-----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, HyXJJKNwAyqJ8hFSCDjjvXKdmlTnzLe5oJ98zb/r1QytgjKK0f97Zii4eePNifhy K6eXAgcaODIzcTNr0l9+jw== 0000916641-99-000377.txt : 19990503 0000916641-99-000377.hdr.sgml : 19990503 ACCESSION NUMBER: 0000916641-99-000377 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990430 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-K405/A SEC ACT: SEC FILE NUMBER: 001-12617 FILM NUMBER: 99607937 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-K405/A 1 TRIGON HEALTHCARE, INC. 10-K405/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, 1998 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. [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 28, 1999 was approximately $1,311,301,000 (based on the last reported sales price of $31 per share on April 28, 1999, on the New York Stock Exchange). As of April 28, 1999, 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, 1998 into Parts II and IV of this Form 10-K. Certain portions of Trigon Healthcare Inc.'s definitive Proxy Statement dated March 29, 1999 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 1998 annual reports for the Trigon Healthcare, Inc. Employee Stock Purchase Plan and the Trigon Insurance Company 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 Omitted 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) 3.4 -- Amendment to the Amended and Restated Bylaws of Trigon Healthcare, Inc. (8) 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 Trigon Insurance Company. (1) * 10.4 -- Non-Contributory Retirement Program for Certain Employees of Trigon Insurance Company. (1) * 10.5 -- Amended and Restated Supplemental Executive Retirement Program for Certain Employees of Trigon Insurance Company dated as of October 1, 1998. (8) * 10.6 -- Salary Deferral Plan for Norwood H. Davis, Jr. (1) * 10.7 -- Amended and Restated Employment Agreement dated September 16, 1998 by and between Trigon Insurance Company and Norwood H. Davis, Jr. (7) * 10.9 -- Amended and Restated Employees' Thrift Plan of Trigon Insurance Company dated as of October 1, 1998. (8) * 10.10 -- Amended and Restated Trigon Insurance Company 401(k) Restoration Plan dated as of October 1, 1998. (8) * 10.12 -- Form of Employment Agreement dated as of December 12, 1990 by and between Trigon Insurance 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. (3) * 10.20 -- Form of Executive Continuity Agreement dated as of September 16, 1998 between Trigon Insurance Company and Thomas G. Snead, Jr. and certain other executive officers. (7) * 10.21 -- Form of Executive Continuity Agreement dated as of September 16, 1998 between Trigon Insurance Company and John C. Berry and certain other executive officers. (7) * 10.22 -- Amendment to the Non-Contributory Retirement Program for Certain Employees of Trigon Insurance Company (now to be known as) The Trigon Insurance Company Retirement Program dated as of October 1, 1998. (8) * 10.23 -- Clarifying Amendment to the Non-Contributory Retirement Program for Certain Employees of Trigon Insurance Company (now to be known as) The Trigon Insurance Company Retirement Program dated as of October 1, 1998. (8) * 11 -- Computation of per share earnings. Refer to page 51, "Note 15. "Net Income and Pro Forma Net Income Per Share," of Trigon Healthcare Inc.'s Annual Report to Shareholders, which is incorporated herein by reference. 13 -- Excerpts from the Company's Annual Report to Shareholders for the year ended December 31, 1998. (8) 21 -- Subsidiaries of the Registrant. (8) 23.1 -- Consent of KPMG LLP. (8) 23.2 -- Consent of KPMG LLP. 23.3 -- Consent of KPMG LLP. 27 -- Financial Data Schedule. (8) 99.1 -- Trigon Healthcare, Inc. Employee Stock Purchase Plan Audited Financial Statements as of December 31, 1998 and 1997 and for year ended December 31 1998 and the period May 1, 1997 (inception) through December 31, 1997. 99.2 -- Trigon Insurance Company 401(k) Restoration Plan Audited Financial Statements as of December 31, 1998 and 1997 and for the three years ended December 31, 1998, 1997 and 1996.
(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, 1996. (3) Incorporated by reference to exhibits filed with the Company's Form 10-K for the year ended December 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) Incorporated by reference to exhibits filed with the Company's Form 10-Q for the period ended September 30, 1998. (8) Previously filed as part of the Annual Report on Form 10-K for the year ended December 31, 1998. * 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. TRIGON HEALTHCARE, INC. Registrant By:/s/ THOMAS R. BYRD ------------------ THOMAS R. BYRD Title: SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: April 29, 1999 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, 1999 NORWOOD H. DAVIS, JR. /s/ THOMAS R. BYRD - ------------------ Senior Vice President and Chief THOMAS R. BYRD Financial Officer (Principal Financial and Accounting Officer) April 29, 1999 /s/ HUNTER B. ANDREWS - --------------------- Director April 28, 1999 HUNTER B. ANDREWS, ESQ. /s/ LENOX D. BAKER, JR. - ----------------------- Director April 28, 1999 LENOX D. BAKER, JR., M.D. /s/ JAMES. K. CANDLER - --------------------- Director April 28, 1999 JAMES K. CANDLER /s/ ROBERT M. FREEMAN - --------------------- Director April 28, 1999 ROBERT M. FREEMAN /s/ WILLIAM R. HARVEY - --------------------- Director April 28, 1999 WILLIAM R. HARVEY, Ph.D. /s/ GARY A. JOBSON - ------------------ Director April 28, 1999 GARY A. JOBSON SIGNATURE TITLE DATE --------- ----- ---- /s/ DONALD B. NOLAN - -------------------- Director April 28, 1999 DONALD B. NOLAN, M.D. /s/ WILLIAM N. POWELL - --------------------- Director April 28, 1999 WILLIAM N. POWELL /s/ J. CARSON QUARLES - --------------------- Director April 28, 1999 J. CARSON QUARLES /s/ R. GORDON SMITH - ------------------- Director April 28, 1999 R. GORDON SMITH, ESQ. /s/ HUBERT R. STALLARD - ---------------------- Director April 28, 1999 HUBERT R. STALLARD /s/ STIRLING L. WILLIAMSON, JR. - ------------------------------ Director April 28, 1999 STIRLING L. WILLIAMSON, JR.
EXHIBIT INDEX Exhibit Number Description - ------- ----------- 23.2 -- Consent of KPMG LLP. 23.3 -- Consent of KPMG LLP. 99.1 -- Trigon Healthcare, Inc. Employee Stock Purchase Plan Audited Financial Statements as of December 31, 1998 and 1997 and for year ended December 31 1998 and the period May 1, 1997 (inception) through December 31, 1997. 99.2 -- Trigon Insurance Company 401(k) Restoration Plan Audited Financial Statements as of December 31, 1998 and 1997 and for the three years ended December 31, 1998, 1997 and 1996. 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 23, 1999, relating to the statements of financial condition of the Trigon Healthcare, Inc. Employee Stock Purchase Plan as of December 31, 1998 and 1997, and the related statements of income and changes in plan equity for the year ended December 31, 1998 and the period 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 LLP Richmond, Virginia April 29, 1999 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 23, 1999, relating to the statements of financial condition, with fund information, of the Trigon Insurance Company 401(k) Restoration Plan as of December 31, 1998 and 1997, 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, 1998, which report is included in this Form 10-K/A No. 1 of Trigon Healthcare, Inc. /s/ KPMG LLP Richmond, Virginia April 29, 1999 EX-99 4 EXHIBIT 99.1 Exhibit 99.1 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Financial Statements December 31, 1998 and 1997 (With Independent Auditors' Report Thereon) TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Table of Contents Page Independent Auditors' Report 1 Statements of Financial Condition 2 Statements of Income and Changes in Plan Equity 3 Notes to Financial Statements 4 Independent Auditors' Report The Human Resources, Compensation and Employee Benefits Committee of the Board of Directors Trigon Healthcare, Inc.: We have audited the accompanying statements of financial condition of the Trigon Healthcare, Inc. Employee Stock Purchase Plan (Plan) as of December 31, 1998 and 1997, and the related statements of income and changes in plan equity for the year ended December 31, 1998 and 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 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 of the Plan as of December 31, 1998 and 1997 and the income and changes in plan equity for the year ended December 31, 1998 and the period May 1, 1997 (inception) through December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG LLP Richmond, Virginia April 23, 1999 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Statements of Financial Condition December 31, 1998 and 1997
1998 1997 ------------- ----------- Assets: Investments, at estimated fair value - Trigon Healthcare, $ 2,967,244 585,523 Inc. Class A common stock (cost, $1,860,570 and $479,487, respectively) Contributions receivable: Employee 259,215 318,506 Employer 45,745 56,207 ------------- ----------- Total assets $ 3,272,204 960,236 ============= =========== Plan equity $ 3,272,204 960,236 ============= ===========
See accompanying notes to financial statements. 2 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Statements of Income and Changes in Plan Equity Year ended December 31, 1998 and Period May 1, 1997 through December 31, 1997
May 1, 1997 through December 31, 1998 1997 ------------ ----------------- Income: Net unrealized appreciation in fair value of investments $ 1,000,638 106,036 Contributions: Employee 1,318,963 748,958 Employer 232,758 132,169 -------------- --------- Total contributions 1,551,721 881,127 -------------- --------- Total income 2,552,359 987,163 -------------- --------- Distributions to employees 240,391 26,927 -------------- --------- Net increase in plan equity 2,311,968 960,236 Plan equity, beginning of period 960,236 -- -------------- --------- Plan equity, end of period $ 3,272,204 960,236 ============== =========
See accompanying notes to financial statements. 3 TRIGON HEALTHCARE, INC. EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements December 31, 1998 and 1997 (1) Summary of Significant Accounting Policies (a) 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 (Participant) of the Company and its subsidiaries 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: (b) 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's 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 purchase of Common Stock. (c) 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. (d) Administrative Expenses The Company pays all administrative expenses of the Plan. Administrative expenses paid by the Company during 1998 and 1997 were $10,317 and $7,967, respectively. (e) 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 4 (Continued) Participants prior to withdrawal from the Plan are held in individual participant accounts in a custodian account with The Bank of New York (Custodian). Prior to October 1998, the custodian was First Chicago Trust Company of New York. 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 requirements 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 1998 and 1997, all shares needed to satisfy the requirements 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. 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 743 and 599 Participants as of December 31, 1998 and 1997, respectively. 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's 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. 5 (Continued) (3) Investment in Common Stock The net unrealized appreciation in fair value of investment in Common Stock as of December 31, 1998 and 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 Change for the year ended December 31, 1998 2,381,721 1,381,083 1,000,638 ------------ ------------ -------------- Balance, December 31, 1998 $ 2,967,244 1,860,570 1,106,674 ============ ============ ==============
The Plan held 79,524 and 22,412 shares of Common Stock on December 31, 1998 and 1997, respectively. In addition, 12,136 shares were pending purchase on December 31, 1998. (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. (6) Year 2000 Readiness Disclosure The Company has a unified Year 2000 plan for the Company and its subsidiaries. As part of the Plan, the Company monitors the Year 2000 efforts of the vendors performing critical outsourced functions for the Plan through the use of surveys. The information provided by the vendors has been confirmed by phone but has not been independently verified. The Plan's recordkeeper and custodian, The Bank of New York, has reported that renovation and testing of its mission-critical systems were substantially 6 (Continued) completed by December 31, 1998 in compliance with the requirements set forth by the Federal Financial Institutions Examination Council. In addition, The Bank of New York has indicated that its business continuity plans are being reviewed and upgraded in an effort to mitigate potential risks. The Bank of New York in turn uses third-party vendors to support its activities for the Plan. Examples include security brokers, banks and stock exchanges. It is not within the Company's ability to determine the Year 2000 status of these companies. The Company must rely on the efforts of the vendors it has selected for outsourced functions to ensure that these vendors can conduct their business on and after January 1, 2000. The Company will continue to monitor all critical vendors' progress, as appropriate, in order to assess and address the potential business exposure for the Plan if these parties fail to achieve compliance. Depending on the volume and duration, the Plan could experience intermittent disruptions or be significantly impacted by incomplete or untimely resolution of the problem by the parties involved. Specifically, without limitation, (i) a Participant's ability to make contributions, request distributions and request account balances; and (ii) the Plan's ability to purchase and sell or distribute Common Stock could be affected. Although the Company is developing contingency plans designed to address the aforementioned risks if the vendors are unable to achieve Year 2000 readiness, there can be no assurances that all potential problems will be mitigated by these procedures. 7 EX-99 5 EXHIBIT 99.2 Exhibit 99.2 TRIGON INSURANCE COMPANY 401(k) RESTORATION PLAN Financial Statements December 31, 1998 and 1997 (With Independent Auditors' Report Thereon) TRIGON INSURANCE COMPANY 401(k) RESTORATION PLAN Table of Contents
Page Independent Auditors' Report 1 Statement of Financial Condition, with Fund Information - December 31, 1998 2 Statement of Financial Condition, with Fund Information - December 31, 1997 3 Statement of Income and Changes in Plan Equity, with Fund Information - Year ended December 31, 1998 4 Statement of Income and Changes in Plan Equity, with Fund Information - Year ended December 31, 1997 5 Statement of Income and Changes in Plan Equity, with Fund Information - Year ended December 31, 1996 6 Notes to Financial Statements 7
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 Insurance Company 401(k) Restoration Plan (Plan) as of December 31, 1998 and 1997, 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, 1998. 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 of the Plan as of December 31, 1998 and 1997 and the income and changes in plan equity for each of the years in the three-year period ended December 31, 1998 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 LLP Richmond, Virginia April 23, 1999 TRIGON INSURANCE COMPANY 401(k) RESTORATION PLAN Statement of Financial Condition, with Fund Information December 31, 1998 Fund Information --------------------------------------------------- Participant Directed --------------------------------------------------- Short-term S&P 500 Fixed Equity Domestic Global Income Bond Index Equity Equity Fund Fund Fund Fund Fund ---------- -------- --------- --------- ------- Assets - contributions receivable - employer (note 4) $ 54,308 48,067 213,037 331,414 4,102 =========== ======== ========= ========= ======= Plan equity $ 54,308 48,067 213,037 331,414 4,102 =========== ======== ========= ========= =======
Fund Information ---------------------------------------------------- Participant Directed ---------------------------------------------------- Domestic International International Aggressive Aggressive Trigon Equity Growth Growth Stock Fund Fund Fund Fund Total ------------ ---------- ------------- ----------- ----------- Assets - contributions receivable - employer (note 4) 135,241 319,303 -- 1,060,586 2,166,058 ============= ========== ============= =========== =========== Plan equity 135,241 319,303 -- 1,060,586 2,166,058 ============= ========== ============= =========== ===========
See accompanying notes to financial statements. 2 TRIGON INSURANCE COMPANY 401(k) RESTORATION PLAN Statement of Financial Condition, with Fund Information December 31, 1997
Fund Information --------------------------------------------------- Participant Directed --------------------------------------------------- Short-term S&P 500 Fixed Equity Domestic Global Income Bond Index Equity Equity Fund Fund Fund Fund Fund ----------- --------- --------- --------- ------- Assets - contributions receivable - employer (note 4) $ 131,784 34,430 90,585 129,669 3,532 =========== ========= ========= ========= ======= Plan equity $ 131,784 34,430 90,585 129,669 3,532 =========== ========= ========= ========= ======= Fund Information -------------------------------------------------- Participant Directed -------------------------------------------------- Domestic International International Aggressive Aggressive Trigon Equity Growth Growth Stock Fund Fund Fund Fund Total ------------ ---------- ------------- --------- ----------- Assets - contributions receivable - employer (note 4) 54,742 299,298 20,864 419,361 1,184,265 ============ ========== ============= ========= =========== Plan equity 54,742 299,298 20,864 419,361 1,184,265 ============ ========== ============= ========= ===========
See accompanying notes to financial statements. 3 TRIGON INSURANCE COMPANY 401(k) RESTORATION PLAN Statement of Income and Changes in Plan Equity, with Fund Information Year ended December 31, 1998
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 appreciation (depreciation) in fair value of investments $ (6,138) 650 31,216 25,853 608 Net realized gains (losses) on investments 9,423 1,607 7,515 15,617 (256) Contributions: Employee 28,625 18,791 96,771 87,854 937 Employer, before reduction for forfeitures 3,018 4,802 20,610 18,621 277 ---------- --------- --------- ---------- --------- Total income 34,928 25,850 156,112 147,945 1,566 ---------- --------- --------- ---------- --------- Expenses: Distributions and withdrawals 115,681 9,454 -- 18,784 -- Forfeitures 47 -- -- -- -- ---------- --------- --------- ---------- --------- Total expenses 115,728 9,454 -- 18,784 -- ---------- --------- --------- ---------- --------- Transfers between funds, net 3,324 (2,759) (33,660) 72,584 (996) ---------- --------- --------- ---------- --------- Net increase (decrease) in plan equity (77,476) 13,637 122,452 201,745 570 Plan equity, beginning of year 131,784 34,430 90,585 129,669 3,532 ---------- --------- --------- ---------- --------- Plan equity, end of year $ 54,308 48,067 213,037 331,414 4,102 ========== ========= ========= ========== ========= Fund Information -------------------------------------------------- Participant Directed -------------------------------------------------- Domestic International International Aggressive Aggressive Trigon Equity Growth Growth Stock Fund Fund Fund Fund Total ----------- --------- ------------ ----------- ----------- Income: Net appreciation (depreciation) in fair value of investments 17,207 (2,379) 1,072 243,966 312,055 Net realized gains (losses) on investments 2,570 31,388 (5,221) 13,041 75,684 Contributions: Employee 41,014 148,412 24,086 270,245 716,735 Employer, before reduction for forfeitures 9,547 35,469 3,624 67,124 163,092 ----------- --------- ------------ ----------- ----------- Total income 70,338 212,890 23,561 594,376 1,267,566 ----------- --------- ------------ ----------- ----------- Expenses: Distributions and withdrawals 9,669 62,746 110 69,282 285,726 Forfeitures -- -- -- -- 47 ----------- --------- ------------ ----------- ----------- Total expenses 9,669 62,746 110 69,282 285,773 ----------- --------- ------------ ----------- ----------- Transfers between funds, net 19,830 (130,139) (44,315) 116,131 -- ----------- --------- ------------ ----------- ----------- Net increase (decrease) in plan equity 80,499 20,005 (20,864) 641,225 981,793 Plan equity, beginning of year 54,742 299,298 20,864 419,361 1,184,265 ----------- --------- ------------ ----------- ----------- Plan equity, end of year 135,241 319,303 -- 1,060,586 2,166,058 =========== ========= ============ =========== ===========
See accompanying notes to financial statements. 4 TRIGON INSURANCE COMPANY 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 Income Bond Index Equity Fund Fund Fund Fund ---------- --------- ---------- --------- Income: Net appreciation (depreciation) in fair value of investments $ 3,886 (84) 5,326 10,118 Net realized gains (losses) on investments 2,720 1,540 3,817 27,794 Contributions: Employee 33,636 5,609 17,389 34,375 Employer, before reduction for forfeitures 2,665 875 2,718 1,779 ---------- --------- ---------- --------- Total income 42,907 7,940 29,250 74,066 ---------- --------- ---------- --------- Expenses: Distributions and withdrawals 24,591 31,431 17,608 107,094 Forfeitures -- 107 -- 975 ---------- --------- ---------- --------- Total expenses 24,591 31,538 17,608 108,069 ---------- --------- ---------- --------- Transfers between funds, net 6,485 7,373 70,065 12,598 ---------- --------- ---------- --------- Net increase (decrease) in plan equity 24,801 (16,225) 81,707 (21,405) Plan equity, beginning of year 106,983 50,655 8,878 151,074 ---------- --------- ---------- --------- Plan equity, end of year $ 131,784 34,430 90,585 129,669 ========== ========= ========== ========= See accompanying notes to financial statements.
Fund Information ---------------------------------------------------------- Participant Directed ---------------------------------------------------------- Domestic International Global InternationalAggressive Aggressive Trigon Equity Equity Growth Growth Stock Fund Fund Fund Fund Fund Total --------- ------------ ---------- ----------- --------- ----------- Income: Net appreciation (depreciation) in fair value of investments (665) (18,433) (15,973) (12,346) 76,543 48,372 Net realized gains (losses) on investments (36) 27,404 30,712 17,887 1,018 112,856 Contributions: Employee 447 29,654 78,428 21,801 63,155 284,494 Employer, before reduction for forfeitures 36 2,776 10,656 1,515 13,376 36,396 --------- ------------ ---------- ----------- --------- ----------- Total income (218) 41,401 103,823 28,857 154,092 482,118 --------- ------------ ---------- ----------- --------- ----------- Expenses: Distributions and withdrawals 26,327 44,872 101,300 20,021 627 373,871 Forfeitures 68 184 573 -- -- 1,907 --------- ------------ ---------- ----------- --------- ----------- Total expenses 26,395 45,056 101,873 20,021 627 375,778 --------- ------------ ---------- ----------- --------- ----------- Transfers between funds, net 5,997 (132,068) (97,007) (139,339) 265,896 -- --------- ------------ ---------- ----------- --------- ----------- Net increase (decrease) in plan equity (20,616) (135,723) (95,057) (130,503) 419,361 106,340 Plan equity, beginning of year 24,148 190,465 394,355 151,367 -- 1,077,925 --------- ------------ ---------- ----------- --------- ----------- Plan equity, end of year 3,532 54,742 299,298 20,864 419,361 1,184,265 ========= ============ ========== =========== ========= ===========
See accompanying notes to financial statements. 5 TRIGON INSURANCE COMPANY 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 Income Bond Index Equity Fund Fund Fund Fund ---------- -------- --------- ---------- Income: Net unrealized appreciation in fair value of investments $ 3,072 765 675 13,737 Net realized gains on investments 884 633 439 3,551 Contributions: Employee 34,630 22,379 2,885 79,591 Employer, before reduction for forfeitures 10,583 2,717 829 13,532 ---------- -------- --------- ---------- Total income 49,169 26,494 4,828 110,411 ---------- -------- --------- ---------- 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 ---------- -------- --------- ---------- Net increase in plan equity 68,310 37,047 8,878 95,246 Plan equity, beginning of year 38,673 13,608 -- 55,828 ---------- -------- --------- ---------- Plan equity, end of year $ 106,983 50,655 8,878 151,074 ========== ======== ========= ========== See accompanying notes to financial statements. Fund Information ------------------------------------------------ Participant Directed ------------------------------------------------ Domestic International Global International Aggressive Aggressive Equity Equity Growth Growth Fund Fund Fund Fund Total --------- ------------ ---------- ----------- ----------- Income: Net unrealized appreciation in fair value of investments 456 16,995 47,671 9,798 93,169 Net realized gains on investments -- 3,089 12,055 2,972 23,623 Contributions: Employee 1,626 76,618 190,566 70,997 479,292 Employer, before reduction for forfeitures 621 16,934 35,223 16,005 96,444 --------- ------------ ---------- ----------- ----------- Total income 2,703 113,636 285,515 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 21,445 (7,368) (54,866) (18,429) -- --------- ------------ ---------- ----------- ----------- Net increase in plan equity 24,148 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 24,148 190,465 394,355 151,367 1,077,925 ========= ============ ========== =========== ===========
See accompanying notes to financial statements. 6 TRIGON INSURANCE COMPANY 401(k) RESTORATION PLAN Notes to Financial Statements December 31, 1998 and 1997 (1) Summary of Significant Accounting Policies (a) Organization The Trigon Insurance Company 401(k) Restoration Plan (Plan), formerly known as the Trigon Blue Cross Blue Shield 401(k) Restoration Plan, was amended and restated effective October 1, 1998. It was originally adopted effective January 1, 1995 by the Board of Directors of Trigon Insurance Company (d/b/a 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 Healthcare, Inc., (collectively, Company) who are selected for participation in the Plan to defer compensation without regard to the limits imposed by the Internal Revenue Code on the Company's tax-qualified plan, 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. 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. Under the provisions of the Plan, the Plan's assets and changes in the Plan's assets are calculated based on the corresponding Qualified Plan investment funds' asset value and adjustments of unit value, respectively. Since the Plan is unfunded, a receivable from the Company equivalent to the Plan's deemed investment balance as of year-end has been recorded in the accompanying statements of financial condition. The Company has recorded a corresponding liability to the Plan is its consolidated financial statements. The following are the significant accounting policies of the Qualified Plan and are followed by the Plan: (b) 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. 7 (Continued) (c) Investment Valuation and Income Recognition The Plan's contribution receivable - employer related to deemed investments is 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. 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. (d) Administrative Expenses The Company pays all administrative expenses of the Plan. Administrative expenses paid by the Company during 1998 and 1997 were $10,594 and $8,824, respectively. (e) 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. (a) Eligibility Officers of the Company who are Vice Presidents or above are eligible for participation in the Plan unless otherwise determined at the discretion of the Committee. All Participants must be a member of a select group of management or highly-compensated employees and must be an eligible participant in the Qualified Plan. 8 (Continued) (b) 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. (c) 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. In October 1998, the Plan was amended to permit the Company to contribute an additional discretionary contribution to each Participant's account. The discretionary contribution is calculated using a Plan-prescribed formula derived from Participant data from the Qualified Plan as of the most recent Qualified Plan year. During 1998, the Company made no discretionary contributions to the Plan. (d) 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 consist of nine investment funds, including 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. 9 (Continued) 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. 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. Effective September 30, 1998, this fund was no longer offered as an investment selection in either the Plan or Qualified Plan. All Participant balances were automatically transferred to the International Equity Fund along with any investment elections designated to this fund. Trigon Stock Fund - This fund invests in Common Stock which is listed on the New York Stock Exchange, and cash for liquidity purposes. 10 (Continued) Each Qualified Plan 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. Accordingly, under the provisions of the Plan, net realized gains (losses) on investments and net appreciation (depreciation) of fair value of investments are credited to each Participant's account based on the adjustment of the unit values in the Qualified Plan. The payment of administrative expenses for assets of the Qualified Plan is reflected in the calculation of plan unit value. (e) 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 or after 36 months of service with the Company and any of its affiliates or any other Blue Cross and/or Blue Shield organization. Forfeitures reduce the Employer's contributions to the Plan. (f) Distributions Plan distributions are recorded when paid and are made in cash or, effective October 1, 1998, Common Stock for the portion of a Participant's account invested in the Trigon Stock Fund in accordance with a Participant's election. 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. 11 (Continued) (g) Number of Participants There were 34 and 31 Participants in the Plan as of December 31, 1998 and 1997, respectively. The number of Participants investing in each of the Plan's funds as of those dates were as follows: Investment Fund (1) 1998 1997 --------------------- ---------- ----------- Short-Term Fixed Income Fund 7 12 Bond Fund 7 8 S&P 500 Equity Index Fund 15 12 Domestic Equity Fund 20 20 Global Equity Fund 3 4 International Equity Fund 17 13 Domestic Aggressive Growth Fund 23 23 International Aggressive Growth Fund -- 11 Trigon Stock Fund 21 19 ========== =========== (1) Participants may hold investments in more than one fund; accordingly, the total participation by individual funds may exceed the total number of Participants. (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, carried to the second decimal place, as of December 31, 1998 were: Unit Investment Fund Units values ------------------ ------------ -------- Short-term Fixed Income Fund 4,140.37 $ 13.12 Bond Fund 3,367.36 14.27 S&P 500 Equity Index Fund 10,774.11 19.77 Domestic Equity Fund 12,497.90 26.52 Global Equity Fund 345.86 11.86 International Equity Fund 8,975.04 15.07 Domestic Aggressive Growth Fund 16,033.94 19.91 Trigon Stock Fund 56,662.39 18.72 ============ ======== 12 (Continued) (4) Plan Funding As discussed in note 1, the Plan is an unfunded plan under Title 1 of ERISA and the Plan has recorded a receivable from the Company equivalent to the Plan's deemed investment balance as of year-end in the accompanying statements of financial condition. The Company has recorded a corresponding liability to the Plan in its consolidated financial statements. In order to set aside funds for the purpose of assisting the Company in meeting its liabilities to the Plan, the Company, through its subsidiary Trigon Insurance Company, established the Trigon Healthcare, Inc. Grantor Trust, formerly known as the Trigon Blue Cross Blue Shield Grantor Trust (Trust), in 1997. Wachovia Corporate Services, Inc. (Wachovia), 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 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 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 Participants' account balances as determined by the Plan. 13 (Continued) The estimated fair value and cost of investment securities in the Trust as of December 31, 1998 and 1997 were as follows:
1998 ------------------------------------------- NET UNREALIZED FAIR APPRECIATION VALUE COST (DEPRECIATION) ------------ ------------- -------------- Mutual funds 1,079,380 1,050,758 28,622 Common stock 1,037,287 756,599 280,688 ------------ ------------- -------------- 2,116,667 1,807,357 309,310 ============ ============= ============== 1997 ------------------------------------------- NET UNREALIZED FAIR APPRECIATION VALUE COST (DEPRECIATION) ------------ ------------- -------------- Mutual funds 756,486 798,561 (42,075) Common stock 407,001 374,631 32,370 ------------ ------------- -------------- 1,163,487 1,173,192 (9,705) ============ ============= ==============
The Trust held 27,800 shares of Common Stock as of December 31, 1998. The net appreciation (depreciation) in fair value of the investments in the Trust as of December 31, 1998 and 1997 and the change in such amounts during each 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) ------------ ------------- -------------- Balance, December 31, 1997 1,163,487 1,173,192 (9,705) Change for the year ended December 31, 1998 953,180 634,165 319,015 ------------ ------------- -------------- Balance, December 31, 1998 $ 2,116,667 1,807,357 309,310 ============ ============= ==============
14 (Continued) (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. (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. (7) Year 2000 Readiness Disclosure The Company has a unified Year 2000 plan for the Company and its subsidiaries. As part of the Plan, the Company monitors the Year 2000 efforts of the vendors performing critical outsourced functions for the Plan through the use of surveys. The information provided by the vendors has been confirmed by phone but has not been independently verified. The Plan's recordkeeper, Administrative Solutions Group (ASG), has advised that its system is now Year 2000 ready. During 1998, the Company installed the vendor-certified Year 2000-enabled version of ASG system interfaces. While not part of the Plan, the Trust uses Wachovia as custodian of the Trust (note 4). Wachovia has indicated that it has completed the conversion and internal testing of all applications systems as of April 1999. In addition, the Trust has purchased mutual funds from numerous investment firms. In addition to their individual 2000 efforts, it is the Company's understanding that the investment firms each participate in the securities industry-wide tests. To date, the Company has received status reports from most of these firms indicating they are or will be Year 2000 compliant by January 1, 2000. Each of the vendors selected by the Company to perform services for the Plan and the Trust in turn uses third-party vendors to support their activities. Examples include security brokers, banks and stock exchanges. It is not within the Company's ability to determine the Year 2000 status of these companies. The Company must rely on the efforts of the vendors it has selected for outsourced functions to ensure that these vendors can conduct their business on and after January 1, 2000. 15 (Continued) The Company will continue to monitor all critical vendors' progress, as appropriate, in order to assess and address the potential business exposure for the Plan and Trust if these parties fail to achieve compliance. Depending on the volume and duration, the Plan and Trust could experience intermittent disruptions or be significantly impacted by incomplete or untimely resolution of the problem by the parties involved. Specifically, without limitation, (i) a Participant's ability to make contributions, request withdrawals and distributions, transfer balances between investment funds and request account balances; (ii) the Plan's allocation of income and administrative expenses; and (iii) the Trust's ability to purchase and sell investment securities could be affected. Although the Company is developing contingency plans designed to address the aforementioned risks if the vendors are unable to achieve Year 2000 readiness, there can be no assurances that all potential problems will be mitigated by these procedures. 16 -----END PRIVACY-ENHANCED MESSAGE-----