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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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ACORDIA, INC.
(NAME OF SUBJECT COMPANY)
ACORDIA, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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004929 105
(CUSIP NUMBER OF CLASS OF SECURITIES)
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ERNEST J. NEWBORN, JR.,
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ACORDIA, INC.
120 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA 46204
(317) 488-6666
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATION ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH COPIES TO:
JONATHAN L. FREEDMAN, ESQ.
DEWEY BALLANTINE
1301 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-6092
(212) 259-8000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Acordia, Inc., a Delaware corporation
(the "Company" or "Acordia"). The address of the principal executive offices of
the Company is 120 Monument Circle, Indianapolis, Indiana 46204. The title of
the class of equity securities to which this statement relates is the common
stock, par value $1.00 per share, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement (the "Statement") relates to a tender offer by AICI
Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly-owned
subsidiary of Anthem Insurance Companies, Inc., an Indiana mutual insurance
company ("Parent"), disclosed in a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1"), dated June 6, 1997, to purchase any and all of the
outstanding shares (the "Shares") of Common Stock at a price of $40.00 per Share
(such amount, or any greater amount per Share paid pursuant to the Offer, being
referred to as the "Per Share Amount"), net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated June 6, 1997 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer"), copies of which are filed hereto
as Exhibits (a)(1) and (a)(2), respectively, and are incorporated herein by
reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of June 2, 1997 (the "Merger Agreement"), by and among the Company, Parent
and the Purchaser. The Merger Agreement provides that, among other things, as
soon as practicable following the completion of the Offer, upon the terms and
subject to the conditions (or the waiver of such conditions, if permissible,)
contained in the Merger Agreement and in accordance with the relevant provisions
of the Delaware General Corporation Law (the "Delaware Law"), the Purchaser will
be merged with and into the Company (the "Merger") and the Company will be the
surviving corporation (the "Surviving Corporation"). At the effective time of
the Merger (the "Effective Time"), each Share then outstanding (other than
Shares held by Parent, the Purchaser or any other wholly-owned subsidiary of
Parent and Shares held by stockholders who perfect their dissenters' rights
under Section 262 of the Delaware Law) will be converted into the right to
receive $40.00 in cash or any higher price per Share paid in the Offer. A copy
of the Merger Agreement is filed as Exhibit (c)(1) to this Schedule 14D-9 and is
incorporated herein by reference.
Based on information in the Offer to Purchase, the principal executive
offices of both the Parent and the Purchaser are located at 120 Monument Circle,
Indianapolis, Indiana, 46204.
ITEM 3. IDENTITY AND BACKGROUND
(a) Name and Address of the Company. The name and address of the Company,
which is the person filing this statement, is set forth in Item 1 above. All
information contained in this Statement or incorporated herein by reference
concerning the Purchaser, Parent or their officers, directors, representatives
or affiliates, or actions or events with respect to any of them, was provided by
the Purchaser or Parent, respectively, and the Company takes no responsibility
for such information.
(b) Material Contracts, Etc. Each material contract, agreement,
arrangement, and understanding and each actual or potential conflict of interest
between the Company or any of its affiliates and (i) the Company, its executive
officers, directors or affiliates or (ii) Parent, its executive officers,
directors or affiliates, is set forth below.
(b)(1) Certain Contracts, Etc. Certain contracts, agreements, arrangements
and understandings between the Company or its affiliates and certain of its
directors and executive officers are described under the captions "Common Stock
Ownership of Certain Beneficial Owners and Management", "Executive Compensation"
and "Compensation Committee Report to Stockholders" on pages 7 through 16 of the
Company's Proxy Statement dated April 11, 1997 for the Company's 1997 Annual
Meeting of Stockholders (the "1997 Annual Meeting Proxy Statement"), a copy of
which was previously sent to stockholders. A copy of such portion of the 1997
Annual Meeting Proxy Statement is filed as Exhibit (c)(2) hereto and is
incorporated herein by reference.
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Directors and Officers. Three of the Company's directors, including the
Chairman of the Board, are officers or employees of Parent: Dwane R. Houser,
Parent's Chairman of the Board; L. Ben Lytle, Parent's President and Chief
Executive Officer and the Company's Chairman of the Board; and Patrick M.
Sheridan, Parent's Executive Vice President and Chief Financial Officer. A
fourth director, Michael L. Smith is Chief Operating and Chief Financial Officer
of American Health Network, a subsidiary of Parent. The executive officers and
directors of Parent beneficially own, in the aggregate, 188,886 Shares
(excluding shares subject to unexercised stock options). Messrs. Houser, Lytle
and Sheridan beneficially own 8,449 Shares, 105,000 Shares and 60,000 Shares,
respectively, of such Shares(excluding shares subject to unexercised stock
options). Schedule I to the Offer to Purchase sets forth the amount and nature
of such beneficial ownership for each executive officer and director of Parent
and the Purchaser. As of the date hereof, Parent owned 8,693,056 Shares
representing 66.8% of the issued and outstanding Shares.
Stock Options. The Company has granted options to purchase Shares to
certain of its executive officers and directors pursuant to the Company's 1992
Stock Compensation Plan (the "1992 Plan") and its Directors Stock Compensation
Plan. At the Effective Time, each executive officer or director who holds a then
outstanding stock option to purchase Shares granted under such plans, whether or
not then exercisable, shall, upon surrender thereof to the Company or its
designee, receive from the Company the difference between the Per Share Amount
and the exercise price per Share for the Shares covered by such option, net of
any applicable tax withholding.
Restricted Stock. Pursuant to the 1992 Plan, the Company has granted stock
to certain executive officers of the Company which is subject to restrictions on
transfer which are to lapse over time. All such restrictions will lapse, subject
to the purchase of Shares by the Purchaser pursuant to the Offer, and the
executive officers will be permitted to tender such Shares pursuant to the
Offer.
Stock Accounts. Pursuant to the Company's Directors Deferred Compensation
Plan, certain non-employee directors of the Company have deferred a portion of
the compensation payable to them by the Company. A portion of such deferred
compensation has been credited to bookkeeping accounts established pursuant to
such plans which are denominated in Shares and a portion of such compensation
has been credited to bookkeeping accounts which are denominated in cash. At the
Effective Time, such Plan will be terminated, the value of such accounts will be
calculated, based on the Per Share Amount in the case of the accounts which are
denominated in Shares, and such amounts will be paid to such directors in cash
at or immediately after the Effective Time; provided, however, that to the
extent that the value of a participant's accounts exceed $30,000 at the
Effective Time, 50% of such value will be paid at or immediately after the
Effective Time and the remaining 50%, plus earnings on such amount (as
determined pursuant to such Plan), will be paid in 1998.
Stock Grants. Pursuant to the Company's Directors Stock Compensation Plan,
certain directors of the Company have been granted Shares. Such Shares may be
tendered pursuant to the Offer.
401(k) Plan Accounts. The executive officers of the Company are eligible to
participate in the Company's 401(k) Long Term Savings Investment Plan (the
"401(k) Plan"). The 401(k) Plan is a tax-qualified plan which allows the
executive officers to make salary-deferral elections (pursuant to Section 401(k)
of the Internal Revenue Code of 1986, as amended) and after-tax contributions
and provides for Company matching contributions. One of the investment
alternatives available under the 401(k) Plan permits the investment of amounts
held under the 401(k) Plan in Shares. Each participant in the 401(k) Plan will
have the right to direct the trustee of the 401(k) Plan as to how to respond to
the Offer with respect to the Shares held in the participant's account under the
401(k) Plan. The Pension Committee of the Company will direct such trustee as to
how to respond to the Offer with respect to any Shares held under the 401(k)
Plan for which such trustee has not received a specific direction from a
participant. The pension committee has indicated to the Company that it intends
to direct such trustee to tender all Shares held under the 401(k) Plan pursuant
to the Offer.
Employment and Transaction Agreements. In the event Ernest J. Newborn,
Jr.'s and John J. O'Connor's Transaction Agreements (as described below), are
extended to December 31, 1998, then the term of the employment agreements of
Ernest J. Newborn, Jr. and John J. O'Connor's, respectively, will be extended
for one year, expiring on December 31, 1998.
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The agreements with Messrs. Newborn and O'Connor each provide for a base
annual salary; currently $140,000 for Mr. Newborn and $105,000 for Mr. O'Connor.
Each agreement further provides that if the executive is terminated (i) for
Cause (as defined in such agreements) by the Company, (ii) voluntarily, or (iii)
by reason of death, the Company will pay the executive his salary through the
date of termination. The employment agreements of Messrs. Newborn and O'Connor
further provide that if the executive is terminated without Cause, the Company
will pay the executive the greater of twelve months' salary or the remaining
salary through the end of the employment agreement term.
The employment agreements of Messrs. Newborn and O'Connor provide that they
will remain in effect in the event of a Change of Control of the Company (as
defined in such agreements). If, following a Change of Control of the Company,
(i) the executive's duties, responsibilities, or compensation are substantially
reduced or executive is assigned to any duties substantially inconsistent with
his position, duties or responsibilities with the Company immediately prior to
the Change in Control, (ii) the executive's salary is materially reduced as
compared to his salary immediately prior to the Change in Control, (iii) the
Company fails to obtain the assumption of its obligations to perform the
agreement by any successor, or (iv) the Company's long-term strategic plan is
materially changed or abandoned such that the maximum potential payout of
incentive compensation to the executive is substantially reduced, the executive
shall be entitled to receive the same severance package as is payable upon
termination without Cause. The acquisition of the Shares pursuant to the Offer
and the Merger will constitute a Change of Control for purposes of such
agreements. The employment agreements also provide that each executive is
eligible to participate in all employee benefit, stock options, bonus and
executive perquisite programs provided by the Company to employees in similar
positions. Messrs. Newborn and O'Connor are also subject to certain restrictions
under their agreements, prohibiting them from engaging in competition with the
Company or any of its subsidiaries and from divulging any confidential or
proprietary information obtained by them while in the employ of the Company. A
breach of any such restriction will entitle the Company to seek injunctive
relief.
In addition to the Transaction Agreements described in the 1997 Annual
Meeting Proxy Statement, the Company entered into Transaction Agreements with
Messrs. Newborn and O'Connor, as well as with Daniel W. Kendall, which provide
for additional compensation in the event of a Change of Control or Termination
as a result of a Change in Control (as defined with respect to the Transaction
Agreements described in the 1997 Annual Meeting Proxy Statement). The
acquisition of the Shares pursuant to the Offer and the Merger will result in a
Change in Control for purposes of the Transaction Agreements. In the case of
Messrs. Newborn and O'Connor, the Transaction Agreements do not replace the
Employment Agreements discussed above. Each Transaction Agreement expires at the
same time as the Transaction Agreements described in the 1997 Annual Meeting
Proxy Statement.
The Transaction Agreement for Mr. O'Connor provides that, in lieu of
severance under his Employment Agreement, he will be treated as an employee for
a 12-month period following Termination as a result of a Change in Control and
he will receive compensation equal to 12 months' salary, reduced by any amount
paid under his Employment Agreement. The Transaction Agreement for Mr. Kendall
provides that, in the event of a Termination as a result of a Change in Control,
he will be treated as an employee for a period ending on October 31, 1998 and
will receive compensation equal to 12 months' salary from the date of any such
Termination until October 31, 1998. The Transaction Agreements between the
Company and Messrs. Kendall, Newborn and O'Connor provide that, in the event of
a Change in Control, each such executive will receive medical coverage during
the severence period and that each such executive will be paid annual and
long-term incentive opportunities at target levels for 1997 ($50,000 above
target level in the case of Mr. Newborn). Mr. Kendall will receive continued
pension accruals and service credit for purposes of post-retirement medical
benefits until October 31, 1998, and Mr. O'Connor will receive pension accruals
for 12 months following Termination as a result of a Change in Control. Under
the Transaction Agreements, awards previously made under the Company 1992 Stock
Compensation Plan will vest upon a Change in Control.
Agreements with Parent. The Company, through one or more of the operating
subsidiaries (each an "Acordia Company" and collectively, the "Acordia
Companies"), markets insurance products underwritten
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by Parent or its affiliates and/or performs administrative services in
connection with those insurance products. In connection therewith, each such
Acordia Company has entered into a marketing and agency agreement and/or an
administrative services agreement with Parent or an affiliate insurer.
The marketing and agency agreement provides that the Acordia Company is
appointed as an agent of Parent (or its affiliated insurer) to solicit new
applications and renewal applications for insurance coverage marketed by it and
underwritten by Parent or such affiliated insurer. The administrative services
agreement provides that the Acordia Company shall perform the following
administrative services with regard to insurance contracts underwritten by
Parent or an affiliated insurer: premium billing and collection, adjustment and
settlement of claims, customer service correspondence and general clerical and
administrative functions. In some cases, the administrative services agreement
also provides for the administration of Parent or its affiliated insurers'
health maintenance organizations and other managed care businesses. Parent or
the affiliated insurer may, at its discretion, grant underwriting authority to
the Acordia Company in accordance with the insurer's underwriting guidelines and
the terms of the administrative services agreement. As compensation for these
services, Parent or the affiliated insurer pays the Acordia Company a fee
primarily based on a percentage of the earned premium. Additionally, Parent and
its affiliated insurers permit the Acordia Company to charge insureds a monthly
administrative fee pursuant to the administrative services agreement. Parent and
its affiliated insurers paid an aggregate of approximately $290,992,000 to the
Company pursuant to these agreements for the year ended December 31, 1996.
In January 1997, Parent and the Company, as a part of strategic
developments within Parent, decided that the wholesale marketing and
distribution functions for Parent's products outside of Indiana, Kentucky and
Ohio should be performed by Parent. Parent agreed to pay the Company a one-time
cancellation fee of $6.0 million, one-half of which was paid during the first
quarter of 1997, and the remainder of which will be paid during the second
quarter of 1997.
In February 1997, the Company and Parent announced the planned
consolidation of their claims processing sites in Indiana, Kentucky and Ohio
into one central site located in Indiana. The consolidation of the Indiana sites
is virtually complete.
Management Agreement. In June 1992, the Company entered into a management
agreement with Parent pursuant to which Parent agreed to provide to the Company
the services of certain senior management employees. Effective December 31,
1996, the Company has terminated such management agreement. Prior to the
termination of the management agreement, the Company reimbursed Parent for all
allocated expenses incurred by Parent in connection with the furnishing of the
services rendered pursuant to the management agreement. The Company paid fees
for management services plus allocated expenses to Parent in the amount of
approximately $180,000 for the year ended December 31, 1996.
Inter-Company Services Agreement. The Company is a party to The Anthem
Inter-Company Services Agreement (the "Inter-Company Agreement") among Parent
and its subsidiaries pursuant to which the parties thereto are entitled to
provide and receive certain administrative and systems services including
financial and payroll, legal, auditing, investment, information services, data
processing, actuarial, marketing and human resources services. Pursuant to the
Inter-Company Agreement, the Company pays Parent or its affiliate rendering such
services either for the actual costs and expenses which Parent or such affiliate
incurs in providing such services or a reasonable charge basis. In consideration
of services under the Inter-Company Agreement, the Company paid to Parent fees
aggregating approximately $95,244,000 for the year ended December 31, 1996.
Tax Sharing and Indemnification Agreements. Effective January 1, 1989 (or
such later date as a subsidiary first became included in Parent's consolidated
tax return), the Company and its subsidiaries were included in Parent's state
and federal consolidated income tax returns and were parties to a federal and a
state income tax sharing agreement with Parent. The tax sharing agreements
provided for the allocation of tax liability among Parent and its affiliates.
Effective October 29, 1992, the Company and its subsidiaries were not eligible
to be included in Parent's federal and most state income tax returns for periods
following the October 1992 date since Parent retained less than 80% of the
voting power and the total value of the stock of the Company. The Company and
Parent file together with respect to a few consolidated combined state tax
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returns. The Company and Parent have entered into a tax indemnification
agreement, pursuant to which Parent has agreed to indemnify the Company with
respect to any federal or state income taxes related to periods prior to the
October 1992 date when the Company was a member of Parent's consolidated group
for federal income tax purposes and reflected on the Company's consolidated
balance sheet dated December 31, 1991 or accrued in the ordinary course of
business consistent with past practices from December 31, 1991 until the October
1992 date.
Sublease Agreement. In June 1992, the Company entered into a sublease
agreement with Parent pursuant to which the Company subleases certain office
space and related equipment located at 120 Monument Circle, Indianapolis,
Indiana. For the year ended December 31, 1996, the Company made rental payments
to Parent in the amount of $698,000.
Registration Rights Agreements. In connection with the Company's initial
public offering of the Common Stock, the Company and Parent entered into a
Registration Rights Agreement pursuant to which the Company granted to Parent
certain rights with respect to registration under the Securities Act of 1933, as
amended, of shares of Common Stock currently held or hereafter acquired by
Parent.
Future Transactions with Affiliates. The Company's Board of Directors (the
"Board" or "Board of Directors") has adopted a resolution to the effect that
transactions between the Company or any of its subsidiaries on the one hand, and
Parent and any of its affiliates (other than the Company and its subsidiaries)
on the other hand (except transactions in the ordinary course of business or in
an amount less than $1,000,000), must be approved by either a committee of
disinterested directors of the Company or by a vote of the disinterested members
of the Board of Directors. Any loans to officers, directors, stockholders, or
affiliates of the Company will be approved by a majority of the disinterested
directors of the Company and will be for bona fide business purposes. No such
loans have been made to date.
Miscellaneous. Parent has informed the Company that beginning in October
1995, the Parent's Board of Directors authorized the purchase of up to two
million Shares of Common Stock. Purchases were made from time to time in the
open market at prevailing prices or in privately negotiated transactions. Since
October 1995, Parent has purchased 487,488 shares of Common Stock. Parent has
made no open market purchases of Common Stock since June 1996.
In July 1995, the State of Kentucky legislature issued a comprehensive
health care reform bill. The new legislation, which was effective January 1,
1996, created a statewide voluntary health care purchasing alliance (the
"Alliance") and guaranteed that every Kentucky resident had access to health
care benefits. Membership in the Alliance is mandatory for state workers, public
school employees, and voluntary for employees of state universities, counties
and cities. The Company is a third party administrator for Parent products
offered through the Alliance.
(b)(2) The Merger Agreement. The summary of the Merger Agreement contained
in the Offer to Purchase and the following summary do not purport to be complete
and are each qualified in their entirety by reference to the Merger Agreement.
Capitalized terms used and not otherwise defined in this summary have the same
meaning as in the Merger Agreement.
The Offer. Pursuant to the Merger Agreement, the Purchaser is obligated to
commence the Offer no later than five business days following the public
announcement of the Merger Agreement. The obligation of the Purchaser to
commence the Offer and to accept for payment and to pay for any Shares tendered
pursuant to the Offer are subject only to the conditions specified in "THE
TENDER OFFER -- Certain Conditions of the Offer" in the Offer to Purchase.
Although the Purchaser has expressly reserved the right to amend or make
changes in the terms and conditions of the Offer, the Merger Agreement provides
that, without the consent of a majority of the Independent Directors (as defined
in the Merger Agreement) the Purchaser may not waive the Minimum Tender
Condition (as defined in the Offer to Purchase) or make any change in the terms
or conditions of the Offer which (A) changes the form of consideration to be
paid, (B) decreases the price per Share payable in the Offer, (C) reduces the
maximum number of Shares to be purchased in the Offer, (D) imposes conditions to
the Offer in addition to those in the Offer to Purchase under the section "THE
TENDER OFFER --
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Certain Conditions of the Offer," (E) extends the Expiration Date (as defined in
the Merger Agreement) of the Offer (except as required by law or the applicable
rules and regulations of the Securities and Exchange Commission (the
"Commission") and except that the Expiration Date may be extended for up to
forty business days in the aggregate in the event any condition to the Offer is
not satisfied), or (F) amends any term of the Offer in any manner materially
adverse to holders of Shares.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof, at the Effective Time the Purchaser will be merged with and
into the Company in accordance with Delaware Law. The Company will continue as
the Surviving Corporation and as a wholly owned subsidiary of the Parent
following consummation of the Merger.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto. The
representations and warranties will not survive the consummation of the Merger
or the termination of the Merger Agreement.
Covenants. The Company's covenants include, among other things, operating
in the ordinary course. In addition, the Company has agreed to convene a meeting
of the Company's stockholders to vote upon the Merger, unless a vote of
stockholders is not required by Delaware Law. If such a meeting is required for
consummation of the Merger, the Company will prepare and file with the
Commission a proxy statement or information statement for such a meeting to vote
upon the Merger.
Stock Options; Great American Warrants. As soon as practicable, upon the
written request of the Purchaser, the Company and the Purchaser have agreed to
take such actions as are reasonably required to provide that at the earlier of
the purchase of Shares pursuant to the Offer and the effective time of the
Merger, each holder of a then outstanding stock option, whether or not
exercisable, or a then outstanding Great American Warrant (as defined in the
Offer to Purchase) will receive from the Company the difference between the Per
Share Amount and the exercise price of such stock option or Great American
Warrant, as the case may be, net in either case of any applicable tax
withholding.
Other Offers. From the date of the Merger Agreement until the termination
thereof, the Company has agreed that it and its subsidiaries will not, and the
Company shall use reasonable efforts to cause the officers, directors, employees
or other agents of the Company and its subsidiaries not to, directly or
indirectly, (i) take any action to solicit, initiate or encourage any
Acquisition Proposal (as defined below) or (ii) subject to the fiduciary duties
of the Board of Directors under applicable law as advised by counsel to the
Company, engage in negotiations with, or disclose any nonpublic information
relating to the Company or any subsidiary or afford access to the properties,
books or records of the Company or any subsidiary to, any person or entity that
may be considering making, or has made, an Acquisition Proposal; provided,
however, that nothing contained in the Merger Agreement shall prevent the
Company, the Company's directors or the Company Special Committee from
furnishing nonpublic information to, or affording access to the properties,
books or records of the Company or any subsidiary to, or entering into
discussions or agreements with, any person or entity in connection with an
unsolicited Acquisition Proposal by such person or entity or recommending an
unsolicited Acquisition Proposal to the stockholders of the Company, if and only
to the extent that (1) the Company's directors or the Company Special Committee,
as the case may be, determine in good faith after consultation with outside
legal counsel that such action is necessary to comply with their fiduciary
duties to the stockholders of the Company under applicable law and (2) prior to
furnishing any such nonpublic information to, or entering into discussions or
negotiations with, such person or entity, the Company's directors or the Company
Special Committee, as the case may be, receive from such person or entity an
executed confidentiality agreement with customary terms. The Company has agreed
to promptly notify Parent after receipt of any Acquisition Proposal or any
indication that any person or entity is considering making an Acquisition
Proposal or any request for nonpublic information relating to the Company or any
subsidiary or for access to the properties, books or records of the Company or
any subsidiary by any person or entity that may be considering making, or has
made, an Acquisition Proposal and will keep Parent fully informed of the status
and details of any such Acquisition Proposal, indication or request. For
purposes hereof, "Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving the
Company or any subsidiary or the acquisition of any equity interest in, or a
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substantial portion of the assets of, the Company or any subsidiary, other than
the transactions contemplated by the Merger Agreement.
Directors' and Officers' Indemnification and Insurance. The Certificate of
Incorporation of the Surviving Corporation will contain provisions no less
favorable to the Company's directors and officers with respect to
indemnification than such provisions in the Company's Certificate of
Incorporation (the "Certificate of Incorporation"), and such provisions will not
be amended, repealed or otherwise modified for six years after the consummation
of the Merger in a manner that would materially adversely affect the rights of
the Company's existing directors and officers with respect to actions or events
at or prior to the effective time of the Merger. In addition, the Company and,
following the Merger, the Surviving Corporation have agreed to indemnify the
existing directors and officers of the Company in connection with any action or
omission to act in their capacity as directors and officers of the Company for a
period of six years after the later of the consummation of the Merger and the
date of the Merger Agreement. Parent has agreed to maintain directors' and
officers' liability insurance policies containing substantially comparable terms
and conditions to the Company's existing policies to cover the acts and
omissions of the Company's current directors and officers occurring on or prior
to the consummation of the Merger for a period of six years after the
consummation of the Merger (or for such lesser period as can be purchased for a
premium not exceeding 200% of the last intercompany allocation made by Parent to
the Company with respect to directors' and officers' insurance).
Conditions to Obligations of Each Party to Effect the Merger. Conditions
to the obligations of each party to effect the Merger include, (i) the approval
and adoption of the Merger Agreement and the transactions contemplated thereby
by the Company's stockholders to the extent required by, and in accordance with,
Delaware Law and the Certificate of Incorporation and Bylaws; (ii) the
Purchaser's or its permitted assignee's purchase of all Shares validly tendered
and not withdrawn pursuant to the Offer; (iii) the taking of all actions and
making of all filings with, and the approval of, any governmental body, agency,
official or authority required to permit the consummation of the Merger; and
(iv) the absence of the issuance of any order and of the existence of any
statute, rule or regulation restraining or prohibiting the consummation of the
Merger or the effective operation of the business of the Company and its
subsidiaries after the consummation of the Merger.
Additional Condition to Obligations of Parent and the Purchaser. The
obligation of Parent and the Purchaser to effect the Merger is also subject to
the condition that the Company shall have in all material respects performed all
of its obligations under the Merger Agreement.
Termination. The Merger Agreement may be terminated at any time prior to
the consummation of the Merger, whether prior to or after approval by the
Company's stockholders:
(i) by mutual written consent of the Company and Parent, if such
termination is also approved by a majority of the Independent Directors;
(ii) by either the Company or Parent, if the consummation of the
Merger shall not have occurred on or before October 31, 1997; provided,
however, that the right to terminate the Merger Agreement pursuant to this
clause (ii) shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the primary cause of, or
resulted in, the failure of the consummation of the Merger to occur on or
before such date;
(iii) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Parent
or the Company from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and nonappealable;
(iv) by Parent, if the Purchaser shall have (a) terminated the Offer
without having accepted any Shares for payment thereunder by reason of the
failure to satisfy any condition under "THE TENDER OFFER -- Certain
Conditions of the Offer" in the Offer to Purchase or (b) failed to pay for
Shares pursuant to the Offer within 90 days following the commencement of
the Offer, unless such failure to pay for Shares shall have been caused by
or resulted directly from the failure of Parent or the Purchaser to perform
in any material respect any material covenant or agreement of either of
them contained in the
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Merger Agreement or the material breach by Parent or the Purchaser of any
material representation or warranty of either of them contained in the
Merger Agreement;
(v) by the Company, upon approval of the Board of Directors and a
majority of the Independent Directors, if the Purchaser shall have (a)
failed to commence the Offer within five business days following the date
of the initial public announcement of the Offer, (b) terminated the Offer
without having accepted any Shares for payment thereunder by reason of the
failure to satisfy any condition set forth under "THE TENDER
OFFER -- Certain Conditions of the Offer" in the Offer to Purchase or (iii)
failed to pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted directly from the failure of the Company to
perform in any material respect any material covenant or agreement of it
contained in the Merger Agreement or the material breach by the Company of
any material representation or warranty of it contained in the Merger
Agreement; or
(vi) by the Company, upon approval of the Board of Directors and a
majority of the Independent Directors, if any representation or warranty of
Parent and the Purchaser in the Merger Agreement shall not be true and
correct in any material respect, as if such representation or warranty was
made as of such time on or after the date of the Merger Agreement; or
Parent or the Purchaser shall have failed to perform in any material
respect any obligation or to comply in any material respect with any
agreement or covenant of Parent or the Purchaser to be performed or
complied with by it under the Merger Agreement.
Expenses. All costs and expenses incurred in connection with the Merger
Agreement are to be paid by the party incurring them.
(b)(3) Indemnification of Directors. The Company is a Delaware corporation.
Section 145 of the Delaware Law provides that a corporation may indemnify any
person who was or is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the indemnified
person in connection with such action, suit or proceeding, provided such
officer, director, employee or agent acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the corporation's best
interest and, with respect to any criminal action or proceedings, had no
reasonable cause to believe that his or her conduct was unlawful. A Delaware
corporation has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification is permitted
without judicial approval if the officer or director is adjudged to be liable to
the corporation. To the extent that a director, officer, employee or agent is
successful on the merits or otherwise in the defense of any action, suit or
proceeding referred to above, or in the defense of any claim, issue or matter
therein, the corporation must indemnify him or her against the expenses
(including attorney's fees) that such officer, director, employee or agent
actually and reasonably incurred.
Section 102(b)(7) of the Delaware Law enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director to the corporation or its stockholders for
violations of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware Law
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit.
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Article Ten of the Certificate of Incorporation provides that a director of
the Company shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director, to the fullest
extent permitted by the Delaware Law, as it exists or may thereafter be amended.
Article Eleven of the Certificate of Incorporation provides that, to the
fullest extent permitted by Delaware Law, as it exists or may thereafter be
amended, the Company may indemnify persons for monetary damages and/or payment
of corporate debts.
Both Articles Ten and Eleven state that if either such article is repealed
or modified, it shall not adversely affect any right or protection of a director
of the corporation existing or arising out of facts or incidents prior to the
time of such repeal or modification.
The Merger Agreement contains certain provisions regarding the
indemnification and insurance of directors described under the heading "The
Merger Agreement -- Directors' and Officers' Indemnification and Insurance."
(b)(4) Other Arrangements and Interests. William W. Rosenblatt, a director
of the Company, is a partner at the law firm Dewey Ballantine, which provides
legal services to the Company and is representing the Company in this
transaction.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors. At the May 31, 1997
telephonic meeting of the Board of Directors, the Board, based upon, among other
things, the unanimous recommendation of a special committee of the Board
consisting of the directors of the Company who are unaffiliated with Parent or
the Company's management (the "Company Special Committee"), determined that the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, upon the terms and subject to the conditions set forth in the
Merger Agreement are fair to, and in the best interests of, the Company and its
stockholders other than Parent and the Purchaser (the "Public Stockholders") and
approved the Offer, the Merger and the Merger Agreement. THE BOARD AND THE
PURCHASER (WITH MESSRS. LYTLE, SHERIDAN, HOUSER AND SMITH, WHO ARE DIRECTORS
AND/OR OFFICERS OF PARENT AND/OR PARENT'S SUBSIDIARIES, ABSTAINING) RECOMMENDS
THAT THE PUBLIC STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR
SHARES TO THE PURCHASER PURSUANT TO THE OFFER.
A copy of a letter to all stockholders of the Company communicating the
recommendation of the members of the Board of Directors (except for Messrs.
Lytle, Sheridan, Houser and Smith, who are directors and/or officers of Parent
and/or one of Parent's subsidiaries who abstained) is filed as Exhibit (a)(5)
and is incorporated herein by reference.
(b)(1) Background of the Transaction. The Company was organized and
initially capitalized by Parent in September 1989. In October 1992, the Company
completed its initial public offering. Following the initial public offering,
Parent owned 63.3% of the Company's outstanding Common Stock (62.5% on a fully
diluted basis). Beginning in October 1995, Parent's Board of Directors
authorized the purchase of up to two million Shares. Purchases have been made
from time to time in the open market at prevailing prices or in privately
negotiated transactions. Parent has made no open market purchases of the Common
Stock since June 1996. See Schedule II to the Offer to Purchase. Since October
1995, Parent has acquired 487,488 additional Shares which, in addition to the
acquisition by the Company of its Shares in a privately negotiated purchase, has
resulted in Parent's ownership increasing to 66.8% (54.7% on a fully diluted
basis).
The Company has grown through the acquisition of insurance brokerage
companies and third party administrators, through the creation of new Acordia
companies and the expansion of existing Acordia companies. From 1992 through the
present, a significant portion of the Company's revenues have been derived from
commissions on Parent's products and revenues and from the provision of various
administrative services to Parent and its affiliates. Commissions and fees to
the Company from entities affiliated with Parent were $291.0 million and $233.1
million in 1996 and 1995, respectively. See "-- Interests of Certain Persons;
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Stockholdings of Certain Officers and Directors; and Related Transactions" in
the Offer to Purchase. Because of the high percentage of the Company's revenues
derived from the sale and servicing of Parent's life and health products, the
Company has stated that it is inevitable that industry forces affecting Parent
will also affect the Company.
In addition, certain of the Company's and Parent's management has been at
times overlapping. L. Ben Lytle, the President and Chief Executive Officer of
Parent and Chairman of the Board of the Company, served as Chief Executive
Officer of the Company from the time the Company began operations through
November 1996, and as President from March 1993 through November 1994. Patrick
M. Sheridan, Executive Vice President, Chief Financial Officer and a Director of
the Company, served as Executive Vice President and Chief Financial Officer of
the Company from August 1989 through August 1996. See "-- Interests of Certain
Persons; Stockholdings of Certain Officers and Directors; and Related
Transactions" in the Offer to Purchase.
In 1995 the Company and Parent, as part of their continuing strategic
initiatives, began looking at ways to reduce the administration and marketing
expense portion of the total healthcare premium dollar in light of the intense
competition and changes occurring in the healthcare industry. During 1996,
Parent also redefined its strategic direction to focus on its healthcare
mission, in line with its assessment of the opportunities presented by the
changing dynamics of the healthcare industry, and began divesting itself of
businesses not directly supportive of the healthcare mission. Although Parent
and the Company agreed with respect to the cancellation of the administration
and wholesale distribution functions for Parent's products outside of Indiana,
Kentucky and Ohio, as described in part below, no agreement could be reached
with respect to any modification in the arrangements regarding these functions
in Indiana, Kentucky and Ohio. The business conducted in these states represents
a material portion of the Company's operations. Discussions regarding cost
issues continued into 1997 in the context of the ongoing business relationships
between the Company and Parent and its affiliated insurers under various
administrative and marketing arrangements. Although these discussions addressed
a variety of topics and several possible alternatives, including a going private
transaction, they were not understood by either party to be, and were not
intended as, proposals regarding the acquisition by Parent of the remaining
equity interest of the Company, and these discussions did not result in
negotiations between the Company and Parent regarding any such acquisition.
The timing of Parent's strategic review of its ownership relationship with
the Company has also been affected by a recent, comprehensive codification of
statutory accounting principles for insurers undertaken by the National
Association of Insurance Commissioners ("NAIC"). While the codification has not
yet been completed, Parent anticipates that the resulting changes may become
effective by year end 1998 and would require Parent to revise the methodology
for determining the carrying value of the Common Stock held as an investment in
affiliated common stock. This change under the new principles is expected to
eliminate the entire carrying value of the Common Stock, regardless of its fair
market value or published Share prices. As a result of the expected codification
of the new principles by the NAIC, Parent has determined that, whether or not
the Offer or Merger is completed, Parent intends to revise the carrying value of
the Common Stock to zero, effective with its June 30, 1997 quarterly statement
to be filed with the Indiana Insurance Commissioner. Parent believes that the
changes in statutory accounting principles proposed by the NAIC would diminish
the benefit to Parent of having an investment in a publicly traded affiliate.
In September 1996, Parent retained Credit Suisse First Boston Corporation
("Credit Suisse First Boston") to assist its management in reviewing
alternatives with respect to Parent's interest in the Company and Parent's
healthcare mission. As part of this review, Credit Suisse First Boston
undertook, in consultation with Parent's and the Company's management, a
business and financial analysis of the Company and a review of various
alternatives. In December 1996, Parent amended its engagement with Credit Suisse
First Boston to include the analysis and evaluation of the business, operations
and financial position of the Company's insurance brokerage operations that are
independent of the administrative and marketing services provided to Parent
("Acordia Brokers") and the exploration of a possible sale of Acordia Brokers.
During this period there were further discussions at the management level
regarding administrative and marketing costs issues as the Company and Parent
developed their respective 1997 business plans. However, no action was taken by
the Board of Directors of either Parent or the Company.
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In January 1997, Parent and the Company, as part of the strategic
developments within Parent, decided that the wholesale marketing and
distribution functions for Parent's products outside of Indiana, Kentucky and
Ohio should be performed by Parent. Parent agreed to pay the Company a one-time
cancellation fee of $6.0 million, one-half of which was paid in the first
quarter of 1997 and the remainder of which will be paid during the second
quarter of 1997.
On February 6, 1997, the Company issued a press release announcing its
decision to undertake a strategic review of its business operations, including a
review of the Company's relationship with Parent. The Company also announced
that its Board had been informed by Parent that Parent was undertaking its own
strategic review, including an analysis of its business relationship with and
investment in the Company. The Company further announced that its Board of
Directors had created the Company Special Committee to evaluate any proposals
made by or involving Parent, and authorized it to retain such financial or other
advisors as might be necessary to assist the Company Special Committee in the
evaluation process. John C. Crane was designated as Chairman of the Company
Special Committee. The press release also stated that the Company was projecting
that revenues from the Company's health-related operations would be flat to
slightly down when compared to 1996.
At such time, Parent also informed the Company that no decision had as yet
been made by Parent as to what, if any, changes it believed should be made with
respect to Parent's business relationship with and investment in the Company and
that, as part of the evaluation process, Credit Suisse First Boston had been
asked to explore the possible sale of Acordia Brokers and the possible
reorganization of the Company's health business. In late February 1997, the
Board of Directors of Parent appointed a special committee of outside directors
(the "Parent Special Committee") to review and evaluate any proposals developed
regarding the Company, to make recommendations with respect to any such
proposals to the full Board of Directors of Parent and to oversee any
negotiations between Parent and others with respect to such proposals. Frank B.
Hower, Jr. was designated as Chairman of the Parent Special Committee.
Subsequent to the issuance of the February 6, 1997 press release, Credit
Suisse First Boston began soliciting indications of interest from prospective
purchasers of Acordia Brokers.
The Company Special Committee held its first meeting on February 20, 1997.
At this meeting, the Company Special Committee discussed the retention of
independent advisors and the process by which such advisors would be selected.
On March 11, 1997, the Company Special Committee met to interview five
financial advisor candidates. Following discussion, the Company Special
Committee selected Alex. Brown & Sons Incorporated ("Alex. Brown") as financial
advisor to the Company Special Committee. This selection was followed shortly
thereafter by the selection of Jones, Day, Reavis & Pogue ("Jones Day") to serve
as legal counsel to the Company Special Committee.
The Parent Special Committee held its first meeting on March 27, 1997. The
meeting was attended by representatives of Credit Suisse First Boston and Vorys,
Sater, Seymour and Pease, special counsel to Parent and the Parent Special
Committee ("Vorys Sater"). Credit Suisse First Boston advised the Parent Special
Committee on the process for valuing and analyzing the possible sale of Acordia
Brokers. Vorys Sater advised the Parent Special Committee of its fiduciary
duties under Indiana law and the legal issues to be considered with respect to
any transaction involving the Company and the possible sale of Acordia Brokers.
The next meeting of the Company Special Committee occurred on April 11,
1997. The meeting was attended by representatives of Alex. Brown and Jones Day.
At this meeting, Alex. Brown advised the Company Special Committee on the
process for valuing and analyzing the Company's business operations and progress
on their due diligence. Jones Day briefed the Company Special Committee on its
fiduciary duties and responsibilities to minority shareholders under Delaware
law. The Company Special Committee was also updated on the status of Credit
Suisse First Boston's evaluation of a possible sale of Acordia Brokers.
Between February 1997 and early May 1997, executives of each of the Company
and Parent had frequent communications regarding day-to-day operations as well
as general discussions regarding Parent's business relationship with and
investment in the Company.
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On May 6, 1997, the Company Special Committee met. The meeting was attended
by representatives of Alex. Brown and Jones Day. At this meeting, Alex. Brown
provided the Company Special Committee with a preliminary assessment of Alex.
Brown's view on the valuation of, and valuation methodology with respect to, the
components of the Company.
On May 7, 1997, Credit Suisse First Boston met with Alex. Brown at Alex.
Brown's offices in Baltimore, Maryland. At this meeting, Credit Suisse First
Boston provided Alex. Brown with its initial views on an appropriate valuation
of, and valuation methodology with respect to, the components of the Company.
On May 9, 1997, the Parent Special Committee met and was updated on the
progress of negotiations with respect to the possible sale of Acordia Brokers
and considered the possible terms of a transaction with the Company. Vorys Sater
again briefed the Parent Special Committee on its fiduciary duties under Indiana
law and the duties owed to minority shareholders under Delaware Law. In
addition, on May 9, the Parent Special Committee, through Credit Suisse First
Boston, received proposals with respect to the possible sale of Acordia Brokers.
On May 12, 1997, the Parent Special Committee met by telephone with Credit
Suisse First Boston and Vorys Sater present. Credit Suisse First Boston
described the proposals received for Acordia Brokers. Each proposal provided for
a leveraged buyout of Acordia Brokers and contained financing conditions. The
Parent Special Committee unanimously resolved to proceed to negotiations with
one of the bidders, whose proposal was within the valuation ranges ultimately
established for Acordia Brokers by Credit Suisse First Boston and Alex. Brown.
Credit Suisse First Boston recommended that the Parent Special Committee
authorize Credit Suisse First Boston to discuss a specific share price with
Alex. Brown. Following discussion of the appropriate price, the Parent Special
Committee unanimously resolved to authorize Credit Suisse First Boston to
discuss in general terms a price of $34 per Share with Alex. Brown.
On May 13, 1997, the Company Special Committee met, and Mr. Crane advised
the Company Special Committee of Alex. Brown's report on its May 7 meeting with
Credit Suisse First Boston. The Company Special Committee was also updated on
the proposals received for Acordia Brokers. At the Company's Board of Directors
meeting on the same date, the Company Special Committee updated the Board with
respect to its activities to such date.
On May 15, 1997, Credit Suisse First Boston met with Mr. Crane, Alex. Brown
and Jones Day and discussed in general terms a price of $34 per Share for all
Shares not owned by Parent. A telephonic meeting of the Company Special
Committee was convened later that day with Jones Day and Alex. Brown present to
discuss the price communicated by Credit Suisse First Boston. Following a
lengthy discussion, the Company Special Committee instructed Alex. Brown to
inform Credit Suisse First Boston that the Company Special Committee had placed
a preliminary per Share value for the Common Stock in excess of $40 per Share.
On May 16, 1997, Credit Suisse First Boston met at its offices in New York,
New York with Alex. Brown. At this meeting, Alex. Brown advised Credit Suisse
First Boston that the Company Special Committee placed a preliminary per Share
value for the Common Stock in excess of $40.
On May 19, 1997, the Parent Special Committee met again by telephone. The
Parent Special Committee's financial and legal advisors described the
negotiations with the bidder for Acordia Brokers. Credit Suisse First Boston
also reported to the Parent Special Committee that it had met with Alex. Brown
on May 16 and that Alex. Brown had reported that the Company Special Committee
placed a preliminary per Share value for the Common Stock in excess of $40 per
Share. The Parent Special Committee then deliberated regarding whether to
consider other alternatives or to increase the price it was willing to
recommend. Following discussion, the Parent Special Committee unanimously
resolved to authorize Credit Suisse First Boston to discuss with Alex. Brown a
per Share price of $37.
On May 20, 1997, following consideration of an increase in both the volume
and price of the Common Stock, the Company and Parent issued the following press
release:
INDIANAPOLIS -- Acordia, Inc. (NYSE: ACO) and Anthem Insurance
Companies, Inc. announced today that in furtherance of the previously
announced review of their current business and
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financial relationship, they are in discussions with regard to a possible
reorganization of Acordia's health business, which could include an
acquisition by Anthem of the publicly owned shares of Acordia not owned by
Anthem. Anthem further announced that it is in discussions with a third
party with regard to a possible sale of Acordia's brokerage business. There
can be no assurance that these discussions will result in any transaction,
or if so, as to the terms or timing of any such transaction.
As of May 1, 1997, Anthem owned approximately 67% of Acordia's
outstanding common stock.
On May 20, 1997, Credit Suisse First Boston also indicated to Alex. Brown
by telephone that the Parent Special Committee was prepared to discuss a per
Share price of $37.
On May 21, 1997, Vorys Sater delivered to Dewey Ballantine, counsel to the
Company, and Jones Day, an initial draft of the Merger Agreement for their
review.
On May 22, 1997, the Company Special Committee held a telephonic meeting
with Alex. Brown and Jones Day present. At this meeting, Alex. Brown reported on
its May 16 meeting with Credit Suisse First Boston and subsequent discussions.
After lengthy discussion, the Company Special Committee instructed Alex. Brown
to advise Credit Suisse First Boston that the Company Special Committee believed
that the value of the Common Stock was at least $40 per Share.
On May 23, 1997, Alex. Brown contacted Credit Suisse First Boston by
telephone and indicated that the Company Special Committee placed a preliminary
per Share value on the Common Stock of at least $40 per Share.
On the morning of May 27, 1997, the Parent Special Committee met by
telephone. Credit Suisse First Boston reported that Alex. Brown continued to
communicate that the Company Special Committee believed that the value of the
Company was at least $40 per Share. The Parent Special Committee determined that
Mr. Hower should contact Mr. Crane directly. Following telephone discussions
between Mr. Crane and Mr. Hower that afternoon, the Parent Special Committee
reconvened on the evening of May 27 and Mr. Hower reported that, based on his
conversation with Mr. Crane, the Company Special Committee would likely
recommend acceptance of an offer at $40 per Share. In addition, the Parent
Special Committee discussed whether the execution of a definitive agreement with
respect to the sale of Acordia Brokers should be a condition to a tender offer.
Following deliberations, the Parent Special Committee determined to recommend an
offer of $40 per Share to the Parent's Board of Directors which would not be so
conditioned. Following the meeting, Vorys Sater furnished a revised draft of the
Merger Agreement to Dewey Ballantine and Jones Day.
On May 28, 1997, a telephonic meeting of the Company Special Committee was
held to discuss a per Share price of $40 for the Common Stock. At the conclusion
of this meeting, the Company Special Committee determined to continue
discussions with the Parent Special Committee at a price of $40 per Share
subject to the negotiation of a mutually acceptable Merger Agreement.
The Board of Directors of Parent met on May 30, 1997, with Credit Suisse
First Boston and Vorys Sater present by telephone. The Parent Special Committee
described the course of the negotiations, and Credit Suisse First Boston
provided information on the financial terms of an offer at a per Share price of
$40. Credit Suisse First Boston also orally advised the directors that, as of
such date and based upon and subject to certain matters discussed with them, the
consideration to be paid by Parent in the Offer and the Merger was fair to
Parent from a financial point of view. Vorys Sater outlined the terms and
conditions of the draft Merger Agreement. The Board of Directors of Parent took
no action with respect to the Parent Special Committee's recommendation on May
30.
The Company Special Committee also met on May 30 to discuss a $40 per Share
price and to consider its recommendation to the Company's Board of Directors. At
this meeting, Alex. Brown rendered its oral opinion, subsequently confirmed in
writing, that, as of that date, the proposed consideration of $40 per Share was
fair, from a financial point of view, to the Company's stockholders other than
Parent, and Jones Day outlined the terms and conditions of the draft Merger
Agreement and the open issues that remained in that draft. At the conclusion of
this meeting, the Company Special Committee unanimously determined to recommend
to the
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Company's Board of Directors that the Board approve a $40 per Share price,
subject to the finalization of the draft Merger Agreement.
On May 31, 1997, Parent's Board of Directors reconvened and (excluding
certain interested directors who abstained) approved the Merger, the Merger
Agreement and the Offer. Following this meeting, Mr. Hower telephoned Mr. Crane
to convey the Offer. A telephonic meeting of the Company's Board of Directors
was held later that day. Following receipt of the Company Special Committee's
recommendation and a discussion of the Offer, the Merger and the Merger
Agreement, the Company's Board of Directors (excluding certain interested
directors who abstained) approved the Merger Agreement (including the Offer and
the Merger) and recommended to the Company's stockholders (other than Parent and
the Purchaser) that such stockholders accept the Offer and tender their Shares
pursuant to the Offer, and determined that the Offer and the Merger are fair to,
and in the best interests of, the stockholders (other than Parent and the
Purchaser).
On June 1, 1997, Jones Day and Vorys Sater finalized negotiations on the
Merger Agreement, and the Merger Agreement was thereafter executed by Parent,
the Purchaser and the Company. On June 2, 1997, the Company issued a press
release announcing such execution.
(b)(2) Reasons for the Recommendation of the Special Committee and the
Board. In determining that the Offer and the Merger are fair to, and in the
best interests of, the Public Stockholders, and in making its recommendation to
the Board, the Company Special Committee considered the following material
factors, which taken as a whole, supported its determination:
(i) the offer of $40.00 per Share represented a premium of approximately
43.5%, 42.9% and 39.1% over the closing price of the Shares on the
New York Stock Exchange one full trading day, one week and one month
prior to the public announcement of a strategic review by Parent and
the Company of their respective business and an investment
relationship, respectively. These premiums were compared to premiums
paid, or to be paid, in fifty-seven merger and acquisition
transactions from January 1988 through April 1997 involving the
acquisition of minority holdings of publicly-held equity of companies
by parents of such companies owning 50% to 80% of the outstanding
common stock of such companies, which averaged 30.2%, 32.9% and 34.7%
over the target's market price one day, one week and one month prior
to the public announcement, respectively. The median of the premiums
paid, or to be paid, for such transactions during such period was
25.6%, 27.7% and 31.1% one day, one week and one month prior to the
public announcement of the transaction, respectively;
(ii) the Company Special Committee's review of historical market prices
and recent trading activity of the Shares, including the fact that
prior to February 6, 1997, the Shares have never closed above $34.38
per Share;
(iii) the Company Special Committee's consideration of, among other
things, (a) the 1997 business plan and information with respect to
the financial condition, results of operations, business and
prospects of the Company, (b) the changes occurring in the health
care industry, their impact on the Company and the potential
implication of these changes on the Company's relationship with
Parent and (c) the administration and wholesale distribution
agreements between Parent and the Company pursuant to which the
Company provides health care services to Parent, which agreements
accounts for approximately two-thirds of the Company's earnings and
are terminable by either party upon six months' notice.
(iv) the history of the negotiations between the Company Special Committee
and its representatives and Parent's Special Committee and its
representatives, including the fact that (a) the negotiations
resulted in an increase in the price at which Parent was prepared to
acquire the Shares from approximately $34.00 per Share to $40 per
Share and (b) the Company Special Committee's belief that Parent
would not further increase the price payable in the Offer and that
$40 per Share was the highest price that could be obtained from
Parent;
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(v) the Company Special Committee's review of presentations by, and
discussion of the terms of the Merger Agreement (including the Offer
and the Merger) with, representatives of the Company Special
Committee's legal counsel and its financial advisor;
(vi) the terms of the Offer, the Merger and the Merger Agreement,
including the structural features of the Offer, which provide for a
prompt cash tender offer for all outstanding Shares held by the
Public Stockholders to be followed by a merger for the same
consideration (thereby enabling the Public Stockholders to obtain
the benefits of the transaction in exchange for their Shares at the
earliest possible time);
(vii) other provisions of the Offer and the Merger Agreement, including
the fact that (a) the Purchaser is not permitted to waive the
Minimum Tender Condition without the approval of the Company Special
Committee, (b) the Offer is not subject to any financing condition
and (c) the Merger Agreement allows the Company to respond to
unsolicited acquisition proposals to the extent that the Company's
directors or the Company Special Committee, as the case may be,
determines in good faith after consultation with outside legal
counsel that such action is necessary to comply with their fiduciary
duties under applicable law;
(viii) the written opinion of Alex. Brown delivered to the Company Special
Committee on May 30, 1997 (the "Alex. Brown Opinion") that, as of
that date, the consideration to be received by the Company
stockholders other than Parent pursuant to the Offer and the Merger
as contemplated by the Merger Agreement is fair, from a financial
point of view, to such stockholders, and the report and analysis
presented by Alex. Brown. The full text of the Alex. Brown Opinion,
which sets forth among other things, assumptions made, matters
considered and limitations on the review undertaken, is attached
hereto as Annex I and is incorporated herein by reference. The Alex.
Brown Opinion is directed to the Company Special Committee,
addresses only the fairness of the consideration to be received by
the Public Stockholders from a financial point of view and does not
constitute a recommendation to any such stockholder as to whether
such stockholder should accept the Offer and tender its Shares.
STOCKHOLDERS ARE URGED TO READ THE ALEX. BROWN OPINION AND THE
"OPINION OF ALEX. BROWN" SECTION SET FORTH BELOW CAREFULLY IN THEIR
ENTIRETY; and
(ix) the ability of the Public Stockholders to exercise dissenters' rights
under the Delaware Law in connection with the Merger.
In reaching its determinations referred to above, the Board considered the
recommendation of the Company Special Committee and the factors set forth
immediately above, each of which, in the view of the Board, supported such
determinations.
The members of the Board, including the members of the Company Special
Committee, evaluated the various factors listed above in light of their
knowledge of the business, financial condition and prospects of the Company, and
based upon the advice of financial and legal advisors. In light of the number
and variety of factors that the Board and the Company Special Committee
considered in connection with their evaluation of the Offer and the Merger,
neither the Board nor the Company Special Committee found it practicable to
quantify or otherwise assign relative weights to the foregoing factors, and,
accordingly, neither the Board nor the Company Special Committee did so. In
addition to the factors listed above, each of the Board and the Company Special
Committee considered the fact that consummation of the Offer and the Merger
would eliminate the opportunity of the Public Stockholders to participate in any
potential future growth in the value of the Company, but determined that this
loss of opportunity was reflected in part by the price of $40 per Share to be
paid in the Offer and the Merger.
The Board, including the Company Special Committee, believes that the Offer
and the Merger are procedurally fair because, among other things: (i) the
Company Special Committee consisted of independent directors (unaffiliated with
Parent, the Purchaser or their affiliates or the Company's management),
appointed to represent the interests of the Public Stockholders; (ii) the
Company Special Committee retained and was advised by independent legal counsel;
(iii) the Company Special Committee retained and was advised by an
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independent financial advisor, who assisted the Company Special Committee in
evaluating the Offer and the Merger; (iv) of the deliberations pursuant to which
the Company Special Committee evaluated the Offer and the Merger and
alternatives thereto; (v) the $40 per Share price and the other terms and
conditions of the Merger Agreement resulted from active arm's-length bargaining
between representatives of the Company Special Committee, on the one hand, and
Parent, on the other; and (vi) Purchaser is not permitted to waive the Minimum
Tender Condition without the consent of the Company Special Committee.
On May 31, 1997, the Board of Directors held a telephonic meeting and,
based upon, among other things, the unanimous recommendation of the Company
Special Committee, determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, upon the terms and
subject to the conditions set forth in the Merger Agreement are fair to, and in
the best interests of, the Company and its Public Stockholders and approved the
Offer, the Merger and the Merger Agreement and recommends (with Messrs. Lytle,
Sheridan, Smith and Houser, who are directors and/or officers of the Parent,
abstained from the actions taken at that meeting) that the Public Stockholders
of the Company accept the Offer and tender their Shares to the Purchaser
pursuant to the Offer.
(b)(3) Opinion of Alex. Brown. Alex. Brown was engaged by the Company
Special Committee pursuant to an engagement letter dated March 12, 1997 (the
"Engagement Letter") to provide certain investment banking advice and services
in connection with any proposals made by Parent in regard to the Company.
Pursuant to such engagement, the Company Special Committee requested Alex. Brown
to render an opinion as to the fairness, from a financial point of view, of the
consideration to be received in the Offer and the Merger by the Company's
stockholders other than Parent.
Alex. Brown is an internationally recognized investment banking firm and,
as a customary part of its investment banking activities, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements, and valuations
for estate, corporate and other purposes. Alex. Brown regularly publishes
research reports regarding the insurance, insurance brokerage and health care
industries and the businesses and securities of publicly-owned companies in
those industries. After interviewing a number of investment banks, the Company
Special Committee selected Alex. Brown as its financial advisor because of Alex.
Brown's expertise, reputation and familiarity with the insurance, insurance
brokerage and health care industries, and because of Alex. Brown's familiarity
with the Company and Parent.
On May 30, 1997, in connection with the evaluation of the proposed Merger
Agreement by the Company's Board of Directors, Alex. Brown made a presentation
to the Company Special Committee with respect to the Offer and the Merger. In
addition, Alex. Brown rendered its oral opinion, subsequently confirmed in
writing, that, as of the date of such opinion, and subject to certain
assumptions, factors and limitations set forth in such written opinion as
described below, the consideration to be received in the Offer and the Merger by
the Company's stockholders other than Parent was fair, from a financial point of
view, to such stockholders.
THE FULL TEXT OF THE WRITTEN OPINION OF ALEX. BROWN, WHICH SETS FORTH THE
ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND THE
LIMITATIONS ON THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION, IS ATTACHED
HERETO AS ANNEX I AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF COMMON
STOCK ARE URGED TO, AND SHOULD, READ THE ALEX. BROWN OPINION CAREFULLY AND IN
ITS ENTIRETY. THE SUMMARY OF THE ALEX. BROWN OPINION SET FORTH HERETO IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The Alex. Brown Opinion is directed to the Company Special Committee and
addresses only the fairness from a financial point of view of the consideration
to be received in the Offer and the Merger by the Company's stockholders other
than Parent, and does not address any other aspect of the Offer or the Merger
and does not constitute an opinion or a recommendation as to whether any holder
of Common Stock should accept the Offer or how such holder should vote with
respect to the Merger, if any vote is required.
Alex. Brown assisted the Company Special Committee in the negotiations with
Parent and Parent's financial advisor pursuant to which the Offer price and
Merger price per Share of $40.00 was determined, and
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such price was not determined by Alex. Brown. In arriving at its opinion, Alex.
Brown was not authorized to solicit, and did not solicit, interest from any
party with respect to the acquisition of the Company or any of its assets.
In rendering its opinion, Alex. Brown reviewed certain publicly available
financial and other information concerning the Company and Parent and certain
internal analyses and other information with respect to the business, operations
and prospects of each of the Company and Parent furnished to Alex. Brown by the
Company and Parent. Alex. Brown also held discussions with members of the senior
management of each of the Company and Parent regarding the business and
prospects of their respective companies and the joint prospects of a combined
company. In addition, Alex. Brown (a) reviewed the reported price and trading
activity for the Common Stock; (b) compared certain financial and stock market
information for the Company with similar information for certain selected
companies whose securities are publicly traded; (c) reviewed the financial terms
of certain recent business combinations which it deemed relevant in whole or in
part; (d) held discussions with Parent, Parent's financial advisor and the
management of the Company regarding the sale process for the Company's property
and casualty insurance brokerage operations; (e) reviewed the terms of the May
29, 1997 draft of the Merger Agreement and certain related documents; and (f)
performed such other studies and analyses and considered such other factors as
it deemed appropriate for the purpose of rendering the opinion.
In connection with its review, Alex. Brown did not independently verify the
information described above, and for purposes of its opinion assumed and relied
upon the accuracy, completeness and fairness of such information. With respect
to the information relating to the prospects of the Company and Parent, Alex.
Brown assumed that such information provided to it was reasonably prepared on
bases reflecting the best currently available judgments and estimates of the
managements of the Company and Parent, respectively, as to the likely future
financial performances of their companies and of the combined entity. In
addition, Alex. Brown did not conduct physical inspections of the properties and
facilities of the Company and Parent, and did not make or obtain, or assume any
responsibility for making and obtaining, an independent evaluation or appraisal
of the assets or liabilities of the Company or Parent, nor has it been furnished
with any such evaluations or appraisals. Alex. Brown's opinion was based on
market, economic and other conditions as they exist and can be evaluated as of
the date thereof.
In connection with its presentation to the Company Special Committee on May
30, 1997 and its opinion of the same date, Alex. Brown performed certain
financial and comparative analyses, including those described below. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and therefore such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at its
fairness opinion, Alex. Brown did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Alex.
Brown believes that its analyses must be considered as a whole and that
considering any portions of such analyses and of the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying the opinion. In its analyses, Alex. Brown made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Parent and the Company. Any estimates contained in Alex. Brown's analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. These analyses do not purport to be appraisals. With respect to the
comparison of selected companies analysis and the analysis of selected
transactions summarized below, no public company utilized as a comparison is
identical to the Company or its Acordia Brokers or Health Care Business (as
defined below). Accordingly, an analysis of selected publicly traded companies
and merger transactions is not mathematical; rather it involves complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values and acquisition prices of the companies concerned.
Historical Financial Position. In rendering its opinion, Alex. Brown
reviewed and analyzed, among other things, the historical financial condition of
the Company which included (i) an assessment of the
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Company's recent financial statements; (ii) an analysis of the Company's
revenue, growth and operating performance trends; (iii) an assessment of the
Company's margins; and (iv) a review of segment financial data for Acordia
Brokers and Health Care Business.
Relationship with Parent. Alex. Brown noted that Parent owned 66.8% of the
outstanding shares of Common Stock. Additionally, Alex. Brown noted that Parent
is pursuing a strategy focused on reducing its cost of distribution and claims
processing services which are currently provided by the Company and is divesting
many of its non-health care related operations. Parent is the primary customer
of the Company's Health Care Business, accounting for over 85% of the unit
revenues, and its contracts with the Company are generally subject to
termination on six months notice. Parent has initiated a process to explore the
possibility of a sale of Acordia Brokers in a transaction at or subsequent to
the Effective Time.
Analysis of Selected Publicly Traded Companies. Since no publicly traded
company is engaged in both of the Company's lines of business, Alex. Brown
reviewed selected data from publicly traded companies engaged in businesses
considered by Alex. Brown to be similar to either Acordia Brokers or the
Company's health care distribution and/or processing business ("Health Care
Business"). Specifically, Alex. Brown compared Acordia Brokers with three
companies, Arthur J. Gallagher & Co., Hilb, Rogal and Hamilton Company and Poe &
Brown, Inc. (referred to collectively as the "Brokerage Companies"), that are in
the property and casualty insurance brokerage business, and compared the
Company's Health Care Business with four companies, Crawford & Company, CorVel
Corporation, HealthPlan Services Corporation and Health Risk Management, Inc.
(referred to collectively as the "Health Care Companies"), that are in the
health care distribution and/or processing business. Alex. Brown compared the
companies within each group with regards to (a) equity market value, (b)
enterprise value (equity market value plus debt less excess cash), (c) estimated
growth rates, (d) market capitalization, (e) dividend yield and (f) debt to
equity ratio (based on published composite analyst estimates). Within each
group, Alex. Brown calculated, on a latest twelve month ("LTM") trailing basis,
enterprise value as a multiple of revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA") and earnings before interest and taxes
("EBIT") and calculated equity value as a multiple of after-tax cash flow
(defined as net operating income plus depreciation and amortization ("ATCF")),
LTM operating earnings per share ("EPS") and estimated 1997 EPS and 1998 EPS
(using published composite analyst estimates).
Within the group of Brokerage Companies, an analysis of the multiples of
enterprise value to LTM revenues yielded multiples ranging from 1.1x to 2.1x,
with a mean of 1.5x and a median of 1.4x for the group. An analysis of the
multiples of enterprise value to LTM EBITDA yielded multiples ranging from 6.5x
to 6.9x, with a mean of 6.8x and a median of 6.9x for the group. An analysis of
the multiples of enterprise value to LTM EBIT yielded multiples ranging from
7.4x to 10.7x, with a mean of 8.9x and a median of 8.6x for the group. An
analysis of the multiples of equity value to LTM net operating EPS yielded
multiples ranging from 12.2x to 16.6x, with a mean of 14.5x and a median of
14.7x for the group. An analysis of the multiples of equity value to LTM ATCF
yielded multiples ranging from 8.5x to 10.3x, with a mean of 9.6x and a median
of 10.2x for the group. An analysis of the multiples of equity value to
estimated 1997 EPS yielded multiples ranging from 11.6x to 16.5x, with a mean of
13.8x and a median of 13.4x for the group. An analysis of the multiples of
equity value to estimated 1998 EPS yielded multiples ranging from 10.9x to
15.1x, with a mean of 12.5x and a median of 11.5x for the group.
Based on this multiples analysis for the publicly traded Brokerage
Companies, and applying its judgment, Alex. Brown established a public market
reference range of $250 million to $300 million for the enterprise value of
Acordia Brokers. Applying 25% to 35% premiums to the public market reference
range (reflecting average premiums paid based on fifty-seven "squeeze-out"
transactions described below) resulted in a merger and acquisition market
reference range of $313 million to $405 million for the enterprise value of
Acordia Brokers. Alex. Brown noted that Parent has received a preliminary third
party proposal to acquire Acordia Brokers ("Third Party Proposal") which fell
within this merger and acquisition market reference range.
Within the group of Health Care Companies, an analysis of the multiples of
enterprise value to LTM revenues yielded multiples ranging from 0.9x to 1.2x,
with a mean of 1.0x and a median of 1.0x for the group. An analysis of the
multiples of enterprise value to LTM EBITDA yielded multiples ranging from 4.8x
to 8.3x,
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with a mean of 6.5x and a median of 6.4x for the group. An analysis of the
multiples of enterprise value to LTM EBIT yielded multiples ranging from 5.7x to
15.6x, with a mean of 10.9x and a median of 11.1x for the group. An analysis of
the multiples of equity value to LTM net operating EPS yielded multiples ranging
from 11.0x to 27.9x, with a mean of 17.9x and a median of 16.3x for the group.
An analysis of the multiples of equity value to LTM ATCF yielded multiples
ranging from 5.7x to 12.0x, with a mean of 8.8x and a median of 8.8x for the
group. An analysis of the multiples of equity value to estimated 1997 EPS
yielded multiples ranging from 13.2x to 22.0x, with a mean of 16.8x and a median
of 16.1x for the group. An analysis of the multiples of equity value to
estimated 1998 EPS yielded multiples ranging from 11.5x to 16.7x, with a mean of
14.5x and a median of 15.3x for the group. Alex. Brown did not develop a public
market reference range or merger and acquisition market reference range for the
Health Care Business. Alex. Brown determined that such ranges would not be
meaningful because the valuations for the selected companies reflected higher
earnings growth rates than are expected to be achieved by the Company's Health
Care Business.
Analysis of Selected Merger Transactions. Alex. Brown compared selected
financial data, including (where available) equity value as a multiple of LTM
net operating income, forward ("FWD") net income and LTM ATCF, and total
transaction value (equity value plus debt minus excess cash) as a multiple of
LTM revenue, LTM EBITDA and LTM EBIT, for seven selected transactions in the
property and casualty brokerage industry (Marsh & McLennan Companies, Inc.'s
1997 acquisition of Johnson & Higgins; AON Corporation's 1997 acquisition of
Alexander & Alexander Services Inc.; AON Corporation's 1996 acquisition of Bain
Hogg Group; the Company's 1994 acquisition of Bain Hogg Robinson, Inc.; The
Navigators Group, Inc. 1994 acquisition of the Somerset Companies; the Company's
1993 acquisition of American Business Insurance, Inc.; and Poe & Associates,
Inc.'s 1993 acquisition of Brown & Brown, Inc.) and four selected transactions
in the health care distribution and/or processing industry (HealthPlan Services
Corporation's 1996 acquisition of Harrington Services Corporation; HealthPlan
Services Corporation's 1996 acquisition of Consolidated Group, Inc.; First
Financial Management Corporation's 1995 acquisition of Employee Benefit Plans;
and First Financial Management Corporation's 1992 acquisition of ALTA Health
Strategies).
For the seven selected transactions in the property and casualty insurance
brokerage industry, Alex. Brown noted that the multiple of total transaction
value to LTM revenue ranged from 0.7x to 3.3x, with a mean of 1.4x and a median
of 1.2x for the selected transactions; the multiple of total transaction value
to LTM EBITDA ranged from 6.2.x to 15.5x, with a mean of 9.5x and a median of
8.9x for the selected transactions; the multiple of total transaction value to
LTM EBIT ranged from 8.2.x to 17.4x, with a mean of 12.0x and a median of 12.4x
for the selected transactions; the multiple of equity value to LTM net operating
income ranged from 9.8x to 40.2x, with a mean of 26.4x and a median of 24.3x for
the selected transactions; the multiple of equity value to LTM ATCF ranged from
9.4x to 18.6x, with a mean of 13.5x and a median of 13.3x for the selected
transactions. Based on this multiples' analysis for the selected mergers
transactions in the property and casualty insurance brokerage industry, and
applying its judgment, Alex. Brown established an acquisition reference range of
$275 million to $400 million for the enterprise value of Acordia Brokers. Alex.
Brown noted that the Third Party Proposal fell within this acquisition reference
range.
For the four selected transactions in the health care distribution and/or
processing industry, Alex. Brown noted that the multiple of total transaction
value to LTM revenue ranged from 0.6x to 1.0x, with a mean of 0.8x and a median
of 0.9x for the selected transactions; the multiple of total transaction value
to LTM EBITDA ranged from 5.8.x to 6.4x, with a mean of 6.1x and a median of
6.0x for the selected transactions; the multiple of total transaction value to
LTM EBIT ranged from 7.1x to 10.6x, with a mean of 9.4x and a median of 10.5x
for the selected transactions; the multiple of equity value to LTM net operating
income ranged from 9.8x to 18.5x, with a mean of 15.2x and a median of 17.4x for
the selected transactions; the multiple of equity value to LTM ATCF ranged from
7.2x to 8.4x, with a mean of 7.6x and a median of 7.2x for the selected
transactions. Based on this multiples' analysis for the selected mergers
transactions in the health care distribution and/or processing industry, and
applying its judgment, Alex. Brown established an acquisition reference range of
$340 million to $400 million for the enterprise value of the Company's Health
Care Business.
Discounted Cashflow Analysis. Alex. Brown performed a discounted cashflow
analysis for the Company for each of its Acordia Brokers and Health Care
Business, based on the Company management's projections
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and Parent management's projections, adjusted based on discussions with the
Company and Parent management. Alex. Brown calculated the terminal values at the
end of a five year period by applying multiples ranging from 7.0 to 9.0 times
(in the case of Acordia Brokers) and 6.0 to 7.0 times (in the case of the Health
Care Business) to the terminal year's projected EBITDA. These terminal multiples
reflected Alex. Brown's judgment as to an appropriate range, based on its
assessment of the merger and acquisition and trading multiples of LTM EBITDA for
the selected companies in each of the Brokerage Companies' and Health Care
Companies' groups. The cashflow streams and terminal values were then discounted
using discount rates, based on Alex. Brown's judgment, ranging from 12% to 14%
for each of Acordia Brokers and the Company's Health Care Business. Based on
this analysis, and applying its judgment, Alex. Brown established a range of
enterprise values for Acordia Brokers of $287 million to $455 million. Alex.
Brown noted again that the Third Party Proposal fell within this range. Based on
this analysis, and applying its judgment, Alex. Brown established ranges of
enterprise values for the Company's Health Care Business of (i) $176 million to
$309 million which reflects two scenarios based in part of the assumption that
Parent cancels its contracts with the Company for distribution and claims
processing and (ii) $333 million to $398 million based in part on the assumption
that Parent maintains its relationship with the Company with respect to
contracts for distribution and claims processing.
Combined Reference Range of Acordia Brokers and Health Care
Business. Alex. Brown developed an analysis which combined the reference range
values determined for Acordia Brokers and Health Care Business to determine the
overall per share price for the Company based on its component business
segments. Alex. Brown developed an overall reference range for the enterprise
value of Acordia Brokers of $300 million to $400 million based on the merger and
acquisition market reference range of $313 million to $405 million, the
acquisition reference range of $275 million to $400 million and the discounted
cash flow range of $287 million to $455 million. Alex. Brown developed an
overall reference range for the Health Care Business of $300 million to $400
million based on the acquisition reference range of $340 million to $400 million
and discounted cash flow ranges of $176 million to $309 million (assuming Parent
cancels its contracts with the Company for distribution) and $333 million to
$398 million (assuming that Parent maintains its relationship with the Company
with respect to contracts for distribution and claims processing). Based on
these overall reference ranges, Alex. Brown calculated the total value per
Company share by adding the reference ranges for Acordia Brokers and Health Care
Business, adding the assumed proceeds from the exercise of all outstanding
options and warrants of the Company, subtracting the total debt for the Company
and dividing by the total shares, warrants and options outstanding for the
Company. This analysis yielded a per share reference range of $29.78 per share
to $42.36 per share of Common Stock compared to the transaction value of $40.00
per share.
Historical Price and Volume Analysis. Alex. Brown also reviewed the daily
closing price and volume of the Common Stock during the period from October 21,
1992, the date of the Company's initial public offering ("IPO Date") through May
23, 1997. The trading price of the Common Stock since the IPO Date and prior to
February 6, 1997, the date of the joint announcement by the Company and Parent
described above (the "Announcement Date"), had risen from a low closing price of
$15.63 (on the IPO Date) to a high closing price of $34.38 (on February 13,
1995), with an average closing price of $27.31 for the period. The closing price
of the Common Stock fifty-two weeks prior to the Announcement Date ranged from a
low of $27.25 to a high of $33.75. Alex. Brown noted that the tender offer price
of $40.00 per share is significantly higher than all such closing market prices
during the period.
Alex. Brown also noted that from January 1, 1995 through May 23, 1997, the
Common Stock had underperformed the Standard & Poors 500 Index and an index
reflecting the average of the common stock market prices of the three Brokerage
Companies.
Squeeze-Out Premium Analysis. Alex. Brown analyzed the premium of the
$40.00 tender offer price per share to recent market prices per share of Common
Stock, noting that the tender offer price represented a premium of 43.5%, 42.9%
and 39.1% to the closing market prices one day, one week and one month prior to
the Announcement Date, respectively. Alex. Brown noted in comparison that the
mean of the premiums paid, or to be paid, in announced merger and acquisition
transactions involving the "squeeze-out" of publicly-held equity by parent
companies owning 50% to 80% of the outstanding common stock of such companies
for fifty-seven transactions from January 1988 through April 1997 were 30.2%,
32.9% and 34.7%, respectively, to the
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target's market price one day, one week and one month prior to announcement,
respectively, and that the median squeeze-out premiums paid, or to be paid in
such transactions was 25.6%, 27.7% and 31.1%, one day, one week and one month
prior to announcement, respectively. Alex. Brown noted that the market premiums
reflected in the tender offer price exceeded such means and medians.
Other Matters. Alex. Brown has previously rendered investment banking
services to the Company and Parent. It acted as financial adviser to Parent in
connection with the sale of its leasing and premium finance businesses completed
in July 1996. Alex. Brown was paid a fee of approximately $465,000 for its
services.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to the Engagement Letter, the Company Special Committee retained
Alex. Brown to provide certain investment banking advice and services in
connection with any proposals made by Parent in regard to the Company. Pursuant
to such engagement, the Company Special Committee requested Alex. Brown to
render an opinion as to the fairness, from a financial point of view, of the
considerations to be received in the Offer and the Merger by the Company's
stockholders other than Parent.
Pursuant to the terms of the Engagement Letter, Alex. Brown will be paid a
fee of $600,000 payable at the time of delivering its opinion. The Company has
also agreed to indemnify Alex. Brown against certain liabilities, including
liabilities under the federal securities laws, and, whether or not the Offer and
the Merger are consummated and to reimburse Alex. Brown for certain expenses
incurred by Alex. Brown, including certain fees and disbursements of Alex.
Brown's counsel. See "The Solicitation or Recommendation -- Opinion of Alex.
Brown."
Except as disclosed herein or in the Offer to Purchase, neither the Company
nor any person acting on its behalf currently intends to employ, retain or
compensate any other person to make solicitations or recommendations to security
holders on its behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Share Transactions in Last 60 Days. During the past 60 days, no
transactions in the Shares have been effected by the Company or, to the best of
the Company's knowledge, by any executive officer, director, affiliate or
subsidiary.
(b) Intent to Tender. To the best of the Company's knowledge, except as set
forth below, each of the Company's executive officers and directors has
indicated his or her respective intentions to tender all Shares owned by him or
her pursuant to the Offer.
One director of the Company has indicated that he intends to make donations
to charitable institutions of not more than 500 Shares, with the expectation
that such donees will tender such donated Shares pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Certain Negotiations. Except as described in this Schedule 14D-9, or as
set forth in the Offer to Purchase, to the knowledge of the Company, no
negotiation is being undertaken or is under way by the Company in response to
the Offer which relates to or would result in (i) any extraordinary transaction,
such as a merger or reorganization, involving the Company or any affiliate or
subsidiary of the Company, (ii) a purchase, sale or transfer of a material
amount of assets by the Company or any subsidiary of the Company, (iii) a tender
offer for or other acquisition of securities by or of the Company or (iv) any
material change in the present capitalization or dividend policy of the Company.
Pursuant to the Merger Agreement, however, and as described in Item 3(b)(2)
above, the Company may, subject to certain limitations, take certain actions in
respect of proposed transactions necessary for the directors of the Company to
discharge their fiduciary duties to stockholders under applicable law.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Certain Litigation. On June 4, 1997, an individual and purported class
action was commenced in the Court of Chancery of the State of Delaware, New
Castle County, purportedly on behalf of stockholders of the Company. The
defendants are the Company and its following officers and directors: L. Ben
Lytle, Frank C. Witthun, Patrick M. Sheridan, John C. Alpin, Birch E. Bayh, John
C. Crane, Mitchell E. Daniels, Jr., Catherine E. Dolan, Ernie E. Green, Dwane R.
Houser, Thomas C. Roberts, William W. Rosenblatt, James B. Stradtner, and
Michael L. Smith. The complaint alleges that in connection with the decision to
enter into the definitive Merger Agreement with Parent the individual defendants
"suffer from conflicts of interest either because they are affiliated with
Parent or maintain close business and personal relationships with the members of
the Company's senior management," and that the defendants "have violated
fiduciary and other common law duties owed to the plaintiff and the other
members of the class in that they have not and are not exercising independent
judgment, and have acted and are acting to the detriment of the Class." The
complaint seeks damages in an unspecified amount, and preliminary and permanent
injunctive relief enjoining defendants from proceeding with or consummating the
transaction with Parent or rescission in the event the transaction is
consummated. The Company intends to, and understands that the other defendants
intend to, vigorously defend this lawsuit, including the request for a
preliminary injunction. The foregoing description of the complaint is qualified
in its entirety by reference to such complaint filed as Exhibit (c)(16) hereto
and incorporated by reference.
On June 4, 1997, another individual and purported class action was
commenced in the Court of Chancery of the State of Delaware, New Castle County,
purportedly on behalf of stockholders of the Company. The defendants are the
Company, Parent, L. Ben Lytle, Patrick M. Sheridan, Dwane R. Houser, and Frank
C. Whittun. The complaint alleges that in connection with the proposed merger
transaction with Parent, the defendants, among other things, have violated
fiduciary duties, failed to exercise independent business judgment, and acted to
the detriment of the Company's public stockholders for their own personal
benefit. The complaint seeks damages in an unspecified amount, preliminary and
permanent injunctive relief enjoining Parent from acquiring the outstanding
shares of the Company not already owned by it, and an order directing defendants
to carry out their fiduciary duties to plaintiff and the purported class. The
Company intends to, and understands that the other defendants intend to,
vigorously defend this lawsuit, including the request for preliminary
injunction. The foregoing description of the complaint is qualified in its
entirety by reference to such complaint filed as Exhibit (c)(17) hereto and
incorporated by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT
NO.
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(a)(1) Offer to Purchase dated June 6, 1997.
(a)(2) Letter of Transmittal dated June 6, 1997.
(a)(3) Text of Press Release dated June 2, 1997.
(a)(4) Fairness Opinion of Alex. Brown & Sons, Incorporated dated May 30, 1997.
(a)(5) Letter to Acordia, Inc. Stockholders, dated June 6, 1997.
(c)(1) Agreement and Plan of Merger dated as of June 2, 1997, by and among Acordia, Inc.,
Anthem Insurance Companies, Inc. and AICI Acquisition Corp.
(c)(2) Portions of Acordia, Inc.'s Proxy Statement dated April 11, 1997, for the Acordia
1997 Annual Meeting of Stockholders.
(c)(3) Acordia, Inc. 1992 Stock Compensation Plan.
(c)(4) Acordia, Inc. Directors Stock Compensation Plan.
(c)(5) Acordia, Inc. Directors Deferred Compensation Plan.
(c)(6) Acordia 401(k) Long Term Savings Investment Plan, as amended to date.
(c)(7) Transaction Agreement dated February 17, 1997, by and between Acordia, Inc. and
Frank C. Witthun.
22
24
EXHIBIT
NO.
- -------
(c)(8) Transaction Agreement dated February 28, 1997, by and between Acordia, Inc. and
John J. O'Connor.
(c)(9) Transaction Agreement dated February 28, 1997, by and between Acordia, Inc. and
Ernest J. Newborn.
(c)(10) Transaction Agreement dated February 28, 1997, by and between Acordia, Inc. and
Keith A. Maib.
(c)(11) Transaction Agreement dated February 28, 1997, by and between Acordia, Inc. and
Robert C. Nevins.
(c)(12) Transaction Agreement dated February 28, 1997, by and between Acordia, Inc. and
Daniel W. Kendall.
(c)(13) Transaction Agreement dated March 17, 1997, by and between Acordia, Inc. and
Michael B. Henning.
(c)(14) Employment Agreement dated June 1, 1994, by and between Acordia, Inc. and Ernest
J. Newborn.
(c)(15) Employment Agreement dated January 1, 1994, by and between Acordia, Inc. and John
J. O'Connor.
(c)(16) Complaint filed in Crandon Capital Partners v. Acordia, Inc. et. al (Del. Ch. June
4, 1997).
(c)(17) Complaint filed in Sherry Levinson v. Acordia, Inc. et. al. and Anthem Insurance
Companies, Inc. (Del. Ch. June 4, 1997).
23
25
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
ACORDIA, INC.
By: /s/ FRANK C. WITTHUN
------------------------------------
Name: Frank C. Witthun
Title: President and Chief
Executive Officer
Dated: June 6, 1997
24
26
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------- ------------
(a)(1) Offer to Purchase dated June 6, 1997...................................
(a)(2) Letter of Transmittal dated June 6, 1997...............................
(a)(3) Text of Press Release dated June 2, 1997...............................
(a)(4) Fairness Opinion of Alex. Brown & Sons, Incorporated dated May 30,
1997...................................................................
(a)(5) Letter to Acordia, Inc. Stockholders dated June 6, 1977................
(c)(1) Agreement and Plan of Merger dated as of June 2, 1997, by and among
Acordia, Inc., Anthem Insurance Companies, Inc. and AICI Acquisition
Corp...................................................................
(c)(2) Portions of Acordia Inc.'s Proxy Statement dated April 11, 1997, for
the Acordia 1997 Annual Meeting of Stockholders........................
(c)(3) Acordia, Inc. 1992 Stock Compensation Plan.............................
(c)(4) Acordia, Inc. Directors Stock Compensation Plan........................
(c)(5) Acordia, Inc. Directors Deferred Compensation Plan.....................
(c)(6) Acordia 401(k) Long Term Savings Investment Plan, as amended to
date...................................................................
(c)(7) Transaction Agreement dated February 17, 1997, by and between Acordia,
Inc. and Frank C. Witthun..............................................
(c)(8) Transaction Agreement dated February 28, 1997, by and between Acordia,
Inc. and John J. O'Connor..............................................
(c)(9) Transaction Agreement dated February 28, 1997, by and between Acordia,
Inc. and Ernest J. Newborn.............................................
(c)(10) Transaction Agreement dated February 28, 1997, by and between Acordia,
Inc. and Keith A. Maib.................................................
(c)(11) Transaction Agreement dated February 28, 1997, by and between Acordia,
Inc. and Robert C. Nevins..............................................
(c)(12) Transaction Agreement dated February 28, 1997, by and between Acordia,
Inc. and Daniel W. Kendall.............................................
(c)(13) Transaction Agreement dated March 17, 1997, by and between Acordia,
Inc. and Michael B. Henning............................................
(c)(14) Employment Agreement dated June 1, 1994, by and between Acordia, Inc.
and Ernest J. Newborn..................................................
(c)(15) Employment Agreement dated January 1, 1994, by and between Acordia,
Inc. and John J. O'Connor..............................................
(c)(16) Complaint filed in Crandon Capital Partners v. Acordia, Inc. et al.
(Del. Ch. June 4, 1997)................................................
(c)(17) Complaint filed in Sherry Levinson v. Acordia, Inc. et al. and Anthem
Insurance Companies, Inc. (Del. Ch. June 4, 1997)......................
25