UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from .................. to ...............
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) (Zip Code)
(Registrant's telephone number, including area code) (804) 354-7000
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Title of each class Outstanding at May 12, 1999
------------------- ----------------------------
Class A Common Stock, $0.01 par value 42,300,022 shares
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
FIRST QUARTER 1999 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 1
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998 2
Consolidated Statements of Changes in Shareholders' Equity for the
Three Months Ended March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Assets
Current assets
Cash $ 5,546 7,500
Investment securities, at estimated fair value 1,653,474 1,582,522
Premiums and other receivables 376,118 378,436
Other 12,489 10,891
----------- -----------
Total current assets 2,047,627 1,979,349
Property and equipment, net 49,414 47,890
Deferred income taxes 56,513 55,841
Goodwill and other intangibles, net 59,721 62,999
Restricted investments, at estimated fair value 10,127 10,347
Other assets 18,862 17,799
----------- -----------
Total assets $ 2,242,264 2,174,225
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Medical and other benefits payable $ 503,558 468,455
Unearned premiums 115,653 99,464
Accounts payable and accrued expenses 62,736 67,971
Deferred income taxes 1,816 8,022
Other liabilities 266,824 231,151
----------- -----------
Total current liabilities 950,587 875,063
Obligations for employee benefits, noncurrent 59,777 55,022
Medical and other benefits payable, noncurrent 64,181 75,212
Long-term debt 89,339 89,339
Minority interest in subsidiary 8,824 8,365
----------- -----------
Total liabilities 1,172,708 1,103,001
----------- -----------
Shareholders' equity
Common stock 423 423
Capital in excess of par 838,275 839,187
Retained earnings 214,633 202,554
Unearned compensation (543) --
Accumulated other comprehensive income (note 6) 16,768 29,060
----------- -----------
Total shareholders' equity 1,069,556 1,071,224
Commitments and contingencies (note 7)
----------- -----------
Total liabilities and shareholders' equity $ 2,242,264 2,174,225
=========== ===========
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 1999 and 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
-------------- -----------
<S> <C> <C>
Revenues
Premium and fee revenues
Commercial $ 400,627 373,209
Federal Employee Program 103,967 96,229
Amounts attributable to self-funded arrangements 283,394 273,604
Less: amounts attributable to claims under
self-funded arrangements (249,850) (247,415)
--------- ---------
538,138 495,627
Investment income 21,960 21,108
Net realized gains (losses) (9,918) 29,628
Other revenues 6,330 5,378
--------- ---------
Total revenues 556,510 551,741
Expenses
Medical and other benefit costs
Commercial 329,944 311,237
Federal Employee Program 100,086 91,869
--------- ---------
430,030 403,106
Selling, general and administrative expenses 106,318 95,381
Interest expense 1,200 1,337
--------- ---------
Total expenses 537,548 499,824
--------- ---------
Income before income taxes and minority interest 18,962 51,917
Income tax expense 6,348 17,427
--------- ---------
Income before minority interest 12,614 34,490
Minority interest 535 441
--------- ---------
Net income $ 12,079 34,049
========= =========
Earnings per share (note 5)
Basic $ 0.29 0.80
========= =========
Diluted $ 0.28 0.80
========= =========
Weighted average number of common shares outstanding
Basic 42,289 42,300
========= =========
Diluted 42,911 42,611
========= =========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
For the three months ended March 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Balance at January 1 $ 1,071,224 958,737
Net income 12,079 34,049
Net unrealized losses on investment
securities, net of income taxes (12,292) (5,205)
----------- -----------
Comprehensive income (loss) (213) 28,844
----------- -----------
Adjustment to cash payments to eligible policyholders in
lieu of common stock in the Demutualization -- (705)
Purchase and reissuance of common stock under
employee benefit plans, including tax benefits (1,035) (56)
Change in common stock held by consolidated grantor trusts (420) (278)
----------- -----------
Balance at March 31 $ 1,069,556 986,542
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
-------------- -----------
<S> <C> <C>
Net income $ 12,079 34,049
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 5,839 5,070
Accretion of discounts and amortization of premiums, net (3,709) (5,486)
Change in allowance for doubtful accounts receivable 1,573 600
Decrease in premiums and other receivables 9,032 920
Increase in other assets (2,836) (4,375)
Increase in medical and other benefits payable 24,072 20,153
Increase in unearned premiums 16,189 11,423
Decrease in accounts payable and accrued expenses (5,235) (66)
Increase in other liabilities 1,789 29,542
Change in deferred income taxes (260) 607
Increase in minority interest 535 441
Increase in obligations for employee benefits 4,755 3,586
Loss on disposal of property and equipment and other assets -- 1
Net realized (gains) losses 9,918 (29,628)
----------- -----------
Net cash provided by operating activities 73,741 66,837
----------- -----------
Cash flows from investing activities
Proceeds from sale of property and equipment and other assets 37 17
Capital expenditures (4,460) (4,443)
Investment securities purchased (1,060,398) (967,352)
Proceeds from investment securities sold 758,855 382,467
Maturities of fixed income securities 237,139 522,116
----------- -----------
Net cash used in investing activities (68,827) (67,195)
----------- -----------
Cash flows from financing activities
Payments to members in lieu of common stock pursuant
to Plan of Demutualization -- (705)
Purchase and reissuance of common stock under employee
benefit plans, including tax benefits (1,035) (56)
Change in common stock purchased by consolidated grantor trusts (420) (278)
Change in outstanding checks in excess of bank balance (5,413) (4,422)
----------- -----------
Net cash used in financing activities (6,868) (5,461)
----------- -----------
Net decrease in cash (1,954) (5,819)
Cash - beginning of period 7,500 7,010
----------- -----------
Cash - end of period $ 5,546 1,191
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements prepared by Trigon
Healthcare, Inc. and its subsidiaries (collectively, "Trigon" or the
"Company") are unaudited, except for the balance sheet information as of
December 31, 1998, which is derived from the Company's audited consolidated
financial statements, pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, the consolidated financial
statements do not include all of the information and the footnotes required
by generally accepted accounting principles for complete financial
statements. These consolidated interim financial statements should be read
in conjunction with the audited consolidated financial statements included
in the Company's annual report on Form 10-K for the year ended December 31,
1998.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such
consolidated financial statements have been included. The results of
operations for the three months ended March 31,1999 are not necessarily
indicative of the results for the full year.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. LONG TERM DEBT
The Company has a $300 million revolving credit agreement with a syndicate
of banks, which expires February 2002. The credit agreement provides for
various borrowing options and rates and requires the Company to pay a
facility fee on a quarterly basis. The credit agreement also contains
certain financial covenants and restrictions including minimum net worth
requirements as well as limitations on dividend payments. As of March 31,
1999, $85 million had been borrowed and remained outstanding under the
credit agreement. The weighted average interest rate for the period the
borrowings were outstanding during the three months ended March 31, 1999
and 1998 was 5.32% and 5.96%, respectively.
3. INCOME TAXES
The effective tax rate on income before income taxes and minority interest
for the three months ended March 31, 1999 and 1998 was 33.5% and 33.6%,
respectively. The effective tax rate differs from the statutory tax rate of
35% primarily due to the Company's investments in tax-exempt municipal
bonds beginning in 1998 which reduces the effective tax rate by the effect
of the tax-exempt investment income earned.
In conjunction with the Demutualization, the Company was required to make a
payment of $175 million to the Commonwealth of Virginia (Commonwealth
Payment) which was expensed and paid in prior years. During 1998, the
Company amended its 1996 tax return to claim the $175 million Commonwealth
Payment as a deduction. The Internal Revenue Service (IRS) has denied this
deduction during the course of its audit of the Company. The Company
continues to pursue the deduction. In addition, the Company is working with
the IRS to resolve certain other tax issues that could result in a
substantial favorable settlement to the Company. The Company cannot predict
how long the settlement process will take or whether favorable settlements
will be achieved. The Company has not recognized the impact of the
settlements, if any, in the consolidated financial statements.
5
<PAGE>
4. CAPITAL STOCK
On February 17, 1999, the Board of Directors granted shares of the Company's
common stock as restricted stock awards in accordance with the provisions of
the 1997 Stock Incentive Plan (Incentive Plan). The shares vest on a
pro-rata basis over three years. The recipients of the restricted stock
awards generally may not dispose or otherwise transfer the restricted stock
until vested. For grants of restricted stock, unearned compensation
equivalent to the fair market value of the shares at the date of grant is
recorded as a separate component of shareholders' equity and subsequently
amortized to compensation expense over the vesting period.
5. NET INCOME AND NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and 1998 (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
<S> <C> <C>
------------------------------------------------------------------------------
Numerator for basic and diluted earnings per
share - net income $ 12,079 34,049
------------------------------------------------------------------------------
Denominator
Denominator for basic earnings per share -
weighted average shares 42,289 42,300
Effect of dilutive securities
Employee and director stock options 611 311
Restricted stock awards 11 -
------------------------------------------------------------------------------
Denominator for diluted earnings per share 42,911 42,611
------------------------------------------------------------------------------
Basic net income per share $ 0.29 0.80
==============================================================================
Diluted net income per share $ 0.28 0.80
==============================================================================
</TABLE>
Shares of nonvested restricted stock are not considered outstanding in
computing the weighted average number of common shares for basic earnings
per share.
6
<PAGE>
6. COMPREHENSIVE INCOME
The reclassification entries under SFAS No. 130, Reporting Comprehensive
Income, for the three months ended March 31, 1999 and 1998 were as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
--------------------------------------------------------------------------------------------------
Net unrealized losses on investment securities, net of income taxes
Net unrealized holding gains (losses) arising during the period,
net of income taxes (benefit) of $(10,089) and $7,547 $ (18,739) 14,053
Less: reclassification adjustment for net gains (losses) included
in net income, net of income taxes (benefit) of $(3,471) and (6,447) 19,258
$10,370
--------------------------------------------------------------------------------------------------
Net unrealized losses on investment securities, net of income taxes $ (12,292) (5,205)
==================================================================================================
</TABLE>
The components of accumulated other comprehensive income as of March 31,
1999 and December 31, 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities, net of deferred income
taxes of $9,647 and $16,265 $ 17,917 30,209
Minimum pension liability, net of deferred income taxes of $619 (1,149) (1,149)
--------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income $ 16,768 29,060
========================================================================================================
</TABLE>
7. LITIGATION
The Company is the defendant in one lawsuit that has been filed by a
self-funded employer group in connection with the Company's past practices
regarding provider discounts. The suit claims that the Company was
obligated to credit the self-funded plan with the full amount of the
discounts that the Company negotiated with facilities providing health care
to members covered by the plan. The suit seeks an audit and unspecified
compensatory, punitive and other damages. The Company is also presently the
subject of four other claims by self-funded employer groups related to the
Company's past practices regarding provider discounts. The Company is
communicating with these groups, and lawsuits have not been filed in
connection with these claims. Although the ultimate outcome of such claims
and litigation cannot be estimated, the Company believes that the
discount-related claims and litigation brought by these self-funded
employer groups will not have a material adverse effect on the financial
condition of the Company.
The Company and certain of its subsidiaries are involved in various other
legal actions occurring in the normal course of their business. While the
ultimate outcome of such litigation cannot be predicted with certainty, in
the opinion of Company management, after consultation with counsel
responsible for such litigation, the outcome of those actions is not
expected to have a material adverse effect on the financial condition of
the Company.
7
<PAGE>
8. SEGMENT INFORMATION
The following table presents information by reportable segment for the
three months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Health Government All
Insurance Programs Investments Other Total
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
1999
Revenues from external customers $ 434,435 103,967 - 5,648 544,050
Investment income and net realized losses - - 12,042 - 12,042
Intersegment revenues 2,791 - - 1,454 4,245
Depreciation and amortization expense 5,686 68 4 343 6,101
Income before income taxes and minority
interest 14,709 707 12,042 657 28,115
1998
Revenues from external customers $ 399,313 96,229 - 5,345 500,887
Investment income and net realized gains - - 50,736 - 50,736
Intersegment revenues 2,373 - - 1,595 3,968
Depreciation and amortization expense 4,034 59 3 775 4,871
Income (loss) before income taxes and
minority interest 10,377 718 50,736 (232) 61,599
</TABLE>
A reconciliation of reportable segment total revenues, income before income
taxes and minority interest, and depreciation and amortization expense to
the corresponding amounts included in the consolidated statements of
operations for the three months ended March 31, 1999 and 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-----------------------------------------------------------------------------------
Revenues
Reportable segments
External revenues $ 544,050 500,887
Investment revenues 12,042 50,736
Intersegment revenues 4,245 3,968
Other corporate revenues 418 118
Elimination of intersegment revenues (4,245) (3,968)
-----------------------------------------------------------------------------------
Total revenues $ 556,510 551,741
===================================================================================
Profit or Loss
Reportable segments $ 28,115 61,599
Corporate expenses not allocated to segments (7,953) (8,345)
Unallocated amount - interest expense (1,200) (1,337)
-----------------------------------------------------------------------------------
Income before income taxes and minority interest $ 18,962 51,917
===================================================================================
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-----------------------------------------------------------------------------------
Depreciation and amortization expense
Reportable segments $ 6,101 4,871
Not allocated to segments (262) 199
-----------------------------------------------------------------------------------
Depreciation and amortization expense $ 5,839 5,070
===================================================================================
</TABLE>
9. SUBSEQUENT EVENT
On May 7, 1999, the Company announced that it would discontinue its role as
a claims processing intermediary for the federal government with the
Medicare Part A program in Virginia and West Virginia, effective September
30, 1999. The Medicare Part A benefits for individuals in those states will
remain the same; a different intermediary will process the claims.
Additionally, the Company will discontinue providing computer processing
capabilities for Medicare Part A claims processing to certain other Blue
Cross Blue Shield plans after March 2000. This decision does not affect
the Company's medicare supplement and medicare HMO products. Individuals
with these types of coverage have private contracts with the Company and
their benefits remain unchanged.
This decision to discontinue as an intermediary reflects the Company's
sharpened focus on its commercial managed health care business. As a
result, 145 employee positions will be eliminated in the Company's Medicare
Part A division. The Company expects that the decision will not have a
material impact on the financial condition and results of operations of the
Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Substantially all of the revenues of Trigon Healthcare, Inc. and subsidiaries
(collectively, Trigon or the Company) are generated from premiums and fees
received for health care services provided to its members and from investment
income. Trigon's expenses are primarily related to health care services provided
which consist of payments to physicians, hospitals and other providers. A
portion of medical costs expense for each period consists of an actuarial
estimate of claims incurred but not reported to Trigon during the period. The
Company's results of operations depend in large part on its ability to
accurately predict and effectively manage health care costs.
The Company divides its business into four reportable segments: health
insurance, government programs, investments and all other. Its health insurance
segment offers several network products, including health maintenance
organizations (HMO), preferred provider organizations (PPO) and traditional
indemnity products with access to the Company's participating provider network
(PAR) as well as medicare supplement plans. The government programs segment
includes the Federal Employee Program (FEP) and claims processing for Medicare.
Through its participation in the national contract between the Blue Cross and
Blue Shield Association and the U.S. Office of Personnel Management (OPM), the
Company provides health benefits to federal employees in Virginia. FEP revenues
represent the reimbursement by OPM of medical costs incurred including the
actual cost of administering the program, as well as a performance-based share
of the national program's overall profit. The Company processes Medicare Part A
claims for beneficiaries in Virginia and West Virginia. Additionally, the
Company provides computer processing capabilities for Medicare Part A claims
processing to certain other Blue Cross Blue Shield plans. As an administrative
agent for Medicare, the Company allocates operating expenses to determine
reimbursement due for services rendered in accordance with the contract.
Medicare claims processed are not included in the consolidated statements of
operations and the reimbursement of allocated operating expenses is recorded as
a reduction of the Company's selling, general and administrative expenses. All
of the investment portfolios of the consolidated subsidiaries are managed and
evaluated collectively within the investment segment. The Company's other
health-related business including, third-party administration for medical
and workers compensation, life and disability insurance, disease management,
health promotion and similar products, are reflected in an "all other"
category.
Within the Company's health insurance network product offerings, employer groups
may choose various funding options ranging from fully-insured to partially or
fully self-funded financial arrangements. While self-funded customers
participate in Trigon's networks, the customers bear all or portions of the
claims risk.
10
<PAGE>
ENROLLMENT
The following table sets forth the Company's enrollment data by network:
As of March 31,
1999 1998
- ------------------------------------------------------------------------
Health Insurance
Commercial
HMO 253,992 254,320
PPO 317,239 268,194
PAR 160,024 186,009
Medicaid / Medicare HMO 32,600 31,224
Medicare supplement 120,204 124,324
Non-Virginia 109,977 79,116
- ------------------------------------------------------------------------
Total commercial 994,036 943,187
Self-funded 687,027 670,249
Processed for other Blue Cross and Blue
Shield Plans (ASO) 4,659 11,891
- ------------------------------------------------------------------------
Total health insurance 1,685,722 1,625,327
Government
Federal Employee Program (PPO) 217,101 214,235
- ------------------------------------------------------------------------
Total 1,902,823 1,839,562
========================================================================
PREMIUM AND PREMIUM EQUIVALENTS BY NETWORK SYSTEM
The following table sets forth the Company's premium and premium equivalents by
network (in thousands):
Quarter ended March 31,
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
Health Insurance
Commercial
HMO $ 95,073 92,921
PPO 121,963 103,670
PAR 71,665 80,940
Medicaid / Medicare HMO 18,100 14,254
Medicare supplement 57,018 55,247
Non-Virginia 36,808 26,177
- -----------------------------------------------------------------------
Total commercial 400,627 373,209
Self-funded 283,394 273,604
- -----------------------------------------------------------------------
Total health insurance 684,021 646,813
Government
Federal Employee Program (PPO) 103,967 96,229
- -----------------------------------------------------------------------
Total $ 787,988 743,042
=======================================================================
11
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Premium and fee revenues increased 8.6% to $538.1 million in the first quarter
of 1999 from $495.6 million in the first quarter of 1998. The $42.5 million
increase is due to a combination of rate increases and enrollment growth in the
Company's health insurance segment. Commercial revenue from the Virginia HMO,
PPO and PAR networks increased 5.1% to $306.8 million in 1999 from $291.8
million in 1998. This increase is attributed to a 2.6% increase in member months
and a 2.8% increase in average revenue per member. Non-Virginia revenues
increased 40.6% to $36.8 million up from $26.2 million last year. The $10.6
million increase is a result of growth in enrollment, which can be attributed to
the positive acceptance of the Company's product designs by individual health
care purchasers. Overall, premium revenues on a per member per month basis for
the Company's commercial business increased 1.7% to $134.88 for the first
quarter of 1999 from $132.59 for the first quarter of 1998. Excluding the impact
of a changing mix of business resulting from higher than average growth in
individual PPO business in-state and growth in out-of-state markets, premiums
increased 3.9% quarter to quarter. Self-funded net revenues increased $7.4
million as a result of improving margins, the impact of lower medical costs
creating favorable stop loss settlements and increased enrollment. The
government segment's FEP revenues increased 8.0% to $104.0 million from $96.2
million in the first quarter of last year. The increase is due to increased
medical costs to be reimbursed by OPM and a 1.3% increase in enrollment.
Total enrollment grew to 1,902,823 as of March 31, 1999 from 1,839,562 as of
March 31, 1998. The growth was a result of a 60,395 increase in the Company's
health insurance segment enrollment and a 2,866 increase in the government
segment. Total commercial enrollment increased 5.4% to 994,036 members as of
March 31, 1999 from 943,187 members last year as a result of favorable retention
rates and improved sales reflecting focused efforts on sales training,
geographical and segment targeting and ongoing enhancement to broker sales
programs. The majority of the increase has come from growth in the profitable
small group and individual Virginia business, up over 11.0% year over year.
Enrollment in the HMO network remained relatively unchanged over the prior year.
Non-Virginia enrollment increased 39.0% over the prior year and accounts for
11.1% of total commercial enrollment. Growth in PPO and Non-Virginia enrollment
was offset by an expected decline of 14.0% in the Company's PAR network as
members migrate into more tightly managed networks. The PAR network enrollment
represents 16.1% of the Company's total commercial enrollment. The increase in
self-funded enrollment of 16,778 members is a result of efforts to intensify
sales efforts, target certain large groups that recognize the value of Trigon's
provider networks and the Company's ability to effectively service multi-state
accounts.
Investment income increased 4.0% to $22.0 million in the first quarter of 1999
from $21.1 million in the first quarter of 1998. Net realized losses were $9.9
million in the first quarter of 1999, compared to net realized gains of $29.6
million for the same period in 1998. The first quarter 1999 net realized losses
reflected the Company's strategy to liquidate lower-yielding treasury securities
for higher-yielding investment-grade corporate bonds and municipal bonds to
enhance the return on the fixed-income portfolio.
12
<PAGE>
Medical costs increased 6.7% to $430.0 million in the first quarter of 1999 from
$403.1 million in the first quarter of 1998. The $26.9 million increase is the
result of expected levels of medical cost inflation, growth in the health
insurance segment's commercial enrollment and an increase in the government
segment's FEP medical costs reimbursed by OPM. The medical cost per member per
month for the Company's commercial business increased 0.5% to $111.08 in 1999
from $110.57 in the first quarter of 1998. Combined with a 1.7% increase in
commercial premium revenues per member per month, the loss ratio on commercial
business improved to 82.4% in 1999 from 83.4% for the same period last year. The
loss ratio improvement can be attributed to a combination of factors including,
the favorable impact of a number of medical cost management initiatives and
pricing discipline. Regarding medical cost management initiatives, the Company
continues to diligently work at negotiating lower reimbursement rates with
facilities and to better manage utilization. During the twelve month period
ended March 31, 1999, commercial Virginia inpatient days per thousand were down
4.6% as compared to the same period last year. Outpatient cost per member
declined by 3.7% for the same period due to the Company's conversion to a fixed
fee schedule for services from percent of charge type arrangements. In addition,
the Company is taking a more active role in working with physicians and
specialists to manage medical costs and to continue implementing national
medical management guidelines. To address the under-performing Mid-South
business unit, stricter underwriting and pricing standards have been applied and
the Company continues to take steps to improve product distribution channels and
operational efficiency. While Mid-South's results for the first quarter of 1999
show some improvement over the fourth quarter of 1998, the Company continues to
review a variety of options to improve this under-performing book of business.
Selling, general and administrative expenses (SG&A) increased by 11.5% to $106.3
million in the first quarter of 1999 from $95.4 million in the first quarter of
1998. The increase is a result of higher volumes and the incremental cost of
certain initiatives. SG&A expenses increased by $7.0 million as a result of
increased Non-Virginia volume, increased marketing and sales efforts and as a
result of a higher broker commission scale for business sold in Virginia.
Expenses also included $3.0 million for investment in systems, data analysis and
initiatives to continue growth of operating income (defined as income before
income taxes and minority interest excluding investment income, net realized
gains and interest expense). Overall, the SG&A ratio was 13.4% for the first
quarter of 1999 compared to 12.7% for the same period last year.
Interest expense declined to $1.2 million in the first quarter of 1999 from $1.3
million in the first quarter of 1998 as a result of favorable changes in the
weighted-average interest rate during the periods on the $85 million debt
outstanding.
Income before income taxes and minority interest decreased $33.0 million to
$18.9 million in the first quarter of 1999 from $51.9 million in the first
quarter of 1998. The decrease is a result of lower net realized gains (losses)
on the sale of investments of $39.5 million offset by a $5.6 million increase in
operating income. Operating income increased primarily due to improving margins
in the health insurance segment resulting from pricing and medical cost
management efforts.
13
<PAGE>
The effective tax rate on income before income taxes and minority interest for
the three months ended March 31, 1999 and 1998 was 33.5% and 33.6%,
respectively. The effective tax rate differs from the statutory tax rate of 35%
primarily due to the Company's investments in tax-exempt municipal bonds
beginning in 1998 which reduces the effective tax rate by the effect of the
tax-exempt investment income earned.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are premiums and fees received and
investment income. The primary uses of cash include health care benefit expenses
and capitation payments, brokers' and agents' commissions, administrative
expenses, income taxes and repayment of long-term debt. Trigon generally
receives premium revenues in advance of anticipated claims for related health
care services.
The Company's investment policies are designed to provide liquidity to meet
anticipated payment obligations and preserve capital. Trigon fundamentally
believes that concentrations of investments in any one asset class are unwise
due to constantly changing interest rates as well as market and economic
conditions. Accordingly, the Company maintains a diversified investment
portfolio consisting both of fixed income and equity securities, with the
objective of producing a consistently growing income stream and maximizing
risk-adjusted total return. The fixed income portfolio includes government and
corporate securities, both domestic and international, with an average quality
rating of "A" as of March 31, 1999. The portfolio had an average contractual
maturity of 6.8 years as of March 31, 1999. A portion of the fixed income
portfolio is designated as a short-term fixed income portfolio and is intended
to cover near-term cash flow needs and to serve as a buffer for unanticipated
business needs. The equity portfolios contain readily marketable securities
ranging from small growth to well-established Fortune 500 companies. The
international portfolio is diversified by industry, country and currency-related
exposure. As of March 31, 1999, the Company's equity exposure, comprised of
direct equity as well as equity-indexed investments, was 14.8% of the total
portfolio, as compared to 14.0% as of December 31, 1998. The Company has been
continuing to reallocate the portfolio during the first quarter of 1999 with a
greater emphasis on domestic, tax-exempt municipal bonds and investment-grade
corporate bonds.
The Company has a $300 million revolving credit agreement that expires in
February 2002. As of March 31, 1999, $85 million had been borrowed and remained
outstanding under this credit agreement.
The Company believes that cash flow generated by operations and its cash and
investment balances will be sufficient to fund continuing operations, capital
expenditures and debt repayment costs for the foreseeable future. The nature of
the Company's operations is such that cash receipts are principally premium
revenues typically received up to three months prior to the expected cash
payment for related health care services. The Company's operations are not
capital intensive, and there are currently no commitments for major capital
expenditures to support existing business.
14
<PAGE>
YEAR 2000 READINESS DISCLOSURE
NOTE: Statements made throughout the Year 2000 Readiness Disclosure concerning
the Year 2000 readiness of entities other than the Company (i.e., third parties)
are based upon information provided to the Company by the third parties and has
not been independently verified.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs and infrastructure systems that have date-sensitive software
may recognize a date using "00", for example, as the Year 1900 rather than the
Year 2000. Failure to adequately address this issue could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process claims, prepare invoices, retain
membership data, maintain accounting records, safeguard and manage its invested
assets and operating cash accounts, perform utilization management, provide
adequate customer service and other similar processes. The Company is
approaching the Year 2000 readiness issue from both a technical and business
perspective.
The Company began its Year 2000 initiative in late 1994. The Company has
developed and continues to refine comprehensive plans to prepare the computer
systems and application software for the Year 2000. Those plans address hardware
and software maintained by the Company, software products licensed from external
vendors and functions outsourced to external vendors. The plan also includes
"infrastructure systems" and non-IT systems and equipment, which contain
date-sensitive imbedded hardware or software. Due to the Company's reliance on
computer systems, senior management has supported the Year 2000 plan and has
committed significant financial and human resources to the goal of making the
hardware and software Year 2000 ready. The Company is using both external and
internal resources for the project.
Compliant versions of the majority of the Company's core systems and software
were installed in production as of year end 1998. Year 2000 testing has been
completed for most of these systems and products. The Year 2000 testing will
continue during 1999.
The Company's plan to resolve the Year 2000 issue involves four phases:
inventory/assessment, remediation, testing and implementation. Uniform project
management techniques are in place with overall oversight responsibility
residing with the Company's Senior Vice President and Chief Information Officer.
To date, the Company has fully completed the assessment phase, identifying
significant areas that could be affected by the Year 2000. The Company has made
substantial progress on the final three phases as discussed below.
INTERNALLY DEVELOPED APPLICATION SYSTEMS. Changes required to the mainframe
computer for the membership records systems and non-HMO claims processing are
being handled by internal and contract programming resources. This is the
largest and most complex part of the Company's Year 2000 readiness plan. Trigon
has completed approximately 99% of the Year 2000 application remediation and
Year 2000 testing of these applications. The remaining remediation and testing
efforts, none of which are critical to the Company's day to day business, are
scheduled to be completed by August 1999.
15
<PAGE>
EXTERNALLY LICENSED APPLICATION SYSTEMS. Trigon has received 99% of the
vendor-certified Year 2000 compliant releases of these application systems and
nearly all have been installed into production. The remaining installations are
scheduled to be installed by June 1999.
In addition, the Company is in the process of replacing two non-compliant
systems that could not be renovated with Year 2000 upgrades or patches. The
Company anticipates replacement of these non-core systems by September 1999.
EXTERNALLY LICENSED OPERATING SYSTEM/UTILITY PRODUCTS. These products support
the Company's mainframe, midrange, file server and desktop environments. Trigon
has received 99% of the vendor-certified Year 2000 compliant releases (or Year
2000 patches for current releases) of these vendor software products and
substantially all have been installed into production. The remaining
installations are scheduled based on the vendors' shipments of the compliant
versions of the products.
Trigon is conducting independent Year 2000 testing of vendor software, wherever
possible, to confirm compliance and, if necessary, to assess and address the
Company's potential business exposure if any of the software is non-compliant.
Testing of these products began in early 1998 and will continue during 1999.
OUTSOURCED FUNCTIONS. Trigon has outsourced support for some segments of its
business. These include, for example, administering certain specialty services
such as pharmacy, dental and vision processing services. The Company has
contacted its critical outsourcing vendors to determine their state of readiness
with regard to the Year 2000 issue. For certain outsourcing arrangements, the
Company has met with the vendors and conducted several reviews of their plans
and progress. The Company will continue to monitor all critical vendors'
progress and review their plans, as appropriate, in order to assess and address
the potential business exposure for the Company if these parties fail to achieve
compliance.
INFRASTRUCTURE SYSTEMS. Telephone, security, HVAC and all other infrastructure
systems that the Company maintains are in the process of being upgraded, and
tested, wherever possible, to assure their Year 2000 compliance. Much of this
work was completed during 1998. But as in other efforts where the Company is
reliant upon vendors, the remaining work will be scheduled based on the shipment
of the compliant versions of equipment and software. In certain circumstances,
the Company relies on third-party service providers for infrastructure systems
maintenance and, accordingly, Year 2000 compliance. The Company has surveyed the
critical third parties to assess and address the potential business exposure if
these systems fail to achieve compliance.
CRITICAL BUSINESS PARTNERS. The Company also depends upon other individuals and
entities who must each address their own Year 2000 readiness issues. This
includes, among others, hospitals, other health care providers, third party
benefit administrators, public utilities, communications service providers,
funds transfer networks and customers. The Company is periodically surveying its
critical business partners in an effort to determine whether such third parties
are assessing and correcting any issues relating to the Year 2000 which could
impact their ability to conduct business with the Company. This information will
also assist the Company in developing necessary contingency plans. In addition,
to help health care providers better understand the significance of Year 2000
preparedness, the Company is using a number of communications vehicles to draw
their attention to the issue. Trigon is also conducting face-to-face meetings
and gathering pertinent documentation to evaluate the Year 2000 readiness of
other critical business partners. Lack of appropriate action on the part of
third parties could impact the Company's ability to serve its customers.
16
<PAGE>
The Company has investments in publicly and privately placed securities. The
Company may be exposed to credit risk to the extent that the Year 2000 issue
materially adversely impacts the issuers of the securities.
Portfolio diversification should reduce the overall risk.
The incremental costs for the Year 2000 project were $17.0 million through March
31,1999, including $1.5 million incurred during the first quarter of 1999. Total
incremental costs are expected to approximate $20.2 million through 1999,
increasing to $22.0 million through 2000. The costs will be expensed as incurred
and will be funded through operating cash flows.
The Company expects to identify and resolve all Year 2000 issues that could
materially adversely affect its business operations. However, management
believes that it is not possible to determine with complete certainty that all
Year 2000 issues affecting the Company will be identified or corrected.
Depending on the volume and duration, the Company's operations could experience
intermittent disruptions or be significantly impacted by incomplete or untimely
resolution of the problem by internal or external parties. Specifically, without
limitation, the Company's ability to process claims, prepare invoices, retain
membership data, maintain accounting records, safeguard and manage its invested
assets and operating cash accounts, perform utilization management, provide
adequate customer service and other similar processes could be affected. The
Company's plan for completion of this project is partially dependent upon the
work of third parties. In addition, some of the Company's business operations
are provided and maintained by outside vendors. The Company depends upon many
other individuals and entities, for example hospitals, other health care
providers, third party benefit administrators, pharmacies, public utilities,
communications service providers, funds transfer networks, software and hardware
vendors and its customers, who must address their own Year 2000 readiness
issues. Lack of appropriate action on the part of others could affect the
Company's ability to serve its customers. Although the Company is developing
plans designed to mitigate the aforementioned risks, there can be no assurances
that all potential problems will be mitigated by these procedures. The Company
cannot determine the level of financial exposure relating to the possibility
that vendors and other business partners with whom the Company contracts may be
unable to address all pertinent Year 2000 issues.
The Company began a comprehensive contingency planning effort in the fourth
quarter of 1998 to address situations that may result if the Company or its
critical business partners are unable to achieve Year 2000 readiness of specific
products or systems. Contingency plans will outline the procedures to follow for
the most likely areas of risk. The Company expects its contingency plans to
include, among other things, on call staff dedicated to problem response, manual
work-arounds for information systems as well as substitution of systems or
vendors, if necessary and commercially reasonable.
17
<PAGE>
FORWARD-LOOKING INFORMATION
This Item, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and this Form 10-Q contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including, among other things, statements concerning future earnings,
premium rates, enrollment and medical and administrative costs. Such
forward-looking statements are subject to inherent risks and uncertainties, many
of which are beyond the control of the Company, that may cause actual results to
differ materially from those contemplated by such forward-looking statements.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are not limited to,
rising health care costs, business conditions and competition in the managed
care industry, government action and other regulatory issues. Additional
information concerning factors that could cause actual results to differ
materially from those in forward-looking statements is contained in the
Company's Annual Report on Form 10-K under the caption "Forward-Looking
Information".
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The costs of the project
and the date on which the Company believes it will complete necessary Year 2000
preparations are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. There can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of programming and testing resources, the ability to
locate and correct all relevant computer codes, the ability of third parties
whose products and services impact the Company to convert their systems and
software and other similar uncertainties.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of its investing and borrowing activities, the Company is exposed to
financial market risks, specifically those resulting from changes in interest
rates, foreign currency exchange rates and marketable equity security prices.
All of the potential changes noted below are based upon sensitivity analyses
performed on the Company's financial positions as of March 31, 1999. Actual
results may vary materially.
All of the Company's investments are categorized as available-for-sale. The
majority of these are fixed income securities. Market risk is addressed by
actively managing the duration and diversification of the portfolio. The Company
has evaluated the impact on the portfolio's fair value considering a 100 basis
point change in interest rates over the next twelve-month period. A hypothetical
100 basis point increase in interest rates would result in an approximate $30.3
million increase in fair value, whereas a corresponding 100 basis point decrease
in interest rates would result in an approximate $177.5 million increase in fair
value. This analysis includes the assumption that the 100 basis point change
occurs evenly throughout the twelve-month period. The analysis also assumes
investment income earned is reinvested into the portfolio thus mitigating the
effects of change in fair value from an increase in interest rates or enhancing
the effects of change in fair value from a decrease in interest rates over the
twelve-month period. Moreover, the analysis is performed at the individual
portfolio level, with only the sum of these amounts presented herein. As of
March 31, 1999, approximately $10 million of the fixed-income portfolio is
invested in non-U.S. dollar denominated bonds. Therefore, even a significant
change in foreign exchange rates would not materially impact the fixed income
portfolio's fair value.
18
<PAGE>
The Company's equity portfolio is comprised of domestic and international direct
equity investments as well as domestic equity-indexed investments. An immediate
10% decrease in each equity investment's value, arising from a combination of
market and foreign exchange movement, would result in a fair value decrease of
$24.6 million. Correspondingly, an immediate 10% increase in each equity
investment's value, attributable to the same two factors, would result in a fair
value increase of $24.6 million. The majority of the $55.4 million international
equity portfolio is non-U.S. dollar denominated. Foreign currency forward
contracts are utilized to hedge some, but not all, of the Company's foreign
currency exposure.
As of March 31, 1999, the Company has long-term debt outstanding in the amount
of $89.3 million. Of this amount only $1.3 million represents obligations with a
fixed interest rate. Therefore, the impact of an interest rate increase or
decrease upon the fair value of the Company's long-term debt would be de
minimus.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company is the defendant in one lawsuit that has been filed by a
self-funded employer group in connection with the Company's past practices
regarding provider discounts. The suit claims that the Company was
obligated to credit the self-funded plan with the full amount of the
discounts that the Company negotiated with facilities providing health care
to members covered by the plan. The suit seeks an audit and unspecified
compensatory, punitive and other damages. The Company is also presently the
subject of four other claims by self-funded employer groups related to the
Company's past practices regarding provider discounts. The Company is
communicating with these groups, and lawsuits have not been filed in
connection with these claims. Although the ultimate outcome of such claims
and litigation cannot be estimated, the Company believes that the
discount-related claims and litigation brought by these self-funded
employer groups will not have a material adverse effect on the financial
condition of the Company.
The Company and certain of its subsidiaries are involved in various other
legal actions occurring in the normal course of their business. While the
ultimate outcome of such litigation cannot be predicted with certainty, in
the opinion of Company management, after consultation with counsel
responsible for such litigation, the outcome of those actions is not
expected to have a material adverse effect on the financial condition of
the Company.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list of exhibits filed with the Form 10-Q:
Exhibit
Number Description
- ------ ------------
3.2 --Amended and Restated Bylaws of Trigon Healthcare, Inc. dated April
28, 1999.
11 --Computation of per share earnings for the three months ended
March 31, 1999. Exhibit has been omitted as the detail
necessary to determine the computation of per share earnings
can be clearly determined from the material contained in Part
I of this Form 10-Q.
27 --Financial Data Schedule.
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.
(b) Reports on Form 8-K:
None filed during the three months ended March 31, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIGON HEALTHCARE, INC.
Registrant
Dated: May 14, 1999 By: /s/ Thomas R. Byrd
-----------------------------
THOMAS R. BYRD
SENIOR VICE PRESIDENT & CHIEF
FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND
FINANCIAL OFFICER)
<PAGE>
EXHIBIT INDEX
Exhibit
Number
3.2 -- Amended and Restated Bylaws of Trigon Healthcare, Inc. dated April 28,
1999.
27 -- Financial Data Schedule.
EXHIBIT 3.2
TRIGON HEALTHCARE, INC.
AMENDED AND RESTATED BYLAWS
APRIL 28, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF STOCKHOLDERS
<TABLE>
<S> <C> <C>
1.1 Place and Time of Meetings ...................................................1
1.2 Organization and Order of Business ...........................................1
1.3 Annual Meeting ...............................................................1
1.4 Substitute Annual Meeting ....................................................2
1.5 Special Meetings .............................................................2
1.6 Record Dates .................................................................2
1.7 Notice of Meetings .......................................................... 3
1.8 Waiver of Notice; Attendance at Meeting.......................................4
1.9 Quorum and Voting Requirements................................................4
1.10 Proxies.......................................................................4
1.11 Voting List...................................................................5
1.12 Action Without Meeting........................................................5
ARTICLE II
DIRECTORS
2.1 General Powers................................................................6
2.2 Number and Term...............................................................6
2.3 Nomination of Directors.......................................................6
2.4 Election......................................................................7
2.5 Removal; Vacancies ...........................................................7
2.6 Annual and Regular Meetings ..................................................8
2.7 Special Meetings .............................................................8
2.8 Notice of Meetings ...........................................................8
2.9 Waiver of Notice; Attendance at Meeting ......................................8
2.10 Quorum; Voting................................................................8
2.11 Telephonic Meetings ..........................................................9
2.12 Action Without Meeting .......................................................9
2.13 Compensation .................................................................9
TRIGON HEALTHCARE, INC.: AMENDED AND RESTATED BYLAWS Page (i)
<PAGE>
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees ...................................................................9
3.2 Limitation on Authority of Committees ........................................9
3.3 Committee Meetings; Miscellaneous ...........................................10
3.4 Executive Committee .........................................................10
3.5 Authority of Executive Committee ............................................10
3.6 Standing Committees .........................................................10
3.7 Audit Committee .............................................................10
3.8 Nominating Committee ........................................................11
3.9 Finance and Investment Committee ............................................11
3.10 Human Resources, Compensation, and Employee Benefits Committee ..............11
3.11 Provider Policy Committee ...................................................11
3.12 Other Committees ............................................................12
ARTICLE IV
OFFICERS
4.1 Officers ...................................................................12
4.2 Chief Executive Officer .....................................................12
4.3 Election; Term ..............................................................12
4.4 Removal of Officers .........................................................12
4.5 Duties of the Chairman.......................................................13
4.6 Duties of the President .....................................................13
4.7 Duties of the Secretary .....................................................13
4.8 Duties of the Treasurer .....................................................13
4.9 Duties of Other Officers ....................................................13
4.10 Voting Securities of Other Corporations .....................................13
4.11 Bonds .......................................................................14
ARTICLE V
SHARE CERTIFICATES
5.1 Form ........................................................................14
5.2 Transfer ....................................................................14
5.3 Restrictions on Transfer ....................................................14
5.4 Lost or Destroyed Share Certificates ........................................14
TRIGON HEALTHCARE, INC.: AMENDED AND RESTATED BYLAWS Page (ii)
<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Corporate Seal ..............................................................15
6.2 Fiscal Year .................................................................15
6.3 Amendments ..................................................................15
</TABLE>
TRIGON HEALTHCARE, INC.: AMENDED AND RESTATED BYLAWS Page (iii)
<PAGE>
TRIGON HEALTHCARE, INC.
BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
1.1 Place and Time of Meetings. Meetings of stockholders shall be held at
such place, either within or without the Commonwealth of Virginia, and at such
time, as may be provided in the notice of the meeting and approved by the
Chairman of the Board of Directors (the "Chairman"), the President, or the Board
of Directors.
1.2 ORGANIZATION AND ORDER OF BUSINESS. The Chairman or, in his or her
absence, the President shall serve as chairman at all meetings of the
stockholders. In the absence of both of the foregoing officers or if both of
them decline to serve, a majority of the shares entitled to vote at a meeting,
may appoint any person entitled to vote at the meeting to act as chairman. The
secretary of the Corporation or, in his or her absence, an assistant secretary,
shall act as secretary at all meetings of the stockholders. In the event that
neither the secretary nor any assistant secretary is present, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he or she
may deem necessary or desirable for the proper conduct of each meeting of the
stockholders, including, without limitation, the authority to make the agenda
and to establish procedures for (i) dismissing of business not properly
presented, (ii) maintaining of order and safety, (iii) placing limitations on
the time allotted to questions or comments on the affairs of the Corporation,
(iv) placing restrictions on attendance at a meeting by persons or classes of
persons who are not stockholders or their proxies, (v) restricting entry to a
meeting after the time prescribed for the commencement thereof and (vi)
commencing, conducting and closing voting on any matter.
1.3 ANNUAL MEETING. The annual meeting of stockholders shall be held on
the third Wednesday in April of each year, if not a legal holiday, and if a
legal holiday, then on the next succeeding business day.
At each annual meeting of stockholders, only such business shall
be conducted as is proper to consider and has been brought before the meeting
(i) pursuant to the Corporation's notice of the meeting, (ii) by or at the
direction of the Board of Directors or (iii) by a stockholder who is a
stockholder of record of a class of shares entitled to vote on the business such
stockholder is proposing, both at the time of the giving of the stockholder's
notice hereinafter described in this Section 1.3 and on the record date for such
annual meeting, and who complies with the notice procedures set forth in this
Section 1.3.
<PAGE>
In order to bring before an annual meeting of stockholders any
business which may properly be considered and which a stockholder has not sought
to have included in the Corporation's proxy statement for the meeting, a
stockholder who meets the requirements set forth in the preceding paragraph must
give the Corporation timely written notice. To be timely, a stockholder's notice
must be given, either by personal delivery to the Secretary or an Assistant
Secretary of the Corporation at the principal office of the Corporation, or by
first class United States mail, with postage thereon prepaid, addressed to the
Secretary of the Corporation at the principal office of the Corporation. Any
such notice must be received (i) on or after the first day of February and
before first day of March of the year in which the meeting will be held, if
clause (ii) is not applicable, or (ii) not less than 60 days before the date of
the meeting if the date of such meeting, as prescribed in these bylaws, has been
changed by more than 30 days.
Each such stockholder's notice shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing business, (ii) the class and number of shares of stock of
the Corporation beneficially owned by such stockholder, (iii) a representation
that such stockholder is a stockholder of record at the time of the giving of
the notice and intends to appear in person or by proxy at the meeting to present
the business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such
business, and (v) any interest which the stockholder may have in such business.
The Secretary or Assistant Secretary of the Corporation shall
deliver each stockholder's notice that has been timely received to the Chairman
for review.
Notwithstanding the foregoing provisions of this Section 1.3, a
stockholder seeking to have a proposal included in the Corporation's proxy
statement for an annual meeting of stockholders shall comply with the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended from time to time, or with any successor regulation.
1.4 SUBSTITUTE ANNUAL MEETING. If an annual meeting of stockholders is
not held on the day designated in these Bylaws, a substitute annual meeting
shall be called as promptly as is practicable by the Chairman, the President, or
the Board of Directors. Any meeting so called shall be designated and treated
for all purposes as the annual meeting.
1.5 SPECIAL MEETINGS. Special meetings of the stockholders may be called
only by the Chairman, the President, or the Board of Directors. Only business
within the purpose or purposes described in the notice for a special meeting of
stockholders may be conducted at the meeting.
1.6 RECORD DATES. The Board of Directors shall fix, in advance, a record
date to make a determination of stockholders entitled to notice of, or to vote
at, any meeting of stockholders, to receive any dividend or for any purpose,
such date to be not more than 70 days before the meeting or action requiring a
determination of stockholders.
TRIGON HEALTHCARE, INC.: AMENDED AND RESTATED BYLAWS Page 2
<PAGE>
When a determination of stockholders entitled to notice of or to
vote at any meeting of stockholders has been made, such determination shall be
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
1.7 NOTICE OF MEETINGS. Written notice stating the place, day and hour of
each meeting of stockholders and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given not less than ten
nor more than 60 days before the date of the meeting (except when a different
time is required in these Bylaws or by law) either personally or by mail,
telephone, telegraph, teletype, telecopy or other form of wire or wireless
communication, or by private courier, to each stockholder of record entitled to
vote at such meeting and to such nonvoting stockholders as may be required by
law. If mailed, such notice shall be deemed to be effective when deposited in
first class United States mail with postage thereon prepaid, addressed to the
stockholder at his or her address as it appears on the share transfer books of
the Corporation. If given in any other manner, such notice shall be deemed
effective when (i) given personally or by telephone, (ii) sent by telegraph,
teletype, telecopy or other form of wire or wireless communication or (iii)
given to a private courier to be delivered.
Notice of a stockholder's meeting to act on (i) an amendment of
the Articles of Incorporation; (ii) a plan of merger or share exchange; (iii)
the sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business, or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date of
the meeting. Any notice given pursuant to this section shall state that the
purpose, or one of the purposes, of the meeting is to consider such action and
shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the
proposed plan of merger or share exchange, or (z) a summary of the agreement
pursuant to which the proposed transaction will be effected. If only a summary
of the agreement is sent to the stockholders, the Corporation shall also send a
copy of the agreement to any stockholder who requests it.
If a meeting is adjourned to a different date, time or place,
notice need not be given if the new date, time or place is announced at the
meeting before adjournment. However, if a new record date for an adjourned
meeting is fixed, notice of the adjourned meeting shall be given to stockholders
as of the new record date, unless a court provides otherwise.
Notwithstanding the foregoing, no notice of a meeting of
stockholders need be given to a stockholder if (i) an annual report and proxy
statements for two consecutive annual meetings of stockholders or (ii) all, and
at least two, checks in payment of dividends or interest on securities during a
12-month period, have been sent by first-class United States mail, with postage
thereon prepaid, addressed to the stockholder at his or her address as it
appears on the share transfer books of the Corporation, and returned
undeliverable. The obligation of the Corporation to give notice of
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meetings of stockholders to any such stockholder shall be reinstated once the
Corporation has received a new address for such stockholder for entry on its
share transfer books.
1.8 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A stockholder may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time of the meeting that is the subject of such notice. The
waiver shall be in writing, be signed by the stockholder entitled to the notice,
and be delivered to the Secretary of the Corporation for inclusion in the
minutes or filing with the corporate records.
A stockholder's attendance at a meeting (i) waives objection to
lack of notice or defective notice of the meeting, unless the stockholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the stockholder objects to considering the matter
when it is presented.
1.9 QUORUM AND VOTING REQUIREMENTS. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless a greater number of
affirmative votes is required by law. Directors shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present. Less than a quorum may adjourn a meeting.
1.10 PROXIES. A stockholder may vote his or her shares in person or by
proxy. A stockholder may appoint a proxy to vote or otherwise act for him or her
by (i) executing a writing authorizing a person or persons to act for him or her
as proxy or (ii) transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person who will be
the holder of the proxy. An appointment of a proxy is effective when received by
the Secretary or other officer or agent authorized to tabulate votes and is
valid for eleven (11) months unless a longer period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the stockholder
unless the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
The death or incapacity of the stockholder appointing a proxy
does not affect the right of the Corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the Secretary or other
officer or agent authorized to tabulate votes before the proxy exercises his or
her authority under the appointment. An irrevocable appointment is revoked when
the interest with which it is coupled is extinguished. A transferee for value of
shares subject to an irrevocable appointment may revoke the appointment if he or
she did not know of its existence when he or she acquired the shares and the
existence of the irrevocable appointment was not noted conspicuously on the
certificate representing the shares. Subject to any legal limitations on the
right of the
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Corporation to accept the vote or other action of a proxy and to any express
limitation on the proxy's authority (i) appearing on the face of the written
authorization or (ii) evident from the electronic transmission, the Corporation
is entitled to accept the proxy's vote or other action as that of the
stockholder making the appointment. Any fiduciary who is entitled to vote any
shares may vote such shares by proxy.
1.11 VOTING LIST. The officer or agent having charge of the share
transfer books of the Corporation shall make, at least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
such meeting or any adjournment thereof, with the address of and the number of
shares held by each. For a period of ten days prior to the meeting such list
shall be kept on file at the registered office of the Corporation or at its
principal office or at the office of its transfer agent or registrar and shall
be subject to inspection by any stockholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any stockholder during the
whole time of the meeting for the purpose thereof. The original share transfer
books shall be prima facia evidence as to who are the stockholders entitled to
examine such list or transfer books or to vote at any meeting of the
stockholders. The right of a stockholder to inspect such list prior to the
meeting shall be subject to the conditions and limitations set forth by law. If
the requirements of this section have not been substantially complied with, the
meeting shall, on the demand of any stockholder in person or by proxy, be
adjourned until such requirements are met. Refusal or failure to prepare or make
available the stockholders' list does not affect the validity of action taken at
the meeting prior to the making of any such demand, but any action taken by the
stockholders after the making of any such demand shall be invalid and of no
effect.
1.12 ACTION WITHOUT MEETING. Action required or permitted to be taken at
a meeting of stockholders may be taken without a meeting and without action by
the Board of Directors if the action is taken by all the stockholders entitled
to vote on the action. The action shall be evidenced by one or more written
consents describing the action taken, signed by all the stockholders entitled to
vote on the action, and delivered to the Secretary of the Corporation for
inclusion in the minutes or filing with the corporate records. Action taken by
unanimous written consent shall be effective according to its terms when all
consents are in the possession of the Corporation, unless the consent specifies
a different effective date, in which event the action taken under this section
shall be effective as of the date specified therein, provided the consent states
the date of execution by each stockholder. A stockholder may withdraw a consent
only by delivering a written notice of withdrawal to the Corporation prior to
the time that all consents are in the possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.6
the record date for determining stockholders entitled to take action without a
meeting is the date the first stockholder signs the consent described in the
preceding paragraph.
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ARTICLE II
DIRECTORS
2.1 GENERAL POWERS. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 NUMBER AND TERM. The number of directors of the Corporation shall be
fixed by the board of directors, but shall not be less than eleven (11) nor more
than twenty (20). Only the stockholders may increase or decrease such minimum or
maximum number of directors. No decrease in number shall have the effect of
shortening the term of any incumbent director.
The number of directors shall be divided into three groups with
each group containing one third of the total, as nearly equal in number as
possible. The terms of the directors in the first group shall expire at the
first annual meeting of shareholders. The terms of the directors in the second
group shall expire at the second annual meeting of shareholders and the terms of
directors in the third group shall expire at the third annual meeting of
shareholders. At each annual meeting of shareholders, one group of directors
shall be elected for a term of three years to succeed those whose terms expire.
A director may be removed from office as a director by the
shareholders of the Corporation only with cause. Each director shall hold office
until his or her death, resignation or removal for cause or until his or her
successor is elected.
2.3 NOMINATION OF DIRECTORS. No person shall be eligible for election as
a director at a meeting of stockholders unless nominated (i) by the Board of
Directors upon recommendation of the Nominating Committee or otherwise or (ii)
by a stockholder who is a stockholder of record of a class of shares entitled to
vote for the election of directors, both at the time of the giving of the
stockholder's notice hereinafter described in this Section 2.3 and on the record
date for the meeting at which directors will be elected, and who complies with
the notice procedures set forth in this Section 2.3.
In order to nominate for election as directors at a meeting of
stockholders any persons who are not listed as nominees in the Corporation's
proxy statement for the meeting, a stockholder who meets the requirements set
forth in the preceding paragraph must give the Corporation timely written
notice. To be timely, a stockholder's notice must be given, either by personal
delivery to the Secretary or an Assistant Secretary of the Corporation at the
principal office of the Corporation, or by first class United States mail, with
postage thereon prepaid, addressed to the Secretary of the Corporation at the
principal office of the Corporation. Any such notice must be received (i) on or
after the first day of February and before the first day of March of the year in
which the meeting will be held if the meeting is to be an annual meeting and
clause (ii) is not
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applicable, or (ii) not less than 60 days before an annual meeting, if the date
of the applicable annual meeting, as prescribed in these Bylaws, has been
changed by more than 30 days, or (iii) not later than the close of business on
the tenth day following the day on which notice of a special meeting of
stockholders called for the purpose of electing directors is first given to
stockholders.
Each such stockholder's notice shall set forth the following: (i)
as to the stockholder giving the notice, (a) the name and address of such
stockholder as they appear on the Corporation's stock transfer books, (b) the
class and number of shares of the Corporation beneficially owned by such
stockholder, (c) a representation that such stockholder is a stockholder of
record at the time of giving the notice and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice,
and (d) a description of all arrangements or understandings, if any, between
such stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made; and (ii) as to each person whom the stockholder wishes to nominate for
election as a director, (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the class and number of shares of the Corporation which are
beneficially owned by such person, and (d) all other information that is
required to be disclosed about nominees for election as directors in
solicitations of proxies for the election of directors under the rules and
regulations of the Securities and Exchange Commission. In addition, each such
notice shall be accompanied by the written consent of each proposed nominee to
serve as a director if elected and such consent shall contain a statement from
the proposed nominee to the effect that the information about him or her
contained in the notice is correct.
2.4 ELECTION. Except as provided in Section 2.5 and in the Articles of
Incorporation, the directors shall be elected by the holders of the Common
shares at each annual meeting of stockholders and those persons who receive the
greatest number of votes shall be deemed elected even though they do not receive
a majority of the votes cast. No individual shall be named or elected as a
director without his or her prior consent.
2.5 REMOVAL; VACANCIES. The stockholders may remove one or more directors
only with cause. If a director is elected by a voting group, only the
stockholders of that voting group may elect to remove him or her. Unless the
Articles of Incorporation require a greater vote, a director may be removed if
the number of votes cast to remove him or her constitutes a majority of the
votes entitled to be cast at an election of directors of the voting group or
voting groups by which such director was elected. A director may be removed by
the stockholders only at a meeting called for the purpose of removing him or her
and the meeting notice must state that the purpose, or one of the purposes of
the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy
resulting from the removal of a director or an increase in the number of
directors, may be filled by (i) the stockholders, (ii) the Board of Directors or
(iii) the affirmative vote of a majority of the remaining directors though less
than a quorum of the Board of Directors, and may, in the case of a resignation
that will become
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effective at a specified later date, be filled before the vacancy occurs but the
new director may not take office until the vacancy occurs.
2.6 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of stockholders, for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
2.7 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman, the President or a majority of the Directors of the
Corporation, and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.8 NOTICE OF MEETINGS. No notice need be given of regular meetings of
the Board of Directors.
Notices of special meetings of the Board of Directors shall be
given to each director in person or delivered to his or her residence or
business address (or such other place as he or she may have directed in writing)
not less than twenty-four (24) hours before the meeting by mail, messenger,
telecopy, telegraph, or other means of written communication or by telephoning
such notice to him or her. Any such notice shall set forth the time and place of
the meeting and state the purpose for which it is called.
2.9 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any
notice required by law, the Articles of Incorporation, or these Bylaws before or
after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives
any required notice to him or her of the meeting unless the director at the
beginning of the meeting or promptly upon his or her arrival objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
2.10 QUORUM; VOTING. A majority of the number of directors fixed in these
Bylaws shall constitute a quorum for the transaction of business at a meeting of
the Board of Directors. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present is the act of the Board
of Directors. A director who is present at a meeting of the Board of Directors
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or a committee of the Board of Directors when corporate action is taken is
deemed to have assented to the action taken unless (i) he or she objects at the
beginning of the meeting, or promptly upon his or her arrival, to holding it or
transacting specified business at the meeting; or (ii) he or she votes against,
or abstains from, the action taken.
2.11 TELEPHONIC MEETINGS. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.12 ACTION WITHOUT MEETING. Action required or permitted to be taken at
a meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of the Board. The action shall be evidenced by one or
more written consents stating the action taken, signed by each director either
before or after the action taken, and included in the minutes or filed with the
corporate records reflecting the action taken. Action taken under this section
shall be effective when the last director signs the consent unless the consent
specifies a different effective date in which event the action taken is
effective as of the date specified therein provided the consent states the date
of execution by each director.
2.13 COMPENSATION. The Board of Directors may fix the compensation of
directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 COMMITTEES. The Board of Directors may create one or more committees.
The members of each committee shall be members of the Board of Directors, except
that the Provider Policy Committee may include up to three physicians who are
not members of the Board of Directors. Unless otherwise provided in these
Bylaws, each committee shall have two or more members who serve at the pleasure
of the Board of Directors. The creation of a committee and appointment of
members to it shall be approved by a majority of all of the directors in office
when the action is taken.
3.2 LIMITATION ON AUTHORITY OF COMMITTEES. To the extent specified by the
Board of Directors, each committee may exercise the authority of the Board of
Directors, except that a committee may not (i) approve or recommend to
stockholders action that is required by law to be approved by stockholders; (ii)
fill vacancies on the Board of Directors or on any of its committees; (iii)
amend the Articles of Incorporation; (iv) adopt, amend, or repeal these Bylaws;
(v) approve a plan of merger not requiring stockholder approval; (vi) authorize
or approve a distribution, except
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according to a general formula or method prescribed by the Board of Directors;
or (vii) authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or series of shares, except that the Board of Directors
may authorize a committee, or a senior executive officer of the Corporation, to
do so within limits specifically prescribed by the Board of Directors.
3.3 COMMITTEE MEETINGS; MISCELLANEOUS. The provisions of these Bylaws
which govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
3.4 EXECUTIVE COMMITTEE. The Board of Directors shall appoint an
Executive Committee having not less than three (3) members to be annually
elected by the Board from its own membership. The Chairman of the Board of
Directors and, if he or she is a member of the Board of Directors, the Chief
Executive Officer shall be among those elected. The Board shall designate the
Chairman (or Co-Chairmen) of the Executive Committee at the time the Executive
Committee is elected. The Chairman of the Executive Committee shall not be a
salaried employee of the Corporation or any of its affiliates. Vacancies
occurring in the Executive Committee prior to any annual election may be filled
by the Board.
3.5 AUTHORITY OF EXECUTIVE COMMITTEE. Between meetings of the Board, the
Executive Committee shall have and exercise the authority of the Board, except
(i) to the extent such authority is limited by the provisions of Section 3.2,
(ii) to take action prohibited by Section 13.1-689 of the Code of Virginia, or
(iii) to employ or terminate the employment of the Corporation's chief executive
officer. One or more vacancies at any time existing in the Executive Committee
shall not affect its authority.
3.6 STANDING COMMITTEES. The Board of Directors shall have the following
standing committees: Audit; Finance and Investment; Human Resources,
Compensation and Employee Benefits; Nominating and Corporate Governance; and
Provider Policy.
3.7 AUDIT COMMITTEE. The Board of Directors shall appoint an Audit
Committee consisting of not less than three directors, none of whom shall be
salaried officers or employees of the Corporation. The Chairman of the Audit
Committee will be elected by the members of the Audit Committee from among its
members. The Audit Committee shall at all times have authority to investigate
the financial reporting processes and internal controls of the Corporation and
to report thereon and make its recommendations to the Board of Directors and to
the Executive Committee, or to either of them. The Audit Committee shall
regularly review the adequacy of internal financial controls, insure that
sufficient and proper audits, both internal and external, are conducted of the
Corporation's financial affairs and control systems, review with the
Corporation's independent public accountants their reports, and recommend the
selection of the Corporation's independent public accountants.
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3.8 NOMINATING COMMITTEE. The Board of Directors shall appoint a
Nominating and Corporate Governance Committee consisting of not less than three
directors. The Chairman of the Committee will not be a salaried officer or
employee of the Corporation and will be elected by the Board of Directors from
among the members of the Committee. A majority of the members of the Committee
shall not be salaried officers or employees of the Corporation. The Nominating
and Corporate Governance Committee shall recommend to the Board of Directors
those persons to be elected as directors of the Corporation, chairmen and
members of the Executive Committee and standing Board committees (except
Chairman of the Audit Committee), and officers of the Corporation. The Committee
may also recommend to the Board of Directors general guidelines for the Board
and Board committee structure, composition, and criteria for board membership,
frequency of meetings, conflicts of interest, and Board compensation. The
Nominating and Corporate Governance Committee shall review any actual or
potential conflicts of interest involving any officer or director of the
Corporation and shall make recommendations to the Board as may be appropriate.
3.9 FINANCE AND INVESTMENT COMMITTEE. The Finance and Investment
Committee shall oversee the financial affairs and investments of the Corporation
and its affiliates and will periodically report to the Board of Directors on
these affairs and investments. The Finance and Investment Committee will have
not less than three members, all of whom shall be members of the Board of
Directors. The Chairman of the Committee will not be a salaried officer or
employee of the Corporation and will be elected by the Board of Directors from
among the members of the Committee.
3.10 Human Resources, Compensation, and Employee Benefits Committee. The
Human Resources, Compensation, and Employee Benefits Committee shall consider
management proposals, make recommendations to the Board of Directors and, where
express authority is conferred, approve the compensation and benefits programs
for the officers and employees of the Corporation and its affiliates. The
Committee will have not less than three members, all of whom shall be members of
the Board of Directors. No salaried officer or employee will serve as a member
of the Committee. The Chairman of the Committee will be elected by the Board of
Directors from among the members of the Committee.
3.11 PROVIDER POLICY COMMITTEE. The Provider Policy Committee shall
gather information, review management proposals, and make recommendations to the
Board of Directors with respect to the Corporation's policies and procedures
that have or will have a substantial impact upon institutional and professional
providers of health care services. The Provider Policy Committee shall have at
least three members who are members of the Board of Directors and may have up to
three physicians as members who are not members of the Board of Directors. The
Chairman of the Committee will not be a salaried officer or employee of the
Corporation and will be elected by the Board of Directors from among the members
of the Committee.
3.12 OTHER COMMITTEES. The Board of Directors, by resolutions adopted by
a majority of directors in office, may designate and appoint one or more other
committees, each of which shall
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include two or more directors. Such committees shall have authority to the
extent provided for in the resolution of the Board of Directors. The Chairman
may also appoint special or ad hoc committees which shall have such duties as
may be specified in the Chairman's charge to the committee.
ARTICLE IV
OFFICERS
4.1 OFFICERS. The officers of the Corporation shall be a Chairman of the
Board of Directors, a President, a Secretary, a Treasurer, and, in the
discretion of the Board of Directors or the Chief Executive Officer, one or more
Vice-Presidents and such other officers as may be deemed necessary or advisable
to carry on the business of the Corporation. Any two or more offices may be held
by the same person.
4.2 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall be the Chairman or the President as determined from time to
time by the Board of Directors. The Chief Executive Officer shall have general
charge of, and be charged with the duty of supervision of, the business of the
Corporation and shall perform such duties as may, from time to time, be assigned
to him or her by the Board of Directors.
4.3 ELECTION; TERM. The Chairman, the President, the Secretary and the
Treasurer shall be elected by the Board of Directors. The Chief Executive
Officer may from time to time appoint other officers. Officers elected by the
Board of Directors shall hold office, unless sooner removed, until the next
annual meeting of the Board of Directors or until their successors are elected.
Officers appointed by the Chief Executive Officer shall hold office, unless
sooner removed, until their successors are appointed. The action of the Chief
Executive Officer in appointing officers shall be reported to the next regular
meeting of the Board of Directors after it is taken. Any officer may resign at
any time upon written notice to the Board of Directors or the officer or
officers appointing him or her, and such resignation shall be effective when
notice is delivered unless the notice specifies a later effective date.
4.4 REMOVAL OF OFFICERS. The Board of Directors may remove any officer at
any time, with or without cause. The Chief Executive Officer may remove any
officer he appoints at any time, with or without cause. Such action shall be
reported to the next regular meeting of the Board of Directors after it is
taken.
4.5 DUTIES OF THE CHAIRMAN. The Chairman shall preside at all meetings of
the Board of Directors and the stockholders and shall perform such duties as
may, from time to time, be assigned to him or her by the Board of Directors.
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4.6 DUTIES OF THE PRESIDENT. The President shall have such powers and
perform such duties as generally pertain to that position or as may from time to
time, be assigned to him or her by the Board of Directors.
4.7 DUTIES OF THE SECRETARY. The Secretary shall have the duty to see
that a record of the proceedings of each meeting of the stockholders and the
Board of Directors, and any committee of the Board of Directors, is properly
recorded and that notices of all such meetings are duly given in accordance with
the provisions of these Bylaws or as required by law; he or she may affix the
corporate seal to any document the execution of which is duly authorized, and
when so affixed may attest the same; and, in general, he or she shall perform
all duties incident to the office of secretary of a corporation, and such other
duties as, from time to time, may be assigned to him or her by the Chief
Executive Officer or Board of Directors, or as may be required by law.
4.8 DUTIES OF THE TREASURER. The Treasurer shall have charge of and be
responsible for all securities, funds, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all monies or valuable effects in such banks, trust companies or
other depositories as shall, from time to time, be selected by or under
authority granted by the Board of Directors; he or she shall be custodian of the
financial records of the Corporation; he or she shall keep or cause to be kept
full and accurate records of all receipts and disbursements of the Corporation
and shall render to the Chief Executive Officer or the Board of Directors,
whenever requested, an account of the financial condition of the Corporation. In
addition he or she shall perform such duties as may be assigned to him or her by
the Chief Executive Officer or the Board of Directors.
4.9 DUTIES OF OTHER OFFICERS. The other officers of the Corporation shall
have such authority and perform such duties as shall be prescribed by the Board
of Directors or by officers authorized by the Board of Directors to appoint them
to their respective offices. To the extent that such duties are not so stated,
such officers shall have such authority and perform the duties which generally
pertain to their respective offices, subject to the control of the Chief
Executive Officer or the Board of Directors.
4.10 VOTING SECURITIES OF OTHER CORPORATIONS. The Chief Executive Officer
or the Treasurer shall have the power to act for and vote on behalf of the
Corporation at all meetings of the stockholders of any corporation in which this
Corporation holds stock, or in connection with any consent of stockholders in
lieu of any such meeting.
4.11 BONDS. The Board of Directors may require that any or all officers,
employees and agents of the Corporation give bond to the Corporation, with
sufficient sureties, conditioned upon the faithful performance of the duties of
their respective offices or positions.
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ARTICLE V
SHARE CERTIFICATES
5.1 FORM. Shares of the Corporation shall, when fully paid, be either
uncertificated or evidenced by certificates containing such information as is
required by law and approved by the Board of Directors. Any certificates shall
be signed by the Chief Executive Officer and the Secretary and may (but need
not) be sealed with the seal of the Corporation. The seal of the Corporation and
any or all of the signatures on a share certificate may be facsimile. If any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar on the date of issue.
5.2 TRANSFER. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of the Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
5.3 RESTRICTIONS ON TRANSFER. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted a restriction is not
enforceable against a person without knowledge of the restriction.
5.4 LOST OR DESTROYED SHARE CERTIFICATES. The Corporation may issue a new
share certificate in the place of any certificate theretofore issued which is
alleged to have been lost or destroyed and may require the owner of such
certificate, or his or her legal representative, to give the Corporation a bond,
with or without surety, or such other agreement, undertaking or security as the
Board of Directors shall determine is appropriate, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 CORPORATE SEAL. The corporate seal of the Corporation shall be
circular and shall have inscribed thereon, within and around the circumference
"TRIGON HEALTHCARE, INC." In the center shall be the word "SEAL".
TRIGON HEALTHCARE, INC.: AMENDED AND RESTATED BYLAWS Page 14
<PAGE>
6.2 FISCAL YEAR. The fiscal year of the Corporation shall be determined
in the discretion of the Board of Directors, but in the absence of any such
determination it shall be the end of the calendar year.
6.3 AMENDMENTS. These Bylaws may be amended or repealed, and new Bylaws
may be made, at any regular or special meeting of the Board of Directors. Bylaws
made by the Board of Directors may be repealed or changed and new Bylaws may be
made by the stockholders, and the stockholders may prescribe that any Bylaw made
by them shall not be altered, amended or repealed by the Board of Directors.
TRIGON HEALTHCARE, INC.: AMENDED AND RESTATED BYLAWS Page 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDED
IN THE TRIGON HEALTHCARE, INC. AND SUBSIDIARIES FORM 10-Q FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,546
<SECURITIES> 1,653,474
<RECEIVABLES> 376,118
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,047,627
<PP&E> 140,282
<DEPRECIATION> 90,868
<TOTAL-ASSETS> 2,242,264
<CURRENT-LIABILITIES> 950,587
<BONDS> 89,339
0
0
<COMMON> 423
<OTHER-SE> 1,069,133
<TOTAL-LIABILITY-AND-EQUITY> 2,242,264
<SALES> 544,468
<TOTAL-REVENUES> 556,510
<CGS> 430,030
<TOTAL-COSTS> 536,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 18,962
<INCOME-TAX> 6,348
<INCOME-CONTINUING> 12,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,079
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
</TABLE>
