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INTRODUCTION

On March 12, 1997 CIGNA Health Corporation (hereafter also "the Applicant") filed with the Maine Bureau of Insurance a Form A Statement regarding the proposed acquisition of control of Healthsource Maine, Inc. (hereafter also "Healthsource Maine"), a Maine licensed domestic HMO. Upon accepting the Form A filing, the Superintendent appointed an Advocacy Panel, comprised of four Bureau staff members, and an Adjudicatory Panel, comprised of three Bureau staff members plus the Superintendent. The Advocacy Panel acted as a separate party in this matter, and met with representatives of the Applicant and Healthsource Maine to review the Form A Statement. On April 24, 1997, a Notice of Hearing was issued and timely notice was published in the Lewiston Sun-Journal, Bangor Daily News, Kennebec Journal, Waterville Morning Sentinel, Portland Press Herald and the Manchester Union Leader. On May 14, 1997, the Bureau Advocacy Panel filed its recommendation that the Form A filing be deemed complete upon the Applicant’s filing of requested supplemental information. The public hearing was held on May 15, 1997 at 9:00 a.m. in the Central Conference Room at the offices of the Bureau of Insurance, 124 Northern Avenue, Gardiner, Maine. No petitions to intervene in the proceeding were filed with the Superintendent or presented at the hearing. The purpose of the hearing was to take evidence relevant to the determination of whether CIGNA Health Corporation’s application to acquire control of Healthsource Maine satisfies all applicable requirements concerning the change in control of a domestic health maintenance organization (HMO). Specifically, Title 24-A M.R.S.A. § 222(7), sets forth the parameters of the Superintendent’s inquiry as follows:

• Whether, after the change of control, Healthsource Maine would continue to satisfy the requirements for maintenance of its Certificate of Authority;
• Whether the financial condition of CIGNA Health Corporation would jeopardize the financial condition of Healthsource Maine or prejudice the interest of its policyholders;
• Whether CIGNA Health Corporation has plans to liquidate Healthsource Maine, sell its assets, merge it with a person or make any other major changes in its business, structure or management which would be unfair or prejudicial to policyholders;
• Whether the competence, experience and integrity of Healthsource Maine’s proposed management indicates that the change of control would not be in the interest of Healthsource Maine’s policyholders, shareholders or the public;
• Whether the change in control would substantially lessen competition; and
• Whether CIGNA Health Corporation’s future business plans for Healthsource Maine are unfair or prejudicial to policyholders.

The Applicant and Healthsource Maine submitted pre-filed testimony prepared by: 1) William C. Popik, M.D., Senior Vice President, Managed Care Operations and National Medical Director for CIGNA HealthCare; 2) Tracy L. Bahl, Senior Vice President of Commercial HMOs and Board member for CIGNA HealthCare; 3) Timothy J. Luedtke, Assistant Vice President of Corporate Development for CIGNA Corporation; 4) Robert J. Moses, Vice President and General Counsel of Healthsource, Inc.; and 5) Richard M. White, President and Chief Executive Officer of Healthsource Maine. Messrs.. Popik, Bahl, Luedtke, Moses and White testified in support of the Form A Statement at the Hearing, as did John Day, Senior Vice President and Chief Counsel for CIGNA Corporation and Sharon Hecker, General Counsel for Healthsource Maine. There were no other witnesses.At the request of the parties, a Protective Order was entered by the Superintendent to treat as confidential certain documents filed as part of the record including: 1) Healthsource Maine’s 1997 Business Plan; 2) selected provisions of Healthsource Maine’s Administrative Services Agreement with Healthsource Corporate Services; and, 3) selected sections of a letter filed by the Applicant describing CIGNA Corporation’s ongoing litigation efforts in Pennsylvania. Acting on the recommendation of the Advocacy Panel, which stated its satisfaction with the supplementary filings received from the Applicant, the Superintendent accepted the Advocacy Panel’s recommendation regarding completeness, but declined to close the record pending receipt of additional information from the Form A proceeding underway before New Hampshire regulators. On May 22, 1997, The New Hampshire Insurance Department provided the Superintendent with a May 16, 1997 commitment memorandum filed by the Applicant as a supplement to its New Hampshire Form A filing on May 21, 1997. With the agreement of the Advocacy Panel and the Applicant, the New Hampshire documents have been entered into the record as Joint Exhibit 2. The memorandum triggered several conference calls between the Applicant, the Advocacy Panel and the Adjudicatory Panel, resulting in the receipt of a supplementary filing by the Applicant comprising commitment letters dated May 29 and June 2, 1997. With the agreement of the Advocacy Panel and the Applicant, the May 29th and June 2nd commitment letters have been entered into the record as Joint Exhibit 3. On June 10, 1997, the Applicant faxed a letter to the Superintendent clarifying the relationship between CIGNA HealthCare, CIGNA Corporation and the Applicant. With the agreement of the Advocacy Panel and the Applicant, the June 10th letter has been entered into the record as Joint Exhibit 4. On June 10, 1997, the Applicant faxed a second letter to the Superintendent formally requesting a waiver of the 10-day waiting period imposed by 24-A M.R.S.A. § 222(4-A)(C), as the current extension granted the Applicant by the S.E.C. as regards the proposed tender offer expires June 20, 1997.

With the addition of the aforementioned exhibits and correspondence to the formal record in this proceeding, the Superintendent hereby closes the record.

FINDINGS OF FACT

The following findings of fact are based upon the Superintendent’s review of the Form A statement and various exhibits entered into the record of this proceeding and consideration of the sworn testimony of witnesses at the hearing. 1. The proposed change in control of Healthsource Maine, a wholly-owned subsidiary of Healthsource, Inc. (hereafter also "HSI"), a New Hampshire corporation, will be effectuated pursuant to an Agreement and Plan of Merger ("Merger Agreement") dated February 27, 1997, by and among CIGNA Corporation, a Delaware corporation and the Applicant’s ultimate parent company (hereafter also "CIGNA"), CHC Acquisition Corp., a New Hampshire corporation and a wholly owned direct subsidiary of the Applicant (hereafter also "CHC’), and HSI. 2. CIGNA HealthCare is a division within CIGNA and does not exist as a separate corporate entity. The title CIGNA HealthCare is a term used to refer to the various products, operations and individuals within the CIGNA family in the health care field. CIGNA HealthCare has lines of reporting and areas of responsibilities that pertain to all of the health care companies owned by CIGNA.3. HSI is a diversified provider of a range of managed health care services offering point of service plans, preferred provider organization plans, insured and self-insured dental plans, utilization review services, managed workers compensation services, pharmacy benefit management services and other managed care consulting and administrative services to other health care payors. In addition to Healthsource Maine, HSI owns HMOs in New Hampshire, Massachusetts, Connecticut, New York, New Jersey, North Carolina, South Carolina, Tennessee, Arkansas, Kentucky, Georgia, Indiana, Ohio and Texas. As of January 1, 1997, HSI provided or administered health care benefits for over 3.1 million members. 4. Healthsource Maine receives essential administrative support services from Healthsource Corporate Services, Inc., a New Hampshire corporation and wholly-owned subsidiary of HSI. Healthsource Maine has entered into an administrative services agreement with Healthsource Corporate Services, Inc. pursuant to which Healthsource Corporate Services, Inc. provides: 1) access to information systems services pertaining to enrollment, premium billing, claims processing, utilization management and reporting; 2) support with strategic planning; and, 3) legal services and government relations. 5. CHC was organized for the purpose of effecting the Tender Offer and Merger at issue in this proceeding.6. Pursuant to the terms of the Merger Agreement, CHC has issued a Tender Offer to purchase all of the issued and outstanding shares of common stock of HSI and Healthsource Insurance Group, Inc. for a cash price of $21.75 per common share. The Merger Agreement provides that following the consummation of the Tender Offer and satisfaction or waiver of certain conditions, HSI will be merged into CHC. Once the two entities have merged, the separate corporate existence of CHC will cease, and HSI will remain as the surviving corporation. The Boards of Directors of CIGNA and HSI have voted to approve the proposed Agreement, and have received fairness opinions from their respective investment advisors indicating that the announced price is fair to the shareholders of each organization.7. The Merger Agreement provides that promptly upon CIGNA’s purchase of and payment for Shares which represent at least a majority of the outstanding Shares, CIGNA will be entitled to designate such number of directors on HSI’s Board as shall give CIGNA representation on the HSI Board equal to the product of the total number of directors on the HSI Board multiplied by the percentage that the aggregate number of Shares beneficially owned by CIGNA, CHC and any of their affiliates bears to the total number of Shares then outstanding. HSI will use its best efforts to cause CIGNA’s designees to be elected to HSI’s Board of Directors. Subsequent to CIGNA’s purchase of HSI shares pursuant to the Tender Offer, CIGNA will always have its designees represent at least a majority of the entire HSI Board.8. The Applicant filed as part of its Form A filing, biographical affidavits for its Directors and Executive Officers. Biographical affidavits of individuals who are expected to serve as directors HSI subsequent to the acquisition and merger attest to their competence, business experience and integrity. 9. In response to questions posed by the Advocacy Panel, CIGNA has stated its expectation that subsequent to the Merger and Acquisition, Healthsource Maine’s Board of Directors will remain the same.10. As of year end 1996, CIGNA had revenues of approximately $19 billion, assets of almost $99 billion and maintained shareholders’ equity of approximately $7.2 billion. As of December 31, 1996 and December 31, 1995, respectively, the Applicant reported, on a GAAP basis, assets of $1.51 billion and $1.53 billion; liabilities of $1.09 billion and $1.11 billion; and shareholders’ equity of $415.99 million and $415.63 million. 11. The funds required by the Applicant to effect the proposed acquisition of all equity of HSI is approximately $1.4 billion. In addition, the change in control of HSI triggers an obligation on HSI’s part to offer to purchase approximately $247 million principal amount of convertible subordinated notes of HSI at a price of 101% of the outstanding principal amount, plus accrued but unpaid interest. CIGNA has agreed to contribute to HSI an amount in cash necessary to repurchase all such notes that are tendered for repurchase, at a cost to CIGNA of approximately $300 million. The retirement of HSI debt securities would improve HSI’s capitalization level.12. The Applicant plans to obtain all funds needed for the Tender Offer and Merger through a capital contribution from CIGNA or its affiliates. CIGNA plans to obtain such funds from cash on hand and short-term borrowings at market interest rates. CIGNA also expects to issue approximately $600 to $700 million in publicly traded long-term bonds at market rates, which will be issued under a shelf registration the company currently has in place through previous filings with the Securities and Exchange Commission. As of May 1, 1997, CIGNA has also arranged for a $1 billion line of credit from a syndicate of banks, led by Citibank, N.A.13. CIGNA will not take cash from Healthsource Maine or HSI to fund the acquisition of HSI. No goodwill will be booked on the statements of Healthsource Maine or charged to its operations. Any goodwill booked at HSI will be matched by an offsetting bookkeeping entry rather than to debt. Any debt used to finance the acquisition will not be booked on the balance sheet of the Applicant, HSI or Healthsource Maine. Cash flow will not be required from HSI or Healthsource Maine in order to amortize or service the acquisition debt. No extraordinary dividend will be required or requested from HSI or any of HSI’s subsidiaries. The Applicant will maintain the relative capital position of Healthsource Maine for existing business, and will capitalize Healthsource Maine’s future growth at the same level recently experienced.14. CIGNA has provided multiple lines of insurance in Maine for over 150 years, holds approximately $18.5 million in mortgage investments in Maine, and paid approximately $300,000 in premium taxes to the state in 1996.15. CIGNA owns forty-six HMO networks throughout the United States, forty-one of which have been accredited by the National Committee on Quality Assurance ("NCQA"). Approximately 75% of CIGNA’s NCQA accredited HMOs have received a full three-year accreditation. In addition, three of CIGNA’s health plans have received full three-year accreditations from J.C.A.H., an alternative accreditation process undertaken by CIGNA for comparative purposes. 16. CIGNA served on the original national Healthplan Employer Data and Information Set (HEDIS) coalition that developed HEDIS. CIGNA continues to actively participate in the HEDIS process, and each of its HMOs reports on health plan performance through HEDIS. CIGNA’s HEDIS results are nationally available through publication in the NCQA Quality Compass. 17. CIGNA HealthCare does not have a significant presence in Northern New England and does not at present have an HMO in Maine. Historically, CIGNA HealthCare has focused on marketing its products to large, multi-site regional and national employers located in metropolitan areas, and views Healthsource Maine’s experience both in providing managed care in rural areas in and marketing plans to small and medium sized groups as a suitable complement to its traditional operations. The proposed Healthsource transaction is part of CIGNA’s long-term strategy to grow its managed care business and national provider networks. 18. Subsequent to the proposed acquisition and merger, the Applicant intends to maintain Healthsource Maine as a local operating unit and to bring its resources to bear to grow the business. The Applicant has no current plans to make any significant changes to Healthsource Maine’s operations. Medical management will remain based in Maine, and the Applicant does not anticipate making changes to the Healthsource Maine provider network. Present product offerings of Healthsource Maine will not be reduced, and the Applicant anticipates providing consumers with a wider choice of products once the acquisition and merger are complete.19. There are no anticipated disruptions to Healthsource Maine’s existing contractual obligations as a result of the acquisition and merger. 20. There are currently five licensed HMOs offering products for sale to Maine consumers in a competitive market.

21. The Federal Trade Commission and the Antitrust Division, Department of Justice, approved the Applicant’s Hart-Scott-Rodino Antitrust Act filing.

DISCUSSION

The record sufficiently establishes that subsequent to the proposed change of control, Healthsource Maine will continue to satisfy the requirements for licensure as an HMO. As set forth in the findings at paragraph 13, Healthsource Maine will continue to be appropriately capitalized subsequent to the proposed change in control. As set forth in the findings at paragraphs 18 and 19, there is no proposed change to Healthsource Maine’s operations. Additionally, the Applicant has committed to making the filings required by 24-A M.R.S.A. § 4216 should any changes in operations be proposed in the future.The findings set forth at paragraphs 10 through 13 demonstrate the Applicant’s financial strength and its commitment to maintaining the financial strength of Healthsource Maine. The Applicant has no plans to liquidate Healthsource Maine or sell any of its assets.The findings set forth at paragraphs 17, 20 and 21 provide evidence that the change of control should not lessen competition in the Maine HMO market.The findings set forth at paragraphs 8 and 9 demonstrate the competence, experience and integrity of the Board Members expected to control the operation of Healthsource Maine. The findings set forth at paragraphs 14 through 16 demonstrate the Applicant’s experience in owning and operating insurance companies and HMOs and its commitment to providing quality health plans.

The record amply demonstrates that the proposed change of control is fair and reasonable and in the best interest of Healthsource Maine subscribers.

ORDER

Based upon the Superintendent’s review of all submitted documents, the testimony and applicable statutes, it is hereby ordered that:1. The Form A Statement is approved. The Maine Bureau of Insurance approves the change in control of Healthsource Maine that will result from the proposed purchase of all outstanding shares of common stock of HSI by CIGNA Health Corporation as contemplated by the filed Tender Offer and Merger Agreement. 2. Because the tender offer at issue in this Form A proceeding is subject to regulatory oversight by the United States Securities and Exchange Commission pursuant to the Exchange Act, and because the proposed acquisition of control has been reviewed and approved effective today’s date, the 10 day waiting period for consummating the proposed acquisition of control pursuant to 24-A M.R.S.A. § 222(4-A)(C) is hereby waived.

3. CIGNA shall abide by all commitments made in its letter of May 29, 1997, from John G. Day, Senior Vice President and Chief Counsel, and adopted on June 2, 1997 by H. Edward Hanway, Chairman of the Board of CIGNA Health Corporation and President of CIGNA HealthCare. The Day and Hanway letters appear in the record as Joint Exhibit 3.

NOTICE OF APPEAL RIGHTS

Any party to this proceeding may seek judicial review of this Final Decision and Order, pursuant to 5 M.R.S.A. §§11001-11008 (1979 & Supp. 1985) and 24-A M.R.S.A. §236 (Supp. 1985), by filing a petition for review in the Maine Superior Court within 30 days after such party's receipt of notice of this Final Decision and Order.

Any other person who is aggrieved by this Final Decision and Order may attempt to obtain judicial review, to the extent such review is permitted by law, pursuant to the statutory provisions cited in the immediately preceding sentence, by filing a petition for review in the Maine Superior Court within 40 days from the date of this Final Decision and Order.

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