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AGREEMENT AND PLAN
OF MERGER
DATED AS OF
MARCH 15, 1996
BETWEEN
PENN TREATY AMERICAN CORPORATION
AND
HEALTH INSURANCE OF VERMONT, INC.
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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
(i)
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
(ii)
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
(iii)
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
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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
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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
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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
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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
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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
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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
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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
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immediately prior to the Effective Date and Xxxx X. Xxxxxxx shall be the
directors of the Surviving Corporation and the officers of Merger Sub
immediately prior to the Effective Date, Xxxx X. Xxxxxxx and Xxxxx Xxxxxxxxxx
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
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forth in Section 11.06 of the VBCA.
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ARTICLE III
Conversion of Shares
Section 3.1. Exchange Rate.
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(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
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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
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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
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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.
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(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
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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
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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
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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.
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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
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this Merger Agreement shall take place at the offices of Xxxxxxx Xxxxx Xxxxxxx &
Xxxxxxxxx,1735 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000,
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.
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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.
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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.
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(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
9
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 Xxxx-Xxxxx-Xxxxxx 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
10
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.
11
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
12
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
13
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
14
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.
15
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.
16
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
17
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. (S)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.
18
(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
xxxx, 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.
19
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
20
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
21
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.
22
(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
23
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,
24
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.
25
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
26
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
27
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.
28
(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 Xxxx,
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 Xxxxxxx Xxxxx Xxxxxxx
& 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.
29
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 Xxxx X. Xxxxxxx, who will continue to serve as President and a
director of the Surviving Corporation and Xxxxx Xxxxxxxxxx, 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 Xxxxxxx Xxxxx Xxxxxxx &
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 Xxxx,
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
30
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 Xxxxxxx, 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
31
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
32
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.
Xxx Xxxxxxxxx Xxxxxxx
Xxxxxxxxxx, XX 00000
Attention: President
Facsimile No.: (000) 000-0000
and to: Xxxxxx X.X. Xxxxx
Chairman of the Board of Directors of
Health Insurance of Vermont, Inc.
0000 Xxxxxxxxx Xxx, X.X. #000
Xxxxxxx XX 00000
Facsimile No.: (000) 000-0000
With a copy to: Xxxxx X. Xxxx, Esq.
Gravel and Xxxx
00 Xx. Xxxx Xxxxxx, 0xx Xxxxx
X.X. Xxx 000
Xxxxxxxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
If to Parent or Merger
Sub: Penn Treaty American Corporation
0000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: President
Facsimile No.: (000) 000-0000
33
With a copy to: Xxxxxx X. Xxxxx, Esq.
Xxxxxxx Xxxxx Xxxxxxx & Ingersoll
0000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
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
34
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.
35
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/ Xxxxxx X.X. Xxxxx
-----------------------------------
Title: Chairman and Chief Executive
Officer
"Parent"
PENN TREATY AMERICAN CORPORATION
By: /s/ Xxxxxx Xxxxx
-----------------------------------
Title: Chairman of the Board,
President and Chief Executive
Officer
36
