-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UUta8rSQEkolpzinCdMbn6RUnP6C2BzPPh+uChry4HzopQZcPfSTyL8sya8MIbXn tKhAE5BKzb6Md8epGjskJg== 0000916641-98-000516.txt : 19980504 0000916641-98-000516.hdr.sgml : 19980504 ACCESSION NUMBER: 0000916641-98-000516 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIGON HEALTHCARE INC CENTRAL INDEX KEY: 0001017747 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 541773225 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-12617 FILM NUMBER: 98607072 BUSINESS ADDRESS: STREET 1: 2015 STAPLES MILL RD CITY: RICHMOND STATE: VA ZIP: 23230 BUSINESS PHONE: 8043547000 MAIL ADDRESS: STREET 1: 2221 EDWARD HOLLAND DR STREET 2: SUITE 42B CITY: RICHMOND STATE: VA ZIP: 23230 10-K/A 1 TRIGON HEALTHCARE, INC. 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A No. 1 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1997 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission file number 001-12617 Trigon Healthcare, Inc. (Exact name of registrant as specified in its charter) Virginia 54-1773225 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2015 Staples Mill Road, Richmond, VA 23230 (Address of principal executive offices) Registrant's telephone number, including area code (804) 354-7000 Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock, $.01 Par Value New York Stock Exchange (Title of Class) (Name of Exchange) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 27, 1998 was approximately $1,245,818,000 (based on the last reported sales price of $29 7/8 per share on March 27, 1998, on the New York Stock Exchange). As of March 27, 1998, 42,300,022 shares of the registrant's Class A Common Stock, par value $.01 per share, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of Trigon Healthcare Inc.'s Annual Report to Shareholders for the year ended December 31, 1997 into Parts II and IV of this Form 10-K. Certain portions of Trigon Healthcare Inc.'s definitive Proxy Statement dated March 27, 1998 for the Annual Meeting of Shareholders into Part III of this Form 10-K. The exhibits to this Form 10K/A No. 1 are amended to include the 1997 annual reports for the Trigon Healthcare, Inc. Employee Stock Purchase Plan and the Trigon Blue Cross Blue Shield 401(K) Restoration Plan. There are no other differences. PART I Item 1. Business. Omitted Item 2. Properties. Omitted Item 3. Legal Proceedings. Omitted Item 4. Submission of Matters to a Vote of Security Holders. Not applicable PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Omitted Item 6. Selected Financial Data. Omitted. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Omitted Item 7a. Quantitative and Qualitative Disclosures About Market Risk. Not applicable Item 8. Financial Statements and Supplementary Data. Omitted Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable PART III Item 10. Directors and Executive Officers of the Registrant. Omitted Item 11. Executive Compensation. Omitted Item 12. Security Ownership of Certain Beneficial Owners and Management. Omitted Item 13. Certain Relationships and Related Transactions. Omitted PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report. 1. Consolidated Financial Statements from Trigon Healthcare Inc.'s Annual Report to Shareholders are incorporated herein by reference in Item 8: Omitted 2. Financial statement schedules Omitted 3. Exhibits. The following is a list of exhibits to this Form 10-K.
Exhibit Number Description - ------ ------------ 2 -- Amended and Restated Plan of Demutualization. (1) 3.1 -- Amended and Restated Articles of Incorporation of Trigon Healthcare, Inc. (1) 3.2 -- Amended and Restated Bylaws of Trigon Healthcare, Inc. (2) 3.3 -- Articles of Amendment to Amended and Restated Articles of Incorporation setting forth the designation, preferences and rights of Series A Junior Participating Preferred Stock of Trigon Healthcare, Inc. dated July 16, 1997. (4) 4 -- Form of Stock Certificate (other Instruments Defining the Rights of Security-Holders). (1) 4.1 -- Rights Agreement dated as of July 16, 1997 between Trigon Healthcare, Inc. and First Chicago Trust Company of New York, as Rights Agent. (4) 4.2 -- Form of Rights Certificate. (4) 10.1 -- License Agreement by and between the Blue Cross Blue Shield Association and the Company. (2) (a) Blue Cross license (b) Blue Shield license 10.2 -- Limited Fixed Return Plan for Certain Officers and Directors of the Company. (1) * 10.4 -- Non-Contributory Retirement Program for Certain Employees of the Company. (1) * 10.5 -- Supplemental Executive Retirement Program for Certain Employees of the Company. (1) * 10.6 -- Salary Deferral Plan for Norwood H. Davis, Jr. (1) * 10.7 -- Amended and Restated Employment Agreement dated January 2, 1998 by and between the Company and Norwood H. Davis, Jr. (7) * 10.9 -- Employee Thrift Plan of the Company. (1)* 10.10 -- 401(k) Restoration Plan of the Company . (1) * 10.11 -- First Amendment to the Employee Thrift Plan of the Company, dated as of February 19, 1997. (2) * 10.12 -- Form of Employment Agreement dated as of December 12, 1990 by and between the Company and John C. Berry and certain other executive officers. (1) * 10.14 -- Credit Agreement dated as of February 5, 1997 among Trigon Healthcare, Inc., the banks party thereto and Morgan Guaranty Trust Company of New York, as Agent. (2) 10.15 -- 1997 Stock Incentive Plan. (6) * 10.16 -- Employee Stock Purchase Plan. (6) * 10.17 -- Non-Employee Directors Stock Incentive Plan. (6) * 10.18 -- Amendment to the License Agreement by and between the Blue Cross Blue Shield Association and the Company. (5) 10.19 -- Amendment to the Non-Contributory Retirement Program for Certain Employees of Trigon Insurance Company. (7) * 10.20 -- Form of Executive Continuity Agreement dated as of April 29, 1997 between Trigon Insurance Company and certain executive officers. (3) * 10.21 -- Form of Executive Continuity Agreement dated as of April 29, 1997 between Trigon Insurance Company and John C. Berry and certain other executive officers. (3) * 11 -- Computation of per share earnings. Refer to pages 50 and 51, "Note 14. Net Income and Pro Forma Net Income Per Share", of Trigon Healthcare Inc.'s Annual Report to Shareholders, which are incorporated herein by reference. 13 -- Excerpts from the Company's Annual Report to Shareholders for the year ended December 31, 1997. (7) 21 -- Subsidiaries of the Registrant. (7) 23.1 -- Consent of KPMG Peat Marwick LLP. (7) 23.2 -- Consent of Independent Auditors. 23.3 -- Consent of Independent Auditors. 27 -- Financial Data Schedule (7) 99.1 -- Trigon Healthcare, Inc. Stock Purchase Plan Audited Financial Statements as of December 31, 1997 and for the period May 1, 1997 (inception) through December 31, 1997. 99.2 -- Trigon Blue Cross Blue Shield 401(k) Restoration Plan Audited Financial Statements as of December 31, 1997 and 1996 and for the three years ended December 31, 1997, 1996 and 1995.
(1) Incorporated by reference to exhibits filed with the Company's Registration Statement on Form S-1 (registration number 333-09773). (2) Incorporated by reference to exhibits filed with the Company's Form 10-K for the year ended December 31, 1997. (3) Incorporated by reference to exhibits filed with the Company's Form 10-Q for the period ended March 31, 1997. (4) Incorporated by reference to exhibits filed with the Company's Form 8-A/A filed on July 16, 1997. (5) Incorporated by reference to exhibits filed with the Company's Form 10-Q for the period ended September 30, 1997. (6) Incorporated by reference to exhibits filed with the Company's Proxy Statement dated March 13, 1997. (7) Previously filed as part of the Annual Report on Form 10-K for the year ended December 31, 1997. * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this Form 10-K. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on April 29, 1998. TRIGON HEALTHCARE, INC. By: /s/ THOMAS R. BYRD THOMAS R. BYRD Title: SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ----- /s/ NORWOOD H. DAVIS, JR. Chairman (Principal Executive Officer) April 29, 1998 - ------------------------ NORWOOD H. DAVIS, JR. /s/ THOMAS R. BYRD Senior Vice President and Chief - ------------------------ Financial Officer (Principal Financial THOMAS R. BYRD and Accounting Officer) April 29, 1998 /s/ HUNTER B. ANDREWS Director April 29, 1998 - ------------------------- HUNTER B. ANDREWS, ESQ. /s/ LENOX D. BAKER, JR. Director April 29, 1998 - ------------------------- LENOX D. BAKER, JR., M.D. /s/ JAMES K. CANDLER Director April 29, 1998 - ------------------------- JAMES K. CANDLER /s/ JOHN COLE, JR. Director April 29, 1998 - ------------------------- JOHN COLE, JR., M.D. /s/ ROBERT M. FREEMAN Director April 29, 1998 - ------------------------- ROBERT M. FREEMAN
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM R. HARVEY Director April 29, 1998 - --------------------- WILLIAM R. HARVEY, Ph.D. /s/ ELIZABETH G. HELM Director April 29, 1998 - ---------------------- ELIZABETH G. HELM /s/ GARY A. JOBSON Director April 29, 1998 - ---------------------- GARY A. JOBSON /s/ FRANK C. MARTIN, JR. Director April 29, 1998 - ------------------------ FRANK C. MARTIN, JR. /s/ DONALD B. NOLAN Director April 29, 1998 - ------------------------ DONALD B. NOLAN, M.D. /s/ WILLIAM N. POWELL Director April 29, 1998 - ------------------------ WILLIAM N. POWELL /s/ J. CARSON QUARLES Director April 29, 1998 - ------------------------- J. CARSON QUARLES /s/ R. GORDON SMITH Director April 29, 1998 - ------------------------- R. GORDON SMITH /s/ JACKIE M. WARD Director April 29, 1998 - ------------------------- JACKIE M. WARD /s/ STIRLING L. WILLIAMSON, JR. Director April 29, 1998 - ------------------------------- STIRLING L. WILLIAMSON, JR.
EXHIBIT INDEX
Exhibit Number Description - ------- ------------- 23.2 -- Consent of Independent Auditors. 23.3 -- Consent of Independent Auditors. 99.1 -- Trigon Healthcare, Inc. Stock Purchase Plan Audited Financial Statements as of December 31, 1997 and for the period May 1, 1997 (inception) through December 31, 1997. 99.2 -- Trigon Blue Cross Blue Shield 401(k) Restoration Plan Audited Financial Statements as of December 31, 1997 and 1996 and for the three years ended December 31, 1997, 1996 and 1995.
EX-23 2 EXHIBIT 23.2 Exhibit 23.2 Consent of Independent Auditors The Board of Directors Trigon Healthcare, Inc.: We consent to incorporation by reference in the registration statement (No. 333-26187) on Form S-8 of Trigon Healthcare, Inc. of our report dated April 24, 1998, relating to the statement of financial condition of the Trigon Healthcare, Inc. Employee Stock Purchase Plan as of December 31, 1997, and the related statement of income and changes in plan equity for the period from May 1, 1997 (inception) through December 31, 1997, which report is included in this Form 10-K/A No. 1 of Trigon Healthcare, Inc. /s/ KPMG Peat Marwick LLP Richmond, Virginia April 29, 1998 EX-23 3 EXHIBIT 23.3 Exhibit 23.3 Consent of Independent Auditors The Board of Directors Trigon Healthcare, Inc.: We consent to incorporation by reference in the registration statement (No. 333-22463) on Form S-8 of Trigon Healthcare, Inc. of our report dated April 24, 1998, relating to the statements of financial condition, with fund information, of the Trigon Blue Cross Blue Shield 401(k) Restoration Plan as of December 31, 1997 and 1996, and the related statements of income and changes in plan equity, with fund information, for each of the years in the three-year period ended December 31, 1997, which report is included in this Form 10-K/A No. 1 of Trigon Healthcare, Inc. /s/ KPMG Peat Marwick LLP Richmond, Virginia April 29, 1998 EX-99 4 EXHIBIT 99.1 EXHIBIT 99.1 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Table of Contents December 31, 1997
- --------------------------------------------------------------------------------------------------------------- Page Independent Auditors' Report.................................................................................1 Financial Statements: Statement of Financial Condition - December 31, 1997...................................................2 Statement of Income and Changes in Plan Equity - Period May 1, 1997 through December 31, 1997...........................................................................3 Notes to Financial Statements..............................................................................4-7 - ----------------------------------------------------------------------------------------------------------------
Independent Auditors' Report The Human Resources, Compensation and Employee Benefits Committee of the Board of Directors Trigon Healthcare, Inc.: We have audited the accompanying statement of financial condition of the Trigon Healthcare, Inc. Employee Stock Purchase Plan (Plan) as of December 31, 1997, and the related statement of income and changes in plan equity for the period May 1, 1997 (inception) through December 31, 1997. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial condition of the Plan as of December 31, 1997 and the income and changes in plan equity for the period May 1, 1997 (inception) through December 31, 1997 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Richmond, Virginia April 24, 1998 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Statement of Financial Condition December 31, 1997 - -------------------------------------------------------------------------------- Assets Investments, at estimated fair value Trigon Healthcare, Inc. Class A common stock (cost, $479,487) $585,523 Contributions receivable Employee 318,506 Employer 56,207 - -------------------------------------------------------------------------------- Total assets $960,236 - -------------------------------------------------------------------------------- Plan equity $960,236 - -------------------------------------------------------------------------------- See accompanying notes to financial statements. 2 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Statement of Income and Changes in Plan Equity Period May 1, 1997 through December 31, 1997 - ------------------------------------------------------------------------------ Income Net unrealized appreciation in fair value of investments $ 106,036 Contributions Employee 748,958 Employer 132,169 - ------------------------------------------------------------------------------- Total contributions 881,127 - ------------------------------------------------------------------------------- Total income 987,163 - ------------------------------------------------------------------------------- Distributions to employees 26,927 - ------------------------------------------------------------------------------- Net increase in plan equity 960,236 Plan equity, beginning of period - - ------------------------------------------------------------------------------- Plan equity, end of period $ 960,236 - ------------------------------------------------------------------------------- See accompanying notes to financial statements. 3 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements - ------------------------------------------------------------------------------- (1) Summary of Significant Accounting Policies Organization The Trigon Healthcare, Inc. Employee Stock Purchase Plan (Plan) was adopted by the Board of Directors and approved by the shareholders of Trigon Healthcare, Inc. (Company) in April 1997 for the purpose of providing a means by which the employees of the Company and its subsidiaries (Participant) can be given an opportunity to acquire the Company's Class A common stock (Common Stock) through payroll deductions. The following are the significant accounting policies followed by the Plan: Basis of Accounting The financial statements of the Plan are prepared under the accrual method of accounting. Accordingly, employee contributions to the Plan are recorded as of the date the contributions are withheld from the Participants' compensation. Employer contributions are recorded as of the last day of each calendar quarter and represent the fifteen percent discount given to Participants under the Plan provisions. Distributions to Participants are accounted for at the average historical cost of the Common Stock distributed, plus cash paid in lieu of fractional shares, where applicable. Cash paid by the Company in lieu of fractional shares is accounted for at the fair market value of the shares at the time of the distribution. The Company will also separately refund to any withdrawing Participant employee contributions which have been withheld but have not been forwarded to the Plan for the purpose of Common Stock. Investment Valuation The investments in Common Stock are stated at estimated fair value, based on the closing price on the New York Stock Exchange on the last trading day of the period. Investment transactions are recorded on a trade date basis. Administrative Expenses The Company pays all administrative expenses of the Plan. Administrative expenses paid by the Company during 1997 were $7,967. (Continued) 4 (1) Summary of Significant Accounting Policies, Continued Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including disclosure of contingent assets and liabilities. Actual results could differ from those estimates. (2) Summary of Significant Provisions of the Plan The Plan is an employee stock purchase plan and is intended to qualify under Internal Revenue Code (Code) Section 423. The Plan is administered by the Human Resources, Compensation and Employee Benefits Committee of the Company's Board of Directors (Committee). The Common Stock owned by Participants prior to withdrawal from the Plan are held in individual participant accounts in a custodian account with First Chicago Trust Company of New York (Custodian). Participants should refer to the Plan agreement and prospectus for a more complete description of the Plan's provisions. The Company has reserved for issuance and purchase by Participants under the Plan an aggregate of one million shares of Common Stock. These shares are authorized but unissued. Shares needed to satisfy the needs of the Plan may be newly issued by the Company or acquired by purchases at the expense of the Company on the open market or in private transactions. During 1997, all shares needed to satisfy the needs of the Plan were purchased on the open market. The Company paid the difference between the purchase price in the open market, including brokerage fees, and the amount provided by the employee and employer contributions. Any person who is employed by the Company (or by any eligible subsidiary of the Company) is eligible to participate in the Plan on the first day of any payroll period following the employee's commencement of employment with the Company. A Participant may make voluntary contributions to the Plan in whole percentage amounts ranging from one to fifteen percent of compensation for the year. Under Code section 423(b)(8), a Participant is limited to purchases of no more than $25,000 of Common Stock, at fair value, in any calendar year. The Plan had 599 Participants as of December 31, 1997. (Continued) 5 (2) Summary of Significant Provisions of the Plan, Continued Payroll deductions are accumulated by the Company during each calendar quarter and transferred to the Plan at the end of each calendar quarter to be applied towards the purchase of full and partial shares of Common Stock. The purchase price per share at which Common Stock shares are acquired by Participants equals the lower of (a) eighty-five percent of the fair market value of a share of Common Stock on the first trading day of each calendar quarter (Grant Date), or (b) eighty-five percent of the fair market value of a share of Common Stock on the last trading day of each calendar quarter (Investment Date). The Plan defines fair market value to be the closing trading price of the Common Stock on the New York Stock Exchange as reported in the Wall Street Journal. During 1997, the first Grant Date was May 1, 1997, the first payroll period after the Plan was approved. The first Investment Date was June 30, 1997. All subsequent purchase periods followed the calendar quarter schedule as defined in the Plan provisions. Participants are fully vested in their individual participant accounts at all times and have the right at any time to obtain certificates for full shares of Common Stock in these accounts. Participants may cease participation in or withdraw shares from the Plan at any time, but may not begin payroll deductions again for six months. A Participant may change the payroll deduction percentage up to four times per year. Participation in the Plan is automatically terminated upon retirement, termination of active employment or death. (3) Investment in Common Stock The net unrealized appreciation in fair value of investment in Common Stock as of December 31, 1997 and the change in such amount during the period were as follows:
Net Fair unrealized value Cost appreciation -------------------------------------------------------------------------------- Balance, May 1, 1997 $ -- -- -- Change for the period ended December 31, 1997 585,523 479,487 106,036 -------------------------------------------------------------------------------- Balance, December 31, 1997 $585,523 479,487 106,036 ================================================================================
The Plan held 22,412 shares of Common Stock on December 31, 1997. In addition, 15,026 shares were pending purchase on December 31, 1997. (Continued) 6 (4) Tax Status The Plan is intended to qualify under the provisions of Code Section 423. Under these provisions, Participants are taxed on amounts withheld for the purchase of Common Stock when such amounts are actually withheld. Other than this tax, no income is taxable to a Participant until disposition of the Common Stock acquired. The method of taxation, as ordinary income or as capital gains, will depend upon the holding period of the purchased shares. There are no federal income tax consequences to the Company by reason of the grant or exercise of rights under the Plan. The Company is generally entitled to a deduction to the extent the amounts are taxed as ordinary income to a Participant. (5) Plan Termination Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan. In the event of a Plan termination, Participants will be refunded the amounts of any employee contributions which have not yet been applied to the purchase of Common Stock and the Common Stock shares in their individual participant accounts. 7 - ------------------------------------------------------------------------------- EX-99 5 EXHIBIT 99.2 EXHIBIT 99.2 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Table of Contents December 31, 1997
- ---------------------------------------------------------------------------------------------------------------- Page Independent Auditors' Report.................................................................................1 Financial Statements: Statement of Financial Condition, with Fund Information - December 31, 1997...................................................................................2 Statement of Financial Condition, with Fund Information - December 31, 1996...................................................................................3 Statement of Income and Changes in Plan Equity, with Fund Information - Year ended December 31, 1997........................................................................4 Statement of Income and Changes in Plan Equity, with Fund Information - Year ended December 31, 1996........................................................................5 Statement of Income and Changes in Plan Equity, with Fund Information - Year ended December 31, 1995........................................................................6 Notes to Financial Statements.............................................................................7-15 - ----------------------------------------------------------------------------------------------------------------
Independent Auditors' Report Human Resources, Compensation and Employee Benefits Committee of the Board of Directors Trigon Healthcare, Inc.: We have audited the accompanying statements of financial condition, with fund information, of the Trigon Blue Cross Blue Shield 401(k) Restoration Plan (Plan) as of December 31, 1997 and 1996, and the related statements of income and changes in plan equity, with fund information, for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial condition, with fund information, of the Plan as of December 31, 1997 and 1996 and the income and changes in plan equity, with fund information, for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The fund information in the statements of financial condition and income and changes in plan equity is presented for purposes of additional analysis rather than to present the financial condition and income and changes in plan equity of each fund. The fund information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG Peat Marwick LLP Richmond, Virginia April 24, 1998 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Statement of Financial Condition, with Fund Information December 31, 1997
Assets: Contributions receivable - employer $ 131,784 34,430 90,585 129,669 3,532 54,742 - --------------------------------------------------------------------------------------------------------------------------- Total assets $ 131,784 34,430 90,585 129,669 3,532 54,742 - --------------------------------------------------------------------------------------------------------------------------- Plan equity $ 131,784 34,430 90,585 129,669 3,532 54,742 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Assets: Contributions receivable - employer 299,298 20,864 419,361 $ 1,184,265 - ------------------------------------------------------------------------------------------------- Total assets 299,298 20,864 419,361 $ 1,184,265 - ------------------------------------------------------------------------------------------------- Plan equity 299,298 20,864 419,361 $ 1,184,265 - -------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 2 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Statement of Financial Condition, with Fund Information December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------ Fund Information --------------------------------------------------------------------------------------- Participant Directed --------------------------------------------------------------------------------------- Short-term S&P 500 Fixed Equity Domestic Global International Income Bond Index Equity Equity Equity Fund Fund Fund Fund Fund Fund - ------------------------------------------------------------------------------------------------------------------------------------ Assets Contributions receivable - employer $ 106,983 50,655 8,878 151,074 24,148 190,465 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 106,983 50,655 8,878 151,074 24,148 190,465 - ------------------------------------------------------------------------------------------------------------------------------------ Plan equity $ 106,983 50,655 8,878 151,074 24,148 190,465 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ----------------------------------------------------------------------------------------- Fund Information -------------------------------------------- Participant Directed -------------------------------------------- Domestic International Aggressive Aggressive Growth Growth Fund Fund Total - ----------------------------------------------------------------------------------------- Assets Contributions receivable - employer 394,355 151,367 $ 1,077,925 - ----------------------------------------------------------------------------------------- Total assets 394,355 151,367 $ 1,077,925 - ----------------------------------------------------------------------------------------- Plan equity 394,355 151,367 $ 1,077,925 - -----------------------------------------------------------------------------------------
See accompanying notes to financial statements. 3 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Statement of Income and Changes in Plan Equity, with Fund Information Year ended December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------- Fund Information ------------------------------------------------------------------------- Participant Directed ------------------------------------------------------------------------- Short-term S&P 500 Fixed Equity Domestic Global International Income Bond Index Equity Equity Equity Fund Fund Fund Fund Fund Fund - ----------------------------------------------------------------------------------------------------------------------------------- Income Net appreciation (depreciation) in fair value of investments $ 3,886 (84) 5,326 10,118 (665) (18,433) Net realized gains (losses) on investments 2,720 1,540 3,817 27,794 (36) 27,404 Contributions Employee 33,636 5,609 17,389 34,375 447 29,654 Employer, before reduction for forfeitures 2,665 875 2,718 1,779 36 2,776 - ----------------------------------------------------------------------------------------------------------------------------------- Total income 42,907 7,940 29,250 74,066 (218) 41,401 - ----------------------------------------------------------------------------------------------------------------------------------- Expenses Distributions and withdrawals 24,591 31,431 17,608 107,094 26,327 44,872 Forfeitures - 107 - 975 68 184 - ----------------------------------------------------------------------------------------------------------------------------------- Total expenses 24,591 31,538 17,608 108,069 26,395 45,056 - ----------------------------------------------------------------------------------------------------------------------------------- Transfers between funds, net 6,485 7,373 70,065 12,598 5,997 (132,068) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in plan equity 24,801 (16,225) 81,707 (21,405) (20,616) (135,723) Plan equity, beginning of year 106,983 50,655 8,878 151,074 24,148 190,465 - ----------------------------------------------------------------------------------------------------------------------------------- Plan equity, end of year $131,784 34,430 90,585 129,669 3,532 54,742 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------------------------------------ Fund Information ----------------------------------------- Participant Directed ----------------------------------------- Domestic International Aggressive Aggressive Trigon Growth Growth Stock Fund Fund Fund Total - ------------------------------------------------------------------------------------------------------------- Income Net appreciation (depreciation) in fair value of investments $ (15,973) (12,346) 76,543 $ 48,372 Net realized gains (losses) on investments 30,712 17,887 1,018 112,856 Contributions Employee 78,428 21,801 63,155 284,494 Employer, before reduction for forfeitures 10,656 1,515 13,376 36,396 - ------------------------------------------------------------------------------------------------------------- Total income 103,823 28,857 154,092 482,118 - ------------------------------------------------------------------------------------------------------------- Expenses Distributions and withdrawals 101,300 20,021 627 373,871 Forfeitures 573 - - 1,907 - ------------------------------------------------------------------------------------------------------------- Total expenses 101,873 20,021 627 375,778 - ------------------------------------------------------------------------------------------------------------- Transfers between funds, net (97,007) (139,339) 265,896 - - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in plan equity (95,057) (130,503) 419,361 106,340 Plan equity, beginning of year 394,355 151,367 - 1,077,925 - ------------------------------------------------------------------------------------------------------------- Plan equity, end of year 299,298 20,864 419,361 $ 1,184,265 - -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 4 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Statement of Income and Changes in Plan Equity, with Fund Information Year ended December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------- Fund Information ------------------------------------------------------- Participant Directed ------------------------------------------------------- Short-term S&P 500 Fixed Equity Domestic Global Income Bond Index Equity Equity Fund Fund Fund Fund Fund - -------------------------------------------------------------------------------------------------------------------------- Income Net unrealized appreciation in fair value of investments $ 3,072 765 675 13,737 456 Net realized gains on investments 884 633 439 3,551 - Contributions Employee 34,630 22,379 2,885 79,591 1,626 Employer, before reduction for forfeitures 10,583 2,717 829 13,532 621 - -------------------------------------------------------------------------------------------------------------------------- Total income 49,169 26,494 4,828 110,411 2,703 - -------------------------------------------------------------------------------------------------------------------------- Expenses Distributions and withdrawals 6,879 12,248 - 21,241 - Forfeitures - 87 - 184 - - -------------------------------------------------------------------------------------------------------------------------- Total expenses 6,879 12,335 - 21,425 - - -------------------------------------------------------------------------------------------------------------------------- Transfers between funds, net 26,020 22,888 4,050 6,260 21,445 - -------------------------------------------------------------------------------------------------------------------------- Net increase in plan equity 68,310 37,047 8,878 95,246 24,148 Plan equity, beginning of year 38,673 13,608 - 55,828 - - -------------------------------------------------------------------------------------------------------------------------- Plan equity, end of year $ 106,983 50,655 8,878 151,074 24,148 - --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ---------------------------------------------------------------------------------------------------------------------------- Fund Information ---------------------------------------------------------- Participant Directed ---------------------------------------------------------- Domestic International International Aggressive Aggressive Equity Growth Growth Fund Fund Fund Total - ---------------------------------------------------------------------------------------------------------------------------- Income Net unrealized appreciation in fair value of investments 16,995 47,671 9,798 $ 93,169 Net realized gains on investments 3,089 12,055 2,972 23,623 Contributions Employee 76,618 190,566 70,997 479,292 Employer, before reduction for forfeitures 16,934 35,223 16,005 96,444 - ----------------------------------------------------------------------------------------------------------------------------- Total income 113,636 285,515 99,772 692,528 - ----------------------------------------------------------------------------------------------------------------------------- Expenses Distributions and withdrawals 7,980 24,315 8,602 81,265 Forfeitures - 4,319 - 4,590 - ----------------------------------------------------------------------------------------------------------------------------- Total expenses 7,980 28,634 8,602 85,855 - ----------------------------------------------------------------------------------------------------------------------------- Transfers between funds, net (7,368) (54,866) (18,429) - - ----------------------------------------------------------------------------------------------------------------------------- Net increase in plan equity 98,288 202,015 72,741 606,673 Plan equity, beginning of year 92,177 192,340 78,626 471,252 - ----------------------------------------------------------------------------------------------------------------------------- Plan equity, end of year 190,465 394,355 151,367 $ 1,077,925 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 5 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Statement of Income and Changes in Plan Equity, with Fund Information Year ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------- Fund Information ------------------------------------------------------ Participant Directed ------------------------------------------------------ Short-term Fixed Domestic International Income Bond Equity Equity Fund Fund Fund Fund - ------------------------------------------------------------------------------------------------------------- Income Net appreciation in fair value of investments $ 1,063 860 7,201 5,967 Net realized gains (losses) on investments 24 21 112 50 Contributions Employee 28,398 11,448 40,327 59,120 Employer 10,228 3,432 7,635 19,100 - ----------------------------------------------------------------------------------------------------------- Total income 39,713 15,761 55,275 84,237 - ----------------------------------------------------------------------------------------------------------- Expenses Distributions and withdrawals - - - 416 - ----------------------------------------------------------------------------------------------------------- Total expenses - - - 416 - ----------------------------------------------------------------------------------------------------------- Transfers between funds, net (1,040) (2,153) 553 8,356 - ----------------------------------------------------------------------------------------------------------- Net increase in plan equity 38,673 13,608 55,828 92,177 Plan equity, beginning of year - - - - - ----------------------------------------------------------------------------------------------------------- Plan equity, end of year $ 38,673 13,608 55,828 92,177 - -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ----------------------------------------------------------------------------------------- Fund Information ------------------------------ Participant Directed ------------------------------- Domestic International Aggressive Aggressive Growth Growth Fund Fund Total - ----------------------------------------------------------------------------------------- Income Net appreciation in fair value of investments 21,110 1,4770 $ 37,678 Net realized gains (losses) on investments 3,146 (24) 3,329 Contributions Employee 144,028 58,524 341,845 Employer 30,286 18,798 89,479 - ------------------------------------------------------------------------------------------ Total income 198,570 78,775 472,331 - ------------------------------------------------------------------------------------------ Expenses Distributions and withdrawals 663 - 1,079 - ------------------------------------------------------------------------------------------ Total expenses 663 - 1,079 - ------------------------------------------------------------------------------------------ Transfers between funds, net (5,567) (149) - ------------------------------------------------------------------------------------------ Net increase in plan equity 192,340 78,626 471,252 Plan equity, beginning of year - - - - ------------------------------------------------------------------------------------------ Plan equity, end of year 192,340 78,626 $471,252 - ------------------------------------------------------------------------------------------
6 TRIGON BLUE CROSS BLUE SHIELD 401(k) RESTORATION PLAN Notes to Financial Statements December 31, 1997 and 1996 - ------------------------------------------------------------------------------- (1) Summary of Significant Accounting Policies Organization The Trigon Blue Cross Blue Shield 401(k) Benefit Restoration Plan (Plan) was adopted effective January 1, 1995 by the Board of Directors of Trigon Insurance Company (dba Trigon Blue Cross Blue Shield), formerly, Blue Cross and Blue Shield of Virginia. The purpose of the Plan is to permit a select group of management or highly compensated employees (Participants) of Trigon Insurance Company and any subsidiary or affiliate, including its parent, Trigon Blue Cross Blue Shield, (collectively, Company) that adopts the Plan to defer compensation without regard to the limits imposed by the Internal Revenue Code on tax-qualified plans that include a cash or deferred arrangement. The Plan constitutes an unfunded "top hat" arrangement under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Accordingly, the Plan does not require the Company to segregate assets or establish trusts for any amounts to be paid to Participants under the Plan. In addition, Participants do not have any right, title or interest in or to any specific funds or property of the Company, and their interest, including vested amounts, is that of a general creditor. The following are the significant accounting policies followed by the Plan: Basis of Accounting The financial statements of the Plan are prepared under the accrual method of accounting. Accordingly, employee and employer contributions to the Plan are recorded as of the date the employees' contributions are withheld from the Participants' compensation. Net realized gains (losses) on investments and net appreciation (depreciation) of fair value of investments are recognized as they occur. Distributions and withdrawals are recorded when paid and are accounted for at the fair market value of the unit value of the Participant's account. Forfeitures are accounted for at the fair market value of the unit value forfeited. (Continued) 7 (1) Summary of Significant Accounting Policies, Continued Investment Valuation and Income Recognition The Plan's investments are stated at fair value based on quoted market prices as of year end. Purchases and sales of investments are recorded on a trade date basis. The Plan uses unit accounting to account for investment activity. The Plan's net realized gains (losses) on investments are computed on an average-cost basis. Net appreciation (depreciation) in fair value of investments is calculated daily based on the change in the market value and net investment earnings of the investments and Participant activity. Administrative Expenses The Company pays all administrative expenses of the Plan. Administrative expenses paid by the Company during 1997 and 1996 were $8,824 and $5,000, respectively. For 1995, there were no administrative expenses allocated to the Plan. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including disclosure of contingent assets and liabilities. Actual results could differ from those estimates. (2) Summary of Significant Provisions of the Plan The Plan is administered by the Human Resources, Compensation and Employee Benefits Committee of the Company's Board of Directors (Committee). The recordkeeper is Administrative Solutions Group, an ADP/Mercer Alliance, Deerfield, Illinois. Plan participants should refer to the Plan agreement or summary plan description for a more complete description of the Plan's provisions. (Continued) 8 - ------------------------------------------------------------------------------- (2) Summary of Significant Provisions of the Plan, Continued Eligibility Eligibility for participation in the Plan is determined by the Committee but each Participant must be a member of a select group of management or highly-compensated employees and must be an eligible participant in the Employees' Thrift Plan of Trigon Insurance Company (Qualified Plan). The Qualified Plan is a defined contribution plan of the Company subject to the provisions of ERISA. Participant Accounts Individual accounts are maintained by the Plan for the Participant to reflect the Participant's contributions and related employer matching contribution, as well as the Participant's share of the Plan's income, including net realized gains and losses, and related administrative expenses. Contributions Participants may elect to make voluntary contributions to the Plan in whole percentage amounts ranging from two to sixteen percent of their compensation for the year, offset by amounts actually deferred in the Qualified Plan. The Company is obligated under the matching provision of the Plan to contribute each pay period an amount equal to the difference between (a) fifty percent of the sum of the contributions of each Participant in both the Plan and the Qualified Plan which do not exceed six percent of each Participant's compensation for such pay period and (b) the amount equal to the Company's actual matching contribution to the Qualified Plan for such pay period. Investment Options Each Participant's contributions are deemed to be invested in the various funds in the same proportion as each Participant's investment election in the Qualified Plan. No separate investment election by the Participant in the Plan is permitted or required. Investment options of the Qualified Plan consists of nine investment funds, including (Continued) 9 (2) Summary of Significant Provisions of the Plan, Continued investment in the Trigon Stock Fund, added in 1997. A registration statement on Form S-8 has been filed with the Securities and Exchange Commission to register the shares of Trigon Healthcare, Inc. Class A Common Stock (Common Stock) included as an investment option in the Plan. A description of each investment option follows: Short-Term Fixed Income Fund - The aim of this fund is to provide steady investment returns with lower risk than any of the other funds. This fund may invest in short-term treasury, government agency, and corporate bonds, money market instruments, guaranteed investment contracts issued by life insurance companies, which offer a fixed interest rate, or a pooled fund investing in similar contracts. Bond Fund - This fund provides a high level of current interest income with some opportunity for long-term growth. This fund may invest in treasury, government agency, and corporate bonds and mutual funds that invest in such bonds. S&P 500 Equity Index Fund - This fund invests in the common stocks of those companies that comprise the S&P 500 index, or a mutual fund or commingled fund that invests in those companies. The objective of this fund is to provide long-term growth of capital, with growth of income as a secondary objective. Domestic Equity Fund - This fund primarily invests in common stocks of high quality, relatively mature domestic corporations from a cross-section of business and industry and/or mutual funds or collective funds that invest in such stocks. The objective of this fund is to provide long-term capital growth from stock prices and some current income from dividends. Global Equity Fund - The fund primarily invests in common stocks of high-quality, relatively mature companies based throughout the world, including the U.S., or mutual funds or collective funds that make such investments. The objective of this fund is to provide long-term capital growth and some current income. (Continued) 10 (2) Summary of Significant Provisions of the Plan, Continued International Equity Fund - This fund is like the Domestic Equity Fund except that it primarily invests in common stocks of high quality foreign corporations instead of domestic corporations, and/or mutual funds or collective funds that invest in such stocks. This fund's objective is to provide long-term capital growth and some current income. Domestic Aggressive Growth Fund - The objective of this fund is capital growth. This fund invests primarily in the common stocks of small, rapidly growing domestic companies, or mutual or collective funds that invest in such companies. International Aggressive Growth Fund - The International Aggressive Growth Fund is similar to the Domestic Aggressive Growth Fund, except that it invests primarily in stocks of small, rapidly growing foreign companies, or mutual or collective funds that invest in such stocks. Pursuit of long-term capital growth is this fund's primary objective. Trigon Stock Fund - This fund invests in Common Stock which is listed on the New York Stock Exchange, and cash for Plan liquidity purposes. Each investment fund is divided into units of participation which are calculated daily by the recordkeeper. The daily value of each unit is determined by dividing the total fair market value of all assets in each fund by the total number of units in that fund. The Plan is an unfunded plan. Under the Plan provisions, net realized gains (losses) on investments and net appreciation (depreciation) of fair value of investments is credited to each Participant's account based on the adjustment of the unit values in the Qualified Plan. The payment of administrative expenses for Qualified Plan assets is reflected in the calculation of plan unit value. (Continued) 11 (2) Summary of Significant Provisions of the Plan Continued Vesting Participants are fully vested in their contributions and the earnings thereon at all times. Participants are vested in employer matching contributions and the earnings thereon upon death, disability or retirement, after 36 months of contributing participation in the Qualified Plan or after 48 months of service with a non-participating affiliate. Forfeitures reduce the Employer's contributions to the Plan. Distributions Plan distributions are recorded when paid. The Plan allows Participants to withdraw balances in a lump sum or in specified annual installments upon retirement, death or disability based upon elections made at the commencement of participation in the plan. Withdrawals prior to retirement are distributed in a lump sum. In addition, if previously elected by a Participant, all amounts in a Participant's account will be distributed in a lump sum upon a Plan-defined change in control of the Company. Number of Participants There were 31 and 36 Participants in the Plan as of December 31, 1997 and 1996, respectively. The number of Participants investing in each of the Plan's funds as of those dates were as follows: Investment Fund(1) 1997 1996 --------------------------------------------------------------------- Short-Term Fixed Income Fund 12 12 Bond Fund 8 12 S&P 500 Equity Index Fund 12 6 Domestic Equity Fund 20 23 Global Equity Fund 4 2 International Equity Fund 13 23 Domestic Aggressive Growth Fund 23 32 International Aggressive Growth Fund 11 19 Trigon Stock Fund 19 -- ===================================================================== (1) Participants may hold investments in more than one fund; accordingly, the total participation by individual funds may exceed the total number of Plan participants. (Continued) 12 (3) Units and Unit Values Each fund in the Plan is valued daily on a unitized basis by the recordkeeper. The number of units and unit values of net assets as of December 31, 1997 were: Unit Investment Fund Units values ---------------------------------------------------------------------- Short-term Fixed Income Fund 10,607.49 $12.42 Bond Fund 2,534.30 13.59 S&P 500 Equity Index Fund 5,882.16 15.40 Domestic Equity Fund 5,817.56 22.29 Global Equity Fund 337.99 10.45 International Equity Fund 4,323.33 12.66 Domestic Aggressive Growth Fund 16,084.60 18.61 International Aggressive Growth Fund 2,228.12 9.36 Trigon Stock Fund 31,647.30 13.25 ====================================================================== (4) Plan Funding The Plan is an unfunded Plan under Title 1 of ERISA. In order to set aside funds for the purpose of assisting the Company in meeting its liabilities to the Plan, Trigon Blue Cross Blue Shield established the Trigon Blue Cross Blue Shield Grantor Trust (Trust) in 1997. Wachovia Corporate Services, Inc., Winston-Salem, North Carolina, is the custodian of the assets of the Trust. Under the Trust, the assets contributed and income earned on such assets must remain in the Trust until Participant liabilities under the Plan have been satisfied. However, the assets held in the trust are considered to be assets of the Company and are subject to the claims of the Company's creditors in the event of the Company's insolvency. The Trust does not change the unfunded status of the Plan. The Plan Participants have no preferred claim on, or any beneficial interest in, any assets of the Trust. If the balance of the Trust is not sufficient to make payments in accordance with the terms of the Plan, the Company must fund the difference using general corporate assets. Once all payments under the Plan have been made and the Plan is terminated, any excess assets remaining in the Trust revert back to the Company. In the event of a change in control of the Company, the Company will make an irrevocable contribution to the Trust to fully fund all Participant account balances as determined by the Plan. (Continued) 13 (4) Plan Funding, Continued The estimated fair value and cost of investment securities in the Trust as of December 31, 1997 were as follows: Net unrealized Fair appreciation value Cost (depreciation) ---------------------------------------------------------------------- Mutual funds $ 756,846 798,561 (42,075) Common Stock 407,001 374,631 32,370 ---------------------------------------------------------------------- $1,163,487 1,173,192 (9,705) The Trust held 15,579 shares of Common Stock on December 31, 1997. The net appreciation in fair value of the investments in the Trust as of December 31, 1997 and the change in such amounts during the year were as follows: Net unrealized Fair appreciation value Cost (depreciation) ----------------------------------------------------------------------- Balance, January 1, 1997 $ -- -- -- Change for the year ended December 31, 1997 1,163,487 1,173,192 (9,705) ----------------------------------------------------------------------- $1,163,487 1,173,192 (9,705) ======================================================================= (5) Tax Status The Committee believes that the Plan has operated in accordance with the terms of the plan document and current tax law. Accordingly, no provision for income taxes has been included in the Plan's financial statements. Under present Federal income tax laws and regulations, employee and employer contributions and investment earnings thereon are not taxable to Participants until distributed. Earnings on assets held in the trust are taxable to the Company under ordinary tax rules on an annual basis. (Continued) 14 (6) Plan Termination Although it has not expressed any intent to do so, the Company's Board of Directors has the right under the Plan to terminate the Plan. In the event of a plan termination, Participants will become fully vested in their accounts. 15 -----END PRIVACY-ENHANCED MESSAGE-----