SCHEDULE 14A INFORMATION
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[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Acordia, Inc.
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Notes:
April 11, 1997
ACORDIA
Dear Fellow Stockholder:
Your officers and directors join me in inviting you to attend the 1997
Annual Meeting of Stockholders of Acordia, Inc. The formal notice of this
meeting and the Proxy Statement accompany this letter.
By attending the meeting, you will have an opportunity to hear the plans for
our Company's future, to meet your officers and directors and to participate
in the business of the meeting. You will note that the Board of Directors of
the Company recommends a vote "FOR" the election of four directors to serve
until the 2000 Annual Meeting of Stockholders, and "FOR" the ratification of
Ernst & Young LLP, as independent auditors of the Company for the 1997 fiscal
year.
It is sincerely hoped that as many stockholders as can conveniently attend
will do so. If it is not possible for you to attend, please return the
enclosed proxy immediately to ensure that your shares will be voted. Since
mail delays occur frequently, it is important that the proxy be returned well
in advance of the meeting.
We look forward to seeing you at the Hilbert Circle Theatre in Indianapolis,
Indiana at 10:00 a.m. EST on May 13, 1997.
Sincerely,
/s/ L. Ben Lytle
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L. Ben Lytle
Chairman of the Board
ACORDIA
ACORDIA, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
To the Stockholders of Acordia, Inc.:
The Annual Meeting of Stockholders (the "Annual Meeting") of Acordia, Inc.,
a Delaware corporation (the "Company"), will be held, as provided in the
Company's By-Laws, on Tuesday, May 13, 1997, at 10:00 a.m. EST in the Hilbert
Circle Theatre located at 45 Monument Circle, Indianapolis, Indiana, for the
following purposes:
1. To elect a class of four directors to serve for three year terms;
2. To ratify the appointment by the Board of Directors of Ernst & Young
LLP, as independent auditors for the 1997 fiscal year; and
3. To transact such other business as may properly be brought before the
meeting or any adjournment thereof.
Nominees for directors are set forth in the enclosed proxy statement.
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON TUESDAY, MARCH 18,
1997, ARE ENTITLED TO VOTE AT THE ANNUAL MEETING. A COMPLETE LIST OF THE
STOCKHOLDERS OF RECORD, SHOWING THE ADDRESS AND THE NUMBER OF SHARES
REGISTERED IN THE NAME OF EACH STOCKHOLDER, WILL BE MADE AVAILABLE, DURING
ORDINARY BUSINESS HOURS, FOR A PERIOD OF AT LEAST TEN DAYS PRIOR TO THE ANNUAL
MEETING, AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ernest J. Newborn, Jr.
---------------------------------------
Ernest J. Newborn, Jr.
Vice President,
General Counsel and Secretary
Indianapolis, Indiana
April 11, 1997
ACORDIA
ACORDIA, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
To the Participants in the Acordia 401(k) Long-Term Investment Savings Plan,
the Anthem 401(k) Long Term Savings Investment Plan and the ABI 401(k) and
Profit Sharing Plan:
The Annual Meeting of Stockholders of Acordia, Inc. will be held on Tuesday,
May 13, 1997 for the following purposes:
1. To elect a class of four directors to serve for three year terms;
2. To ratify the appointment by the Board of Directors of Ernst & Young
LLP, as independent auditors for the 1997 fiscal year; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Each Participant in the 401(k) Plan is permitted to instruct the Trustee on
how to vote the number of shares of Acordia, Inc. common stock credited to the
participant's account under the plan. For that purpose, the enclosed voting
instruction card is being furnished to each participant in lieu of the proxy
referred to in the accompanying Proxy Statement.
Acordia, Inc.
April 11, 1997
Indianapolis, Indiana
ACORDIA, INC.
120 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA 46204
APRIL 11, 1997
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Acordia, Inc., a Delaware corporation (the "Company"), for use at the 1997
Annual Meeting of Stockholders (the "Annual Meeting") to be held on May 13,
1997. Only stockholders of record on March 18, 1997 (the "Record Date") are
entitled to vote at the Annual Meeting. On March 18, 1997, the Company had
13,005,519 shares of common stock issued and outstanding. As of the Record
Date, Anthem Insurance Companies, Inc. ("Anthem") beneficially owned 8,693,056
shares of the Company's common stock, or approximately 66.8% of the
outstanding shares of the Company's common stock entitled to vote at the
Annual Meeting.
The Company's principal executive offices are located at 120 Monument
Circle, Indianapolis, Indiana 46204. The approximate date on which the Proxy
Statement and the accompanying proxy are first being sent to stockholders is
April 11, 1997.
VOTING
Each share of common stock outstanding on the Record Date is entitled to one
vote. The Company's Secretary, who is responsible for the stock records of the
Company, shall prepare and make available, at least ten days before the Annual
Meeting, a complete list of the stockholders of record entitled to vote at the
Annual Meeting, arranged in alphabetical order, and showing the address and
number of shares registered in the name of each stockholder of record. This
list will remain available, during ordinary business hours, for a period of at
least ten days prior to the Annual Meeting at the principal executive offices
of the Company.
The presence at the Annual Meeting, in person or by proxy, of the holders of
a majority of the shares of the Company's common stock outstanding and
entitled to vote shall constitute a quorum.
Directors will be elected by a plurality of the votes cast. An affirmative
vote of a majority of the shares present and voting in person or by proxy at
the Annual Meeting is required for approval of the ratification of the
appointment by the Board of Directors of Ernst & Young LLP as independent
auditors for the 1997 fiscal year. An automated system administered by First
Chicago Trust Company of New York, the Company's Transfer Agent, tabulates the
votes.
Anthem has sufficient voting power to constitute a quorum and to adopt all
matters submitted to a vote of stockholders (including the election of all
nominees for director) regardless of the vote of any other stockholder.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise. It may be revoked by
filing with the Secretary of the Company an instrument of revocation or by
presentation at the Annual Meeting of a duly executed proxy bearing a later
date. It also may be revoked by attendance at the Annual Meeting and election
to vote in person.
SOLICITATION
The Company will bear the entire cost of preparing, assembling, printing and
mailing this Proxy Statement, the accompanying proxy and any additional
material which may be furnished to stockholders. Copies of solicitation
materials will be furnished to brokerage houses, fiduciaries and custodians to
forward to beneficial owners of stock held in their names. The solicitation of
proxies will be made by the use of the mails and through direct communication
with certain stockholders or their representatives by officers, directors and
employees of the Company, who will receive no additional compensation
therefor. The Company has engaged D.F. King & Co., Inc., to solicit proxies
and distribute materials to brokerage houses, fiduciaries, custodians and
other nominee holders. The Company will pay $3,000, plus out-of-pocket
expenses for their services.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD
COMPENSATION OF DIRECTORS--STANDARD ARRANGEMENTS
Directors of the Company who are employees or officers of the Company are
not paid any fees or additional compensation for their services as members of
the Company's Board of Directors or any committee thereof. The Board of
Directors of the Company adopted, effective January 1, 1990, the Acordia, Inc.
Directors Stock Compensation Plan ("Directors Plan") pursuant to which
Directors of the Company who are not employees or officers of the Company
receive a quarterly retainer of $3,000 for services as a director, paid at the
beginning of each quarter and an incentive award based on the net income of
the Company as reflected on the Audited Consolidated Statement of Income of
the Company for the most recently ended fiscal year. Directors may choose to
have their quarterly retainer payable either in (i) non-qualified stock
options equal to approximately three times the number of shares of common
stock having a fair market value of the quarterly retainer determined as of
the last trading day of the quarter, (ii) common stock having a fair market
value equal to the amount of the quarterly retainer determined as of the last
trading day of the quarter, or (iii) cash equal to the quarterly retainer.
Incentive awards are payable in non-qualified stock options for common stock
of the Company equal to approximately three times the number of shares of
common stock having a fair market value of the amount of the incentive award
determined as of the day the Directors Plan Committee approved the award. The
Plan Committee, which is comprised of non participating directors, approved an
incentive award of $7,500 per eligible Director for 1996.
In addition, each such non-employee director receives a fee of $2,000 in
cash for attendance at each full-day Board of Directors meeting; $1,000 in
cash for attendance at each half-day Board of Directors meeting and each
committee meeting; and $1,500 in cash for attendance at an annual seminar. All
directors are reimbursed for travel and other out-of-pocket expenses incurred
in attending meetings of the Board or committees thereof.
Effective April 1, 1992, non-employee directors of the Company may elect to
defer all or any portion of their compensation for serving in such capacity
pursuant to the Acordia, Inc. Directors Compensation Deferral Plan. Deferrals
of cash compensation are credited monthly with an investment return equal to
the average monthly rates of the 10-year United States Treasury Note for the
12 months ending on September 30 of the preceding plan year plus 150 basis
points. Deferrals of compensation payable in common stock are credited with
the amount of any cash dividends, common stock dividends or the fair market
value of any dividend paid in property other than common stock.
When the deferral election is made, participants also elect the future date
on which to receive each year's deferred amounts plus earnings and the form of
payment (one lump sum payment or in equal annual or quarterly installments).
If the Company terminates the plan, distribution of deferred amounts plus
earnings commences. Cash deferrals and earnings are distributed in cash; stock
deferrals and earnings are distributed in common stock and cash, respectively.
BOARD OF DIRECTORS
During fiscal 1996, there were six meetings of the Board of Directors.
AUDIT AND FINANCE COMMITTEE
The Company's Audit and Finance Committee consists of six non-employee
directors: John C. Crane (Chair), Birch E. Bayh, Mitchell E. Daniels, Jr.,
Catherine E. Dolan, Ernie Green and William W. Rosenblatt.
2
The Committee met seven times in fiscal 1996. The Committee meets
independently with the internal auditing staff, representatives of the
Company's independent auditors and with other representatives of senior
management. The Committee makes recommendations to the Board of Directors
concerning the engaging and discharging of independent auditors, reviews the
independence of such auditors, approves the scope of the annual audit
activities of the internal and independent auditors and reviews audit results.
The Committee also reviews (i) the fairness of transactions between the
Company and its officers, directors, affiliates, employees, or stockholders
(except transactions in the ordinary course of business or in amounts less
than $1,000,000), and (ii) the bona fide business purpose of any loans made to
officers, directors, stockholders, employees or affiliates of the Company. In
carrying out its finance responsibilities, the Committee reviews major
acquisition candidates, under-performing operations, plans to increase profit
margins and the annual budget and business plan. The Board of Directors, upon
recommendation of the Committee, approved the appointment of Ernst & Young
LLP, to perform the 1997 audit of the Company's financial statements.
COMPENSATION COMMITTEE
The Company's Compensation Committee (the "Compensation Committee") consists
of six non-employee directors: John C. Aplin (Chair), John C. Crane, Mitchell
E. Daniels, Jr., Catherine E. Dolan, Thomas C. Roberts and James B. Stradtner.
The Committee met six times in fiscal 1996. The Committee is responsible for
approving and reporting to the Board on the annual compensation for all
officers, including salary and stock options. The Committee is also
responsible for granting stock awards, stock options, and other awards to be
made under the Company's existing incentive compensation plans. However, the
Compensation Committee is not responsible for granting awards to be made under
the Company's Directors Plan.
NOMINATING COMMITTEE
The Company's Nominating Committee consists of four non-employee directors:
Birch E. Bayh (Chair), John C. Aplin, William W. Rosenblatt, and James B.
Stradtner. L. Ben Lytle is also a member of this Committee. The Committee met
four times in fiscal 1996. The Committee is responsible for proposing a slate
of directors for election by the stockholders at each annual meeting and
proposing candidates to fill any vacancies on the Board. The Committee will
consider candidates for Board membership proposed by stockholders who have
complied with the procedures described below. Any stockholder wishing to
nominate a candidate for director must follow such procedures.
PLANNING COMMITTEE
The Company's Planning Committee consists of eight non-employee directors:
Thomas C. Roberts (Chair), John C. Aplin, John C. Crane, Mitchell E. Daniels,
Jr., Dwane R. Houser, William W. Rosenblatt, Patrick M. Sheridan and Michael
L. Smith. The Committee met three times in fiscal 1996. The Committee is
responsible for reviewing and advising the Board on strategic developments
within the Company's industry and identifying potential growth products and
services.
SPECIAL COMMITTEE
The Board of Directors of the Company announced that its review of the 1997
business plan has led to a decision to undertake a strategic review to assess
the changes occurring in the health care industry and the potential
implication of those changes on the Company's relationship with Anthem. The
Company's Board has been informed by Anthem that Anthem is similarly
undertaking its own strategic review, which includes an analysis of its
business relationship with and investment in the Company. Anthem further
informed the Company that Anthem has retained Credit Suisse First Boston to
assist Anthem in this analysis.
The Company's Board has created a special committee made up of all of the
independent members of the Board who are unaffiliated with Anthem or the
Company management to evaluate any proposals made by or involving Anthem. The
special committee has been empowered to retain such financial or other
advisors as are necessary to assist it in that responsibility. John C. Crane,
Chairman of the Company's Audit and Finance Committee, will chair the special
committee. The Company, through the special committee and management, has
agreed to cooperate with Anthem and its advisors.
In fiscal year 1996, all directors attended at least 97% of the meetings of
the Board and all committees of the Board of which they were members.
3
NOTICE OF DIRECTOR NOMINATIONS
In the event a stockholder entitled to vote for the election of directors at
a meeting wishes to propose a candidate for consideration by the Nominating
Committee as a possible nominee for the Nominating Committee's proposed slate
of directors, or such stockholder wishes to make a director nomination at an
annual meeting, written notice of such stockholder's intent to make such
nomination must be given, either by personal delivery or by United States
mail, postage prepaid, to Ernest J. Newborn, Jr., Vice President, General
Counsel and Corporate Secretary, Acordia, Inc., 120 Monument Circle,
Indianapolis, Indiana 46204. Each such notice shall set forth (a) the name and
address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the stockholder
is a holder of record of common stock of the Company entitled to vote for the
election of directors on the date of such notice and intends to appear in
person or by proxy at the annual meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of
each nominee to serve as a director of the Company if so elected. In the event
that a person is validly designated as a nominee in accordance with these
procedures and shall thereafter become unable or unwilling to stand for
election to the Board of Directors, the stockholder who proposed such nominee
may designate a substitute nominee upon delivery, not fewer than five days
prior to the date of the meeting for the election of such nominee, of a
written notice to the Secretary setting forth such information regarding such
substitute nominee as would have been required to be delivered to the
Secretary pursuant to these procedures had such substitute been initially
proposed as a nominee. If the Chairman of the meeting for the election of
directors determines that a nomination of any candidate for election as a
director at such meeting was not made in accordance with the applicable
provisions of the Company's By-Laws, such nomination shall be void.
ELECTION OF DIRECTORS
The Company's Board of Directors is currently comprised of fourteen
directorships and is divided into three classes. The term of the first class
expires in 1998; the term of the second class expires in 1999; and the term of
the third class expires at the Annual Meeting. Messrs. Aplin, Daniels, Lytle,
Rosenblatt, and Sheridan are in the first class; Messrs. Crane, Green, Houser,
Smith and Roberts are in the second class; and Messrs. Bayh, Stradtner,
Witthun and Ms. Dolan are in the third class.
The Board of Directors of the Company recommends a vote "FOR" Birch E. Bayh,
Catherine E. Dolan, James B. Stradtner, and Frank C. Witthun as directors to
hold office until the 2000 Annual Meeting of Stockholders and until their
successors are elected and qualified. Proxies received by the Board of
Directors will be so voted unless the stockholders specify in their proxy a
contrary choice. Nominees for director will be elected by a plurality of the
votes cast. Abstentions and broker non-votes will have no effect on the
outcome of the vote.
Biographical summaries and ages as of March 31, 1997 of the continuing
members of the Board of Directors, including Messrs. Bayh, Stradtner, Witthun
and Ms. Dolan who have been nominated by the Nominating Committee for election
as directors, follow. Data with respect to the number of shares of the
Company's common stock beneficially owned by each of them, directly or
indirectly, as of March 18, 1997 appears on page 7 of this Proxy Statement.
L. BEN LYTLE (50) has been Chairman of the Board since the Company began
operations. He served as its Chief Executive Officer from the time it began
operations until November 1996, and as President from March 1993 to November
1994. He has served as President, Chief Executive Officer and as a director of
Anthem since March 1989. From February 1994 to October 1995, he served as
Chairman of the Board of Anthem. He also serves as a director of IPALCO
Enterprises, Inc., and its subsidiary, Indianapolis Power and Light Company,
and Bank One, N.A., Indianapolis, as well as serving as a member of the
advisory board of CID Equity Partners, L.P.
4
FRANK C. WITTHUN (53) joined the Board of Directors of the Company in
January 1995. In December 1996, he was elected Chief Executive Officer of the
Company. He held the position of President and Chief Operating Officer from
November 1994 to November 1996. From 1991 to 1994, he was Executive Vice
President of the Company. Prior to that time, he was an Executive Vice
President with Robinson-Conner, Inc., which was acquired by the Company in
1991. Mr. Witthun currently serves as a director of the National Association
of Insurance Brokers.
PATRICK M. SHERIDAN (56) has been a director of the Company since 1989. From
1989 until August 1996, he served as Executive Vice President and Chief
Financial Officer of the Company. He served as the Treasurer of Anthem from
1987 to 1991, and has served as Chief Financial Officer and Executive Vice
President of Anthem since 1987.
JOHN C. APLIN (51) has been a director of the Company since March 1991. He
currently serves as a General Partner with CID Equity Partners, L.P., a
venture capital firm, in which capacity he has served since 1990. From April
1990 to December 1990, he served as Chief Executive Officer of the Fuller
Brush Company. He previously was a member of the faculty of the Graduate
School of Business of Indiana University for ten years, serving as Chairman of
the MBA Program from 1980 to 1984.
BIRCH E. BAYH (69) has been a director of the Company since April 1990. He
has been a partner in the law firm of Bayh, Connaughton, P.C., located in
Washington, D.C., since January 1992. Previously he had been a partner in the
law firm of Rivkin, Radler, Bayh, Hart & Kremer, also located in Washington,
D.C., since 1987. He also served as a United States Senator for eighteen
years. Mr. Bayh currently serves as a director of ICN Pharmaceuticals, Inc.
and Simon Debartolo Group.
JOHN C. CRANE (63) has been a director of the Company since May 1992. Since
July 1989, he has worked as an independent financial consultant and has been
involved in private investment activities. Prior to that, he served as Group
Finance Director and as a member of the Board of Directors and the Executive
Committee of Sedgwick Group PLC, a London based insurance brokerage group.
MITCHELL E. DANIELS, JR. (48) has been a director of the Company since April
1990. In January 1997, he became Vice President Corporate Strategy and Policy
at Eli Lilly and Company. He was President of Eli Lilly's North American
Pharmaceutical Operations from April 1993 to January 1997. From August 1990 to
April 1993, he served as Lilly's Vice President, Corporate Affairs. From 1987
to August 1990, he was the President and Chief Executive Officer of the Hudson
Institute, a public policy research firm. From 1985 to 1987, he served as
Assistant to President Ronald Reagan for Political and Intergovernmental
Affairs. Mr. Daniels currently serves as a director of NBD Bank, N.A., and as
a director of Indianapolis Power and Light Company/IPALCO Enterprises, Inc.
CATHERINE E. DOLAN (39) a director of the Company since September 1996 has
been serving under interim election by the Board. She has served as managing
director of First Union Corporation, North Carolina, since February 1993.
Previously, she held various positions with The Chase Manhattan Bank (National
Association), New York. Ms. Dolan currently serves as a director of Ohio
Casualty Corporation, a life insurance company.
ERNIE GREEN (58) has been a director of the Company since January 1995. He
has served as President of Ernie Green Industries, an automotive components
manufacturing company, since he founded the company in 1991. He currently
serves as a director of Bank One, Dayton, N.A., Dayton Power & Light, DayMed-
HMO, and Duriron, a machine parts manufacturing company.
DWANE R. HOUSER (62) has been a director of the Company since September
1995. He has served as Chairman of the Board of Anthem since October 1995.
Prior to his affiliation with Anthem, he was Chairman of the Board and Chief
Executive Officer of Community Mutual Insurance Company, a health insurance
company which merged with Anthem in October 1995. He is a Fellow of the Life
Management Institute and member of the American Management Association. He
serves as a director of BCS Financial Corporation, a reinsurance company,
Business Systems Corporation, a computer software company, and the College of
Mount St. Joseph.
5
THOMAS C. ROBERTS (55), a director of the Company since May 1996, has been
Chairman and Chief Executive Officer of Kitsune Corporation, a facility
management service company, since January 1991. He currently serves as a
director of Pensco, Inc., a financial investment service company.
WILLIAM W. ROSENBLATT (52) has been a director of the Company since April
1990. He has been a partner in the law firm of Dewey Ballantine, New York, New
York since February 1989.
JAMES B. STRADTNER (62) has been a director of the Company since April 1990.
Mr. Stradtner is President of Century Capital Management of Maryland, LLC, a
merchant banking firm. From 1975 until 1996, he was with Alex. Brown & Sons
Incorporated, an investment banking firm, where he served as a Managing
Director. He currently serves as a director of Legal Mutual Liability
Insurance Society, a Maryland insurance company created by the Maryland
legislature, Kentucky Home Mutual Life Insurance Company and Montgomery Mutual
Insurance Company.
MICHAEL L. SMITH (48) has been a director of the Company since May 1992. He
has served as Chief Operating and Chief Financial Officer of American Health
Network, an Anthem subsidiary, engaged in a group medical practice consisting
of 273 fully integrated, employed physicians in Central and Southern Indiana,
Louisville, Kentucky and Central Ohio, primarily Columbus, since April 1996.
From December 1995 to April 1996, Mr. Smith served as President of Somerset
Financial Services. From June 1992 to March 1995, he served as Chairman and
Chief Executive Officer of Mayflower Group, Inc., a diversified transportation
concern; from May 1989 to March 1995, he served as Chairman and Chief
Executive Officer of Mayflower Transit, Inc.; and from March 1984 to March
1995, he served as Chairman, President and Chief Executive Officer of
Mayflower Contract Services, Inc. He currently serves as a member of the Board
of Directors of First Indiana Corporation and its subsidiary, First Indiana
Bank.
6
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following information is furnished as of March 18, 1997, to indicate
beneficial ownership of shares of the Company's common stock by each director,
nominee and officer named in the Summary Compensation Table, individually, and
all officers and directors of the Company, as a group, and each person known
by the Company to own beneficially more than 5% of the outstanding shares of
the Company's common stock. Except as otherwise indicated, each of the persons
named below has sole voting and investment power with respect to the shares of
common stock beneficially owned by that person.
BENEFICIAL OWNERSHIP
---------------------
PERCENT OF
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER (1) SHARES OUTSTANDING
-------------------- --------- -----------
Anthem Insurance Companies, Inc.(2)................ 8,693,056 66.8
Great American Insurance Company(8)................ 2,300,000 15.9
John C. Aplin(5)(7)................................ 8,549 *
Birch E. Bayh(7)................................... 9,480 *
John C. Crane(5)(7)................................ 5,943 *
Mitchell E. Daniels(5)(7).......................... 7,945 *
Catherine E. Dolan(7).............................. 789 *
Ernie Green(5)(7).................................. 3,136 *
Michael B. Henning(6).............................. 40,996 *
Dwane R. Houser(3)................................. 8,449 *
L. Ben Lytle(3)(6)................................. 136,500 1.0
Keith A. Maib...................................... 2,458 *
Robert C. Nevins(6)................................ 243 *
Thomas C. Roberts(7)............................... 4,612 *
William W. Rosenblatt(4)(5)(7)..................... 9,686 *
Robert S. Schneider(6)............................. 22,855 *
Patrick M. Sheridan(6)............................. 78,000 *
Michael L. Smith(5)(7)............................. 4,827 *
James B. Stradtner(5)(7)........................... 12,216 *
Frank C. Witthun(6)................................ 49,421 *
(All directors and officers as a group = 22 per-
sons)(6).......................................... 431,597 3.3
- --------
* Percentage of ownership is less than 1% of the total outstanding shares on
March 18, 1997.
(1) Unless otherwise noted below, the address of all of the stockholders
listed above is c/o the Company, 120 Monument Circle, Indianapolis,
Indiana 46204.
(2) Amount includes 104,402 shares which have been reserved for issuance under
Anthem's Acordia Stock Plan for key executive hires of Anthem.
(3) Messrs. Lytle and Houser are officers and directors of Anthem and disclaim
beneficial ownership of shares of the Company owned by Anthem.
(4) Amount includes 932 shares which are held by Mr. Rosenblatt's children as
to which he disclaims beneficial ownership.
(5) Amount includes 2,018 shares which are held by Mr. Aplin, 2,767 shares
which are held by Mr. Crane, 2,382 shares which are held by Mr. Smith, 809
shares which are held by Mr. Rosenblatt, 382 shares which are held by Mr.
Stradtner, 103 shares which are held by Mr. Green, and 485 shares which
are held by Mr. Daniels under the Company's Deferred Compensation Plan as
to which they each disclaim beneficial ownership.
(6) Amount includes 31,500 exercisable options held by Mr. Lytle, 43,334
exercisable options held by Mr. Witthun, 18,000 exercisable options held
by Mr. Sheridan, 30,734 exercisable options held by Mr. Henning, 21,667
exercisable options held by Mr. Schneider, 89 exercisable options held by
Mr. Nevins,
7
and 189,640 exercisable options held by all directors and officers as a
group. These amounts represent that portion of the named officers and
directors' 1993, 1994, 1995 and 1996 option grants which are exercisable as
of March 18, 1997.
(7) Amount includes 5,787 exercisable options which are held by Mr.
Rosenblatt, 5,478 exercisable options which are held by each of Messrs.
Aplin and Bayh, 4,332 exercisable options which are held by Mr. Stradtner,
4,612 exercisable options which are held by Mr. Roberts, 3,176 exercisable
options which are held by each of Messrs. Crane and Daniels, 3,033
exercisable options which are held by Mr. Green, 2,445 exercisable options
which are held by Mr. Smith and 789 exercisable options which are held by
Ms. Dolan under the Company's Directors Plan.
(8) On October 6, 1993, the Company purchased (the "Acquisition") all of the
outstanding capital stock of American Business Insurance, Inc. from Great
American Insurance Company ("Great American"). In connection with the
Acquisition, the Company issued to Great American 800,000 shares of common
stock of the Company, and warrants to purchase an additional 1,500,000
shares of common stock. The warrants are exercisable at any time until
October 6, 2003, at an exercise price of $25 per share. The 1,500,000
shares of common stock issuable upon exercise of the warrants are included
in the "number of shares" above, and are included as part of the number of
shares outstanding for purposes of calculating "percent of shares
outstanding" above. The Company granted to Great American certain
registration rights in connection with the Acquisition. The terms of the
Acquisition, including the terms of the warrants and the registration
rights granted to Great American, are more fully described in the Current
Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on October 21, 1993, with respect to the Acquisition. On
October 14, 1993, an affiliate of Great American filed a Statement on
Schedule 13D with the Securities and Exchange Commission concerning Great
American's ownership of common stock of the Company. Great American's
address is 580 Walnut St., Cincinnati, Ohio 55202.
EXECUTIVE COMPENSATION
The Company believes that stockholders should be provided information about
executive compensation that is easy to understand and relevant. The following
disclosure was prepared in accordance with the proxy rules of the Securities
and Exchange Commission.
8
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------------
RESTRICTED STOCK
FISCAL OTHER ANNUAL STOCK OPTIONS ALL OTHER
EXECUTIVE YEAR SALARY BONUS(5)(6) COMPENSATION(7) AWARDS(3) SHARES COMPENSATION(4)
--------- ------ -------- ----------- --------------- ---------- ------- ---------------
L. Ben Lytle(1)(2)..... 1996 $127,232 $ 0 $ 0 $ 0 0 $ 0
Chairman 1995 240,000 0 0 0 0 0
1994 240,000 200,000 0 0 0 0
Frank C. Witthun(3).... 1996 327,971 297,016 0 160,625 25,000 15,260
President & CEO 1995 230,002 0 0 0 18,000 11,923
1994 209,447 136,179 0 0 0 11,142
Keith A. Maib(3)....... 1996 90,419 160,844 87,930 75,000 4,583 3,345
Executive Vice Presi-
dent 1995 N/A N/A N/A N/A N/A N/A
& CFO 1994 N/A N/A N/A N/A N/A N/A
Michael B. Henning..... 1996 200,522 156,947 0 0 13,000 12,718
Executive Vice Presi-
dent 1995 190,008 0 0 0 9,600 9,646
1994 181,238 111,725 0 0 0 8,997
Robert S. Schneider.... 1996 171,577 126,572 0 0 11,000 5,463
Senior Vice President 1995 163,097 0 0 0 7,500 7,402
& Controller 1994 155,012 83,551 0 0 0 8,137
Robert C. Nevins....... 1996 207,513 109,521 0 0 8,517 4,976
Executive Vice Presi-
dent 1995 N/A N/A 0 0 N/A N/A
1994 N/A N/A 0 0 N/A N/A
- -------
(1) Mr. Lytle is an employee of Anthem who provided services to the Company
in 1996 pursuant to a management agreement between Anthem and the
Company. See "Certain Transactions--Management Agreement." Anthem pays
Mr. Lytle for his services to Anthem as well as to the Company. The
amounts disclosed above represent the portion of Mr. Lytle's compensation
paid by the Company to Anthem for Mr. Lytle's services. The amount paid
by the Company has varied from year to year depending upon Mr. Lytle's
contribution as evaluated by the Compensation Committee of the Company.
The Compensation Committee has reviewed the performance and compensation
of Mr. Lytle only with respect to the services performed for and
compensation paid by the Company.
(2) For the year 1996, the Compensation Committee of the Company authorized
the Company to pay Anthem $127,232 in total for Mr. Lytle's services.
(3) The amounts reported represent the market value of the common stock
underlying the restricted stock at the date of grant, without taking into
account any diminution in value attributable to the restrictions on such
stock. Mr. Witthun's award was made on May 20, 1996; the closing price of
the common stock on that date was $32.125 per share. Mr. Maib's award was
made on August 1, 1996; the closing price of the common stock on that
date was $31.00 per share. As of December 31, 1996, Mr. Witthun held
5,000 shares of restricted stock with a value on that date of $145,000
based on a closing market price on that date of $29.00. As of December
31, 1996, Mr. Maib held 2,419 shares of restricted stock with a value on
that date of $70,151 based on a closing market price on that date of
$29.00. Dividends are paid quarterly on these shares at the same rate as
dividends paid on common stock held by public stockholders. The
restricted stock for Mr. Witthun vests at the rate of 25% per year for a
4-year period. The restricted stock for Mr. Maib vests at a rate of 50%
per year for a 2-year period.
(4) Amounts for 1996 include the Company's matching contribution under the
401(k) Long Term Investment Saving Plan in the amount of $3,620 for Mr.
Witthun, $1,931 for Mr. Maib, $2,983 for Mr. Henning, $3,321 for
Mr. Schneider and $3,138 for Mr. Nevins. Amounts for 1996 also include
the Company's matching contribution under the Acordia Deferred
Compensation Plan in the amount of $3,971 for Mr. Witthun, $1,399 for Mr.
Maib, $1,433 for Mr. Henning, $1,583 for Mr. Schneider and $1,813 for Mr.
Nevins. The 1995 amount for Mr. Witthun has been restated from the prior
year to exclude $24,619 in moving expenses. Amounts for 1996 also include
the vested portion of interest earned on certain deferred compensation in
excess of what would be earned at 100% of the applicable federal interest
rate as published by the Internal Revenue Service in the amount of $7,669
for Mr. Witthun, $15.00 for Mr. Maib, $8,301 for Mr. Henning, $579.00 for
Mr. Schneider and $25.00 for Mr. Nevins.
(5) The amounts reported are classified by reference to the performance year
in which the incentive awards were earned.
(6) Amount for Mr. Maib includes $100,000 which was paid as an employment
contract signing bonus in August, 1996. Mr. Maib joined the Company in
August of 1996 and Mr. Nevins joined the Company in March 1996.
Mr. Maib's 1996 performance year incentive award was pro-rated 5/12. Mr.
Nevin's 1996 performance year incentive award was pro-rated 9/12.
(7) Amount represents a tax gross-up payment on Mr. Maib's employment
contract signing bonus of $100,000.
9
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE
VALUE AT
% OF ASSUMED ANNUAL
TOTAL RATE OF STOCK
OPTIONS EXERCISE PRICE APPRECIATION
STOCK GRANTED OR FOR OPTION TERM(4)
DATE OF OPTIONS IN FISCAL BASE PRICE EXPIRATION -------------------
EXECUTIVE GRANT GRANTED (#)(1)(2) YEAR(3) PER SHARE DATE 5% 10%
--------- -------- ----------------- --------- ---------- ---------- -------- ----------
L. Ben Lytle............ N/A 0 0 0 0 0 0
Frank C. Witthun........ 2/23/96 25,000 5.8% $28.375 2/23/06 $446,122 $1,130,561
Keith A. Maib........... 10/18/96 4,583 1.1% 30.125 10/18/06 86,827 220,036
Michael B. Henning...... 2/23/96 13,000 3.0% 28.375 2/23/06 231,984 587,892
Robert S. Schneider..... 2/23/96 11,000 2.6% 28.375 2/23/06 196,294 497,447
Robert C. Nevins........ 5/20/96 8,250 1.9% 32.125 5/20/06 166,677 422,392
- --------
(1) All options granted in 1996 are exercisable in cumulative 33 1/3%
installments commencing one year after date of grant, with full vesting
occurring on the third anniversary date. All awards vest immediately upon
change of control of the Company as defined in the plan document.
(2) Under the terms of the Company's executive stock plan, the Compensation
Committee retains discretion subject to plan limits to modify the term of
outstanding options and to re-price the options.
(3) A total of 430,134 options were granted in 1996.
(4) These amounts represent calculations at 5% and 10% assumed rates of
appreciation set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
Company's common stock price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
VALUE OF (IN THE MONEY)
NUMBER OF OPTIONS HELD AT OPTIONS AT FISCAL YEAR
FISCAL YEAR END END(1)
------------------------- -------------------------
EXECUTIVE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------- ----------- ------------- ----------- -------------
L. Ben Lytle................ 31,500 0 $348,250 0
Frank C. Witthun............ 29,000 37,000 217,250 $15,625
Keith A. Maib............... 0 4,583 0 0
Michael B. Henning.......... 23,200 19,400 197,000 8,125
Robert S. Schneider......... 15,500 16,000 126,500 6,875
Robert C. Nevins............ 0 8,517 0 167
- --------
(1) Values were calculated using the closing stock price on December 31, 1996
on the New York Stock Exchange of $29.00.
There were no options exercised in 1996 by any of the officers named in the
Summary Compensation Table.
10
PENSION PLAN TABLE
The following table shows estimated annual benefits payable upon retirement
(age 65) under the Acordia Pension Plan computed as a straight-line annuity,
including amounts payable under the Supplemental Executive Retirement Plan.
YEARS OF SERVICE
-----------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
$125,000 $ 27,108 $ 36,144 $ 45,180 $ 54,216 $ 63,252
150,000 32,733 43,644 54,555 65,466 76,377
175,000 38,358 51,144 63,930 76,716 89,502
200,000 43,983 58,644 73,305 87,966 102,627
225,000 49,608 66,144 82,680 99,216 115,752
250,000 55,233 73,644 92,055 110,466 128,877
300,000 66,483 88,644 110,805 132,966 155,127
400,000 88,983 118,644 148,305 177,966 207,627
450,000 100,233 133,644 167,055 200,466 233,877
500,000 111,483 148,644 185,805 222,966 260,127
$750,000 $167,733 $223,644 $279,555 $335,466 $391,377
Benefits are paid as a life annuity and are not offset by Social Security or
other amounts.
The annual benefit at retirement on or after age 65 is equal to the sum of
1.2% of final average pay up to a breakpoint, plus 1.5% of final average pay
in excess of the breakpoint multiplied by years of service up to a maximum of
35 years. Benefits from the Acordia Pension Plan are limited pursuant to
Internal Revenue Code Section 415(b). The general rule currently limits the
annual benefit to $125,000. Final average pay is the highest average
compensation for a consecutive 5-year period in the ten years preceding
retirement or other termination of employment. Compensation includes base
salary, commissions, overtime, premium pay and annual cash bonuses (i.e., the
salary and bonus amount shown on the Summary Compensation Table), however,
under Internal Revenue Code Section 401(a)(17), the maximum amount of annual
compensation that can be taken into account under the Acordia Pension Plan for
any individual in 1997 is $160,000. Amounts that cannot be paid from the
Acordia Pension Plan because of Internal Revenue code limits are paid from the
Supplemental Executive Retirement Plan.
The Pension Plan also provides grandfathered benefits for employees who were
participants in the predecessor Pension Plan on or before July 1, 1989, which
are intended to be reasonably comparable to the benefits which would have
accrued had the predecessor Pension Plan remained in effect. As a result, the
defined benefits at retirement age 65 for Michael B. Henning may be larger
than shown on the Pension Plan Table. Estimated annual benefits payable to
Michael B. Henning at age 65 are $150,000.
The years of credited service as of December 31, 1996 under the Pension Plan
for individuals named in the Summary Compensation Table are as follows: Mr.
Henning, 25.3 years; Mr. Witthun, 5.8 years and Mr. Schneider, 4.4 years. Mr.
Nevins and Mr. Maib are not yet participants in the Pension Plan.
EXECUTIVE EMPLOYMENT AGREEMENTS/
SEVERANCE AND CHANGE OF CONTROL AGREEMENT
Effective January 1, 1997, the Company entered into a revised employment
agreement with Mr. Witthun. The employment agreement provides for the
employment of Mr. Witthun as an executive officer of the Company. Mr.
Witthun's agreement is for a period of two years ending on December 31, 1998.
Effective January 1, 1996, the Company extended the term of its employment
agreement with Mr. Henning for an additional year term expiring on December
31, 1998.
11
The Company entered into an employment agreement with Mr. Maib effective
August 1, 1996 for a term ending December 31, 1998, and an employment
agreement with Mr. Nevins, effective April 1, 1996, for a term ending December
31, 1998.
Each of the agreements with Messrs. Witthun, Henning, Maib and Nevins
provides for a base annual salary; currently, $330,018 for Mr. Witthun,
$235,014 for Mr. Maib, $235,014 for Mr. Nevins and $190,008 for Mr. Henning.
Each agreement further provides that if the executive is terminated (i) for
Cause 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. Henning, Maib and Nevins 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. Mr. Witthun's employment agreement
with the Company provides that if Mr. Witthun is terminated without Cause by
the Company, the Company will pay Mr. Witthun his salary, any accrued annual
and long-term incentive award, and benefits through the date of termination.
The employment agreement further states that if Mr. Witthun executes the
Company's standard Release and Waiver Agreement, for the greater of one year
or the unexpired term of the agreement, the Company will pay Mr. Witthun (i)
his then current salary, (ii) an amount equal to 50% of any target annual
incentive and long-term incentive opportunity which Mr. Witthun would
otherwise have been eligible to receive as of the effective date of Mr.
Witthun's termination of employment, including, if equity-based incentives are
held by the Executive or otherwise accrue to him but such stock is not
publicly traded, cash in an amount equal to fifty percent (50%) of the value
that was intended to be earned by executive at target performance under the
stock plan; and (iii) medical benefits which executive would otherwise have
been eligible to receive as of the effective date of executive's termination
of employment.
The employment agreements of Messrs. Witthun, Henning, Maib and Nevins
provide that they will remain in effect in the event of a Change of Control of
the Company. For Mr. Witthun, if, following a Change of Control of the
Company, (i) Mr. Witthun is assigned to any duties substantially inconsistent
with his position with the Company immediately prior to a Change of Control or
his duties are substantially reduced, (ii) Mr. Witthun's salary or incentive
opportunities are materially reduced, (iii) Mr. Witthun is assigned to duties
or responsibilities involving a residence relocation or substantially greater
travel obligations, (iv) the Company's Strategic Plan is materially changed or
abandoned, or (v) the Company fails to obtain assumption of the obligations of
the agreement by a successor, Mr. Witthun shall be entitled to receive the
same severance package that would be payable if the Company terminated the
employment agreement without Cause. For Messrs. Maib, Nevins and Henning, 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 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. Witthun, Henning, Nevins and Maib 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.
Effective February 1997 in the case of Mr. Maib, and March 1997 in the case
of Messrs. Witthun, Henning and Nevins, the Company entered into Transaction
Agreements with each of the four executives which provide for additional
compensation in the event of a Termination as a result of a Change in Control,
including any potential business combination with Anthem or a third party
concerning the Company's independent brokerage
12
operations (the "Independent Brokerage Operations") and/or its health
business. The Transaction Agreements do not replace the Employment Agreements
discussed above. The Transaction Agreements expire on the earlier of December
31, 1997 or the date the Company and Anthem announce that they are no longer
soliciting interest from prospective purchasers in the Independent Brokerage
Operations. However, if on or before December 31, 1997, the Board has approved
a transaction which would be a Change in Control, the Transaction Agreements
will be extended to December 31, 1998. Under the Transaction Agreements, a
Termination as a result of a Change in Control occurs if on or following a
Change in Control, Anthem, one of its affiliates, or a successor to the
Company does not both offer the executive a comparable position and assume the
executive's Employment Agreement and Transaction Agreement, or if upon,
following or in anticipation of a Change in Control (and within 12 months
prior to the event), the executive's position at the Company is not comparable
to his position at the time of execution of the Transaction Agreement. The
Transaction Agreement with Mr. Witthun requires as a further condition that
Anthem, one of its affiliates, or a successor to the Company extend the term
of Mr. Witthun's Employment Agreement for a period of 36 months from the date
of Change in Control. The Transaction Agreements between the Company and
Messrs. Witthun, Henning and Maib provide that in the event of a Change in
Control, each executive will be paid annual and long-term incentive
opportunities at target levels for 1997.
The Transaction Agreement between the Company and Mr. Henning also provides
that in the event of a Termination as a result of a Change in Control, Mr.
Henning will receive consulting and non-compete payments equaling $673,000 (in
lieu of severance under the Employment Agreement), all payable over the period
beginning on the date of Termination and ending on January 31, 2001. In
addition, Mr. Henning will receive continued pension accruals and medical
coverage until February 1, 2000, and shall be eligible for the Company's post-
retirement medical program. The Transaction Agreement between the Company and
Mr. Maib provides that in the event of a Termination as a result of a Change
in Control, Mr. Maib will receive severance payments equal to 24 months'
salary (in lieu of severance under the Employment Agreement), and at 50% of
target levels annual and long-term incentive opportunities for 1998 and 1999,
all payable over a two year period beginning at the date of termination. In
addition, Mr. Maib will receive medical coverage during the severance period.
Under Mr. Nevin's Transaction Agreement, in the event of a Termination as a
result of a Change in Control, Mr. Nevins will receive continued medical
benefits during any period for which severance is paid under the Employment
Agreement. He will also be paid a Retention Bonus of $130,000 if he remains in
employment of the Company, or its successor, on the date of the Change in
Control (or is earlier terminated other than for Cause), and an additional
Retention Bonus of $170,000 if he remains in such employment on the second
anniversary of the Change in Control (or is earlier terminated other than for
Cause, dies, or becomes disabled). The Transaction Agreement between the
Company and Mr. Witthun provides that in the event of a Termination as a
result of a Change in Control, Mr. Witthun will receive consulting and non-
compete payments equaling $1,886,000 (in lieu of severance and incentives
under the Employment Agreement), all payable over the period beginning on the
date of Termination and ending on the third anniversary of the Change in
Control. In addition, Mr. Witthun will receive continued pension accruals
until October 31, 1998 and medical coverage during the consulting and
severance periods, and shall be eligible for the Company's post-retirement
medical program. Under each Transaction Agreement, awards previously made
under the Company 1992 Stock Compensation plan will vest upon a Change in
Control.
Effective January 1, 1997, Mr. Schneider is no longer employed by the
Company.
13
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Company's Compensation Committee has determined that a strong link
should exist between executive compensation and value created for
stockholders. This philosophy is put into practice through incentive
compensation programs which tie total compensation directly to the Company's
performance and the value received by stockholders.
COMPENSATION PHILOSOPHY
The Compensation Committee's decisions are based on its belief that
compensation is an integral part of the Company's strategic direction which
should reflect the value created for stockholders. The Company's compensation
programs are structured to reflect the following core principles:
. Compensation should be meaningfully related to the value created for
stockholders and provide executives an opportunity to acquire ownership in
the Company;
. Compensation programs should support the short-term and long-term
strategic goals and objectives of the Company;
. Compensation programs should reflect and promote the Company's values,
and reward individuals for outstanding contributions to the Company's
success;
. Compensation plays a critical role in attracting and retaining highly
qualified executives;
. There should be significant "pay at risk" for executive performance
within the Company, and,
. While compensation opportunities should be based in part on individual
contribution, total compensation earned by executives should be determined
by how the Company performs as a whole.
COMPENSATION MIX AND MEASUREMENT
The Company's executive compensation program consists of three (3) major
components, base salary, annual incentive and long-term incentive, each of
which is intended to support the overall compensation philosophy. For purposes
of competitive comparisons, the Compensation Committee used data from
compensation surveys for companies determined by the Compensation Committee to
be of comparable size and market capitalization (the "Comparable Companies").
These are not the same as the Peer Group used for purposes of the stock price
performance graph below, but there is overlap. The Comparable Companies
include companies with which the Company competes for executives.
BASE SALARY. Base salary is targeted to be between 80% and 100% of the
median of Comparable Companies. The Company does not adjust base salaries
every year. Rather, salaries for executives are reviewed by the Compensation
Committee periodically and may be adjusted based on:
(1) the Compensation Committee's assessment that the individual's
responsibilities and/or contributions to the Company have increased; and
(2) significant movement in market competitive pay levels.
For 1996, the salary of Mr. Witthun was increased based on an increase in
responsibilities and an assessment of market competitive salary levels.
ANNUAL INCENTIVE PLAN. Annual incentives are intended to reflect the
Compensation Committee's belief that executive contribution to stockholder
returns comes from maximizing earnings and increasing the quality of those
earnings. These incentives (at target levels) coupled with base salary,
position cash compensation between the 50th and 75th percentiles of the market
of Comparable Companies. Awards may range from 0% to 180% of target.
The Compensation Committee believes that the Company's Annual Incentive Plan
(the "Annual Incentive Plan") provides an excellent link between the value
created for stockholders and the incentives paid to executives. Under the
Annual Incentive Plan, executives do not receive incentive awards unless a
specified level of growth in operating profits (threshold) is achieved. Target
awards are based on the attainment of financial and
14
strategic objectives, such as growth in revenues and increasing the quality of
earnings by diversifying revenue sources among product and geographic
parameters, profitability of business placed with affiliated insurers and
retention of existing customers.
LONG-TERM INCENTIVE PLAN. The long-term incentive component is intended to
attract, retain and motivate executives to improve long-term stock
performance. Executives are encouraged to acquire and hold Company common
stock. Executives have the opportunity to earn annual stock option awards
based on their performance. Stock options are awarded at fair market value and
will only create compensation if the Company's common stock market price per
share appreciates in value. Generally, awards vest in equal amounts over three
(3) years and options are exercisable for ten (10) years from the date of the
award.
The target level of options for each executive is based on demonstrated past
and expected future performance of the executive. To earn a full award for the
performance year, each participant must achieve specific long-term financial
and strategic goals. The Compensation Committee determines the number of
options to be awarded based on individual executive and overall Company
performance in the prior year. The Compensation Committee also takes into
consideration prior option awards and the overall equity position of the
individual executive.
Effective January 1, 1995, the Compensation Committee adopted stock
ownership guidelines for executives including the executives named in the
Summary Compensation Table. Executives are expected to achieve a level of
stock ownership equal to a multiple of salary, with the multiple varying
depending upon the position (the multiple ranges from 1-4 times salary in the
case of the named executives). Shares owned directly or beneficially,
restricted shares, shares held in 401(k) accounts and in the money unexercised
stock options (limited to 50% of the guidelines) are counted for the purposes
of the guidelines. Executives are expected to achieve their guideline level
over a five year period beginning January 1, 1995 or their hire date,
whichever is later.
TOTAL COMPENSATION
Total compensation potential (for the highest performing employee officers
of the Company) is targeted at the 75th percentile of the market of Comparable
Companies. Actual payment of this level of total compensation is based on
performance. Aggressive long-term incentives are emphasized to deliver
significant compensation for performance above competitive levels when the
Company's stockholders also benefit from the executive's performance.
REVIEW OF 1996 PERFORMANCE AND COMPENSATION FOR THE COMPANY'S NAMED OFFICERS
In carrying out its responsibilities, the Compensation Committee of the
Company met on February 20, 1997 and reviewed the following:
1. The performance and compensation of the Company's officers;
2. The Annual Incentive Plan 1996 award recommendations; and
3. Target total compensation and the mix among elements for the Company's
executives.
DEDUCTIBILITY CAP ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code ("Section 162(m)") disallows,
subject to limited exceptions, a corporate tax deduction for certain
compensation paid in excess of $1 million to the chief executive officer and
the four other most highly paid executive officers of publicly-held companies.
The Company believes that the stock options and SARs granted at an exercise
price not less than the fair market value of the Company's common stock on the
date of grant in 1996 and prior years satisfied the requirements of Section
162(m) and thus compensation recognized in connection with such awards should
be fully deductible. For 1996, the Company will not be denied a deduction with
respect to any amount of compensation paid to any executive officer.
15
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Lytle served as the Chief Executive Officer of the Company through
November 1996. Effective December 1, 1996, the Company's Board of Directors
elected Mr. Witthun as its President and Chief Executive Officer. Prior to Mr.
Witthun's election, Mr. Lytle provided services to the Company through a
management agreement with Anthem. Anthem pays Mr. Lytle for his services to
Anthem as well as to the Company. The Company reimbursed a portion of the
compensation paid to Mr. Lytle, plus other related costs. The amount paid by
the Company has varied from year to year depending on Mr. Lytle's contribution
as evaluated by the subjective judgment of the Compensation Committee. For the
year 1996, the Compensation Committee of the Company authorized the Company to
pay Anthem an amount equal to $127,232.
Mr. Witthun receives all of his pay directly from the Company. The
Compensation Committee approved a base salary adjustment and 1996 Annual
Incentive Plan award as noted in the Summary Compensation Table, relating to
his contributions to Company performance. These decisions were based on the
subjective judgment of the Compensation Committee, with particular reference
to: (1) the Company's significant earnings and revenue growth over 1995, (2)
improved organizational efficiency, through regionalizing operations, (3)
continued growth through financially and strategically sound acquisitions, and
(4) disposition (at a gain) of operations that were not core to the Company's
strategic plan.
The above Compensation Committee Report and the Company's Stock Price
Performance Graph which follows shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE
John C. Aplin (Chair)
John C. Crane
Mitchell E. Daniels, Jr.
Catherine E. Dolan
Thomas C. Roberts
James B. Stradtner
16
STOCK PRICE PERFORMANCE GRAPH
The following graph sets forth the cumulative total return to the Company's
stockholders during a 51-month period ended December 31, 1996, as well as an
overall stock market index (Standard & Poor's 500 Index) and the Company's
selected peer group index (Russell 2000 Index). The performance period in the
graph is 51 months because the Company completed the initial public offering
of its common stock on October 21, 1992 and, therefore, has only 51 months
performance as a public company.
The Company believes that, at this point in its development, there does not
exist a representative industry peer group of companies with a similar
business segment profile. The Securities and Exchange Commission has indicated
that companies may use a base other than industry or line of business for
determining its peer group index, such as an index of companies with similar
market capitalization. Accordingly, the Company has selected the Russell 2000
Index, a widely regarded small market capitalization index, to use as a
representative peer group.
As of December 31, 1996, the Company's market capitalization was
$376,700,000. The largest company in the Russell 2000 Index (First Merit Corp)
has a market capitalization of $1,017,500,000; the smallest company (Saul
Centers Inc.) has a market capitalization of $161,900,000; and the median
company (Southwestern Energy Co.) has a market capitalization of $352,000,000.
The Russell 2000 Index is reconstituted annually to reflect changes in the
marketplace. The reconstituted list of securities is based on May 31, 1996
total market capitalization, with the actual reconstitution effective June 30,
1996.
[GRAPH APPEARS HERE]
December
--------------------------------
1992 1993 1994 1995 1996
--------------------------------
Acordia, Inc. 138 167 224 204 204
S&P 500 105 116 117 161 198
Russell 2000 115 137 134 172 201
17
TRANSACTIONS WITH DIRECTORS
Dewey Ballantine, of which William W. Rosenblatt, a member of the Board, is
a partner, provides legal services to the Company.
CERTAIN TRANSACTIONS
AGREEMENTS WITH ANTHEM
Many of the Acordia companies which market insurance products underwritten
by Anthem or its affiliates perform administrative services in connection with
those insurance products. In connection therewith, each such Acordia company
has entered into a marketing and agency agreement and an administrative
services agreement with Anthem or an affiliate insurer.
The marketing and agency agreement provides that the Acordia company is
appointed as an agent of Anthem (or its affiliated insurer) to solicit new
applications and renewal applications for insurance coverage marketed by it
and underwritten by Anthem 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 Anthem 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 service agreement also provides for the
administration of Anthem or its affiliated insurers' health maintenance
organizations and other managed care businesses. Anthem 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,
Anthem or the affiliated insurer pays the Acordia company a fee primarily
based on a percentage of the earned premium. Additionally, Anthem and its
affiliated insurers permit the Acordia company to charge insureds a monthly
administrative fee pursuant to the administrative services agreement. Anthem
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, Anthem and the Company, as part of strategic developments
within Anthem, decided that the wholesale marketing and distribution functions
for Anthem products outside of Indiana, Kentucky and Ohio should be performed
by Anthem. Anthem has agreed to pay the Company a one-time cancellation fee of
$6.0 million. This fee will be paid one-half during each of the first two
quarters of 1997.
MANAGEMENT AGREEMENT
In June 1992, the Company entered into a management agreement with Anthem
pursuant to which Anthem 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 Anthem for all allocated expenses
incurred by Anthem 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 Anthem 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
("Agreement") among Anthem 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. Pursuant to the Agreement, the Company reimburses Anthem or its
affiliate rendering such services for the actual costs and expenses which
Anthem or such affiliate incurs in providing such services or on a reasonable
charge basis. In consideration of services under the Agreement, the Company
paid to Anthem fees aggregating approximately $95,244,000 for the year ended
December 31, 1996.
18
TAX SHARING AND INDEMNIFICATION AGREEMENTS
Effective January 1, 1989 (or such later date as a subsidiary first became
included in Anthem's consolidated tax return), the Company and its
subsidiaries were included in Anthem's state and federal consolidated income
tax returns and were parties to a federal and a state income tax sharing
agreement with Anthem. The tax sharing agreements provided for the allocation
of tax liability among Anthem and its affiliates. Effective October 29, 1992,
the Company and its subsidiaries were not eligible to be included in Anthem's
federal and most state income tax returns for periods following the October
1992 date since Anthem retained less than 80% of the voting power and the
total value of the stock of the Company. The Company and Anthem file together
with respect to a few consolidated combined state tax returns. The Company and
Anthem have entered into a tax indemnification agreement, pursuant to which
Anthem 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 Anthem'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.
OTHER
In June 1992, the Company entered into a sublease agreement with Anthem
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 Anthem in the
amount of $698,000.
In connection with the initial public offerings of the Company's common
stock (the "Offerings"), the Company and Anthem entered into a Registration
Rights Agreement pursuant to which the Company granted to Anthem 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
Anthem.
FUTURE TRANSACTIONS WITH AFFILIATES
The Company's 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 Anthem 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 Company's 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. See
"Information about the Board of Directors and Committees of the Board--Audit
and Finance Committee."
INDEPENDENT AUDITORS
Ernst & Young LLP, independent certified public accountants, who have
provided accounting services to the Company continuously since its
organization, have been appointed by the Board of Directors as the auditors of
the Company for the year 1997. Although the selection and appointment of
independent auditors is not required to be submitted to a vote of
stockholders, the directors have decided as a policy matter to ask the
stockholders to ratify the appointment. If the stockholders do not ratify the
appointment of Ernst & Young LLP, the selection of independent auditors will
be reconsidered and determined by the Board of Directors upon recommendation
of the Audit and Finance Committee. The Board of Directors of the Company
recommends a vote "FOR" the approval of the Independent Auditors.
Ratification of this appointment requires that the number of votes cast in
favor of ratification exceed the number of votes cast opposing ratification.
Only votes cast for or against ratification will be counted, except that the
accompanying proxy will be voted in favor of ratification in absence of
instructions to the contrary. Abstentions and broker non-votes will not change
the number of votes cast for or against the proposal.
19
A representative of Ernst & Young LLP, will attend the Annual Meeting. Such
representative will have the opportunity to make a statement if he so wishes
and will respond to appropriate questions.
OTHER MATTERS
The Board of Directors knows of no business other than that described herein
that will be presented for consideration at the Annual Meeting. If, however,
other business shall properly come before the meeting, the persons named in
the enclosed form of proxy intend to vote the shares represented by said
proxies on such matters in accordance with their judgment in the best interest
of the Company.
STOCKHOLDERS' PROPOSALS
Under the rules of the Securities and Exchange Commission, any proposal
which a stockholder intends to present at the 1998 Annual Meeting of the
Company and have included in the Proxy Statement and Proxy for that meeting
must be received by December 12, 1997, at the Company's principal executive
offices, 120 Monument Circle, Indianapolis, Indiana 46204. Any such proposal
must be accompanied by the notice required by the rules of the Securities and
Exchange Commission, must otherwise comply with those rules and should be
addressed to the attention of the Secretary of the Company.
In addition, the Company's By-laws require that a stockholder must give
advance notice of not less than sixty (60) days of any business such
stockholder intends to bring before a meeting of stockholders unless notice of
the date of the meeting is given on a date which is less than sixty days
before the meeting. In that event, notice by the stockholder to be timely must
be received not later than the close of business on the fifth day following
the day on which such notice was mailed.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Securities and Exchange Commission,
excluding certain exhibits thereto, may be obtained without charge, by
contacting Investor Relations, Acordia, Inc., 120 Monument Circle,
Indianapolis, Indiana 46204.
ACORDIA, INC.
20
LOGO
ACORDIA INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD MAY 13, 1997
P R O X Y
The undersigned hereby constitutes and
appoints Ernest J. Newborn, Jr. and Nancy
K. Wilhite, and each of them, his true and
lawful agents and proxies with full power
of substitution in each, to represent the
undersigned at the Annual Meeting of
Acordia Inc. to be held at the Hilbert
Circle Theatre 45 Monument Circle,
Indianapolis, IN on Tuesday, May 13, 1997,
and at any adjournments thereof, on all
matters coming before said meeting.
Election of Directors, (change of address/comments)
Nominees: ________________________________________________
________________________________________________
Birch E. Bayh, Catherine ________________________________________________
E. Dolan, James B. ________________________________________________
Stradtner, Frank C. (If you have written in the above space, please
Witthun mark the corresponding box on the reverse side
of this card)
YOU ARE ENCOURAGED TO SPECIFY YOUR
CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED
NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. THE ABOVE
NAMED PROXIES CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
[X] PLEASE MARK YOUR 9693
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTORS, AND FOR PROPOSAL 2.
1. Election of Directors. (see reverse)
FOR WITHHELD
[ ] [ ]
2. Approval of independent auditors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
FOR, except vote withheld from the following nominee(s):
- ------------------------
SIGNATURE(S) _____________________________ DATE__________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.