UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 1-8323
CIGNA Corporation
-----------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1059331
----------------- -----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Liberty Place, Philadelphia, Pa. 19192-1550
------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(215) 761-1000
--------------
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.
Yes x No
As of May 4, 1998, 215,351,649 shares (as adjusted for the three-for-one stock
split) of the issuer's Common Stock were outstanding.
<PAGE>
CIGNA CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Income Statements 1
Consolidated Balance Sheets 2
Consolidated Statements of Comprehensive
Income and Changes in Shareholders'
Equity 3
Consolidated Statements of Cash Flows 4
Notes to Financial Statements 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
EXHIBIT INDEX 23
As used herein, "CIGNA" refers to one or more of CIGNA Corporation and its
consolidated subsidiaries.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIGNA CORPORATION
CONSOLIDATED INCOME STATEMENTS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
1998 1997
==============================================================================================================================
REVENUES
Premiums and fees $ 3,901 $ 3,388
Net investment income 937 1,053
Other revenues 514 160
Realized investment gains 59 44
-------- ---------
Total revenues 5,411 4,645
-------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 3,333 3,009
Policy acquisition expenses 228 264
Other operating expenses 1,082 935
-------- ---------
Total benefits, losses and expenses 4,643 4,208
-------- ---------
INCOME BEFORE INCOME TAXES 768 437
-------- ---------
Income taxes (benefits):
Current 432 110
Deferred (159) 39
-------- ---------
Total taxes 273 149
-------- ---------
NET INCOME $ 495 $ 288
- ------------------------------------------------------------------------------------------------------========================
BASIC EARNINGS PER SHARE $ 2.30 $ 1.31
- ------------------------------------------------------------------------------------------------------========================
DILUTED EARNINGS PER SHARE $ 2.27 $ 1.30
- ------------------------------------------------------------------------------------------------------========================
DIVIDENDS DECLARED PER SHARE $ 0.29 $ 0.28
- ------------------------------------------------------------------------------------------------------========================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
1
<PAGE>
CIGNA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
As of As of
March 31, December 31,
1998 1997
===========================================================================================================================
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $31,276; $34,284) $ 33,190 $ 36,358
Equity securities, at fair value (cost, $695; $648) 1,030 854
Mortgage loans 9,401 10,859
Policy loans 6,584 7,253
Real estate 755 769
Other long-term investments 351 273
Short-term investments 306 212
----------- -------------
Total investments 51,617 56,578
Cash and cash equivalents 2,322 2,625
Accrued investment income 847 868
Premiums, accounts and notes receivable 4,416 4,265
Reinsurance recoverables 12,433 6,753
Deferred policy acquisition costs 918 1,542
Property and equipment 847 857
Deferred income taxes 1,916 1,788
Other assets 1,130 1,033
Goodwill and other intangibles 2,517 2,542
Separate account assets 32,256 29,348
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 111,219 $ 108,199
- ----------------------------------------------------------------------------------=========================================
LIABILITIES
Contractholder deposit funds $ 30,714 $ 30,682
Unpaid claims and claim expenses 17,702 17,906
Future policy benefits 11,937 11,976
Unearned premiums 1,864 1,774
----------- -------------
Total insurance and contractholder liabilities 62,217 62,338
Accounts payable, accrued expenses and other liabilities 6,610 6,562
Current income taxes 277 60
Short-term debt 266 690
Long-term debt 1,463 1,465
Separate account liabilities 32,061 29,152
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 102,894 100,267
- ---------------------------------------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 9
SHAREHOLDERS' EQUITY
Common stock (par value, $.25; shares issued, 265; 264) 66 66
Additional paid-in capital 2,695 2,655
Net unrealized appreciation - fixed maturities $ 723 $ 752
Net unrealized appreciation - equity securities 214 132
Net translation of foreign currencies (125) (126)
-------- ---------
Accumulated other comprehensive income 812 758
Retained earnings 6,129 5,696
Less treasury stock, at cost (1,377) (1,243)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 8,325 7,932
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 111,219 $ 108,199
- ----------------------------------------------------------------------------------=========================================
SHAREHOLDERS' EQUITY PER SHARE $ 38.58 $ 36.55
- ----------------------------------------------------------------------------------=========================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE>
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN
SHAREHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended March 31,
1998 1997
==================================================================================================================================
Compre- Share- Compre- Share-
hensive holders' hensive holders'
Income Equity Income Equity
==================================================================================================================================
Common stock $ 66 $ 66
---------- ----------
Additional paid-in capital - January 1 2,655 2,594
Issuance of common stock for employee benefits plans 40 11
---------- ----------
Additional paid-in capital - March 31 2,695 2,605
---------- ----------
Accumulated other comprehensive income - January 1 758 582
Net unrealized depreciation - fixed maturities $ (29) (29) $ (280) (280)
Net unrealized appreciation - equity securities 82 82 13 13
---------- ----------
Net unrealized appreciation (depreciation) on securities 53 (267)
Net translation of foreign currencies 1 1 (8) (8)
---------- ----------
Other comprehensive income (loss) 54 (275)
---------- ----------
Accumulated other comprehensive income - March 31 812 307
---------- ----------
Retained earnings - January 1 5,696 4,855
Net income 495 495 288 288
Common dividends declared (62) (61)
---------- ----------
Retained earnings - March 31 6,129 5,082
---------- ----------
Treasury stock - January 1 (1,243) (889)
Repurchase of common stock (111) (49)
Other treasury stock transactions, net (23) (5)
---------- ----------
Treasury stock - March 31 (1,377) (943)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND SHAREHOLDERS' EQUITY $ 549 $ 8,325 $ 13 $ 7,117
- ------------------------------------------------------------------------------====================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE>
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
1998 1997
============================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 495 $ 288
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Insurance liabilities 12 (281)
Reinsurance recoverables 167 507
Deferred policy acquisition costs (33) (44)
Premiums, accounts and notes receivable (167) 145
Accounts payable, accrued expenses, other liabilities and
current income taxes 119 (104)
Deferred income taxes (159) 39
Realized investment gains (59) (44)
Depreciation and goodwill amortization 78 54
Gain on sale of businesses (342) -
Other, net (192) (184)
---------- ----------
Net cash provided by (used in) operating activities (81) 376
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities 1,594 1,523
Equity securities 92 64
Mortgage loans 345 116
Other (primarily short-term investments) 137 1,554
Investment maturities and repayments:
Fixed maturities 940 909
Mortgage loans 232 124
Investments purchased:
Fixed maturities (2,616) (2,462)
Equity securities (152) (57)
Mortgage loans (479) (473)
Other (primarily short-term investments) (792) (1,107)
Net proceeds from sale of businesses 1,296 -
Other, net (60) (57)
---------- ----------
Net cash provided by investing activities 537 134
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 1,604 1,550
Withdrawals and benefit payments from contractholder deposit funds (1,774) (1,823)
Net change in short-term debt (360) 104
Repayment of long-term debt (66) (25)
Repurchase of common stock (108) (55)
Issuance of common stock 12 2
Common dividends paid (60) (60)
---------- ----------
Net cash used in financing activities (752) (307)
---------- ----------
Effect of foreign currency rate changes on cash and cash equivalents (7) (8)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (303) 195
Cash and cash equivalents, beginning of period 2,625 1,760
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,322 $ 1,955
- --------------------------------------------------------------------------------------=====================================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 204 $ 97
Interest paid $ 27 $ 27
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
CIGNA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CIGNA Corporation
and all significant subsidiaries (CIGNA). These consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. Certain reclassifications have been made to conform with the 1998
presentation.
The interim financial statements are unaudited but include all adjustments
(consisting of normal recurring adjustments) necessary, in the opinion of
management, for a fair statement of financial position and results of operations
for the periods reported.
The preparation of interim financial statements necessarily relies heavily on
estimates. This and certain other factors, such as the seasonal nature of
portions of the insurance business as well as competitive and other market
conditions, call for caution in drawing specific conclusions from interim
results.
On April 22, 1998, CIGNA's shareholders approved a three-for-one common stock
split, an increase in the number of common shares authorized for issuance from
200 million to 600 million and a decrease in the par value of common stock from
$1 per share to $0.25 per share. The additional shares will be distributed on
May 15, 1998, to shareholders of record as of May 4, 1998. The reduction in
common stock and corresponding increase in additional paid-in capital of $22
million reflects these actions and all share data have been retroactively
adjusted for the stock split as though the split had occurred at the beginning
of the periods presented.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which could change the way segments are
structured and require additional segment disclosure. CIGNA has not determined
the timing of implementation of this pronouncement, which is required by
December 31, 1998.
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which
requires a presentation in the financial statements of the components of, and a
combined total for, all nonowner changes in shareholders' equity. CIGNA adopted
SFAS No. 130 in the first quarter of 1998.
The American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" in 1997. SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty fund and other
insurance-related assessments. Implementation is required by the first quarter
of 1999, with the cumulative effect of adopting the SOP reflected in net income
in the year of adoption. CIGNA has not determined the effect or timing of
implementation of this pronouncement.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 specifies the types
of costs that must be capitalized and amortized over the software's expected
useful life and the types of costs which must be immediately recognized as
expense. Implementation is required by the first quarter of 1999. Although CIGNA
has not yet determined the timing of implementation, this pronouncement is not
expected to have a material effect on results of operations, liquidity or
financial condition.
5
<PAGE>
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
businesses for cash proceeds of $1.4 billion. The sale resulted in an after-tax
gain of $773 million of which $202 million was recognized upon closing of the
sale. Since the principal agreement to sell these businesses is in the form of
an indemnity reinsurance arrangement, the remaining $571 million of the gain was
deferred and is being recognized at the rate that earnings from the businesses
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. Also, as part of the transaction, CIGNA recorded a reinsurance
recoverable from the purchaser of $5.8 billion for insurance liabilities
retained and transferred invested assets of $5.4 billion along with other assets
and liabilities associated with the businesses. The sales agreement provides for
post-closing adjustments, however, any future adjustments are not expected to be
material to results of operations, liquidity or financial condition.
CIGNA acquired the outstanding common stock of Healthsource, Inc. (Healthsource)
on June 25, 1997. The cost of the acquisition was $1.7 billion, reflecting the
purchase of Healthsource common stock for $1.4 billion and the retirement of
Healthsource debt of $250 million. The acquisition was accounted for as a
purchase, and was financed through the issuance of long-term debt of $600
million and a combination of internally generated funds and short-term debt. The
results of operations of Healthsource are included in the accompanying
consolidated financial statements from the date of acquisition. Healthsource
revenues that are not included in CIGNA's results of operations were $482
million for the first three months of 1997. The pro forma effect on CIGNA's net
income was not material.
Goodwill and other intangible assets associated with the Healthsource
acquisition were $1.5 billion, including $24 million recorded in the fourth
quarter of 1997 for severance of Healthsource employees, vacated Healthsource
lease space and adjustments to Healthsource net assets to conform to CIGNA's
accounting policies. As of March 31, 1998, approximately $4 million of severance
was paid to approximately 230 employees. Goodwill and other intangible assets
are being amortized on a straight-line basis over periods ranging from eight to
40 years.
CIGNA had other acquisitions and dispositions during the three months of 1998
and 1997, the effects of which were not material to the financial statements.
NOTE 4 - INVESTMENTS
Realized Investment Gains and Losses
Realized gains and losses on investments, excluding policyholder share, were as
follows:
- ---------------------------------------------------------------------
Three Months
Ended
March 31,
(In millions) 1998 1997
- ---------------------------------------------------------------------
Realized investment gains (losses):
Fixed maturities $32 $26
Equity securities 4 5
Mortgage loans 12 (13)
Real estate 1 18
Other 10 8
---------------------
59 44
Less income taxes 21 16
- ---------------------------------------------------------------------
Net realized investment
gains $38 $28
- ------------------------------------------------=====================
Fixed Maturities and Equity Securities
Sales of available-for-sale fixed maturities and equity securities, including
policyholder share, were as follows:
- ---------------------------------------------------------------------
Three Months
Ended
March 31,
(In millions) 1998 1997
- ---------------------------------------------------------------------
Proceeds from sales $1,686 $1,587
Gross gains on sales 51 19
Gross losses on sales (24) (11)
- ---------------------------------------------------------------------
6
<PAGE>
The components of unrealized appreciation (depreciation) on securities for the
three months ended March 31 were as follows:
==================================================================
(In millions) 1998 1997
- ------------------------------------------------------------------
Unrealized appreciation (depreciation) on
securities held, net of taxes (benefits) of $93
and $(131), respectively. $179 $(247)
Less gains realized in net income, net of
taxes of $68 and $11, respectively. 126 20
---------------------
Net unrealized appreciation (depreciation) $53 $(267)
- ---------------------------------------------=====================
NOTE 5 - EARNINGS PER SHARE
Three Months Ended March 31,
==================================================================
Effect
(Dollars in millions, of
except per share amounts) Basic Dilution Diluted
- -------------------------------------------------------------------
1998
- -------------------------------------------------------------------
Net income $495 -- $495
- ---------------------------------==================================
Shares (in thousands):
Weighted average 215,637 -- 215,637
Options and restricted
stock grants 2,118 2,118
- -------------------------------------------------------------------
Total shares 215,637 2,118 217,755
- ---------------------------------==================================
Earnings per share $2.30 $(0.03) $2.27
- ---------------------------------==================================
1997
- -------------------------------------------------------------------
Net income $288 -- $288
- ---------------------------------==================================
Shares (in thousands):
Weighted average 220,458 -- 220,458
Options and restricted
stock grants 1,857 1,857
- -------------------------------------------------------------------
Total shares 220,458 1,857 222,315
- ---------------------------------==================================
Earnings per share $1.31 $(0.01) $1.30
- ---------------------------------==================================
Common shares held as Treasury shares were 48,803,100 and 41,127,330 as of March
31, 1998 and 1997, respectively.
Share and per share amounts reflect the three-for-one stock split discussed in
Note 1.
NOTE 6 - INCOME TAXES
CIGNA's federal income tax returns are routinely audited by the Internal Revenue
Service (IRS), and provisions are made in the financial statements in
anticipation of the results of these audits. The IRS completed its audits for
the years 1982 through 1993, and challenged CIGNA on one issue related to years
prior to 1989. During the third quarter of 1997, the U.S. Tax Court ruled
against CIGNA on this issue. The decision did not have an effect on results of
operations, as liabilities had been previously established. In connection with
this matter, CIGNA made payments of approximately $250 million during 1997 and
$115 million in the first quarter of 1998. CIGNA has appealed the U.S. Tax Court
decision to the U.S. Court of Appeals.
In management's opinion, adequate tax liabilities have been established for all
years.
NOTE 7 - REINSURANCE
In the normal course of business, CIGNA's insurance subsidiaries enter into
agreements, primarily relating to short-duration contracts, to assume and cede
reinsurance with other insurance companies. Reinsurance is ceded primarily to
limit losses from large exposures and to permit recovery of a portion of direct
losses, although ceded reinsurance does not relieve the originating insurer of
liability. CIGNA evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of its reinsurers.
Failure of reinsurers to indemnify CIGNA, as a result of reinsurer insolvencies
and disputes, could result in losses. Allowances for uncollectible amounts were
$702 million and $720 million as of March 31, 1998 and December 31, 1997,
respectively.
Future charges for unrecoverable reinsurance may materially affect results of
operations in future periods, however, such amounts are not expected to have a
material adverse effect on CIGNA's liquidity or financial condition.
For the first quarter of 1998 and 1997, premiums and fees were net of ceded
premiums of $443 million and $414 million, respectively. In addition, benefits,
losses and settlement expenses for the first quarter of 1998 and 1997 were net
of reinsurance recoveries of $385 million and $258 million, respectively.
7
<PAGE>
NOTE 8 - COST REDUCTION INITIATIVES
In the fourth quarter of 1997, CIGNA adopted a cost reduction plan to
restructure its health care operations, which resulted in a pre-tax charge of
$32 million ($22 million after-tax) in the Employee Life and Health Benefits
segment. The charge consisted primarily of costs related to severance, real
estate and other costs for office closings. The cash outlays associated with
these initiatives will continue through 1999 with most occurring in 1998. CIGNA
has funded and will continue to fund the cash outlays through liquid assets, and
such funding has not and will not have a material adverse effect on its
liquidity. As of March 31, 1998, approximately $1 million of severance was paid
to approximately 225 employees.
NOTE 9 - CONTINGENCIES AND OTHER MATTERS
Financial Guarantees
CIGNA, through its subsidiaries, is contingently liable for various financial
guarantees provided in the ordinary course of business. These include guarantees
for the repayment of industrial revenue bonds as well as other debt instruments
and guarantees of a minimum level of benefits for certain separate account
contracts. Although the ultimate outcome of any loss contingencies arising from
CIGNA's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on
CIGNA's liquidity or financial condition.
Regulatory and Industry Developments
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment that could affect them. Some of the
changes include initiatives to:
o increase health care regulation;
o revise the system of funding cleanup of environmental damages;
o reinterpret insurance contracts long after the policies were written to
provide coverage unanticipated by CIGNA;
o restrict insurance pricing and the application of underwriting standards;
and
o revise federal tax laws.
Some of the more significant issues are discussed below.
Efforts at the federal and state level to increase regulation of the health care
industry could have an adverse effect on CIGNA's health care operations if they
reduce marketplace competition and innovation or result in increased medical or
administrative costs. Matters under consideration that could have an adverse
effect include mandated benefits or services that increase costs without
improving the quality of care, loss of the Employee Retirement Income Security
Act of 1974 (ERISA) preemption of state law and restrictions on the use of
prescription drug formularies. Due to the uncertainty associated with the timing
and content of any proposals ultimately adopted, the effect on CIGNA's results
of operations, liquidity or financial condition cannot be reasonably estimated
at this time.
Proposed legislation for Superfund reform remains under consideration by
Congress. Any changes in Superfund relating to 1) assigning responsibility, 2)
funding cleanup costs or 3) establishing cleanup standards could affect the
liabilities of policyholders and insurers. Due to uncertainties associated with
the timing and content of any future Superfund legislation, the effect on
CIGNA's results of operations, liquidity or financial condition cannot be
reasonably estimated at this time.
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate-owned
life insurance products. CIGNA does not expect this legislation to have a
material effect on its consolidated results of operations, liquidity or
financial condition.
The National Association of Insurance Commissioners (NAIC) is currently
addressing risk-based capital guidelines for health maintenance organizations
(HMOs). CIGNA does not expect such guidelines to have a material adverse effect
on its future results of operations, liquidity or financial condition.
In 1998, the NAIC adopted standardized statutory accounting principles. Since
these principles have not yet been adopted by the insurance departments of
various jurisdictions in which CIGNA's insurance
8
<PAGE>
subsidiaries are domiciled, the timing or effects of implementation have not yet
been determined.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain.
Property and Casualty Unpaid Claims and
Claim Expense Reserves and Reinsurance
Recoverables
CIGNA's property and casualty loss reserves are an estimate of future payments
for reported and unreported claims for losses and related expenses with respect
to insured events that have occurred. The basic assumption underlying the many
traditional actuarial and other methods used in the estimation of property and
casualty loss reserves is that past experience is an appropriate basis for
predicting future events. However, current trends and other factors that would
modify past experience are also considered. The process of establishing loss
reserves is subject to uncertainties that are normal, recurring and inherent in
the property and casualty business.
Reserving for property and casualty claims continues to be a complex and
uncertain process, requiring the use of informed estimates and judgments.
CIGNA's estimates and judgments may be revised as additional experience and
other data become available and are reviewed, as new or improved methodologies
are developed or as current law changes. Any such revisions could result in
future changes in estimates of losses or reinsurance recoverables, and would be
reflected in CIGNA's results of operations for the period in which the estimates
are changed. While the effect of any such changes in estimates of losses or
reinsurance recoverables could be material to future results of operations,
CIGNA does not expect such changes to have a material effect on its liquidity or
financial condition.
In management's judgment, information currently available has been appropriately
considered in estimating CIGNA's loss reserves and reinsurance recoverables.
Litigation
CIGNA is continuously involved in numerous lawsuits arising, for the most part,
in the ordinary course of business, either as a liability insurer defending
third-party claims brought against its insureds or as an insurer defending
coverage claims brought against it by its policyholders or other insurers. One
such area of litigation involves policy coverage and judicial interpretation of
legal liability for asbestos-related and environmental pollution (A&E) claims.
While the outcome of all litigation involving CIGNA, including insurance-related
litigation, cannot be determined, litigation (including that related to A&E
claims) is not expected to result in losses that differ from recorded reserves
by amounts that would be material to results of operations, liquidity or
financial condition. Also, reinsurance recoveries related to claims in
litigation, net of the allowance for uncollectible reinsurance, are not expected
to result in recoveries that differ from recorded recoverables by amounts that
would be material to results of operations, liquidity or financial condition.
Property and Casualty Restructuring
Effective December 31, 1995, CIGNA restructured its domestic property and
casualty businesses into two separate operations, ongoing and run-off. Certain
competitors and policyholders of CIGNA are challenging the restructuring in
court. Although CIGNA expects the matter to be in litigation for some time, it
expects to ultimately prevail.
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
The following discussion addresses the financial condition of CIGNA Corporation
(CIGNA) as of March 31, 1998, compared with December 31, 1997, and its results
of operations for the three months ended March 31, 1998, compared with the same
period last year. This discussion should be read in conjunction with
Management's Discussion and Analysis included in CIGNA's 1997 Annual Report to
Shareholders (pages 10 through 23), to which the reader is directed for
additional information. Due to the seasonality of certain aspects of CIGNA's
business, caution should be used in estimating results for the full year based
on interim results of operations.
Acquisitions and Dispositions
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
businesses for cash proceeds of $1.4 billion. The sale resulted in an after-tax
gain of $773 million of which $202 million was recognized upon closing of the
sale. Since the principal agreement to sell these businesses is in the form of
an indemnity reinsurance arrangement, the remaining $571 million of the gain was
deferred and is being recognized at the rate that earnings from the businesses
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. Approximately $17 million of the deferred gain was recognized
in the first quarter of 1998. The sales agreement provides for post-closing
adjustments, however, any future adjustments are not expected to be material to
results of operations, liquidity or financial condition.
CIGNA's priorities for the use of capital, including proceeds from the sale, are
internal growth, acquisitions and share repurchases. Absent higher internal
growth or attractive acquisition opportunities, proceeds from the sale are
expected to be used for share repurchases, depending on market conditions.
CIGNA acquired the outstanding common stock of Healthsource, Inc. (Healthsource)
on June 25, 1997. The cost of the acquisition was $1.7 billion, reflecting the
purchase of Healthsource common stock for $1.4 billion and the retirement of
Healthsource debt of $250 million. The acquisition was accounted for as a
purchase, and was financed through the issuance of long-term debt of $600
million and a combination of internally generated funds and short-term debt.
Goodwill and other intangible assets associated with the Healthsource
acquisition were $1.5 billion, including $24 million recorded in the fourth
quarter of 1997 for severance of Healthsource employees, vacated Healthsource
lease space and adjustments to Healthsource net assets to conform to CIGNA's
accounting policies. Annual expense savings of $35 million after-tax are
expected from the severance actions and vacated lease space, with approximately
two-thirds emerging in 1998 and the full amount in 1999. Goodwill and other
intangible assets are being amortized on a straight-line basis over periods
ranging from eight to 40 years.
In addition, in the fourth quarter of 1997, CIGNA recorded a pre-tax integration
charge of $87 million ($58 million after-tax) in connection with its review of
Healthsource operations. The charge primarily resulted from an analysis of
Healthsource HMO medical reserves, receivable balances and contractual
obligations.
CIGNA continues to conduct strategic and financial reviews of its businesses in
order to deploy its capital most effectively. In connection with these efforts,
CIGNA has invested in various growth initiatives including approximately $210
million for recent international life and health expansion. Certain risks are
inherent in expanding operations in foreign countries. These investments are
routinely monitored for potential impairment. However, management currently
believes that such investments are recoverable.
See Note 3 to the Financial Statements for additional information on
acquisitions and dispositions.
Cost Reduction Initiatives
In the fourth quarter of 1997, CIGNA adopted a cost reduction plan to
restructure its health care operations, which resulted in a pre-tax charge of
$32 million ($22 million after-tax) in the Employee
10
<PAGE>
Life and Health Benefits segment. The charge consisted primarily of costs
related to severance, real estate and other costs for office closings. The cash
outlays associated with these initiatives will continue through 1999 with most
occurring in 1998. CIGNA has funded and will continue to fund the cash outlays
through liquid assets, and such funding has not and will not have a material
adverse effect on its liquidity. These initiatives are expected to result in
annual after-tax expense savings of $50 million with approximately two-thirds of
the savings emerging in 1998 and the full amount in 1999. As of March 31, 1998,
there were no material changes to the costs associated with or the anticipated
annual savings related to these initiatives. As of March 31, 1998, approximately
$1 million of severance was paid to approximately 225 employees.
See Note 8 to the Financial Statements for additional information on cost
reduction initiatives.
Other Matters
CIGNA is highly dependent on automated systems and systems applications in
conducting its ongoing operations. Such systems are utilized for, among other
things, processing claims, billing and collecting premiums from customers and
managing investment activities. If these systems were unable to process data
accurately because of failing to be Year 2000 ready, these activities would be
interrupted and could have a material adverse effect on CIGNA's results of
operations.
By the beginning of 1999, CIGNA expects to substantially complete modifications
or replacement of its systems to ensure Year 2000 readiness and, during 1999,
expects to complete testing of its systems and verify that its systems properly
interface with external parties, including customers and third-party
administrators. CIGNA is utilizing both internal and external resources to meet
this timetable. The after-tax costs of these efforts are expected to be
approximately $100 million in 1998 and $50 million in 1999. Approximately 60% of
total Year 2000 costs are attributable to existing systems resources which have
been redirected to the Year 2000 efforts. The remaining amounts represent
incremental costs for Year 2000 efforts. Due to the complexities of estimating
remediation costs, estimates are subject to change as Year 2000 efforts
progress. Year 2000 costs for the first quarter of 1998 were $14 million
after-tax.
As noted above, CIGNA has relationships with various third party entities in its
ordinary course of business. CIGNA is assessing and attempting to mitigate its
risks with respect to the failure of these entities to be Year 2000 ready. The
effect, if any, on CIGNA's results of operations from the failure of these
entities to be Year 2000 ready is not reasonably estimable. Property and
casualty indemnity losses for Year 2000 claims and litigation costs to defend or
deny such claims are not reasonably estimable at this time.
Certain European countries plan to begin implementing a common currency (euro)
in January 1999. CIGNA expects that it will have procedures and systems in place
as of January 1999 to support the implementation of the euro and that the costs
of these efforts will not be material.
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment that could affect them. Some of the
changes include initiatives to:
o increase health care regulation;
o revise the system of funding cleanup of environmental damages;
o reinterpret insurance contracts long after the policies were written to
provide coverage unanticipated by CIGNA;
o restrict insurance pricing and the application of underwriting standards;
and
o revise federal tax laws.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain. For additional information, see Note 9 to the Financial
Statements.
Recent Accounting Pronouncements
The American Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" in 1997. SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty fund and other
insurance-related assessments. Implementation is required by the first quarter
of 1999, with the cumulative effect of adopting the SOP reflected in net income
in the
11
<PAGE>
year of adoption. CIGNA has not determined the effect or timing of
implementation of this pronouncement.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 specifies the types
of costs that must be capitalized and amortized over the software's expected
useful life and the types of costs which must be immediately recognized as
expense. Implementation is required by the first quarter of 1999. Although CIGNA
has not yet determined the timing of implementation, this pronouncement is not
expected to have a material effect on results of operations, liquidity or
financial condition.
CONSOLIDATED RESULTS OF OPERATIONS
=================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Premiums and fees $3,901 $3,388
Net investment income 937 1,053
Other revenues 514 160
Realized investment gains 59 44
-----------------
Total revenues 5,411 4,645
Benefits and expenses 4,643 4,208
-----------------
Income before taxes 768 437
Income taxes 273 149
-----------------
Net income $495 $288
- ------------------------------------------------=================
Realized investment gains,
net of taxes $38 $28
- ------------------------------------------------=================
CIGNA's first quarter 1998 consolidated net income increased 72% from the same
period last year. The increase in net income primarily reflects a $202 million
after-tax gain recognized upon closing of the sale of CIGNA's individual life
insurance and annuity businesses. Excluding this gain, operating income* for the
first quarter of 1998 was $255 million compared with $260 million for the same
period last year, a decrease of 2%. This decrease reflects improvement in the
Employee Life and Health Benefits and Employee Retirement and Savings Benefits
segments offset by lower earnings in the other business segments and Other
Operations.
After-tax realized investment results increased 36% in the first quarter of 1998
from the same period last year. This increase primarily reflects gains on sales
of fixed maturities and mortgage loans, partially offset by lower gains on sales
of real estate. For additional information see Note 4 to the Financial
Statements.
Full year operating income for 1998 is expected to be comparable to 1997,
excluding the $202 million gain on sale of businesses discussed above and the
1997 Healthsource integration and health care cost reduction charge of $80
million. Results for 1998 could be adversely affected by the factors noted in
the cautionary statements on page 20.
EMPLOYEE LIFE AND HEALTH BENEFITS
=================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Premiums and fees $2,730 $2,103
Net investment income 143 135
Other revenues 129 107
Realized investment gains 27 6
-----------------
Total revenues 3,029 2,351
Benefits and expenses 2,794 2,166
-----------------
Income before taxes 235 185
Income taxes 86 64
-----------------
Net income $149 $121
- ------------------------------------------------=================
Realized investment gains,
net of taxes $18 $4
- ------------------------------------------------=================
Net income for the Employee Life and Health Benefits segment increased 23% for
the first quarter of 1998, compared with the same period last year. Operating
income for the first quarter of 1998 increased 12% compared with the same period
last year. Operating income for the Indemnity and HMO operations was as follows:
=================================================================
Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Indemnity operations $69 $58
HMO operations 62 59
- -----------------------------------------------------------------
Total $131 $117
=================================================================
Indemnity operating income increased 19% for the first quarter of 1998 compared
with the same period last year. This increase primarily reflects favorable
long-term disability claim experience, partially offset by unfavorable medical
claim experience.
- --------
*Operating income (loss) is defined as net income (loss) excluding after-tax
realized investment results.
12
<PAGE>
HMO earnings increased 5% for the first quarter of 1998 compared with the same
period last year. This improvement reflects medical membership growth primarily
from the Healthsource acquisition and rate increases, and improved results in
dental and mental health operations. These improvements were partially offset by
increased HMO medical costs, and Healthsource goodwill and other intangibles
amortization of $9 million.
Premiums and fees increased 30% for the first quarter of 1998 compared to the
same period last year. This increase primarily reflects Healthsource premiums
and fees of approximately $500 million, rate increases and non-Healthsource
membership growth. Growth in premiums is expected to continue to be constrained
by competitive pressures in both the medical indemnity and HMO markets.
Net investment income increased 6% for the first quarter of 1998 compared to
1997 primarily due to the addition of assets related to Healthsource, partially
offset by lower yields.
As of March 31, 1998, total HMO membership was approximately 6.3 million,
representing an increase of 40% since March 31, 1997 and 7% since December 31,
1997. Approximately 75% of the increase from March 31, 1997 is a result of the
Healthsource acquisition while the remaining 25% reflects membership growth in
CIGNA's HMO alternative funding programs and traditional HMO business. Under
alternative funding programs, the customer assumes all or a portion of the
responsibility for funding claims. CIGNA generally earns a lower margin on these
programs than under traditional HMO plans.
Management believes that adding premium equivalents to premiums and fees
(adjusted premiums and fees) produces a more meaningful measure of business
volume. Premium equivalents for the first quarters of 1998 and 1997 were
approximately $3.2 billion and $2.4 billion, respectively, representing a 33%
increase. This increase primarily reflects the Healthsource acquisition, and to
a lesser extent, higher medical costs and cancellations and conversions of
medical indemnity business to HMOs. Premium equivalents are expected to continue
to be constrained by competitive pressures in both the medical indemnity and HMO
markets.
Premium equivalents were 54% and 53% of total adjusted premiums and fees for the
first quarters of 1998 and 1997, respectively. Administrative Services Only
(ASO) plans accounted for 48% and 49% of total adjusted premiums and fees for
the first quarters of 1998 and 1997, respectively.
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
=================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Premiums and fees $54 $46
Net investment income 387 402
Realized investment gains 4 12
--------------------
Total revenues 445 460
Benefits and expenses 359 368
--------------------
Income before taxes 86 92
Income taxes 27 30
--------------------
Net income $59 $62
- ---------------------------------------------====================
Realized investment gains,
net of taxes $3 $8
- ---------------------------------------------====================
Net income for the Employee Retirement and Savings Benefits segment decreased 5%
for the first quarter of 1998, compared with the same period of 1997. Operating
income for the first quarter of 1998 was $56 million, compared with $54 million
for the same period last year. This increase reflects higher earnings from an
increased asset base, partially offset by a shift to lower margin products
(separate account equity funds).
Premiums and fees for the first quarter of 1998 increased 17% compared with the
same period last year, reflecting higher fees from separate accounts and higher
annuity sales.
Net investment income decreased 4% for the first quarter of 1998, primarily
reflecting lower investment yields and customers' continued redirection of a
portion of their investments from the general account to separate accounts.
13
<PAGE>
Assets under management is generally a key determinant of earnings for this
segment. For the quarter ended March 31, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
==================================================================
(In millions) 1998 1997
- ------------------------------------------------------------------
Balance -- January 1 $45,924 $40,587
Premiums and deposits 2,064 2,049
Investment results 744 554
Increase (decrease) in fair value of assets 1,853 (286)
Customer withdrawals (868) (790)
Other, including participant
withdrawals and benefit payments (1,344) (1,031)
- ------------------------------------------------------------------
Balance -- March 31 $48,373 $41,083
==================================================================
Premiums and deposits were about level in the three months of 1998, compared
with the same period in 1997. For the three months of 1998 and 1997,
approximately 54% and 45%, respectively, of premiums and deposits reflect
recurring deposits from existing customers while the remaining amounts represent
sales to new customers and new plan sales to existing customers. Investment
results increased 34% in the three months of 1998, compared with the same period
in 1997. This increase reflects higher capital gains and growth in assets,
partially offset by lower investment yields. The increase for 1998 in the fair
value of assets is due to market value appreciation of equity securities in
separate accounts and, to a lesser extent, market value appreciation of fixed
maturities in the general account. The increase in Other reflects larger
participant withdrawals and benefit payments due to a higher level of assets
under management.
Management expects asset growth to continue to be constrained due to the lack of
growth in the defined benefit market. In addition, assets under management will
continue to be affected by market value fluctuations for fixed maturities and
equity securities.
INDIVIDUAL FINANCIAL SERVICES
==================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Premiums and fees $155 $234
Net investment income 170 260
Other revenues 342 14
Realized investment gains 8 13
---------------------
Total revenues 675 521
Benefits and expenses 288 436
---------------------
Income before taxes 387 85
Income taxes 139 30
---------------------
Net income $248 $55
- --------------------------------------------=====================
Realized investment gains,
net of taxes $5 $8
- --------------------------------------------=====================
Net income for the Individual Financial Services segment increased substantially
from the same period last year. This increase reflects an after-tax gain of $202
million recognized upon the closing of the sale of the individual life insurance
and annuity businesses and $17 million after-tax from recognition of a portion
of the deferred gain associated with the sale (as discussed on page 10).
Excluding these amounts, operating income for the first quarter of 1998 was $24
million compared with $26 million for the same period last year (excluding
earnings of $21 million related to the businesses sold). This decrease primarily
reflects unfavorable claim experience in the accident and health reinsurance
operations, partially offset by growth in interest-sensitive business.
For the first quarter of 1998, premiums and fees decreased 34% from the same
period of 1997. Excluding 1997 premiums and fees related to the businesses sold,
the increase for the first quarter of 1998 was 17%. This increase reflects
growth in reinsurance sales and higher renewal premiums for interest-sensitive
products.
Net investment income decreased 35% for the first quarter of 1998 compared with
the same period of 1997. Excluding 1997 net investment income related to the
businesses sold, the increase for the first quarter of 1998 was 11%. This
increase reflects growth in interest-sensitive business.
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate-owned
life insurance (COLI) products. For the first
14
<PAGE>
quarter of 1998, revenues of $145 million and operating income of $10 million
were from leveraged COLI products that are affected by this legislation. The
effect of this legislation on customers' decisions to maintain these policies
after the phase-out period is unknown. However, all or a portion of these
policies could lapse.
PROPERTY AND CASUALTY
==================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Premiums and fees $962 $1,005
Net investment income 173 195
Other revenues 69 72
Realized investment gains 19 13
--------------------
Total revenues 1,223 1,285
Benefits and expenses 1,131 1,190
--------------------
Income before taxes 92 95
Income taxes 30 30
--------------------
Net income $62 $65
- ---------------------------------------------====================
Realized investment gains,
net of taxes $12 $8
- ---------------------------------------------====================
Net income for the Property and Casualty segment decreased 5% for the first
quarter of 1998, compared with the same period last year.
Operating income decreased 12% for the first quarter of 1998, compared with the
same period in 1997. Operating income for the ongoing and run-off operations
was as follows:
==================================================================
Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
Ongoing operations:
International $31 $33
Domestic 19 23
----------------------
Total ongoing
operations 50 56
Run-off operations -- 1
- -----------------------------------------------------------------
Total $50 $57
=================================================================
The decline in the international operations for 1998 primarily reflects lower
property and casualty earnings due to the competitive environment and lower
investment income. Partially offsetting the decline were improvements in the
international life and health operations.
The decline in the domestic operations for 1998 primarily reflects lower net
investment income and, to a lesser extent, adverse property claim experience.
Results for the run-off operations primarily reflect prior year development on
claim and claim adjustment expense reserves and investment activity.
Premiums and fees declined 4% in the first quarter of 1998. This decline
reflects lower domestic premiums, including $17 million from the discontinuance
of writing personal homeowners insurance and lower international property and
casualty premiums. These declines reflect continued price competition and, for
international, the unfavorable effect of foreign exchange. Partially offsetting
these declines was growth in the international life, health and accident
businesses.
Net investment income decreased 11% for the first quarter of 1998 compared with
the same period of 1997. The decline reflects lower assets and yields, the
unfavorable effect of foreign exchange and a shift in the investment portfolio
mix from fixed maturities to equity securities.
The domestic ongoing operations had pre-tax catastrophe losses of $9 million,
net of reinsurance, for the first quarter of 1998, compared with $12 million for
the first quarter of 1997. The international operations had pre-tax catastrophe
losses of $11 million, net of reinsurance, for the first quarter of 1998. There
were no catastrophe losses associated with the international operations in the
first quarter of 1997. The effects of reinsurance on catastrophe losses for the
periods presented were not material.
Certain competitors and policyholders of CIGNA are challenging in court the
restructuring of its domestic property and casualty business into two separate
operations, ongoing and run-off. Although CIGNA expects the matter to be in
litigation for some time, it expects to ultimately prevail.
LOSS RESERVES AND REINSURANCE
RECOVERABLES
CIGNA's reserving methodology and significant issues affecting the estimation of
loss reserves and reinsurance recoverables are described in its 1997 Form 10-K.
15
<PAGE>
CIGNA's property and casualty loss reserves of $14.9 billion and $15.1 billion
as of March 31, 1998 and December 31, 1997, respectively, are an estimate of
future payments for reported and unreported claims for losses and related
expenses with respect to insured events that have occurred. The basic assumption
underlying the many traditional actuarial and other methods used in the
estimation of property and casualty loss reserves is that past experience is an
appropriate basis for predicting future events. However, current trends and
other factors that would modify past experience are also considered. The process
of establishing loss reserves is subject to uncertainties that are normal,
recurring and inherent in the property and casualty business.
CIGNA continually attempts to improve its loss estimation process by refining
its analysis of loss development patterns, claims payments and other
information, but there remain many reasons for adverse development of estimated
ultimate liabilities. For example, unanticipated changes in workers'
compensation and product liability laws have at times significantly affected the
ability of insurers to estimate liabilities for unpaid losses and related
expenses.
Reserving for property and casualty claims continues to be a complex and
uncertain process, requiring the use of informed estimates and judgments.
CIGNA's estimates and judgments may be revised as additional experience and
other data become available and are reviewed, as new or improved methodologies
are developed or as current law changes. Any such revisions could result in
future changes in estimates of losses or reinsurance recoverables, and would be
reflected in CIGNA's results of operations for the period in which the estimates
are changed. While the effect of any such changes in estimates of losses or
reinsurance recoverables could be material to future results of operations,
CIGNA does not expect such changes to have a material effect on its liquidity or
financial condition.
CIGNA manages its loss exposure through the use of reinsurance. While
reinsurance arrangements are designed to limit losses from large exposures and
to permit recovery of a portion of direct losses, reinsurance does not relieve
CIGNA of liability to its insureds. Accordingly, CIGNA's loss reserves represent
total gross losses, and reinsurance recoverables represent anticipated
recoveries of a portion of those losses.
CIGNA's reinsurance recoverables were approximately $6.0 billion and $6.2
billion as of March 31, 1998 and December 31, 1997, net of allowances for
unrecoverable reinsurance of $702 million and $720 million, respectively.
In management's judgment, information currently available has been appropriately
considered in estimating CIGNA's loss reserves and reinsurance recoverables.
The following table shows the adverse pre-tax effects on the Property and
Casualty segment's results of operations from prior year development, net of
reinsurance, for the three months ended March 31:
==================================================================
Three Months Ended
March 31,
(In millions) 1998 1997
- -----------------------------------------------------------------
By business operation:
Ongoing operations $2 $21
Run-off operations 46 53
- -----------------------------------------------------------------
Total $48 $74
=================================================================
By type of loss:
Asbestos-related $18 $21
Environmental pollution 7 6
Unrecoverable
reinsurance 9 6
Workers' compensation 10 12
Other 4 29
- -----------------------------------------------------------------
Total $48 $74
=================================================================
OTHER OPERATIONS
Other Operations primarily includes unallocated investment income, expenses
(including debt service) and taxes. Also included are the results of CIGNA's
settlement annuity business and non-insurance operations engaged primarily in
investment and real estate activities and certain new business initiatives.
Other Operations had a net loss of $23 million for the first quarter of 1998
compared with a net loss of $15 million for the first quarter of 1997. There
were no realized investment gains or losses for the first quarter of 1998 and
1997. The increase in losses primarily reflects financing costs associated with
the Healthsource acquisition and increased expenses related to new business
initiatives.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for CIGNA and its insurance subsidiaries has remained strong as
evidenced by significant amounts of short-term investments and cash and cash
equivalents in the aggregate. Generally, CIGNA has met its operating
requirements by maintaining appropriate levels of liquidity in its investment
portfolio and through utilization of overall positive cash flows.
For the first quarter of 1998, cash and cash equivalents decreased $303 million
from $2.6 billion as of December 31, 1997. This decrease primarily reflects
repayment of debt ($426 million), net withdrawals from contractholder deposit
funds ($170 million), payments of dividends on and repurchases of CIGNA common
stock ($168 million) and cash used in operating activities ($81 million),
reflecting the timing of operating cash receipts and disbursements. These
decreases were partially offset by cash provided by investing activities ($537
million), which includes net proceeds on the sale of the individual life
insurance and annuity businesses of $1.3 billion, partially offset by net
investment purchases.
CIGNA's capital resources represent funds available for long-term business
commitments. They primarily consist of retained earnings and proceeds from the
issuance of long-term debt and equity securities. CIGNA's financial strength
provides the capacity and flexibility to enable it to raise funds in the capital
markets through the issuance of such securities. CIGNA continues to be well
capitalized, with sufficient borrowing capacity to meet the anticipated needs of
its businesses.
CIGNA had $1.5 billion of long-term debt outstanding at March 31, 1998 and
December 31, 1997. As of March 31, 1998, CIGNA had approximately $1 billion
remaining under effective shelf registration statements filed with the
Securities and Exchange Commission that may be issued as debt securities, equity
securities or both, depending upon market conditions and CIGNA's capital
requirements.
At March 31, 1998, CIGNA's short-term debt amounted to $266 million, a decrease
of $424 million from December 31, 1997.
In April 1998, CIGNA's Board of Directors increased CIGNA's authorization to
repurchase its common stock by $750 million. Stock repurchases will depend on
prevailing market conditions and alternative uses of capital. During 1998, CIGNA
has repurchased approximately 797,000 shares (2,391,000 shares post-split*) for
$154 million, including 209,000 shares (627,000 shares post-split*) repurchased
for $43 million from April 1 through April 30, 1998. The remaining authorization
as of April 30, 1998 was $957 million.
INVESTMENT ASSETS
==================================================================
March 31, December 31,
(In millions) 1998 1997
- ------------------------------------------------------------------
Fixed maturities $33,190 $36,358
Equity securities 1,030 854
Mortgage loans 9,401 10,859
Real estate 755 769
Other, primarily policy loans 7,241 7,738
- ------------------------------------------------------------------
Total investment assets $51,617 $56,578
==================================================================
Additional information regarding CIGNA's investment assets is included in Note 4
to the first quarter 1998 Financial Statements and Notes 2, 4 and 5 to the 1997
Financial Statements as well as the 1997 Form 10-K.
Investment assets as of March 31, 1998 decreased 9% from December 31, 1997. This
decrease primarily relates to investments which were included in the sale of the
individual life insurance and annuity businesses.
Significant amounts of CIGNA's investment assets are attributable to
experience-rated contracts with policyholders (policyholder contracts).
Approximate percentages of investments attributable to policyholder contracts
were as follows:
==================================================================
March 31, December 31,
1998 1997
- ------------------------------------------------------------------
Fixed maturities 30% 29%
Mortgage loans 58% 53%
Real estate 62% 64%
==================================================================
- --------------
* See Note 1 to the Financial Statements for information regarding the
three-for-one stock split.
17
<PAGE>
Fixed Maturities
Investments in fixed maturities (bonds) include publicly traded and private
placement debt securities; asset-backed securities, including collateralized
mortgage obligations (CMOs); and redeemable preferred stocks.
As of March 31, 1998, the fair value of fixed maturities, including policyholder
share, was greater than amortized cost by $1.9 billion, compared with $2.1
billion as of December 31, 1997. The decrease in unrealized appreciation
primarily relates to bonds which were included in the sale of the individual
life insurance and annuity businesses.
Potential Problem and Problem Bonds
Potential problem bonds are fully current but judged by management to have
certain characteristics that increase the likelihood of problem classification.
CIGNA had $49 million of potential problem bonds, including amounts attributable
to policyholder contracts, as of March 31, 1998, compared with $63 million as of
December 31, 1997. These amounts are net of $10 million of cumulative
write-downs for both periods.
CIGNA considers bonds that are delinquent or restructured as to terms, typically
interest rate and, in certain cases, maturity date, problem bonds. As of March
31, 1998 and December 31, 1997, CIGNA had problem bonds, including amounts
attributable to policyholder contracts, of $150 million and $137 million, net of
related cumulative write-downs of $18 million and $30 million, respectively.
Problem bonds included $3 million related to Asian investments as of March 31,
1998.
CIGNA recognizes interest income on problem bonds only when payment is received.
See the Summary on page 19 for the effect of non-accruals and write-downs for
bonds on policyholder contracts and on CIGNA's net income.
Mortgage Loans
==================================================================
March 31, December 31,
1998 1997
- ------------------------------------------------------------------
Mortgage loans (in millions) $9,401 $10,859
Property type:
Retail facilities 39% 40%
Office buildings 36 34
Apartment buildings 13 13
Industrial 6 5
Hotels 4 5
Other 2 3
Total 100% 100%
==================================================================
CIGNA's investment strategy requires diversification of the mortgage loan
portfolio. This strategy includes guidelines relative to property type, location
and borrower to reduce its exposure to potential losses.
Potential Problem and Problem Mortgage Loans
Potential problem mortgage loans include:
o fully current loans that are judged by management to have certain
characteristics that increase the likelihood of problem classification;
o fully current loans for which the borrower has requested restructuring; and
o loans that are 30 to 59 days delinquent with respect to interest or
principal payments.
CIGNA had potential problem mortgage loans, including amounts attributable to
policyholder contracts, of $194 million as of March 31, 1998, and $191 million
as of December 31, 1997, net of related valuation reserves of $36 million and
$41 million, respectively.
CIGNA's problem mortgage loans include delinquent and restructured mortgage
loans. Delinquent mortgage loans include those on which payment is overdue
generally 60 days or more. Restructured mortgage loans are those whose basic
financial terms have been modified, typically to reduce the interest rate or
extend the maturity date.
CIGNA had problem mortgage loans, including amounts attributable to policyholder
contracts, of $142 million and $152 million, net of valuation reserves of $9
million as of March 31, 1998 and December 31, 1997.
18
<PAGE>
CIGNA recognizes interest income on problem mortgage loans only when payment is
received. See the Summary below for the effect of non-accruals and valuation
reserves for mortgage loans on policyholder contracts and on CIGNA's net income.
Real Estate
As of March 31, 1998 and December 31, 1997, investment real estate, net of
reserves and write-downs, included: 1) $411 million and $414 million,
respectively, of real estate held for the production of income, and 2) $344
million and $355 million, respectively, of real estate held for sale, primarily
properties acquired as a result of foreclosure of mortgage loans.
See the Summary below for the effect of write-downs and valuation reserves for
real estate on policyholder contracts and on CIGNA's net income.
Summary
The adverse (favorable) effects of write-downs and changes in valuation reserves
as well as of non-accruals on policyholder contracts and on CIGNA's net income
were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
============================================================================================================================
Three Months Ended March 31,
-------------------------------------------------
1998 1997
-------------------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ----------------------------------------------------------------------------------------------------------------------------
Write-downs and
valuation
reserves:
Bonds $1 $-- $6 $1
Mortgage loans (3) (1) 2 1
Real estate (2) -- 1 1
- ----------------------------------------------------------------------------------------------------------------------------
Total $(4) $(1) $9 $3
============================================================================================================================
Non-accruals:
Bonds $1 $2 $2 $5
Mortgage loans -- -- (1) --
- ----------------------------------------------------------------------------------------------------------------------------
Total $1 $2 $1 $5
============================================================================================================================
</TABLE>
Additional losses from problem investments are expected to occur for specific
investments in the normal course of business. Assuming no significant
deterioration in economic conditions, including further significant
deterioration in Asian economies, CIGNA does not expect additional non-accruals,
write-downs and reserves to materially affect future results of operations,
liquidity or financial condition, or to result in a significant decline in the
aggregate carrying value of its assets.
19
<PAGE>
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information provided in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, statements made
throughout this document are forward-looking and contain information about
financial results, economic conditions, trends and known uncertainties. CIGNA
cautions the reader that actual results could differ materially from those
expected by CIGNA, depending on the outcome of certain factors (some of which
are described with the forward-looking statements) including: 1) adverse
catastrophe experience in CIGNA's property and casualty businesses; 2) adverse
property and casualty loss development for events that CIGNA insured in prior
years; 3) an increase in medical costs in CIGNA's health care operations,
including increases in utilization and costs of medical services; 4) heightened
competition, particularly price competition, reducing product margins and
constraining growth in CIGNA's businesses; 5) significant changes in interest
rates; and 6) the effect on CIGNA's international operations and investments
from further significant deterioration in Asian economies.
20
<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information
SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected historical financial information
of the Company for, and as of the end of, each of the periods presented as
adjusted for a three-for-one stock split effective May 4, 1998. The selected
historical financial information supplements, and should be read in conjunction
with, the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997. The selected historical financial information provided below
is not necessarily indicative of future results of operations or financial
performance for the Company.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net income per share - basic $4.93 $4.68 $0.97 $2.58 $1.09
Net income per share - diluted $4.88 $4.64 $0.96 $2.50 $1.09
Common dividends declared per share $1.11 $1.07 $1.01 $1.01 $1.01
Shareholders' equity per share $36.55 $32.38 $31.25 $26.82 $30.43
Common shares outstanding (thousands) 216,996 222,594 228,996 216,675 216,045
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) During the quarterly period ended March 31, 1998, and as of the
filing date, CIGNA filed the following Reports on Form 8-K:
o dated February 10, 1998, Item 5 - containing a news release
regarding its fourth quarter and full year 1997 results.
o dated April 30, 1998, Item 5 - containing a news release
regarding its first quarter 1998 results.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned duly
authorized officer, on its behalf and in the capacity indicated.
CIGNA CORPORATION
By /s/ Gary A. Swords
------------------
Gary A. Swords
Vice President and
Chief Accounting Officer
Date: May 8, 1998
22
<PAGE>
Exhibit Index
Method of
Number Description Filing
3.1 (a) Restated Certificate of Incorporation
of the registrant effective as of
August 4, 1997 Filed herewith
(b) Certificate of Amendment of
Restated Certificate of Incorporation
of the registrant effective as
of May 4, 1998 Filed herewith
10.1 Special Incentive Agreement
with Mr. Taylor dated March 17, 1998 Filed herewith
10.2 Special Incentive Agreement
with Mr. Stewart dated March 17, 1998 Filed herewith
10.3 Special Incentive Agreement
with Mr. Levinson dated March 17, 1998 Filed herewith
10.4 Special Incentive Agreement
with Mr. Isom dated March 17, 1998 Filed herewith
10.5 Special Incentive Agreement
with Mr. Hanway dated March 17, 1998 Filed herewith
12 Computation of Ratio of
Earnings to Fixed Charges Filed herewith
27 Financial Data Schedule Included only in
the EDGAR version
of the Form 10-Q.
23
Exhibit 3.1(a)
RESTATED CERTIFICATE OF INCORPORATION
OF CIGNA CORPORATION
*****
This Restated Certificate of Incorporation of CIGNA Corporation was
duly approved by the Board of Directors of the Corporation and only restates and
integrates but does not further amend the provisions of the Corporation's
Certificate of Incorporation as theretofore amended or supplemented; and there
is no discrepancy between these amended and supplemented provisions and the
provisions of the Restated Certificate of Incorporation set forth below except
as permitted by Section 245 of the General Corporation Law. The Corporation was
incorporated under the name North American General Corporation. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on November 3, 1981.
First: The name of the Corporation is CIGNA Corporation.
Second: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
Third: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
Fourth: The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 225,000,000 shares
divided into two classes as follows: 200,000,000 shares of Common Stock (the
"Common Stock") of the par value of $1 per share and 25,000,000 shares of
Preferred Stock (the "Preferred Stock") of the par value of $1 per share.
A. PREFERRED STOCK
The Board of Directors is expressly authorized to provide for
the issue of all or any shares of the Preferred Stock, in one or more series,
and to fix for each such series such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series and as may be permitted by the General Corporation Law of the State of
Delaware, including, without limitation, the authority to provide that any such
series may be (i) subject to redemption at such time or times and at such price
<PAGE>
or prices; (ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on any
other class or classes or any other series; (iii) entitled to such rights upon
the dissolution of, or upon any distribution of the assets of, the Corporation;
or (iv) convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class or
classes of stock, of the Corporation at such price or prices or at such rates of
exchange and with such adjustments; all as may be stated in such resolution or
resolutions.
1. Junior Participating Preferred Stock, Series D.
Section 1. Designation and Amount. There shall be a series of the
Preferred Stock of the Corporation which shall be designated as the "Junior
Participating Preferred Stock, Series D," $1.00 par value, and the number of
shares constituting such series shall be 6,000,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Junior Participating Preferred
Stock, Series D, to a number less than that of the shares then outstanding plus
the number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Junior Participating Preferred Stock, Series D, with respect to dividends,
the holders of shares of Junior Participating Preferred Stock, Series D, in
preference to the holders of shares of Common Stock, par value $1.00 per share
(the "Common Stock"), of the Corporation and any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, quarterly dividends payable in cash on
the 10th day of January, April, July and October in each year (or, in each case,
if not a date on which the Corporation is open for business, the next date on
which the Corporation is so open) (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Junior Participating Preferred Stock, Series D, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10.00, or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, since the immediately
<PAGE>
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Participating Preferred Stock, Series D. In the
event the Corporation shall at any time after August 4, 1997 (the "Effective
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Junior Participating Preferred Stock,
Series D, were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Junior Participating Preferred Stock, Series D, as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on
the Junior Participating Preferred Stock, Series D, shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Participating Preferred Stock, Series D, from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Junior Participating Preferred Stock, Series D, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Participating Preferred Stock, Series D, entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date in either
of which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Junior Participating Preferred Stock,
Series D, in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Junior Participating Preferred Stock, Series D, entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
<PAGE>
Section 3. Voting Rights. The holders of shares of Junior
Participating Preferred Stock, Series D shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Junior Participating Preferred Stock, Series D, shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Effective Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Junior Participating Preferred Stock, Series D, were entitled immediately prior
to such event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Junior Participating Preferred Stock, Series D, and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Junior Participating Preferred
Stock, Series D, shall be in arrears in an amount equal to six (6) quarterly
dividends thereon ,the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Junior
Participating Preferred Stock, Series D, then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Junior Participating
Preferred Stock, Series D) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) directors.
(ii) During any default period, such voting right of the
holders of Junior Participating Preferred Stock, Series D, may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor the right
of the holders of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of directors shall be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise by the holders of
<PAGE>
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect directors
to fill such vacancies, if any, in the Board of Directors as may then exist up
to two (2) directors, or if such right is exercised at an annual meeting, to
elect two (2) directors. If the number which may be so elected at any special
meeting does not amount to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the number of directors as
shall be necessary to permit the election by them of the required number. After
the holders of the Preferred Stock shall have exercised their right to elect
directors in any default period and during the continuance of such period, the
number of directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Junior Participating
Preferred Stock, Series D.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman, President, a Vice- President or the
Corporate Secretary of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to vote pursuant to
this paragraph (C)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for a time
not earlier than 10 days and not later than 60 days after such order or request
or in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of directors until the holders of Preferred
Stock shall have exercised their right to elect two (2) directors voting as a
class, after the exercise of which right (x) the directors so elected by the
holders of Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided in
paragraph (C)(ii) of this Section 3) be
<PAGE>
filled by vote of a majority of the remaining directors theretofore elected by
the holders of the class of stock which elected the director whose office shall
have become vacant. References in this paragraph (C) to directors elected by the
holders of a particular class of stock shall include directors elected by such
directors to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock, as a class to elect directors shall
cease, (y) the term of any directors elected by the holders of Preferred Stock,
as a class shall terminate, and (z) the number of directors shall be such number
as may be provided for in, or pursuant to, the Restated Certificate of
Incorporation or Bylaws irrespective of any increase made pursuant to the
provisions of paragraph (C) (ii) of this Section 3 (such number being subject,
however to change thereafter in any manner provided by law or in the Restated
Certificate of Incorporation or Bylaws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding sentence may
be filled by a majority of the remaining directors, even though less than a
quorum.
(D) Except as set forth herein, holders of Junior Participating
Preferred Stock, Series D, shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Participating Preferred Stock, Series D, as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Junior Participating
Preferred Stock, Series D, outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Junior
Participating Preferred Stock, Series D;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up), with the
Junior Participating Preferred Stock, Series D, except dividends paid
ratably on the Junior Participating Preferred Stock, Series D, and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts of which the holders of all such shares
are then entitled;
<PAGE>
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Junior Participating Preferred Stock, Series D, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Junior Participating
Preferred Stock, Series D; or
(iv) purchase or otherwise acquire for consideration
any shares of Junior Participating Preferred Stock, Series D, or any
shares of stock ranking on a parity with the Junior Participating
Preferred Stock, Series D, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series of classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Junior Participating
Preferred Stock, Series D, purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Junior Participating Preferred Stock, Series D, unless, prior
thereto, the holders of shares of Junior Participating Preferred Stock, Series
D, shall have received $100 per share plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series D Liquidation Preference"). Following the payment of
the full amount of the Series D Liquidation Preference, no additional
distributions shall be made to the holders of shares of Junior Participating
Preferred Stock, Series D, unless, prior thereto, the holders of
<PAGE>
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series D
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full amount of the Series
D Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Junior Participating Preferred Stock, Series D, and holders of shares
of Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to 1
with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series D Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Junior Participating Preferred Stock, Series D, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event
there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the execution
of the Rights Agreement (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Junior Participating Preferred Stock, Series D, shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Effective
Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in
<PAGE>
the preceding sentence with respect to the exchange or change of shares of
Junior Participating Preferred Stock, Series D, shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that are outstanding immediately
prior to such event.
Section 8. Redemption. The shares of Junior Participating Preferred
Stock, Series D, shall not be redeemable.
Section 9. Ranking. The Junior Participating Preferred Stock, Series D,
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Restated Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Junior
Participating Preferred Stock, Series D, so as to affect them adversely without
the affirmative vote of at least two-thirds (66 2/3%) of the outstanding shares
of Junior Participating Preferred Stock, Series D, voting separately as a class.
Section 11. Fractional Shares. Junior Participating Preferred Stock,
Series D, may be issued in fractions of a share, which are one one-hundredths or
integral multiples of one one-hundredths of a share, which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Junior Participating Preferred Stock, Series
D.
B. COMMON STOCK
1. Voting Rights. Except as provided by law or this
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation.
2. Dividends. Subject to the preferential rights of the
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property, or in shares of capital stock.
3. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential
<PAGE>
amounts, if any, to be distributed to the holders of shares of Preferred Stock,
holders of Common Stock shall be entitled to receive all of the remaining assets
of the Corporation of whatever kind available for distribution to stockholders
ratably in proportion to the number of shares of Common Stock held by them
respectively. The Board of Directors may distribute in kind to the holders of
Common Stock such remaining assets of the Corporation or may sell, transfer or
otherwise dispose of all or any part of such remaining assets to any other
corporation, trust or other entity and receive payment therefor in cash, stock
or obligations of such other corporation, trust or entity, or any combination
thereof, and may sell all or any part of the consideration so received and
distribute any balance thereof in kind to holders of Common Stock. Neither the
merger or consolidation of the Corporation into or with any other corporation,
nor the merger of any other corporation into it, nor any purchase or redemption
of shares of stock of the Corporation of any class, shall be deemed to be a
dissolution, liquidation or winding up of the Corporation for the purpose of
this paragraph.
Fifth: The By-Laws of the Corporation may be adopted, amended or
repealed (a) by action of the holders of at least eighty percent (80%) of the
voting power of all outstanding Voting Stock (as defined in Article Tenth) of
the Corporation entitled to vote generally at any annual or special meeting of
stockholders or (b) by action of the Board of Directors at a regular or special
meeting thereof. Any By-Laws made by the Board of Directors may be amended or
repealed by action of the stockholders by the vote required by (a) above at any
annual or special meeting of stockholders.
Sixth: Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall otherwise provide.
Seventh: Notwithstanding any provision of the General Corporation Law
of the State of Delaware, no action may be taken by stockholders without a
meeting, without prior notice and without a vote, unless a consent in writing
setting forth the action so taken shall be signed by the holders of all the
outstanding stock who would be entitled to vote thereon.
Eighth: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court
<PAGE>
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all of the stockholders or class of stockholders, of this Corporation, as the
case may be, and also on this Corporation.
Ninth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Tenth: 1. Higher Vote for Certain Business Combinations. In addition to
any affirmative vote of holders of a class or series of capital stock of the
Corporation required by law or this Certificate, a Business Combination (as
hereinafter defined) with or upon a proposal by a Related Person (as hereinafter
defined) shall require the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all outstanding Voting Stock (as
hereinafter defined) of the Corporation, voting together as a single class. Such
affirmative votes shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or the Board.
2. When Higher Vote Is Not Required. The provisions of this
Article shall not be applicable to a particular Business Combination, and such
Business Combination shall require only such affirmative vote as is required by
law and any other provision of this Certificate or the By-Laws of the
Corporation, if all of the conditions specified in any one of the following
Paragraphs (A), (B) or (C) are met:
(A) Approval by Directors. The Business Combination
has been approved by a vote of a majority of all the Continuing
Directors (as hereinafter defined); or
(B) Combination with Subsidiary. The Business
Combination is solely between the Corporation and a subsidiary of the
Corporation and such Business Combination does not have the direct or indirect
effect set forth in Paragraph 3(B)(v) of this Article Tenth; or
(C) Price and Procedural Conditions. The proposed
Business Combination will be consummated within three years after the date the
Related Person became a Related Person (the "Determination Date") and all of the
following conditions have been met:
<PAGE>
(i) The aggregate amount of (x) cash and (y) fair
market value (as of the date of the consummation of the Business Combination) of
consideration other than cash, to be received per share of Common or Preferred
Stock of the Corporation in such Business Combination by holders thereof shall
be at least equal to the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the Related
Person for any shares of such class or series of stock acquired by it; provided,
that if either (a) the highest preferential amount per share of a series of
Preferred Stock to which the holders thereof would be entitled in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
affairs of the Corporation (regardless of whether the Business Combination to be
consummated constitutes such an event) or (b) the highest reported sales price
per share for any shares of such series of Preferred Stock on any national
securities exchange on which such series is traded and if not traded on any such
exchange, the highest reported closing bid quotation per share with respect to
shares of such series on the National Association of Securities Dealers, Inc.
Automated Quotation System or on any system then in use, at any time after the
Related Person became a holder of any shares of Common Stock, is greater than
such aggregate amount, holders of such series of Preferred Stock shall receive
an amount for each such share at least equal to the greater of (a) or (b).
(ii) The consideration to be received by holders
of a particular class or series of outstanding Common or Preferred Stock shall
be in cash or in the same form as the Related Person has previously paid for
shares of such class or series of stock. If the Related Person has paid for
shares of any class or series of stock with varying forms of consideration, the
form of consideration given for such class or series of stock in the Business
Combination shall be either cash or the form used to acquire the largest number
of shares of such class or series of stock previously acquired by it.
(iii) No Extraordinary Event (as hereinafter
defined) occurs after the Determination Date and prior to the consummation of
the Business Combination.
(iv) A proxy or information statement describing
the proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) is mailed to public stockholders of the Corporation at least 30
days prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required pursuant to such Act or subsequent
provisions).
3. Certain Definitions. For purposes of this Article Tenth:
(A) A "person" shall mean any individual, firm,
<PAGE>
corporation or other entity, or a group of "persons" acting or agreeing to act
together in the manner set forth in Rule 13d-5 under the Securities Exchange Act
of 1934, as in effect on April 24, 1985.
(B) The term "Business Combination" shall mean any of
the following transactions, when entered into by the Corporation or a subsidiary
of the Corporation with, or upon a proposal by, a Related Person:
(i) the merger or consolidation of the
Corporation or any subsidiary of the Corporation; or
(ii) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one or a series of transactions) of any assets
of the Corporation or any subsidiary of the Corporation having an aggregate fair
market value of $100 million or more; or
(iii) the issuance or transfer by the
Corporation or any subsidiary of the Corporation (in one or a series of
transactions) of securities of the Corporation or any subsidiary having an
aggregate fair market value of $50 million or more; or
(iv) the adoption of a plan or proposal for the
liquidation or dissolution of the Corporation; or
(v) the reclassification of securities (including
a reverse stock split), recapitalization, consolidation or any other transaction
(whether or not involving a Related Person) which has the direct or indirect
effect of increasing the voting power, whether or not then exercisable, of a
Related Person in any class or series of capital stock of the Corporation or any
subsidiary of the Corporation; or
(vi) any agreement, contract or other arrangement
providing directly or indirectly for any of the foregoing.
(C) The term "Related Person" shall mean any person (other
than the Corporation, a subsidiary of the Corporation or any profit sharing,
employee stock ownership or other employee benefit plan of the Corporation or of
a subsidiary of the Corporation or any trustee of or fiduciary with respect to
any such plan acting in such capacity) that is the direct or indirect beneficial
owner (as defined in Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act
of 1934, as in effect on April 24, 1985) of more than ten percent (10%) of the
outstanding Voting Stock of the Corporation, and any Affiliate or Associate of
any such person.
(D) The term "Continuing Director" shall mean any member
of the Board of Directors who is not affiliated with a Related Person and who
was a member of the Board of Directors immediately prior to the time that the
Related Person became a
<PAGE>
Related Person, and any successor to a Continuing Director who is not affiliated
with the Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors who are then members of the Board of Directors.
(E) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act
of 1934, as in effect on April 24, 1985.
(F) The term "Extraordinary Event" shall mean, as to any
Business Combination and Related Person, any of the following events that is not
approved by a majority of all Continuing Directors:
(i) any failure to declare and pay at the regular
date therefor any full quarterly dividend (whether or not cumulative) on
outstanding Preferred Stock; or
(ii) any reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock); or
(iii) any failure to increase the annual rate of
dividends paid on the Common Stock as necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization or any
similar transaction that has the effect of reducing the number of outstanding
shares of the Common Stock; or
(iv) he receipt by the Related Person, after the
Determination Date, of a direct or indirect benefit (except proportionately as a
stockholder) from any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by the
Corporation or any subsidiary of the Corporation, whether in anticipation of or
in connection with the Business Combination or otherwise.
(G) A majority of all Continuing Directors shall have the
power to make all determinations with respect to this Article Tenth, including,
without limitation, the transactions that are Business Combinations, the persons
who are Related Persons, the time at which a Related Person became a Related
Person, and the fair market value of any assets, securities or other property,
and any such determinations of such directors shall be conclusive and binding.
(H) The term "Voting Stock" shall mean all outstanding
shares of the Common or Preferred Stock of the Corporation entitled to vote
generally and each reference to a proportion of Voting Stock shall refer to
shares having such proportion of the number of shares entitled to be cast.
4. No Effect on Fiduciary Obligations of Related Persons. Nothing
contained in this Article Tenth shall be construed to
<PAGE>
relieve any Related Person from any fiduciary obligation imposed by law.
5. Amendment, Repeal, etc. The affirmative vote of the holders of
at least eighty percent (80%) of the voting power of all outstanding Voting
Stock of the Corporation, voting together as a single class, shall be required
in order to amend, repeal or adopt any provision inconsistent with this Article
Tenth.
Eleventh: To the fullest extent permitted by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of the preceding sentence shall not adversely affect
any right or protection of a director existing at the time of such repeal or
modification.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be signed
in its name by its Chairman of the Board and Chief Executive Officer and
attested to by its Corporate Secretary this 4th day of August, 1997.
/s/ Wilson H. Taylor
--------------------
Wilson H. Taylor
Chairman of the Board and
Chief Executive Officer
Attest:
/s/Carol J. Ward
- --------------------
Carol J. Ward
Corporate Secretary
Exhibit 3.1 (b)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CIGNA CORPORATION
* * * * * *
CIGNA Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of CIGNA
Corporation, held February 25, 1998, resolutions were duly adopted proposing and
declaring advisable the following amendment to the Restated Certificate of
Incorporation of said corporation:
RESOLVED, that the first paragraph of Article
Fourth of the Restated Certificate of
Incorporation be amended in its entirety and that
a new paragraph 4 be added to section B of Article
Fourth, both to read as follows:
Fourth: The total number of shares of all
classes of capital stock which the Corporation
shall have the authority to issue is 625,000,000
shares divided into two classes as follows:
600,000,000 shares of Common Stock of the par
value of $.25 per share and 25,000,000 shares of
Preferred Stock of the par value of $1.00 per
share.
B. Common Stock
4. Subdivision, Each share of Common Stock of
the Corporation issued and outstanding or held in
the treasury of the Corporation immediately prior
to the close of business on May 4, 1998, that
being the time when the amendment, including this
paragraph 4 of Section B, shall have become
effective, is subdivided into three fully paid and
nonassessable shares of Common Stock, par value
$.25 per share, and at the close of business on
such date, each holder of record of Common Stock
shall, without further action, be and become the
holder of two additional shares of Common Stock
for each share of Common Stock held of record
immediately prior
<PAGE>
thereto.
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, an annual meeting of the Stockholders of CIGNA Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting more that a majority
of outstanding shares of Common Stock were cast in favor of the amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
FOURTH: This Certificate of Amendment shall become effective at the
close of business on May 4, 1998.
IN WITNESS WHEREOF, said CIGNA Corporation has caused this instrument
to be signed by Wilson H. Taylor, its Chairman of the Board and Chief Executive
Officer, and attested by Carol J. Ward, its Corporate Secretary, this 28th day
of April, 1998.
CIGNA CORPORATION
By: /s/ Wilson H. Taylor
--------------------
Wilson H. Taylor
Chairman of the Board
and Chief Executive Officer
ATTEST:
By: /s/ Carol J. Ward
--------------------
Carol J. Ward
Corporate Secretary Seal
Exhibit 10.1
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement ("Agreement") is dated as of March 17,
1998, and is between Wilson H. Taylor, who resides at___________________________
("Executive") and CIGNA Corporation, 1650 Market Street, Philadelphia,
Pennsylvania, 19192, a Delaware corporation ("CIGNA").
Executive and CIGNA, intending to be legally bound and in consideration
of the promises in this Agreement, mutually agree as follows:
1. Effective as of the date of this Agreement:
a. 3,300 restricted shares of CIGNA Common Stock held by the
Executive, for which restrictions described in the CIGNA
Corporation Stock Plan ("Plan") are scheduled to lapse on
February 23, 1999, will be surrendered to CIGNA, and
Executive, on his own behalf and on behalf of his heirs,
waives any rights regarding such shares; and
b. CIGNA grants Executive 3,300 incentive compensation units
("Units") as described in paragraph 2.
2. Each Unit is a right to receive a payment of the Unit value on the Payment
Date, subject to the conditions in this Agreement. The "Payment Date" shall be
as described in paragraph 4.
3. Each Unit shall have a value equal to the total of:
a. The Fair Market Value (as defined in the Plan) on the Payment
Date of one (1) share of CIGNA Common Stock (adjusted as
needed in accordance with the antidilution provisions in
Article 5 of the Plan);
b. The total cash value of any dividends that would have been
paid on one (1) share of CIGNA Common Stock (as adjusted in
accordance with paragraph 2.a.) from the Date of this
Agreement until the Payment Date; and
c. The total cash value of any interest that would have been paid
on any dividends under paragraph 2.b. as if the dividends had
actually been paid to the Executive and invested with an
annual rate of return for any year equal to either (i) one
hundred twenty percent (120%) of the applicable federal
long-term rate for the month of January of the calendar year
for which the interest will be credited, with compounding on a
monthly basis or (ii) the return provided by hypothetical
investment fund(s) under the Deferred Compensation Plan of
CIGNA Corporation
1
<PAGE>
and Participating Subsidiaries (the "Deferred Plan"), to the
extent Executive has elected one or more of the available
hypothetical investment funds, other than the fixed income
fund, under the Deferred Plan.
4. The Unit value under this Agreement shall be paid only as follows:
a. The share component (paragraph 2.a.) shall be paid entirely in
shares of CIGNA Common Stock. This Agreement is a Qualifying
Incentive Plan, and any shares shall be paid out of the Plan.
b. The dividend-equivalent component (paragraph 2.b.) and the
interest-equivalent component (paragraph 2.c.) shall be paid
in cash.
c. The Payment Date for the Units shall be no earlier than the
January following the date of Executive's termination of
employment with CIGNA and its affiliates ("Termination of
Employment") and shall otherwise be determined in accordance
with Executive's Deferred Plan payment election as in effect
on the date of Executive's Termination of Employment. However,
any change made by the Executive in any payment election under
the Deferred Plan after the date of this Agreement will not
apply to the share component of the Units unless such change
has been approved by the People Resources Committee of CIGNA's
Board of Directors and otherwise meets the requirements of the
Deferred Plan. If no payment election is in effect on the date
of Executive's Termination of Employment, the Payment Date for
all Units shall be the January following the year of
Executive's Termination of Employment.
d. If Executive dies before his Termination of Employment,
however, any Unit value otherwise payable to the Executive
under this Agreement will be paid within ninety (90) days of
his death to his surviving spouse or, if she does not survive
him, to his estate.
5. The Executive shall forfeit all of the Units, and shall have no right to
receive any payments under this Agreement, if his Termination of Employment
occurs before February 23, 1999. Nevertheless, if Executive's Termination of
Employment before that date is due to the Executive's death, Disability or
Retirement or is a Termination Upon a Change of Control, the forfeiture
described above shall not apply and the Executive's right to a payment of the
Unit value shall immediately vest. ("Disability," "Retirement" and "Termination
Upon a Change of Control" shall have the meanings set forth in Section 2.1 of
the Plan.)
6. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to change, nor shall be construed as changing, the
nature of Executive's employment from an at-will relationship. This Agreement is
limited to the terms and conditions
2
<PAGE>
set forth herein and does not otherwise address Executive's compensation or
benefits, the duties and responsibilities of his position, or any of the
Company's other rights as employer.
7. The Agreement is made and entered into in the Commonwealth of Pennsylvania,
and at all times and for all purposes shall be interpreted, enforced and
governed under its laws without regard to principles of conflict of laws.
8. It is agreed that any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
9. CIGNA's rights and obligations under this Agreement will inure to the benefit
of and be binding upon CIGNA's successors and assigns. Executive's rights under
this Agreement, including the right to receive Common Stock or any other
payment, shall not be assignable or transferable by the Executive except by will
or by the laws of descent and distribution. Any other attempted assignment or
alienation shall be void and of no force or effect.
10. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
11. This Agreement contains the entire agreement between Executive and CIGNA
with respect to the matters addressed herein and fully replaces and supersedes
any and all prior agreements or understandings between them related to such
matters. Any amendment to this Agreement must be in writing and signed by both
CIGNA and Executive.
3
Exhibit 10.2
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement ("Agreement") is dated as of March 17,
1998, and is between James G. Stewart, who resides at___________________________
("Executive") and CIGNA Corporation, 1650 Market Street, Philadelphia,
Pennsylvania, 19192, a Delaware corporation ("CIGNA").
Executive and CIGNA, intending to be legally bound and in consideration
of the promises in this Agreement, mutually agree as follows:
1. Effective as of the date of this Agreement:
a. 1,750 restricted shares of CIGNA Common Stock held by the
Executive, for which restrictions described in the CIGNA
Corporation Stock Plan ("Plan") are scheduled to lapse on
February 23, 1999, will be surrendered to CIGNA, and
Executive, on his own behalf and on behalf of his heirs,
waives any rights regarding such shares; and
b. CIGNA grants Executive 1,750 incentive compensation units
("Units") as described in paragraph 2.
2. Each Unit is a right to receive a payment of the Unit value on the Payment
Date, subject to the conditions in this Agreement. The "Payment Date" shall be
as described in paragraph 4.
3. Each Unit shall have a value equal to the total of:
a. The Fair Market Value (as defined in the Plan) on the Payment
Date of one (1) share of CIGNA Common Stock (adjusted as
needed in accordance with the antidilution provisions in
Article 5 of the Plan);
b. The total cash value of any dividends that would have been
paid on one (1) share of CIGNA Common Stock (as adjusted in
accordance with paragraph 2.a.) from the Date of this
Agreement until the Payment Date; and
c. The total cash value of any interest that would have been paid
on any dividends under paragraph 2.b. as if the dividends had
actually been paid to the Executive and invested with an
annual rate of return for any year equal to either (i) one
hundred twenty percent (120%) of the applicable federal
long-term rate for the month of January of the calendar year
for which the interest will be credited, with compounding on a
monthly basis or (ii) the return provided by hypothetical
investment fund(s) under the Deferred Compensation Plan of
CIGNA Corporation
1
<PAGE>
and Participating Subsidiaries (the "Deferred Plan"), to the
extent Executive has elected one or more of the available
hypothetical investment funds, other than the fixed income
fund, under the Deferred Plan.
4. The Unit value under this Agreement shall be paid only as follows:
a. The share component (paragraph 2.a.) shall be paid entirely in
shares of CIGNA Common Stock. This Agreement is a Qualifying
Incentive Plan, and any shares shall be paid out of the Plan.
b. The dividend-equivalent component (paragraph 2.b.) and the
interest-equivalent component (paragraph 2.c.) shall be paid
in cash.
c. The Payment Date for the Units shall be no earlier than the
January following the date of Executive's termination of
employment with CIGNA and its affiliates ("Termination of
Employment") and shall otherwise be determined in accordance
with Executive's Deferred Plan payment election as in effect
on the date of Executive's Termination of Employment. However,
any change made by the Executive in any payment election under
the Deferred Plan after the date of this Agreement will not
apply to the share component of the Units unless such change
has been approved by the People Resources Committee of CIGNA's
Board of Directors and otherwise meets the requirements of the
Deferred Plan. If no payment election is in effect on the date
of Executive's Termination of Employment, the Payment Date for
all Units shall be the January following the year of
Executive's Termination of Employment.
d. If Executive dies before his Termination of Employment,
however, any Unit value otherwise payable to the Executive
under this Agreement will be paid within ninety (90) days of
his death to his surviving spouse or, if she does not survive
him, to his estate.
5. The Executive shall forfeit all of the Units, and shall have no right to
receive any payments under this Agreement, if his Termination of Employment
occurs before February 23, 1999. Nevertheless, if Executive's Termination of
Employment before that date is due to the Executive's death, Disability or
Retirement or is a Termination Upon a Change of Control, the forfeiture
described above shall not apply and the Executive's right to a payment of the
Unit value shall immediately vest. ("Disability," "Retirement" and "Termination
Upon a Change of Control" shall have the meanings set forth in Section 2.1 of
the Plan.)
6. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to change, nor shall be construed as changing, the
nature of Executive's employment from an at-will relationship. This Agreement is
limited to the terms and conditions
2
<PAGE>
set forth herein and does not otherwise address Executive's compensation or
benefits, the duties and responsibilities of his position, or any of the
Company's other rights as employer.
7. The Agreement is made and entered into in the Commonwealth of Pennsylvania,
and at all times and for all purposes shall be interpreted, enforced and
governed under its laws without regard to principles of conflict of laws.
8. It is agreed that any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
9. CIGNA's rights and obligations under this Agreement will inure to the benefit
of and be binding upon CIGNA's successors and assigns. Executive's rights under
this Agreement, including the right to receive Common Stock or any other
payment, shall not be assignable or transferable by the Executive except by will
or by the laws of descent and distribution. Any other attempted assignment or
alienation shall be void and of no force or effect.
10. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
11. This Agreement contains the entire agreement between Executive and CIGNA
with respect to the matters addressed herein and fully replaces and supersedes
any and all prior agreements or understandings between them related to such
matters. Any amendment to this Agreement must be in writing and signed by both
CIGNA and Executive.
3
Exhibit 10.3
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement ("Agreement") is dated as of March 17,
1998, and is between Donald M. Levinson, who resides at________________________
("Executive") and CIGNA Corporation, 1650 Market Street, Philadelphia,
Pennsylvania, 19192, a Delaware corporation ("CIGNA").
Executive and CIGNA, intending to be legally bound and in consideration
of the promises in this Agreement, mutually agree as follows:
1. Effective as of the date of this Agreement:
a. 1,000 restricted shares of CIGNA Common Stock held by the
Executive, for which restrictions described in the CIGNA
Corporation Stock Plan ("Plan") are scheduled to lapse on
February 23, 1999, will be surrendered to CIGNA, and
Executive, on his own behalf and on behalf of his heirs,
waives any rights regarding such shares; and
b. CIGNA grants Executive 1,000 incentive compensation units
("Units") as described in paragraph 2.
2. Each Unit is a right to receive a payment of the Unit value on the Payment
Date, subject to the conditions in this Agreement. The "Payment Date" shall be
as described in paragraph 4.
3. Each Unit shall have a value equal to the total of:
a. The Fair Market Value (as defined in the Plan) on the Payment
Date of one (1) share of CIGNA Common Stock (adjusted as
needed in accordance with the antidilution provisions in
Article 5 of the Plan);
b. The total cash value of any dividends that would have been
paid on one (1) share of CIGNA Common Stock (as adjusted in
accordance with paragraph 2.a.) from the Date of this
Agreement until the Payment Date; and
c. The total cash value of any interest that would have been paid
on any dividends under paragraph 2.b. as if the dividends had
actually been paid to the Executive and invested with an
annual rate of return for any year equal to either (i) one
hundred twenty percent (120%) of the applicable federal
long-term rate for the month of January of the calendar year
for which the interest will be credited, with compounding on a
monthly basis or (ii) the return provided by hypothetical
investment fund(s) under the Deferred Compensation Plan of
CIGNA Corporation
1
<PAGE>
and Participating Subsidiaries (the "Deferred Plan"), to the
extent Executive has elected one or more of the available
hypothetical investment funds, other than the fixed income
fund, under the Deferred Plan.
4. The Unit value under this Agreement shall be paid only as follows:
a. The share component (paragraph 2.a.) shall be paid entirely in
shares of CIGNA Common Stock. This Agreement is a Qualifying
Incentive Plan, and any shares shall be paid out of the Plan.
b. The dividend-equivalent component (paragraph 2.b.) and the
interest-equivalent component (paragraph 2.c.) shall be paid
in cash.
c. The Payment Date for the Units shall be no earlier than the
January following the date of Executive's termination of
employment with CIGNA and its affiliates ("Termination of
Employment") and shall otherwise be determined in accordance
with Executive's Deferred Plan payment election as in effect
on the date of Executive's Termination of Employment. However,
any change made by the Executive in any payment election under
the Deferred Plan after the date of this Agreement will not
apply to the share component of the Units unless such change
has been approved by the People Resources Committee of CIGNA's
Board of Directors and otherwise meets the requirements of the
Deferred Plan. If no payment election is in effect on the date
of Executive's Termination of Employment, the Payment Date for
all Units shall be the January following the year of
Executive's Termination of Employment.
d. If Executive dies before his Termination of Employment,
however, any Unit value otherwise payable to the Executive
under this Agreement will be paid within ninety (90) days of
his death to his surviving spouse or, if she does not survive
him, to his estate.
5. The Executive shall forfeit all of the Units, and shall have no right to
receive any payments under this Agreement, if his Termination of Employment
occurs before February 23, 1999. Nevertheless, if Executive's Termination of
Employment before that date is due to the Executive's death, Disability or
Retirement or is a Termination Upon a Change of Control, the forfeiture
described above shall not apply and the Executive's right to a payment of the
Unit value shall immediately vest. ("Disability," "Retirement" and "Termination
Upon a Change of Control" shall have the meanings set forth in Section 2.1 of
the Plan.)
6. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to change, nor shall be construed as changing, the
nature of Executive's employment from an at-will relationship. This Agreement is
limited to the terms and conditions
2
<PAGE>
set forth herein and does not otherwise address Executive's compensation or
benefits, the duties and responsibilities of his position, or any of the
Company's other rights as employer.
7. The Agreement is made and entered into in the Commonwealth of Pennsylvania,
and at all times and for all purposes shall be interpreted, enforced and
governed under its laws without regard to principles of conflict of laws.
8. It is agreed that any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
9. CIGNA's rights and obligations under this Agreement will inure to the benefit
of and be binding upon CIGNA's successors and assigns. Executive's rights under
this Agreement, including the right to receive Common Stock or any other
payment, shall not be assignable or transferable by the Executive except by will
or by the laws of descent and distribution. Any other attempted assignment or
alienation shall be void and of no force or effect.
10. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
11. This Agreement contains the entire agreement between Executive and CIGNA
with respect to the matters addressed herein and fully replaces and supersedes
any and all prior agreements or understandings between them related to such
matters. Any amendment to this Agreement must be in writing and signed by both
CIGNA and Executive.
3
Exhibit 10.4
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement ("Agreement") is dated as of March 17,
1998, and is between Gerald A. Isom, who resides at____________________________
("Executive") and CIGNA Corporation, 1650 Market Street, Philadelphia,
Pennsylvania, 19192, a Delaware corporation ("CIGNA").
Executive and CIGNA, intending to be legally bound and in consideration
of the promises in this Agreement, mutually agree as follows:
1. Effective as of the date of this Agreement:
a. 1,250 restricted shares of CIGNA Common Stock held by the
Executive, for which restrictions described in the CIGNA
Corporation Stock Plan ("Plan") are scheduled to lapse on
February 23, 1999, will be surrendered to CIGNA, and
Executive, on his own behalf and on behalf of his heirs,
waives any rights regarding such shares; and
b. CIGNA grants Executive 1,250 incentive compensation units
("Units") as described in paragraph 2.
2. Each Unit is a right to receive a payment of the Unit value on the Payment
Date, subject to the conditions in this Agreement. The "Payment Date" shall be
as described in paragraph 4.
3. Each Unit shall have a value equal to the total of:
a. The Fair Market Value (as defined in the Plan) on the Payment
Date of one (1) share of CIGNA Common Stock (adjusted as
needed in accordance with the antidilution provisions in
Article 5 of the Plan);
b. The total cash value of any dividends that would have been
paid on one (1) share of CIGNA Common Stock (as adjusted in
accordance with paragraph 2.a.) from the Date of this
Agreement until the Payment Date; and
c. The total cash value of any interest that would have been paid
on any dividends under paragraph 2.b. as if the dividends had
actually been paid to the Executive and invested with an
annual rate of return for any year equal to either (i) one
hundred twenty percent (120%) of the applicable federal
long-term rate for the month of January of the calendar year
for which the interest will be credited, with compounding on a
monthly basis or (ii) the return provided by hypothetical
investment fund(s) under the Deferred Compensation Plan of
CIGNA Corporation
1
<PAGE>
and Participating Subsidiaries (the "Deferred Plan"), to the
extent Executive has elected one or more of the available
hypothetical investment funds, other than the fixed income
fund, under the Deferred Plan.
4. The Unit value under this Agreement shall be paid only as follows:
a. The share component (paragraph 2.a.) shall be paid entirely in
shares of CIGNA Common Stock. This Agreement is a Qualifying
Incentive Plan, and any shares shall be paid out of the Plan.
b. The dividend-equivalent component (paragraph 2.b.) and the
interest-equivalent component (paragraph 2.c.) shall be paid
in cash.
c. The Payment Date for the Units shall be no earlier than the
January following the date of Executive's termination of
employment with CIGNA and its affiliates ("Termination of
Employment") and shall otherwise be determined in accordance
with Executive's Deferred Plan payment election as in effect
on the date of Executive's Termination of Employment. However,
any change made by the Executive in any payment election under
the Deferred Plan after the date of this Agreement will not
apply to the share component of the Units unless such change
has been approved by the People Resources Committee of CIGNA's
Board of Directors and otherwise meets the requirements of the
Deferred Plan. If no payment election is in effect on the date
of Executive's Termination of Employment, the Payment Date for
all Units shall be the January following the year of
Executive's Termination of Employment.
d. If Executive dies before his Termination of Employment,
however, any Unit value otherwise payable to the Executive
under this Agreement will be paid within ninety (90) days of
his death to his surviving spouse or, if she does not survive
him, to his estate.
5. The Executive shall forfeit all of the Units, and shall have no right to
receive any payments under this Agreement, if his Termination of Employment
occurs before February 23, 1999. Nevertheless, if Executive's Termination of
Employment before that date is due to the Executive's death, Disability or
Retirement or is a Termination Upon a Change of Control, the forfeiture
described above shall not apply and the Executive's right to a payment of the
Unit value shall immediately vest. ("Disability," "Retirement" and "Termination
Upon a Change of Control" shall have the meanings set forth in Section 2.1 of
the Plan.)
6. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to change, nor shall be construed as changing, the
nature of Executive's employment from an at-will relationship. This Agreement is
limited to the terms and conditions
2
<PAGE>
set forth herein and does not otherwise address Executive's compensation or
benefits, the duties and responsibilities of his position, or any of the
Company's other rights as employer.
7. The Agreement is made and entered into in the Commonwealth of Pennsylvania,
and at all times and for all purposes shall be interpreted, enforced and
governed under its laws without regard to principles of conflict of laws.
8. It is agreed that any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
9. CIGNA's rights and obligations under this Agreement will inure to the benefit
of and be binding upon CIGNA's successors and assigns. Executive's rights under
this Agreement, including the right to receive Common Stock or any other
payment, shall not be assignable or transferable by the Executive except by will
or by the laws of descent and distribution. Any other attempted assignment or
alienation shall be void and of no force or effect.
10. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
11. This Agreement contains the entire agreement between Executive and CIGNA
with respect to the matters addressed herein and fully replaces and supersedes
any and all prior agreements or understandings between them related to such
matters. Any amendment to this Agreement must be in writing and signed by both
CIGNA and Executive.
3
Exhibit 10.5
SPECIAL INCENTIVE AGREEMENT
This Special Incentive Agreement ("Agreement") is dated as of March 17,
1998, and is between H. Edward Hanway, who resides at___________________________
("Executive") and CIGNA Corporation, 1650 Market Street, Philadelphia,
Pennsylvania, 19192, a Delaware corporation ("CIGNA").
Executive and CIGNA, intending to be legally bound and in consideration
of the promises in this Agreement, mutually agree as follows:
1. Effective as of the date of this Agreement:
a. 500 restricted shares of CIGNA Common Stock held by the
Executive, for which restrictions described in the CIGNA
Corporation Stock Plan ("Plan") are scheduled to lapse on
February 23, 1999, will be surrendered to CIGNA, and
Executive, on his own behalf and on behalf of his heirs,
waives any rights regarding such shares; and
b. CIGNA grants Executive 500 incentive compensation units
("Units") as described in paragraph 2.
2. Each Unit is a right to receive a payment of the Unit value on the Payment
Date, subject to the conditions in this Agreement. The "Payment Date" shall be
as described in paragraph 4.
3. Each Unit shall have a value equal to the total of:
a. The Fair Market Value (as defined in the Plan) on the Payment
Date of one (1) share of CIGNA Common Stock (adjusted as
needed in accordance with the antidilution provisions in
Article 5 of the Plan);
b. The total cash value of any dividends that would have been
paid on one (1) share of CIGNA Common Stock (as adjusted in
accordance with paragraph 2.a.) from the Date of this
Agreement until the Payment Date; and
c. The total cash value of any interest that would have been paid
on any dividends under paragraph 2.b. as if the dividends had
actually been paid to the Executive and invested with an
annual rate of return for any year equal to either (i) one
hundred twenty percent (120%) of the applicable federal
long-term rate for the month of January of the calendar year
for which the interest will be credited, with compounding on a
monthly basis or (ii) the return provided by hypothetical
investment fund(s) under the Deferred Compensation Plan of
CIGNA Corporation
1
<PAGE>
and Participating Subsidiaries (the "Deferred Plan"), to the
extent Executive has elected one or more of the available
hypothetical investment funds, other than the fixed income
fund, under the Deferred Plan.
4. The Unit value under this Agreement shall be paid only as follows:
a. The share component (paragraph 2.a.) shall be paid entirely in
shares of CIGNA Common Stock. This Agreement is a Qualifying
Incentive Plan, and any shares shall be paid out of the Plan.
b. The dividend-equivalent component (paragraph 2.b.) and the
interest-equivalent component (paragraph 2.c.) shall be paid
in cash.
c. The Payment Date for the Units shall be no earlier than the
January following the date of Executive's termination of
employment with CIGNA and its affiliates ("Termination of
Employment") and shall otherwise be determined in accordance
with Executive's Deferred Plan payment election as in effect
on the date of Executive's Termination of Employment. However,
any change made by the Executive in any payment election under
the Deferred Plan after the date of this Agreement will not
apply to the share component of the Units unless such change
has been approved by the People Resources Committee of CIGNA's
Board of Directors and otherwise meets the requirements of the
Deferred Plan. If no payment election is in effect on the date
of Executive's Termination of Employment, the Payment Date for
all Units shall be the January following the year of
Executive's Termination of Employment.
d. If Executive dies before his Termination of Employment,
however, any Unit value otherwise payable to the Executive
under this Agreement will be paid within ninety (90) days of
his death to his surviving spouse or, if she does not survive
him, to his estate.
5. The Executive shall forfeit all of the Units, and shall have no right to
receive any payments under this Agreement, if his Termination of Employment
occurs before February 23, 1999. Nevertheless, if Executive's Termination of
Employment before that date is due to the Executive's death, Disability or
Retirement or is a Termination Upon a Change of Control, the forfeiture
described above shall not apply and the Executive's right to a payment of the
Unit value shall immediately vest. ("Disability," "Retirement" and "Termination
Upon a Change of Control" shall have the meanings set forth in Section 2.1 of
the Plan.)
6. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to change, nor shall be construed as changing, the
nature of Executive's employment from an at-will relationship. This Agreement is
limited to the terms and conditions
2
<PAGE>
set forth herein and does not otherwise address Executive's compensation or
benefits, the duties and responsibilities of his position, or any of the
Company's other rights as employer.
7. The Agreement is made and entered into in the Commonwealth of Pennsylvania,
and at all times and for all purposes shall be interpreted, enforced and
governed under its laws without regard to principles of conflict of laws.
8. It is agreed that any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
9. CIGNA's rights and obligations under this Agreement will inure to the benefit
of and be binding upon CIGNA's successors and assigns. Executive's rights under
this Agreement, including the right to receive Common Stock or any other
payment, shall not be assignable or transferable by the Executive except by will
or by the laws of descent and distribution. Any other attempted assignment or
alienation shall be void and of no force or effect.
10. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
11. This Agreement contains the entire agreement between Executive and CIGNA
with respect to the matters addressed herein and fully replaces and supersedes
any and all prior agreements or understandings between them related to such
matters. Any amendment to this Agreement must be in writing and signed by both
CIGNA and Executive.
3
CIGNA CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
1998 1997
=============================================================================================================================
Income before income taxes $ 768 $ 437
------------ -----------
Fixed charges included in income:
Interest expense 33 23
Interest portion of rental expense 20 19
------------ -----------
Total fixed charges included in income 53 42
------------ -----------
Income available for fixed charges $ 821 $ 479
- -----------------------------------------------------------------------------------------------==============================
RATIO OF EARNINGS TO FIXED CHARGES 15.5 11.4
- -----------------------------------------------------------------------------------------------==============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF PART I TO CIGNA'S REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 33,190
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,030
<MORTGAGE> 9,401
<REAL-ESTATE> 755
<TOTAL-INVEST> 51,617
<CASH> 2,322
<RECOVER-REINSURE> 12,433<F1>
<DEFERRED-ACQUISITION> 918
<TOTAL-ASSETS> 111,219
<POLICY-LOSSES> 11,937
<UNEARNED-PREMIUMS> 1,864
<POLICY-OTHER> 17,702
<POLICY-HOLDER-FUNDS> 30,714
<NOTES-PAYABLE> 1,729
0
0
<COMMON> 66
<OTHER-SE> 8,259
<TOTAL-LIABILITY-AND-EQUITY> 111,219
3,901
<INVESTMENT-INCOME> 937
<INVESTMENT-GAINS> 59
<OTHER-INCOME> 514
<BENEFITS> 3,333
<UNDERWRITING-AMORTIZATION> 228
<UNDERWRITING-OTHER> 1,082
<INCOME-PRETAX> 768
<INCOME-TAX> 273
<INCOME-CONTINUING> 495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 495
<EPS-PRIMARY> 2.30<F2><F3>
<EPS-DILUTED> 2.27<F2><F4>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
<F2>ON APRIL 22, 1998, CIGNA'S SHAREHOLDERS APPROVED A THREE-FOR-ONE COMMON
STOCK SPLIT WHICH WAS EFFECTIVE ON MAY 4, 1998. PRIOR FINANCIAL DATA SCHEDULES
HAVE NOT BEEN RESTATED.
<F3>AMOUNT REPRESENTS BASIC EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F4>AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE BASED ON SFAS NO. 128.
</FN>
</TABLE>
