AGREEMENT AND PLAN
OF MERGER
DATED AS OF
MARCH 15, 1996
BETWEEN
PENN TREATY AMERICAN CORPORATION
AND
HEALTH INSURANCE OF VERMONT, INC.
TABLE OF CONTENTS
Page
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ARTICLE I
The Merger
Section 1.1. The Merger 1
Section 1.2. Effective Date of the Merger 1
Section 1.3. Conversion of Shares 1
Section 1.4. Tax-Free Reorganization 2
Section 1.5. Dissenters' Rights 2
ARTICLE II
The Surviving Corporation
Section 2.1. Articles of Incorporation 2
Section 2.2. By-laws 2
Section 2.3. Board of Directors; Officers 2
Section 2.4. Effects of the Merger 2
ARTICLE III
Conversion of Shares
Section 3.1. Exchange Rate 3
Section 3.2 Cash Consideration for Shares 4
Section 3.3. Payment for Shares in the Merger 4
Section 3.4. Dividends; Transfer Taxes 6
Section 3.5. No Fractional Shares 6
Section 3.6. Stock Options 6
Section 3.7. Stockholder Approval 7
Section 3.8. Closing of the Company's Transfer Books 7
Section 3.9. Assistance in Consummation of the Merger 7
Section 3.10. Closing 7
ARTICLE IV
Representations and Warranties of Parent
Section 4.1. Organization and Qualification 8
Section 4.2. Capitalization 8
Section 4.3. Authority Relative to this Merger Agreement 9
Section 4.4. Statutory Reports and Financial Statements 10
Section 4.5. Absence of Certain Changes or Events 12
Section 4.6 Availability of Sufficient Funds 12
Section 4.7. Financial Advisor 12
Section 4.8. Principal Office 12
ARTICLE V
Representations and Warranties of the Company
Section 5.1. Organization and Qualification 12
Section 5.2. Capitalization 13
Section 5.3. Subsidiaries 13
Section 5.4. Authority Relative to this Merger Agreement 13
Section 5.5. Reports and Financial Statements 14
Section 5.6. Absence of Certain Changes or Events 15
Section 5.7. Litigation 15
Section 5.8. Loss Reserves; Statutory Capital 16
Section 5.9. Reinsurance 16
Section 5.10. Compliance with Applicable Laws 16
Section 5.11. Liabilities 16
Section 5.12. Written Insurance Policies; Regulatory Filings 17
Section 5.13. Agents 17
Section 5.14. Taxes 17
Section 5.15. Certain Agreements 19
Section 5.16. Premium Balances Receivable 19
Section 5.17. Investment Portfolio and Other Assets 19
Section 5.18. Intellectual Property 19
Section 5.19. Licenses 20
Section 5.20. Intercompany and Affiliate Transactions; Insider Interests 20
Section 5.21. Employee Benefit Plans 20
Section 5.22. ERISA 21
Section 5.23. Officers, Directors and Employees 21
Section 5.24. Company Action 21
Section 5.25. Pending Claims 21
Section 5.26. Insurance for the Benefit of the Company 21
Section 5.27. Title to Assets; Liens 21
Section 5.28. Ability to Conduct Business 22
Section 5.29. Financial Advisor 22
Section 5.30. Fairness Opinion 22
Section 5.31. Disclosure 22
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1. Conduct of Business by the Company Pending the Merger 22
Section 6.2. No Solicitation 24
Section 6.3. Notice of Breach 24
ARTICLE VII
Additional Agreements
Section 7.1. Access and Information 25
Section 7.2. Registration Statement/Proxy Statement 25
Section 7.3. Stock Exchange Listing 26
Section 7.4. Consents, Approvals and Filings 26
Section 7.5. HSR Act 26
Section 7.6. Additional Agreements 26
Section 7.7. Information in Disclosure Documents, Registration Statements, Etc. 27
Section 7.8. Indemnification 27
Section 7.9. Employee Benefits 28
ARTICLE VIII
Conditions Precedent
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger 28
Section 8.2. Conditions to Obligation of the Company to Effect the Merger 29
Section 8.3. Conditions to Obligations of Parent and Merger Sub to Effect
the Merger 30
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1. Termination 31
Section 9.2. Effect of Termination 32
Section 9.3. Amendment 32
Section 9.4. Waiver 32
ARTICLE X
General Provisions
Section 10.1. Non-Survival of Representations, Warranties and Agreements 33
Section 10.2. Notices 33
Section 10.3. Fees and Expenses 34
Section 10.4. Publicity 34
Section 10.5. Specific Performance 35
Section 10.6. Interpretation 35
Section 10.7. Miscellaneous 35
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Merger Agreement") is by and
between PENN TREATY AMERICAN CORPORATION, a Pennsylvania corporation
("Parent") and HEALTH INSURANCE OF VERMONT, INC., a Vermont corporation (the
"Company").
Background
A. The Boards of Directors of Parent and the Company have approved
the merger of a wholly-owned subsidiary of Parent to be formed as soon as
practicable following the execution of this Merger Agreement ("Merger Sub")
with and into the Company upon the terms and subject to the conditions set
forth herein (the "Merger").
B. For Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
C. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase of the Company.
N O W T H E R E F O R E,
In consideration of the foregoing premises and the representations,
warranties and agreements contained herein, the parties hereto intending to
be legally bound agree as follows.
ARTICLE I
The Merger
Section 1.1. The Merger. Upon the terms and subject to the
conditions hereof, on the Effective Date (as defined in Section 1.2), Merger
Sub shall be merged with and into the Company and the separate existence of
Merger Sub shall thereupon cease, and the Company shall be the surviving
corporation in the Merger, (the "Surviving Corporation") and the name of the
Company shall be changed to "American Network Life Insurance Company".
Section 1.2. Effective Date of the Merger. The Merger shall become
effective when a properly executed Certificate of Merger is duly filed with
the Secretary of State of the State of Vermont, which filing shall be made
concurrently with the closing of the transactions contemplated by this
Merger Agreement in accordance with Section 3.10. When used in this Merger
Agreement the term the "Effective Date" shall mean the date and time at
which such Certificate of Merger is so filed or at such time thereafter as
is provided in such Certificate of Merger.
Section 1.3. Conversion of Shares. As of the Effective Date, each
share of Company Common Stock (as defined herein) shall be converted into
shares of Parent Common Stock (as defined herein) plus $4.00 of Per Share
Cash Consideration (as defined herein) pursuant to the terms set forth in
Article III of this Agreement.
Section 1.4. Tax-Free Reorganization. The parties intend to adopt
this Merger Agreement as a tax-free plan of reorganization and to consummate
the Merger in accordance with the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
Section 1.5. Dissenters' Rights. Notwithstanding any other provision
of this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Date and which are held by
shareholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly appraisal for such
shares in accordance with the Vermont Business Corporation Act (the "VBCA")
and who shall not have withdrawn such demand or otherwise have forfeited
appraisal rights (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the consideration described
in Section 1.4 above (the "Merger Consideration"). Such shareholders shall
be entitled to receive payment of the appraised value of such shares of
Company Common Stock held by them in accordance with the VBCA, except any
shareholders who have failed to perfect or shall have withdrawn or lost
their rights to appraisal of such shares shall be deemed to have been
converted into and to have become exchangeable, as of the Effective Date,
for the right to receive, without interest, the Merger Consideration, in the
manner set forth elsewhere herein.
ARTICLE II
The Surviving Corporation
Section 2.1. Articles of Incorporation. The Articles of
Incorporation of the Company as in effect immediately prior to the Effective
Date shall be the Articles of Incorporation of the Surviving Corporation
until duly amended, except that the Articles of Incorporation of the
Surviving Corporation shall be amended, in accordance with the terms thereof
and of the Vermont Business Corporation Act ("VBCA"), to provide that the
name of the Surviving Corporation shall be "American Network Life Insurance
Company".
Section 2.2. By-laws. The By-laws of Merger Sub as in effect
immediately prior to the Effective Date shall be the By-laws of the
Surviving Corporation, and thereafter may be amended in accordance with its
terms and as provided by law.
Section 2.3. Board of Directors; Officers. The directors of Merger
Sub immediately prior to the Effective Date and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall be the
directors of the Surviving Corporation and the officers of Merger Sub
immediately prior to the Effective Date, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected and qualified.
Section 2.4. Effects of the Merger. The Merger shall have the
effects set forth in Section 11.06 of the VBCA.
ARTICLE III
Conversion of Shares
Section 3.1. Exchange Rate.
(a) As of the Effective Date, by virtue of the Merger and without
any action on the part of any holder of any shares of the
Company's Common Stock, $3.00 par value ("Company Common
Stock"):
(i) All shares of Company Common Stock which are held by the
Company or any other subsidiary shall be canceled without
any conversion thereof and no consideration shall be given
with respect thereto.
(ii) Subject to Section 3.5, each remaining outstanding share of
Company Common Stock shall be converted into the number of
fully paid and nonassessable shares of the Common Stock,
$.10 par value, of Parent ("Parent Common Stock")
multiplied by the Exchange Rate (as defined below) and the
cash consideration set forth in Section 3.2.
(iii) In the event of any stock dividend, stock split,
reclassification, recapitalization, combination or
exchange of shares with respect to, or rights issued in
respect of, Parent Common Stock after the date hereof and
prior to or as of the Effective Date, the Exchange Rate
shall be adjusted accordingly.
(iv) Each issued and outstanding share of Common Stock of Merger
Sub ("Merger Sub Common Stock") shall be converted into
and become one fully paid and nonassessable share of
Common Stock, $.01 par value, of the Surviving
Corporation.
(b) The "Exchange Rate" shall mean:
(i) The quotient of the Base Price (as defined below) divided by
the Final Price (as defined below).
(ii) Assuming all Company Options (as defined in Section 3.6
below) have been exercised, the "Base Price" shall mean
$8,801,520 divided by the number of shares of Company
Common Stock outstanding on the Effective Date. If all
Company Options have not been exercised as of the
Effective Date, the Base Price shall reduced by $16.00 for
each share of Company Common Stock not purchased pursuant
to the Company Options which remain outstanding and
unexercised.
(iii) The "Final Price" shall mean the average closing bid price
of Parent Common Stock on the Nasdaq National Market
during the period comprised of the twenty consecutive
trading days immediately preceding the fifth business day
immediately preceding the Effective Date (such period is
hereinafter referred to as the "Measurement Period"), as
such closing bid prices are reported in The Wall Street
Journal, or if not so published in such newspaper, in any
other newspaper of general circulation selected by the
Company, provided, however, that if the average closing
price of Parent Common Stock, determined in accordance
with the first clause of this sentence, during the
Measurement Period is more than $.20 per share higher than
the average closing bid price of Parent Common Stock
during the Measurement Period, the Final Price shall equal
the average closing price per share minus $.20 per share
but this adjustment shall not cause the Final Price to be
reduced to a price per share less than the average closing
bid price of Parent Common Stock during the Measurement
Period. If the Final Price of Parent Common Stock,
determined in accordance with the immediately preceding
sentence, is less than $16.00 or greater than $18.00, this
Merger Agreement shall terminate provided; however, that
the parties hereto may waive this termination provision in
writing.
Section 3.2 Cash Consideration for Shares. At the Effective Date,
by virtue of the Merger and without any action on the part of Parent, Merger
Sub, the Company, or the holders of any shares of Company Common Stock:
Each share of Company Common Stock issued and outstanding immediately prior
to the Effective Date (other than any shares of Company Common Stock to be
canceled pursuant to Section 3.1(a)(i) shall be converted into the right to
receive $4.00 per share in cash (the "Per Share Cash Consideration") (to be
paid in addition to Parent Common Stock, as described in Section 3.1
hereof). Assuming all Company Options (as defined in Section 3.6 below)
have been exercised, the aggregate amount of cash consideration paid for all
shares of Company Common Stock (the "Cash Consideration") will be Two
Million Two Hundred Thousand Three Hundred Eighty Dollars ($2,200,380). If
all Company Options have not been exercised, the Cash Consideration shall be
reduced by $4.00 for each share of Company Common Stock not purchased
pursuant to the outstanding Company Options which remain outstanding and
unexercised.
Section 3.3. Payment for Shares in the Merger. The manner of making
payment for Company Common Stock in the Merger shall be as follows:
(a) On the Effective Date, Parent shall make available to the
Company or such other exchange agent as selected by the Parent
and reasonably acceptable to the Company (the "Exchange Agent"),
for the benefit of each holder of exercised Company Common Stock
and each holder of Company Options (as defined in Section
3.6(a)): (i) a sufficient number of certificates representing
Parent Common Stock required to effect the delivery of Parent
Common Stock required to be issued pursuant to Sections 3.1 and
3.6, and (ii) cash in the amount of the Cash Consideration (such
cash, the "Payment Fund") required to be paid pursuant to
Section 3.2. The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Parent Common Stock contemplated to be
issued and the Per Share Cash Consideration contemplated to be
paid pursuant to Sections 3.1 and 3.6.
(b) Promptly after the Effective Date, the Exchange Agent shall mail
to each holder of record (as shown on the books of the Company's
transfer agent as of the Effective Date) of a certificate or
certificates which immediately prior to the Effective Date
represented outstanding shares of Company Common Stock
(individually, a "Certificate" and collectively, the
"Certificates") (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (ii) instructions
for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender of Certificates for
cancellation to the Exchange Agent, together with such
transmittal letter duly executed and any other required
documents, the holder of such Certificates shall be entitled to
receive for each share of the Company Common Stock represented
by such Certificates the number of shares of Parent Common Stock
into which such shares of Company Common stock are converted in
the Merger and the Per Share Cash Consideration, and the
Certificates so surrendered shall be canceled. Until so
surrendered, Certificates shall represent solely the right to
receive the number of shares of Parent Common Stock into which
such shares of Company Common Stock are converted in the Merger,
any cash in lieu of fractional shares of Parent Common Stock as
contemplated by Section 3.5 with respect to each of the shares
of Company Common Stock represented thereby and the Per Share
Cash Consideration. The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the
Parent Common Stock held by it from time to time hereunder,
except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such Parent
Common Stock for the account of the persons entitled thereto.
(c) Any portion of the Payment Fund which remains undistributed to
the holders of Company Common Stock for twelve months after the
Effective Date shall be delivered to Parent upon demand, and any
holders of Company Common Stock who have not theretofore
complied with this Article shall thereafter look only to Parent
for the Cash Consideration to which they are entitled pursuant
to this Article. If any Certificates shall not have been
surrendered prior to five years after the Effective Date (or
immediately prior to such earlier date on which any Cash
Consideration in respect of such Certificate would otherwise
escheat to or become the property of any government entity), any
cash or other consideration payable in respect of such
Certificate shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled
thereto.
(d) None of Parent, Merger Sub or the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any
cash from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar law.
(e) Parent or the Exchange Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock
such amounts as Parent or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld and paid over
to the appropriate taxing authority by Parent or the Exchange
Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such
deduction and withholding was made by Parent or the Exchange
Agent.
Section 3.4. Dividends; Transfer Taxes. No dividends or other
distributions that are declared or made on Parent Common Stock will be paid
to persons entitled to receive certificates representing Parent Common Stock
pursuant to this Merger Agreement until such persons: (i) surrender their
Certificates representing Company Common Stock, or (ii) surrender their
option award agreements or provide other satisfactory evidence of the
cancellation of Company Options, as applicable. Upon such surrender, there
shall be paid to the person in whose name the certificates representing such
Parent Common Stock shall be issued any dividends or other distributions
which shall have become payable with respect to such Parent Common Stock in
respect of a record date after the Effective Date. In no event shall the
person entitled to receive such dividends be entitled to receive interest on
such dividends. If any Per Share Cash Consideration, any cash in lieu of
fractional shares or any certificate representing Parent Common Stock is to
be paid to or issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of
such exchange that the Certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting
such exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of certificates for such Parent Common
Stock in a name other than that of the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable
to a holder of Company Options or shares of Company Common Stock for any
shares of Parent Common Stock or dividends thereon delivered to a public
official pursuant to any applicable escheat laws.
Section 3.5. No Fractional Shares. No certificates or scrip
representing less than one share of Parent Common Stock shall be issued upon
the surrender for exchange of (i) Certificates representing Company Common
Stock pursuant to Sections 3.1(b) and 3.2 or (ii) option award agreements or
other evidence of cancellation of Company Options pursuant to Section 3.6.
In lieu of any such fractional share, each holder of Company Common Stock or
Company Options who would otherwise have been entitled to a fraction of a
share of Parent Common Stock upon surrender of (i) Certificates for exchange
pursuant to Sections 3.1(b) and 3.2, or (ii) option award agreements or
other evidence of cancellation of Company Options pursuant to Section 3.6
shall be paid upon such surrender, cash (without interest) in an amount
equal to such fractional interest multiplied by the Final Price (or the Base
Price, if the Final Price is lower than the Base Price) plus an amount equal
to such fractional interest multiplied by the Per Share Cash Consideration.
As soon as practicable after the determination of the amount of cash to be
paid to former stockholders or option holders of the Company in lieu of any
fractional interests, Parent shall make available to the Exchange Agent,
which shall in turn make available in accordance with this Merger Agreement,
such amounts to such former stockholders and option holders.
Section 3.6. Stock Options.
Prior to the Effective Date, the Company shall use its best efforts to
cause the holders of each unexpired and unexercised option (each a "Company
Option") under the Company's 1985 Incentive Stock Option Plan (the "Stock
Option Plan") to exercise such options. At the Effective Date, Parent shall
issue to holders of any unexercised Company Options an option (each a
"Parent Option") under Parent's employee stock option plan to purchase a
number of shares of Parent Common Stock equal to the Exchange Rate (as
defined in Section 3.1(b)) for the number of shares of the Company Common
Stock that could have been purchased under the Company Option, at a price
per share of Parent Common Stock equal to the option exercise price
determined pursuant to the Company Option divided by the Exchange Rate.
Parent shall, from and after the Effective Date, reserve and make available
for issuance upon exercise of Parent Options all shares of Parent Common
Stock covered thereby and amend its Registration Statement on Form S-8, such
amendment to be declared effective within twenty (20) days after the
Effective Date, or file a new Form S-8 within twenty (20) days after the
Effective Date, to cover the additional shares of Parent Common Stock
subject to the Parent Options granted in replacement of the Company Options
and shall use reasonable efforts to cause such shares to be listed on Nasdaq
National Market.
Section 3.7. Stockholder Approval. The Company shall take all action
necessary, in accordance with applicable law and its Articles of
Incorporation and By-laws, to convene a special meeting of the holders of
Company Common Stock (the "Company Meeting") as promptly as practicable for
the purpose of considering and taking action upon this Merger Agreement.
Subject to Section 6.2, the Board of Directors of the Company will recommend
that holders of Company Common Stock vote in favor of the approval of the
Merger and the adoption of this Merger Agreement at the Company Meeting.
Section 3.8. Closing of the Company's Transfer Books. At the
Effective Date, the stock transfer books of the Company shall be closed and
no transfer of shares of Company Common Stock shall be made thereafter. In
the event that, after the Effective Date, Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for Parent
Common Stock and/or cash as provided in Sections 3.1(a), 3.2, 3.3, 3.4 and
3.5.
Section 3.9. Assistance in Consummation of the Merger. Parent and
the Company shall provide all reasonable assistance to and shall cooperate
with, each other to bring about the consummation of the Merger as soon as
practicable in accordance with the terms and conditions of this Merger
Agreement. Parent shall cause Merger Sub to perform all of its obligations
in connection with this Merger Agreement.
Section 3.10. Closing. The closing of the transactions contemplated
by this Merger Agreement shall take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇,1735 ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, at 10:00 A.M. local time on the day which is five
business days after the day on which the last of the conditions set forth in
Article VIII (other than those requiring an exchange of certificates, or
other documents, or the taking of other action, at the Closing) is fulfilled
or waived or (ii) at such other time and place as Parent and the Company
shall agree in writing.
ARTICLE IV
Representations and Warranties of Parent
Parent represents and warrants to, and agrees with, the Company as
follows:
Section 4.1. Organization and Qualification. Parent is a corporation
duly organized and validly existing under the laws of the Commonwealth of
Pennsylvania. Parent shall use its best efforts to cause Merger Sub to be,
as of the Effective Date, a corporation duly organized, validly existing and
in good standing under the laws of the State of Vermont. Parent has the
requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted or
currently proposed to be conducted. Parent shall use its best efforts to
cause Merger Sub to have, as of the Effective Date, the requisite corporate
power and authority to own, lease and operate its assets and properties and
to carry on its business as it will then be conducted or then be proposed to
be conducted. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
make such qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the business, properties, assets, condition (financial or
otherwise), liabilities or operations of Parent and its subsidiaries taken
as a whole (a "Parent Material Adverse Effect). Parent shall use its best
efforts to cause Merger Sub not to have engaged, as of the Effective Date,
in any business (other than certain organizational matters and matters
relating to this Merger Agreement) since the date of its incorporation.
Complete and correct copies as of the date hereof of the Articles of
Incorporation and By-laws of Parent have been provided to the Company and
complete and correct copies as of the date hereof of the Articles of
Incorporation and By-laws of Merger Sub shall have been provided to the
Company prior to the Effective Date.
Section 4.2. Capitalization.
(a) As of the date hereof, the authorized capital stock of Parent
consists of 10,000,000 shares of Parent Common Stock and
5,000,000 shares of Preferred Stock, $1.00 par value ("Parent
Preferred Stock"). As of December 31, 1995, there were: (i)
6,971,283 shares of Parent Common Stock validly issued and
outstanding (all of which are fully paid and nonassessable), and
(ii) no shares of Parent Preferred Stock validly issued and
outstanding. As of the date hereof, except for 396,015 shares,
there are no options, warrants, calls or other rights,
agreements or commitments presently outstanding obligating
Parent to issue, deliver or sell shares of its capital stock, or
obligating Parent to grant, extend or enter into any such
option, warrant, call or other such right, agreement or
commitment. All of the shares of Parent Common Stock issuable
in accordance with this Merger Agreement in exchange for Company
Common Stock or Company Options at the Effective Date will be,
when so issued, duly authorized, validly issued, fully paid and
nonassessable. Parent has not issued any securities in
violation of any preemptive or similar rights. Except as set
forth in this Section 4.2(a), and as of the date hereof, there
are no options, warrants, calls, rights or other securities,
agreements or commitments of any character obligating Parent to
grant, extend or enter into any such option, warrant, call or
other such right, agreement or commitment. Parent shall use its
best efforts to cause all of the shares of issued outstanding
Merger Sub Common Stock to be owned by Parent. Parent shall use
its best efforts to cause Merger Sub not to have any plan or
intention to issue shares of stock that would result in Parent
losing "control" of Merger Sub within the meaning of Section
368(c)(1) of the Code.
(b) Parent shall use its best efforts to cause, as of the Effective
Date, all of the issued and outstanding shares of Merger Sub
common stock to be validly issued and outstanding, fully paid
and nonassessable. Parent shall use its best efforts to cause,
as of the Effective Date, Merger Sub not to have issued any
securities in violation of any preemptive or similar rights, and
Parent shall use its best efforts to cause Merger Sub not to
issue any options, warrants, calls, rights or other securities,
agreements or commitments of any character obligating Merger Sub
to grant, extend or enter into any such option, warrant, call or
other such right, agreement or commitment.
Section 4.3. Authority Relative to this Merger Agreement.
(a) Parent has the corporate power to enter into this Merger
Agreement and the agreements contemplated hereby and to carry
out its obligations hereunder and thereunder. The execution and
delivery of this Merger Agreement and the agreements
contemplated hereby and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of Parent. Parent shall use its best efforts to cause
the Board of Directors of Merger Sub to duly authorize, as of
the Effective Date, the agreements contemplated hereby and the
consummation of the transactions contemplated hereby. This
Merger Agreement constitutes a valid and binding obligation of
Parent and is enforceable against it in accordance with its
terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding
therefor may be brought. No other corporate proceedings on the
part of Parent are necessary to authorize this Merger Agreement
and the transactions contemplated hereby, except for proceedings
by Parent to become the sole stockholder of Merger Sub.
(b) The execution, delivery and performance of this Merger Agreement
by Parent and the consummation by Parent of the transactions
contemplated hereby do not and will not: (i) conflict with or
violate the Articles of Incorporation or By-laws of Parent; (ii)
violate or conflict with any permit, order, license, decree,
judgment, statute, law, ordinance, rule or regulation applicable
to Parent or by which any of its properties are bound or
affected, or (iii) result in any breach or violation of, or
constitute a default (with or without notice or lapse of time or
both) under, or give to others any rights of termination,
cancellation or acceleration of, or result in the creation of
any lien or encumbrance on any of the properties or assets of
Parent pursuant to, any note, bond, mortgage, indenture or other
loan document, contract, agreement, lease, instrument or
franchise to which Parent or any of its properties are bound or
affected other than: (A) any breaches, violations, conflicts,
defaults, terminations, cancellations, accelerations, liens or
encumbrances referred to in subparagraphs (ii) and (iii) of this
Section 4.3(b) which would not, individually or in the
aggregate, have a Parent Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby, and (B)
the laws and regulations referred to in subparagraph (d) of this
Section 4.3.
(c) Parent shall use its best efforts to cause the consummation by
Merger Sub of the transactions contemplated hereby not to: (i)
conflict with or violate the Articles of Incorporation or By-
laws of Merger Sub; (ii) violate or conflict with any permit,
order, license, decree, judgment, statute, law, ordinance, rule
or regulation applicable to Merger Sub or by which any of its
properties are bound or affected, or (iii) result in any breach
or violation of, or constitute a default (with or without notice
or lapse of time or both) under, or give to others any rights of
termination, cancellation or acceleration of, or result in the
creation of any lien or encumbrance on any of the properties or
assets of Merger Sub pursuant to, any note, bond, mortgage,
indenture or other loan document, contract, agreement, lease,
instrument or franchise to which Merger Sub or any of its
properties are bound or affected other than: (A) any breaches,
violations, conflicts, defaults, terminations, cancellations,
accelerations, liens or encumbrances referred to in
subparagraphs (ii) and (iii) of this Section 4.3(c) which would
not, individually or in the aggregate, have a Parent Material
Adverse Effect or prevent the consummation of the transactions
contemplated hereby, and (B) the laws and regulations referred
to in subparagraph (d) of this Section 4.3.
(d) Except as referred to herein or, in connection, or in
compliance, with the provisions of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the corporation, securities or Blue Sky laws or
regulations of the various states, and Applicable Insurance Laws
(as defined in Section 5.8) including, without limitation, 8
V.S.A. Sections 3431(a) and 3683, no filing or registration
with, or authorization, consent or approval of, any public body
or authority is necessary for the consummation by Parent, and
Parent shall use its best efforts to ensure that consummation by
Merger Sub, of the Merger or the other transactions contemplated
by this Merger Agreement, other than filings, registrations,
authorizations, consents or approvals which if not obtained or
made would not, individually or in the aggregate, have a Parent
Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby.
Section 4.4. Statutory Reports and Financial Statements.
(a) Parent has made, and will prior to the Effective Date make,
available to the Company true, complete and correct copies of
its consolidated Annual Statements as filed with the regulatory
authorities in Pennsylvania and any other state in which such
statements are required to be filed for the three years ended
December 31, 1993, December 31, 1994 and December 31, 1995. The
consolidated balance sheets of Parent and its subsidiaries
included therein as of December 31, 1995, and the related
summaries of operations and statement of cash flows for the year
then ended, included in the Annual Statements of Parent and its
subsidiaries for the year then ended, were prepared in all
material respects in conformity with statutory accounting
practices prescribed or permitted by the applicable insurance
regulatory authorities ("Statutory Accounting Principles")
consistently applied for the periods covered thereby, were
prepared in accordance with the books and records of Parent and
its subsidiaries and present fairly in all material respects the
consolidated statutory financial position of Parent and its
subsidiaries as at the date thereof and the consolidated
statutory results of operations of Parent and its subsidiaries
and other data contained therein for the period then ended. The
consolidated balance sheets of Parent and its subsidiaries
included therein in respect of any period ending after December
31, 1995, and the related summaries of operations and statements
of cash flows for the periods then ended included in the
Quarterly Statements, were prepared in conformity with Statutory
Accounting Principles applicable to interim financial statements
consistently applied during the periods involved, subject to
normal year-end adjustments, and fairly present in all material
respects the consolidated statutory financial position of Parent
and its subsidiaries at the respective dates and the
consolidated results of operations of Parent and its
subsidiaries for the periods then ended.
(b) Parent has furnished the Company with true and complete copies
of its: (i) Annual Reports on Form 10-K for the three fiscal
years ended December 31, 1992, December 31, 1993 and December
31, 1994, as filed with the Securities and Exchange Commission
(the "Commission"); (ii) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995, June 30, 1995 and September 30,
1995, as filed with the Commission; (iii) proxy statements
related to all meetings of its shareholders (whether annual or
special) since December 31, 1993, and (iv) all other reports or
registration statements filed by Parent with the Commission
since December 31, 1994, except registration statements on Form
S-8, in each case relating to employee benefit plans (the
documents described in clauses (i) through (iv) being referred
to herein collectively as the "Parent SEC Reports"). As of
their respective filing dates, the Parent SEC Reports complied
in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such
Parent SEC Reports. As of their respective filing dates, the
Parent SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and
unaudited interim financial statements of Parent included in the
Parent SEC Reports comply as to form in all material respects
with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto,
and the financial statements included in the Parent SEC Reports
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as
may be indicated therein or in the notes thereto) and fairly
present in all material respects the financial position of
Parent as at the dates thereof and the results of its operations
and changes in financial position for the periods then ended
subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other
adjustments described therein.
Section 4.5. Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Reports, since September 30, 1995, there has not
been: (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) which would, individually or in the aggregate, have a
Parent Material Adverse Effect (other than as a result of changes in laws or
regulations of general applicability or changes in general economic or
market conditions); (ii) any damage, destruction or loss, whether or not
covered by insurance, which, insofar as reasonably can be foreseen, in the
future would, individually or in the aggregate, have a Parent Material
Adverse Effect, or (iii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of Parent other than regular quarterly
dividends.
Section 4.6 Availability of Sufficient Funds. Parent has or will
have at the Effective Date sufficient funds available to consummate the
transactions contemplated hereby.
Section 4.7. Financial Advisor. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Merger
Agreement based upon arrangements made by or on behalf of Parent.
Section 4.8. Principal Office. Parent intends to cause the principal
office of the Surviving Corporation to remain in Colchester, Vermont.
Section 4.9. No Liquidation of Company. Parent has no plan or
intention to liquidate the Company, to merge the Company with or into
another corporation, to sell or otherwise dispose of the stock of the
Company except for transfers of stock to corporations controlled by Parent
or to cause the Company to sell or otherwise dispose of any of its assets or
any of the assets acquired from Merger Sub, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by the Company.
Section 4.10. No Liabilities. Following the Merger, the Company will
continue its historic business or use a significant portion of its historic
business assets in a business.
Section 4.11. No Ownership of Company Stock. Parent does not own nor
has it owned during the past five years, any shares of stock of the Company.
ARTICLE V
Representations and Warranties of the Company
Except as set forth in the Disclosure Schedule identified as such and
dated the date hereof (the "Company Disclosure Schedule"), the Company
represents and warrants to Parent as follows:
Section 5.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Vermont and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted or currently proposed to be
conducted. The Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of such activities
make such qualification necessary except where the failure to so qualify
would not, individually or in the aggregate, have a Material Adverse Effect
on the business, properties, assets, condition (financial or otherwise),
liabilities or operations of the Company taken as a whole (a "Company
Material Adverse Effect"). Complete and correct copies as of the date
hereof of the Articles of Incorporation and By-laws of the Company have been
provided to Parent.
Section 5.2. Capitalization. The authorized capital stock of the
Company consists of 1,000,000 shares of Company Common Stock, $3.00 par
value. There are (i) 549,095 shares of Company Common Stock validly issued
and outstanding (all of which are fully paid and nonassessable), and (ii)
1,000 shares of Company Common Stock reserved for issuance under the 1985
Plan. Except as set forth on Section 5.2 of the Company Disclosure
Schedule, there are no options, warrants, calls or other rights, agreements
or commitments presently outstanding obligating the Company to issue,
deliver or sell shares of its capital stock, or obligating the Company to
grant, extend or enter into any such option, warrant, call or other such
right, agreement or commitment. There are no bonds, debentures, notes or
other indebtedness having the right to vote on any matters on which the
Company's stockholders may vote that are issued or outstanding. The Company
has not issued any securities in violation of any preemptive or similar
rights and, except for the Company Options, there are no options, warrants,
calls, rights or other securities, agreements or commitments of any
character obligating or committing the Company to issue, deliver or sell
shares of its capital stock or debt securities, or obligating the Company to
grant, extend or enter into any such option. warrant, call or other such
right, agreement or commitment.
Section 5.3. Subsidiaries. The Company has no subsidiaries or other
corporations in which it holds more than ten (10%) percent of the issued and
outstanding shares of capital stock.
Section 5.4. Authority Relative to this Merger Agreement. The
Company has the corporate power to enter into this Merger Agreement and,
subject to the requisite approval of this Merger Agreement by the holders of
Company Common Stock, to carry out its obligations hereunder. The execution
and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Company's
Board of Directors. This Merger Agreement constitutes a valid and binding
obligation of the Company enforceable against it in accordance with its
terms except as enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Except for the requisite approval of
the holders of Company Common Stock, no other corporate proceedings on the
part of the Company are necessary to authorize this Merger Agreement and the
transactions contemplated hereby. The execution, delivery and performance
of this Merger Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not: (i) conflict
with or violate the Articles of Incorporation or By-laws of the Company;
(ii) violate or conflict with any permit, order, license, decree, judgment,
statute, law, ordinance, rule or regulation applicable to the Company or by
which any of its properties are bound or affected, or (iii) result in any
breach or violation of, or constitute a default (with or without notice or
lapse of time or both) under, or give to others any rights of termination,
cancellation or acceleration of, or result in the creation of any lien or
encumbrance on any of the properties or assets of the Company pursuant to
any note, bond, mortgage, indenture or other loan document, contract,
agreement, lease instrument or franchise to which the Company or its
properties is bound or affected other than: (A) any breaches, violations,
defaults, terminations, cancellations, accelerations, liens or encumbrances
which would not, individually or in the aggregate, have a Company Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby, and (B) the laws and regulations referred to in the next sentence.
Except as referred to herein or, in connection, or in compliance, with the
provisions of the HSR Act, the Securities Act, the Exchange Act, the
corporation, securities or Blue Sky laws or regulations of the various
states, and Applicable Insurance Laws including, without limitation, 8
V.S.A. Sections 3431(a) and 3683, and other similar requirements in states
in which the Company is licensed as an insurance company or agency, no
filing or registration with, or authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Company of
the Merger or the other transactions contemplated hereby, other than
filings, registrations, authorizations, consents or approvals which if not
obtained or made would not, individually or in the aggregate, have a Company
Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby and thereby.
Section 5.5. Reports and Financial Statements.
(a) The Company has made, and will prior to the Effective Date make,
available to Parent true, complete and correct copies of the
Annual Statements of the Company as filed with the insurance
regulatory authorities in Vermont and any other state in which
such statements are required to be filed for the three years
ended December 31, 1993, December 31, 1994 and December 31,
1995. The balance sheets of the Company as of December 31,
1995, and the related summaries of operations and statement of
cash flows for the year then ended, included in the Annual
Statements of the Company for the year then ended, were prepared
in all material respects in conformity with Statutory Accounting
Principles consistently applied for the period covered thereby,
were prepared in accordance with the books and records of the
Company, as the case may be, and present fairly in all material
respects the statutory financial position of the Company, as the
case may be, as at the date thereof and the statutory results of
operations of the Company, as the case may be, and other data
contained therein for the period then ended. The balance sheets
of the Company in respect of any period ending after December
31, 1995, and the related summaries of operations and statements
of cash flows for the periods then ended included in the
Quarterly Statements, were prepared in conformity with Statutory
Accounting Principles applicable to interim financial statements
consistently applied during the periods involved, subject to
normal year-end adjustments, and fairly present in all material
respects their respective statutory financial positions at the
respective dates and the results of the Company's respective
operations for the periods then ended.
(b) The Company has previously furnished Parent with true and
complete copies of its (i) Annual Reports on Form 10-KSB for the
three fiscal years ended December 31, 1992, December 31, 1993
and December 31, 1994, as filed with the Commission; (ii)
Quarterly Reports an Form 10-QSB for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995, as filed with
the Commission; (iii) proxy statements related to all meetings
of its stockholders (whether annual or special) since December
31, 1993, and (iv) all other reports or registration statements
filed by the Company with the Commission since December 31,
1994, except registration statements on Form S-8, which are all
the documents (other than preliminary material) that the Company
was required to file with the Commission since that date (the
documents described in clauses (i) through (iv) being referred
to herein collectively as the "Company SEC Reports"). As of
their respective dates, the Company SEC Reports complied in all
material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such
Company SEC Reports. As of their respective dates, the Company
SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the
Company SEC Reports comply as to form with applicable accounting
requirements and with the published rules and regulations of the
Commission with respect thereto and the financial statements
included in the Company SEC Reports have been prepared in
accordance with generally accepted accounting principles applied
on a consistent basis (except as may be indicated therein or in
the notes thereto) and fairly present in all material respects
the financial position of the Company as at the dates thereof
and the results of their operations and changes in financial
position for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein.
Section 5.6. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Reports or as contemplated by this Merger
Agreement, since September 30, 1995, there has not been: (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of
business) individually or in the aggregate having, or likely to have, or
which, with or without notice or lapse of time or both, would have, a
Company Material Adverse Effect (other than as a result of changes in laws
or regulations of general applicability or changes in general economic or
market conditions); (ii) any damage, destruction or loss, whether or not
covered by insurance, which, insofar as reasonably can be foreseen, in the
future would have a Company Material Adverse Effect; (iii) any entry into
any commitment or transaction material to the Company taken as a whole
(including, without limitation, any borrowing or sale of assets) except in
the ordinary course of business consistent with past practice, or (iv) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the capital stock of
the Company. Since September 30, 1995, the Company has not made any change
in its underwriting, reserves, or claims adjustment practices which,
individually or in the aggregate, would have a Company Material Adverse
Effect. The Company is not aware of any fact or facts which, with or
without notice or lapse of time or both, would, individually or in the
aggregate, result in a Company Material Adverse Effect.
Section 5.7. Litigation. There are no claims, suits, actions or
proceedings pending or, to the knowledge of the Company threatened, against
or affecting the Company, which, individually or in the aggregate could have
a Company Material Adverse Effect.
Section 5.8. Loss Reserves; Statutory Capital. The reserves of the
Company including, but not limited to, the reserves for incurred losses,
incurred loss adjustment expenses, incurred but not reported losses and loss
adjustment expenses for incurred but not reported losses (the "Loss
Reserves") as set forth in the audited consolidated financial statements and
unaudited interim financial statements of the Company included in the
Company SEC Reports were determined in good faith by the Company in
accordance with generally accepted accounting principles and were believed
by the Company to be reasonable when made. The Loss Reserves attributable
to the Company's insurance business, including without limitation reserve
and other liability amounts in respect of insurance policies, whether direct
or assumed by reinsurance, established or reflected in the respective
statutory annual statements for the three years ended December 31, 1994, of
the Company were determined in accordance with generally accepted actuarial
standards consistently applied and are in compliance, in all material
respects, with the requirements of the insurance laws, rules and regulations
of Vermont as well as those of any other applicable jurisdictions
(collectively, "Applicable Insurance Laws"). To the Company's knowledge,
the Loss Reserves were adequate to cover the total amount of all matured and
unmatured liabilities and obligations of the Company under all their
respective outstanding insurance policies, funding agreements and annuity,
guaranteed interest, reinsurance, coinsurance and other similar contracts at
September 30, 1995. The Company owns assets that qualify as admitted assets
under Applicable Insurance Laws in an amount at least equal to the sum of
all such reserves and liability amounts and its minimum statutory capital
and surplus as required by the insurance laws, rules and regulations of
Vermont or, to the extent material to the Company, any other jurisdiction.
Section 5.9. Reinsurance. None of the reinsurance treaties and
contracts applicable to the Company (individually, a "Reinsurance Agreement"
and collectively, the "Reinsurance Agreements") will terminate because of a
change in control of the Company. No other party to any Reinsurance
Agreement has given notice to the Company that it intends to terminate or
cancel any such Reinsurance Agreement as a result of the Merger or the
contemplated operations of the Company after the Merger is consummated,
which termination or change could have a Company Material Adverse Effect.
Section 5.10. Compliance with Applicable Laws. The business of the
Company is not being conducted in violation of any law, ordinance or
regulation of any legislative, executive, judicial, federal, state or local
governmental or regulatory agency or authority in the United States or any
other jurisdiction ("Governmental Entities"), except where such violation
would not have a Company Material Adverse Effect. Other than routine
periodic reviews, no investigation or review by any Governmental Entity with
respect to the Company is pending, nor has any Governmental Entity indicated
to the Company an intention to conduct the same.
Section 5.11. Liabilities. The Company does not have any material
indebtedness or liability, absolute, accrued, contingent or otherwise,
whether due or to become due (and there is no basis for any such liability),
which is not shown or provided for in the audited financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994 (the "1994 Financial Statements") other than liabilities
incurred or accrued in the ordinary course of business and consistent with
past practice since December 31, 1994.
Section 5.12. Written Insurance Policies; Regulatory Filings.
(a) All policies and contracts of insurance and reinsurance entered
into or issued, as the case may be, by the Company or which are
being entered into or issued by the Company as of the date
hereof, are in compliance, and at the respective dates of
issuance were in compliance, with all applicable laws and, to
the extent required under applicable law, are on forms approved
by the appropriate Governmental Entities in the jurisdictions
where issued or have been filed with and not objected to by such
Governmental Entity within the period provided for objection.
Any premium rates with respect to insurance or reinsurance
policies or contracts currently issued by the Company which are
required to be filed with or approved by any Governmental Entity
have been so filed or approved in accordance with applicable
law, and the premiums charged thereon conform thereto. The
Company shall not be deemed to have breached all or any portion
of this Section 5.12 unless such breach or breaches,
individually, or in the aggregate, would result in a Company
Material Adverse Effect.
(b) Each Reinsurance Agreement to which the Company is a party is
valid and binding on the Company and, to the knowledge of the
Company, in full force and effect in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors rights generally and except that the availability of
equitable remedies, including specific performance, is subject
to the discretion of the court before which the enforcement of
any proceeding therefor may be brought. To the knowledge of the
Company, it is not in default in any material respect with
respect to any such Reinsurance Agreement, and no such
Reinsurance Agreement contains any provision providing that the
other party thereto may terminate the same by reason of the
transactions contemplated by this Merger Agreement, or contains
any other provision which would be altered or otherwise become
applicable by reason of such transactions.
Section 5.13. Agents. As of the date hereof, the Company is unaware
of any Agent which is not duly licensed (to the extent that such licenses
are required) in the jurisdictions in which the Agent places or sells
insurance on behalf of the Company and each Agent is duly authorized and
appointed by the Company pursuant to Applicable Insurance Laws. To the best
knowledge of the Company, all written contracts or agreements between any
Agent, on one hand, and the Company, on the other hand, are in compliance
with Applicable Insurance Laws. The Company shall not be deemed to have
breached all or any portion of this Section 5.13 unless such breach or
breaches, individually or in the aggregate, would result in a Company
Material Adverse Effect.
Section 5.14. Taxes.
(a) The Company has timely filed all tax returns required to be
filed by it and has paid, or has set up an adequate reserve for
the payment of, all taxes attributable to all periods ending on
or before the date hereof, other than nonpayments which would
not have a Company Material Adverse Effect. The information
shown on such tax returns is true, accurate and complete, and
the Company is not aware of any basis upon which any assessment
for any additional taxes could be made, other than assessments
that would not have a Company Material Adverse Effect. All
positions taken in such tax returns that could give rise to a
substantial understatement penalty within the meaning of Code
Section 6662 have been disclosed therein or the Company has
substantial authority for taking such positions. No
deficiencies for any taxes have been proposed, asserted or
assessed against the Company that have not been finally settled
or paid in full. Neither the Company nor any of its present or
former subsidiaries (A) has been a member of an "affiliated
group" filing a consolidated federal income tax return or (B)
has any liability for the taxes of any person under Treas. Reg.
[SECTION]1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or
otherwise. For the purposes of this Merger Agreement, the term
"tax" shall include all taxes, however denominated, including any
interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income or
profits taxes (including, but not limited to, federal income
taxes and state income taxes), estimated taxes, payroll and
employee withholding taxes, unemployment insurance, social
security taxes, sales and use taxes, ad valorem taxes, excise
taxes, capital stock or franchise taxes, gross receipts taxes,
taxes imposed on premiums paid, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a
similar nature to any of the foregoing, which a corporation may
be required to pay, withhold or collect.
(b) There are no waivers or extensions of any applicable statute of
limitations for the assessment or collection of such taxes with
respect to the Company's returns, which waivers or extensions
are currently in effect. The Company has not received notice of
any actions, suits, proceedings, investigations, audits, claims
or assessments in connection with any taxes that are presently
pending.
(c) The Company has not received a Tax Ruling or entered into a Tax
Closing Agreement with any taxing authority that would have a
continuing material effect after the Effective Date. For
purposes of the preceding sentence, the term "Tax Ruling" shall
mean a written ruling of a taxing authority relating to taxes,
and the term "Tax Closing Agreement" shall mean a written
agreement with a taxing authority relating to taxes,
(d) The Company is not required to make any adjustment pursuant to
Section 481 of the Code by reason of a change in accounting
method or otherwise.
(e) There are no liens, pledges, security interests or mortgages for
taxes (other than for taxes not yet due and payable) upon the
assets of the Company.
(f) The Company is not a party to any agreement providing for the
allocation or sharing of taxes with any entity.
(g) The Company has not entered into any compensatory agreements
with respect to the performance of services for which payment
thereunder would result in a nondeductible expense to Company
pursuant to Section 280G of the Code.
Section 5.15. Certain Agreements. The Company is not a party to any
material oral or written: (i) agreement, contract, indenture or other
instrument relating to indebtedness, or (ii) agreement which, after giving
effect to the transactions contemplated by this Merger Agreement, purports
to restrict or bind Parent or any of its subsidiaries, other than the
Surviving Corporation, in any respect. The Company is not in default (or in
default with notice or lapse of time, or both) under any indenture, note,
credit agreement, loan document, lease, license or other agreement
including, but not limited to, any Company Benefit Plan (as defined in
Section 5.21), whether or not such default has been waived, which default
has or would have, if not waived, a Company Material Adverse Effect.
Section 5.16. Premium Balances Receivable. The premium balances
receivable of the Company as reflected in its September 30, 1995 Quarterly
Financial Statements, to the extent uncollected on the date hereof, and the
premium balances receivable reflected on the books of the Company as of the
date hereof, are, to the Company's knowledge, valid and existing and
represent monies due, and the Company has made reserves reasonably
considered adequate for receivables not collectible in the ordinary course
of business, and (subject to the aforesaid reserves) are subject to no
material refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any material amount thereof.
Section 5.17. Investment Portfolio and Other Assets. The Company
owns an investment portfolio acquired in the ordinary course of business,
and a true and complete list of the securities and other investments in such
investment portfolio, as of December 31, 1995, is listed in Section 5.17 of
the Company Disclosure Schedule. As of the date hereof, to the Company's
knowledge: (i) none of the investments included in such investment
portfolio is in default in the payment of principal or interest or dividends
or impaired to any extent, and (ii) all investments included in such
investment portfolio comply with all insurance laws and regulations of each
of the states to which the Company is subject relating thereto.
Section 5.18. Intellectual Property. All Intellectual Property, as
defined below, listed is owned by the Company free and clear of all liens,
claims, licenses or other encumbrances and is not known by the Company to be
the subject of any challenge. There are no unresolved claims made and there
has not been communicated to the Company the threat of any claim that the
holder of such Intellectual Property is in violation or infringement of any
trademark, service ▇▇▇▇, patent, trade name, copyright, trade secret or
copyright registration of any other person. The Company is the owner of the
patents, patent licenses, trade names, trademarks, service marks, trade
secrets, pending trademark applications, pending copyright applications,
copyrights, know-how and other proprietary rights necessary for the conduct
of its business as now conducted, and without any known conflict with the
rights of others. For purposes of this Merger Agreement, "Intellectual
Property" shall mean all letters patent, patent applications, trademarks,
service marks, trade names, copyrights, pending trademark applications,
pending copyright applications and licenses and rights with respect to the
foregoing that the Company owns or possesses.
Section 5.19. Licenses. The Company has obtained all licenses,
certificates of authority, permits, authorizations, orders and approvals of,
and have made all registrations or filings with, all Governmental Entities
as required in connection with the conduct of the businesses of the Company
other than licenses, certificates, permits, authorizations, orders,
approvals, registrations or filings which if not obtained or made would not
have a Company Material Adverse Effect (collectively, the "Licenses").
Section 5.19 of the Company Disclosure Schedule sets forth a true and
complete list of the Company's Licenses (including the jurisdictions in
which the Company possesses Licenses or other approvals to conduct its
insurance businesses) together with a description of the nature thereof.
The Company is not transacting any insurance business in any jurisdiction in
which it is not authorized or permitted to transact such business. All
Licenses are valid and in full force and effect. No such License is the
subject of a proceeding for suspension or revocation or similar proceedings,
and to the Company's knowledge no such proceeding is threatened.
Section 5.20. Intercompany and Affiliate Transactions; Insider
Interests.
(a) Except as otherwise disclosed in the Company SEC Reports,
Section 5.20 of the Company Disclosure Schedule lists all
intercompany agreements or arrangements of any kind between or
among the Company on the one hand, and the Company's officers,
directors or stockholders owning more than 5% of Company Common
Stock, on the other hand.
(b) Except as otherwise disclosed in the Company SEC Reports, to the
knowledge of the Company, none of the Company's officers or
directors has any direct or indirect interest, either by way of
stock ownership or otherwise, in any firm, corporation,
association or business enterprise, which competes with the
Company, is a supplier, client, customer, agent or broker of the
Company, or is otherwise engaged in the business engaged in by
the Company. Ownership of capital stock listed on a national
securities exchange or traded in the over-the-counter market of
any corporation shall not be deemed a violation of this Section,
provided the owner thereof and his affiliates do not own more
than an aggregate of ten percent of the capital stock of such
corporation.
Section 5.21. Employee Benefit Plans. Section 5.21 of the Company
Disclosure Schedule lists all employee benefit or compensation plans,
agreements or arrangements, of any kind whatsoever, including "employee
benefit plans," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, ("ERISA"), and including, but not limited
to, plans, agreements or arrangements relating to former employees,
maintained, contributed to, or sponsored by the Company (together, the
"Company Benefit Plans"). Except to the extent that a breach of the
following representations would not, in the aggregate, have a Company
Material Adverse Effect: (a) the consummation of the Merger does not trigger
any payment obligations (contingent or otherwise) by, or increase any
liabilities of, the Company under any Company Benefit Plan; (b) no default
exists with respect to the obligations of the Company under any Company
Benefit Plan; (c) there have been no disputes or grievances subject to any
grievance procedure, unfair labor practice proceedings, arbitration or
litigation under any Company Benefit Plan, which have not been finally
resolved, settled or otherwise disposed of, nor is there any default, or any
condition which, with notice or lapse of time or both, would constitute such
a default, under any Company Benefit Plan, by the Company or any other party
thereto, and (d) there have been no strikes, lockouts or work stoppages,
slowdowns, jurisdictional disputes or organizing activity occurring or
threatened with respect to the business or operations of the Company. All
Company Benefit Plans have been administered in accordance, and are in
compliance, with all applicable provisions of ERISA, the Code and other
applicable law.
Section 5.22. ERISA. Each of the Company Benefit Plans which is
intended to meet the requirements of Section 401(a) of the Code has been
determined by the Internal Revenue Service to be "qualified" within the
meaning of such section of the Code, and the Company knows of no fact which
would have an adverse effect on the qualified status of such plans. There
are not now, nor have there been, any non-exempt "prohibited transactions,"
as such term is defined in Section 4975 of the Code or Section 406 of ERISA,
involving the Company Benefit Plans which could subject the Company, Parent
or the Surviving Corporation to any liability under Title I of ERISA or to
any penalty or tax imposed under Section 502(i) of ERISA or Section 4975 of
the Code. The Company has never maintained, sponsored, or contributed to
any plan subject to Title IV of ERISA, and the Company, has not otherwise
incurred any liability under Title IV of ERISA.
Section 5.23. Officers, Directors and Employees. Except as otherwise
disclosed in the Company SEC Reports, Section 5.23 of the Company Disclosure
Schedule sets forth the names of and total cash compensation paid by the
Company to (a) the Company's officers and directors, and (b) each other
employee whose salary for the fiscal year ended December 31, 1995, equaled
or exceeded $50,000 or who received or has accrued in respect of such period
a cash bonus equal to or in excess of $10,000 or who will receive a salary
for the fiscal year ended December 31, 1995 equal to or in excess of
$50,000.
Section 5.24. Company Action. The Board of Directors of the Company
(at a meeting duly called and held at which a quorum was present) has by the
requisite vote of all directors present (i) determined that the Merger is
advisable and fair and in the best interests of the Company and its
stockholders, (ii) approved the merger in accordance with the provisions of
Section 11.03 of the VBCA, and (iii) recommended the approval of this Merger
Agreement and the Merger by the stockholders of the Company and directed
that the Merger be submitted for consideration by its stockholders.
Section 5.25. Pending Claims. Section 5.25 of the Company Disclosure
Schedule lists all pending claims arising from insurance or reinsurance
policies issued by the Company for which, as of the date hereof, amounts
reserved by the Company exceed $50,000.
Section 5.26. Insurance for the Benefit of the Company. The Company
has, and will make provision through the Effective Date for, usual insurance
coverage on its property and assets customary for businesses similar to the
Company and consistent with past practice.
Section 5.27. Title to Assets; Liens. The Company has good and
marketable title to all of its respective premium balances receivable,
property, equipment and other assets, and such assets are free and clear of
any mortgages, liens, charges, encumbrances or title defects which would
materially interfere with the conduct of the business of the Company. To
the knowledge of the Company, after due inquiry, the Company has valid and
enforceable leases for the premises and the equipment, furniture and
fixtures purported to be leased by it.
Section 5.28. Ability to Conduct Business. The Company is unaware of
any fact, other than circumstances, matters or events attributable, directly
or indirectly, to Parent which, with or without the passage of time, would
prevent Parent from conducting the business of the Company substantially as
it is currently being conducted, except as otherwise contemplated hereby and
except with respect to regulatory notices, filings and applications that
Parent is required to make in connection with the consummation of the
transactions contemplated hereby and with such other exceptions as would
not, individually or in the aggregate, have a Company Material Adverse
Effect.
Section 5.29. Financial Advisor. Except for Advest, Inc. ("Advest"),
no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Merger Agreement based upon arrangements
made by or on behalf of the Company, and the fees and commissions payable to
Advest as contemplated by this Section will be payable by the Company.
Section 5.30. Fairness Opinion. The Company has received the opinion
of Advest, financial advisor to the Company, dated the date hereof, to the
effect that the Exchange consideration is fair to the holders of Company
Common Stock from a financial point of view. The Company will deliver a
copy of the written opinion of Advest to Parent promptly after receipt
thereof.
Section 5.31. Disclosure. The representations and warranties of the
Company in this Merger Agreement, modified by the Disclosure Schedule, to
the Company's knowledge, do not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
contained herein not misleading.
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1. Conduct of Business by the Company Pending the Merger.
Prior to the Effective Date, unless Parent shall otherwise agree in writing:
(a) The Company shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as
heretofore conducted, and shall use its reasonable efforts to
preserve intact its present business organization, keep
available the services of its present officers and employees and
preserve its relationships with customers, suppliers and others
having business dealings with it. The Company shall: (A)
maintain insurance coverage on its own property and assets and
its books, accounts and records in the usual manner consistent
with prior practices; (B) comply in all material respects with
all laws, ordinances and regulations of Governmental Entities
applicable to the Company; (C) maintain and keep its properties
and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (D) perform in all material
respects its obligations under all contracts and commitments to
which it is a party or by which any of them is bound.
(b) Except as required by this Merger Agreement, the Company shall
not: (A) amend its Articles of Incorporation or By-laws; (B)
split, combine or reclassify its outstanding capital stock or
issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of capital stock of the Company, or declare, set aside or
pay any dividend or other distribution payable in cash, stock or
property or extend any credit to any officer, director or
stockholder; or (C) directly or indirectly redeem, purchase or
otherwise acquire or agree to redeem, purchase or otherwise
acquire any shares of Company Common Stock.
(c) Except as required by this Merger Agreement, the Company shall
not (A) issue, deliver or sell or agree to issue, deliver or
sell any additional shares of, or rights of any kind to acquire
any shares of, its capital stock of any class, any indebtedness
or any option, rights or warrants to acquire, or securities
convertible into, shares of capital stock other than issuances
of Company Common Stock pursuant to the exercise of Company
Options outstanding on the date hereof; (B) acquire, lease or
dispose or agree to acquire, lease or dispose of any capital
assets or any other assets involving expenditures or proceeds in
an amount, individually or in the aggregate, greater than
$50,000; (C) assume, incur or guarantee additional indebtedness;
(D) enter into any contract or commitment of any kind material,
individually or in the aggregate, to the Company other than in
the ordinary course of business and consistent with past
practice, or permit or suffer to be canceled any contract
material, individually or in the aggregate, to the Company; (E)
encumber or grant a security interest in any material asset; (F)
acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in, or by any other
manner, any business or any corporation, partnership,
association or other business organization or division thereof;
(G) decrease any cash reserve or any bulk reserve other than in
the ordinary course of business; (H) make any change in the
underwriting, reserves or claims adjustment practices which
would have a Company Material Adverse Effect; or (I) enter into
any contract, agreement, commitment or arrangement with respect
to any of the foregoing.
(d) The Company shall not, except as required to comply with
applicable law and except as provided in Section 3.6 hereof or
elsewhere in this Merger Agreement: (A) adopt, enter into,
terminate or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement,
deferred compensation, employment or other Company Benefit Plan,
agreement, trust, fund or other arrangement for the benefit or
welfare of any director, officer or current or former employee;
(B) increase in any manner the compensation or fringe benefits
of any officer or employee; (C) pay any benefit not provided
under any existing plan or arrangement heretofore disclosed to
Parent; (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company
Benefit Plan (including, without limitation, the grant of stock
options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreements or
awards made thereunder); (E) take any action to fund or in any
other way secure the payment of compensation or benefits under
any employee plan, agreement, contract or arrangement or Company
Benefit Plan other than in the ordinary course of business
consistent with past practice or as required thereunder, or (F)
adopt, enter into, amend or terminate any contract, agreement,
commitment or arrangement to do any of the foregoing.
(e) The Company shall not take any action with respect to accounting
policies or procedures other than reasonable and usual actions
in the ordinary course and consistent with past practice.
Section 6.2. No Solicitation. The Company shall not, directly or
indirectly, (i) take (nor shall the Company authorize or permit officers,
directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or affiliates to take) any action to encourage,
solicit or initiate the submission of any Acquisition Proposal (as defined
in this Section 6.2), or (ii) enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, neither the provisions
contained in this Section 6.2 or elsewhere in this Merger Agreement shall
prohibit the Board of Directors of the Company from: (i) furnishing
information to or entering into discussions or negotiations with, any person
or entity that makes an unsolicited bona fide written proposal to acquire
the Company pursuant to a merger, consolidation, share exchange, purchase of
a substantial portion of the assets, business combination or other similar
transaction, if the Board of Directors of the Company determines in good
faith, based as to legal matters on the written advice of counsel, that such
action is required for the Board of Directors to comply with its fiduciary
duties to stockholders imposed by law (the "Company Board Fiduciary
Duties"), and (ii) complying with Rule 14e-2 of the Exchange Act with regard
to any Acquisition Proposal, if applicable. "Acquisition Proposal" shall
mean any proposed: (A) merger, consolidation or similar transaction
involving the Company; (B) sale, lease or other disposition directly or
indirectly by merger, consolidation, share exchange or otherwise of assets
of the Company representing 50% or more of the assets of the Company; (C)
issue, sale, or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into,
such securities) representing 50% or more of the voting power of the
Company, or (D) transaction in which any person shall acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or
the right to acquire beneficial ownership, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially
owns or has the right to acquire beneficial ownership, of 50% or more of the
outstanding Company Common Stock. In the event the Company shall determine
to provide any information to or negotiate with a person or entity or
receives any offer from such person or entity in connection with an
Acquisition Proposal, Company shall immediately (i) provide Parent a copy of
all information provided to the person or entity (ii) inform Parent that
information is to be provided, that negotiations are to take place or that
an offer has been received, as the case may be, and (iii) furnish to Parent
the identity of the New Party and, if an offer has been received, a
description of the material terms thereof.
Section 6.3. Notice of Breach. Each party shall promptly give
written notice to the other party upon becoming aware of the occurrence or,
to its knowledge, impending or threatened occurrence, of any event which
could cause or constitute a breach of any of its representations, warranties
or covenants contained or referenced in this Merger Agreement or which could
cause a Company Material Adverse Effect or a Parent Material Adverse Effect,
and will use its best efforts to prevent or promptly remedy the same. No
disclosure to, or investigation made by or on behalf of, any party hereto on
or before the Effective Date shall affect or limit the representations,
warranties and covenants of any party under this Merger Agreement.
ARTICLE VII
Additional Agreements
Section 7.1. Access and Information. The Company shall afford to
Parent and to Parent's accountants, counsel and other representatives,
reasonable access during normal business hours (and at such other times as
the parties may mutually agree) throughout the period prior to the Effective
Date to all of its properties, books, contracts, commitments, records and
personnel and, during such period, the Company shall furnish promptly to
Parent all information concerning its business (including any applications
or notifications made to or by any Governmental Entity), properties and
personnel as Parent may reasonably request. In addition, the Company shall
promptly deliver to Parent all regulatory reports that are filed with
respect to the Company and any correspondence between the Company on the one
hand and any state insurance regulatory agency on the other hand. Parent
shall conduct itself at all times in such a manner so as not to be
disruptive of the ordinary business activities of the Company. Parent shall
hold, and shall cause its respective employees and agents to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement dated October 17, 1995 between Parent and the
Company. Parent shall afford to the Company and to its accountants, counsel
and other representatives the same access it would grant to a significant
institutional investor provided Parent were acting reasonably. The Company
shall hold, and shall cause its respective employees and agents to hold, in
confidence all information obtained pursuant to such access.
Section 7.2. Registration Statement/Proxy Statement.
(a) As promptly as practicable after the execution of this Merger
Agreement, and following preparation of the Company's and the
Parent's audited financial statements for the year ended
December 31, 1995, the Company and Parent shall prepare and file
with the Commission preliminary proxy materials which shall
constitute the preliminary Proxy Statement (as defined in
Section 7.7) and a preliminary prospectus with respect to the
Parent Common Stock to be issued in connection with the Merger.
As promptly as practicable after comments are received from the
Commission with respect to the preliminary proxy materials and
after the furnishing by the Company and Parent of all
information required to be contained therein, the Company shall
file with the Commission the definitive Proxy Statement and
Parent shall file with the Commission the Registration Statement
(as defined in Section 7.7) and Parent and the Company shall use
all reasonable efforts to cause the Registration Statement to
become effective as soon thereafter as practicable.
(b) Parent and the Company shall make all necessary filings with
respect to the Merger under the Securities Act and the Exchange
Act and the rules and regulations thereunder, under applicable
Blue Sky or similar securities laws, and shall use all
reasonable efforts to obtain required approvals and clearances
with respect thereto.
Section 7.3. Stock Exchange Listing. Parent shall list on the Nasdaq
National Market, upon official notice of issuance, the Parent Common Stock
to be issued pursuant to the Merger.
Section 7.4. Consents, Approvals and Filings. Parent and the Company
shall make, and cause their subsidiaries and affiliates to make, all
necessary filings with respect to the Merger and the other transactions
contemplated hereby including, without limitation, those required under the
HSR Act, the Securities Act and the Exchange Act and the rules and
regulations thereunder, under applicable Blue Sky or similar securities laws
and under Applicable Insurance Laws, and shall use all reasonable efforts to
obtain required approvals and clearances with respect thereto to (i) comply
as promptly as practicable with all governmental requirements applicable to
the Merger and the other transactions contemplated hereby, and (ii) obtain
promptly all necessary permits, orders and other consents of Governmental
Entities and consents of third parties necessary for the consummation of the
Merger and the other transactions contemplated hereby.
Section 7.5. HSR Act. The Company and Parent shall use, and shall
cause their "ultimate parent entities" (if applicable) to use, their best
efforts, if required, to file by April 15, 1996 notifications under the HSR
Act in connection with the Merger and the transactions contemplated hereby
and to respond as promptly as practicable to any inquiries received from the
Federal Trade Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and to respond as
promptly as practicable to all inquiries and requests received from any
state attorney general or other Governmental Entity in connection with
antitrust matters.
Section 7.6. Additional Agreements.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the
transactions contemplated by this Merger Agreement, including
using all reasonable efforts to obtain all necessary waivers,
consents and approvals, to effect all necessary registrations
and filings (including, but not limited to, filings under the
HSR Act and with all applicable Governmental Entities) and to
lift any injunction or other legal bar to the Merger (and, in
such case, to proceed with the Merger as expeditiously as
possible), subject, however, to the appropriate vote of
stockholders of the Company.
(b) In case at any time after the Effective Date any further action
is necessary or desirable to carry out the purposes of this
Merger Agreement, the proper officers and/or directors of
Parent, the Company and the Surviving Corporation shall take all
such necessary action.
(c) Following the Effective Date, Parent shall conduct its business,
and shall cause the Surviving Corporation to conduct its
business, in a manner which would not jeopardize the
characterization of the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) and 368(a)(2)(E) of the Code.
Parent will provide the Company with certain factualy
representations of Parent, and Parent will use its best efforts
to cause Merger Sub to provide the Company with certain factual
representations of Merger Sub, reasonably requested by the
Company as necessary to confirm that Parent and Merger Sub will
not take any action on or after the Effective Date that would
jeopardize the tax free nature of the transaction. Company will
provide Parent and Merger Sub with certain factual
representations of Company reasonably requested by parent as
necessary to confirm that Company will not take any action on or
after the Effective Date that would jeopardize the tax free
nature of the transaction.
Section 7.7. Information in Disclosure Documents, Registration
Statements, Etc. Parent and the Company agree that none of the information
supplied by it for inclusion in: (i) the Registration Statement to be filed
with the Commission by Parent on Form S-4 under the Securities Act for the
purpose of registering the shares of Parent Common Stock to be issued in the
Merger (the "Registration Statement"), and (ii) the prospectus/proxy
statement of the Company and Parent (the "Proxy Statement") required to be
mailed to the stockholders of the Company in connection with the Merger
will, in the case of the Proxy Statement or any amendments or supplements
thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the Company Meeting to
be held in connection with the Merger, or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Date,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. Parent agrees that the Registration Statement will
comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations promulgated thereunder. The
Company agrees that the Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
Section 7.8. Indemnification. From and after the Effective Date,
Parent shall, to the fullest extent permitted under applicable law,
indemnify, defend and hold harmless each present and former director and
officer of the Company (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties") against all losses, expenses,
claims, damages or liabilities, including those arising out of the
transactions contemplated by this Merger Agreement (excluding criminal
liabilities), based in whole or in part on any action or omission, except
any action or omission which was grossly negligent, reckless, wanton or
intentional, occurring prior to the Effective Date in connection with such
person's assigned responsibilities in serving as an officer or director of
the Company ("Claims"). In the event of any such loss, expense, claim,
damage or liability (whether arising before or after the Effective Date):
(i) Parent shall pay the reasonable fees and expenses of the Indemnified
Party's counsel,provided such counsel is reasonably acceptable to Parent,
promptly after statements therefor are received, (ii) Parent and the
Indemnified Parties will cooperate in the defense of any such matter, and
(iii) any determination required to be made with respect to whether an
Indemnified Party is entitled to indemnification shall be made to the
fullest extent permitted under the VBCA consistent with the standards set
forth in the first sentence of this Section, by independent legal counsel
acceptable to Parent and the Indemnified Party; provided, however, that
Parent shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). Parent agrees
that all rights to indemnification existing in favor of the directors,
officers or employees of the Company as provided in the Company's Articles
of Incorporation or Bylaws, as in effect as of the date hereof, with respect
to matters occurring through the Effective Date, shall survive the Merger
and shall continue in full force and effect for a period of six years from
the Effective Date.
Section 7.9. Employee Benefits. With respect to benefit plans
available to employees of the Company, for at least one year from and after
the Effective Date, Parent shall cause the Surviving Corporation to either:
(i) maintain all employee benefits of the Company, as the case may be,
including, without limitation, benefits under employee benefit plans,
policies and arrangements, existing on the Effective Date, or (ii) provide
benefits to employees and former employees, as applicable, of the Surviving
Corporation that are, taken as a whole, substantially equivalent to or
better than the benefits offered to such persons by the Company, as the case
may be, immediately prior to the Effective Date; provided, however, that
neither Parent nor the Surviving Corporation shall be required to adopt or
maintain any plan or arrangement providing for the sale of the Parent Common
Stock or Company Common Stock.
ARTICLE VIII
Conditions Precedent
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall
be subject to the fulfillment at or prior to the Effective Date of the
following conditions:
(a) This Merger Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of
the holders of the Company Common Stock.
(b) The Parent Common Stock issuable in the Merger shall have been
authorized for listing on the Nasdaq National Market upon
official notice of issuance.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement
shall have been issued by the Commission and remain in effect.
(d) Merger Sub shall have been incorporated in the State of Vermont
as a wholly-owned subsidiary of Parent and as an insurance
holding company, if required under Vermont law.
(e) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and all
approvals necessary for the consummation of the transactions
contemplated by this Merger Agreement including, without
limitation, any approval required by the Vermont Department of
Banking, Insurance and Securities and any other state regulatory
authority, shall have been obtained from the insurance
commissioners, directors or superintendents, as the case may be,
of the applicable state insurance departments, and any such
approvals shall be in full force and effect.
(f) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission
nor any statute, rule, regulation or executive order promulgated
or enacted by any Governmental Entity shall be in effect, which
(i) prevents or materially delays the consummation of the
merger, (ii) would impose any material limitation on the ability
of Parent to exercise full rights of ownership of the Common
Stock of the Surviving Corporation or any material portion of
the assets or business of the Company or (ii) makes such
consummation illegal.
Section 8.2. Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the following
additional conditions, unless waived by the Company:
(a) Parent shall have performed in all material respects its
agreements contained in this Merger Agreement required to be
performed on or prior to the Effective Date, and except as
contemplated or permitted by this Merger Agreement, the
representations and warranties of Parent contained in this
Merger Agreement that are subject to a Parent Material Adverse
Effect qualifier shall be true and correct when made and on and
as of the Effective Date as if made on and as of such date, and
the representations and warranties of Parent contained in this
Merger Agreement that are not subject to such a qualifier shall
be true and correct (except where the failure to be true and
correct, alone or taken together with other failures to be true
and correct, would not have a Parent Material Adverse Effect)
when made and on and as of the Effective Date as if made on and
as of such date.
(b) The Company shall have received an opinion from Gravel and ▇▇▇▇,
Burlington, Vermont, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a)
of the Code, which opinion may be based upon reasonable
representations of fact provided by officers of Parent and the
Company.
(c) The Company shall have received an opinion from ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ & Ingersoll, Philadelphia, Pennsylvania, substantially
to the effect set forth in Exhibit 8.2(c) hereto.
(d) The Company shall have received a certificate, dated the
Effective Date, signed by the President or Chief Executive
Officer of Parent and Merger Sub, certifying that the conditions
specified in Section 8.2(a) have been fulfilled.
(e) From the date hereof to the Effective Date, there shall not have
occurred any material adverse change (other than one resulting
from or relating to this Merger Agreement or the transactions
contemplated hereby) in the business, properties, assets,
conditions (financial or otherwise), executive management,
liabilities or operations of Parent and its subsidiaries, taken
as a whole.
Section 8.3. Conditions to Obligations of Parent and Merger Sub to
Effect the Merger. The obligations of Parent and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Date
of the following additional conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Merger Agreement required to be
performed on or prior to the Effective Date, and except as
contemplated or permitted by this Merger Agreement, the
representations and warranties of the Company contained in this
Merger Agreement that are subject to a Company Material Adverse
Effect qualifier shall be true and correct when made and on and
as of the Effective Date as if made on and as of such date, and
the representations and warranties of the Company contained in
this Merger Agreement that are not subject to such a qualifier
shall be true and correct (except where the failure to be true
and correct, alone or taken together with other failures to be
true and correct, would not have a Company Material Adverse
Effect) when made and on and as of the Effective Date as if made
on and as of such date, except: (i) in the case of Section 5.2,
for any failure to be true and correct resulting from the
exercise of Company Options; (ii) in the case of Section
5.20(a), for any failure to be true and correct resulting from a
change following the date hereof in the persons owning more than
5% of Company Common Stock, and (iii) for the representations
and warranties set forth in 5.5, 5.13(a), 5.17 and 5.25 which
were true in all material respects at such time as stated
therein.
(b) Parent shall have received the resignations of every officer and
director of the Company from their officer and director
positions (except ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, who will continue to serve as
President and a director of the Surviving Corporation and ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, who will continue to serve as Treasurer of the
Surviving Corporation).
(c) Parent and Merger Sub shall have obtained, or obtained the
transfer of, any licenses and other regulatory approvals
necessary to allow the Surviving Corporation to operate the
Company's business, unless the failure to obtain such transfer
or approval would not have a material adverse effect on the
Surviving Corporation.
(d) Parent shall have received an opinion from ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
& Ingersoll, Philadelphia, Pennsylvania, to the effect that the
merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, which opinion may be based upon
reasonable representations of fact provided by officers of
Parent and the Company.
(e) Parent shall have received an opinion from Gravel and ▇▇▇▇,
Burlington, Vermont, substantially to the effect set forth in
Exhibit 8.3(e) hereto.
(f) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission,
board or other regulatory body required in connection with the
execution, delivery and performance of this Agreement and Plan
of Merger shall have been obtained or made, except for filings
in connection with the Merger and any other documents required
to be filed after the Effective Date.
(g) Parent and Merger Sub shall have received a certificate, dated
the Effective Date, signed by the President or Chief Executive
Office of the Company, certifying that the conditions specified
in Section 8.3(a) have been fulfilled.
(h) From the date hereof to the Effective Date, there shall not have
occurred any material adverse change (other than one resulting
from or relating to this Merger Agreement or the transactions
contemplated hereby) in the business, properties, assets,
condition (financial or otherwise), liabilities or operations of
the Company taken as a whole.
(i) Parent shall have received a letter from Coopers and ▇▇▇▇▇▇▇,
L.L.P., the Company's independent auditors, dated a date within
two business days before the date on which the Registration
Statement shall become effective and addressed to Parent, in
form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by
independent public accountants in connection with registration
statements similar to the Registration Statement.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1. Termination. This Merger Agreement may be terminated at
any time prior to the Effective Date:
(a) By mutual consent of the Board of Directors of Parent and the
Board of Directors of the Company.
(b) By either Parent or the Company if the Merger shall not have
been consummated on or before July 31, 1996 (provided the
terminating party is not otherwise in material breach of its
representations, warranties or obligations under this Merger
Agreement or responsible for the failure of the Merger to occur
on or before such date).
(c) By the Company if any of the conditions specified in Sections
8.1 and 8.2 have not been met or waived by the Company at such
time as such condition is no longer capable of satisfaction.
(d) By Parent if any of the conditions specified in Sections 8.1 and
8.3 have not been met or waived by Parent at such time as such
condition is no longer capable of satisfaction.
(e) By Parent if the net worth (notwithstanding unrealized gains or
losses in connection with the Company's bond portfolio or
expenses associated with the Merger) of the Company is less than
$8,650,000, based on general accepted accounting principles
consistently applied, as determined by the Company's regularly
utilized independent certified public accounting firm as of the
last business day of the last month prior to the Effective Date,
unless such date is within fifteen (15) calendar days of the
Effective Date, in which case such determination shall be made
as of the last day of the second to last month prior to the
Effective Date.
(f) By either Parent or the Company if the other party shall have
breached this Merger Agreement in any material respect and such
breach either continues for a period of ten days after the
receipt of notice of the breach from the non-breaching party or
is not susceptible to cure.
(g) By either the Company or Parent, if: (i) the Board of Directors
of the Company shall have withdrawn or modified in a manner
adverse to Parent its approval or recommendation to the
Company's stockholders of this Merger Agreement or the Merger or
shall have approved or recommended to the Company's stockholders
that they accept the terms of any Acquisition Proposal or shall
have resolved to take any of the foregoing actions; provided,
however, that reasonable delay required to comply with the
Company Board Fiduciary Duties shall not be deemed to be a
withdrawal or a modification adverse to Parent, or (ii) a Third
Party Acquisition shall have occurred. "Third Party
Acquisition" means the occurrence of any of the following
events: (w) the acquisition of the Company by merger, tender
offer or otherwise by any person other than Parent, Merger Sub
or any affiliate thereof (a "Third Party"); (x) the acquisition
by a Third Party of 50% or more of the total assets of the
Company taken as a whole; or (y) the acquisition by a Third
Party of beneficial ownership, or the right to acquire
beneficial ownership, of 50% or more of the outstanding Company
Common Stock or other voting power of the Company.
Section 9.2. Effect of Termination. In the event of termination of
this Merger Agreement by either Parent or the Company, as provided above,
this Merger Agreement shall forthwith become void and (except for the
willful breach of this Merger Agreement by any party hereto) there shall be
no liability on the part of the Company, Parent or Merger Sub or their
respective officers or directors; provided that Section 4.7, Section 5.29,
the antepenultimate and last sentences of Section 7.1 and Section 10.3 shall
survive the termination of this Merger Agreement.
Section 9.3. Amendment. This Merger Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, at any time before or after approval hereof by the stockholders
of the Company, but, after such approval, no amendment shall be made which
changes the ratios at which Company Common Stock is to be converted into
Parent Common Stock as provided in Section 3.1, which changes the Per Share
Cash Consideration as provided in Section 3.2, or which in any way
materially adversely affects the rights of such stockholders, without the
further approval of such stockholders. This Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 9.4. Waiver. At any time prior to the Effective Date, the
parties hereto may: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in
any documents delivered pursuant hereto, and (iii) waive compliance with any
of the agreements or conditions contained herein provided, however, that no
such waiver shall materially adversely affect the rights of the Company's
and Parent's stockholders. Any agreement on the part of a party hereto to
any such extension ,or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE X
General Provisions
Section 10.1. Non-Survival of Representations, Warranties and
Agreements. No representations, warranties or agreements in this Merger
Agreement shall survive the Merger, except for the agreements contained in
Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 7.6, 7.8, 7.9, 10.1, 10.3 and
10.7.
Section 10.2. Notices. All notices or other communications under
this Merger Agreement shall be in writing and shall be deemed to have been
duly given or made as of the date delivered or mailed if delivered
personally or mailed by registered or certified mail (postage prepaid,
return receipt requested), or upon transmission thereof if by facsimile,
addressed as follows:
If to the Company: Health Insurance of Vermont, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and to: ▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇
Chairman of the Board of Directors of
Health Insurance of Vermont, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇.▇. #▇▇▇
▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Gravel and ▇▇▇▇
▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Parent or Merger
Sub: Penn Treaty American Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & Ingersoll
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may have furnished to the other
parties in writing in accordance with this Section 10.2.
Section 10.3. Fees and Expenses.
(a) Except as provided below in this Section 10.3, all costs and
expenses incurred in connection with this Merger Agreement and
the transactions contemplated hereby shall be paid by the party
incurring such expenses. Notwithstanding the provisions of the
preceding sentence, in any action, suit or other proceeding
under or to enforce any provision of this Merger Agreement, the
prevailing party shall be entitled to recover its reasonable
attorneys' fees and other out-of-pocket expenses from the losing
party.
(b) (i) If this Merger Agreement is terminated by Parent pursuant
to Section 9.1(d), (e) or (f) hereof as a result of any
willful breach by the Company of any of the
representations, warranties, covenants or agreements of
the Company contained in this Merger Agreement, the
Company shall pay, or cause to be paid to Parent within
five (5) business days of a demand therefor, all actual
out-of-pocket costs, expenses and fees (including, without
limitation, fees payable to all investment banking firms
and other institutions, and their respective agents, and
including attorneys fees and expenses and other
professional or service fees and expenses) incurred or to
be incurred by Parent or Merger Sub in connection with
this Merger Agreement and the transactions contemplated
hereby.
(ii) If this Merger Agreement is terminated by the Company
pursuant to Section 9.1(c) or (f) hereof as a result of
any willful breach by Parent or Merger Sub of any of the
representations, warranties, covenants or agreements of
Parent or Merger Sub contained in this Merger Agreement,
Parent shall pay, or cause to be paid, in same day funds
to the Company upon demand, all actual out-of-pocket
costs, expenses and fees (including, without limitation,
fees payable to all investment banking firms and other
institutions, and their respective agents, and including
attorneys fees and expenses and other professional or
service fees and expenses) incurred or to be incurred by
the Company in connection with this Merger Agreement and
the transactions contemplated hereby.
Section 10.4. Publicity. So long as this Merger Agreement is in
effect, Parent and the Company agree to consult with each other in issuing
any press release or otherwise making any public statement with respect to
the transactions contemplated by this Merger Agreement, and none of them
shall issue any such press release or make any such public statement prior
to such consultation, except as may be required bylaw or by obligations
pursuant to any listing agreement with any national securities exchange.
The commencement of litigation relating to this Merger Agreement or the
transactions contemplated hereby or any proceedings in connection therewith
shall not be deemed a violation of this Section 10.4.
Section 10.5. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Merger Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Merger Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are entitled at law
or in equity.
Section 10.6. Interpretation. The headings contained in this merger
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Merger Agreement.
Section 10.7. Miscellaneous. This Merger Agreement (including the
documents and instruments referred to herein): (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof (other than as provided in the Confidentiality
Agreement between the Company and Parent dated October 17, 1995, as the same
may be amended); (b) except as provided in Section 7.10, is not intended to
confer upon any other person any rights or remedies hereunder; (c) shall not
be assigned by operation of law or otherwise, except that Merger Sub shall
have the right to assign to Parent any and all rights and obligations of
Merger Sub under this Merger Agreement, and (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Vermont (without giving effect to the provisions thereof relating
to conflicts of law). This Merger Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Merger Agreement to be signed by their respective officers thereunder
duly authorized all as of the 15th day of March, 1996.
"Company"
HEALTH INSURANCE OF VERMONT, INC.
By: /s/ ▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇
Title: Chairman and Chief Executive
Officer
"Parent"
PENN TREATY AMERICAN CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chairman of the Board,
President and Chief Executive
Officer