<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 33-8686
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1536040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 Corporate Drive
Suite 300
P. O. Box 101769
Pittsburgh, Pennsylvania 15237
- ------------------------ -----
(Address of principal executive offices) (ZIP Code)
(412) 366-9000
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par value
---------------------------
(Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
There is no market for the registrant's common stock and there is no
anticipation that a market will ever develop. Accordingly, it is not possible to
determine a market value for the registrant's shares held by non-affiliates.
As of March 1, 1996, 6,075 shares of the registrant's Common Stock, no par
value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE> 2
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C>
Item 1. Business. 2
Item 2. Properties. 5
Item 3. Legal Proceedings. 5
Item 4. Submission of Matters to a Vote of Security Holders. 5
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. 6
Item 6. Selected Financial Data. 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
Item 8. Financial Statements and Supplementary Data. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and 10
Financial Disclosure.
PART III
Item 10. Directors and Executive Officer of the Registrant. 10
Item 11. Executive Compensation. 12
Item 12. Security Ownership of Certain Beneficial Owners and Management. 17
Item 13. Certain Relationships and Related Transactions. 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 19
SIGNATURES 21
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
(a) General Development of the Business
PARTNERS Health Plan of Pennsylvania, Inc. (the "Company") is a holding company
organized under the laws of the State of Pennsylvania on April 22, 1985 to
establish a health maintenance organization subsidiary, Aetna Health Plans of
Western Pennsylvania, Inc. (the "HMO" or the "Plan"). The HMO was incorporated
under the laws of Pennsylvania on July 15, 1985. The Company and the HMO are
for-profit Pennsylvania corporations. The HMO is a health maintenance
organization which provides a specified range of comprehensive medical services
to an enrolled population through contracted providers.
On December 11, 1986, Physicians Health Plan Preferred, Inc. (the "PPO") was
incorporated as a for-profit Pennsylvania corporation and a wholly-owned
subsidiary of the Company. The PPO did not engage in any business activities
until February 1, 1991. From that time until September 1, 1993, the PPO offered
a provider network to workers' compensation programs in western Pennsylvania.
The State of Pennsylvania established fee schedules for workers' compensation
claims effective September 1, 1993. This new regulation has essentially
eliminated potential future savings to be realized by the PPO. Management does
not anticipate that the PPO will contribute any revenue in the foreseeable
future.
The Company is 81% owned by AHP Holdings, Inc. ("AHP Holdings") and 19% by
participating physicians. AHP Holdings is wholly-owned by Aetna Life Insurance
Company ("Aetna Life"), which is wholly-owned by Aetna Life and Casualty Company
("Aetna").
AHP Holdings, Inc. and the Company have entered into an agreement pursuant to
which a change of control of the Company will occur. See Item 7, "Management's
Discussion and Analysis - Pending Transactions" of this Form 10-K.
(b) Financial Information about Industry Segments
The Company operates only in the managed care industry and, accordingly,
industry segment data is not applicable.
(c) Narrative Description of Business
Background - The Health Maintenance Organization Industry
A health maintenance organization provides a specified range of comprehensive
medical services to an enrolled population for a fixed annual premium that does
not vary with the extent of the medical services provided to any particular
individual.
Health maintenance organizations provide health coverage through direct
employment of, or contractual arrangements with, qualified health care providers
and, therefore, are in a position to negotiate favorable rates for their
enrollees and influence the efficiency of health care delivery through economic
incentives and utilization management. Thus, health maintenance organizations
can provide greater control over utilization and health care expenditures than
traditional health care plans.
2
<PAGE> 4
Operations of the HMO
The Plan is a health maintenance organization which provides a specified range
of comprehensive medical services to an enrolled population for a fixed annual
premium that does not vary with the extent of the medical services provided to
any particular individual.
The Plan provides health coverage through contractual arrangements with
qualified health care providers and therefore, is in a position to negotiate
favorable rates for its enrollees and influence the efficiency of health care
delivery through economic incentives and utilization management. Thus, the Plan
can provide greater control over utilization and health care expenditures than
traditional health care plans.
The HMO is structured as an Individual Practice Association ("IPA") model health
plan, designed to permit primary and specialty care physicians to remain as
independent providers. The HMO contracts with physicians to serve as a primary
care provider to enrollees. These physicians serve as a "gatekeeper" to the
other participating providers by screening incoming patients to determine their
health care needs, performing required primary care services where possible, and
administering patient referral to specialty care and other participating
providers where necessary.
The HMO's participating physicians are compensated on a "modified"
fee-for-service basis. Each participating physician agrees to provide services
for the lesser of the physician's customary fee-for-service charge or the
maximum fee approved by the HMO's Board of Directors. All or portions of the
maximum fee schedule are revised periodically.
To minimize the extent to which the Company and possibly its participating
physicians may be at risk for certain unexpected expenses, the Company has made
arrangements with insurers to minimize certain business risks of the Company.
Among other things, the Company has acquired reinsurance from Aetna Life to
minimize its exposure to catastrophic claims and insolvency insurance to protect
members against the Company's insolvency. In addition, the Company has acquired
general liability and director and officer coverage to protect the Company with
respect to claims made in connection with personal injury or property damage
arising from the operation of an HMO.
The Plan's service area includes the geographic area of Allegheny, Washington,
Westmoreland, Beaver, and Butler counties. As of December 31, 1995, the HMO had
contracted with approximately 2,900 participating physicians located in
Allegheny, Washington, Westmoreland, Beaver and Butler Counties of western
Pennsylvania, including the greater Pittsburgh metropolitan area. It also had
provider contracts with 28 hospitals and 699 pharmacies. Hospital contracts are
primarily tiered per diem arrangements based on utilization categories. All
provider contracts can be terminated by either party upon 90 days written
notice.
Enrollment as of December 31, 1995, was approximately 16,200 members.
Approximately 3,100 of these members are covered under a Medicaid agreement
which is renewable in June, 1996. Premiums are established by community rating,
adjusted by group for such variables as age and sex. Health care premiums from
the Medicaid agreement exceeded 10% of the Plan's total revenue for the years
ended December 31, 1995 and 1994. Premium revenue from this group was
approximately $5,977,000, $6,258,000 and $5,906,000 for 1995, 1994, and 1993,
respectively.
Operations of the PPO
The Company also owns 100% of the stock of the PPO. The purpose of the PPO was
to provide managed care services in a workers' compensation environment to
employers. Covered groups realized savings by using a provider network to manage
the medical cost component of workers' compensation cases.
3
<PAGE> 5
The PPO received a network access fee from covered groups or their carriers. The
PPO offered these services to Aetna's commercial insurance customers and to
self-funded workers' compensation employers in the service area. The employees
covered by this arrangement were not considered members of the HMO. A new
regulation, which went into effect September 1, 1993, has eliminated the savings
which had previously been realized by the PPO. Management does not anticipate
that the PPO will contribute any revenue in the foreseeable future.
Marketing and Competition
A majority of the HMO's enrollment is obtained through contracts with employers
throughout the five county Pittsburgh metropolitan service area for employee and
dependent health care coverage. Marketing to or through employer sponsors is
primarily the responsibility of the HMO's marketing staff. Solicitation of
employer sponsors is also performed through a broker network representing the
HMO on a non-exclusive independent contractor basis.
The HMO competes in the Pittsburgh metropolitan service area for enrollment with
other health maintenance organizations, other types of managed care programs and
a number of conventional health insurers. Blue Cross, through its indemnity plan
and its health maintenance organization (Keystone Health Plan), is the largest
competitor as measured by covered lives in the Pittsburgh service area. The
other principal health maintenance organization competitors are Health America
and U. S. Healthcare. The HMO is the fifth largest health maintenance
organization in the Pittsburgh service area based on membership as of December
31, 1995.
Competition is largely based upon product features and prices, the quality of
services provided, the geographic scope of the provider networks and the medical
specialties represented in such networks. The HMO relies on its strengths of
multi-market sales and high service quality to compete in this market.
Government Regulation
State Qualification
Pennsylvania engages in extensive regulation of health maintenance
organizations. The HMO received a Certificate of Authority issued by the
Pennsylvania Departments of Health and Insurance in August, 1986, allowing it to
commence operations as an IPA-model plan in the five-county Pittsburgh
metropolitan service area. Among other things, rate filings were approved as
part of the certification process.
The Pennsylvania Departments of Health and Insurance generally regulate a health
maintenance organization's structure and operations, including the type and
extent of health care services provided to enrollees, contracts with health care
providers and other contracts required for the HMO's operations, financial
standards, including a restricted reserve and minimum working capital, quality
assurance, access to care, subscriber rights, grievance procedures, and
professional standards of the HMO's providers. Failure to comply could result in
an administrative fine, or suspension or revocation of the HMO's license to
operate.
Federal Qualification
The HMO is also federally qualified under the Health Maintenance Organization
Act of 1973 (the "Federal HMO Act"). The HMO received its federal qualification
in April, 1987. Accordingly, the HMO is required to comply with rules and
regulations promulgated by the Secretary of Health and Human Services in areas
such as the scope of enrollee benefits offered, premium structure, procedures
for review of medical quality assurance, marketing materials, personnel
qualifications, relationships with management companies and health care
providers, reporting requirements, and financial and operations performance
standards.
4
<PAGE> 6
The principal competitive benefit of federal qualification under the Federal HMO
Act is the ability of a federally qualified health maintenance organization to
require that certain employers with more than 25 employees offer a federally
qualified plan as an alternative to conventional health insurance. If a
federally qualified IPA-model is available, such a model must generally be
offered by the employer as a health care plan option. The petitioning health
maintenance organization need not necessarily be chosen by the employer as the
health maintenance organization model to be offered. Another potential
significant benefit of federal qualification is the health maintenance
organization's ability to enter into a Medicare risk contract. Many employers
also limit sponsorship to federally qualified plans. There are also potential
disadvantages, such as limits on product offerings and pricing. The Federal HMO
Act was amended in 1988 to allow federally qualified health maintenance
organizations greater flexibility in the types of products they offer and the
pricing of those products. Federal qualification has required no material
changes from the HMO's state qualified operations or in its contractual or
compensation arrangements with Aetna Health Management, Inc. ("AHM") a wholly
owned subsidiary of Aetna Life. (Please see description of AHM services under
the "Employees" section below.)
From time to time, modifications to both the state and Federal statutes
regulating health maintenance organizations may be considered by the respective
state and Federal legislatures which, if adopted, could affect the operations,
profitability, or business of the HMO. In addition, to remain licensed, it may
be necessary for the HMO to make changes from time to time in its services,
procedures, and structure. Such changes may be required as a result of amendment
to, or other significant modifications of, Federal and state law and regulations
controlling the HMO's operations. The HMO believes that it is in compliance in
all material respects with the applicable regulations of the various Federal and
state licensing authorities.
Employees
The Company, the HMO and the PPO do not have any employees. Under a management
contract with AHM, Aetna and/or its affiliates recruits and compensates all
employees or contractors necessary for the operation of the Company. Present
staffing level of 45 persons includes a President, Medical Director, Director of
Network Management, marketing representatives, and additional support personnel.
Certain other services, such as claims processing, billing and enrollment,
finance and actuarial, are provided by employees of Aetna and/or its affiliates
located in Middletown, Connecticut and Reading, Pennsylvania.
ITEM 2. PROPERTIES.
The combined executive and administrative offices of the Company are located at
5700 Corporate Drive, Pittsburgh, Pennsylvania, occupying approximately 11,600
square feet leased by the Company at a rental of approximately $19,000 per
month. The lease expires in November, 1998. The cost of this rental is paid by
AHM and is included in the management fee paid to AHM.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal proceedings pending against the Company, the HMO or the PPO
which, if successful, would materially adversely affect the operations or
financial condition of the Company, the HMO or the PPO.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Market Information
There is no public trading market for the Company's no par value, $.10 stated
value, common stock, and there is no anticipation that such a market will ever
develop. As of December 31, 1995, the Company's common stock was held by 1,120
shareholders.
Holders
As of March 1, 1996, there were 6,075 shares of the Company's common stock
outstanding. AHP Holdings holds 4,956 of such shares and participating
physicians own 1,119 of such shares, with each physician owning one share.
Dividends
The Company has not paid regular dividends in the past to its shareholders and
does not anticipate doing so in the foreseeable future.
6
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below for, and as of the end of, each of
the years in the five-year period ended December 31, 1995, are derived from the
consolidated financial statements of the Company. The consolidated financial
statements as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, which have been audited by KPMG Peat
Marwick LLP, and the report thereon, are included starting on page 23.
<TABLE>
<CAPTION>
As of/for the Year Ended
------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue $ 28,243,098 $ 34,476,707 $ 41,776,646 $ 36,166,265 $ 27,000,244
Health care expenses 21,171,257 26,554,138 33,740,027 29,722,438 22,064,462
Other expenses 4,124,371 5,864,918 6,972,462 6,019,975 4,913,386
------------ ------------ ------------ ------------ ------------
Total expenses 25,295,628 32,419,056 40,712,489 35,742,413 26,977,848
Income before cumulative
effect adjustment 1,936,689 1,337,537 693,281 279,742 14,782
Cumulative effect adjustment
for change in accounting for
income taxes -- -- -- 120,531 --
------------ ------------ ------------ ------------ ------------
Net income $ 1,936,689 $ 1,337,537 $ 693,281 $ 400,273 $ 14,782
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding 6,078 6,083 6,086 6,091 6,101
Income per share before
cumulative effect adjustment $ 318.64 $ 219.88 $ 113.91 $ 45.93 $ 2.42
Cumulative effect adjustment
for change in accounting for
income taxes per share -- -- -- 19.79 --
------------ ------------ ------------ ------------ ------------
Net income per share $ 318.64 $ 219.88 $ 113.91 $ 65.72 $ 2.42
============ ============ ============ ============ ============
- ------------
BALANCE SHEETS DATA:
Current assets $ 10,384,858 $ 9,281,407 $ 8,714,468 $ 7,968,638 $ 5,889,964
Other assets 364,065 475,810 559,645 489,992 227,616
------------ ------------ ------------ ------------ ------------
Total assets 10,748,923 9,757,217 9,274,113 8,458,630 6,117,580
Current liabilities 6,223,178 6,908,395 7,506,272 7,384,214 5,441,239
Note payable to related party 162,017 412,017 662,017 662,017 3,617,017
Redeemable preferred stock 2,955,000 2,955,000 2,955,000 2,955,000 --
Accumulated deficiency (1,559,714) (3,496,403) (4,833,940) (5,527,221) (5,927,494)
Stockholders' equity
(deficiency) 1,408,728 (518,195) (1,849,176) (2,542,601) (2,940,676)
</TABLE>
7
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The Company's net income for the year ended December 31, 1995 was $1,936,689
($318.64 per share), improving over net income of $1,337,537 ($219.88 per share)
and $693,281 ($113.91 per share) for the years ended December 31, 1994 and 1993,
respectively. The increase in net income for 1995 over 1994 was primarily due to
the benefit realized from the adjustment of medical reserves as a result of
favorable medical experience. Decreases in management fees, reinsurance premiums
and an increase in interest income also contributed to the favorable results.
These favorable factors were partially offset by a decrease in premium revenue.
The increase in net income for 1994 over 1993 was largely due to the benefit
realized by favorable medical experience as well as decreases in management
fees. These factors were partially offset by decreases in premium revenue, the
elimination of PPO revenue and increased reinsurance expense due to a revised
contract.
Operating income (health care premiums less health care expenses) decreased 14%
to $6,487,797 in 1995 compared to $7,569,413 in 1994. Operating income for the
year ended December 31, 1993 was $7,070,995. The decrease in operating income
reflects a decrease in premium revenues due to a reduction in membership from
December 31, 1994 to December 31, 1995, along with a decrease in Medicaid
capitated revenue reimbursement rates. These unfavorable factors were partially
offset by a decrease in medical expenses as a result of improved medical expense
trends, including benefits realized from the adjustment of medical reserves
primarily reflecting emerging favorable medical experience from prior years and
changes in membership levels.
Revenue decreased by 18% to $28,243,098 ($137.45 per member per month) for the
year ended December 31, 1995 compared to $34,476,707 ($139.73 per member per
month) for the year ended December 31, 1994. Revenues were $41,776,646 ($133.40
per member per month) for the year ended December 31, 1993. The revenue decrease
in 1995 was attributable to a decrease in membership and a decrease in Medicaid
capitated revenue reimbursement rates reflecting a change in the Medicaid
demographics. Membership decreased 15% to 16,286 at December 31, 1995, compared
to 19,200 at December 31, 1994. The decrease in membership levels was due to
market demand that continues to shift some members to Aetna's Point of Service
(POS) products (which are not offered by the HMO) and a loss of other members to
various competitors in the market. These factors more than offset the addition
of new groups and additional market penetration in existing groups.
Interest revenue was $584,044 in 1995 ($2.84 per member per month) as compared
to $353,156 ($1.43 per member per month) and $221,559 ($.71 per member per
month) for the years ended December 31, 1994 and 1993, respectively. The
increase in interest revenue in 1995 and 1994 reflects an increase in interest
yielding assets due to the Plan's continued profitable position.
Health care expenses decreased 20% to $21,171,257 ($103.03 per member per month)
for the year ended December 31, 1995, compared to $26,554,138 ($107.62 per
member per month) for the year ended December 31, 1994. Health care expenses
were $33,740,027 ($107.74 per member per month) for the year ended December 31,
1993. The decrease in health care expenses in 1995 was primarily attributable to
improved medical expense trends, which include benefits realized from the
adjustment of medical reserves to reflect emerging favorable medical experience
from prior years and the decrease in membership levels. The medical cost ratio
(total cost of health care expenses divided by total health care premiums) was
77% for the year ended December 31, 1995 compared to 78% and 83% for the years
ended December 31, 1994 and 1993, respectively.
8
<PAGE> 10
Management fees decreased 30% or $1,501,656 from 1994 to 1995 and decreased 20%
or $1,259,837 from 1993 to 1994. The decreases are due to the reduction in the
Plan's premium revenue, a decrease in the management fee percentage paid by the
Company and an adjustment to the management fees due to a recent settlement with
a Pittsburgh area hospital (see Note 5 of Notes to Consolidated Financial
Statements). Under the management contract with AHM, fees for management
services are based on a percentage of premium revenue and interest income. Fees
under this agreement were $3,498,771, $5,000,427, and $6,260,264 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Pending Transactions
As described in the Company's Form 8-K under Item 5, "Other Events" filed on
December 29, 1995, Coventry Corporation, a Tennessee corporation ("Coventry"),
and a wholly-owned subsidiary of Coventry ("Merger Sub"), will acquire all of
the outstanding shares of common stock, without par value per share (the "Common
Stock") of the Company and all of the outstanding, redeemable preferred stock,
without par value per share (the "Preferred Stock"), of the HMO.
The transaction will take place in two steps. In the first step, Merger Sub will
acquire all of the Common Stock owned by AHP Holdings, Inc. for $5,274.90 per
share in cash and all of the Preferred Stock for $2,995,000 in cash. In the
second step, the Company will merge with and into Merger Sub, or Merger Sub will
merge with and into the Company, and each of the holders of Common Stock at the
time of the Merger will receive $5,274.90 per share in cash. The parties expect
the second step to occur promptly after the first step.
Regulatory approval of this transaction was received by the Pennsylvania
Insurance Department and the Pennsylvania Department of Health on March 12,
1996.
Outlook
The outlook for the Company is heavily dependent upon its ability to effectively
manage health care costs for customers. The Company attempts to achieve this
through a combination of negotiated contracts with health care providers,
development and implementation of guidelines for appropriate utilization of
health care resources and by working with health care providers to review
treatment patterns in order to improve consistency and quality. Although medical
experience had a favorable impact on 1995 results there is no assurance that
this trend will continue in the future.
Legislative efforts to change the health insurance system have received
increased attention in recent years at both the state and national levels,
including various proposals to reform the federal Medicare program. Aetna
actively supports proposals designed to enhance managed care and expand access
to health care coverage through private sector competition. Management is not
able to predict the outcome of state and federal legislative efforts, or the
effect any additional legislation, if adopted, would have on the Company.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1995 were $9,863,085, an increase of
$1,811,453 from December 31, 1994. There were no short-term investments at
December 31, 1995. Short term investments amounted to $1,006,497 at December 31,
1994. Operations were funded with cash generated primarily from premium revenues
9
<PAGE> 11
and interest income on cash and cash equivalents. The Company does not
anticipate making any material capital expenditures in the future. The Company
believes that its existing capital resources, together with funds generated from
operations, will be sufficient to meet its normal working capital requirements
and capital commitments for the foreseeable future.
The Plan is required to maintain a minimum amount of net equity as defined by
regulation and statute. A Pennsylvania regulation, effective January 1, 1993,
requires an operational HMO to have as minimum net equity the greater of
$1,000,000 or three months uncovered health care expenditures for Pennsylvania
enrollees as reported on the most recent financial statement filed with the
Commonwealth of Pennsylvania. An existing HMO has four years to meet the net
equity requirements in increments of $250,000 by January 1st of each year. As of
January 1, 1996, the minimum net equity requirement as defined will be
$1,000,000. The Plan's net equity, including redeemable preferred stock as
defined by regulation and statute was $4,230,135 at December 31, 1995.
New Accounting Pronouncements
On December 31, 1993 the Plan adopted FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which required the classification of
debt securities into three categories: held to maturity (debt securities the
Company has positive intent and ability to hold to maturity), which are carried
at amortized cost; available for sale (debt securities that may be sold prior to
maturity), which are carried at fair value with changes in fair value, net of
taxes, recognized as a component of stockholders' equity (deficiency); and
trading (debt securities held with the objective of trading to generate profits
on short-term differences in price), which are carried at fair value with
immediate recognition in income of changes in fair value. FAS No. 115 also
requires the classification of equity securities into two categories: available
for sale and trading, which are accounted for as described above. Adoption of
this standard resulted in a net increase of $2,196 to unrealized capital gains
in stockholders' deficiency in 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995
together with the independent auditors' report are attached to this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Consummation of the pending transaction as described under Item 7 of this Form
10-K is expected to result in a change of executive officers and the Board of
Directors of the Company.
As of March 1, 1996, the Company had only one executive officer, Steven W.
Jones, who was appointed President of the Company on November 8, 1994. A
description of Mr. Jones' business experience follows. Mr. Jones does not have a
family relationship with any of the Directors of the Company.
The following information indicates each Director's name, age, the year when
first elected a director of the Company, the principal occupation of each as of
December 31, 1995, and a brief description of the business experience of each
for the last five years. None of the Directors is a director of another public
company.
10
<PAGE> 12
DANIEL H. BROOKS, M.D., 56
(Director since 1986)
Daniel H. Brooks, M.D., has been a physician in the Pittsburgh area for more
than 24 years and is a member of the Allegheny County Medical Society. He served
as President of the Company from 1990 to 1991.
ANTHONY J. BUIVIDAS, 42
(Director since 1995)
Anthony J. Buividas has been the Market Vice President of Aetna Health Plans
Philadelphia Metro Market since February 1994, as well as the CEO of Aetna
Health Plans of Central and Eastern Pennsylvania (a Pennsylvania HMO), a
position he has held since July 1992. From July 1986 to June 1992, Mr. Buividas
served as Chief Operating Officer of the predecessor HMO, Freedom Health Care.
He served as a director of Aetna Health Plans of Central and Eastern
Pennsylvania from December 1992 through April 1994.
STEVEN W. JONES, 38
(Director since 1994)
Steven W. Jones became President of the Company on November 8, 1994. From March
1991 to October 1994, Mr. Jones served as General Manager of Aetna Health Plans'
Louisville office. From August 1988 to March 1991, Mr. Jones served as Account
Executive of Aetna Health Plans' Houston office.
JOHN P. MCCRORY, 47
(Director since 1994)
John P. McCrory has been General Manager, Aetna Life Insurance and Annuity
Company (Pittsburgh Pension office) since June 1992. From April 1989 to May
1992, Mr. McCrory served as Regional Pension Manager for Minnesota Mutual Life
Insurance Company.
SANFORD M. REICH, M.D., 60
(Director since 1995)
Sanford M. Reich, M.D. has been a medical director of Aetna Health Plans of
Western Pennsylvania Inc. (the Company's principal operating subsidiary) since
August 1994. From February 1993 to August 1994, Dr. Reich served as a medical
director of Travelers Health Network Inc. From July 1991 to February 1993, Dr.
Reich served as a medical director and assistant vice president of Provident
Life & Accident Insurance Company.
11
<PAGE> 13
ITEM 11. EXECUTIVE COMPENSATION.
The executive officer named below is employed by certain affiliates of Aetna
Life and Casualty Company (the "Parent"), and is compensated by such affiliates
of the Parent. None of the officers of the Company are compensated by the
Company.
The Parent administers a severance pay plan under which employees, including the
Company's Executive Officer, terminated by the Parent without cause, may receive
up to two weeks of continuing salary for every credited full year of employment
to a maximum of one year's salary. In addition to the Severance Pay Plan, the
Parent administers a Job Elimination Benefits Program applicable when an
employee's job is eliminated due to reengineering, reorganization or staff
reduction efforts. Under this program, employees, including the Company's
executive officer, are eligible for an additional 13 weeks of salary
continuation and outplacement assistance. Certain benefits continue during the
severance pay and salary continuation periods.
SUMMARY COMPENSATION TABLE
The following table sets forth for the periods indicated certain compensation of
the President and chief executive officer (CEO), the only executive officer of
the Company during 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
SECURITIES LONG-TERM ALL
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING INCENTIVE OTHER
POSITION YEAR SALARY BONUS(3) COMPENSATION STOCK OPTIONS PLAN PAYOUTS COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven W. Jones 1995 $113,215 $ 0 $ 273(4) 750 0 $13,531(5)(6)
President and 1994 89,398 35,000 11,616 300 0 31,211
chief executive officer (1) 1993(2)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Jones became the President of the Company on November 8, 1994.
(2) The named individual was not an executive officer of the Company at any
time during this year.
(3) Represents amounts earned under the Parent's Management Incentive Plan II
(MIP II) by the named individual for the year indicated. Annual incentive
bonuses payable under MIP II are intended to reward executive officers for
achieving financial and strategic results. The Parent's Chairman
administers MIP II and determines the amount of each award to be granted.
(4) Represents amounts paid to the individual during 1995 for tax payments in
connection with relocation expenses.
(5) Includes $5,661 of matching contributions made by the Parent under ISP for
Mr. Jones. The ISP is a profit-sharing thrift plan qualified under the
Internal Revenue Code of 1986, as amended. The Parent matches,
dollar-for-dollar, amounts deferred by employees under ISP up to 5% of
annual salary. Twenty-five percent of the matching contributions made on
behalf of officers of the Parent is automatically invested in Common Stock
of the Parent.
(6) Includes an aggregate net amount of $7,870 paid to Mr. Jones during 1995
in connection with relocation expenses.
12
<PAGE> 14
STOCK OPTION GRANTS TABLE
The following table sets forth certain information concerning stock options
granted during 1995 by the Parent to the CEO, the only executive officer of the
Company during 1995. The hypothetical grant date present values of stock options
granted in 1995 shown below are presented pursuant to Securities and Exchange
Commission (SEC) rules and are calculated under the modified Black-Scholes Model
for pricing options. The gains, if any, realizable upon exercise of stock
options will depend upon the market price of the Parent's Common Stock at the
time the stock option is exercised relative to the exercise price per share of
Common Stock of the stock option. The executive officer named below will not be
able to realize a gain from the stock options granted unless, during the
exercise period, the market price of the Parent's Common Stock increases above
the exercise price of the options. An increase in the market price of the
Parent's Common Stock would also benefit the other shareholders of the Parent.
STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS (1)
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING STOCK OPTIONS EXERCISE GRANT DATE
STOCK OPTIONS GRANTED TO AETNA PRICE PER EXPIRATION PRESENT
NAME GRANTED EMPLOYEES IN 1995 SHARE DATE VALUE (3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven W. Jones 750 (2) .04% $53.50 February 24, 2005 $7,107
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Granted under the Parent's 1994 Stock Incentive Plan (the "Plan"). The
Plan provides for the grant of incentive stock options (ISOs) and
non-statutory stock options (NSOs). The Plan permits participants to use
shares of the Parent's Common Stock to exercise ISOs and NSOs. The Plan
provides that the option price shall not be less than 100% of the fair
market value of the Parent's Common Stock at the time the option is
granted. Under the Plan, options may be granted until April 30, 2001.
(2) Date of grant was February 24, 1995; initial exercise date was February
24, 1996; options vest in installments over a period of three-years.
(3) Grant date present values are calculated under the modified Black-Scholes
Model. The Black-Scholes Model is a mathematical formula used to value
options publicly traded in the securities markets and it assumes that
options are freely transferable. Because the employee stock options
granted above are not transferable, the Parent believes that the grant
date present values shown above may be overstated. This formula considers
a number of factors to estimate the option's present value. The
assumptions made and factors used by the Parent in the Black-Scholes Model
calculation for the options granted above were as follows: (i) a
volatility factor of 0.226, representing the average of the three-year and
ten-year historical volatility factors for the Common Stock determined as
of the date of the option grant; (ii) a risk-free rate of return of 7.47%,
representing the 10-year U.S. Treasury bond rate in effect on the date of
the option grant; (iii) a dividend yield of 5.2%, representing the
Parent's then current annual dividend, divided by the Parent's Common
Stock price on the date of the option grant; and (iv) a ten-year option
term, representing the full term of the option granted. To give effect to
the three-year vesting period of the options, the value of each option was
discounted by 20%, the percentage of options estimated to expire due to
turnover of all recipients of options during the vesting period. No
further discount to the option value calculated was taken to give effect
to the fact that the options are not freely transferable or to the
exercise or lapse of the options prior to the end of the ten-year option
period.
There is no assurance that the hypothetical present values of stock
options presented in the table above represent the actual values of such
options. The hypothetical values shown should not be construed as
predictions by the Parent as to the future value of its Common Stock.
13
<PAGE> 15
STOCK OPTION EXERCISES AND DECEMBER 31, 1995
STOCK OPTION VALUE TABLE
The following table sets forth the number and value of specified unexercised
options of the Parent's Common Stock at December 31, 1995. The values of
unexercised in-the-money stock options at December 31, 1995 shown below are
presented pursuant to SEC rules. There is no assurance that the values of
unexercised in-the-money stock options reflected in this table will be realized.
AGGREGATED PARENT STOCK OPTION EXERCISES AND
DECEMBER 31, 1995 STOCK OPTION VALUE TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED REALIZED DECEMBER 31, 1995 DECEMBER 31, 1995 (1)
UPON UPON ----------------- ---------------------
NAME EXERCISE EXERCISE EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Steven W. Jones 500 $5,775 0 950 $0 $14,613
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the December 29, 1995 closing Parent Common Stock price of
$69.25.
(2) Represents stock options that have not vested.
PENSION PLAN
The Parent provides for employees of it and its affiliates a noncontributory,
defined benefit pension plan. Retirement benefits are calculated on the basis of
(i) the number of years of credited service (maximum credit is 35 years), and
(ii) the employee's average annual earnings during the 60 consecutive months out
of the last 120 months of service which yield the highest annual compensation.
Employees receive service credit for actual years of employment with the Parent.
Under certain circumstances, determined on a case-by-case basis, additional
service credit may be given for employment with affiliated and nonaffiliated
companies and, as determined by the Parent's Board, for the purposes of inducing
employment of senior officers or rewarding past service.
The table below shows the estimated maximum annual retirement benefits payable
(determined as a straight life annuity) under the pension plan, at selected
earnings levels and after selected periods of credited service, to employees
with at least 15 years of credited service who retire at age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CREDITED YEARS OF SERVICE
EARNINGS 15 20 25 30 35
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000 45,000 60,000 75,000 90,000 105,000
300,000 67,500 90,000 11,250 135,000 157,500
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The term "earnings," as used in the retirement benefits table above, includes
annual salaries and annual bonuses paid under MIP as set forth in the relevant
columns of the Summary Compensation Table on page 12. At December 31, 1995,
"average annual earnings" for pension plan purposes for Mr. Jones was $111,136.
On December 31, 1995, Mr. Jones had 16.5 credited years of service.
14
<PAGE> 16
The benefits set forth in the above table do not take into account any reduction
for joint and survivorship payments or any offset for Social Security benefits
to be received by the employee. After retirement, benefits are subject to
cost-of-living adjustments of not more than 3% per year, but cannot be reduced
below the amount payable at the time of the individual's retirement.
COMPENSATION OF DIRECTORS
Directors who are employed by an affiliate of the Parent receive no additional
compensation for membership on the Board. Dr. Brooks is the only Director of the
Company who is not employed by an affiliate of the Parent. He received a stipend
of $12,000 per quarter in 1995 for his service on the Board.
BOARD REPORT ON EXECUTIVE COMPENSATION
The Company does not provide any compensation to any of its officers. All
officers of the Company are compensated by the Parent and/or one or more of its
affiliates. The Board of Directors of the Company does not have any control over
the compensation paid by the Parent and/or its affiliates to the Company's
officers.
THE BOARD OF DIRECTORS OF PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
DANIEL H. BROOKS, M.D. ANTHONY J. BUIVIDAS
STEVEN W. JONES JOHN P. MCCRORY
SANFORD M. REICH, M.D.
CORPORATE PERFORMANCE GRAPH
The following graph reflects the yearly change in the cumulative total return on
the NASDAQ market index and the Dow Jones Health Care Providers Index over the
preceding five-year period. The graph is presented pursuant to SEC rules, which
call for a comparison of the Company's cumulative total shareholder return on
its Common Stock with the cumulative total return on a broad market index and
the cumulative total return on a line-of-business index, assuming reinvestment
of dividends. It is impossible for the Company to determine a true, objective
market value for the Company's shares because the shares are not traded. So as
not to inadvertently inflate the value of the Company's shares for purposes of
this graph, the Company elected to show no changes in the market value of its
shares during the five-year period.
15
<PAGE> 17
FIVE-YEAR CORPORATE PERFORMANCE GRAPH
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.,
DOW JONES HEALTH CARE PROVIDERS INDEX
AND NASDAQ MARKET INDEX*
[FIGURE 1]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS Health Plan of Pennsylvania, Inc.** 100 100 100 100 100 100
- -------------------------------------------------------------------------------------------------------------------
Dow Jones Health Care Providers Index 100 109 115 179 196 252
- -------------------------------------------------------------------------------------------------------------------
NASDAQ 100 161 187 215 210 296
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Assumes that any dividends were reinvested in the relevant securities when
paid.
** While the Company cannot determine a true, objective market value for the
shares, it would note that the stockholders' equity (deficiency) values per
common share at year end 1991, 1992, 1993, 1994 and 1995 were as follows:
$(483), $(417), $(304), $(85), and $232 respectively.
16
<PAGE> 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table presents, as of March 1, 1996, the names of persons known to
the Company to be the beneficial owners of more than 5% of the outstanding
shares of the Company's Common Stock.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
AHP Holdings, Inc. 4,956 shares 81%
151 Farmington Avenue, RE4C
Hartford, CT 06156
</TABLE>
AHP Holdings, Inc. and the Company have entered into an agreement pursuant to
which a change of control of the Company will occur. See Item 7, "Management's
Discussion and Analysis - Pending Transactions" of this Form 10-K.
The following table presents as of March 1, 1996, unless otherwise
noted, the beneficial ownership of shares of Common Stock of the Company of each
Director and the executive officer identified in Items 10 and 11 of this Form
10-K and directors and executive officers of the Company, as a group. The Common
Stock is the only class of equity securities of the Company outstanding.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARES BENEFICIALLY
OWNED, EXCLUDING
SHARES ACQUIRABLE SHARES ACQUIRABLE
NAME OF BENEFICIAL UPON EXERCISE OF UPON EXERCISE OF TOTAL SHARES
OWNER AND POSITION CERTAIN OPTIONS CERTAIN OPTIONS (1) BENEFICIALLY OWNED
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel H. Brooks, M.D. 1 0 1
(Director)
Anthony J. Buividas (2) 0 0 0
(Director)
Steven W. Jones (2) 0 0 0
(named executive, and Director)
John P. McCrory (2) 0 0 0
(Director)
Sanford M. Reich, M.D. (2) 0 0 0
(Director)
Directors and executive 1 share 0 shares 1 share (3)
officers as a group
(5 persons)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Unless otherwise noted in the following footnotes, each person currently has
sole voting and investment powers over the shares set forth above. The
information set forth above and in the related notes has been furnished by the
respective persons.
17
<PAGE> 19
Notes to Beneficial Ownership Table
(1) Represents shares that the named beneficial owner above has the right to
acquire within 60 days of March 1, 1996 upon exercise of outstanding stock
options.
(2) The individual is employed by AHP Holdings, Inc. The individual does not
own any shares of the Company's Common Stock and disclaims beneficial
ownership of any shares owned by AHP Holdings, Inc.
(3) No individual named in the table is the beneficial owner of more than 1% of
the Company's outstanding Common Stock.
The following table presents, as of March 1, 1996, unless otherwise noted, the
beneficial ownership of shares of Common Stock of the Parent, the ultimate
parent of AHP Holdings, Inc., of each director and executive officer identified
in Items 10 and 11 of this Form 10-K and directors and executive officers, as a
group. The Common Stock of the Parent is the only class of equity securities of
the Parent outstanding. None of the directors, Nominees or executive officers
named in the Summary Compensation Table holds any shares of Common Stock of AHP
Holdings, Inc., or Aetna Life.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
SHARES BENEFICIALLY
OWNED, EXCLUDING
SHARES ACQUIRABLE SHARES ACQUIRABLE
NAME OF BENEFICIAL UPON EXERCISE OF UPON EXERCISE OF TOTAL SHARES
OWNER AND POSITION CERTAIN OPTIONS CERTAIN OPTIONS (1) BENEFICIALLY OWNED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel H. Brooks, M.D. 0 0 0
(Director)
Anthony J. Buividas 467 1,750 2,217
(Director)
Steven W. Jones 1,271(2) 350 1,621
(named executive and Director)
John P. McCrory 31 0 31
(Director)
Sanford M. Reich, M.D. 11 0 11
(Director)
Directors and executive 1,780 shares 2,100 shares 3,880 shares(3)
officers as a group
(5 persons)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Beneficial Ownership Table
Unless otherwise noted in the following footnotes, each person currently has
sole voting and investment powers over the shares set forth on the previous
page. The information set forth above and in the related notes has been
furnished by the respective persons.
(1) Represents shares that the named beneficial owner above has the right to
acquire within 60 days of March 1, 1996 upon the exercise of outstanding
stock options.
18
<PAGE> 20
(2) Includes 500 shares held jointly with his spouse, as to which Mr. Jones
shares voting and investment powers.
(3) Directors and executive officers as a group beneficially own in the
aggregate 3,880 shares of Common Stock of the Parent, which represent less
than 1% of the Common Stock of the Parent. Of the shares of Common Stock of
the Parent they beneficially own, the directors and executive officers as a
group share voting and investment powers with respect to 1,780 shares of
Common Stock. Included in the number of shares shown are 1,280 shares of
Common Stock held under the Parent's Incentive Savings Plan (ISP) and
beneficially owned by the directors and executive officers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Please see Note 5 under Notes to Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The consolidated financial statements of the Company as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995,
together with the independent auditors' report are attached to this Form 10-K.
(a) 2. Financial Statement Schedules.
Financial statement schedules have been omitted because of the absence of
conditions under which they are required.
(a) 3. Exhibits.
(3) Articles of Incorporation and By-Laws.
Restated Articles of Incorporation of the Company, as amended.
By-Laws of the Company as amended.
Articles of Incorporation of the Plan, as amended; incorporated herein by
reference to the Company's June 30, 1992 Form 10-Q, filed in August, 1992.
Amendment to the By-Laws of the Company; effective December 1, 1992;
incorporated herein by reference to the Company's 1992 Form 10-K, filed in
March, 1993.
(10) Material Contracts.
Management Agreement between the HMO and AHM, effective January 1, 1991;
incorporated herein by reference to the Company's 1991 Form 10-K, filed in
March, 1992, as amended by amendment #1 effective October 1, 1994.
Purchase and Merger Agreement dated as of December 18, 1995 among AHP Holdings,
Inc., PARTNERS Health Plan of Pennsylvania Inc., Coventry Corporation and
Coventry Acquisition Corporation; incorporated herein by reference to the
Company's Form 8-K, filed December 29, 1995.
19
<PAGE> 21
(21) Subsidiaries of the Company.
Subsidiaries of the Company
(27) Financial Data Schedule
(b) 1. Reports on Form 8-K.
The Company filed a report on Form 8-K under Item 5, "Other Events" on December
29, 1995.
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PARTNERS HEALTH PLAN OF
PENNSYLVANIA, INC.
Date: March ____, 1996 /s/ Steven W. Jones
-----------------------------
Steven W. Jones, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company in the
capacities and on the dates indicated.
Date: March ____, 1996 /s/ Joseph F. Brislin
-----------------------------
Joseph F. Brislin
Assistant Vice President of Aetna Life
Insurance Company, (acting in the
capacity of the Principal Accounting
Officer and Principal Financial Officer
of the Company)
Date: March ____, 1996 /s/ Daniel H. Brooks, MD.
-----------------------------
Daniel H. Brooks, MD., Director
Date: March ____, 1996 /s/ Anthony J. Buividas
-----------------------------
Anthony J. Buividas, Director
Date: March ____, 1996 /s/ Steven W. Jones
-----------------------------
Steven W. Jones, Director
Date: March ____, 1996 /s/ John P. McCrory
-----------------------------
John P. McCrory, Director
Date: March ____, 1996 /s/ Sanford M. Reich, MD
-----------------------------
Sanford M. Reich, MD.,Director
21
<PAGE> 23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
EXHIBITS
TO
FORM 10-K
Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
------------------------------
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
(Exact Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22
<PAGE> 1
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
23
<PAGE> 2
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 25
Consolidated Financial Statements:
Balance Sheets 26
Statements of Operations 27
Statements of Stockholders' Equity (Deficiency) 28
Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30-38
</TABLE>
24
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PARTNERS Health Plan of Pennsylvania, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of PARTNERS Health
Plan of Pennsylvania, Inc. and Subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the years in the
three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PARTNERS Health Plan
of Pennsylvania, Inc. and Subsidiaries as of December 31, 1995, and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, in 1993, the
Company changed its method of accounting for certain investments in debt and
equity securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 29, 1996
25
<PAGE> 4
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,863,085 8,051,632
Debt securities available for sale, at fair value (amortized cost $1,004,657) -- 1,006,497
Receivables:
Premiums, less allowance for doubtful accounts of $24,404
and $69,422 for 1995 and 1994, respectively 181,262 170,940
Reinsurance -- 52,338
Interest 7,981 --
Federal income tax receivable 332,530 --
------------ ------------
Total current assets 10,384,858 9,281,407
Restricted investments, at fair value 231,134 216,998
Deferred Federal income tax receivable 132,931 258,812
------------ ------------
Total assets $ 10,748,923 9,757,217
============ ============
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Health care claims payable $ 5,118,056 5,463,119
Unearned premiums 104,958 328,765
Accounts payable and accrued liabilities 653,055 719,194
Due to affiliate 347,109 9,388
Federal income tax payable -- 387,929
------------ ------------
Total current liabilities 6,223,178 6,908,395
Note payable to related party 162,017 412,017
Redeemable preferred stock (see note 5) 2,955,000 2,955,000
------------ ------------
Total liabilities 9,340,195 10,275,412
Stockholders' equity (deficiency):
Common stock, no par value, $0.10 stated value, 100,000 shares authorized,
6,075 and 6,081 shares issued and outstanding at
December 31, 1995 and 1994, respectively 609 609
Additional paid-in capital 2,967,403 2,976,403
Net unrealized capital gains 430 1,196
Accumulated deficiency (1,559,714) (3,496,403)
------------ ------------
Total stockholders' equity (deficiency) 1,408,728 (518,195)
Commitments and contingencies (see notes 5,7, and 9)
-- --
------------ ------------
Total liabilities and stockholders' equity $ 10,748,923 9,757,217
============ ============
Stockholders' equity (deficiency) per common share $ 231.89 (85.22)
============ ============
</TABLE>
See notes to the consolidated financial statements.
26
<PAGE> 5
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Health care premiums $27,659,054 34,123,551 40,811,022
Interest 584,044 353,156 221,559
PPO revenue -- -- 744,065
----------- ----------- -----------
Total revenue 28,243,098 34,476,707 41,776,646
----------- ----------- -----------
Expenses:
Health care:
Health care claims 21,117,108 26,141,500 33,609,072
Reinsurance premiums, less recoveries of $101,134 and $662,692
for 1994 and 1993, respectively 54,149 412,638 130,955
----------- ----------- -----------
Total health care expenses 21,171,257 26,554,138 33,740,027
Management fees 3,498,771 5,000,427 6,260,264
Marketing, general and administrative 625,600 863,998 705,407
Depreciation and amortization -- 493 6,791
----------- ----------- -----------
Total expenses 25,295,628 32,419,056 40,712,489
----------- ----------- -----------
Income before income taxes 2,947,470 2,057,651 1,064,157
Federal income tax expense 1,010,781 720,114 370,876
----------- ----------- -----------
Net income $ 1,936,689 1,337,537 693,281
=========== =========== ===========
Net income per weighted average common share $ 318.64 219.88 113.91
=========== =========== ===========
Weighted average number of common shares outstanding 6,078 6,083 6,086
=========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
27
<PAGE> 6
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficiency)
For the years ended 1995, 1994, and 1993
<TABLE>
<CAPTION>
Common Stock Net Total
------------
Unrealized Stockholders'
Additional Accumulated Capital Gains Equity
Shares Amount Paid-in-Capital Deficiency (losses) (Deficiency)
------ ------ --------------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 6,090 $ 609 $ 2,984,011 $(5,527,221) $ -- $(2,542,601)
Stock redemptions (6) -- (2,052) -- -- (2,052)
Net income -- -- -- 693,281 -- 693,281
Net unrealized capital gains -- -- -- -- 2,196 2,196
----- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 6,084 609 2,981,959 (4,833,940) 2,196 (1,849,176)
Stock redemptions (3) -- (5,556) -- -- (5,556)
Net income -- -- -- 1,337,537 -- 1,337,537
Net unrealized capital gains -- -- -- -- (1,000) (1,000)
----- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 6,081 609 2,976,403 (3,496,403) 1,196 (518,195)
Stock redemptions (6) -- (9,000) -- -- (9,000)
Net income -- -- -- 1,936,689 -- 1,936,689
Net unrealized capital gains -- -- -- -- (766) (766)
----- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 6,075 $ 609 $ 2,967,403 $(1,559,714) $ 430 $ 1,408,728
===== =========== =========== =========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
28
<PAGE> 7
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,936,689 1,337,537 693,281
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 980 493 6,791
Provision for bad debts 25,605 62,206 --
Changes in operating assets and liabilities:
(Increase) decrease in premium receivables (35,927) 418,374 721,451
Decrease in reinsurance receivable 52,338 1,664 265,057
(Increase) decrease in other receivables (7,981) 46,724 (18,516)
(Increase) decrease in Federal income tax receivable (332,530) -- 77,208
Decrease (increase) in due from affiliates -- 240,500 (240,500)
Decrease (increase) in other current assets -- 15,434 (2,118)
Decrease in deferred Federal income tax receivable 126,293 112,859 8,804
(Decrease) increase in health care claims payable (345,063) (480,946) 98,658
(Decrease) increase in unearned premiums (223,807) (441,904) 177,050
Decrease in accounts payable and accrued liabilities (66,139) (42,914) (98,214)
Increase (decrease) in due to affiliates 337,721 9,388 (84,866)
(Decrease) increase in Federal income tax payable (387,929) 358,499 29,430
----------- ----------- -----------
Net cash provided by operating activities 1,080,250 1,637,914 1,633,516
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investments 1,221,656 12,730,019 3,632,065
Purchases of investments (231,453) (6,321,800) (7,628,290)
----------- ----------- -----------
Net cash provided by (used for) investing activities 990,203 6,408,219 (3,996,225)
----------- ----------- -----------
Cash flows from financing activities:
Payment of note payable to related party (250,000) (250,000) --
Redemptions of common stock (9,000) (5,556) (2,052)
----------- ----------- -----------
Net cash used for financing activities (259,000) (255,556) (2,052)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,811,453 7,790,577 (2,364,761)
Cash and cash equivalents at beginning of year 8,051,632 261,055 2,625,816
----------- ----------- -----------
Cash and cash equivalents at end of year $ 9,863,085 8,051,632 261,055
=========== =========== ===========
Supplemental disclosures of cash flow information:
Income taxes paid $ 1,604,947 248,755 255,434
=========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
29
<PAGE> 8
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization
PARTNERS Health Plan of Pennsylvania, Inc. (the "Company") and its
subsidiaries, Aetna Health Plans of Western Pennsylvania, Inc. (the
"Plan") and Physicians Health Plan Preferred, Inc. (the "PPO") are
for-profit Pennsylvania corporations. The Plan is a health maintenance
organization ("HMO") licensed to conduct business in the state of
Pennsylvania. The Plan provides a specified range of comprehensive
medical services to an enrolled population through contracted providers.
As vehicles for delivery of these services, the Plan offers several
managed health care products primarily to employers for the benefit of
employees and their dependents. The Plan is a federally qualified HMO and
meets all requirements to maintain its federal qualification status. Most
of the Plan's member groups are located in western Pennsylvania,
including the metropolitan area of Pittsburgh, Pennsylvania. The PPO
provided network access and medical management services to workers'
compensation programs until the State of Pennsylvania established fee
schedules for workers' compensation claims effective September 1, 1993.
This new regulation has essentially eliminated potential future savings
to be realized by the PPO.
As of December 31, 1995, the Company is owned 81% by AHP Holdings, Inc.
("AHP Holdings") and 19% by participating physicians. AHP Holdings is
wholly-owned by Aetna Life Insurance Company ("Aetna Life") which is
wholly-owned by Aetna Life and Casualty Company ("Aetna").
On December 18, 1995, AHP Holdings and the Company entered into an
agreement with Coventry Corporation ("Coventry") for the purchase of all
shares of the Company common and preferred stock for total consideration
of $35,000,000. This transaction has been approved by the Board of
Directors of both the Company and Coventry and is currently awaiting
regulatory approval. The purchase transaction is expected to be completed
during the first quarter of 1996.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated. These accompanying financial
statements have been prepared in accordance with generally accepted
accounting principles (GAAP).
30
<PAGE> 9
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Accounting Changes
On December 31, 1993 the Company adopted Financial Accounting Standard
("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", which requires the classification of debt securities into
three categories: held to maturity (debt securities the Company has
positive intent and ability to hold to maturity), which are carried at
amortized cost; available for sale (debt securities that may be sold
prior to maturity), which are carried at fair value with changes in fair
value, net of taxes, recognized as a component of stockholders'
deficiency; and trading (debt securities held with the objective of
trading to generate profits on short-term differences in price), which
are carried at fair value with immediate recognition in income of changes
in fair value. FAS No. 115 also requires the classification of equity
securities into two categories: available for sale and trading, which are
accounted for as described above. Adoption of this standard resulted in a
net increase of $2,196 to unrealized capital gains in stockholders'
deficiency in 1993. The unrealized capital gains are noncash items and
therefore are not included in the Statement of Cash Flows.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of ninety days or less when
purchased. The carrying amounts reported in the Consolidated Balance
Sheets approximate fair value of these instruments.
Property and Equipment
Property and equipment are reported at depreciated cost using the
straight-line method based upon the estimated useful lives of the assets.
Health Care Premiums
Premiums from member groups for health care services are reported as
revenue in the month due. Premiums collected in advance are reported as
unearned premiums.
Health Care Expenses
Costs of health care are accrued as services are rendered or hospital
confinement has begun and include estimates of the costs of services
rendered but not yet reported.
31
<PAGE> 10
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Losses are recognized when it is probable that the expected future health
care costs of a group of existing contracts (and the costs necessary to
maintain those contracts) will exceed anticipated future premiums and
reinsurance recoveries on those contracts. Groups of contracts are
defined in a manner consistent with the method of establishing premium
rates.
The Plan has contracted with hospitals, physicians, pharmacies, and other
health care providers to render the health care services specified in the
subscriber contracts.
Reinsurance premiums are reported as health care expenses. Any related
recoveries are reported as reductions of health care expenses.
Receivables representing recoveries are reported as assets.
Reinsurance
On July 1, 1995, the Plan entered into a new reinsurance agreement with
Aetna Life which reduces the Plan's risk of catastrophic loss. Under the
new arrangement, Aetna Life is liable for 100% of the Plan's incurred
claims during the contract year which are in excess of 96% of the Plan's
earned premium for such contract year. The new arrangement was applied
retroactively to January 1, 1995. Under the previous arrangement (which
was in effect in 1994 and 1993), Aetna Life was liable for 70% and 90% of
all claims in excess of $100,000 and $75,000 up to a lifetime maximum per
participant of $2,000,000 in 1994 and 1993, respectively.
Income Taxes
The Company is included in the consolidated Federal income tax return of
Aetna. Pursuant to a tax sharing agreement between the Company and Aetna,
the Company incurs expenses or receives benefits relating to the use of
its taxable income or losses in the consolidated tax return. This
agreement also allows for the recognition of deferred taxes based upon
the tax position of the consolidated group.
(2) Investments
Debt securities, including restricted investments, at December 31, 1995,
all of which were classified as available for sale, are summarized as
follows:
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains Value
--------- ---------- --------
U.S. Treasury securities due to mature:
<S> <C> <C> <C>
One year or less $ 230,472 $ 662 $ 231,134
========= ========== ========
</TABLE>
32
<PAGE> 11
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Debt securities, including restricted investments, at December 31, 1994,
all of which were classified as available for sale, are summarized as
follows:
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains Value
---------- ---------- -------
U.S. Treasury securities due to mature:
<S> <C> <C> <C>
One year or less $ 1,221,655 $ 1,840 $ 1,223,495
========== ====== ==========
</TABLE>
In accordance with Federal and state laws and regulations, the Plan is
required to maintain a total of $206,000 on deposit to demonstrate
financial responsibility. At December 31, 1995 and December 31, 1994, the
restricted investments, consisting of U.S. Treasury securities due to
mature within one year, are carried at fair value based on quoted market
prices for these investments. These investments are classified as
available for sale as the Plan has the ability to change the investments
as long as minimum state requirements are maintained at all times. The
total deposit consists of $100,000 with the Commonwealth of Pennsylvania
Insurance Department and $106,000 in trust on behalf of the Office of
Prepaid Health Care Operations and Oversight in conjunction with the
HMO's intention to offer a Medicare product. The fair value at December
31, 1995 and December 31, 1994, is $231,134 and $216,998, respectively.
(3) Income Taxes
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was
enacted which resulted in an increase in the federal corporate tax rate
from 34% to 35% retroactive to January 1, 1993. The enactment of OBRA
resulted in an increase of $11,530 in the Plan's deferred tax asset.
The provision for federal income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current federal tax expense $ 884,488 607,254 362,072
Deferred federal tax expense 126,293 112,860 8,804
---------- ---------- ----------
Federal income tax expense $1,010,781 720,114 370,876
========== ========== ==========
</TABLE>
33
<PAGE> 12
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Federal income tax expense was different from the amount computed by
applying the federal income tax rate to income before income taxes
expense for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,031,614 720,178 372,455
Effect of enacted change in tax rate -- -- (60,711)
Change in the beginning-of-year valuation
allowance allocated to income tax expense -- -- 49,788
Other (20,833) (64) 9,344
----------- ----------- -----------
Current year expense $ 1,010,781 720,114 370,876
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities under FAS No. 109 at December 31,
1995 and 1994, are presented below:
Deferred tax assets:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net operating loss carryforward $(1,742,595) (1,742,595)
Accrued intercompany interest (56,706) (141,379)
Incurred but not reported loss
discounting (59,305) (67,784)
Allowance for doubtful accounts (8,541) (24,298)
Unearned premium reserve (7,347) (23,014)
Other 232 645
Accumulated depreciation (1,264) (2,982)
----------- -----------
Total deferred tax assets (1,875,526) (2,001,407)
Valuation allowance 1,742,595 1,742,595
----------- -----------
Net deferred tax assets $ (132,931) (258,812)
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 and
1994 was $1,742,595. There was no change in the total valuation allowance
for deferred tax assets for the year ended December 31, 1995. The net
change in the total valuation allowance for the year ended December 31,
1994 was an increase of $49,788. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets as of
December 31, 1995 and 1994, will be recognized as an income tax benefit
in the Consolidated Statement of Operations. Management believes that it
is more likely than not that this net deferred tax asset will be
realized, as the Company expects sufficient taxable income in the future.
34
<PAGE> 13
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1995 and 1994, the Plan has a net operating loss
carryforward for tax return purposes of approximately $5,000,000. If not
utilized, these losses will expire beginning in the year 2002. These
losses are limited as to the amount that can be utilized in any one year
due to U.S. income tax laws relating to certain changes in ownership.
(4) Stockholder Redemptions
In 1990, the Board of Directors authorized the redemption of stock held
by certain physicians. Physicians, who as a result of the reduction to
the Plan's hospital network no longer have admitting privileges at a
hospital under contract with the Plan, may seek a redemption of their
shares. The redemption price is the original stock purchase price less
any dividends or returns of capital. Stock is immediately retired upon
redemption.
(5) Related Party Transactions
The Plan entered into a management agreement with Aetna Health Management
Inc. ("AHM"), which is to provide substantially all management,
marketing, financial, and administrative services to the Plan and PPO.
AHM is wholly owned by Aetna Life. This agreement expires December 31,
1997. In 1995, 1994, and 1993, fees for these services were based upon
a percentage of net premiums (as defined in the agreement) and PPO
revenues. Fees under this agreement were $3,498,771, $5,000,427, and
$6,260,264 in 1995, 1994 and 1993, respectively, of which $289,733 and
$9,388 was included in current liabilities at December 31, 1995 and
1994, respectively.
In February, 1992, the Plan amended its Articles of Incorporation to
authorize 10,000 shares of redeemable preferred stock with no par value.
The redeemable preferred stock constitutes a single class with no
dividends and is non-voting, except as otherwise provided by law. Under
the terms of the redeemable preferred stock, 33% of the available
earnings of the Plan at the end of each calendar year must (subject to
regulatory approval) be used (1) to pay up to $250,000 per year of the
accrued interest under the note payable to AHP Holdings (see description
following) and (2) after all such accrued interest has been paid, to
redeem shares of the redeemable preferred stock at $1,000 per share.
"Available earnings" are defined for this purpose as excess earnings of
the Plan after subtraction of that amount necessary to continue to meet
statutory net equity requirements and before declaration of common stock
dividends. Based on available earnings for 1994 and 1993 as defined, an
interest payment of $250,000 was made to AHP Holdings in 1995 and 1994,
respectively. At any time on or after March 1, 2002, the holders of the
redeemable preferred stock may convert their shares for shares of common
stock of the Plan having an aggregate value of $1,000, calculated on the
basis of the net equity of the Plan as of the conversion date. Shares
redeemed, converted or otherwise acquired by the Plan shall not be
reissued, and all such shares shall be canceled.
35
<PAGE> 14
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective June, 1992, the Plan entered into a Stock Subscription
Agreement (the "Agreement") with AHP Holdings pursuant to which AHP
Holdings acquired 2,955 shares of the redeemable preferred stock in
exchange for the entire principal amount of the note payable due to AHP
Holdings.
Each share was exchanged for the forgiveness of $1,000 of the note
payable principal balance which was $3,617,017 as of the date the shares
were exchanged. In addition, the Agreement suspended accrual of interest
on the note payable from and after December 31, 1991. Therefore, no
interest was accrued in 1995, 1994, or 1993. The balance of the note
payable to affiliates was $162,017 and $412,017 at December 31, 1995 and
1994, respectively, which represents accrued interest on the note
payable. This transaction has been accounted for as a non-cash
transaction for purposes of the Consolidated Statements of Cash Flows.
As stated in Note 1, the Plan entered into a new reinsurance agreement
with Aetna Life in 1995. Premium paid under this agreement in 1995 were
$50,000 as compared to $513,722 and $793,647 paid under the previous
arrangement in 1994 and 1993, respectively. Reinsurance receivables due
from Aetna Life under the previous agreement were $52,338 at December 31,
1994.
The Plan's benefit package is offered to Aetna for its employees.
Premiums for health care services received by the Plan from Aetna were
approximately $857,000, $811,000 and $719,000 in 1995, 1994 and 1993,
respectively.
Certain contracted health care providers are also owners of the Plan.
Health care expenses include approximately $2,295,000 for 1995,
$3,476,000 for 1994 and $5,700,000 in 1993 for these providers.
PPO revenue includes transactions with affiliates of Aetna. There was no
PPO revenue in 1995 and 1994 and $744,065 in 1993.
In 1995, the Plan compensated a Pittsburgh area hospital for $170,000
related to disputed reimbursement relative to contractually agreed upon
rates for services provided to both the Plan's members and members of
various health plans insured or administered by Aetna over the past
several years. AHM, which has general management responsibility for the
Plan, reimbursed the Plan for the amount of the settlement through a
management fee adjustment, and as a result, the settlement has had no
financial impact on the Plan.
36
<PAGE> 15
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Business and Credit Concentrations
Health care premiums for the years ended December 31, 1995, 1994 and 1993
included premiums from one member group, which exceeded 10% of the Plan's
total revenue. Premium revenue from this group was approximately
$5,977,000, $6,258,000, and $5,906,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
(7) Minimum Net Worth Requirement
The Plan is required to maintain a minimum amount of net equity as
defined by regulation and statute. A Pennsylvania regulation, effective
January 1, 1993, requires an operational HMO to have as minimum net
equity the greater of $1,000,000 or three months uncovered health care
expenditures for Pennsylvania enrollees as reported on the most recent
financial statement filed with the Pennsylvania Department of Insurance.
An existing HMO has four years to meet the net equity requirements in
increments of $250,000 by January 1st of each year. As of January 1,
1996, the minimum net equity requirement as defined was $1,000,000. The
Plan's net equity, including redeemable preferred stock, as defined by
regulation and statute was $4,230,135 at December 31, 1995.
(8) Reconciliation to Statutory Financial Statements
As discussed in Note 1, the accompanying financial statements have been
prepared in conformity with GAAP which vary in certain respects from
statutory reporting practices required by the Pennsylvania Department of
Insurance. The following is a reconciliation of 1995 stockholders' equity
on a GAAP basis to amounts reported in the Company's 1995 statutory
statement:
<TABLE>
<S> <C>
GAAP stockholders' equity $ 1,408,728
Preferred stock 2,955,000
Non admitted assets:
Deferred taxes (132,931)
FAS 115 adjustment (662)
Statutory net worth as reported $ 4,230,135
===========
GAAP net income $ 1,936,689
Book value adjustment 35,533
-----------
Statutory net income as reported $ 1,972,222
===========
</TABLE>
37
<PAGE> 16
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Commitments and Contingencies
The Plan is involved in certain legal actions arising in the normal
course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that their
outcome will not have a significant effect on the consolidated financial
statements.
38
<PAGE> 1
(3)(i) ARTICLES OF INCORPORATION
<TABLE>
<S> <C> <C>
05CB BCL Filed this AUG 03 1988, A.D.
8860 639
Filing Fee: $40 Commonwealth of Pennsylvania
AO-2 Department of State
Articles of Amendment COMMONWEALTH OF PENNSYLVANIA
Domestic Business DEPARTMENT OF STATE
Corporation CORPORATION BUREAU
Secretary of the Commonwealth
</TABLE>
In compliance with the requirements of section 806 of the Business
Corporation Law, act of May 5, 1933 (P. L. 364) (15 P. S. Section 1806), the
undersigned corporation, desiring to amend its Articles, does hereby certify
that:
1. The name of the corporation is:
Physicians Health Plan of Pennsylvania, Inc.
2. The location of its registered office in this Commonwealth is (the
Department of State is hereby authorized to contact the following statement
to conform to the records of the Department):
5700 Corporate Drive, Suite 300, P.O. Box 101769
(Number) (Street)
Pittsburgh Pennsylvania 15237
(City) (Zip Code)
3. The statute by or under which it was Business Corporation Law, Act of
incorporated is: May 5, 1933 (P.L.364),
as amended
4. The date of its
incorporation is: April 23, 1985
5. (Check, and if appropriate, complete one of the following):
/X/ The meeting of the shareholders of the corporation at which the
amendment was adopted was held at the time and place and pursuant to the
kind and period of notice herein stated.
Time: The 28th day June, 1988
Place: Office of the Allegheny County Medical Society, Pittsburgh, PA
Kind and period of notice: Written notice - 15 days
/ / The amendment was adopted by a consent in writing, setting forth the
action so taken, signed by all of the shareholders entitled to vote
thereon and filed with the Secretary of the corporation.
6. At the time of the section of shareholders:
(a) The total number of shares outstanding was:
1238 Class A shares - 412 Class B shares - 1650 total
(b) The number of shares entitled to vote was:
1238 Class A shares - 412 Class B shares - 1650 total
39
<PAGE> 2
7. In the action taken by the shareholders:
(a) The number of shares voted in favor of the amendment was:
755 Class A shares - 412 Class B shares - 1167 total
(b) The number of shares voted against the amendment was:
81 Class A shares - 0 Class B shares - 81 total
8. The amendment adopted by the shareholders, set forth in full, is as follows:
SEE ATTACHMENT
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer and its
corporate seal, duly attested by another such officer, to be hereunto
affixed this 1st day of August , 1988.
ATTEST: PHYSICIANS HEALTH PLAN OF
PENNSYLVANIA, INC.
(Name of Corporation)
/s/ By: /s/
_______________________________ ____________________________________
(Signature) (Signature)
Secretary Chairman
_______________________________ ____________________________________
(Title: Secretary, Assistant (Title: President, Vice
Secretary, etc.) President, etc.)
(Corporate Seal)
INSTRUCTIONS FOR COMPLETION OF FORM
A. Any necessary copies of Form DSCB: 17.2 (Consent to Appropriation of
Name) or form DSCB: 17.3 (Consent to Use of Similar Name) shall
accompany Articles of Amendment affecting a change of name.
B. Any necessary governmental approvals shall accompany this form.
C. Where action is taken by partial written consent pursuant to the
Articles, the second alternate of Paragraph 5 should be modified
accordingly.
D. If the shares of any class were entitled to vote as a class, the number
of shares of such class so entitled and the number of shares of all
other classes entitled to vote should be set forth in Paragraph 6(b).
E. If the shares of any class were entitled to vote as a class, the number
of shares of such class and the number of shares of all other classes
voted for and against such amendment respectively should be set forth in
Paragraphs 7(a) and 7(b).
F. BCL Section 807 (15 P. S. Section 1807) requires that the corporation
shall advertise its invention to file or the filing of Articles of
Amendment. Proofs of publication of such advertising should not be
delivered to this Department, but should be filed with the minutes of
the corporation.
40
<PAGE> 3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PHYSICIANS HEALTH PLAN OF PENNSYLVANIA, INC.
ARTICLE I
NAME
The name of the Corporation is: Physicians Health Plan of Pennsylvania,
Inc.
ARTICLE II
ADDRESS
The name of the Corporation's registered agent is Larry Rambo and the
address of the registered office in Pennsylvania of the Corporation is 5700
Corporate Drive, Suite 300, Pittsburgh, Allegheny County, Pennsylvania 15237.
ARTICLE III
PURPOSE
The Corporation may transact any and all lawful business activities for
which corporations may be incorporated under the Pennsylvania Business
Corporation Law including, but not limited to, that of owning and operating,
either through itself or a subsidiary, health maintenance organizations or other
health care plans and programs.
ARTICLE IV
DURATION
The Corporation shall have perpetual duration.
41
<PAGE> 4
ARTICLE V
CAPITAL STOCK
The aggregate number of authorized shares of the corporation shall be
100,000 shares of common Stock, no par value.
ARTICLE VI
CUMULATIVE VOTING
There shall be no cumulative voting by the holders of the shares of the
Corporation's common stock.
ARTICLE VII
MANAGEMENT OF THE CORPORATION
The Corporation shall specify in its bylaws the manner in which directors
shall be elected. Except to the extent that powers are reserved to the
shareholders pursuant to these Articles of Incorporation and except as otherwise
provided in the bylaws of the Corporation or by applicable law, the Corporation
shall be managed by the Board of directors of the Corporation, which shall have
all powers and authorities conferred pursuant to the laws of the Commonwealth of
the Pennsylvania.
42
<PAGE> 5
COMMONWEALTH OF PENNSYLVANIA
[GREAT SEAL OF THE COMMONWEALTH]
DEPARTMENT OF STATE
TO ALL IN WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, In and by Article VIII of the Business Corporation Law, approved
the fifth day of May, Anno Domini one thousand nine hundred and thirty-three, P.
L. 364, as amended, the Department of State is authorized and required to issue
a
CERTIFICATE OF AMENDMENT
evidencing the amendment and restatement of the Articles of Incorporation in
their entirety of a business corporation organized under or subject to the
provisions of that Law: and
WHEREAS, The stipulations and conditions of that Law pertaining to the
amendment of articles of Incorporation have been fully complied with by
PHYSICIANS HEALTH PLAN OF PENNSYLVANIA, INC.
Henceforth The "Articles," as defined in Article 1 of the Business
Corporation Law, shall not include any prior documents:
THEREFORE, KNOW YE, That subject to the Constitution of this Commonwealth
and under the authority of the Business Corporation Law, I do by these presents,
which I have caused to be Sealed with the Great Seal of the Commonwealth, extend
the rights and powers of the corporation named above, in accordance with the
terms and provisions of the Articles of Amendment presented by it to the
Department of State, with full power and authority to use and enjoy such rights
and powers, subject to all the provisions and restrictions of the Business
Corporation Law and all other applicable laws of this Commonwealth.
Given under my Hand and the Great Seal of the
Commonwealth, at the City of Harrisburg, this
3rd day of August in the year of our Lord one
thousand nine hundred and eighty-eight and of
the Commonwealth the two hundred thirteenth.
_______________________________________________
Secretary of the Commonwealth
43
<PAGE> 6
05CB BCL Filed this day of
88681360 SEP 16 1988
Filing Fee: $40 (Line for numbering) Commonwealth of
AO-2 Pennsylvania
Department of State
Articles of Amendment COMMONWEALTH OF PENNSYLVANIA
Domestic Business DEPARTMENT OF STATE
Corporation CORPORATION BUREAU
Secretary of the
Commonwealth
(Box for Certificate)
In compliance with the requirements of section 806 of the Business
Corporation Law, act of May 5, 1933 (P. L. 364. S. Section 1806), the
undersigned corporation, desiring to amend its Articles, does hereby certify
that:
1. The name of the corporation is:
Physicians Health Plan of Pennsylvania, Inc.
2. The location of its registered office in this Commonwealth is (the
Department of State is hereby authorized to contact the following statement
to conform to the records of the Department):
5700 Corporate Drive, Suite 300, Allegheny County
(Number) (Street)
Pittsburgh Pennsylvania 15237
(City) (Zip Code)
3. The statute by or under which it was Business Corporation Law, Act of
incorporated is: May 5, 1933 (P.L. 364)
4. The date of its incorporation is: April 23, 1985
5. (Check, and if appropriate, complete one of the following):
/ / The meeting of the shareholders of the corporation at which the
amendment was adopted was held at the time and place and pursuant to the
kind and period of notice herein stated.
Time: The _______________ day of ___________________ 19____
Place:
Kind and period of notice
/X/The amendment was adopted by a consent in writing, setting forth the
action so taken, signed by all of the shareholders entitled to vote
thereon and filed with the Secretary of the corporation.
6. At the time of the section of shareholders:
(a) The total number of shares outstanding was:
1650
(b) The number of shares entitled to vote was:
1650
44
<PAGE> 7
7. In the action taken by the shareholders:
(a) The number of shares voted in favor of the amendment was:
1650
(b) The number of shares voted against the amendment was:
1650
8. The amendment adopted by the shareholders, set forth in full, is as follows:
FIRST: The name of the corporation is Physicians Health Plan
SECOND: The following amendment to the Articles of Incorporation be adopted
by the corporation in the manner prescribed by the statues of the
Commonwealth of Pennsylvania: RESOLVED, that Article One of the
Articles of Incorporation shall be amended to read in its entirety:
ARTICLE ONE: The name of the corporation is
PARTNERS Health Plan of Western Pennsylvania, Inc.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer and its
corporate seal, duly attested by another such officer, to be hereunto
affixed this 14th day of September, 1988.
ATTEST:
_______________________________
(Name of Corporation)
/s/ Patrice Maloney-Knauff By: /s/ William W. Blunt, Jr.
------------------------------ -------------------------------
(Signature) (Signature)
Patrice Maloney-Knauff William W. Blunt, Jr.
------------------------------ -------------------------------
(Title: Secretary, Assistant (Title: President, Vice
Secretary, etc.) President, etc.)
(Corporate Seal)
INSTRUCTIONS FOR COMPLETION OF FORM
A. Any necessary copies of Form DSCB: 17.2 (Consent to Appropriation of
Name) or form DSCB: 17.3 (Consent to Use of Similar Name) shall
accompany Articles of Amendment affecting a change of name.
B. Any necessary governmental approvals shall accompany this form.
C. Where action is taken by partial written consent pursuant to the
Articles, the second alternate of Paragraph 5 should be modified
accordingly.
D. If the shares of any class were entitled to vote as a class, the number
of shares of such class so entitled and the number of shares of all
other classes entitled to vote should be set forth in Paragraph 6(b).
E. If the shares of any class were entitled to vote as a class, the number
of shares of such class and the number of shares of all other classes
voted for and against such amendment respectively should be set forth in
Paragraphs 7(a) and 7(b).
F. BCL Section 807 (15 P. S. Section 1807) requires that the corporation
shall advertise its invention to file or the filing of Articles of
Amendment. Proofs of publication of such advertising should not be
delivered to this Department, but should be filed with the minutes of
the corporation.
45
<PAGE> 8
COMMONWEALTH OF PENNSYLVANIA
[GREAT SEAL OF THE COMMONWEALTH]
DEPARTMENT OF STATE
TO ALL IN WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, In and by Article VIII of the Business Corporation Law, approved
the fifth day of May, Anno Domini one thousand nine hundred and thirty-three, P.
L. 364, as amended, the Department of State is authorized and required to issue
a
CERTIFICATE OF AMENDMENT
evidencing the amendment of the Articles of Incorporation of a business
corporation organized under or subject to the provisions of that Law, and
WHEREAS, The stipulations and conditions of that Law pertaining to the
amendment of articles of Incorporation have been fully complied with by
PHYSICIANS HEALTH PLAN OF PENNSYLVANIA, INC.
name changed to
PARTNERS HEALTH PLAN OF WESTERN PENNSYLVANIA, INC.
THEREFORE, KNOW YE, That subject to the Constitution of this Commonwealth
and under the authority of the Business Corporation Law, I do by these presents,
which I have caused to be Sealed with the Great Seal of the Commonwealth, extend
the rights and powers of the corporation named above, in accordance with the
terms and provisions of the Articles of Amendment presented by it to the
Department of State, with full power and authority to use and enjoy such rights
and powers, subject to all the provisions and restrictions of the Business
Corporation Law and all other applicable laws of this Commonwealth.
Given under my Hand and the Great Seal of the
Commonwealth, at the City of Harrisburg, this
15th day of September in the year of our Lord
one thousand nine hundred and eighty-eight and
of the Commonwealth the two hundred thirteenth.
_______________________________________________
Secretary of the Commonwealth
46
<PAGE> 9
CHANGE OF REGISTERED OFFICE Please indicate (check one) FEE
type corporation $40.00
Commonwealth of Pennsylvania
Department of /X/ Domestic Business Corporation
State-Corporation Bureau / / Foreign Business Corporation
/ / Domestic Non-Profit Corporation
/ / Foreign Non-Profit Corporation
1. Name of Corporation
PARTNERS Health Plan of Western Pennsylvania, Inc.
2. Address of the present registrant office in the Commonwealth's (the
Department of State is hereby authorized to correct the following statement
to conform to the records of the Dept.
5700 Corporate Drive, Suite 300, Pittsburg, PA 15237 Allegheny County
3. Address to which the registered office in this Commonwealth is to be
changed:
c/o The Prentice-Hall Corporation System, Inc.
100 Pine Street, Harrisburg, Pennsylvania 17108 Danphia
4. (Check, and if appropriate, complete one of the following):
/X/ Such change was authorized by resolution duly adopted by the Board of
Directors of the corporation.
/ /The procedure whereby such change was authorized was:
IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement
to be singed by a duly authorized officer, and its corporate seal duly
attained by another such officer, to be hereunto affixed, this 14th day
of, September , 1988 .
(Corporate Seal)
PARTNERS Acquisition Company, Inc.
-----------------------------------
By: /s/ William W. Blunt, Jr.
-----------------------------------
William W. Blunt, Jr
-----------------------------------
ATTEST:
/s/ Patrice
Maloney-Knauff
- -------------------------
Patrice Maloney-Knauff
- -------------------------
-FOR OFFICE USE ONLY-
Date Filed 88771161
SEP 15 1988 845716
CERTIFY TO: INPUT BY LOG IN LOG IN
|_|
|_| L&I SEP 15, 1988
|_| Other VERIFIED BY LOG OUT LOG OUT
47
<PAGE> 10
05CB BCL Filed this day of
8914877 JUN 7 1989
Filing Fee: $40 (Line for numbering) Commonwealth of
AO-2 Pennsylvania Department
of State
Articles of Amendment COMMONWEALTH OF PENNSYLVANIA
Domestic Business DEPARTMENT OF STATE
Corporation CORPORATION BUREAU
Secretary of the
Commonwealth
(Box for Certificate)
In compliance with the requirements of section 806 of the Business
Corporation Law, act of May 5, 1933 (P. L. 364. S. Section 1806), the
undersigned corporation, desiring to amend its Articles, does hereby certify
that:
1. The name of the corporation is:
PARTNERS Health Plan of Western Pennsylvania, Inc.
2. The location of its registered office in this Commonwealth is (the
Department of State is hereby authorized to contact the following statement
to conform to the records of the Department):
C/O Prentice Hall 100 Pine Street
(Number) (Street)
Harrisburg Pennsylvania 17108
(City) (Zip Code)
3. The statute by or under which it was Business Corporation Law, Approved
incorporated is: May 5, 1933, P. L. 364
4. The date of its incorporation is: April 23, 1985
5. (Check, and if appropriate, complete one of the following):
/ / The meeting of the shareholders of the corporation at which the
amendment was adopted was held at the time and place and pursuant to the
kind and period of notice herein stated.
Time: The _______________ day of ___________________ 19____
Place:
Kind and period of notice
/X/ The amendment was adopted by a consent in writing, setting forth the
action so taken, signed by all of the shareholders entitled to vote
thereon and filed with the Secretary of the corporation.
6. At the time of the section of shareholders:
(a) The total number of shares outstanding was:
4,956 common stock
(b) The number of shares entitled to vote was:
6,194
48
<PAGE> 11
7. In the action taken by the shareholders:
(a) The number of shares voted in favor of the amendment was:
Unanimous
(b) The number of shares voted against the amendment was:
8. The amendment adopted by the shareholders, set forth in full, is as follows:
RESOLVED, that the shareholders hereby approve the Amendment to the
Articles of Incorporation in which the name of the corporation is changed to
"PARTNERS Health Plan of Pennsylvania, Inc."
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer and its
corporate seal, duly attested by another such officer, to be hereunto
affixed this 15th day of November, 1988.
ATTEST:
PARTNERS Health Plan of Western
Pennsylvania, Inc.
--------------------------------
(Name of Corporation)
/s/ Patrice Maloney-Knauff By: /s/ William W. Blunt, Jr.
-------------------------------- --------------------------------
(Signature) (Signature)
Patrice Maloney-Knauff William W. Blunt, Jr.
-------------------------------- --------------------------------
(Title: Secretary, Assistant (Title: President,
Secretary, etc.) Vice President, etc.)
(Corporate Seal)
INSTRUCTIONS FOR COMPLETION OF FORM
A. Any necessary copies of Form DSCB: 17.2 (Consent to Appropriation of
Name) or form DSCB: 17.3 (Consent to Use of Similar Name) shall
accompany Articles of Amendment affecting a change of name.
B. Any necessary governmental approvals shall accompany this form.
C. Where action is taken by partial written consent pursuant to the
Articles, the second alternate of Paragraph 5 should be modified
accordingly.
D. If the shares of any class were entitled to vote as a class, the number
of shares of such class so entitled and the number of shares of all
other classes entitled to vote should be set forth in Paragraph 6(b).
E. If the shares of any class were entitled to vote as a class, the number
of shares of such class and the number of shares of all other classes
voted for and against such amendment respectively should be set forth in
Paragraphs 7(a) and 7(b).
F. BCL Section 807 (15 P. S. Section 1807) requires that the corporation
shall advertise its invention to file or the filing of Articles of
Amendment. Proofs of publication of such advertising should not be
delivered to the Department, but should be filed with the minutes of the
corporation.
49
<PAGE> 12
COMMONWEALTH OF PENNSYLVANIA
[GREAT SEAL OF THE COMMONWEALTH]
DEPARTMENT OF STATE
TO ALL IN WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, In and by Article VIII of the Business Corporation Law, approved
the fifth day of May, Anno Domini one thousand nine hundred and thirty-three, P.
L. 364, as amended, the Department of State is authorized and required to issue
a
CERTIFICATE OF AMENDMENT
evidencing the amendment and restatement of the Articles of Incorporation in
their entirety of a business corporation organized under or subject to the
provisions of that Law: and
WHEREAS, The stipulations and conditions of that Law pertaining to the
amendment of articles of Incorporation have been fully complied with by
PARTNERS HEALTH PLAN OF WESTERN PENNSYLVANIA,
INC.
name changed to
PHYSICIANS HEALTH PLAN OF PENNSYLVANIA, INC.
THEREFORE, KNOW YE, That subject to the Constitution of this Commonwealth
and under the authority of the Business Corporation Law, I do by these presents,
which I have caused to be Sealed with the Great Seal of the Commonwealth, extend
the rights and powers of the corporation named above, in accordance with the
terms and provisions of the Articles of Amendment presented by it to the
Department of State, with full power and authority to use and enjoy such rights
and powers, subject to all the provisions and restrictions of the Business
Corporation Law and all other applicable laws of this Commonwealth.
Given under my Hand and the Great Seal of the
Commonwealth, at the City of Harrisburg, this
7th day of June in the year of our Lord one
thousand nine hundred and eighty-nine and of
the Commonwealth the two hundred thirteenth.
_______________________________________________
Secretary of the Commonwealth
50
<PAGE> 13
Microfilm Number _____________________ Filed with Dept. of State on May 10 1995
Entity Number 845416
Secretary of the Commonwealth
STATEMENT OF CHANGE OF REGISTERED OFFICE BY AGENT
In compliance with the requirements of 15 Pa.C.S. ss 108 (relating to
change in location or status of registered office provided by agent), the
undersigned person who maintains the registered office of an association and who
desires to change the following with respect to such agency hereby states that:
1. The name of the association represented by the undersigned person is:
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
2. The address of the present registered office in this Commonwealth of the
above-named association is:
c/o The Prentice-Hall Corporation System, Inc.
100 Pine Street, Harrisburg, PA 17108 Dauphin County
3. (If the registered office address is to be changed, complete the following):
The address in the same county to which the registered office in this
Commonwealth of the above-named association is to be changed is:
The Prentice-Hall Corporation System, Inc. Dauphin County
4. The name of the person in care of the foregoing office is:
____________________________________________________________________________
5. (Check one or more of the following, as appropriate):
___ This statement reflects a change in name of agent.
XX The change in the registered office set forth in this statement reflects
the removal of the place of business of the agent to a new location
within the county.
___ The status of the agent as the provider of the registered office of the
above-named association has been terminated.
IN TESTIMONY WHEREOF, the undersigned person has caused this Statement
of Change of Registered Office by agent to be signed this 10th day of May, 1995.
PARTNERS HEALTH PLAN OF
PENNSYLVANIA, INC.
______________________________________
(Name)
BY: __________________________________
(Signature)
TITLE: Agent
51
<PAGE> 1
(3) (ii) BY-LAWS
AMENDED BY-LAWS
OF
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
AS OF
DECEMBER 1, 1992
52
<PAGE> 2
AMENDED BY-LAWS
OF
PARTNERS HEALTH PLAN OF PENNSYLVANIA, INC.
ARTICLE I
OFFICES
Section 1.1 - Principal Office. The principal office of the Corporation
shall be in the Commonwealth of Pennsylvania.
Section 1.2 - Other Offices. The Corporation may also have offices at
such other places both within and without the Commonwealth of Pennsylvania as
the Board of Directors may from time to time determine or the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 - Place of Meetings. Meetings of shareholders may be held
either within or without the Commonwealth of Pennsylvania as set forth in the
notice of the meeting.
Section 2.2 - Annual Meeting. The Corporation shall hold an annual
meeting of its shareholders for the election of directors and for the
transaction of general business on the first day in June of each year at a time
and place designated by the Board of Directors or on such other date as the
Board of Directors in its sole discretion may designate. If the day fixed for
the annual meeting is a legal holiday, the meeting shall be held on the next
succeeding day not a legal holiday.
53
<PAGE> 3
Section 2.3 - Special Meetings. Special meetings of the shareholders
may be called at any time for any purpose or purposes by the President, the
Board of Directors, or shareholders entitled to cast at least 20% of the votes
which all shareholders are entitled to cast at the particular meeting.
Section 2.4 - Notice. Written or printed notice stating the place, day
and hour of a shareholder meeting, and (i) in the case of the annual meeting
those matters which the Board, at the time of the mailing of the notice, intends
to present for action by the shareholders, or (ii) in the case of a special
meeting, the purpose or purposes for which the meeting is called shall be
delivered not less than ten (10) nor more than sixty (60) days before the date
set for the meeting, either personally or by mail, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, addressed to the shareholder at
his/her address as it appears on the stock transfer books of the Corporation,
with the postage thereon prepaid.
Section 2.5 - Quorum. At any meeting of shareholders, the presence in
person or by proxy of the holders of a majority of the outstanding shares
entitled to vote shall constitute a quorum, except as otherwise may be provided
in the Articles of Incorporation. If less than a quorum is initially in
attendance, then the meeting may be adjourned to a fixed time and place.
Section 2.6 - Voting. Each shareholder shall be entitled to one vote,
in person or by proxy, for each share of stock entitled to vote held by such
shareholder. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, unless the vote of a greater number is
required by statute, the Articles of Incorporation, or the By-laws, and except
that in elections of directors those receiving the greatest number of votes
shall be deemed elected even though not receiving a majority.
54
<PAGE> 4
Section 2.7 - Proxies. A shareholder may vote either in person or by
proxy executed in writing by the shareholder or by such shareholder's duly
authorized attorney-in-fact. Every proxy shall be filed with the Secretary of
the Corporation. Notwithstanding any provision in a proxy or agreement to the
contrary, a proxy shall be revocable at will, unless coupled with an interest
(i.e., given in exchange for contractually sufficient consideration). To be
effective, notice of the revocation of a proxy must be given to the Secretary of
the Corporation prior to the effective date of revocation. No unrevoked proxy
shall be valid after eleven months from the date of its execution unless
otherwise provided in the proxy.
Section 2.8 - Presiding Officer. All meetings of the shareholders shall
be presided over by the President. If the President is not present, a Chairman
who shall serve for that meeting only shall be elected by the shareholders in
attendance at the meeting. The Secretary of the Corporation shall act as
Secretary of all the meetings, if present. If the Secretary is not present, the
President or Chairman of the meeting shall appoint a Secretary of the meeting.
The President or Chairman of the meeting may appoint one or more judges of the
election to determine the existence of a quorum, the qualification of voters,
the validity of proxies and the results of ballots.
55
<PAGE> 5
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 - Composition of the Board. The number of directors of the
Corporation shall be five (5). The number of directors of the corporation may be
amended from time to time by the Board of Directors provided that such number
shall be not less than four and not more than twelve. Any change in the number
of directors shall not affect the tenure of office of any director. The
directors shall be elected, to serve for a term of one year, each year at the
annual meeting of shareholders, except as hereinafter provided, and each
director shall serve until his/her successor shall be elected and qualified.
Directors shall be eligible for reelection without limitation on the number of
terms they may serve.
Section 3.2 - Removal from Office; Vacancies. Any vacancy occurring in
the Board of Directors may be filled by the affirmative vote of a majority of
the remaining directors even though less than a quorum, or by the sole remaining
director. The shareholders at any meeting called expressly for that purpose, at
which a quorum is present, by a vote of the holders of a majority of outstanding
shares of stock present and entitled to vote for elections of directors, may
remove any director for cause or without cause and fill the vacancy. Any vacancy
arising among the directors resulting from an increase in the number of
directors may be filled by the affirmative vote of a majority of the Board of
Directors. A director elected to fill a vacancy shall be elected for the
unexpired term of his/her predecessor in office.
Section 3.3 - Powers of the Board. The Board of Directors shall have
control of and manage the business and affairs of the Corporation. The Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Articles of Incorporation or
these By-laws directed or required to be exercised and done by the shareholders.
56
<PAGE> 6
Section 3.4 - Voting. At all meetings of the Board of Directors, each
director shall have one vote irrespective of the number of shares that such
director may hold.
Section 3.5 - Resignation of Director. Any director may resign his/her
office at any time by giving written notice to the Board of Directors, the
President or the Secretary of the Corporation. Unless otherwise specified in the
notice, the resignation shall take effect immediately upon receipt, and the
acceptance of the resignation shall not be necessary to make it effective.
Section 3.6 - Power to Fix Compensation. The Board of Directors, by the
affirmative vote of a majority of the directors then in office and irrespective
of any personal interest of any director, shall have the authority to fix the
reasonable compensation, including fees and reimbursement of out-of-pocket
expenses, of directors for service to the Corporation.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.7 - Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held within or without the Commonwealth of
Pennsylvania as may be provided by resolution adopted by a majority of the
Board.
Section 3.8 - Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 3.9 - Special Meetings. Special meetings of the Board of
Directors shall be called by the President, Secretary or on the written request
of two directors. The business to be transacted at, or the purpose of, any
special meeting of the Board must be specified in the notice of such meeting.
Written notice of special meetings of the Board shall be given to each director
at least four (4) days by mail or forty-eight (48) hours delivered personally or
by telephone or telegraph before the date of the meeting.
57
<PAGE> 7
Section 3.10 - Quorum. A majority of the entire Board, not including
vacancies, shall constitute a quorum for the transaction of business and the act
of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time, as determined by the Board of Directors.
Section 3.11 - Presiding Officer. All meetings of the Board shall be
presided over by the President. If the President is not present, a Chairman who
shall serve for that meeting only shall be elected by the directors in
attendance at the meeting. The Secretary of the Corporation shall act as
Secretary of all the meetings, if present. If he/she is not present, the
President or Chairman of the meeting shall appoint a Secretary of the meeting.
Section 3.12 - Unanimous Written Consent. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if a consent in writing, setting forth the action, shall be signed by
all the directors and filed with the Secretary of the Corporation. Such consent
shall have the same force and effect as a unanimous vote of the directors.
Section 3.13 - Conference Telephone. Any or all directors may
participate in a meeting of the Board of Directors or of a committee of the
Board by means of a conference telephone, or any means of communication by which
all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at a meeting.
58
<PAGE> 8
ARTICLE IV
COMMITTEES OF THE BOARD
Section 4.1 - Executive Committee; Other Board Committees. The Board of
Directors, by resolution adopted by a majority of the Board, may designate an
Executive Committee and one or more other committees of the Board, each of which
shall be comprised of one or more directors. Committee appointments shall be for
a one-year term. Each such committee, to the extent provided in such resolution,
shall have and may exercise all of the authority of the Board of Directors that
is delegated to said committee by the Board of Directors. The designation of an
Executive Committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him/her by law.
Section 4.2 - Quorum. A majority of an entire committee shall
constitute a quorum for the transaction of business by the committee and the act
of the majority of the committee members present at a meeting at which a quorum
is present shall be the act of the committee. If a quorum shall not be present
at any meeting of a committee, the committee members present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 4.3 - Unanimous Written Consent. Any action required or
permitted to be taken at a meeting of the Executive Committee and any other
Board Committee may be taken without a meeting if a consent in writing, setting
forth the action, shall be signed by all the committee members and filed with
the Secretary of the Corporation. Such consent shall have the same force and
effect as a unanimous vote of the Executive Committee.
Section 4.4 - Minutes. The Executive Committee and any other Board
Committee shall keep regular minutes of its proceedings and report the same to
the Board when required.
59
<PAGE> 9
Section 4.5 - Other Committees. The Board may establish other
committees which may be comprised of individuals who are not members of the
Board. The President, with the concurrence of a majority of the full Board,
shall appoint the members of all such committees. Such committees shall make
recommendations to the Board and shall operate under such procedures and
guidelines as the Board may establish.
ARTICLE V
NOTICES
Section 5.1 - Notices. Notices to directors and shareholders, as
required by statute or these By-laws, shall be in writing and delivered
personally or by mail to the directors or shareholders at their addresses
appearing on the books of the Corporation or supplied by them for the purpose of
notice. Notice by mail shall be deemed to be given as of the date the notice is
mailed. Notice to directors may also be given by telegram, such notice deemed to
be given as of the date the notice is deposited with a telegraph office for
transmission.
Section 5.2 - Written Notice of Shareholders Meeting. Written notice of
every shareholders meeting shall be given in accordance with Section 2.4 of
these By-laws.
Section 5.3 - Waiver of Notice. Whenever, under the provisions of these
By-laws, the Articles of Incorporation, or of any statute, a shareholder or
director is entitled to any notice, a waiver there of in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated there in, shall be equivalent to the giving of such notice.
Section 5.4 - Waiver of Notice by Attendance. The attendance of any
director or shareholder at a meeting without protesting at the beginning of such
meeting shall constitute a waiver of notice of such meeting. Neither the
business to be transacted at nor the purpose of any regular or special
60
<PAGE> 10
meeting of the Shareholders or of the Board of Directors need be specified in
the waiver of notice of such meeting.
ARTICLE VI
OFFICERS
Section 6.1 - Designation of Officers. The officers of the Corporation
shall consist of a President, a Secretary, an Assistant Secretary, a Treasurer,
an Assistant Treasurer, and such other officers as the Board deems necessary,
each of whom shall be elected by a majority vote of the Board of Directors at a
meeting at which a quorum is present in accordance with Section 3.10 of these
By-Laws. Any two or more offices may be held by the same person; however, a
person who holds more than one office in the Corporation may not act in more
than one capacity to execute, acknowledge, or verify an instrument required by
law to be executed, acknowledged, or verified by more than one officer.
Section 6.2 - Election of Officers. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of shareholders, except where a longer term is
expressly provided in an employment contract duly authorized and approved by the
Board of Directors.
Section 6.3 - Other Officers. Subject to the approval of the Board of
Directors, the President may elect or appoint such other officers, assistant
officers and agents as he/she or they shall deem necessary who shall hold their
offices for such terms and shall have such authority and perform such duties as
shall be determined from time to time by the Board.
Section 6.4 - Compensation. The Board of Directors may in its
discretion establish reasonable salaries for all officers and agents of the
Corporation; provided, however, that the Board may
61
<PAGE> 11
delegate this authority to the President or to the Executive Committee of the
Board, except that the Board may not delegate this authority with respect to the
compensation of the President.
Section 6.5 - Removal. The officers of the Corporation shall hold
office until their successors are chosen and qualified. Any officer or agent
elected or appointed by the Board of Directors may be removed with or without
cause by the Board of Directors whenever, in its judgment, the best interests of
the Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 6.6 - Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. Unless otherwise specified in the notice, the resignation shall
take effect immediately upon receipt, and the acceptance of the resignation
shall not be necessary to make it effective.
Section 6.7 - Vacancy. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise shall be filled promptly
by the Board of Directors.
Section 6.8 - Duties of Officers. The duties and powers of the officers
of the Corporation shall be as follows and as shall hereafter be set by
resolution of the Board of Directors:
62
<PAGE> 12
THE PRESIDENT
A. The President shall have general and active management of the
business of the Corporation, shall see that all orders and resolutions of the
Board of Directors are carried into effect, shall be an ex-officio member
without voting power of all committees to which the Board of Directors has not
appointed the President as a full voting member and shall assume all
responsibilities as the Board of Directors may from time to time prescribe.
B. The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. The President shall
be one of the officers who may sign checks and drafts of the Corporation.
THE SECRETARY AND ASSISTANT SECRETARIES
A. The Secretary shall attend all meetings of the Board of Directors
and all meetings of the shareholders and record all proceedings of the meetings
of the shareholders and of the Board of Directors in a book to be kept for that
purpose and shall perform like duties for the committees, if any, when required.
The Secretary shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or President,
under whose supervision he/she shall be. The Secretary shall keep a register of
the mailing address of each shareholder which shall be furnished to the
Secretary by such shareholder and he/she shall have general charge of the stock
ledger books of the Corporation. The Secretary shall have custody of the
corporate seal of the Corporation and the Secretary, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring
63
<PAGE> 13
it and when so affixed, it may be attested by his/her signature or by the
signature of such Assistant Secretary. The Board of Directors may, however, give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his/her signature.
B. The Assistant Secretary, or if there is more than one, the Assistant
Secretaries, in the order determined by the Board of Directors, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
A. The Treasurer shall have the custody of the corporate funds and
securities, shall keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation, and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors.
B. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors at
its regular meetings, or when the Board of Directors so requests, an account of
all his/her transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall be one of the officers who may sign checks and
drafts of the Corporation.
C. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his/her office and for the restoration to the Corporation, in case of
his/her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money
64
<PAGE> 14
and other property of whatever kind in the Treasurer's possession or under
his/her control belonging to the Corporation.
D. The Assistant Treasurer, or, if there is more than one, the
Assistant Treasurers, in the order determined by the Board of Directors, shall,
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VII
INDEMNIFICATION
Section 7.1 - Indemnification. To the full extent permitted by, and in
accordance with the procedure prescribed in the laws of the Commonwealth of
Pennsylvania, the Corporation shall indemnify any person who is or was a
director, officer, employee, agent, or representative of the Corporation or any
person who is or was serving at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against expenses, including attorney's fees,
judgment, fines, settlements and other amounts paid in connection with legal
proceedings in which any such persons become involved by reason of serving in
any such capacity with or for the Corporation.
Section 7.2 - Other Indemnification. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any agreement,
vote of shareholders or otherwise, both as to action in his/her official
capacity and as to action in another capacity while holding such office.
65
<PAGE> 15
Section 7.3 - Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
expenses incurred in any proceeding and any liabilities asserted against him/her
and incurred by him/her in any such capacity, or arising out of his/her status
as such, whether or not the Corporation would have the powers to indemnify such
person against such expenses or liabilities under the provisions of this
Article.
Section 7.4 - Director Liability. A director of this Corporation shall
not be personally liable for monetary damages for any action taken, or for
failure to take any action, as a director, unless:
1) such action or failure to act constitutes a failure to perform the
duties of director in good faith, in a manner which the director reasonably
believes to be in the best interests of the corporation, and with such care,
including reasonable inquiry, skill, and diligence, as a person of ordinary
prudence would use under the circumstances; and
2) the breach or failure to perform constitutes self-dealing, willful
misconduct, or recklessness.
66
<PAGE> 16
ARTICLE VIII
CONFLICTS OF INTEREST
The Corporation may enter into a contract or transaction with one or
more of its directors or officers or a corporation, partnership, association or
any other entity in which one or more of the Corporation's directors and
officers are directors or officers or have a financial interest if:
(a) The material facts as to the director's or officer's
interest and as to the contract or transaction are
disclosed or are known to the Board of Directors and
the Board in good faith authorizes the contract or
transaction by a vote sufficient for such purpose
without counting the vote of the interested director
or directors; or
(b) The material facts as to director's or officer's
interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled
to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the
shareholders; or
(c) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved
or ratified by the Board of Directors, or the
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors which authorizes,
approves, or ratifies the contract or transaction.
67
<PAGE> 17
ARTICLE IX
CERTIFICATES FOR SHARES
Section 9.1 - Certificates for Shares. The shares of stock in the
Corporation shall be represented by certificates signed by the President and
countersigned by the Secretary or an Assistant Secretary and sealed with the
seal of the Corporation. Such seal may be a facsimile. No certificate shall be
issued for any share until full payment is received for such share. All
certificates shall be consecutively numbered. The name and address of the
shareholders, the number of shares and the date of issue shall be entered on the
Corporation's stock transfer books. Each certificate representing shares shall
state the name of the corporation, and that the Corporation is organized under
the laws of the Commonwealth of Pennsylvania, the name of the person to whom
issued, the number of shares which such certificate represents, and the par
value for each share represented by such certificate.
Section 9.2 - Facsimile Signatures. Where certificates are
countersigned by a transfer agent other than the Corporation itself, or an
employee of the Corporation, or by a transfer clerk and registered by a
registrar, the signatures of the President and the Secretary or Assistant
Secretary upon such certificate may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if such officer had not ceased
to hold office at the date of its issue.
Section 9.3 - Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificates for shares to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to
68
<PAGE> 18
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or give the Corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
Section 9.4 - Closing of Transfer Books and Fixing Record Date. The
Board of Directors shall have the power to close the stock transfer books of the
Corporation for a period not exceeding fifty (50) days for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or shareholders entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose.
Notice of the closing of the transfer books of the Corporation shall be mailed
at least ten (10) days before such closing to each shareholder of record. In
lieu of closing the stock transfer books, the Board of Directors may fix in
advance a record date not less than ten (10) nor more than fifty (50) days
preceding the date on which the particular action, requiring such determination
of shareholders, is to be taken. Only shareholders of record on the date so
fixed shall be entitled to such notice and to vote at such meeting, or to
receive payment of such dividend, or exercise such right as the case may be,
notwithstanding any transfer or any stock on the books of the Corporation after
any such record date fixed as herein provided.
69
<PAGE> 19
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, the record date shall be at the close of business on
the day next preceding the day in which notice is given, or, if notice is waived
on the day next preceding the day on which the meeting is held. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to receive dividends, or in order to make any other
determination respecting shareholder rights, the date on which the resolution of
the Board of Directors declaring such dividend is adopted, or the date such
other resolution is adopted, shall be the record date for such determination of
shareholders.
Section 9.5 - Registered Shareholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as expressly provided by the laws of the
Commonwealth of Pennsylvania.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 - Dividends. The Board of Directors may declare and the
Corporation may pay dividends on its outstanding shares in cash, property, or
its own shares pursuant to law and subject to the provisions of its Articles of
Incorporation.
70
<PAGE> 20
Section 10.2 - Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 10.3 - Checks; Signatures Required. All bills payable, notes,
checks, drafts, warrants, or other negotiable instruments of the Corporation
shall be made in the name of the Corporation and shall be signed by the
President or Treasurer or by any other persons as the Board of Directors may
from time to time designate.
No officer or agent of the Corporation, either singly or jointly with
others, shall have the power to make any bill payable, note, check, draft, or
warrant, or other negotiable instrument, or endorse the same in the name of the
Corporation, or contract or cause to be contracted any debt or liability in the
name and on behalf of the Corporation except as herein expressly prescribed and
provided.
Section 10.4 - Fiscal Year. The fiscal year of the Corporation shall
end on the last day in December.
Section 10.5 - Corporate Seal. The seal of the Corporation shall be a
flat-faced circular die of which there may be counterparts, with the word "SEAL"
and the name of the Corporation engraved thereon.
71
<PAGE> 21
Section 10.6 - Voting of Stock. Unless otherwise provided by a vote of
the Board of Directors, certified by an officer, and filed with the Secretary,
the Corporation may, pursuant to law, vote any stock of any other corporation
owned by the Corporation, by a vote cast by the President or another officer
designated by the President, or by a proxy appointed by the President or such
officer.
ARTICLE XI
AMENDMENTS
Section 11.1 These By-laws may be altered, amended, or repealed and new
By-laws may be adopted by a majority vote of the directors present at a duly
called meeting of the Board of Directors at which a quorum is present except as
otherwise required by law or the Articles of Incorporation. Notice of any
proposed alteration, amendment, repeal or adoption of new By-laws shall be given
to the shareholders and shall be subject to the power of the shareholders to
change such action.
72
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I - Offices........................................................ 53
Section 1.1 - Principal Office....................................... 53
Section 1.2 - Other Offices.......................................... 53
Article II - Meetings of Shareholders...................................... 53
Section 2.1 - Place of Meetings...................................... 53
Section 2.2 - Annual Meeting......................................... 53
Section 2.3 - Special Meetings....................................... 54
Section 2.4 - Notice................................................. 54
Section 2.5 - Quorum................................................. 54
Section 2.6 - Voting................................................. 54
Section 2.7 - Proxies................................................ 55
Section 2.8 - Presiding Officer...................................... 55
Article III - Board of Directors........................................... 4
Section 3.1 - Composition of the Board............................... 56
Section 3.2 - Removal from Office; Vacancies......................... 56
Section 3.3 - Powers of the Board.................................... 56
Section 3.4 - Voting................................................. 57
Section 3.5 - Resignation of Director................................ 57
Section 3.6 - Power to Fix Compensation.............................. 57
Section 3.7 - Place of Meetings...................................... 6
Section 3.8 - Regular Meetings....................................... 6
Section 3.9 - Special Meetings....................................... 6
</TABLE>
73
<PAGE> 23
<TABLE>
<S> <C>
Section 3.10 - Quorum............................................................ 58
Section 3.11 - Presiding Officer................................................. 58
Section 3.12 - Unanimous Written Consent......................................... 58
Section 3.13 - Conference Telephone.............................................. 58
Article IV - Committees of the Board................................................... 7
Section 4.1 - Executive Committee; Other Committees.............................. 59
Section 4.2 - Quorum............................................................. 59
Section 4.3 - Unanimous Written Consent.......................................... 59
Section 4.4 - Minutes............................................................ 8
Section 4.5 - Other Committees................................................... 60
Article V - Notices.................................................................... 60
Section 5.1 - Notices............................................................ 60
Section 5.2 - Written Notice of Shareholders Meeting............................. 60
Section 5.3 - Waiver of Notice................................................... 60
Section 5.4 - Waiver of Notice by Attendance..................................... 9
Article VI - Officers.................................................................. 61
Section 6.1 - Designation of Officers............................................ 61
Section 6.2 - Election of Officers............................................... 61
Section 6.3 - Other Officers..................................................... 61
Section 6.4 - Compensation....................................................... 10
Section 6.5 - Removal............................................................ 62
Section 6.6 - Resignation........................................................ 62
Section 6.7 - Vacancy............................................................ 62
Section 6.8 - Duties and Officers................................................ 62
The President................................................................. 11
</TABLE>
74
<PAGE> 24
<TABLE>
<S> <C>
The Secretary & Assistant Secretaries............................... 63
The Treasurer & Assistant Treasurers................................ 64
Article VII - Indemnification................................................ 65
Section 7.1 - Indemnification.......................................... 65
Section 7.2 - Other Indemnification.................................... 65
Section 7.3 - Insurance................................................ 66
Section 7.4 - Director Liability....................................... 66
Article VIII - Conflicts of Interest......................................... 15
Article IX - Certificates for Shares......................................... 68
Section 9.1 - Certificates for Shares.................................. 68
Section 9.2 - Facsimile Signatures..................................... 68
Section 9.3 - Lost Certificates........................................ 68
Section 9.4 - Closing of Transfer Books and Fixing Record Date......... 17
Section 9.5 - Registered Shareholders.................................. 70
Article X - General Provisions............................................... 70
Section 10.1 - Dividends............................................... 70
Section 10.2 - Reserves................................................ 19
Section 10.3 - Checks; Signatures Required............................. 71
Section 10.4 - Fiscal Year............................................. 71
Section 10.5 - Corporate Seal.......................................... 71
Section 10.6 - Voting of Stock......................................... 72
Article XI - Amendments...................................................... 72
</TABLE>
75
<PAGE> 1
(21) Subsidiaries of the Company
<TABLE>
<CAPTION>
Names Under Which the
Name State of Incorporation Subsidiary does Business
---- ---------------------- ------------------------
<S> <C> <C>
Aetna Health Plans of Pennsylvania N/A
Western Pennsylvania
Physicians Health Plan Pennsylvania N/A
Preferred, Inc.
</TABLE>
76
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary information extracted from the financial
statements contained in the Form 10K for the year ended December 31, 1995 for
PARTNERS Health Plan of Pennsylvania Inc. and is qualified in its entirety by
reference to such statements.
</LEGEND>
<CIK> 0000801335
<NAME> AETNA PARTNERS HEALTH PLAN
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 0
<CASH> 9863085
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 10748923
<POLICY-LOSSES> 5118056
<UNEARNED-PREMIUMS> 104958
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 162017
0
2955000<F1>
<COMMON> 609
<OTHER-SE> 1408119
<TOTAL-LIABILITY-AND-EQUITY> 10748923
27659054
<INVESTMENT-INCOME> 584044
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 21171257
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 2947470
<INCOME-TAX> 1010781
<INCOME-CONTINUING> 1936689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1936689
<EPS-PRIMARY> 318.64
<EPS-DILUTED> 0<F2>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Represents a liability on the Company's Balance Sheet
<F2>There is not a significant difference between primary and fully diluted
earnings per share.
</FN>
</TABLE>
