Merger
and without any action on the part of NCI, USLICO or the holder of any of the
following securities:
(a) Each share of NCI Common Stock outstanding immediately prior to the
Effective Time shall remain outstanding as a share of NCI Common Stock (the
"Common Stock of the Surviving Corporation") and shall not be converted into
any other securities or cash pursuant to the Merger. Each share of NCI's 10%
Senior Cumulative Preferred Stock ("NCI Senior Preferred Stock") outstanding
immediately prior to the Effective Time shall remain outstanding as a share
of such stock of the Surviving Corporation and shall not be converted into
any other securities or cash pursuant to the Merger. Each share of NCI's
ESOP Convertible Preferred Stock ("NCI ESOP Preferred Stock") outstanding
immediately prior to the Effective Time shall remain
A-2
<PAGE>
outstanding as a share of such stock of the Surviving Corporation and shall
not be converted into any other securities or cash pursuant to the Merger.
The certificates for such shares shall not be surrendered or in any way
modified by reason of the effectiveness of the Merger.
(b) Each share of USLICO Common Stock outstanding immediately prior to
the Effective Time shall be automatically converted into such number of
fully paid and nonassessable shares of Common Stock of the Surviving
Corporation (and, in certain circumstances, the right to be paid cash in
certain amounts) as determined in accordance with this Section 1.6(b). The
number of shares of Common Stock of the Surviving Corporation (and, in
certain circumstances, the right to be paid cash in certain amounts) to be
received for each share of USLICO Common Stock (the "Exchange Ratio") shall
be determined as follows:
(i) if the average of the per share closing sale prices of NCI Common
Stock on the New York Stock Exchange Composite Tape for the 20 trading
days immediately prior to the Approval Date (the "Exchange Price") is
equal to or greater than $28.26 and not greater than $37.20, the number
of shares of Common Stock of the Surviving Corporation to be received for
each share of USLICO Common Stock shall be .69;
(ii) if the Exchange Price is greater than $37.20, the number of
shares of Common Stock of the Surviving Corporation to be received for
each share of USLICO Common Stock shall be the quotient (determined to
the third decimal place without rounding) obtained by dividing $25.669 by
the Exchange Price;
(iii) if the Exchange Price is less than $28.26 and greater than
$25.36, the number of shares of Common Stock of the Surviving Corporation
(and, in certain circumstances, the right to be paid cash in certain
amounts) to be received for each share of USLICO Common Stock shall be
calculated in accordance with alternative (A), (B) or (C) below, as
designated by NCI:
(A) such number shall be equal to the quotient (determined to the
third decimal place without rounding) obtained by dividing $19.50 by
the Exchange Price (the "Revised Exchange Ratio"); or
(B) .69, in which event there shall be payable in cash by NCI as
additional consideration for each share of USLICO Common Stock an
amount equal to (x) the Revised Exchange Ratio less .69, MULTIPLIED
BY (y) the Exchange Price; or
(C) such number greater than .69 and less than the Revised
Exchange Ratio as shall be designated by NCI (the "Designated
Exchange Ratio"), in which event there shall be payable in cash by
NCI as additional consideration for each share of USLICO Common Stock
an amount equal to (x) the Revised Exchange Ratio less the Designated
Exchange Ratio, MULTIPLIED BY (y) the Exchange Price; or
(iv) if the Exchange Price is $25.36 or less, either the NCI Board or
the USLICO Board may terminate this Agreement pursuant to Section 7.1(h);
provided however, that by mutual agreement of NCI and USLICO the number
of shares of Common Stock of the Surviving Corporation (and, in certain
circumstances, the right to be paid cash in certain amounts) to be
received for each share of USLICO Common Stock shall be calculated using
the same methodology contained in alternative (A), (B) or (C) of Clause
(iii) of this Section 1.6(b), using such Exchange Price to compute the
Revised Exchange Ratio and any Designated Exchange Ratio.
The Exchange Ratio shall be adjusted to reflect fully the effect of any
stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into NCI Common Stock or USLICO
Common Stock), exchange of shares, reclassification, reorganization,
recapitalization or other similar change (including the exercise of any
Rights under the NCI Rights Agreement (as such terms are defined in
Section 2.1(b)(i)) and the exercise of any
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USLICO Rights under the USLICO Rights Agreement (as such terms are
defined in Section 2.2(b)(i))) with respect to the NCI Common Stock or
the USLICO Common Stock occurring after the date hereof and prior to the
Effective Time. After the Effective Time, each record holder of a
certificate or certificates that immediately prior thereto represented
outstanding shares of USLICO Common Stock shall be entitled, upon
surrender thereof to the Surviving Corporation or the exchange or
transfer agent (the "Exchange Agent") for the Common Stock of the
Surviving Corporation, promptly to receive in exchange therefor a
certificate or certificates representing the number of whole shares of
Common Stock of the Surviving Corporation into which such shares of
USLICO Common Stock shall have been converted pursuant to this Section
1.6, in such denominations and registered in such names as such holder
may request, and, if such number of shares has been determined pursuant
to Clause (iii) (B) or (C) of this Section 1.6(b), promptly to be paid
cash in the required amount, without interest thereon, and, in addition,
each such holder who would otherwise be entitled to a fraction of a share
of Common Stock of the Surviving Corporation shall be entitled, upon such
surrender of a certificate or certificates to the Surviving Corporation
or the Exchange Agent, promptly to be paid cash in accordance with
Section 1.6(e). Until so surrendered, each certificate that immediately
prior to the Effective Time represented outstanding shares of USLICO
Common Stock shall be deemed from and after the Effective Time, for all
corporate purposes other than the payment of dividends or other
distributions, to evidence the ownership of the number of whole shares of
Common Stock of the Surviving Corporation into which such shares of
USLICO Common Stock shall have been so converted and the right to be paid
in cash, without interest thereon, any amount required to be paid
pursuant to the foregoing Clause (iii)(B) or (C) of this Section 1.6(b)
and to be paid cash in lieu of the issuance of any fractional share of
Common Stock of the Surviving Corporation in accordance with Section
1.6(e). Unless and until any such certificate that immediately prior to
the Effective Time represented outstanding shares of USLICO Common Stock
shall be so surrendered, no dividends or other distributions payable to
the holders of Common Stock of the Surviving Corporation, as of the
Effective Time or any time thereafter, shall be paid to the holder of
such certificate; provided however, that, upon surrender of such
certificate that immediately prior to the Effective Time represented
outstanding shares of USLICO Common Stock, there will be promptly paid to
the record holder of the certificate or certificates issued in exchange
therefor the amount, without interest thereon, of dividends and other
distributions, if any, that theretofore became payable with respect to
the number of whole shares of Common Stock of the Surviving Corporation
issued to such holder.
(c) All shares of Common Stock of the Surviving Corporation (and, in
certain circumstances, the right to be paid cash in certain amounts) into
which shares of USLICO Common Stock shall have been converted pursuant to
this Section 1.6 shall be issued (and cash paid) in full satisfaction of all
rights pertaining to such converted shares.
(d) If any certificate for shares of Common Stock of the Surviving
Corporation is to be issued in a name other than that of the record holder
of the certificate surrendered in exchange therefor, it will be a condition
of the issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such issuance shall have paid to the Surviving Corporation
or any agent designated by it any transfer or other taxes required by reason
of the issuance of a certificate for shares of Common Stock of the Surviving
Corporation in any name other than that of the record holder of the
certificate surrendered, or established to the satisfaction of the Surviving
Corporation or any agent designated by it that such tax has been paid or is
not payable.
(e) No fraction of a share of Common Stock of the Surviving Corporation
shall be issued, but in lieu thereof each record holder of shares of USLICO
Common Stock who would otherwise be entitled to a fraction of a share of
Common Stock of the Surviving Corporation shall be entitled, upon surrender
to the Surviving Corporation or the Exchange Agent of a certificate or
certificates
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that immediately prior to the Effective Time represented outstanding shares
of USLICO Common Stock, promptly to be paid in cash an amount equal to the
value of such fraction of a share based upon the Exchange Price and the
Exchange Ratio, Revised Exchange Ratio or Designated Exchange Ratio, as the
case may be. No interest shall be paid on any such amount.
(f) All shares of USLICO Common Stock held by a record holder shall be
aggregated for the purposes of computations of the number of shares of
Common Stock of the Surviving Corporation issuable and cash to be paid as
additional consideration or in lieu of fractional shares hereunder.
1.7 LETTERS OF TRANSMITTAL. Promptly after the Effective Time, the
Surviving Corporation shall, or shall cause the Exchange Agent to, mail, to each
record holder of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of USLICO Common Stock, a letter
of transmittal and reasonable instructions for such holder's use in effecting
the surrender of such certificate or certificates in exchange for a certificate
or certificates representing shares of Common Stock of the Surviving
Corporation.
1.8 LOST, STOLEN OR DESTROYED CERTIFICATE. In the event that any
certificate evidencing shares of USLICO Common Stock shall be alleged to have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for
such alleged lost, stolen or destroyed certificate, upon the making of an
affidavit of such allegation by the record holder thereof, a certificate for
such shares of Common Stock of the Surviving Corporation and such record holder
shall be entitled to any cash payments required pursuant to Section 1.6;
provided however, that the Surviving Corporation may, in its discretion and as a
condition precedent to the issuance thereof, require such holder of such alleged
lost, stolen or destroyed certificate to deliver a bond in such sum as the
Surviving Corporation may reasonably direct as indemnity against any claim that
may be made against the Surviving Corporation and/or the Exchange Agent with
respect to the certificate alleged to have been lost, stolen or destroyed.
1.9 FURTHER ACTION. Each of NCI and USLICO shall take all such reasonable
and lawful action as may be necessary or appropriate in order to effectuate the
Merger as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Constituent Corporations, the directors and officers of each of the
Constituent Corporations are fully authorized and empowered in the name and on
behalf of their respective corporation or otherwise to take, and shall take, all
such further action.
1.10 CERTAIN AGREEMENTS. The Surviving Corporation, from and after the
Effective Time, agrees that it may be served with process in the Commonwealth of
Virginia in any proceeding for the enforcement of any obligation of USLICO. The
Surviving Corporation irrevocably appoints the Clerk of the State Corporation
Commission of Virginia as its agent for service of process in any such
proceeding.
II. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF NCI. NCI hereby represents and
warrants to USLICO that:
(a) ORGANIZATION AND COMPLIANCE WITH LAW. Each of NCI and its direct
and indirect subsidiaries (all such direct and indirect subsidiaries,
including without limitation Northwestern National Life Insurance Company, a
Minnesota corporation ("NWNL") and a wholly owned subsidiary of NCI, The
North Atlantic Life Insurance Company of America, a New York corporation
("NALIC") and a wholly owned subsidiary of NWNL, and Northern Life Insurance
Company, a Washington corporation ("NLIC") and a wholly-owned subsidiary of
NWNL, are herein sometimes collectively referred to as the "NCI
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and corporate authority and all requisite
governmental and other authorizations to own, lease and operate its assets
and properties and to carry on its business as now being conducted, except
such governmental and other authorizations (if any) where the
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failure to have such authorizations does not and would not, either
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operations or business of NCI or any of the
NCI Subsidiaries. NCI is incorporated in the State of Delaware. Exhibit
2.1(a) hereto sets forth the name and jurisdiction of incorporation of each
of the NCI Subsidiaries. Each of NCI and the NCI Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
necessary. Except as disclosed in a disclosure letter delivered by NCI to
USLICO prior to the date hereof (the "NCI Disclosure Letter"), each of NCI
and the NCI Subsidiaries possesses all permits, licenses, authorizations,
certificates, franchises, orders, consents or other indicia of authority
required by any governmental, administrative or regulatory authority or
agency and is in compliance with all applicable laws, judgments, orders,
decrees, rules and regulations. NCI has heretofore delivered to USLICO true
and complete copies of the Certificate and the By-Laws and of the charter
and bylaws of each of the NCI Subsidiaries, in each case as in existence on
the date hereof.
(b) CAPITALIZATION.
(i) The authorized capital stock of NCI consists of 100,000,000
shares of NCI Common Stock and 7,000,000 shares of preferred stock,
without par value. As of June 30, 1994, there were issued and outstanding
29,670,689 shares of NCI Common Stock, 632,500 shares of NCI Senior
Preferred Stock and 1,317,545 shares of NCI ESOP Preferred Stock, all of
which are validly issued, fully paid and nonassessable. As of such date,
there were also reserved for issuance up to 2,500,000 shares of NCI's
Series A Junior Participating Preferred Stock ("NCI Junior Preferred
Stock") issuable under a Rights Agreement, dated as of October 7, 1988,
as amended, between NCI and Norwest Bank Minnesota, National Association,
as Rights Agent (the "NCI Rights Agreement"), pursuant to which each
outstanding share of NCI Common Stock has attached to it certain rights
("Rights") including rights under certain circumstances to purchase
one-twentieth of a share of NCI Junior Preferred Stock at $100, at the
date hereof, subject to adjustment. Except as disclosed in the NCI
Disclosure Letter, since June 30, 1994 no shares of NCI capital stock
have been issued. All outstanding shares of NCI capital stock are validly
issued, fully paid and nonassessable and no holder thereof is entitled to
any preemptive rights. All shares of Common Stock of the Surviving
Corporation issued in accordance with this Agreement, when issued, will
be validly issued, fully paid and nonassessable, will have Rights
attached thereto in accordance with the NCI Rights Agreement and will not
have any preemptive rights. Neither NCI nor any of the NCI Subsidiaries
is a party to, nor is NCI aware of, any voting agreement, voting trust or
similar agreement, arrangement or understanding relating to any class of
capital stock of, or any agreement, arrangement or understanding
providing for registration rights with respect to any class of capital
stock or other securities of, NCI or any of the NCI Subsidiaries, other
than voting arrangements relating to the NCI ESOP Preferred Stock.
(ii) Other than as set forth in this Section 2.1(b) and Section 4.12
and other than this Agreement, the NCI Dividend Reinvestment and Optional
Cash Payment Plan (the "NCI DRIP"), the NCI ESOP Preferred Stock, the NCI
Rights Agreement and NCI's employee benefit plans as described in NCI's
Annual Report on Form 10-K for the year ended December 31, 1993 (the "NCI
10-K") or NCI's proxy statement dated March 29, 1994 (the "NCI Proxy
Statement"), and any shares of capital stock of NCI issued pursuant to
any of the foregoing, there are not now, and at the Effective Time there
will not be, any (A) outstanding shares of capital stock or other equity
securities of NCI, or (B) outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares
of any class of capital stock of NCI, or contracts, agreements,
arrangements or understandings to which NCI is a party, or by which it is
or may be bound, to issue additional shares of any class of its capital
stock or
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options, warrants, scrip or rights to subscribe for, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any additional shares of any class
of capital stock of NCI.
(iii) The shares of capital stock or other equity securities of each
of the NCI Subsidiaries are collectively referred to herein as the "NCI
Subsidiary Shares". All outstanding NCI Subsidiary Shares are validly
issued, fully paid and nonassessable and, except as set forth in Exhibit
2.1(a) hereto, owned beneficially and of record directly or indirectly by
NCI, free and clear of all liens, pledges, security interests, claims or
other encumbrances. Except as aforesaid, there are not now, and at the
Effective Time will not be, any (A) outstanding NCI Subsidiary Shares
that are owned of record or beneficially by any person or entity other
than NCI or one of the NCI Subsidiaries, or (B) outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of any class of capital stock of any of
the NCI Subsidiaries, or contracts, agreements, arrangements or
understandings to which NCI or any of the NCI Subsidiaries is a party, or
by which any thereof is or may be bound, to issue additional shares of
any class of capital stock or options, warrants, scrip or rights to
subscribe for, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, any
additional shares of any class of capital stock of any of the NCI
Subsidiaries.
(c) AUTHORIZATION AND VALIDITY OF AGREEMENTS. Subject only, with
respect to the Merger, to adoption of this Agreement by the stockholders of
NCI as provided for in Section 4.3, NCI has all requisite corporate power
and corporate authority to enter into this Agreement and to perform its
obligations hereunder, including without limitation the preparation, filing
and distribution of the Registration Statement (as defined in Section 4.4),
and the execution and delivery by NCI of this Agreement and the consummation
by it of the transactions contemplated hereby have been duly authorized by
all requisite corporate action. On or prior to the date hereof, the NCI
Board has determined to recommend approval of the Merger to the stockholders
of NCI, and such determination is in effect as of the date hereof. This
Agreement has been duly executed and delivered by NCI and is the valid and
binding obligation of NCI, enforceable against NCI in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to certain equitable defenses
and to the discretion of the court before which any proceedings therefor may
be brought.
(d) NO NOTICES OR APPROVALS REQUIRED AND NO CONFLICTS. None of the
execution and delivery of this Agreement by NCI, the performance by NCI of
its obligations hereunder or the consummation by NCI of the transactions
contemplated hereby will:
(i) conflict with the Certificate or the By-Laws or with the charter
or bylaws of any of the NCI Subsidiaries;
(ii) assuming satisfaction of the requirements set forth in Clause
(iii) (A), (B), (C) and (D) below, violate any provision of law
applicable to NCI or any of the NCI Subsidiaries;
(iii) require any consent or approval of, or filing with or notice to,
any public body or authority, domestic or foreign, under any provision of
law applicable to NCI or any of the NCI Subsidiaries, except for (A)
requirements of Federal and state securities laws, (B) requirements
arising out of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (C) the filing of this Agreement or a
Certificate of Merger in accordance with the Delaware Law and the filing
of Articles of Merger and the issuance of a Certificate of Merger in
accordance with the Virginia Law, and (D) approvals of or notices to
regulatory authorities pursuant to the insurance laws of the State of
Minnesota, the State of New York and the Commonwealth of Virginia; or
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(iv) require any consent, approval or notice under, or violate,
breach, be in conflict with or constitute a default (or an event that,
with notice or lapse of time or both, would constitute a default) under,
or permit the termination of, or result in the creation or imposition of
any lien upon any assets, properties or business of NCI or any of the NCI
Subsidiaries under, any note, bond, indenture, mortgage, deed of trust,
lease, franchise, permit, authorization, license, contract, instrument or
other agreement or commitment, order, judgment or decree to which NCI or
any of the NCI Subsidiaries is a party or by which NCI or any of the NCI
Subsidiaries or any of the assets or properties thereof is bound or
encumbered, except as disclosed in the NCI Disclosure Letter.
(e) NCI REPORTS AND FINANCIAL STATEMENTS.
(i) Since December 31, 1990, each of NCI and the NCI Subsidiaries has
filed all reports, registration statements and other filings, together
with any amendments required to be made with respect thereto, that it has
been required to file with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and
the Securities Exchange Act of 1934, as amended (the "1934 Act"). All
reports, registration statements and other filings (including all
exhibits, notes and schedules thereto and documents incorporated by
reference therein) filed by NCI and any of the NCI Subsidiaries with the
SEC on or after January 1, 1991, together with any amendments thereto,
including, when filed, the Joint Proxy Statement (as defined in Section
3.2) and the Registration Statement, together with any amendments
thereto, insofar as the Registration Statement and the Joint Proxy
Statement contain data and information with respect to NCI or any of the
NCI Subsidiaries, are herein sometimes collectively referred to as the
"NCI SEC Reports". NCI has heretofore delivered to USLICO true and
complete copies of all of the NCI SEC Reports that have been filed with
the SEC prior to the date hereof. As of (A) with respect to all of the
NCI SEC Reports other than registration statements filed under the 1933
Act, the respective dates of their filing with the SEC and (B) with
respect to all registration statements filed under the 1933 Act, their
respective effective dates, the NCI SEC Reports complied or will comply,
as the case may be, in all material respects with the rules and
regulations of the SEC and did not or will not, as the case may be,
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein not misleading.
(ii) All material contracts, agreements, arrangements and
understandings of NCI and the NCI Subsidiaries have been disclosed in the
NCI SEC Reports filed with the SEC or in the NCI Disclosure Letter,
except for those contracts, agreements, arrangements and understandings
not required to be filed pursuant to the rules and regulations of the SEC
and those contracts, agreements, arrangements and understandings that
have already been fully performed and as to which there are no contingent
liabilities on the part of NCI or any of the NCI Subsidiaries.
(iii) The consolidated financial statements (including any related
notes or schedules) included in the NCI 10-K and NCI's Quarterly Reports
on Form 10-Q for the quarters ended March 31 and June 30, 1994 (the "NCI
10-Qs"), as filed with the SEC, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as may be noted therein or in the notes or schedules thereto) and
fairly present the consolidated financial position of NCI and its
consolidated subsidiaries as of December 31, 1992 and 1993 and March 31
and June 30, 1993 and 1994 and the consolidated results of their
operations and cash flows for each of the three years in the three-year
period ended December 31, 1993 and each of the three months ended March
31, 1993 and 1994 and each of the six months ended June 30, 1993 and
1994, subject, in the case of the unaudited interim financial statements
contained in the NCI 10-Qs, to normal year-end audit adjustments on a
basis comparable with prior periods. The accountants who certified any
financial statements and
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supporting schedules included or incorporated by reference in the NCI SEC
Reports are independent public accountants with respect to NCI as
required by the rules and regulations of the SEC.
(iv) The statutory financial statements of each of NCI's insurance
subsidiaries, including NWNL, NALIC and NLIC, for each of the three years
in the three-year period ended December 31, 1993 and for the quarters
ended March 31 and June 30, 1994 have been prepared in accordance with
accounting practices prescribed or permitted by the National Association
of Insurance Commissioners and, with respect to each such insurance
subsidiary, the appropriate insurance department of the state of domicile
of such insurance subsidiary, and such accounting practices have been
applied on a consistent basis throughout the period involved, except as
disclosed therein. NCI has heretofore delivered to USLICO true and
complete copies of all such statements.
(v) Since December 31, 1990, each of NCI and the NCI Subsidiaries has
filed all reports and other filings, together with any amendments
required to be made with respect thereto, that it has been required to
file with state and other insurance and securities regulatory authorities
(the "NCI Insurance Filings"), and all of the NCI Insurance Filings filed
prior to the date hereof complied, and all such filings made hereafter
prior to the Effective Time will comply, in all material respects with
applicable laws, rules and regulations, and, except as disclosed in the
NCI Disclosure Letter, there are no material open or unresolved issues
raised by any insurance or securities regulatory authority with respect
to any of such filings.
(f) CONDUCT OF BUSINESS IN THE ORDINARY COURSE AND ABSENCE OF CERTAIN
CHANGES AND EVENTS.
(i) Except as contemplated by this Agreement or as disclosed in the
NCI SEC Reports filed with the SEC prior to the date hereof or in the NCI
Disclosure Letter, since December 31, 1993 NCI and the NCI Subsidiaries
have taken no action of the type referred to in Section 4.1 and there has
not been any material adverse change in the financial condition, results
of operations or businesses of NCI and the NCI Subsidiaries, taken as a
whole, and there has not been any condition, event or development that is
reasonably expected by NCI to result in a material adverse change in the
financial condition, results of operations or businesses of NCI and the
NCI Subsidiaries, taken as a whole, and that would be required to be
disclosed in the NCI SEC Reports under the rules and regulations of the
SEC or that would be required to be disclosed in NCI's consolidated
financial statements or the notes thereto under generally accepted
accounting principles (excluding for purposes of the foregoing the effect
of any conditions, events and developments adversely affecting the life
insurance industry generally). NCI and the NCI Subsidiaries are not
parties to any collective bargaining agreements and believe that their
relations with their employees are generally satisfactory. Since December
31, 1993, no significant labor dispute with any employees of NCI or any
of the NCI Subsidiaries or union organizing effort has existed or, to the
knowledge of NCI, is imminent or threatened.
(ii) Neither NCI nor any of the NCI Subsidiaries is in violation of
its charter or bylaws or in default in the performance of, and no event
has occurred that, with notice or lapse of time or both, would constitute
a default in the performance of, any note, bond, indenture, mortgage,
deed of trust, lease, franchise, permit, authorization, license,
contract, instrument or other agreement or commitment, order, judgment or
decree to which NCI or any of the NCI Subsidiaries is a party or by which
NCI or any of the NCI Subsidiaries or any of the assets or properties
thereof is bound or encumbered.
(g) CERTAIN FEES. With the exception of the engagement by NCI of
Donaldson, Lufkin & Jenrette Securities Corporation and Milliman &
Robertson, Inc., none of NCI or any of the NCI Subsidiaries or any of their
respective directors, officers, employees, agents or representatives, on
behalf of NCI or any of the NCI Subsidiaries or their respective boards of
directors, or any
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committee thereof, has employed any financial advisor, actuary, broker or
finder or incurred any liability for any financial advisory, actuarial,
brokerage or finders' fees or commissions in connection with the
transactions contemplated hereby.
(h) INSURANCE HOLDING COMPANY SYSTEM. NCI and certain of its
subsidiaries are affiliates of an insurance holding company system as
defined in Minnesota Statutes, Section 60D.15, relating to insurance holding
company systems. NCI is a holding company and NALIC is a controlled insurer
as defined in Section 1501 of the New York Insurance Law, relating to
insurance holding companies and holding company systems.
(i) LITIGATION. Except as disclosed in the NCI SEC Reports filed with
the SEC prior to the date hereof or in the NCI Disclosure Letter, there are
no claims (other than policy claims that are not in litigation), actions,
suits, investigations or proceedings pending or, to the knowledge of NCI,
threatened against or affecting NCI or any of the NCI Subsidiaries or any of
their respective assets or properties, at law or in equity, before or by any
Federal, state, municipal or other governmental agency or authority, foreign
or domestic, or before any arbitration board or panel, wherever located.
(j) EMPLOYEE BENEFIT PLANS.
(i) There are no "employee pension benefit plans", as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), maintained by NCI or any of the NCI Subsidiaries for
the benefit of their employees (collectively, "NCI Pension Plans"),
except for the NCI Pension Plans disclosed in the NCI Proxy Statement or
in the NCI Disclosure Letter. Each "employee benefit plan", as defined in
Section 3(3) of ERISA, maintained by NCI, any of the NCI Subsidiaries or
any of their predecessors (collectively, "NCI Employee Plans") has been
maintained and administered in accordance with its terms and complies in
all material respects with all applicable requirements of ERISA, the Code
and other applicable laws (except that certain NCI Pension Plans may not
yet have been amended to comply with the Tax Reform Act of 1986 and
subsequent laws and regulations). None of NCI or any of the NCI
Subsidiaries nor any of their respective directors, officers, employees
or agents has, with respect to any of the NCI Employee Plans, engaged in
any "prohibited transaction", as defined in Section 4975 of the Code or
Section 406 of ERISA, or any conduct that is reasonably expected by NCI
to result in any taxes or penalties on prohibited transactions under
Section 4975 of the Code or Section 502(i) of ERISA or any liability
under Section 409 of ERISA for breach of fiduciary duty, that,
individually or in the aggregate, are reasonably expected by NCI to
result in a material change in the financial condition, results of
operations or businesses of NCI and the NCI Subsidiaries, taken as a
whole.
(ii) Each of NCI and the NCI Subsidiaries has fulfilled its
obligations to the extent applicable under the minimum funding
requirements of Section 302 of ERISA and Section 412 of the Code with
respect to each of the NCI Pension Plans; none of the NCI Pension Plans
has incurred an "accumulated funding deficiency", as defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived; and no
material civil or criminal action or claim (other than uncontested claims
for benefits) is pending or, to the knowledge of NCI, threatened with
respect to any of the NCI Employee Plans. Neither NCI nor any of the NCI
Subsidiaries has, or within the past five years has had, any obligation
to contribute to any "multiemployer plan", as defined in Section 3(37) of
ERISA, and neither NCI nor any of the NCI Subsidiaries has incurred, and
no event has occurred that might reasonably be expected to result in, any
material liability under Title IV of ERISA (excluding liability for
required premium payments to the Pension Benefit Guaranty Corporation
("PBGC")) in connection with any such multiemployer plan or any of the
NCI Pension Plans that is subject to Title IV of ERISA. NCI and the NCI
Subsidiaries have paid all premiums, if any, that have become due to the
PBGC with respect to any of the NCI Pension Plans.
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(iii) The assets of each of the NCI Pension Plans that are subject to
Title IV of ERISA exceed the present value of vested and nonvested
benefits accrued under such plan, determined as of the date of the most
recent actuarial report for such plan on a termination basis using the
actuarial assumptions established by the PBGC as in effect on such date.
The Internal Revenue Service (the "IRS") has issued a letter for each of
the NCI Pension Plans determining that such plan is qualified under
Section 401(a) of the Code and there has been no occurrence since the
date of any such determination letter that has adversely affected such
qualification that cannot be cured within the remedial amendment period
provided by Section 401(b) of the Code.
(k) TAXES.
(i) Except as disclosed in the NCI Disclosure Letter, all returns and
reports, including without limitation information and withholding returns
and reports (collectively, "Tax Returns") of or relating to any foreign,
Federal, state, local or other income, premium, property, sales, excise
and other taxes of any nature whatsoever, including any interest,
penalties and additions to tax in respect thereof ("Tax" or "Taxes")
heretofore required to be filed by NCI or any of the NCI Subsidiaries
have been duly filed on a timely basis. All such Tax Returns were
complete and accurate in all material respects. Each of NCI and the NCI
Subsidiaries has paid or has made adequate provision for the payment of
all Taxes.
(ii) Except as disclosed in the NCI Disclosure Letter, as of the date
of this Agreement there are no audits or administrative proceedings,
court proceedings or claims pending against NCI or any of the NCI
Subsidiaries with respect to any Taxes, no assessment, deficiency or
adjustment has been asserted or, to the knowledge of NCI, proposed with
respect to any Tax Return of or with respect to NCI or any of the NCI
Subsidiaries and there are no liens for Taxes upon the assets or
properties of NCI or any of the NCI Subsidiaries, except liens for Taxes
not yet delinquent.
(iii) Except as disclosed in the NCI Disclosure Letter, there are not
in force any waivers or agreements, arrangements or understandings by or
with respect to NCI or any of the NCI Subsidiaries of or for an extension
of time for the assessment or payment of any Taxes. Neither NCI nor any
of the NCI Subsidiaries has received a written ruling of a taxing
authority relating to Taxes or entered into a written and legally binding
agreement with a taxing authority relating to Taxes that would have a
continuing material adverse effect after the Closing Date. Except as
disclosed in the NCI Disclosure Letter, neither NCI nor any of the NCI
Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code by reason of a voluntary change in accounting
method initiated by NCI or any of the NCI Subsidiaries, and to the best
knowledge of NCI the IRS has not proposed any such adjustment or change
in accounting method. For purposes of this Section 2.1(k), the term "NCI
Subsidiaries" shall include former subsidiaries of NCI for the periods
during which any such subsidiaries were owned directly or indirectly by
NCI.
(iv) To the best knowledge of NCI, no person (a "Section 2.1(k)
Investor"), by reason of ownership of a partnership interest in any
partnership in which NCI or any of the NCI Subsidiaries owned or owns
directly or indirectly a partnership interest and with respect to which
partnership interests were issued pursuant to an exemption from the 1933
Act, has asserted any claim against NCI or any of the NCI Subsidiaries
with respect to Taxes, which claim is derived from such Section 2.1(k)
Investor's interest in such partnership, nor has any governmental
authority asserted or proposed any adjustment that could give rise to
such a claim. To the best knowledge of NCI, no such claim has been
threatened.
(v) To the best knowledge of NCI, each of NCI and the NCI
Subsidiaries has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
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(vi) Neither NCI nor any of the NCI Subsidiaries has filed a consent
under Section 341(f) of the Code. NCI and the NCI Subsidiaries are
parties to Tax allocation and Tax sharing arrangements among them, all of
which arrangements have heretofore been disclosed to USLICO by NCI.
(vii) No property of NCI or any of the NCI Subsidiaries is property
that NCI or any of the NCI Subsidiaries is required to treat as owned by
another person pursuant to the safe harbor leasing provisions (now
repealed) of the Code.
(l) INTELLECTUAL PROPERTY. As of the date of this Agreement and to the
best knowledge of NCI, NCI and the NCI Subsidiaries own or are otherwise
duly authorized or entitled to utilize all trademarks, service marks, trade
names, trade secrets, licenses, designs, copyrights, formulas, processes,
patents, or applications therefor, and other intellectual property rights as
are presently used in, or necessary for, the conduct of the businesses of
NCI and the NCI Subsidiaries as presently conducted, except where the
failure to have such ownership or authorization or entitlement does not and
would not, individually or in the aggregate, have a material adverse effect
on the financial condition, results of operations or business of NCI or any
of the NCI Subsidiaries. Since December 31, 1990, to the best knowledge of
NCI there has not been any violation or infringement by NCI or any of the
NCI Subsidiaries of any intellectual property right of any other person, or
any claim of such infringement, that has not been resolved and is
continuing, and neither NCI nor any of the NCI Subsidiaries has given to or
made with any other person any indemnification, forbearance to sue or
settlement for infringement of any intellectual property right.
(m) OPINION OF FINANCIAL ADVISOR. The NCI Board has received from
Donaldson, Lufkin & Jenrette Securities Corporation a written opinion, dated
on or prior to the date of this Agreement, to the effect that the
consideration to be paid by NCI in the Merger is fair to the shareholders of
NCI from a financial point of view.
2.2 REPRESENTATIONS AND WARRANTIES OF USLICO. USLICO hereby represents and
warrants to NCI that:
(a) ORGANIZATION AND COMPLIANCE WITH LAW. Each of USLICO and its
direct and indirect subsidiaries (all such direct and indirect subsidiaries,
including without limitation United Services Life Insurance Company, a
Virginia corporation ("USLIC") and a wholly owned subsidiary of USLICO, and
Bankers Security Life Insurance Society, a New York corporation ("BSLIS")
and a wholly owned subsidiary of USLIC, are herein sometimes collectively
referred to as the "USLICO Subsidiaries") is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and corporate authority
and all requisite governmental and other authorizations to own, lease and
operate its assets and properties and to carry on its business as now being
conducted, except such governmental and other authorizations (if any) where
the failure to have such authorizations does not and would not, either
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operations or business of USLICO or any of
the USLICO Subsidiaries. USLICO is incorporated in the Commonwealth of
Virginia. Exhibit 2.2(a) hereto sets forth the name and jurisdiction of
incorporation of each of the USLICO Subsidiaries. Neither USLICO nor any of
the USLICO Subsidiaries is a general partner in any partnership. Except as
set forth in Exhibit 2.2(a) hereto, neither USLICO nor any of the USLICO
Subsidiaries is a party to any joint venture in which USLICO and the USLICO
Subsidiaries have made, or have an obligation to make, capital contributions
in excess of $1 million. Each of USLICO and the USLICO Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
necessary. Except as disclosed in a disclosure letter delivered by USLICO to
NCI prior to the date hereof (the "USLICO Disclosure Letter"), each of
USLICO and the USLICO Subsidiaries possesses all permits, licenses,
authorizations, certificates, franchises, orders, consents or other indicia
of authority required by any governmental,
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administrative or regulatory authority or agency and is in compliance with
all applicable laws, judgments, orders, decrees, rules and regulations.
USLICO has heretofore delivered to NCI true and complete copies of its
articles of incorporation and bylaws and of the charter and bylaws of each
of the USLICO Subsidiaries, in each case as in existence on the date hereof.
(b) CAPITALIZATION.
(i) The authorized capital stock of USLICO consists of 50,000,000
shares of USLICO Common Stock. As of June 30, 1994, there were issued and
outstanding 14,435,005 shares of USLICO Common Stock, of which 3,671,855
shares were held by two of the USLICO Subsidiaries. As of such date,
there were also reserved for issuance up to 17,794,300 shares of USLICO
Common Stock issuable under a Rights Agreement, dated as of February 26,
1988, between USLICO and Crestar Bank, National Association, as Rights
Agent (the "USLICO Rights Agreement"), pursuant to which each outstanding
share of USLICO Common Stock has attached to it certain rights (the
"USLICO Rights") including rights under certain circumstances to purchase
a share of USLICO Common Stock at $100, subject to adjustment. As of June
30, 1994, USLICO had over 6,000 record shareholders. Except as disclosed
in the USLICO Disclosure Letter, since such date no shares of USLICO
Common Stock have been issued. All outstanding shares of USLICO Common
Stock are validly issued, fully paid and nonassessable and no holder
thereof is entitled to any preemptive rights. Neither USLICO nor any of
the USLICO Subsidiaries is a party to, nor is USLICO aware of, any voting
agreement, voting trust or similar agreement, arrangement or
understanding relating to any class of capital stock of, or any
agreement, arrangement or understanding providing for registration rights
with respect to any class of capital stock or other securities of, USLICO
or any of the USLICO Subsidiaries.
(ii) As of the date hereof, there are outstanding options (the
"USLICO Options") to purchase under USLICO's stock option plans
(collectively, the "USLICO Option Plans") an aggregate of not more than
423,500 shares of USLICO Common Stock at a weighted average exercise
price per share of $16.90 (ranging from $16.375 to $18.25 per share).
Other than as set forth in this Section 2.2(b) and other than the USLICO
Debentures, the USLICO Rights Agreement, the USLICO Option Agreement and
the USLICO Options and option agreements relating thereto, and any shares
of USLICO Common Stock issued pursuant to any of the foregoing, there are
not now, and at the Effective Time there will not be, any (A) outstanding
shares of capital stock or other equity securities of USLICO, or (B)
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of any class of
capital stock of USLICO, or contracts, agreements, arrangements or
understandings to which USLICO is a party, or by which it is or may be
bound, to issue additional shares of any class of its capital stock or
options, warrants, scrip or rights to subscribe for, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any additional shares of any class
of capital stock of USLICO. USLICO has heretofore delivered to NCI true
and complete copies of each of the USLICO Option Plans and each of the
option agreements thereunder, in each case as in existence on the date
hereof.
(iii) The shares of capital stock or other equity securities of each
of the USLICO Subsidiaries are collectively referred to herein as the
"USLICO Subsidiary Shares". All outstanding USLICO Subsidiary Shares are
validly issued, fully paid and nonassessable and, except as set forth in
Exhibit 2.2(a) hereto, owned beneficially and of record directly or
indirectly by USLICO, free and clear of all liens, pledges, security
interests, claims or other encumbrances. Except as aforesaid, there are
not now, and at the Effective Time there will not be, any (A) outstanding
USLICO Subsidiary Shares that are owned of record or beneficially by any
person or entity other than USLICO or one of the USLICO Subsidiaries, or
(B) outstanding options, warrants, scrip, rights to subscribe for, calls
or commitments of any character
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whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any class of capital stock of any of the
USLICO Subsidiaries, or contracts, agreements, arrangements or
understandings to which USLICO or any of the USLICO Subsidiaries is a
party, or by which any thereof is or may be bound, to issue additional
shares of any class of capital stock or options, warrants, scrip or
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, any additional shares of capital stock of any of the USLICO
Subsidiaries.
(iv) As of June 30, 1994, there were outstanding $57.5 million in
aggregate principal amount of USLICO's 8.5% Convertible Subordinated
Debentures Due 2014 (the "1989 Debentures") and $38.55 million in
aggregate principal amount of USLICO's 8% Convertible Subordinated
Debentures Due 2011 (the "1986 Debentures"). The 1989 Debentures and the
1986 Debentures are herein sometimes referred to as the "USLICO
Debentures". As provided therein, the USLICO Debentures are convertible
into USLICO Common Stock at varying conversion prices, not less than $27
per share of USLICO Common Stock, subject to adjustment.
(c) AUTHORIZATION AND VALIDITY OF AGREEMENTS. Subject only, with
respect to the Merger, to approval of this Agreement by the shareholders of
USLICO as provided for in Section 3.3, USLICO has all requisite corporate
power and corporate authority to enter into this Agreement and to perform
its obligations hereunder, and the execution and delivery by USLICO of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all requisite corporate action. On or prior to
the date hereof, the USLICO Board has determined to recommend approval of
the Merger to the shareholders of USLICO, and such determination is in
effect as of the date hereof. This Agreement has been duly executed and
delivered by USLICO and is the valid and binding obligation of USLICO,
enforceable against USLICO in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to certain equitable defenses and to the discretion of the court
before which any proceedings therefor may be brought.
(d) NO NOTICES OR APPROVALS REQUIRED AND NO CONFLICTS. None of the
execution and delivery of this Agreement by USLICO, the performance by
USLICO of its obligations hereunder or the consummation by USLICO of the
transactions contemplated hereby will:
(i) conflict with the articles of incorporation or bylaws of USLICO
or with the charter or bylaws of any of the USLICO Subsidiaries;
(ii) assuming satisfaction of the requirements set forth in Clause
(iii) (A), (B), (C) and (D) below, violate any provision of law
applicable to USLICO or any of the USLICO Subsidiaries;
(iii) require any consent or approval of, or filing with or notice to,
any public body or authority, domestic or foreign, under any provision of
law applicable to USLICO or any of the USLICO Subsidiaries, except for
(A) requirements of Federal and state securities laws, (B) requirements
arising out of the HSR Act, (C) the filing of Articles of Merger and the
issuance of a Certificate of Merger in accordance with the Virginia Law
and the filing of a Certificate of Merger in accordance with the Delaware
Law, and (D) approvals of or notices to regulatory authorities pursuant
to the insurance laws of the State of Minnesota, the State of New York
and the Commonwealth of Virginia; or
(iv) require any consent, approval or notice under, or violate,
breach, be in conflict with or constitute a default (or an event that,
with notice or lapse of time or both, would constitute a default) under,
or permit the termination of, or result in the creation or imposition of
any lien upon any assets, properties or business of USLICO or any of the
USLICO Subsidiaries
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under, any note, bond, indenture, mortgage, deed of trust, lease,
franchise, permit, authorization, license, contract, instrument or other
agreement or commitment, order, judgment or decree to which USLICO or any
of the USLICO Subsidiaries is a party or by which USLICO or any of the
USLICO Subsidiaries or any of the assets or properties thereof is bound
or encumbered, except those disclosed in the USLICO Disclosure Letter.
(e) USLICO REPORTS AND FINANCIAL STATEMENTS.
(i) Since December 31, 1990, each of USLICO and the USLICO
Subsidiaries has filed all reports, registration statements and other
filings, together with any amendments required to be made with respect
thereto, that it has been required to file with the SEC under the 1933
Act and the 1934 Act. All reports, registration statements and other
filings (including all exhibits, notes and schedules thereto and
documents incorporated by reference therein) filed by USLICO and any of
the USLICO Subsidiaries with the SEC on or after January 1, 1991,
together with any amendments thereto, including, when filed, the Joint
Proxy Statement, together with any amendments thereto, insofar as the
Joint Proxy Statement contains data and information with respect to
USLICO or any of the USLICO Subsidiaries, are herein sometimes
collectively referred to as the "USLICO SEC Reports". USLICO has
heretofore delivered to NCI true and complete copies of all of the USLICO
SEC Reports that have been filed with the SEC prior to the date hereof.
As of (A) with respect to all of the USLICO SEC Reports other than
registration statements filed under the 1933 Act, the respective dates of
their filing with the SEC and (B) with respect to all registration
statements filed under the 1933 Act, their respective effective dates,
the USLICO SEC Reports complied or will comply, as the case may be, in
all material respects with the rules and regulations of the SEC and did
not or will not, as the case may be, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading.
(ii) All material contracts, agreements, arrangements and
understandings of USLICO and the USLICO Subsidiaries have been disclosed
in the USLICO SEC Reports filed with the SEC or in the USLICO Disclosure
Letter, except for those contracts, agreements, arrangements and
understandings not required to be filed pursuant to the rules and
regulations of the SEC and those contracts, agreements, arrangements and
understandings that have already been fully performed and as to which
there are not contingent liabilities on the part of USLICO or any of the
USLICO Subsidiaries.
(iii) Except as disclosed in the USLICO SEC Reports or the USLICO
Disclosure Letter, none of USLICO, USLIC, BSLIS or any of the other
USLICO Subsidiaries is a party to any contract or agreement (or group of
related contracts or agreements) that during the calendar year 1993
contributed more than $2 million to total premiums and other
considerations or other income (excluding net investment income and
realized investment gains), and none is a party to any contract or
agreement entered into other than in the ordinary course of business in
which the liability of USLICO and the USLICO Subsidiaries for future
payments exceeds $2 million in the aggregate.
(iv) The consolidated financial statements (including any related
notes or schedules) included in USLICO's Annual Report on Form 10-K for
the year ended December 31, 1993 (the "USLICO 10-K") and USLICO's
Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 1994 (the "USLICO 10-Qs"), as filed with the SEC, were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be noted therein or in the notes or
schedules thereto) and fairly present the consolidated financial position
of USLICO and its consolidated subsidiaries as of December 31, 1992 and
1993 and March 31 and June 30, 1993 and 1994 and the consolidated results
of their operations and cash flows for each of the three years in the
three-year period ended December 31, 1993 and each of the three months
ended March 31, 1993 and 1994 and each of
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the six months ended June 30, 1993 and 1994, subject, in the case of the
unaudited interim financial statements contained in the USLICO 10-Qs, to
normal year-end audit adjustments on a basis comparable with prior
periods. The accountants who certified any financial statements and
supporting schedules included or incorporated by reference in the USLICO
SEC Reports are independent public accountants with respect to USLICO as
required by the rules and regulations of the SEC.
(v) The statutory financial statements of each of USLICO's insurance
subsidiaries, including USLIC and BSLIS, for each of the three years in
the three-year period ended December 31, 1993 and for the quarters ended
March 31 and June 30, 1994 have been prepared in accordance with
accounting practices prescribed or permitted by the National Association
of Insurance Commissioners and, with respect to each such insurance
subsidiary, the appropriate insurance department of the state of domicile
of such insurance subsidiary, and such accounting practices have been
applied on a consistent basis throughout the period involved, except as
disclosed therein. USLICO has heretofore delivered to NCI true and
complete copies of all such statements.
(vi) Since December 31, 1990, each of USLICO and the USLICO
Subsidiaries has filed all reports and other filings, together with any
amendments required to be made with respect thereto, that it has been
required to file with state and other insurance and securities regulatory
authorities (the "USLICO Insurance Filings"), and all of the USLICO
Insurance Filings filed prior to the date hereof complied, and all such
filings made hereafter prior to the Effective Time will comply, in all
material respects with applicable laws, rules and regulations, and,
except as disclosed in the USLICO Disclosure Letter, there are no
material open or unresolved issues raised by any insurance or securities
regulatory authority with respect to any of such filings.
(f) CONDUCT OF BUSINESS IN THE ORDINARY COURSE AND ABSENCE OF CERTAIN
CHANGES AND EVENTS.
(i) Except as contemplated by this Agreement or as disclosed in the
USLICO SEC Reports filed with the SEC prior to the date hereof or in the
USLICO Disclosure Letter, since December 31, 1993 USLICO and the USLICO
Subsidiaries have taken no action of the type referred to in Section 3.1
and there has not been any material adverse change in the financial
condition, results of operations or businesses of USLICO and the USLICO
Subsidiaries, taken as a whole, and there has not been any condition,
event or development that is reasonably expected by USLICO to result in a
material adverse change in the financial condition, results of operations
or businesses of USLICO and the USLICO Subsidiaries, taken as a whole,
and that would be required to be disclosed in the USLICO SEC Reports
under the rules and regulations of the SEC or that would be required to
be disclosed in USLICO's consolidated financial statements or the notes
thereto under generally accepted accounting principles (excluding for
purposes of the foregoing the effect of any conditions, events and
developments adversely affecting the life insurance industry generally).
USLICO and the USLICO Subsidiaries are not parties to any collective
bargaining agreement and believe that their relations with their
employees are generally satisfactory. Since December 31, 1993, no
significant labor dispute with any employees of USLICO or any of the
USLICO Subsidiaries or union organizing effort has existed or, to the
knowledge of USLICO, is imminent or threatened.
(ii) Neither USLICO nor any of the USLICO Subsidiaries is in
violation of its charter or bylaws or in default in the performance of,
and no event has occurred that, with notice or lapse of time or both,
would constitute a default in the performance of, any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or
commitment, order, judgment or decree to which USLICO or any of the
USLICO Subsidiaries is a party or by which USLICO or any of the USLICO
Subsidiaries or any of the assets or properties thereof is bound or
encumbered.
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(g) CERTAIN FEES. With the exception of the engagement by USLICO of
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Tillinghast, a Towers
Perrin Company, none of USLICO or any of the USLICO Subsidiaries, or any of
their respective directors, officers, employees, agents or representatives,
on behalf of USLICO or any of the USLICO Subsidiaries or their respective
boards of directors, or any committee thereof, has employed any financial
advisor, actuary, broker or finder or incurred any liability for any
financial advisory, actuarial, brokerage or finders' fees or commissions in
connection with the transactions contemplated hereby.
(h) INSURANCE HOLDING COMPANY SYSTEM. USLICO and certain of its
subsidiaries are affiliates of an insurance holding company system as
defined in the Code of Virginia, Section 38.2-1322, relating to insurance
holding company systems. USLICO is a holding company and BSLIS is a
controlled insurer as defined in Section 1501 of the New York Insurance Law,
relating to insurance holding companies and holding company systems.
(i) LITIGATION. Except as disclosed in the USLICO SEC Reports filed
with the SEC prior to the date hereof or in the USLICO Disclosure Letter,
there are no claims (other than policy claims that are not in litigation),
actions, suits, investigations or proceedings pending or, to the knowledge
of USLICO, threatened against or affecting USLICO or any of the USLICO
Subsidiaries or any of their respective assets or properties, at law or in
equity, before or by any Federal, state, municipal or other governmental
agency or authority, foreign or domestic, or before any arbitration board or
panel, wherever located.
(j) EMPLOYEE BENEFIT PLANS.
(i) There are no "employee pension benefit plans", as defined in
Section 3(2) of ERISA, maintained by USLICO or any of the USLICO
Subsidiaries for the benefit of their employees (collectively, "USLICO
Pension Plans") except for the USLICO Pension Plans disclosed in the
USLICO Proxy Statement dated March 29, 1994 or in the USLICO Disclosure
Letter. Each "employee benefit plan", as defined in Section 3(3) of
ERISA, maintained by USLICO, any of the USLICO Subsidiaries or any of
their predecessors (collectively, "USLICO Employee Plans") has been
maintained and administered in accordance with its terms and complies in
all material respects with all applicable requirements of ERISA, the Code
and other applicable laws (except that certain USLICO Pension Plans may
not yet have been amended to comply with the Tax Reform Act of 1986 and
subsequent laws and regulations). None of USLICO or any of the USLICO
Subsidiaries nor any of their respective directors, officers, employees
or agents has, with respect to any of the USLICO Employee Plans, engaged
in any "prohibited transaction", as defined in Section 4975 of the Code
or Section 406 of ERISA, or any conduct that is reasonably expected by
USLICO to result in any taxes or penalties on prohibited transactions
under Section 4975 of the Code or Section 502(i) of ERISA or any
liability under Section 409 of ERISA for breach of fiduciary duty that,
individually or in the aggregate, are reasonably expected by USLICO to
result in a material adverse change in the financial condition, results
of operations or businesses of USLICO and the USLICO Subsidiaries, taken
as a whole.
(ii) Each of USLICO and the USLICO Subsidiaries has fulfilled its
obligations to the extent applicable under the minimum funding
requirements of Section 302 of ERISA and Section 412 of the Code with
respect to each of the USLICO Pension Plans; none of the USLICO Pension
Plans has incurred an "accumulated funding deficiency", as defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived;
and no material civil or criminal action or claim (other than uncontested
claims for benefits) is pending or, to the knowledge of USLICO,
threatened with respect to any of the USLICO Employee Plans. Neither
USLICO nor any of the USLICO Subsidiaries has, or within the past five
years has had, any obligation to contribute to any "multiemployer plan",
as defined in Section 3(37) of ERISA, and neither USLICO nor any of the
USLICO Subsidiaries has incurred, and no event has occurred that might
reasonably be expected to result in, any material liability under
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Title IV of ERISA (excluding liability for required premium payments to
the PBGC) in connection with any such multiemployer plan or any of the
USLICO Pension Plans that is subject to Title IV of ERISA. USLICO and the
USLICO Subsidiaries have paid all premiums, if any, that have become due
to the PBGC with respect to any of the USLICO Pension Plans.
(iii) The assets of each of the USLICO Pension Plans that are subject
to Title IV of ERISA exceed the present value of vested and nonvested
benefits accrued under such plan, determined as of the date of the most
recent actuarial report for such plan on a termination basis using the
actuarial assumptions established by the PBGC as in effect on such date.
The IRS has issued a letter for each of the USLICO Pension Plans
determining that such plan is qualified under Section 401(a) of the Code
and there has been no occurrence since the date of any such determination
letter that has adversely affected such qualification that cannot be
cured within the remedial amendment period provided by Section 401(b) of
the Code.
(k) TAXES.
(i) Except as disclosed in the USLICO Disclosure Letter, all Tax
Returns of or relating to any Taxes heretofore required to be filed by
USLICO or any of the USLICO Subsidiaries have been duly filed on a timely
basis. All such Tax Returns were complete and accurate in all material
respects. Each of USLICO and the USLICO Subsidiaries has paid or made
adequate provision for the payment of all Taxes.
(ii) Except as disclosed in the USLICO Disclosure Letter, as of the
date of this Agreement there are no audits or administrative proceedings,
court proceedings or claims pending against USLICO or any of the USLICO
Subsidiaries with respect to any Taxes, no assessment, deficiency or
adjustment has been asserted or, to the knowledge of USLICO, proposed
with respect to any Tax Return of or with respect to USLICO or any of the
USLICO Subsidiaries and there are no liens for Taxes upon the assets or
properties of USLICO or any of the USLICO Subsidiaries, except liens for
Taxes not yet delinquent.
(iii) Except as disclosed in the USLICO Disclosure Letter, there are
not in force any waivers or agreements, arrangements or understandings by
or with respect to USLICO or any of the USLICO Subsidiaries of or for an
extension of time for the assessment or payment of any Taxes. Neither
USLICO nor any of the USLICO Subsidiaries has received a written ruling
of a taxing authority relating to Taxes or entered into a written and
legally binding agreement with a taxing authority relating to Taxes that
would have a continuing material adverse effect after the Closing Date.
Except as disclosed in the USLICO Disclosure Letter, neither USLICO nor
any of the USLICO Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by USLICO or any of the
USLICO Subsidiaries, and to the best knowledge of USLICO the IRS has not
proposed any such adjustment or change in accounting method. For purposes
of this Section 2.2(k), the term "USLICO Subsidiaries" shall include
former subsidiaries of USLICO for the periods during which any such
subsidiaries were owned directly or indirectly by USLICO.
(iv) To the best knowledge of USLICO, no person (a "Section 2.2(k)
Investor"), by reason of ownership of a partnership interest in any
partnership in which USLICO or any of the USLICO Subsidiaries owned or
owns directly or indirectly a partnership interest and with respect to
which partnership interests were issued pursuant to an exemption from the
1933 Act, has asserted any claim against USLICO or any of the USLICO
Subsidiaries with respect to Taxes, which claim is derived from such
Section 2.2(k) Investor's interest in such partnership, nor has any
governmental authority asserted or proposed any adjustment that could
give rise to such a claim. To the best knowledge of USLICO, no such claim
has been threatened.
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(v) To the best knowledge of USLICO, each of USLICO and the USLICO
Subsidiaries has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(vi) Neither USLICO nor any of the USLICO Subsidiaries has filed a
consent under Section 341(f) of the Code. USLICO and the USLICO
Subsidiaries are parties to Tax allocation and Tax sharing arrangements
among them, all of which arrangements have heretofore been disclosed to
NCI by USLICO.
(vii) No property of USLICO or any of the USLICO Subsidiaries is
property that USLICO or any of the USLICO Subsidiaries is required, or
that NCI or any of the NCI Subsidiaries will be required, to treat as
owned by another person pursuant to the safe harbor leasing provisions
(now repealed) of the Code.
(l) INTELLECTUAL PROPERTY. As of the date of this Agreement and to the
best knowledge of USLICO, USLICO and the USLICO Subsidiaries own or are
otherwise duly authorized or entitled to utilize all trademarks, service
marks, trade names, licenses, designs, copyrights, formulas, processes,
patents, or applications therefor, and other intellectual property rights as
are presently used in, or necessary for, the conduct of the businesses of
USLICO and the USLICO Subsidiaries as presently conducted, except where the
failure to have such ownership or authorization or entitlement does not and
would not, individually or in the aggregate, have a material adverse effect
on the financial condition, results of operations or business of USLICO or
any of the USLICO Subsidiaries. Since December 31, 1990, to the best
knowledge of USLICO there has not been any violation or infringement by
USLICO or any of the USLICO Subsidiaries of any intellectual property right
of any other person, or any claim of such infringement, that has not been
resolved and is continuing, and neither USLICO nor any of the USLICO
Subsidiaries has given to or made with any other person any indemnification,
forbearance to sue or settlement for infringement of any intellectual
property right.
(m) NO SECURED DEBT. Except as set forth in the USLICO Disclosure
Letter, there is not now, and there will not be immediately prior to the
Effective Time, any secured debt (including capitalized leases) of USLICO or
any of the USLICO Subsidiaries, except for (i) capitalized leases of less
than $1 million in the aggregate as to USLICO and the USLICO Subsidiaries,
or (ii) capitalized leases of USLICO or any of the USLICO Subsidiaries that
are not reflected (and should not be reflected in accordance with generally
accepted accounting principles) on the consolidated financial statements of
USLICO, and, in either case, the existence of which does not violate the
terms of any material note, bond, indenture, mortgage, deed of trust, lease,
franchise, permit, authorization, license, contract, instrument or other
agreement or commitment to which USLICO or any of the USLICO Subsidiaries is
a party or by which USLICO or any of the USLICO Subsidiaries or any of the
assets or properties thereof is bound or encumbered.
(n) OPINION OF FINANCIAL ADVISOR. The USLICO Board has received from
Merrill Lynch, Pierce, Fenner & Smith Incorporated a written opinion, dated
on or prior to the date of this Agreement, to the effect that the terms of
the Merger are fair to the shareholders of USLICO from a financial point of
view.
III. COVENANTS OF USLICO
3.1 CONDUCT OF BUSINESS BY USLICO AND USLICO SUBSIDIARIES PENDING THE
MERGER. USLICO covenants and agrees with NCI that, with respect to USLICO and
the USLICO Subsidiaries, prior to the Effective Time, unless NCI shall otherwise
agree in writing or as is otherwise expressly contemplated by this Agreement:
(a) The businesses of USLICO and the USLICO Subsidiaries will be
conducted only in, and USLICO and the USLICO Subsidiaries will not take any
material action except in, the ordinary course of business and consistent
with prior practices.
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(b) Each of USLICO and the USLICO Subsidiaries will not directly or
indirectly do any of the following: (i) issue, sell, pledge, dispose of or
encumber (A) any shares of capital stock of USLICO or any of the USLICO
Subsidiaries, except the issuance of shares of USLICO Common Stock upon
conversion of USLICO Debentures, pursuant to the USLICO Rights Agreement,
upon exercise by NCI of the USLICO Option Agreement or upon exercise of
USLICO Stock Options outstanding as of the date hereof and referred to in
Section 2.2(b)(ii), (B) any investment assets of USLICO or any of the USLICO
Subsidiaries other than in the ordinary course of business consistent with
prior practices or in transactions not in excess of $20 million in the
aggregate, or (C) any other assets or properties of USLICO or any of the
USLICO Subsidiaries other than in the ordinary course of business and
consistent with prior practices or in transactions not in excess of $5
million in the aggregate; (ii) amend or propose to amend its charter or
bylaws; (iii) split, combine or reclassify any outstanding capital stock, or
declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise with respect to its capital stock whether now
or hereafter outstanding, except for (A) cash dividends from one of the
USLICO Subsidiaries paid to USLICO or another of the USLICO Subsidiaries and
(B) regular quarterly cash dividends of not more than $.06 per share per
quarter on USLICO Common Stock and a special cash dividend of not more than
$.45 per share on USLICO Common Stock; (iv) redeem, purchase or acquire or
offer to acquire any of their capital stock other than as contemplated by
Section 3.7; or (v) agree or commit to do any of the foregoing.
(c) Each of USLICO and the USLICO Subsidiaries will not directly or
indirectly do any of the following: (i) grant, issue, sell, pledge or
dispose of any options, warrants or rights of any kind to acquire any shares
of any class of capital stock of USLICO or any of the USLICO Subsidiaries or
any securities that are convertible or exchangeable therefor; (ii) acquire
(whether by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization or
division thereof; (iii) incur any indebtedness for borrowed money or issue
any debt securities, except under the existing line of credit with Crestar
Bank, National Association; (iv) cancel any material debts or obligations
owing to it, except in connection with the settlement of policy claims; (v)
liquidate or merge into or consolidate with any other corporation; or (vi)
agree or commit to do any of the foregoing.
(d) Each of USLICO and the USLICO Subsidiaries will not enter into,
amend in any material respect, terminate or waive any material right under
any contract or agreement referred to in Clause (iii) of Section 2.2(e) or
that would have been disclosed pursuant to such clause if such contract or
agreement had been in effect as of the date hereof; provided however, that
this Section 3.1(d) shall not prohibit USLICO or any of the USLICO
Subsidiaries from taking any of the following actions in the ordinary course
of business and consistent with prior practices: accepting or reinsuring
insurance or annuity risks, or entering into, modifying or terminating
agency contracts; provided however, that USLICO will consult with NCI prior
to terminating any agency contract referred to in Clause (iii) of Section
2.2(e) or that would have been disclosed pursuant to such clause if such
contract had been in effect as of the date hereof.
(e) Each of USLICO and the USLICO Subsidiaries will not enter into or
amend any employment, consulting, separation or termination agreement,
arrangement or understanding nor take any action with respect to the grant
of any separation or termination pay or with respect to any increase of
benefits payable under its separation or termination pay policies or
agreements or arrangements in effect as of the date hereof; provided
however, that this Section 3.1(e) shall not prohibit entering into
employment agreements, arrangements or understandings to the extent
permitted by Section 3.1(f) or payments by USLICO or any of the USLICO
Subsidiaries in excess of those provided for under existing separation or
termination pay policies if made in settlement of employment termination
claims arising in the ordinary course and the amount of such payments is
consistent with prior practices.
(f) Each of USLICO and the USLICO Subsidiaries will not (i) hire any new
executive employee, (ii) except as set forth in the USLICO Disclosure
Letter, hire any new management
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employee with annual compensation greater than $60,000, (iii) except for
replacements in the ordinary course of business consistent with prior
practices, hire any other new employee, (iv) except in the ordinary course
of business consistent with prior practices, increase the compensation of
any employee, or (v) adopt or amend (except to comply with applicable law)
any bonus, profit sharing, compensation, stock option, pension, retirement,
separation, deferred compensation or other employee benefit plan, agreement,
trust fund or arrangement for the benefit or welfare of, any employee or
former employee.
(g) Each of USLICO and the USLICO Subsidiaries will not make any capital
expenditure or commitment for which it is not contractually bound at the
date hereof except (i) necessary replacements in the ordinary course of
business consistent with past practices, and (ii) other capital expenditures
and commitments not to exceed $1 million in the aggregate. All capital
expenditures and commitments in excess of $50,000 for which USLICO and the
USLICO Subsidiaries are contractually bound at the date hereof are disclosed
in the USLICO Disclosure Letter.
(h) Subject to the provisions hereof, USLICO will use all reasonable
efforts (i) to preserve intact the business organization of USLICO, USLIC,
BSLIS and each of the other USLICO Subsidiaries, including without
limitation their current product distribution systems, to maintain in effect
any licenses, franchises, authorizations or similar rights material to the
businesses of USLICO and the USLICO Subsidiaries, to keep available the
services of their respective current officers and key employees and to
preserve the goodwill of those having relationships with USLICO or any of
the USLICO Subsidiaries, and (ii) to cooperate with NCI in jointly
communicating with USLICO's employees and with members of USLICO's product
distribution system, including independent contractors, regarding the Merger
and continuing operations after consummation of the Merger.
3.2 JOINT PROXY STATEMENT. As promptly as practicable after the date
hereof, USLICO will cooperate with NCI in drafting and will file with the SEC
under the 1934 Act, and will use all reasonable efforts to have cleared by the
SEC, a joint proxy statement (the "Joint Proxy Statement") with respect to the
meeting of shareholders of USLICO referred to in Section 3.3, and USLICO will
cooperate with NCI in drafting the Registration Statement (of which the Joint
Proxy Statement is a part). The Joint Proxy Statement (as it relates to USLICO)
will comply as to form in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC, and the Registration
Statement (with respect to information concerning USLICO or the USLICO
Subsidiaries furnished by or on behalf of USLICO to NCI specifically for use
therein) and the Joint Proxy Statement (except with respect to data and
information concerning NCI and the NCI Subsidiaries furnished by or on behalf of
NCI to USLICO specifically for use therein) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein not misleading.
Subject to the provisions of Section 3.4, the Joint Proxy Statement will contain
the recommendation of the USLICO Board that the shareholders of USLICO vote to
approve and adopt the Merger and this Agreement. USLICO will promptly notify NCI
in writing if prior to the Effective Time it shall obtain knowledge of any fact
that would make it necessary to amend the Joint Proxy Statement (or the
Registration Statement) in order to render the statements made therein not
misleading or to comply with applicable law. USLICO will promptly furnish to NCI
a true and complete copy of each written communication of USLICO with the SEC
with respect to the Joint Proxy Statement and will promptly advise NCI of the
substance of each such oral communication.
3.3 MEETING OF SHAREHOLDERS OF USLICO. Subject to the provisions of
Section 3.4, as soon as the parties may agree after the date hereof, but in no
event later than the earliest practicable date after receipt of all necessary
permits, consents and approvals contemplated by Section 6.1(h), USLICO will take
all action necessary in accordance with the Virginia Law and its articles of
incorporation and bylaws to convene a meeting of its shareholders to consider
and vote upon approval and adoption of the Merger and this Agreement, the USLICO
Board will recommend that the shareholders of USLICO vote to approve and adopt
the Merger and this Agreement and USLICO will mail the Joint Proxy
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Statement to its shareholders, will use all reasonable efforts to solicit from
its shareholders proxies in favor of such approval and adoption and will take
all other action reasonably necessary or helpful to secure a vote of its
shareholders in favor of such approval and adoption.
3.4 NO SOLICITATION OF ACQUISITION TRANSACTIONS. Each of USLICO and the
USLICO Subsidiaries will not directly or indirectly, through any director,
officer, employee, agent, representative or otherwise, solicit, initiate or
intentionally encourage submission of any inquiries, proposals or offers from
any person or entity (other than NCI) relating to any merger, consolidation,
share exchange, purchase or other acquisition of all or (other than in the
ordinary course of business) any substantial portion of the assets of or any
substantial equity interest in USLICO or any of the USLICO Subsidiaries or any
business combination with USLICO or any of the USLICO Subsidiaries
(collectively, an "Acquisition Transaction"), or participate in any discussions
or negotiations regarding, or furnish to any other person any information with
respect to USLICO or any of the USLICO Subsidiaries or afford access to the
properties, books or records of USLICO or any of the USLICO Subsidiaries for the
purposes of, or cooperate with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person or entity to seek or effect
an Acquisition Transaction; provided however, that (a) USLICO and the USLICO
Subsidiaries may furnish or cause to be furnished any information with respect
to USLICO or any of the USLICO Subsidiaries and their respective business,
properties or assets, or afford access to the properties, books or records of
USLICO or any of the USLICO Subsidiaries, to a third party, (b) USLICO and the
USLICO Subsidiaries may cooperate with, assist or engage in discussions or
negotiations with a third party with respect to an Acquisition Transaction, and
(c) following (i) receipt of a proposal or offer relating to an Acquisition
Transaction or (ii) withdrawal of (or failure to update at the time of mailing
of the Joint Proxy Statement) the opinion referred to in Section 2.2(n), the
USLICO Board may fail to make, withdraw or modify its recommendation of the
Merger to the shareholders of USLICO, and USLICO may fail to disseminate the
Joint Proxy Statement, fail to solicit proxies or fail to take other action to
secure a favorable vote of its shareholders for the Merger or fail to hold a
meeting of its shareholders to vote on the Merger, but in each case referred to
in Clauses (a), (b) and (c) of this Section 3.4, only to the extent that the
USLICO Board shall determine (after consultation with Rogers & Wells or other
outside counsel knowledgeable in corporate fiduciary matters) that such action
is necessary in order for the USLICO Board to act in accordance with its
fiduciary obligations under applicable law. In addition, following receipt of a
proposal or offer relating to an Acquisition Transaction, USLICO may take and
disclose to its shareholders a position contemplated by Rule 14e-2 or Rule 14d-9
under the 1934 Act or otherwise make a disclosure to its shareholders. USLICO
will promptly notify NCI if any such inquiry, proposal or offer, or any contact
with any person or entity with respect thereto, is made, describing to NCI the
substance thereof.
3.5 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
each of USLICO and the USLICO Subsidiaries will, and their respective directors,
officers, employees, agents and representatives will, afford the officers,
employees, agents and representatives of NCI reasonable access at all reasonable
times to the officers, employees, representatives, properties, books and records
of USLICO and the USLICO Subsidiaries, and to the books and records of any
predecessors thereof in the possession of USLICO or any of the USLICO
Subsidiaries, and will furnish to NCI all financial, operating and other data
and information as NCI, through its officers, employees or representatives, may
reasonably request. USLICO agrees to hold in confidence all, and not to disclose
to others for any reason whatsoever any, non-public information received by it
pursuant to Section 4.6 or otherwise in connection with the transactions
contemplated hereby, except (a) as required by law, (b) for disclosure to
directors, officers, employees, agents and representatives as necessary to the
Merger or as necessary to the operation of its and NCI's businesses, and (c) for
information that becomes publicly available other than through USLICO or any of
the USLICO Subsidiaries or their respective directors, officers, employees,
agents or representatives. In the event that this Agreement is terminated, upon
receipt of a written request from NCI, USLICO will return to NCI all documents
and other material (and all copies thereof) obtained from NCI or any of the NCI
Subsidiaries in connection with the transactions contemplated hereby and will
destroy all documents and other material prepared by USLICO or any of
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the USLICO Subsidiaries, or their respective directors, officers, employees,
agents and representatives, that reflect any such non-public information
received by any of them in connection with the transactions contemplated hereby.
3.6 DISSENTERS' RIGHTS. USLICO will not amend its articles of
incorporation or otherwise take any action that would negate the application of
Section 13.1-730C of the Virginia Law, to the effect that the shareholders of
USLICO shall have no rights of dissent with respect to the Merger or the other
transactions contemplated hereby.
3.7 REDEMPTION OF USLICO RIGHTS. On or prior to the last business day
before the Closing Date, the USLICO Board will redeem all USLICO Rights in
accordance with the terms of the USLICO Rights Agreement and applicable law.
3.8 TAX CERTIFICATE. Immediately prior to the Effective Time, USLICO will
deliver a certificate to NCI and its tax counsel making the representations and
warranties substantially in the form attached hereto as Exhibit 3.8.
IV. COVENANTS OF NCI
4.1 CONDUCT OF BUSINESS BY NCI AND NCI SUBSIDIARIES PENDING THE
MERGER. NCI covenants and agrees with USLICO that, with respect to NCI and the
NCI Subsidiaries, prior to the Effective Time, unless USLICO shall otherwise
agree in writing or as is otherwise expressly contemplated by this Agreement:
(a) The businesses of NCI and the NCI Subsidiaries will be conducted
only in, and NCI and the NCI Subsidiaries will not take any material action
except in, the ordinary course of business and consistent with prior
practices.
(b) Each of NCI and the NCI Subsidiaries will not directly or indirectly
do any of the following: (i) issue, sell, pledge, dispose of or encumber (A)
any shares of capital stock of NCI or any of the NCI Subsidiaries, except
the issuance of NCI capital stock pursuant to the NCI DRIP, upon conversion
of NCI ESOP Preferred Stock, pursuant to the NCI Rights Agreement or upon
the exercise of options referred to in Section 2.1(b)(ii), (B) any
investment assets of NCI or any of the NCI Subsidiaries other than in the
ordinary course of business and consistent with prior practices or in
transactions not in excess of $200 million in the aggregate, or (C) any
other assets or properties of NCI or any of the NCI Subsidiaries other than
in the ordinary course of business consistent with prior practices or in
transactions not in excess of $50 million in the aggregate; (ii) amend or
propose to amend its charter or bylaws; (iii) split, combine or reclassify
any outstanding capital stock, or declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to
its capital stock whether now or hereafter outstanding, except for (A) cash
dividends from one of the NCI Subsidiaries to NCI or another of the NCI
Subsidiaries, (B) regular cash dividends on NCI's preferred stock and (C)
regular quarterly cash dividends on NCI Common Stock; (iv) except as
described in the NCI Disclosure Letter, redeem, purchase or acquire or offer
to acquire any of their capital stock; or (v) agree or commit to do any of
the foregoing.
(c) Each of NCI and the NCI Subsidiaries will not directly or indirectly
do any of the following: (i) except pursuant to existing agreements and
plans referred to in Section 2.1(b)(ii), grant, issue, sell, pledge or
dispose of any options, warrants or rights of any kind to acquire shares of
any class of capital stock of NCI or any of the NCI Subsidiaries or any
securities that are convertible or exchangeable therefor; (ii) acquire
(whether by way of merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization or
division thereof with gross revenues in excess of $35 million during its
last fiscal year or a net asset value in excess of $50 million; (iii) incur
any indebtedness for borrowed money or issue any debt securities, except
under (A) the existing $180 million commercial paper facility and related
loan agreement among First National Bank of Chicago, as agent, the lenders
named therein and Washington Square Mortgage Company providing a $180
million back-up credit
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facility for the commercial paper facility, (B) the $25 million commercial
paper facility between NCI and Nicollet Funding Corp., (C) the loan
agreement among First National Bank of Chicago, as agent, the lenders named
therein and Washington Square Capital, Inc. and NCI providing credit
facilities with a combined aggregate limit of $25 million on outstanding
extensions of credit to back up the $25 million commercial paper facility or
to provide bank loans, and (D) any refinancing of any of the foregoing; (iv)
cancel any material debts or obligations owing to it, except in connection
with the settlement of policy claims; (v) liquidate or merge into or
consolidate with any other corporation; or (vi) agree or commit to do any of
the foregoing.
(d) Subject to the provisions hereof, NCI will use all reasonable
efforts (i) to preserve intact the business organization of NCI and each of
the NCI Subsidiaries, including without limitation their current product
distribution systems, to maintain in effect any licenses, franchises,
authorizations or similar rights material to the businesses of NCI and the
NCI Subsidiaries and to preserve the goodwill of those having relationships
with NCI or any of the NCI Subsidiaries and (ii) to cooperate with USLICO in
jointly communicating with USLICO's employees and with members of USLICO's
product distribution system, including independent contractors, regarding
the Merger and continuing operations after consummation of the Merger.
4.2 JOINT PROXY STATEMENT. As promptly as practicable after the date
hereof, NCI will cooperate with USLICO in drafting and will file with the SEC
under the 1934 Act, and will use all reasonable efforts to have cleared with the
SEC, the Joint Proxy Statement with respect to the meeting of stockholders of
NCI referred to in Section 4.3. The Joint Proxy Statement (as it relates to NCI)
will comply as to form in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC and (except with respect to
data and information concerning USLICO and the USLICO Subsidiaries furnished by
or on behalf of USLICO to NCI specifically for use therein) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein not
misleading. The Joint Proxy Statement will contain the recommendation of the NCI
Board that the stockholders of NCI vote to approve and adopt the Merger and this
Agreement. NCI will promptly notify USLICO in writing if prior to the Effective
Time it shall obtain knowledge of any fact that would make it necessary to amend
the Joint Proxy Statement in order to render the statements made therein not
misleading or to comply with applicable law. NCI will promptly furnish to USLICO
a true and complete copy of each written communication of NCI with the SEC with
respect to the Joint Proxy Statement and will promptly advise USLICO of the
substance of each such oral communication.
4.3 MEETING OF STOCKHOLDERS OF NCI. As soon as the parties may agree after
the date hereof, but in no event later than the earliest practicable date after
receipt of all necessary permits, consents and approvals contemplated by Section
6.1(h), NCI will take all action necessary in accordance with the Delaware Law
and the Certificate and the By-Laws to convene a meeting of its stockholders to
consider and vote upon approval and adoption of the Merger and this Agreement,
the NCI Board will recommend that the stockholders of NCI vote to approve and
adopt the Merger and this Agreement, and NCI will mail the Joint Proxy Statement
to its stockholders, will use all reasonable efforts to solicit from its
stockholders proxies in favor of such approval and adoption and will take all
other action reasonably necessary or helpful to secure a vote of its
stockholders in favor of such approval and adoption.
4.4 REGISTRATION STATEMENT. As promptly as practicable after the date
hereof, NCI will file with the SEC a registration statement (the "Registration
Statement") on an appropriate form under the 1933 Act with respect to the
offering, sale and delivery of the shares of NCI Common Stock to be issued
pursuant to the Merger, and NCI will use all reasonable efforts to cause such
Registration Statement to become effective as promptly as practicable after
filing and to cause the shares of NCI Common Stock to be issued pursuant to the
Merger to be duly listed for trading on the New York Stock Exchange. NCI will
also use all reasonable efforts to take action required to be taken under state
securities laws in connection with the issuance of NCI Common Stock pursuant to
the Merger. The Registration Statement will comply as to form in all material
respects with the requirements of the
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1933 Act and the 1934 Act and the rules and regulations of the SEC and (except
with respect to data and information concerning USLICO and the USLICO
Subsidiaries furnished by or on behalf of USLICO to NCI specifically for use
therein) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein not misleading. NCI will advise USLICO promptly in
writing if prior to the Effective Time it shall obtain knowledge of any fact
that would make it necessary to amend the Registration Statement in order to
render the statements made therein not misleading or to comply with applicable
law. NCI will promptly furnish to USLICO a true and complete copy of each
written communication of NCI with the SEC with respect to the Registration
Statement and will promptly advise USLICO of the substance of each such oral
communication.
4.5 ASSUMPTION OF CERTAIN OBLIGATIONS. NCI will execute and deliver, on or
prior to the Effective Time, supplemental indentures or assumption agreements
with respect to debentures and notes of USLICO or any of the USLICO Subsidiaries
listed in the USLICO Disclosure Letter to the extent that such supplemental
indentures or assumption agreements may be required under the terms of the
indentures or note agreements relating to such securities in order to reflect
the consummation of the transactions contemplated hereby.
4.6 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
each of NCI and the NCI Subsidiaries will, and their respective directors,
officers, employees, agents and representatives will, afford the officers,
employees, agents and representatives of USLICO reasonable access at all
reasonable times to the officers, employees, representatives, properties, books
and records of NCI and the NCI Subsidiaries, and the books and records of any
predecessors thereof in the possession of NCI or any of the NCI Subsidiaries,
and will furnish to USLICO all financial, operating and other data and
information as USLICO, through its officers, employees or representatives, may
reasonably request. NCI agrees to hold in confidence all, and not to disclose to
others for any reason whatsoever any, non-public information received by it
pursuant to Section 3.5 or otherwise in connection with the transactions
contemplated hereby, except (a) as required by law, (b) for disclosure to
directors, officers, employees, agents and representatives as necessary to the
Merger or as necessary to the operation of its and USLICO's businesses, and (c)
for information that becomes publicly available other than through NCI or any of
the NCI Subsidiaries or their respective directors, officers, employees, agents
or representatives. In the event that this Agreement is terminated, upon receipt
of a written request from USLICO, NCI will return to USLICO all documents and
other material (and all copies thereof) obtained from USLICO or any of the
USLICO Subsidiaries in connection with the transactions contemplated hereby and
will destroy all documents and other material prepared by NCI or any of the NCI
Subsidiaries, or their respective directors, officers, employees, agents and
representatives, that reflect any such non-public information received by any of
them in connection with the transactions contemplated hereby.
4.7 RESERVATION OF NCI CAPITAL STOCK. Prior to the Effective Time, NCI
shall reserve for issuance, out of its authorized but unissued capital stock,
(a) such number of shares of NCI Common Stock as may be issuable upon
consummation of the Merger (taking into consideration the number of shares of
USLICO Common Stock that may be issuable pursuant to Sections 2.2(b)(ii) and
4.12) and (b) such number of shares of NCI Junior Preferred Stock as may be
necessary for the Rights to attach to the shares of NCI Common Stock referred to
in Clause (a) of this Section 4.7.
4.8 TAX CERTIFICATE. Immediately prior to the Effective Time, NCI will
deliver a certificate to USLICO and its tax counsel making the representations
and warranties substantially in the form attached hereto as Exhibit 4.8.
4.9 EMPLOYEE BENEFITS.
(a) Without limiting the obligations of NCI to assume any USLICO
employee benefit plan, program, policy, contract, agreement or arrangement
as may arise by operation of law, at the Effective Time NCI will assume the
USLICO employee benefit plans, programs, policies, contracts, agreements and
arrangements set forth in Exhibit 4.9(a) hereto (the "USLICO Plans")
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and shall succeed to all rights of USLICO as the employer or sponsor under
the USLICO Plans to amend, modify or terminate the same in accordance with
their terms and applicable law, except to the extent otherwise expressly
provided in Exhibit 4.9(b) hereto. For purposes of any of the USLICO Plans
that contains a provision relating to a change in control of USLICO, NCI
acknowledges that the consummation of the Merger constitutes such a change
in control.
(b) Following the Effective Time, NCI agrees to furnish to employees who
are employees of USLICO or any of the USLICO Subsidiaries the employee
benefit plans, programs, policies and arrangements set forth in Exhibit
4.9(b) hereto (the "NCI Plans"), subject, except to the extent otherwise
expressly provided in Exhibit 4.9(b) hereto, to its rights as the employer
or sponsor under the NCI Plans to amend, modify or terminate the same in
accordance with their terms and applicable law.
(c) Nothing contained in this Section 4.9 or elsewhere in this Agreement
shall confer, or be deemed to confer, upon any person who is an employee of
NCI or any of the NCI Subsidiaries or of USLICO or any of the USLICO
Subsidiaries any rights to continued employment or, except as expressly
provided in Exhibit 4.9(b) hereto, to continuation of any benefit plans,
programs, policies or arrangements, including the USLICO Plans and the NCI
Plans, for any particular period of time following consummation of the
Merger.
4.10 CONTINUING DIRECTOR. At or prior to the Effective Time, NCI will take
such action as may be necessary to appoint or elect one person, designated by
the USLICO Board and reasonably acceptable to NCI, to the NCI Board in the class
of directors whose term expires in 1995 effective as of the Effective Time, and,
subject to its fiduciary duties, the NCI Board shall nominate and solicit
proxies for the re-election of such director for a period or periods ending not
less than three years after the Effective Time.
4.11 INDEMNIFICATION.
(a) NCI agrees that from and after the Effective Time it will assume and
honor the indemnification obligations of USLICO set forth in Article IX of
the bylaws of USLICO as in effect on the date hereof with respect to any and
all persons described in such bylaw provision (the "indemnitees") as to any
matter arising out of any action or omission of any such indemnitee prior to
the Effective Time (including without limitation indemnification for any
claim that is based upon, arises out of or in any way relates to the Merger,
the Registration Statement, the Joint Proxy Statement, this Agreement or any
of the transactions contemplated hereby) and that such indemnitees shall be
entitled to the full benefits of, and NCI shall be bound by, such bylaw
provision as though such bylaw provision continued in full force and effect
after the Effective Time as an obligation of NCI with respect to such
matters.
(b) NCI agrees that from and after the Effective Time it will assume and
honor any obligation of USLICO immediately prior to the Effective Time under
any indemnification agreement for the benefit of present or former directors
or officers of USLICO to which USLICO is a party as of the date hereof and
which has heretofore been disclosed to NCI.
(c) NCI agrees that for a period of six years from and after the
Effective Time it will provide directors' and officers' liability insurance
coverage for the benefit of the indemnitees on substantially the same terms
and conditions as from time to time is provided by NCI for its directors and
officers; provided however, that this Section 4.11(c) shall not prohibit NCI
from modifying or terminating any such coverage for the indemnitees with the
modification or termination of its directors' and officers' liability
insurance coverage generally.
(d) In the event NCI or any of its successors or assigns (i) reorganizes
or consolidates with or merges into or enters into another business
combination transaction with any other person or entity and is not the
resulting, continuing or surviving corporation or entity of such
consolidation, merger or transaction, or (ii) liquidates, dissolves or
transfers all or substantially all of its
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properties and assets to any person or entity, then, and in each such case,
proper provision shall be made so that the successors and assigns of NCI
assume the obligations set forth in this Section 4.11.
(e) This Section 4.11 shall be construed as an agreement, as to which
the indemnitees are intended to be third-party beneficiaries, between NCI
and such indemnitees as unaffiliated third parties and is not subject to any
limitations to which NCI may be subject in indemnifying its own directors or
officers or other persons.
4.12 USLICO OPTIONS.
(a) Immediately prior to the Effective Time, at the option of the
optionee (pursuant to such procedure as may be implemented by USLICO in its
discretion), USLICO shall purchase each unexercised USLICO Option
outstanding as of the date hereof at a cash price per share of USLICO Common
Stock subject to the option equal to the excess of (A) the average of the
per share closing prices of USLICO Common Stock on the New York Stock
Exchange Composite Tape for the three trading days immediately prior to the
Closing Date, over (B) the exercise price per share of USLICO Common Stock
subject to the option. Upon and after the Effective Time each such
unexercised USLICO Option outstanding immediately prior to the Effective
Time that is not so purchased will be assumed by NCI in a manner that will
cause NCI to be a corporation "assuming a stock option in a transaction to
which Section 424(a) applies" within the meaning of Section 422(a)(2) of the
Code or, to the extent that Section 422 of the Code does not apply to the
option, would cause NCI to be such a corporation if Section 422 of the Code
were applicable to the option. The USLICO Options assumed by NCI will be
exercisable upon the same terms and conditions as under the applicable
USLICO Option Plans or the governing option agreements (taking into account,
without limitation, provisions under which the exercisability of options
would be accelerated on account of the transactions contemplated hereby), as
the case may be, except that (i) the option shall be exercisable for that
number of shares of NCI Common Stock (and, in certain circumstances, the
right to be paid in cash in certain amounts) as would have been received
pursuant to Section 1.6(b) at the Effective Time of the Merger for the
shares of USLICO Common Stock subject to the option had the option been
exercisable and exercised immediately prior to the Effective Time, and any
fractional share of NCI Common Stock shall be settled at the time the option
is exercised by a cash payment equal to the fair market value of such
fractional share, and (iii) the exercise price per share of NCI Common Stock
issuable upon the exercise of the option shall be an amount equal to the
option price per share of the USLICO Common Stock in effect immediately
prior to the Effective Time, divided by the Exchange Ratio or Revised
Exchange Ratio, as the case may be, rounded upward to the nearest full cent;
provided that in no event shall the Merger be deemed an event that
terminates the option.
(b) Promptly after the Effective Time, NCI will file and use all
reasonable efforts to obtain effectiveness under the 1933 Act of one or more
registration statements on Form S-8, or other applicable form, in respect of
shares of NCI Common Stock into which USLICO Options that have been
converted under this Section 4.12 are exercisable. NCI further agrees to use
all reasonable efforts to keep such registration statement or statements
effective by means of all required supplements or amendments thereto until
all shares of NCI Common Stock issuable upon exercise of such USLICO Options
have been issued upon exercise thereof or such options have terminated, as
the case may be.
V. MUTUAL COVENANTS
5.1 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses, except as follows: (a) if (i) there has been
no material breach by NCI of the representations, warranties, covenants and
agreements of NCI under this Agreement (a "Material Breach") and (ii) this
Agreement is terminated pursuant to Section 7.1(g), then USLICO will promptly
thereafter, but in no event later than three business days after receiving a
written request by NCI therefor, pay to NCI the
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amount of $1 million to reimburse NCI for its expenses incurred in connection
with this Agreement and the transactions contemplated hereby; (b) under the
circumstances described in Clause (a) of this sentence, if at the time of, or
within 60 days after, this Agreement is terminated an Acquisition Proposal (as
defined below) is outstanding and if the Acquisition Proposal, as it may be
modified, or a substitute, alternative or other Acquisition Proposal, is
consummated within twelve months after this Agreement is terminated, then USLICO
will at the time of such consummation or promptly thereafter, but in no event
later than three business days after receiving a written request by NCI
therefor, pay to NCI the additional amount of $9 million; (c) if (i) there has
been no Material Breach by NCI, (ii) the Merger is not approved by the
shareholders of USLICO as described in Section 6.1(a) and this Agreement is
terminated pursuant to Section 7.1(c), and (iii) at the time of the meeting of
the shareholders of USLICO contemplated by Section 3.3 an Acquisition Proposal
is outstanding, then USLICO will promptly thereafter, but in no event later than
three business days after receiving a written request by NCI therefor, pay to
NCI the amount of $1 million to reimburse NCI for its expenses incurred in
connection with this Agreement and the transactions contemplated hereby; (d)
under the circumstances described in Clause (c) of this sentence, if the
Acquisition Proposal set forth in Clause (c) (iii) of this sentence, as it may
be modified, or a substitute, alternative or other Acquisition Proposal, is
consummated within twelve months after this Agreement is terminated, then USLICO
will at the time of such consummation or promptly thereafter, but in no event
later than three business days after receiving a written request by NCI
therefor, pay to NCI the additional amount of $9 million; and (e) if (i) there
has been no material breach by USLICO of the representations, warranties,
covenants and agreements of USLICO under this Agreement and (ii) the Merger is
not approved by the stockholders of NCI as described in Section 6.1(a) and this
Agreement is terminated pursuant to Section 7.1(c), then NCI will promptly
thereafter, but in no event later than three business days after receiving a
written request by USLICO therefor, pay to USLICO the amount of $1 million to
reimburse USLICO for its expenses incurred in connection with this Agreement and
the transactions contemplated hereby. As used herein, an "Acquisition Proposal"
shall mean a publicly-announced offer, or a publicly-announced intent to make an
offer, from a party other than NCI or its affiliates, to acquire USLICO or USLIC
or BSLIS in a merger, consolidation, share exchange or other business
combination or joint venture, to acquire all or substantially all of the assets
of USLICO or USLIC or BSLIS or a substantial part of the assets of USLICO and
the USLICO Subsidiaries, taken as a whole, or to acquire at least 50% of the
outstanding USLICO Common Stock or at least 50% of the equity interests in USLIC
or BSLIS, or a negotiated transaction for any of the foregoing.
5.2 ADDITIONAL AGREEMENTS. In accordance with the terms and subject to the
conditions hereof, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to fulfill the conditions and
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.3 NOTIFICATION OF CERTAIN MATTERS. USLICO will give prompt notice to
NCI, and NCI will give prompt notice to USLICO, of (a) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, and (b) any material failure of USLICO or NCI, or any director,
officer, employee, agent or representative thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder.
5.4 AGREEMENT TO DEFEND. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, whether before or after the Effective Time, the parties
hereto agree to cooperate and use all reasonable efforts to defend against and
respond thereto.
5.5 COMPLIANCE WITH HSR ACT. Each of NCI and USLICO will use all
reasonable efforts to (a) file as promptly as possible and in any event within
20 days after the date of this Agreement with
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the Department of Justice and the Federal Trade Commission any premerger
notification required of it under the HSR Act, (b) respond promptly to any
inquiries from the Department of Justice or the Federal Trade Commission in
connection with the transactions contemplated hereby, and (c) obtain the
earliest possible termination or waiver of any applicable HSR Act waiting
period.
5.6 SECURITIES LAWS. NCI and USLICO acknowledge that the transactions
contemplated hereby are subject to the provisions of the 1933 Act and Rule 145
thereunder and of the 1934 Act. Each of NCI and USLICO agrees to provide
promptly to the other such data and information concerning its financial
condition, assets and properties, affairs, operations and businesses as may be
required or appropriate for inclusion in the Registration Statement or in the
Joint Proxy Statement and to cause its counsel, investment advisors, accountants
and actuaries to cooperate with the other's counsel, investment advisors,
accountants and actuaries in the preparation of the Registration Statement and
the Joint Proxy Statement. Each of NCI and USLICO agrees to use its reasonable
efforts to have the Registration Statement declared effective under the 1933 Act
as soon as may be practicable. Upon the declaration of the effectiveness of the
Registration Statement and subject to the provisions of this Agreement and the
receipt of the letters and opinions contemplated by Sections 6.1(f), 6.1(g),
6.2(d) and 6.3(c), NCI and USLICO will distribute the Joint Proxy Statement to
the stockholders of NCI and the shareholders of USLICO not less than 25 business
days prior to the respective meeting of stockholders of NCI and meeting of
shareholders of USLICO. NCI shall not be required to maintain the effectiveness
of the Registration Statement for the purpose of resale by shareholders of
USLICO who may be "affiliates" pursuant to Rule 145 under the 1933 Act.
VI. CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party hereto to effect the Merger and to
consummate the other transactions contemplated hereby will be subject to the
fulfillment at or prior to the Closing of the following conditions:
(a) The Merger and this Agreement shall have been approved and adopted
by the requisite vote of the stockholders of NCI and the shareholders of
USLICO as required by law, by, with respect to NCI, the rules of the New
York Stock Exchange and by any applicable provisions of their respective
charters and bylaws.
(b) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(c) No order shall have been entered and remain in effect in any action
or proceeding before any foreign, Federal or state court or governmental
agency or other foreign, Federal or state regulatory or administrative
agency or commission that would prevent or make illegal the consummation of
the Merger.
(d) The Registration Statement shall be effective, and all
post-effective amendments filed with the SEC (if any) shall have been
declared effective or shall have been withdrawn, and no stop-order
suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the parties, threatened by the SEC.
(e) The shares of NCI Common Stock into which the shares of USLICO
Common Stock are to be converted pursuant to this Agreement shall have been
approved for listing on the New York Stock Exchange subject to official
notice of issuance.
(f) On the date of the Joint Proxy Statement, NCI and USLICO shall have
received a letter (in form and substance as is customary in a registered
public offering) from Deloitte & Touche, independent public accountants of
NCI, dated as of such date, in connection with such accountants' review of
certain data and information contained in the Registration Statement and the
Joint Proxy Statement.
(g) On the date of the Joint Proxy Statement and the NCI prospectus
constituting a part of the Registration Statement, USLICO and NCI shall have
received a letter (in form and substance
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as is customary in a registered public offering) from KPMG Peat Marwick,
independent public accountants of USLICO, dated such date, in connection
with such accountants' review of certain data and information contained in
the Registration Statement and the Joint Proxy Statement.
(h) There shall have been obtained permits, consents and approvals of
insurance, securities or "blue sky" commissions or agencies of any
jurisdiction and of other governmental bodies or agencies that may
reasonably be deemed necessary so that the consummation of the Merger and
the other transactions contemplated hereby will be in compliance with
applicable laws, and they shall not contain (i) any condition that, in the
judgment of NCI reasonably exercised, would reasonably be expected to result
in a material adverse change in the financial condition, results of
operations or businesses of either NCI and the NCI Subsidiaries, taken as a
whole, or USLICO and the USLICO Subsidiaries, taken as a whole, or (ii) any
condition that, in the judgment of USLICO reasonably exercised, would
reasonably be expected to result in a material adverse change in the
financial condition, results of operations or businesses of NCI and the NCI
Subsidiaries, taken as a whole.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF NCI. The obligations of NCI to
effect the Merger and to consummate the other transactions contemplated hereby
are, at the option of NCI, also subject to the fulfillment at or prior to the
Closing of the following conditions:
(a) The representations and warranties of USLICO contained in Section
2.2 shall be accurate in all material respects as of the date of this
Agreement, and there shall be no inaccuracy in any such representations and
warranties as of the Closing Date except to the extent that any such
inaccuracy individually or in the aggregate does not constitute a material
adverse change in the financial condition, results of operations or
businesses of USLICO and the USLICO Subsidiaries, taken as a whole; all of
the terms, covenants and conditions of this Agreement to be complied with
and performed by USLICO at or before the Closing shall have been duly
complied with and performed in all material respects; and a certificate to
the foregoing effect dated as of the Closing Date and signed by the Chief
Executive Officer or Chief Financial Officer of USLICO shall have been
delivered to NCI.
(b) Since the date of this Agreement, no material adverse change in the
financial condition, results of operations or businesses of USLICO and the
USLICO Subsidiaries, taken as a whole, shall have occurred (excluding for
these purposes the effect of any conditions, events and developments
adversely affecting the life insurance industry generally), and a
certificate to such effect dated as of the Closing Date and signed by the
Chief Executive Officer or Chief Financial Officer of USLICO shall have been
delivered to NCI.
(c) Holders of shares of USLICO Common Stock shall not have dissenters'
rights with respect to the Merger or the other transactions contemplated
hereby, as provided in Section 13.1-730C of the Virginia Law.
(d) On the date of the Joint Proxy Statement, the NCI Board shall have
received from Donaldson, Lufkin & Jenrette Securities Corporation a written
update, dated as of such date, confirming the opinion referred to in Section
2.1(m).
(e) NCI shall have received written opinions of counsel to USLICO and
general counsel of USLICO, dated as of the Closing Date, substantially to
the effect set forth in Exhibit 6.2(e) hereto.
(f) The NCI Board shall have received a written opinion of counsel to
NCI, in form and substance reasonably satisfactory to the NCI Board, dated
as of the Closing Date, to the effect that the Merger will qualify as a
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Code.
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6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF USLICO. The obligations of
USLICO to effect the Merger and to consummate the other transactions
contemplated hereby are, at the option of USLICO, also subject to the
fulfillment at or prior to the Closing of the following conditions:
(a) The representations and warranties of NCI contained in Section 2.1
shall be accurate in all material respects as of the date of this Agreement,
and there shall be no inaccuracy in any such representations and warranties
as of the Closing Date except to the extent that any such inaccuracy
individually or in the aggregate does not constitute a material adverse
change in the financial condition, results of operations or businesses of
NCI and the NCI Subsidiaries, taken as a whole; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by NCI at
or before the Closing shall have been duly complied with and performed in
all material respects; and a certificate to the foregoing effect dated as of
the Closing Date and signed by the Chief Executive Officer or Chief
Financial Officer of NCI shall have been delivered to USLICO.
(b) Since the date of this Agreement, no material adverse change in the
financial condition, results of operations or businesses of NCI and the NCI
Subsidiaries, taken as a whole, shall have occurred (excluding for these
purposes the effect of any conditions, events and developments adversely
affecting the life insurance industry generally), and a certificate to such
effect dated as of the Closing Date and signed by the Chief Executive
Officer or Chief Financial Officer of NCI shall have been delivered to
USLICO.
(c) On the date of the Joint Proxy Statement, the USLICO Board shall
have received from Merrill Lynch, Pierce, Fenner & Smith Incorporated a
written update, dated as of such date, confirming the opinion referred to in
Section 2.2(n).
(d) NCI shall have taken such action as may be necessary to appoint or
elect to the NCI Board the person designated by the USLICO Board as
contemplated by Section 4.10.
(e) USLICO shall have received written opinions of counsel to NCI and
general counsel or associate general counsel of NCI, dated as of the Closing
Date, substantially to the effect set forth in Exhibit 6.3(e) hereto.
(f) The USLICO Board shall have received a written opinion of counsel to
USLICO, in form and substance reasonably satisfactory to the USLICO Board,
dated as of the Closing Date, to the effect that the Merger will qualify as
a reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Code.
VII. MISCELLANEOUS
7.1 TERMINATION. This Agreement may be terminated and the Merger and the
other transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether prior to or after approval by the stockholders of NCI or
the shareholders of USLICO:
(a) By mutual consent of the NCI Board and the USLICO Board.
(b) By the NCI Board or the USLICO Board, if the Merger shall not have
been consummated on or before June 30, 1995 (unless such circumstance is the
result of a breach of the terms hereof in any material respect by the party
asserting the termination right).
(c) By the NCI Board or the USLICO Board, if the Merger and this
Agreement shall have been submitted to a vote of the stockholders of NCI or
the shareholders of USLICO and shall not have been approved by the requisite
votes.
(d) By the USLICO Board, if a condition to USLICO's obligations to close
set forth in Article VI of this Agreement cannot be met on the Closing Date
and is not waived; provided however, that with respect to the failure to
satisfy a condition under Section 6.3(a) that is capable of being cured
within 30 days, the right of the USLICO Board to terminate this Agreement
shall exist only if the failure to satisfy such condition is not cured
within 30 days after written notice by USLICO to NCI of such condition.
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(e) By the NCI Board, if a condition to NCI's obligations to close set
forth in Article VI of this Agreement cannot be met on the Closing Date and
is not waived; provided however, that with respect to the failure to satisfy
a condition under Section 6.2(a) that is capable of being cured within 30
days, the right of the NCI Board to terminate this Agreement shall exist
only if the failure to satisfy such condition is not cured within 30 days
after written notice by NCI to USLICO of such condition.
(f) By the NCI Board or the USLICO Board, if a final unappealable order
to restrain, enjoin or otherwise prevent, or awarding substantial damages in
connection with, the consummation of the Merger or the other transactions
contemplated hereby shall have been entered by a court of competent
jurisdiction.
(g) By the NCI Board or the USLICO Board, if the USLICO Board does not
make to the shareholders of USLICO a favorable recommendation with respect
to the Merger or such recommendation is modified or withdrawn in a way
detrimental to NCI (and NCI and USLICO agree that a determination by the
USLICO Board not to call the meeting of shareholders contemplated by Section
3.3 or the cancellation or adjournment of such meeting without a vote on the
Merger and this Agreement being taken (except under circumstances where
USLICO is otherwise attempting to secure a vote of its shareholders in favor
of approval and adoption of the Merger and this Agreement) shall be deemed
to be such a failure to make or withdrawal of such recommendation).
(h) By the NCI Board or the USLICO Board (during the period commencing
on the Approval Date and ending on the second business day following the
Approval Date), if the Exchange Price is $25.36 or less.
(i) By the NCI Board or the USLICO Board, if the Rights are triggered
and are not redeemed, so that they may be exercised and traded separately
pursuant to the NCI Rights Agreement, or the USLICO Rights are triggered and
are not redeemed so that they may be exercised and traded separately
pursuant to the USLICO Rights Agreement.
7.2 EFFECT OF TERMINATION. In the event of any termination of this
Agreement pursuant to Section 7.1, NCI and USLICO shall have no obligation or
liability to each other except that (a) the provisions of the last two sentences
of Sections 3.5 and 4.6, the provisions of Section 5.1 and the provisions of the
USLICO Option Agreement shall survive any such termination, and (b) nothing
herein and no termination pursuant hereto shall relieve any party from liability
for any breach of this Agreement.
7.3 WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at
any time by the party that is, or whose stockholders or shareholders are,
entitled to the benefits thereof. This Agreement may not be amended or
supplemented at any time, except by an instrument in writing signed on behalf of
each party hereto; provided however, that after this Agreement has been approved
and adopted by the stockholders of NCI and the shareholders of USLICO this
Agreement may be amended only as may be permitted by applicable provisions of
the Delaware Law and the Virginia Law.
7.4 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty in this Agreement shall survive the consummation of the Merger.
7.5 PUBLIC STATEMENTS. NCI and USLICO agree to consult with each other
prior to issuing any press release or otherwise making any public statement or
disclosure with respect to the transactions contemplated hereby, and neither
will issue any such press release or make any such public statement or
disclosure prior to such consultation, except as may be required by law or
applicable stock exchange policy.
7.6 KNOWLEDGE. All references in this Agreement to knowledge of a
corporation shall be deemed to mean knowledge of any one or more of its
executive officers.
7.7 ASSIGNMENT. This Agreement will not be assignable by the parties
hereto.
A-32
<PAGE>
7.8 NOTICES. All notices, requests, claims, demands and other
communications hereunder will be in writing and will be given (and will be
deemed to have been duly received if so given) by delivery by cable, telegram,
telex, telecopy or by registered or certified mail, postage prepaid, return
receipt requested, to the respective parties as follows:
if to NCI:
The NWNL Companies, Inc.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Attention: General Counsel
Telephone Number: 612/372-5601
Telecopy Number: 612/342-3966
with a copy to:
Faegre & Benson
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Gerald T. Flom
Telephone Number: 612/336-3112
Telecopy Number: 612/336-3026
and if to USLICO:
USLICO Corporation
4601 Fairfax Drive
Arlington, Virginia 22203
Attention: General Counsel
Telephone Number: 703/875-3689
Telecopy Number: 703/875-3873
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Paul C. Meyer
Telephone Number: 212/878-8176
Telecopy Number: 212/878-8375
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
7.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
7.10 SEVERABILITY. If any term, provision, covenant, agreement or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants, agreements and restrictions of this Agreement will continue in full
force and effect and will in no way be affected, impaired or invalidated.
7.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which will be an original, but all of which together will constitute one and the
same agreement.
7.12 HEADINGS. The section headings herein are for convenience only and
will not affect the construction hereof.
A-33
<PAGE>
7.13 ENTIRE AGREEMENT. This Agreement and the USLICO Option Agreement (a)
constitute the entire agreement between the parties hereto and supersede all
other prior agreements and understandings, both oral and written, between the
parties relating to the subject matter hereof and thereof, and (b) except as
provided in Section 4.11(e), do not confer upon any person or entity not a party
hereto or thereto any rights or remedies hereunder or thereunder.
IN WITNESS WHEREOF, NCI has caused this Agreement to be signed by its
Chairman or its President or a Vice President and attested by its Secretary or
an Assistant Secretary, and USLICO has caused this Agreement to be signed by its
Chairman or its President or a Vice President and attested by its Secretary or
an Assistant Secretary, all as of the date first above written.
<TABLE>
<S> <C>
THE NWNL COMPANIES, INC.
Attest: By /s/ JOHN G. TURNER
---------------------------------------
Chairman and Chief Executive Officer
/s/ RICHARD R. CROWL
- -------------------------------------------
Assistant Secretary
USLICO CORPORATION
Attest: By /s/ DANIEL J. CALLAHAN, III
---------------------------------------
Chairman and Chief Executive Officer
/s/ JEFFREY P. HAHN
- -------------------------------------------
Secretary
</TABLE>
A-34
<PAGE>
EXHIBIT B
[LOGO]
DONALDSON, LUFKIN & JENRETTE
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION - 140 BROADWAY, NEW YORK, NY
10005-1285 - (212) 504-3000
December 2, 1994
The Board of Directors
The NWNL Companies, Inc.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of The NWNL Companies, Inc. ("NWNL" or the "Company")
of the consideration to be paid by the Company pursuant to the terms of the
Agreement and Plan of Merger (the "Agreement") dated as of September 11, 1994,
between the Company and USLICO Corporation ("USLICO").
We understand that, pursuant to the Agreement, each share of USLICO common
stock shall be exchangeable for and converted into the right to receive 0.690 of
a share of Company common stock (the "Conversion Ratio"). The Conversion Ratio
will be adjusted if the average of the per share closing sale prices of NWNL's
common stock on the New York Stock Exchange Composite Tape for the 20 trading
days ending three days prior to the closing (the "Average Price") is less than
$28.26 or greater than $37.20. If the Average Price is greater than $37.20, an
"Upper Collar" is imposed and the Conversion Ratio is reduced; the number of
shares of NWNL common stock to be received for each share of USLICO will be the
quotient (determined to the third decimal place without rounding) obtained by
dividing $25.669 by the Average Price. If the Average Price is less than $28.26
and greater than $25.36, a "Lower Collar" is imposed and the Conversion Ratio is
increased; the number of shares of NWNL common stock to be received for each
share of USLICO common stock will be the quotient (determined to the third
decimal place without rounding) obtained by dividing $19.50 by the Average Price
(the "Increased Ratio"). At NWNL's option, if the Average Price is less than
$28.26 and greater than $25.36, NWNL may designate a ratio of 0.690 or a ratio
between 0.690 and the Increased Ratio (the "Designated Ratio") if NWNL pays to
USLICO shareholders for each share of USLICO common stock cash equal to the
difference between $19.50 and the value of NWNL shares received at the
Designated Ratio. At Average Prices equal to or below $25.36, either party may
terminate the Agreement or they may agree on a revised ratio.
In conjunction with the merger, USLICO will pay to its shareholders, a
special cash dividend of $0.45 per share of USLICO common stock and redeem the
rights under the USLICO Share Rights Plan at a redemption price of $0.05 per
right. As a result of these payments, each USLICO shareholder will receive an
aggregate payment of $0.50 per share of USLICO common stock.
In arriving at our opinion, we have reviewed the Agreement and the draft of
the Joint Proxy Statement/Prospectus dated November 30, 1994. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company and USLICO including information provided during
discussions with their respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of USLICO for fiscal year 1994 through 1996 prepared by
the management of USLICO, certain financial projections of the Company for
fiscal years 1995 through 1999 prepared by the management of the Company,
certain financial projections of USLICO for fiscal years 1995 through 1999
prepared by the management of the Company, and certain projections of expense
savings for fiscal years 1995 through 1999 prepared by the management of the
Company. In addition, we have compared certain financial and securities data of
the Company and USLICO with various other companies whose securities are traded
in public markets, reviewed the historical stock prices and trading volumes of
the common stock of USLICO and the Company, reviewed prices and premiums paid in
other business combinations and conducted such other financial studies, analyses
and investigations as we deemed appropriate for
<PAGE>
purposes of this opinion, including utilizing materials prepared by the
actuarial firm of Milliman & Robertson, Inc. to determine the value of USLICO's
in-force business and projected future results. In addition, based on
discussions with the Company, we assumed that the Company would redeem USLICO's
outstanding convertible debentures immediately after the merger and replace them
with fixed rate debt.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all of the
financial and other information that was available to us from public sources,
that was provided to us by the Company and USLICO or their respective
representatives, or that was otherwise reviewed by us. In particular, we have
relied, without independent investigation, upon the estimates of the management
of the Company of the expense savings achievable as a result of the merger and
upon our discussion of such expense savings with the management of USLICO. With
respect to the financial projections supplied to us, we have assumed that they
are based on reasonable assumptions and reflect the best currently available
estimates and judgments of the managements of the Company and USLICO as to the
future operating and financial performance of the Company and USLICO. We did not
assume any responsibility for making an independent evaluation of the Company's
or USLICO's assets or liabilities nor for making an independent verification of
any of the information reviewed by us. We have relied as to all legal matters
relating to the merger on advice of legal counsel to the Company.
Our opinion is necessarily based on general economic, market, financial and
other conditions as they exist on, and on the information made available to us
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. We are expressing no opinion herein as to the
prices at which the Company's common stock will actually trade at any time. This
opinion is not intended to be and does not constitute a recommendation to any
shareholder as to how such shareholder should vote with respect to the merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has been
compensated for such services. DLJ was lead manager in September 1993 of an
offering by the Company of 1,750,000 shares of common stock and DLJ was a
co-manager in August 1993 of an offering by the Company of $120,000,000 of
senior notes. In addition, DLJ acted as financial advisor to the Company in
February 1992 with respect to the divestiture by the Company of Chartwell Re
Corporation and in June 1991 with respect to the divestiture by the Company of
Merastar Insurance Company. In the ordinary course of its business, DLJ may
trade securities of NWNL or USLICO for its own account or for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be paid by the Company pursuant to the
Agreement is fair to the shareholders of the Company from a financial point of
view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By /s/ MARK K. GORMLEY
--------------------------------------
MANAGING DIRECTOR
B-2
<PAGE>
EXHIBIT C
[LOGO]
December 2, 1994
Board of Directors
USLICO Corporation
4601 Fairfax Drive
Arlington, VA 22203-0700
Gentlemen:
USLICO Corporation ("USLICO" or the "Company") and The NWNL Companies, Inc.
(the "Acquiror") have entered into an Agreement and Plan of Merger dated as of
September 11, 1994 (the "Agreement"), pursuant to which the Company will be
merged with the Acquiror in a transaction (the "Merger") in which each
outstanding share of the Company's common stock, par value $1.00 per share (the
"Shares"), will be converted into the right to receive 0.69 shares of the common
stock, no par value, of the Acquiror (the "Acquiror Shares"), subject to
adjustment and possible payment of cash in certain amounts under certain
circumstances as provided in the Agreement. The Merger will also provide for
USLICO to make a $0.45 special cash dividend and a $0.05 payment for redemption
of the USLICO common stock rights per share of common stock of the Company
(collectively, the "Dividend"). The Acquiror Shares, possible cash payments and
Dividends to be received by the USLICO shareholders, as provided for in the
Agreement, are herein referred to as Consideration. The Merger is expected to be
considered by the shareholders of the Company at a special shareholders' meeting
expected to be held in December 1994 and consummated shortly after the date of
such meeting, assuming shareholder approval.
You have asked us whether, in our opinion, the proposed Consideration to be
received by the holders of the Shares in the Merger, taken as a whole, is fair
to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1993, and the
Company's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1994, June 30, 1994 and September
30, 1994;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1993,
and the Acquiror's Forms 1O-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1994, June 30, 1994
and September 30, 1994;
(3) Reviewed the December 31, 1993 Actuarial Valuation of USLICO Life
Insurance Companies prepared by Ronald M. Wolf, F.S.A., M.A.A.A., of
Tillinghast, a Towers Perrin Company;
(4) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company
and the Acquiror, furnished to us by the Company and the Acquiror,
respectively;
(5) Conducted discussions with members of senior management of the Company
and the Acquiror concerning their respective businesses, financial
condition and prospects;
<PAGE>
(6) Reviewed the historical market prices and trading activity for the
Shares and the Acquiror Shares;
(7) Compared the results of operations and historical market prices of the
Company and the Acquiror with those of certain companies which we deemed
to be reasonably similar to the Company and the Acquiror, respectively;
(8) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions in the insurance industry
specifically and other industries generally which we deem to be relevant;
(9) Reviewed the Agreement and the Stock Option Agreement dated September
11, 1994 between the Company and the Acquiror;
(10) Reviewed a draft copy of the Joint Proxy Statement/Prospectus dated
November 23, 1994
(11) Reviewed such other financial studies and analyses and performed such
other investigations and analyses and took into account such other
matters as we deemed necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of the Company
or the Acquiror. With respect to the financial forecasts furnished by the
Company and the Acquiror, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
Company's or the Acquiror's management as to the expected future financial
performance of the Company or the Acquiror, as the case may be.
We have, in the past, provided financial advisory and financing services to
the Company and the Acquiror and have received fees for the rendering of such
services.
On the basis of, and subject to the foregoing, we are of the opinion that
the Consideration to be received by the holders of the Shares pursuant to the
Merger is fair to such shareholders from a financial point of view.
Very truly yours.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ EDWARD V. BLANCHARD
-------------------------------------
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
Article VIII of the By-Laws of the Registrant provides for broad
indemnification of directors and officers of the Registrant.
The Registrant also maintains director and officer liability insurance
policies.
In addition, Section 7 of Article Sixth of the Registrant's Certificate of
Incorporation contains broad provisions limiting the liability of directors for
monetary damages for breach of fiduciary duty as a director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------------- -----------------------------------------------------------------------------------------------
<C> <C> <S>
2 -- Agreement and Plan of Merger, dated as of September 11, 1994, by and between The NWNL
Companies, Inc. and USLICO Corporation (included in the Joint Proxy Statement/Prospectus as
Exhibit A).
5 -- Opinion of Faegre & Benson Professional Limited Liability Partnership.
8(a) -- Opinion of Faegre & Benson Professional Limited Liability Partnership regarding certain tax
matters.
8(b) -- Opinion of Rogers & Wells regarding certain tax matters.
23(a) -- Consent of Deloitte & Touche LLP (relating to financial statements of the Registrant).
23(b) -- Consent of KPMG Peat Marwick LLP (relating to financial statements of USLICO Corporation).
23(c) -- Consent of Faegre & Benson Professional Limited Liability Partnership (included in Exhibit 5).
23(d) -- Consent of Rogers & Wells (included in Exhibit 8(b)).
23(e) -- Consent of Daniel J. Callahan, III.
23(f) -- Consent of Hazel & Thomas, a Professional Corporation.
24 -- Powers of Attorney of directors and officers of the Registrant.
99(a) -- Form of Proxy of The NWNL Companies, Inc.
99(b) -- Form of Proxy of USLICO Corporation.
99(c) -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (included in the Joint Proxy
Statement/Prospectus as Exhibit B).
99(d) -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (included in the Joint Proxy
Statement/Prospectus as Exhibit C).
99(e) -- Stock Option Agreement dated as of September 11, 1994, by and between The NWNL Companies, Inc.
and USLICO Corporation (incorporated by reference to the Registrant's Current Report on Form
8-K dated September 12, 1994 (File No. 1-10640)).
</TABLE>
II-1
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report*
Schedule I -- Consolidated summary of investments -- other than
investments in
related parties*
Schedule III -- Condensed financial information of registrant*
Schedule V -- Supplementary insurance information*
Schedule VI -- Reinsurance*
Schedule VII -- Guarantees of securities of other issuers*
Schedule VII -- Valuation and qualifying accounts*
-------------------------------
*Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 (File No. 1-10640).
(C) REPORTS, OPINIONS OR APPRAISALS
Information requested hereunder is furnished as Exhibits 99(c) and 99(d)
hereto and as Exhibits B and C to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act of 1934 (and each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to the immediately preceding paragraph, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to this Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on the 1st day of December, 1994.
THE NWNL COMPANIES, INC.
By JOHN G. TURNER *
-----------------------------------
John G. Turner,
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 1st day of December, 1994, by the
following persons in the capacities indicated:
JOHN G. TURNER *
- ------------------------------------- Chairman and Chief Executive Officer
John G. Turner (Principal Executive Officer)
Senior Vice President, Chief
WAYNE R. HUNEKE * Financial Officer and Treasurer
- ------------------------------------- (Principal Financial and Accounting
Wayne R. Huneke Officer)
CAROLYN H. BALDWIN
F. CALEB BLODGETT
DAVID C. COX
JAYE F. DYER
JOHN H. FLITTIE
LUELLA GROSS GOLDBERG
WILLIAM A. HODDER
JAMES J. HOWARD III A majority of the Board of Directors*
RANDY C. JAMES
RICHARD L. KNOWLTON
DAVID A. KOCH
RICHARD M. KOVACEVICH
GLEN D. NELSON, M.D.
JAMES J. RENIER
JOHN G. TURNER
*Richard R. Crowl, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named officers or directors of the Registrant
pursuant to powers of attorney duly executed by such persons.
By /s/ RICHARD R. CROWL
-----------------------------------
Richard R. Crowl
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of September 11, 1994, by and between The NWNL
Companies, Inc. and USLICO Corporation (included in the Joint Proxy Statement/Prospectus as
Exhibit A)
5 Opinion of Faegre & Benson Professional Limited Liability Partnership.......................
8(a) Opinion of Faegre & Benson Professional Limited Liability Partnership regarding certain tax
matters....................................................................................
8(b) Opinion of Rogers & Wells regarding certain tax matters.....................................
23(a) Consent of Deloitte & Touche (relating to financial statements of the Registrant)...........
23(b) Consent of KPMG Peat Marwick LLP (relating to financial statements of USLICO Corporation)...
23(c) Consent of Faegre & Benson Professional Limited Liability Partnership (included in Exhibit
5)
23(d) Consent of Rogers & Wells (included in Exhibit 8(b))
23(e) Consent of Daniel J. Callahan, III..........................................................
23(f) Consent of Hazel & Thomas, a Professional Corporation.......................................
24 Powers of Attorney of directors and officers of the Registrant..............................
99(a) Form of Proxy of the Registrant.............................................................
99(b) Form of Proxy of USLICO Corporation.........................................................
99(c) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (included in the Joint Proxy
Statement/Prospectus as Exhibit B).
99(d) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (included in the Joint Proxy
Statement/Prospectus as Exhibit C).
99(e) Stock Option Agreement, dated as of September 11, 1994, by and between The NWNL Companies,
Inc. and USLICO Corporation (incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 12, 1994 (File No. 1-10640)).
</TABLE>
<PAGE>
EXHIBIT 5
December 1, 1994
The NWNL Companies, Inc.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, of 8,821,748 shares of Common Stock, without par value, of The
NWNL Companies, Inc., a Delaware corporation (the "Company"), the assumed
maximum number of shares that may be issued by the Company in connection with a
proposed merger of USLICO Corporation, a Virginia corporation, with and into the
Company (the "Merger"), we have examined such corporate records and other
documents, including the Registration Statement on Form S-4, dated the date
hereof (the "Registration Statement") relating to such shares and the rights to
purchase preferred stock that are attached to such shares ("Rights"), and have
reviewed such matters of law as we have deemed necessary for this opinion, and
we advise you that in our opinion:
1. The Company is a corporation duly organized and existing under the
laws of the State of Delaware.
2. All necessary corporate action on the part of the Company has been
taken to authorize the issuance of the shares and Rights to be issued by the
Company in connection with the Merger, and when such shares are issued
pursuant to the Merger as contemplated by the Registration Statement such
shares will be legally and validly issued and fully paid and nonassessable,
with Rights attached thereto.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to our firm wherever appearing therein.
Very truly yours,
FAEGRE & BENSON
Professional Limited Liability
Partnership
<PAGE>
EXHIBIT 8(A)
December 1, 1994
The NWNL Companies, Inc.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Ladies and Gentlemen:
We have acted as counsel to The NWNL Companies, Inc., a Delaware corporation
("NWNL"), in connection with the Agreement and Plan of Merger, dated as of
September 11, 1994 (the "Merger Agreement"), by and between NWNL and USLICO
Corporation, a Virginia corporation ("USLICO"), providing for the merger of
USLICO with and into NWNL. This letter expresses our opinion regarding the
treatment of the merger of USLICO with and into NWNL (the "Merger") as a
reorganization pursuant to Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code"). Unless otherwise defined herein, capitalized
terms have the same meanings as defined in the Merger Agreement.
In connection with this opinion, we have reviewed the Merger Agreement and
such other documents and records, including (i) the Registration Statement of
NWNL on Form S-4 (the "Registration Statement") relating to shares of NWNL
Common Stock to be issued in the Merger, and (ii) certain representations and
warranties (the "Representations") of the managements of NWNL and USLICO as to
certain facts and circumstances, as referred to in the Registration Statement
and as contemplated by the Merger Agreement, and have reviewed such matters of
law as we have deemed necessary for this opinion.
Based on the foregoing, including the Representations, we advise you that,
if the Merger is consummated in accordance with the terms of the Merger
Agreement, in our opinion, for United States federal income tax purposes, the
Merger will qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code.
Our opinion is limited to the matter expressly addressed above. No opinion
is expressed, and none should be inferred, as to any other matter. Our opinion
is based upon existing law and currently applicable Treasury regulations
promulgated under the Code, published administrative positions of the Internal
Revenue Service contained in revenue rulings and revenue procedures currently in
effect, and judicial decisions, all of which are subject to change either
prospectively or retroactively. To the extent there are changes in such legal
authorities, our opinion is not applicable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to our firm wherever appearing therein.
Very truly yours,
FAEGRE & BENSON
Professional Limited Liability
Partnership
<PAGE>
EXHIBIT 8(B)
December 2, 1994
USLICO Corporation
2601 Fairfax Drive
Arlington, Virginia 22203
Re: Federal Income Tax Consequences of the
Merger of USLICO Corporation with and
into The NWNL Companies, Inc.
Dear Sirs:
You have requested our opinion as to certain federal income tax consequences
arising out of the merger (the "Merger") pursuant to the Agreement and Plan of
Merger, dated as of September 11, 1994 (the "Merger Agreement"), by and among
USLICO Corporation, a Virginia corporation ("USLICO"), and The NWNL Companies,
Inc., a Delaware corporation ("NWNL"), pursuant to which USLICO will merge with
and into NWNL. Our conclusions are based on the facts and assumptions set forth
below, our examination of the Merger Agreement and the Prospectus/Joint Proxy
Statement, filed as part of the Registration Statement on Form S-4 of NWNL of
December 1, 1994 (the "Registration Statement"), and upon the representations
furnished to us by NWNL and USLICO. In addition, we have considered such other
factual and legal matters as we have deemed appropriate. Capitalized terms not
defined in this letter have the meaning given them in the Merger Agreement.
Pursuant to the Merger Agreement, USLICO will merge with and into NWNL and
the separate corporate existence of USLICO will cease. In the Merger, each
outstanding share of Common Stock, $1 par value per share, of USLICO ("USLICO
Common Stock") will be converted into a fraction of a share of Common Stock,
without par value, of NWNL ("NWNL Common Stock"), and, in certain circumstances,
the right to be paid cash in certain amounts, to be determined as follows (the
"Exchange Ratio"): (i) if the average of the per share closing sale prices of
NWNL Common Stock on the New York Stock Exchange, Inc. ("NYSE") Composite Tape
for the 20 trading days immediately prior to the Approval Date (the "Exchange
Price") is equal to or greater than $28.26 and not greater than $37.20, the
fraction of a share of NWNL Common Stock to be received for each share of USLICO
Common Stock shall be .69, (ii) if the Exchange Price is greater than $37.20,
the fraction of NWNL Common Stock to be received for each share of USLICO Common
Stock shall be the quotient (determined to the third decimal place without
rounding) obtained by dividing $25.669 by the Exchange Price, or (iii) if the
Exchange Price is less than $28.26 and greater than $25.36, the fraction of a
share of NWNL Common Stock to be received for each share of USLICO Common Stock
shall be calculated in accordance with one of the alternatives, as designated by
NWNL, set forth in the following sentence. The ratio shall be (A) a number equal
to the quotient (determined to the third decimal place without rounding)
obtained by dividing $19.50 by the Exchange Price (the "Revised Exchange
Ratio"); or (B) .69, in which event there shall be payable in cash by NWNL as
additional consideration for each share of USLICO Common Stock an amount equal
to (x) the Revised Exchange Ratio less .69, multiplied by (y) the Exchange
Price; or (C) a number greater than .69 and less than the Revised Exchange Ratio
as shall be designated by NWNL (the "Designated Exchange Ratio"), in which event
there shall be payable in cash by NWNL as additional consideration for each
share of USLICO Common Stock an amount equal to (x) the Revised Exchange Ratio
less the Designated Exchange Ratio, multiplied by (y) the Exchange Price. If the
Exchange Price is equal to or less than $25.36, either NWNL or USLICO may
terminate the Merger Agreement or NWNL and USLICO may mutually agree to a
revised ratio calculated under the methodology contained in alternative (A), (B)
or (C) above, using such Exchange Price to compute the Revised Exchange Ratio
and any Designated Exchange Ratio.
<PAGE>
No fractional shares of NWNL will be issued in the Merger. USLICO
stockholders who otherwise would receive fractional shares will receive cash
under procedures set forth in the Prospectus/Joint Proxy Statement.
NWNL has a Rights Agreement that permits shareholders to acquire shares of
Junior Participating Preferred Stock of NWNL upon an acquisition or tender offer
to acquire 20 percent or more of the NWNL Common Stock ("NWNL Rights"). The NWNL
Rights are issued one-for-one on the outstanding NWNL Common Stock and may not
be sold separately from the NWNL Common Stock until the rights become
exercisable. The NWNL Rights will not become exercisable by virtue of the
Merger. NWNL Rights will accompany the NWNL Common Stock received by the
stockholders of USLICO in the Merger.
In connection with the Merger, USLICO intends to pay a special cash dividend
of $0.45 per share of USLICO Common Stock and to redeem the Rights under the
USLICO Share Rights Plan at a redemption price of $0.05 per Right, aggregating
payments equivalent to $0.50 per share of USLICO Common Stock (together the
"Special Distributions"). Such payments will be made to holders of record of
USLICO Common Stock outstanding immediately prior to the Effective Time of the
Merger.
In rendering the opinions set forth below, we have assumed that (i) the
Merger will be consummated in the manner described in the Merger Agreement, and
(ii) the representations made to us by USLICO and NWNL in the letters dated
December 1, 1994 are true on and as of the Effective Date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Special Distributions to the USLICO stockholders immediately
prior to the Effective Time of the Merger will constitute dividends to the
extent of USLICO's current or accumulated earnings and profits ("USLICO's
Earnings and Profits"). The Internal Revenue Code of 1986, as amended (the
"Code"), Section 316(a). As such, each USLICO stockholder will include the
amount of the Special Distributions received in gross income as ordinary
income to the extent of such stockholder's ratable share of USLICO's
Earnings and Profits. Code Section 301(c)(1). USLICO stockholders that
qualify as corporations for federal income tax purposes should be entitled
to a dividends received deduction equalling either 70% or 80% of the amount
of the taxable dividend. Code Sections 243(a) and 243(c). To the extent the
amount of the Special Distributions received by a USLICO stockholder exceeds
his ratable share of USLICO's Earnings and Profits, it will be treated first
as a return of such USLICO stockholder's basis to the extent thereof, and
then as gain from the sale of a capital asset. Code Sections 301(c)(2) and
301(c)(3).
2. The Merger of USLICO with and into NWNL, as described above, will
qualify as a "reorganization" within the meaning of Code Section
368(a)(1)(A). USLICO and NWNL will each be a "party to a reorganization"
within the meaning of Code Section 368(b).
3. No gain or loss will be recognized by NWNL upon the receipt of the
assets of USLICO solely in exchange for shares of NWNL Common Stock. Code
Section 1032.
4. No gain or loss will be recognized by USLICO Corporation upon the
transfer of its assets to NWNL pursuant to the Merger. Code Sections 361(a)
and 361(b).
5. The basis of the assets of USLICO, in the hands of NWNL, will be the
same as the basis of such assets in the hands of USLICO immediately prior to
the Merger. Code Section 362(b).
6. No gain or loss will be recognized by the stockholders of USLICO
upon the receipt of shares of NWNL Common Stock (including any fractional
share interests to which they may be entitled) solely in exchange for their
shares of USLICO Common Stock. Code Section 354(a)(1).
7. The NWNL Rights accompanying the NWNL Common Stock received by the
stockholders of USLICO in the Merger will be considered part of the NWNL
Common Stock prior to an
2
<PAGE>
acquisition or tender offer to acquire 20 percent or more of the voting
stock of NWNL. The USLICO stockholders will not recognize any gain upon
receipt of the NWNL Rights. Rev. Rul. 90-11, 1990-1 C.B. 10.
8. Stockholders of USLICO who receive a combination of shares of NWNL
Common Stock and cash (other than received in lieu of a fractional share
interest) in exchange for shares of USLICO Common Stock in accordance with
the terms of the Merger Agreement will recognize any gain (but not loss)
realized (which gain will be equal to the cash received plus the fair market
value of the NWNL Common Stock received, less such shareholder's basis in
the USLICO Common Stock exchanged) but not in excess of the amount of cash
received. Code Sections 356(a)(1) and 356(b).
9. Gain recognized by a USLICO stockholder upon receipt of shares of
NWNL Common Stock and cash (other than cash received in lieu of a fractional
share interest) will be capital gain provided the shares of USLICO Common
Stock were held as capital assets on the date of the Merger and the USLICO
stockholder exercised no control over the corporate affairs of NWNL. Rev.
Rul. 76-385, 1976-2 C.B. 92. If the shares of USLICO Common Stock have been
held for longer than one year, the gain will be long-term capital gain. Code
Section 1222.
10. The payment of cash to a holder of USLICO Common Stock in lieu of a
fractional share of NWNL Common Stock will be treated for federal income tax
purposes as if the fractional share was distributed as part of the Merger
and then was redeemed by NWNL. This cash payment will be treated as having
been received as a distribution in full payment for the stock redeemed. Code
Section 302(a); Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41,
1977-2 C.B. 574. Gain or loss will be realized and recognized by the USLICO
stockholder receiving cash in lieu of a fractional share of NWNL Common
Stock equal to the difference between the cash received and the basis of the
fractional share interest. Code Section 1001.
11. Gain or loss recognized by a holder of USLICO Common Stock upon
receipt of cash in exchange for the holder's fractional share interest will
be capital gain or loss, provided the shares of USLICO Common Stock were
held as capital assets on the date of the Merger. If the shares of USLICO
Common Stock have been held for longer than one year, the gain or loss will
be long-term capital gain or loss. Code Section 1222.
12. The basis of the USLICO stockholders in the shares of NWNL Common
Stock to be received in the Merger (including any fractional share interests
to which they may be entitled) will be the same as their basis in the shares
of USLICO Common Stock surrendered in exchange therefor (as adjusted, if
necessary, for the receipt of the Special Distributions), decreased by the
amount of cash received in the Merger and increased by the amount of gain
recognized, if any. Code Section 358(a)(1).
13. The holding period of the shares of NWNL Common Stock to be received
in the Merger by the stockholders of USLICO will include the period during
which the shares of USLICO Common Stock surrendered in exchange therefor
were held, provided that the shares of USLICO Common Stock were held as
capital assets on the date of the Merger. Code Section 1223(1).
We consent to the reference to our firm under the captions "The
Merger-Federal Income Tax Consequences" and "Background of the Merger" in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
ROGERS & WELLS
3
<PAGE>
EXHIBIT 23(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of The NWNL Companies, Inc. on Form S-4 of our reports dated February 8, 1994,
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to a change in the Company's method of accounting for income taxes by
adopting the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES, in 1993, and
the adoption of the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSION, in 1993), appearing in and
incorporated by reference in the Annual Report on Form 10-K of The NWNL
Companies, Inc. for the year ended December 31, 1993 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE
Minneapolis, Minnesota
December 1, 1994
<PAGE>
EXHIBIT 23(B)
ACCOUNTANTS' CONSENT
The Board of Directors and Shareholders
USLICO Corporation:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
Our reports refer to a change in the Company's method of accounting for
income taxes by adopting the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," in 1992, and the adoption of the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post Retirement Benefits Other than Pensions,"
in 1992.
KPMG PEAT MARWICK LLP
Washington, D.C.
December 1, 1994
<PAGE>
EXHIBIT 23(E)
CONSENT OF PERSON TO BECOME A DIRECTOR
I hereby consent to be named in this Registration Statement and the Joint
Proxy Statement contained herein, as a person who may become a director of The
NWNL Companies, Inc.
/s/ DANIEL J. CALLAHAN, III
--------------------------------------
Daniel J. Callahan, III
Dated: September 28, 1994
<PAGE>
EXHIBIT 23(F)
DECEMBER 1, 1994
USLICO Corporation
4601 North Fairfax Drive
Arlington, VA 22203
Dear Sir or Madam:
By our signature hereto, we consent to the reference to our firm under the
caption "Background of the Merger" in the Registration Statement (Form S-4)
filed in connection with the Agreement and Plan of Merger between USLICO
Corporation and the NWNL Companies, Inc., dated as of September 11, 1994.
Very truly yours,
HAZEL & THOMAS, P.C.
<PAGE>
EXHIBIT 24
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 27th day of September 1994.
/s/ WAYNE R. HUNEKE
--------------------------------------
Wayne R. Huneke
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ CAROLYN H. BALDWIN
--------------------------------------
Carolyn H. Baldwin
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ F. CALEB BLODGETT
--------------------------------------
F. Caleb Blodgett
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ DAVID C. COX
--------------------------------------
David C. Cox
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ JAYE F. DYER
--------------------------------------
Jaye F. Dyer
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ JOHN H. FLITTIE
--------------------------------------
John H. Flittie
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ LUELLA G. GOLDBERG
--------------------------------------
Luella G. Goldberg
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ WILLIAM A. HODDER
--------------------------------------
William A. Hodder
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ JAMES J. HOWARD
--------------------------------------
James J. Howard
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 8th day of September 1994.
/s/ RANDY C. JAMES
--------------------------------------
Randy C. James
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 19th day of September 1994.
/s/ RICHARD L. KNOWLTON
--------------------------------------
Richard L. Knowlton
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ DAVID A. KOCH
--------------------------------------
David A. Koch
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ RICHARD M. KOVACEVICH
--------------------------------------
Richard M. Kovacevich
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ GLEN D. NELSON
--------------------------------------
Glen D. Nelson
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 8th day of September 1994.
/s/ JAMES J. RENIER
--------------------------------------
James J. Renier
<PAGE>
THE NWNL COMPANIES, INC.
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of The NWNL Companies, Inc., a
Delaware corporation, does hereby make, constitute and appoint John G. Turner,
John H. Flittie, Wayne R. Huneke, Royce N. Sanner and Richard R. Crowl, and each
or any one of them, the undersigned's true and lawful attorneys-in-fact, with
power of substitution, for the undersigned and in the undersigned's name, place
and stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration Statements,
on Form S-4 or other applicable form, and all amendments, including
post-effective amendments, thereto, to be filed by said Company with the
Securities and Exchange Commission, Washington, D.C., in connection with the
registration under the Securities Act of 1933, as amended, of shares of Common
Stock or other securities proposed to be issued or sold by said Company, and to
file the same with said Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform any and all acts
necessary or incidental to the performance and execution of the powers herein
expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand
this 15th day of September 1994.
/s/ JOHN G. TURNER
--------------------------------------
John G. Turner
<PAGE>
EXHIBIT 99(A)
PROXY
THE NWNL COMPANIES, INC.
PROXY FOR SPECIAL MEETING JANUARY 11, 1995
The undersigned hereby appoints John G. Turner, John H. Flittie and Royce N.
Sanner, and each of them, with or without the others, proxies, with full power
of substitution, to vote all shares of stock that the undersigned is entitled to
vote at the Special Meeting of Shareholders of The NWNL Companies, Inc., to be
held at the general offices of the Corporation, 20 Washington Avenue South,
Minneapolis, Minnesota, on January 11, 1995 at 9:00 o'clock a.m., local time,
and at all adjournments thereof as follows:
<TABLE>
<S> <C> <C> <C>
(1) APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF SEPTEMBER 11, 1994, BY AND BETWEEN
THE NWNL COMPANIES, INC. AND USLICO CORPORATION, AND THE MERGER CONTEMPLATED THEREIN.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
(2) IN THEIR DISCRETION, UPON ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE SAID MEETING.
</TABLE>
THIS PROXY WILL BE VOTED AS YOU SPECIFY ABOVE. IF NO SPECIFICATION IS MADE,
THE PROXY WILL BE VOTED FOR PROPOSAL 1 ABOVE. RECEIPT OF THE NOTICE OF SPECIAL
MEETING AND THE JOINT PROXY STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
(CONTINUED ON REVERSE SIDE)
<PAGE>
THIS PROXY IS SOLICITED BY THE NWNL BOARD OF DIRECTORS.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Please sign your name exactly as it appears below. Joint owners must each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as it appears hereon. If held by a corporation, please
sign in the full corporate name by the president or other authorized officer. If
held by a partnership, please sign in the partnership's name by an authorized
officer.
Dated ____________________________
__________________________________
Signature
__________________________________
Signature, if held jointly or
office or title held
<PAGE>
EXHIBIT 99(B)
USLICO CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
JANUARY 11, 1995
THIS PROXY IS SOLICATED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Daniel J. Callahan, III and David H. Roe,
and each of them, with full power of substitution, proxy to vote all shares of
common stock which the undersigned is entitled to vote at the Meeting, and any
adjournment thereof. The receipt of the Notice of Special Meeting and the Joint
Proxy Statement/Prospectus is hereby acknowledged.
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE
DIRECTIONS GIVEN IN THE SPACE PROVIDED. IF NOT OTHERWISE DIRECTED, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
/X/ Please mark your vote as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE MERGER
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the merger of USLICO Corporation with and into The NWNL Companies, Inc. pursuant to the
Agreement and Plan of Merger dated September 11, 1994.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
2. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before
the meeting, or any adjournment(s) or postponement(s) thereof.
</TABLE>
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
__________________________________
Signature
Dated _______________________, 199
__________________________________
(Joint Signature)
Dated _______________________, 199
Signature(s) should be exactly as name or names appearing on this Proxy. If
stock is held jointly, each holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please give full title. If a
corporation, please sign in full corporate name by authorized officer and give
full title. If a partnership, please sign in partnership name by authorized
person(s).
