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Maine.gov > PFR Home > Insurance Regulation> Administrative & Enforcement Actions > Document 669 : INS 99-14 : Hearing Decision
Applicants Exhibit 39
STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE
March 28, 2000*
Q. Please state your name, employer, and title.
A. My name is Karen Foster. I am Senior Vice President for Business Development at BlueCross BlueShield of Maine ("BCBSME").
Q. Please identify the portions of BlueCross BlueShield of Maines application for conversion that address that the statutory requirement that a conversion plan must include an appraisal of the fair market value, or range of values, of the aggregate equity of the converted stock insurer to be outstanding upon completion of the conversion plan?
A. The Conversion Plan includes an appraisal of the fair market value of BlueCross BlueShield of Maine performed by Houlihan Lokey Howard & Zukin Financial Advisors, Inc. The appraisal "Valuation Report" appears behind Tab 2-D of the Applicants Initial Consolidated Filing.
Q. Was this valuation report presented to BlueCross BlueShield of Maines Board of Directors?
A. Yes. The Houlihan Lokey Valuation Report was presented to the Board of Directors of BCBSME at the meeting on September 15, 1999. Following this presentation the Board voted unanimously to authorize the conversion plan that has been filed with the Bureau. The Boards vote appears as Applicants Exhibit C-23.
Q. What are Houlihan Lokeys qualifications to provide such a valuation ?
A. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. has experience and expertise in the area of corporate appraisal, all as reflected in the following exhibits: BCBSMEs Responses to the Superintendents First Discovery Request, ¶s 1 and 2, which appears as Applicants Exhibits 50; Letter Agreement between BCBSME and Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which appears as Applicants Exhibit C-51; and BCBSME Response to the Attorney Generals Second Discovery Request, ¶s 4 and 5, which appears as Applicants Exhibit C-52.
Q. Is there any pre-existing relationship between Houlihan Lokey and BlueCross BlueShield of Maine that could affect Houlihan Lokeys independence?
A. No. Houlihan Lokey is independent of BCBSME and Anthem and is not serving as an underwriter or selling agent in connection with the proposed transaction between Anthem and BlueCross BlueShield of Maine. Houlihan Lokeys compensation for services rendered is not tied to the outcome of this proceeding or to a closing on the Asset Purchase Agreement.
Q. How did BlueCross BlueShield of Maine comply with the requirement that notice of hearing before the Superintendent be given to the public and the organizations directors or trustees, officers, employees, members and subscribers?
A. Pursuant to the order of the Superintendent, BlueCross BlueShield of Maine caused notice of the filing of the application to be sent by mail to BCBSMEs subscribers, participating providers and professionals, directors, officers and employees. The mailing occurred between November 12 and November 19, 1999. BCBSME also caused the same notice to be published in the following newspapers with one weekday and one weekend placement in each: Bangor Daily News and weekend editions, Portland Press Herald and Maine Sunday Telegram, Lewiston Sun Journal, Kennebec Journal, and the Waterville Sentinel. Publication dates were between November 19 and November 23, 1999. In addition, notice was mailed on December 7, 1999 to BCBSME subscibers enrolled through the Federal Employee Program, after receiving approval from the office of Personnel Management. The notice used appears as Applicants Exhibit 25.
Q. Will any director, officer, agent or employee receive valuable consideration related to the conversion?
A. No. None of the directors, officers or employees of BlueCross BlueShield of Maine have received or been promised any fee, commission or other valuable consideration in addition to their usual and regular compensation for aiding, promoting or assisting in the conversion of BlueCross BlueShield of Maine or the sale of BlueCross BlueShield of Maines assets to Anthem Health Plans of Maine, Inc. The salary or other compensation payable to the directors, officers or employees of BlueCross BlueShield of Maine is not contingent on the completion of the conversion of BlueCross BlueShield of Maine or the sale of BlueCross BlueShield of Maines assets to Anthem Health Plans of Maine, Inc.
Q. What are the estimated proceeds from the asset sale?
A. Attachment A to this pre-filed testimony (which also appears as Applicants Exhibit 55) sets forth a current estimate of the proceeds payable to the liquidating trust, and ultimately to the charitable foundation under the Asset Purchase Agreement. The proceeds are computed by deducting from the $120 million contract price the following: a $17.5 million downward adjustment in the contract price because of the Companys shortfall in interim performance against projections as of March 1999; the retirement of surplus notes in the amount of $4.7 million; the purchase price of Patriot Mutuals 43% interest in Machigonne stock or a deduction from the contract price absent a purchase of the Machigonne stock, estimated at $4.2 million; and a deduction of up to $5 million to reflect Anthem Health Plans of Maine, Inc.s assumption of the Companys liabilities relating to services/actions of BCBSME under Medicare. Amounts included in reserve for taxes or expenses which are not required to cover actual costs will be returned to the foundation.
Q. How is the $17.5 million deduction computed ?
A. Section 2.07 of the Asset Purchase Agreement provides that the stipulated maximum asset purchase price of $120 million (before adjustments for the purchase of Patriot Mutuals 43% interest in Machigonne stock) shall be reduced: 1) by $1 for every $1 reduction in the book value of the Company from the projected book value on which the offer was based (March 1999 projections) and the most recent audited financial statements ( the "Book Value Shortfall"); and 2) by $5 for every $1 reduction in pre-tax income of the Company from the projected pre tax income on which the offer was based March 1999 projections) and the most recent audited financial statements (the "Earnings Shortfall"), subject to a maximum reduction of $17.5 million, (which allows for an exclusion from the pre-tax income adjustment calculation of up to $6.5 million in additional Y2K expenses). The table below sets forth the calculations resulting in the $17.5 million adjustment price, if the relevant most recent audited financial statements were consistent with the Companys current estimate of year 1999 results (Applicants Exhibit C-53):
Based on this demonstration the adjustment to the purchase price will be the maximum $17.5 million as provided in the Asset Purchase Agreement.
Q. What sequence of steps will take place to effect the conversion and sale to Anthem ?
A. The precise details of the conversion, liquidation and dissolution are specified in the Applicants Initial Consolidated Filing specifically Items 1 through 4 in Volume 1. Although presented as sequential "steps" for purposes of logical presentation, a number of the steps (steps ii through v) should occur simultaneously at a single closing: We have asked our attorneys to prepare a listing of the steps for ease of reference, and this is included as Applicants Exhibit 77 (attached to this pre-filed testimony).
Q. Please identify and authenticate the pertinent exhibits in the Applicants pre-filed exhibits, to the extent they have not been previously authenticated by the pre-filed testimony of other witnesses.
Q. Do you have anything further?
A. Not at this time.
Dated: March 28, 2000
(Also appears as Applicants Exhibit 55)
Estimated Adjusted Purchase Price, Proceeds after Debt Repayment,
and Net Proceeds Payable to Foundation
Estimated Transaction Expenses
(Also appears as Part of Applicants Exhibit 55)
Last Updated: January 21, 2014
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