SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of
the Securities Exchange Act of 1934
(Amendment No. 2)
Meridian Insurance Group, Inc.
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(Name of Subject Company)
Meridian Insurance Group, Inc.
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(Name of Person(s) Filing Statement)
Common Stock, No Par Value
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(Title of Class of Securities)
589644-10-3
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(CUSIP Number of Class of Securities)
Norma J. Oman
Chief Executive Officer
Meridian Insurance Group, Inc.
2955 North Meridian Street
Indianapolis, Indiana 46208-4788
(317) 931-7000
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(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
with copies to:
Stephen J. Hackman
Ice Miller
One American Square
Box 82001
Indianapolis, Indiana 46282-0002
(317) 236-2100
<PAGE>
This Amendment No. 2 (the "Amendment") amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 (as amended, the
"Schedule 14D-9") filed with the Securities and Exchange Commission on September
11, 2000, by Meridian Insurance Group, Inc., an Indiana corporation (the
"Company" or "MIGI").
The original filing on Schedule 14D-9 related to a tender offer announced
on or about August 30, 2000 and filed with the Commission on August 30, 2000
under cover of a statement on Schedule TO (the "Offer") by Meridian Insurance
Group Acquisition Corporation ("Bidder"), an Illinois corporation and
wholly-owned subsidiary of American Union Insurance Company ("Parent" or
"AUIC"). Parent is an Illinois stock insurance company that is 50% owned by
Gregory M. Shepard ("Shepard"). Shepard is also Chairman of the Board and
President of AUIC. The original Offer was for the purchase of all of the
outstanding shares of Common Stock of MIGI at a purchase price of $20.00 per
Share, 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 August 31,
2000, and the related Letter of Transmittal. Capitalized terms not defined
herein have the meanings set forth in the Schedule 14D-9.
On September 18, 2000, the Bidder, American Union Financial Corporation,
Gregory M. Shepard and Tracy M. Shepard (collectively the "Bidders"), filed
Amendment No. 2 to the Schedule TO relating to the Offer. According to Amendment
No. 2, the Offer has been amended in certain material respects by a Supplement
thereto dated September 18, 2000 (such Supplement, together with the Offer, the
"Amended Offer"), including but not limited to: (i) the number of shares sought
to be purchased under the Offer has been reduced to 2,985,769 Shares; (ii) the
price per share to be paid under the Offer has been increased to $25 per Share,
net to the Seller in cash, without interest thereon; (iii) the financing
contingency to the obligations of the Bidders has been removed; (iv) the
expiration date of the Offer has been extended; and (v) the Bidders disclosed in
the Supplement that they no longer intend to cause the Company to effect a
second-step merger or similar transaction in order to acquire 100% of the
Company's shares following the conclusion of the Offer, contrary to the
statement in the Offer that they intended to cause such a second-step merger to
occur.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
Item 4 of the Schedule 14D-9 is hereby amended and restated in its entirety
to read as follows:
"At a special meeting of the Board of Directors of the Company (the
"Board") held on September 21, 2000, the Board considered the terms of the
Amended Offer. As a result of the meeting the Board unanimously concluded
that the Amended Offer is not in the best interests of the Company and the
Company's shareholders. ACCORDINGLY, THE BOARD RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS REJECT THE AMENDED OFFER AND NOT TENDER ANY SHARES
TO THE BIDDERS.
In reaching the determination and recommendation set forth above, the Board
considered numerous factors, including, without limitation the following:
(1) The Board's belief that, based on Shepard's history and experience in
the insurance industry, it would be contrary to the best interests of
the Company's shareholders, employees, agents and policyholders and
detrimental to the long-term financial viability of the Company and
its insurance company subsidiaries for Shepard to gain control of the
Company. Among the significant concerns noted by the Board was
Shepard's involvement in the recent insolvency of Illinois HealthCare
Insurance Company ("Illinois HealthCare"). The Amended Offer states
that Shepard was Chairman and Chief Executive Officer of Illinois
HealthCare, an Illinois life, accident and health insurance company
with health maintenance organization authority, from its founding in
1997 to June 30, 2000, when it voluntarily entered into an order of
liquidation with the Illinois Department of Insurance. Shepard was
also the majority shareholder of Illinois HealthCare during its brief
existence. On September 1, 2000, The Indianapolis Star reported that
the Illinois HealthCare insolvency left 26,000 policyholders in
Indiana, Illinois and Ohio without insurance coverage, and required
insurance guaranty funds in Indiana, Illinois and Ohio to cover health
claims owed to policyholders.
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<PAGE>
This factor has achieved even greater significance in light of the
terms of the Amended Offer. Given that the Amended Offer is only a
partial offer for less than 100% of the Company's Shares, shareholders
who did not tender their Shares or holders of Shares not purchased in
the Amended Offer would become minority shareholders in a company
controlled by Shepard.
(2) The Board's belief that the Amended Offer may have a negative impact
on the marketability of the Shares that are not purchased by the
Bidders under the Amended Offer. If the Amended Offer is successful,
the number of Shares available for trading in the public market by
persons other than the Bidders and Meridian Mutual will be
significantly reduced, which the Board believes would adversely affect
the Shares' price and liquidity.
(3) The Board's belief that the Amended Offer is subject to certain
conditions that will not be satisfied, and, therefore, the Amended
Offer will not succeed. According to the Amended Offer, there are
significant uncertainties and contingencies associated with the
Amended Offer, including conditions which (i) are in the sole
discretion of the Bidders, (ii) are subject to external events not
directly related to the Company or (iii) are not within the control of
the Company or the Bidders. Included among these contingencies are the
following conditions:
(a) Shares representing at least 50.1% of the voting securities of
the Company (including for this purpose Shares already owned by
Shepard but not tendered under the Offer) must have been tendered
and not withdrawn before the expiration of the Offer ("Minimum
Condition"). The Board believes that the holders of a majority of
the Company's Shares do not support the Amended Offer. Meridian
Mutual, which holds approximately 48.5% of the outstanding Common
Stock, and the Company's directors and executive officers, who in
the aggregate hold approximately two percent of the Common Stock,
have advised the Board they will not tender their Shares in
response to the Amended Offer. The Shares owned by the
shareholders described above represent more than 50% of the
outstanding Common Stock. Consequently, the Board concluded that
the Minimum Condition will not be satisfied.
(b) The Company's preferred share purchase rights must be redeemed by
the Company at the redemption price of $.005 per right (the
"Rights Redemption Condition"). The Board has not taken any
action to redeem the preferred share purchase rights in response
to the Amended Offer and does not intend to do so. Therefore, the
Rights Redemption Condition will not be satisfied.
(c) The Bidders must have obtained all insurance regulatory approvals
necessary for their acquisition of control of the Company and its
insurance subsidiaries on terms and conditions satisfactory to
the Bidders, in their sole discretion. Based in part on Shepard's
involvement in the recent insolvency of Illinois Healthcare
Insurance Company and the harm caused thereby to policyholders in
Indiana, Illinois and Ohio (see paragraph 1, above), the Board
believes it is unlikely that the Bidders will receive the
regulatory approvals required to satisfy this condition. Shepard
was the Chairman, Chief Executive Officer and majority
shareholder of Illinois Healthcare from the time it was founded
until it commenced voluntary liquidation proceedings.
(4) The Board's belief that no operational, financial or other synergies
would result from an acquisition of the Company by the Bidders. As
disclosed in the Offer, AUIC has only six (6) employees, and AUIC's
total premiums earned in 1999 were less than $5.6 million.
(5) The Board's belief that the Amended Offer is an attempt by Shepard,
through AUIC and the Bidder, to capture for himself the future growth
in revenues, net income and cash flow that are expected to be realized
from the implementation of the Board's long-term strategies.
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<PAGE>
(6) The destabilizing effect that the Board believes a successful Amended
Offer would have on the employees, agents and policyholders of the
Company and the Company's affiliated insurance companies. The Board
believes that Shepard's control of the Company would create
significant uncertainties with respect to the future direction of the
Company and its relationships with employees, agents and
policyholders, particularly in view of his history and experience in
the insurance industry, some of which is discussed above.
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive but addresses all of the material
information and factors considered by the Board in its consideration of the
Amended Offer. In reaching its determination, the Board did not consider
whether the increased price per share offered for a reduced number of
Shares under the Amended Offer was adequate or fair to shareholders from a
financial point of view. In view of the variety of factors and the amount
of information considered, the Board did not find it practicable to provide
specific assessments of, quantify or otherwise assign any relative weights
to the specific factors considered in determining to recommend that the
Company's shareholders reject the Amended Offer. Such determination was
made after consideration of all the factors taken as a whole. In addition,
individual members of the Board may have given differing weights to
different factors.
In light of the above factors, the Board has determined that the Amended
Offer is not in the best interests of the Company and the Company's
shareholders. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS REJECT THE AMENDED OFFER AND NOT TENDER THEIR SHARES
PURSUANT TO THE AMENDED OFFER.
To the best of the Company's knowledge after reasonable inquiry, none of
the Company's executive officers or directors currently intends to tender
to the Bidders the Shares held of record or beneficially owned by such
persons. Meridian Mutual, the Company's largest shareholder, has advised
the Company that it does not intend to tender any of its Shares in response
to the Amended Offer.
A copy of a letter to Shareholders communicating the Board's recommendation
and a form of press release announcing such recommendation are attached as
Exhibits E and F hereto, respectively, and are incorporated herein by
reference.
ITEM 9. EXHIBITS
Exhibit A Letter to Shareholders, dated September 11, 2000.*
Exhibit B Press release issued by the Company, dated September 11,
2000.*
Exhibit C Excerpted Sections of MIGI's Proxy Statement, dated
April 3, 2000, relating to MIGI's Annual Meeting of
Shareholders.*
Exhibit D Opinion of A.G. Edwards & Sons, Inc., dated September 8,
2000.*
Exhibit E Form of Letter to Shareholders, dated September 22, 2000.
Exhibit F Press release issued by the Company, dated September 22,
2000.
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* Previously filed.
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<PAGE>
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.
September 22, 2000 -------------------------------------
Norma J. Oman
President and Chief Executive Officer
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<PAGE>
September 22, 2000
Dear Shareholders,
On September 18, 2000, Gregory M. Shepard ("Shepard") and his brother Tracy M.
Shepard, through Meridian Insurance Group Acquisition Corporation and its
parent, American Union Insurance Company, amended their tender offer to buy
shares of Meridian Insurance Group, Inc. (the "Company" or "MIGI") and extended
the offer's expiration date until October 20, 2000. You should soon be receiving
in the mail a copy of the amended materials, including a Supplement dated
September 18, 2000. Among other changes, Shepard has increased the offer price
from $20 to $25 per share and has eliminated the financing condition from the
offer.
Shepard's offer, however, no longer seeks to purchase all of MIGI's outstanding
stock. Instead, the amended offer obligates Shepard to buy only 2,985,769
shares, which is a number that Shepard calculates will result in his acquisition
of 50.1% of the fully diluted shares of MIGI when consolidated with Shepard's
current stockholdings. In the event that more shares are tendered than Shepard's
group is obligated to buy, Shepard would buy a pro-rata portion of the shares
tendered by each tendering shareholder and return the unpurchased shares.
Further, in the original offering documents, Shepard stated that, if he acquired
control of MIGI pursuant to the offer, he would then cause the Company to merge
with one of his companies in a transaction in which all MIGI shares not already
owned by him would be acquired at the same price as was offered in the original
offer. Under the amended offer, Shepard states that he no longer intends to
cause this second-step merger to occur.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
THAT THE TERMS OF THE AMENDED OFFER ARE NOT IN THE BEST INTERESTS OF THE COMPANY
OR ITS SHAREHOLDERS. ACCORDINGLY, YOUR BOARD RECOMMENDS THAT YOU REJECT THE
AMENDED OFFER AND NOT TENDER ANY OF YOUR SHARES.
The Board of Directors continues to believe that it would not be in the best
interests of the Company or its shareholders, employees, agents and
policyholders, and would be detrimental to the long-term viability of the
Company, for Shepard to obtain control of the Company in light of Shepard's past
history and experience in the insurance industry. Specifically, the Board is
concerned with Shepard's involvement in the recent insolvency of Illinois
HealthCare Insurance Company, as noted in our letter to you dated September 11,
2000.
Questions concerning Shepard's past history and experience in the insurance
industry achieved even greater significance in connection with the Board's
consideration of the terms of the amended offer due to the abandonment by
Shepard of his plans to acquire all shares of MIGI. Shepard now plans to acquire
only 50.1% of the outstanding shares, with the result that all holders who (as a
result of the proration provisions of the offer or otherwise) retained MIGI
shares following the offer would become minority shareholders in a company
controlled by Shepard. Further, in that event, the number of shares available
for trading in the public market by persons other than Shepard and his
affiliates and Meridian Mutual would be significantly reduced, which the Board
believes would have a negative effect on share prices and stock market liquidity
for holders of the shares.
The Board considered a number of other factors in connection with reaching its
determination to recommend rejection of the terms of the amended offer. For a
complete description of other reasons that were considered by the Board of
Directors, we urge you to read carefully the enclosed copy of Amendment No. 2 to
the Company's Schedule 14D-9 so that you will be fully informed as to the
Board's recommendation. As stated in that Amendment No. 2, one factor that the
Board did not consider in connection with forming its recommendation was whether
the increased price per share, offered for only a limited number of shares, was
adequate or fair to shareholders from a financial point of view.
In our last letter, we advised you that the Company had received communications
from Meridian Mutual and from various individual executive officers and
directors of the Company who, in the aggregate, hold more than 50% of the
Company's outstanding shares, indicating that they did not support the offer and
will not tender their shares. Meridian Mutual and its executive officers and
directors have indicated to the Company that they do not support the amended
terms and that they do not intend to tender their shares under the amended
<PAGE>
offer. Therefore, the Board continues to believe that Shepard's offer will not
gather tenders of a sufficient number of shares to permit him to meet the
Minimum Condition set forth in his offer.
As we did just two weeks ago, we again recommend that you reject the offer and
recommend that you do not tender your shares.
We thank you for your continued support and confidence.
Sincerely,
Norma J. Oman
President and Chief Executive Officer
Enclosure
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<PAGE>
FOR IMMEDIATE RELEASE
Contact: Steven R. Hazelbaker
Executive Vice President and Chief Operating Officer
(317) 931-7269
HOLDERS OF A MAJORITY OF MERIDIAN INSURANCE GROUP, INC. SHARES
AGAIN REJECT HOSTILE OFFER; BOARD UNANIMOUSLY RECOMMENDS
REJECTION OF AMENDED HOSTILE TENDER OFFER
Indianapolis, IN, September 22, 2000--Meridian Insurance Group, Inc., (Nasdaq:
MIGI) announced today that MIGI's largest shareholder, Meridian Mutual Insurance
Company, and MIGI's executive officers and directors (who in the aggregate
beneficially own more than half of MIGI's outstanding stock) have again
indicated to MIGI's Board of Directors that they will not tender their shares in
response to the recently amended unsolicited tender offer for the Company's
shares. It is a condition to the offer that the bidder obtains 50.1% of MIGI's
fully diluted shares.
MIGI also announced that its Board of Directors met on September 21, 2000 and
unanimously recommended that MIGI's shareholders reject the amended offer.
On September 18, 2000, Gregory M. Shepard and his brother Tracy M. Shepard,
through Meridian Insurance Group Acquisition Corporation and its parent,
American Union Insurance Company, amended their hostile tender offer that was
commenced by offering documents dated August 31, 2000. In response to the
amended offer, Norma J. Oman, President and Chief Executive Officer of MIGI is
sending a letter to the shareholders on behalf of the Board of Directors
summarizing the reasons for the Board's recommendation not to tender any of
their shares. The text of that letter follows:
September 22, 2000
Dear Shareholders,
On September 18, 2000, Gregory M. Shepard ("Shepard") and his brother Tracy
M. Shepard, through Meridian Insurance Group Acquisition Corporation and
its parent, American Union Insurance Company, amended their tender offer to
buy shares of Meridian Insurance Group, Inc. (the "Company" or "MIGI") and
extended the offer's expiration date until October 20, 2000. You should
soon be receiving in the mail a copy of the amended materials, including a
Supplement dated September 18, 2000. Among other changes, Shepard has
increased the offer price from $20 to $25 per share and has eliminated the
financing condition from the offer.
Shepard's offer, however, no longer seeks to purchase all of MIGI's
outstanding stock. Instead, the amended offer obligates Shepard to buy only
2,985,769 shares, which is a number that Shepard calculates will result in
his acquisition of 50.1% of the fully diluted shares of MIGI when
consolidated with Shepard's current stockholdings. In the event that more
shares are tendered than Shepard's group is obligated to buy, Shepard would
buy a pro-rata portion of the shares tendered by each tendering shareholder
and return the unpurchased shares.
Further, in the original offering documents, Shepard stated that, if he
acquired control of MIGI pursuant to the offer, he would then cause the
Company to merge with one of his companies in a transaction in which all
MIGI shares not already owned by him would be acquired at the same price as
was offered in the original offer. Under the amended offer, Shepard states
that he no longer intends to cause this second-step merger to occur.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE TERMS OF THE AMENDED OFFER ARE NOT IN THE BEST
INTERESTS OF THE COMPANY OR ITS SHAREHOLDERS. ACCORDINGLY, YOUR BOARD
RECOMMENDS THAT YOU REJECT THE AMENDED OFFER AND NOT TENDER ANY OF YOUR
SHARES.
The Board of Directors continues to believe that it would not be in the
best interests of the Company or its shareholders, employees, agents and
policyholders, and would be detrimental to the long-term viability of the
<PAGE>
Company, for Shepard to obtain control of the Company in light of Shepard's
past history and experience in the insurance industry. Specifically, the
Board is concerned with Shepard's involvement in the recent insolvency of
Illinois HealthCare Insurance Company, as noted in our letter to you dated
September 11, 2000.
Questions concerning Shepard's past history and experience in the insurance
industry achieved even greater significance in connection with the Board's
consideration of the terms of the amended offer due to the abandonment by
Shepard of his plans to acquire all shares of MIGI. Shepard now plans to
acquire only 50.1% of the outstanding shares, with the result that all
holders who (as a result of the proration provisions of the offer or
otherwise) retained MIGI shares following the offer would become minority
shareholders in a company controlled by Shepard. Further, in that event,
the number of shares available for trading in the public market by persons
other than Shepard and his affiliates and Meridian Mutual would be
significantly reduced, which the Board believes would have a negative
effect on share prices and stock market liquidity for holders of the
shares.
The Board considered a number of other factors in connection with reaching
its determination to recommend rejection of the terms of the amended offer.
For a complete description of other reasons that were considered by the
Board of Directors, we urge you to read carefully the enclosed copy of
Amendment No. 2 to the Company's Schedule 14D-9 so that you will be fully
informed as to the Board's recommendation. As stated in that Amendment No.
2, one factor that the Board did not consider in connection with forming
its recommendation was whether the increased price per share, offered for
only a limited number of shares, was adequate or fair to shareholders from
a financial point of view.
In our last letter, we advised you that the Company had received
communications from Meridian Mutual and from various individual executive
officers and directors of the Company who, in the aggregate, hold more than
50% of the Company's outstanding shares, indicating that they did not
support the offer and will not tender their shares. Meridian Mutual and its
executive officers and directors have indicated to the Company that they do
not support the amended terms and that they do not intend to tender their
shares under the amended offer. Therefore, the Board continues to believe
that Shepard's offer will not gather tenders of a sufficient number of
shares to permit him to meet the Minimum Condition set forth in his offer.
As we did just two weeks ago, we again recommend that you reject the offer
and recommend that you do not tender your shares.
We thank you for your continued support and confidence.
Sincerely,
Norma J. Oman
President and Chief Executive Officer
Meridian Insurance Group, Inc. provides automobile, homeowners, farmowners,
other personal lines of coverage, and commercial insurance. Meridian is licensed
to write business in Arizona, Florida, Georgia, Illinois, Indiana, Iowa, Kansas,
Kentucky, Maryland, Michigan, Minnesota, Missouri, North Dakota, Ohio,
Pennsylvania, South Dakota, Tennessee, Utah, Virginia, Washington, Washington,
D.C., and Wisconsin.
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