SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COMPANY NAME TO GO HERE
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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1) Amount Previously Paid:
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4) Date Filed:
<PAGE>
[TRIGON LOGO]
Trigon Healthcare, Inc.
2015 Staples Mill Road
Richmond, Virginia 23230
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 29, 1998
TO THE HOLDERS OF TRIGON HEALTHCARE, INC. CLASS A COMMON STOCK:
The annual meeting of shareholders of Trigon Healthcare, Inc. (the
"Company") will be held at the Company's headquarters, 2015 Staples Mill Road,
Richmond, Virginia, on Wednesday, April 29, 1998, at 9:00 a.m., Eastern
Daylight Time, for the following purposes:
1. To elect six directors to three-year terms on the Company's Board of
Directors;
2. To ratify the selection of KPMG Peat Marwick LLP as the independent
auditors for the Company for 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of record of shares of Class A Common Stock at the close of
business on March 16, 1998, will be entitled to vote at the meeting and any
adjournments thereof.
Whether or not you plan to attend the meeting, please fill in, date, sign
and return the enclosed proxy promptly in the enclosed envelope.
You are cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ J. Christopher Wiltshire
--------------------------------------
J. Christopher Wiltshire, Secretary
Richmond, Virginia
March 27, 1998
<PAGE>
PROXY STATEMENT
Trigon Healthcare, Inc.
2015 Staples Mill Road
Richmond, Virginia 23230
This Proxy Statement, mailed to shareholders on or about March 27, 1998,
is furnished in connection with the solicitation by Trigon Healthcare, Inc.
(the "Company") of proxies in the accompanying form for use at the annual
meeting of shareholders to be held on April 29, 1998, and at any adjournments
thereof (the "Annual Meeting"). A copy of the Company's Annual Report of
Shareholders for the fiscal year ended December 31, 1997 is being mailed to you
with this Proxy Statement.
In addition to the solicitation of proxies by mail, the Company's officers
and regular employees, without compensation other than regular compensation,
may solicit proxies by telephone, telegraph, electronic means and personal
interview. The Company may also engage, at its sole cost, a proxy solicitation
firm to assist in the solicitation of proxies of shareholders of record and
those shareholders whose shares are held in street name by brokers, banks and
other institutions.
On March 16, 1998, the date for determining shareholders entitled to vote
at the meeting, 42,300,022 shares of Class A Common Stock of the Company
("Common Stock") were outstanding and entitled to vote. Each such share of
Common Stock entitles the holder thereof to one vote.
Any shareholder giving a proxy may revoke it at any time before it is
voted by delivering another proxy or written notice of revocation to the
Company's Secretary. A proxy, if executed and not revoked, will be voted FOR
the election of the nominees for director named herein and FOR the ratification
of KPMG Peat Marwick LLP as the Company's independent auditors for 1998, unless
it contains specific instructions to the contrary, in which event it will be
voted in accordance with such instructions.
Except for the election of directors, action on matters submitted to a
vote of the shareholders at the meeting will be approved if a quorum is present
and the votes cast in favor of the matter constitute a majority of the votes
cast for or against the matter. With respect to the election of directors, the
six nominees receiving the greatest number of votes cast for the election of
directors will be elected, assuming a quorum is present at the meeting.
Presence in person or by proxy of a majority of the outstanding shares of
Common Stock entitled to vote at the meeting will constitute a quorum. Shares
for which the holder has elected to abstain or withhold the proxies' authority
to vote (including broker non-votes) on a matter will count toward a quorum but
will have no effect on the action taken with respect to such matter. Votes will
be tabulated by one or more Inspectors of Elections.
ITEM ONE -- ELECTION OF DIRECTORS
The Company's Board of Directors (the "Board") presently consists of 17
directors, who are divided into three classes with staggered terms. The terms
of James K. Candler, William R. Harvey, Ph.D., Gary A. Jobson, William N.
Powell, J. Carson Quarles and R. Gordon Smith as directors of the Company will
expire at the time of the Annual Meeting. Each such director has been nominated
for reelection at the Annual Meeting.
Although all the nominees have consented to being named as a nominee in
the Proxy Statement and have indicated their willingness to serve if elected,
if at the time of the meeting any nominee is unable to or unwilling to serve,
shares represented by properly executed proxies will be voted at the discretion
of the persons named therein for such other person as the Board may designate.
Information, including their business experience for the past five years,
about the nominees for election as directors and about other directors of the
Company whose terms of office do not expire this year appears below. For the
purposes of determining when a director was first elected to the Board,
reference is made to the year when the respective director was first elected to
the Board of Directors of the Company or Trigon Blue Cross Blue Shield,
formerly Blue Cross and Blue Shield of Virginia, a wholly-owned subsidiary of
the Company and its principal operating subsidiary ("Trigon BCBS").
Nominees for Election to a Three-Year Term
JAMES K. CANDLER was elected to the Board in 1984. He has been President
and owner of Candler Oil Company in Lynchburg since 1968. Mr. Candler is a
director of Central Health, Inc., First Federal Savings Bank of Lynchburg and
Virginia Petroleum Jobbers Association Inc. Mr. Candler is 62.
1
<PAGE>
WILLIAM R. HARVEY, PH.D. was elected to the Board in 1992. He has been
President of Hampton University in Hampton, Virginia, since 1978 and owner of
the Pepsi-Cola Bottling Company, Houghton, Michigan since 1986. Dr. Harvey is
57.
GARY A. JOBSON was elected to the Board in 1987. He has been a marketing
and product development consultant through his company, Maritime Productions,
since 1978. He is a director of the Blakeslee Group and Sunfish/Laser, Inc. Mr.
Jobson is 47.
WILLIAM N. POWELL was elected to the Board in 1980. He has been President
of Salem Tools, Inc. since 1981, and is a director of Mechanical Development
Company, Inc. Mr. Powell is 54.
J. CARSON QUARLES was elected to the Board in 1977. He has been Chairman
of the Board of Friendship Manor, Inc. in Roanoke, Virginia since 1981. At the
end of 1994 he retired from an eight-year term as President of the Southwestern
Region of Central Fidelity Bank. Mr. Quarles is 61.
R. GORDON SMITH was elected to the Board in 1995. He has been a partner
with McGuire, Woods, Battle & Boothe LLP in Richmond, Virginia since 1969. Mr.
Smith serves on the board of Scott & Stringfellow Financial, Inc. Mr. Smith is
59.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEES FOR DIRECTOR LISTED ABOVE.
Directors Whose Terms Do Not Expire This Year
NORWOOD H. DAVIS, JR. joined Trigon BCBS in 1968, and was elected to the
Board in 1975. Since 1989, he has served as Chairman of the Board and Chief
Executive Officer of Trigon BCBS. He became Chairman of the Company in June
1995. Mr. Davis is a director of Altris Software Inc. and Hilb, Rogal &
Hamilton Co. Mr. Davis is 58 and his term as a director will expire in 1999.
HUNTER B. ANDREWS was elected to the Board in 1997. He has been an
attorney in private practice for more than five years. He was a member of the
Virginia State Senate from 1964 to 1996. Mr. Andrews is 76 and his term as a
director will expire in 2000.
LENOX D. BAKER, JR., M.D. was elected to the Board in 1985. He has been a
cardiac and thoracic surgeon, and has been affiliated with Mid-Atlantic
Cardiothoracic Surgeons, Ltd., since 1979. He is also chief of the Division of
Cardiac and Thoracic Surgery at Sentara Hospitals, and an assistant professor
of surgery at the Medical College of Hampton Roads. Dr. Baker is President of
the Medical Staff at Sentara Norfolk General Hospital. Dr. Baker is 56 and his
term as a director will expire in 2000.
JOHN COLE, JR., M.D. was elected to the Board in 1972 and is a past
Chairman of the Board. He is a ear, nose and throat specialist, and has been
President of Roanoke Ear, Nose and Throat Clinic, Inc. since 1990, prior to
which he held the position of Vice President, beginning in 1975. Dr. Cole is 65
and his term as a director will expire in 1999.
ROBERT M. FREEMAN was elected to the Board in 1993. He was Chairman of
Signet Banking Corporation from 1990 through December 1996 and served as Chief
Executive Officer of that company from April 1989 to May 1996. Mr. Freeman is
56 and his term as a director will expire in 1999.
ELIZABETH G. HELM was elected to the Board in 1993. She has been President
of Glaize Developments, Inc. in Winchester, Virginia, since 1980. Ms. Helm is a
director of Shenandoah Life Insurance Company. Ms. Helm is 66 and her term as a
director will expire in 1999.
FRANK C. MARTIN, JR. was elected to the Board in 1975. He is Chairman,
Founder, and since 1970 has been Chief Executive Officer of Martin Research,
Inc. in Roanoke, Virginia. Mr. Martin is 65 and his term as a director will
expire in 2000.
DONALD B. NOLAN, M.D. was elected to the Board in 1983. He has been a
practicing neurologist in the Roanoke, Virginia area since 1971, and is
currently affiliated with the Roanoke Neurological Associates and is director
of the Electro-Diagnostic Laboratory at Roanoke Memorial Hospital. Dr. Nolan is
58 and his term as a director will expire in 2000.
HUBERT R. STALLARD was elected to the Board in 1997. He is President and
Chief Executive Officer of Bell Atlantic-Virginia, Inc., a position he has held
for more than five years. He is a director of NationsBank, N.A., Universal
Corporation and Bell Atlantic-Virginia, Inc. Mr. Stallard is 61 and his term as
a director will expire in 2000.
2
<PAGE>
JACKIE M. WARD was elected to the Board in 1993. She is a founder and has
served as Chief Executive Officer of Atlanta-based Computer Generation
Incorporated since 1970. Ms. Ward serves on the boards of NationsBank, N.A.,
Matria Healthcare, Inc. and SCI Systems Inc. Ms. Ward is 59 and her term as a
director will expire in 1999.
STRILING L. WILLIAMSON, JR. was elected to the Board in 1979. He has been
President of S.L. Williamson Company, Inc. in Charlottesville, Virginia since
1971. Mr. Williamson is 62 and his term as a director will expire in 1999.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information about the Common Stock of the
Company beneficially owned as of March 1, 1998, by (i) each of the five
executive officers named in the Summary Compensation Table (the "Named
Executive Officers"); (ii) each director of the Company; (iii) the directors
and executive officers as a group; and (iv) each person who is known by the
Company to own beneficially more than five percent of the Company's outstanding
equity securities. Unless otherwise noted, each individual has sole voting
power and sole investment power with respect to securities beneficially owned.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned as of Percent of
Name March 1, 1998 Class
- - ------------------------------------------------ -------------------------- -----------
<S> <C> <C>
Named Executive Officers
Norwood H. Davis, Jr.** 184,636(1) *
Thomas G. Snead 48,420(2) *
Ronald H. Bargatze (3) 3,500 *
Paul F. Nezi 31,413(4) *
John C. Berry 29,361(5) *
Directors (6)
Hunter B. Andrews 5,329 *
Lenox D. Baker, Jr., M.D. 12,019 *
James K. Candler 7,842(7) *
John Cole, Jr., M.D. 5,316(8) *
Robert M. Freeman 14,342 *
William R. Harvey, Ph.D. 11,236 *
Elizabeth G. Helm 11,306(9) *
Gary A. Jobson 7,842 *
Frank C. Martin, Jr. 6,302(10) *
Donald B. Nolan, M.D. 8,302 *
William N. Powell 8,324(11) *
J. Carson Quarles 13,554 *
R. Gordon Smith 14,429 *
Hubert R. Stallard 4,822 *
Jackie M. Ward 6,410 *
Stirling L. Williamson, Jr. 5,290 *
All Directors and Executive Officers as a group
(23 persons) 455,956(12) *
</TABLE>
- - ---------
* Less than one percent of the Common Stock outstanding as of March 1,
1998.
** Mr. Davis is also a director of the Company.
(1) Includes 200 shares owned by Mr. Davis' spouse, 83,333 shares of Company
Common Stock that may be acquired within 60 days by the exercise of stock
options granted pursuant to the 1997 Stock Incentive Plan, 1,066 shares
held in the Employee Stock Purchase Plan and 49,937 shares held in the
Employees' Thrift Plan.
(2) Includes 39,167 shares of Company Common Stock that may be acquired within
60 days by the exercise of stock options granted pursuant to the 1997 Stock
Incentive Plan, 387 shares held in the Employee Stock Purchase Plan and
3,866 shares held in the Employees' Thrift Plan.
3
<PAGE>
(3) Mr. Bargatze joined Trigon BCBS in 1974 and most recently served as
Executive Vice President and Chief Operating Officer of Integrated Health
Systems from 1994 to 1998. He resigned from the Company and its
subsidiaries effective January 2, 1998.
(4) Includes 21,700 shares of Company Common Stock that may be acquired within
60 days by the exercise of stock options granted pursuant to the 1997 Stock
Incentive Plan, 508 shares held in the Employee Stock Purchase Plan and
1,035 shares held in the Employees' Thrift Plan.
(5) Includes 22,333 shares of Company Common Stock that may be acquired within
60 days by the exercise of stock options granted pursuant to the 1997 Stock
Incentive Plan, 197 shares held in the Employee Stock Purchase Plan and
1,831 shares held in the Employees' Thrift Plan.
(6) Figures for each director, other than Mr. Davis, include 3,333 shares of
Company Common Stock that may be acquired by each director within 60 days
by the exercise of stock options granted pursuant to the Non-Employee
Directors Stock Incentive Plan.
(7) Excludes 1,718 shares held by Candler Oil Company, Inc. of which Mr.
Candler is President and a shareholder. Mr. Candler disclaims beneficial
ownership of such shares.
(8) Excludes 611 shares held by Roanoke Ear, Nose and Throat Clinic, Inc., of
which Dr. Cole is President. Dr. Cole disclaims beneficial ownership of
such shares.
(9) Excludes 12,224 shares held by Glaize and Bro., L.C., with which Ms. Helm
is affiliated. Ms. Helm disclaims beneficial ownership of such shares.
(10) Excludes 488 shares held by Martin Research, Inc., of which Mr. Martin is
Chairman and Chief Executive Officer. Mr. Martin disclaims beneficial
ownership of such shares.
(11) Excludes 6,841 shares held by Salem Tools, Inc., of which Mr. Powell is
President. Mr. Powell disclaims beneficial ownership of such shares.
(12) Excludes 21,882 shares as to which the directors and executive officers as
a group disclaim beneficial ownership. Includes 177,950 shares that may be
acquired within 60 days by the exercise of stock options granted pursuant
to the 1997 Stock Incentive Plan, 3,297 shares held in the Employee Stock
Purchase Plan and 57,570 shares held in the Employees' Thrift Plan.
Certain Business Relationships
R. Gordon Smith is a partner with McGuire, Woods, Battle & Boothe LLP, which
serves as counsel to the Company.
CERTAIN INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND ITS COMMITTEES
Committees of the Board
Executive Committee. The Executive Committee is composed of J. Carson
Quarles (Chairman), Lenox D. Baker, Jr., M.D., Norwood H. Davis, Jr., Elizabeth
G. Helm, Gary A. Jobson, William N. Powell and Jackie M. Ward. Between meetings
of the Board, the Executive Committee has the full authority of the Board,
except to the extent such authority is limited by the provisions of the
Company's Articles of Incorporation, its Bylaws or Virginia law.
Audit Committee. The Audit Committee is composed of Gary A. Jobson
(Chairman), William R. Harvey, Ph.D., Frank C. Martin, Jr., R. Gordon Smith,
Hubert R. Stallard and Stirling L. Williamson, Jr. The Audit Committee has
authority to investigate the financial reporting processes and internal
controls of the Company and to report thereon and make its recommendations to
the Board and the Executive Committee. The Audit Committee reviews the adequacy
of internal financial controls, reviews with the Company's independent auditors
the annual audit plan and all reports pertaining to the Company's finances, and
recommends the selection of the Company's independent auditors.
Human Resources, Compensation and Employee Benefits Committee. The Human
Resources, Compensation and Employee Benefits Committee is composed of Jackie
M. Ward (Chairperson), Lenox D. Baker, Jr., M.D., William R. Harvey, Elizabeth
G. Helm, William N. Powell and Hubert R. Stallard. The Human Resources,
Compensation and Employee Benefits Committee considers management proposals,
makes recommendations to the Board and, where express authority is conferred by
the Board, approves the compensation and benefits programs for the officers and
employees of the Company and its subsidiaries.
4
<PAGE>
Finance and Investment Committee. The Finance and Investment Committee is
composed of William N. Powell (Chairman), Hunter B. Andrews, James K. Candler,
Robert M. Freeman, R. Gordon Smith and Jackie M. Ward. The Finance and
Investment Committee oversees the financial affairs and investments of the
Company and its subsidiaries and periodically reports to the Board on these
affairs and investments.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee is composed of Elizabeth G. Helm (Chairperson),
Hunter B. Andrews, John Cole, Jr., M.D., Robert M. Freeman, Donald B. Nolan,
M.D. and Stirling L. Williamson, Jr. The Nominating and Corporate Governance
Committee recommends to the Board those persons to be nominated for election as
directors of the Company. The Committee also recommends to the Board persons to
be elected as chairpersons and members of the Executive Committee and standing
Board committees (except Chairman of the Audit Committee), and officers of the
Company. The Committee considers nominees recommended by shareholders, whose
recommendations should be submitted to it through the Corporate Secretary of
the Company. The Committee may also make recommendations to the Board on
corporate governance issues, such as establishing guidelines for Board and
Board committee structure and composition, and setting criteria for Board
membership and frequency of meetings. The Nominating and Corporate Governance
Committee also reviews any actual or potential conflicts of interest involving
any officer or director of the Company.
Provider Policy Committee. The Provider Policy Committee is composed of
Lenox D. Baker, Jr., M.D. (Chairman), Lawrence E. Blanchard, III, M.D.
(non-director committee member), James K. Candler, John Cole, Jr., M.D., Gary
A. Jobson, Frank C. Martin, Jr., Donald B. Nolan, M.D., Jethro H. Piland, Jr.,
M.D. (non-director committee member) and James M. Wells, Jr., M.D.
(non-director committee member). The Provider Policy Committee reviews
management proposals and makes recommendations to the Board with respect to the
Company's policies and procedures that have or will have a substantial impact
upon institutional and professional providers of healthcare services.
Attendance at Meetings
During 1997, the Board of Directors of the Company held ten meetings and
the Executive Committee did not meet. The Audit Committee of the Company met
three times, the Human Resources, Compensation and Employee Benefits Committee
met six times, the Finance and Investment Committee met six times, the
Nominating and Corporate Governance Committee met two times and the Provider
Policy Committee met two times. All directors of the Company attended at least
75% of the aggregate of all meetings of the Board, and the Committees on which
they served.
Compensation of Directors
Directors who are officers or employees of the Company receive no
compensation as such for service as members of the Board or committees thereof.
Directors who are not officers or employees of the Company receive a quarterly
retainer of $3,500, a quarterly retainer of $250 to serve as a Committee
chairperson, a fee of $1,000 for each Board meeting attended, a fee of $250 for
attending a Committee meeting on a day on which a Board meeting is also held, a
fee of $500 for attending a Committee meeting on a day on which a Board meeting
is not held, a fee of $350 for attendance at a Board meeting held by conference
call and a fee of $100 for attending other Board-related meetings. Fees paid to
directors may be deferred under the Company's non-qualified deferred
compensation plan and may be received in the form of Common Stock under the
Directors Plan (defined below). See "Compensation of Executive
Officers--Deferred Compensation."
On April 16, 1997, the shareholders of the Company approved the 1997
Non-Employee Directors Stock Incentive Plan (the "Directors Plan"). Pursuant to
the Directors Plan, each non-employee director of the Company automatically
received an option to purchase 10,000 shares of the Company's Common Stock on
April 16, 1997. Each non-employee director, elected for the first time after
April 16, 1997, automatically receives an option to purchase 10,000 shares of
Company's Common Stock on the date of his or her initial election. In addition
to the initial grants, each eligible director automatically receives an option
to purchase 5,000 shares of the Company's Common Stock on the date of each
annual meeting of Company shareholders. The exercise price for each option
granted is 100% of the fair market value of the Company's Common Stock on the
date of grant. Options vest in annual installments over three years, so long as
the eligible director is a director of the Company on that date, or upon the
retirement by the director from the Board because he or she has reached the age
when he or she is no longer eligible for reelection. Exercisable options
terminate on the earlier of 36 months after the termination of a director's
service as a director of the Company or the tenth anniversary of the date of
grant. All options become fully exercisable upon a change of control of the
Company.
5
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Human Resources, Compensation and Employee Benefits Committee of the
Board includes: Jackie M. Ward (Chairperson), Lenox D. Baker, Jr., M.D.,
William R. Harvey, Ph.D., Elizabeth G. Helm, William N. Powell and Hubert R.
Stallard. No interlocking relationship exists between any member of the
Company's Compensation Committee and any member of any other company's board of
directors or compensation committee. None of the Committee members is or was an
officer or employee of the Company or its subsidiaries during 1997.
Nominations for Directors
In accordance with the Company's Bylaws, a shareholder who is entitled to
vote at an election of directors and who is interested in nominating a person
to the Board should submit to the Secretary of the Company written notice of
his or her intent to make such a nomination. To be timely, a shareholder's
notice must be given, either by personal delivery to the Secretary or an
Assistant Secretary of the Company at the principal office of the Company, or
by first class United States mail, with postage prepaid, addressed to the
Secretary of the Company at the principal office of the Company. Any such
notice must be received (i) on or after the first day of February and before
the first day of March of the year in which the meeting will be held if the
meeting is to be an annual meeting and clause (ii) is not applicable, or (ii)
not less than 60 days before an annual meeting, if the date of the applicable
annual meeting, as prescribed in the Company's Bylaws, has been changed by more
than 30 days, or (iii) not later than the close of business on the tenth day
following the day on which notice of a special meeting of shareholders called
for the purpose of electing directors is first given to shareholders. The
contents of such notice must be as specified in the Company's Bylaws, a copy of
which may be obtained by any shareholder who directs a written request for the
same to the Secretary of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities Exchange Act of 1934 requires the Company's officers and
directors, and any persons owning more than 10% of the Common Stock, to file
certain reports of ownership and changes in ownership with the Securities and
Exchange Commission. Based solely upon its review of the copies of the Forms 3,
4 and 5 received by it, the Company believes that all officers, directors and
10% shareholders complied with such filing requirements, except Lenox D. Baker,
Jr., M.D., and Elizabeth G. Helm, each of whom reported one transaction in 1997
late.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth the compensation paid by the Company or any
of its subsidiaries to the Named Executive Officers for the years ended
December 31, 1996 and December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------ ----------------------------
Awards Payouts
---------- -----------------
Other Annual
Compensation Options/ LTIP All Other
Name and Principal Position Year Salary ($)(1) Bonus ($) ($)(2) SARs(#) Payouts ($) Compensation ($)(3)
- - ----------------------------- ------ --------------- ----------- -------------- ---------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Norwood H. Davis, Jr. 1997 $ 650,000 $ 585,000 $ 743 250,000 $ 169,000(4) $ 33,001
Chairman of the 1996 $ 650,000 $ 0 $ 9,327 -- $ 0 $ 32,869
Company; Chairman
and Chief Executive
Officer of Trigon BCBS
Thomas G. Snead, Jr. 1997 $ 233,958 $ 170,542 $ 164 117,500 $ 43,835(4) $ 7,654
President of the 1996 $ 187,200 $ 0 $ 1,067 -- $ 0 $ 9,491
Company;
President and Chief
Operating
Officer of Trigon BCBS
Ronald H. Bargatze 1997 $ 233,700 $ 163,590 $ 132 65,500 $ 39,729(4) $ 7,011
Executive VP and Chief 1996 $ 233,700 $ 0 $ 1,393 -- $ 0 $ 10,967
Operating Officer,
Integrated Health
Systems,
Trigon BCBS(4)
Paul F. Nezi 1997 $ 250,000 $ 275,000 $ 420 65,100 $ 0 $206,193
Senior Vice President, 1996 $ 52,212 $ 15,625 $ 0 -- 0 $ 81,170
Marketing & Sales
John C. Berry 1997 $ 200,700 $ 140,490 $ 42 67,000 $ 34,119(5) $ 6,623
Executive VP & Chief 1996 $ 200,700 $ 0 $ 1,478 -- $ 20,070(6) $ 9,086
Operating Officer
Government & Individual
Business, Trigon BCBS
</TABLE>
- - ---------
(1) Includes amounts deferred under Trigon BCBS's Employees' Thrift Plan,
401(k) Restoration and nonqualified deferred compensation plans.
(2) Includes Medicare tax and related income tax gross-up paid by Trigon BCBS
or any of its subsidiaries for Named Executive Officers on the present
value of their vested non-qualified Supplemental Executive Retirement Plan
benefit earned in 1997 in the amounts of $113 for Mr. Snead and $81 for Mr.
Bargatze. Includes Medicare tax and related income tax gross-up paid by
Trigon BCBS for Named Executive Officers with respect to employer
contributions under the 401(k) non-qualified Restoration Plan in the
amounts of $330 for Mr. Davis, $51 for Mr. Snead, $51 for Mr. Bargatze, $7
for Mr. Nezi and $42 for Mr. Berry. Includes income tax gross-up on spousal
travel paid by Trigon BCBS in the amount of $413 for Mr. Davis and $413 for
Mr. Nezi.
(3) Includes matching contributions under Trigon BCBS's Employees' Thrift Plan
and 401(k) Restoration Plans in the amounts of $19,500 for Mr. Davis,
$7,019 for Mr. Snead, $7,011 for Mr. Bargatze, $3,750 for Mr. Nezi and
$6,623 for Mr. Berry. Includes actuarial equivalent of the benefit to the
executive from payment of annual premiums by Trigon BCBS under a split
dollar life insurance program in the amounts of $11,408 for Mr. Davis and
$635 for Mr. Snead. Includes above-market interest credited for future
payment on deferred compensation in the amount of $2,093 for Mr. Davis.
Includes payment to Mr. Nezi of a signing bonus in the installment amounts
of $200,000 in 1997 and $50,000 in 1996, and relocation expenses in the
installment amounts of $2,443 in 1997 and $31,170 in 1996.
(4) Mr. Bargatze resigned from the Company and its subsidiaries effective
January 2, 1998.
7
<PAGE>
(5) For LTIP payouts in 1997, the Company approved a two-year plan cycle ending
in 1997, rather than the customary three-year cycle, and valued the award
opportunities at two-thirds of the normal three-year opportunities. The
LTIP Payouts shown above for 1997 include only one of two objectives; the
payout, if any, for the second objective, which depends on the Company's
commercial medical loss ratio for 1997 in comparison to the commercial
medical loss ratio of companies in a peer group, will not be known until
April 1998.
(6) Payout of long-term cash award in 1997 for three-year performance period
beginning January 1, 1994 and ending on December 31, 1996.
Stock Options
The following table provides information concerning the granting of stock
options during 1997 under the Company's 1997 Stock Incentive Plan to the Named
Executive Officers.
Option/SAR Grants in 1997
<TABLE>
<CAPTION>
Potential Realizable Value
% of Total at Assumed Annual Rates of
Options/SARs Stock Price Appreciation for
Granted to Exercise or Option Term (2)
Options/SARs Employees in Base Price Expiration -----------------------------
Name Granted (#)(1) 1997 ($/Sh) Date 5% ($) 10% ($)
- - ----------------------- --------------------- -------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norwood H. Davis, Jr. 250,000(3) 12.5% $ 22.1250 6/12/07 $3,478,573 $8,815,388
Thomas G. Snead, Jr. 67,500(3) 3.4% $ 22.1250 6/12/07 939,215 2,380,155
50,000(3) 2.5% $ 24.9375 10/16/07 695,715 1,763,078
Ronald H. Bargatze 65,500(3)(4) 3.3% $ 22.1250 6/12/07 911,386 2,309,632
Paul F. Nezi 65,100(3) 3.2% $ 22.1250 6/12/07 905,821 2,295,527
John C. Berry 67,000(3) 3.3% $ 22.1250 6/12/07 932,258 2,362,524
</TABLE>
- - ---------
(1) There were no SARs granted during 1997.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price.
(3) Granted as part of the Company's 1997 Stock Incentive Plan. The options
vest in annual installments over three years beginning April 16, 1998 so
long as the optionee continues employment with the Company or one of its
subsidiaries. All options are granted at 100% of the fair market value of
the Company's Common Stock on the date of grant.
(4) Options have been forfeited due to termination of employment.
Stock Option Exercises and Holdings
The following table provides information concerning the exercise of stock
options during 1997 and unexercised stock options held as of December 31, 1997
for the Named Executive Officers.
Aggregated Option/SAR Exercises in 1997
1997 Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number Unexercised Value of Unexercised In-the-
Options/SARs at December Money Options/SARs at December
31, 1997 (1) 31, 1997(2)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- - ----------------------- -------------- -------------- -------------------------- -------------------------------
<S> <C> <C> <C> <C>
Norwood H. Davis, Jr. -- -- 0/250,000 0/$1,000,000
Thomas G. Snead, Jr. -- -- 0/117,500 0/$329,375
Ronald H. Bargatze(3) -- -- 0/0 0/0
Paul F. Nezi -- -- 0/65,100 0/$260,400
John C. Berry -- -- 0/67,000 0/$268,000
</TABLE>
- - ---------
(1) There were no SARs granted or exercised in 1997.
8
<PAGE>
(2) Based on the December 31, 1997 market price of $26.125 per share for the
Company's Common Stock minus the exercise price of the unexercised stock
options held at that time.
(3) Mr. Bargatze resigned from the Company and its subsidiaries effective
January 2, 1998. Options have been forfeited due to termination of
employment.
Long-Term Incentive Plan
The Long-Term Incentive Plan Table below provides information concerning
estimated award ranges for the cash plan initiated in 1997 based on the
performance period January 1, 1997 through December 31, 1999. Trigon BCBS's
Long-Term Incentive Plan is based on three-year overlapping performance cycles.
Long-Term Incentive Plans -- Awards in Last Fiscal Year (1)
<TABLE>
<CAPTION>
Estimated Future Payouts
Number of Performance or Under Non-Stock Price Based Plan(2)
Units or Other Other Period ---------------------------------------
Rights Until Maturation Threshold Target Maximum
Name # or Payout $ $ $
- - ----------------------- ---------------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Norwood H. Davis, Jr. N/A 1997-1999 $130,000 $260,000 $520,000
Thomas G. Snead, Jr. N/A 1997-1999 56,875 113,750 227,500
Ronald H. Bargatze(3) N/A 1997-1999 0 0 0
Paul F. Nezi N/A 1997-1999 31,250 62,500 125,000
John C. Berry N/A 1997-1999 25,088 50,175 100,350
</TABLE>
- - ---------
(1) Strategic performance objectives are set in advance of the three-year period
and are measured at the end of the period. The current performance
objectives focus on average annual growth in consolidated operating income
over the three-year period and the commercial medical loss ratio versus the
Company's peer group for the third year of the three-year period. The awards
are paid in a single lump sum at the end of three years depending on the
achievement of specified performance measures. Each three-year cycle
provides target awards between 10% and 40% of a participant's salary. Each
objective will have a performance range and potential payout from Threshold
to Maximum.
(2) In December 1997, the Board of Directors adopted stock ownership guidelines
for senior executives and modified the Long-Term Incentive Plan to provide
for a transition from cash awards to Restricted Stock awards. For award
cycles ending in 1998 through 2002, the LTIP awards, if any, will be paid
50% in cash and 50% in Restricted Stock. To assist in the transition, the
stock portions of the awards for 1998 and 1999 will automatically be
increased by 30%. For all plan years, participants may voluntarily elect
to receive any eligible cash award in shares of Restricted Stock, in which
case the award will be increased by 30%. For cycles ending in 2003 and
beyond, and until the participant achieves his or her target level of
ownership, the participant must receive 100% of his or her award in
Restricted Stock. Once the participant achieves his or her targeted level
of ownership, regardless of the existing plan cycle, he or she may elect
to receive the entire award in cash or in Restricted Stock. Participants
electing to receive the entire award in Restricted Stock, will receive a
30% increase in his or her award. The stock ownership guidelines are
designed to encourage individuals to achieve a targeted level of
ownership. Accordingly, ownership targets are achieved when the market
value of the stock owned by a participant is equal to a set multiple of
the participant's salary. The guideline multiples are set as follows:
Chairman and Chief Executive Officer, 5 times salary; President and Chief
Operating Officer, 3 times salary; and other officers, from 2 times salary
to .75 times salary, depending upon position. Awards of Restricted Stock
will vest one-third each year beginning one year after the award is made.
The number of shares of Restricted Stock awarded will be determined by the
market price of the stock on the date the award is made.
(3) Mr. Bargatze resigned from the Company and its subsidiaries effective
January 2, 1998. Long-Term Incentive Plan awards have been forfeited due
to termination of employment.
Retirement Plan
Trigon BCBS sponsors a non-contributory retirement program (the
"Retirement Plan") for certain employees that is qualified under Internal
Revenue Code Section 401(a) and subject to ERISA. Trigon BCBS also sponsors the
Supplemental Executive Retirement Plan, which provides additional benefits,
payable out of general Trigon BCBS assets to certain employees. The benefits
are equal to the benefits these employees cannot receive under the qualified
retirement program because of Internal Revenue Code limits on benefits and
restrictions on participation by highly compensated employees.
9
<PAGE>
The following table shows the projected annual benefit (not including
offsets for primary social security) for the remuneration level and years of
credited service indicated that would be payable in the form of a straight life
annuity commencing at age 65 under the present benefit formula of the
Retirement Plan. The amounts shown include the benefits payable under the
Retirement Plan and the Supplemental Executive Retirement Plan.
Pension Plan Table(1)
Years of Service
-------------------------------------------------------
Remuneration 15 20 25 30 (2)
- - ------------- ----------- ----------- ------------ ------------
$ 200,000 $ 60,000 $ 80,000 $ 100,000 $ 120,000
300,000 90,000 120,000 150,000 180,000
400,000 120,000 160,000 200,000 240,000
500,000 150,000 200,000 250,000 300,000
600,000 180,000 240,000 300,000 360,000
700,000 210,000 280,000 350,000 420,000
800,000 240,000 320,000 400,000 480,000
900,000 270,000 360,000 450,000 540,000
1,000,000 300,000 400,000 500,000 600,000
1,100,000 330,000 440,000 550,000 660,000
1,200,000 360,000 480,000 600,000 720,000
1,300,000 390,000 520,000 650,000 780,000
1,400,000 420,000 560,000 700,000 840,000
1,500,000 450,000 600,000 750,000 900,000
1,600,000 480,000 640,000 800,000 960,000
1,700,000 510,000 680,000 850,000 1,020,000
1,800,000 540,000 720,000 900,000 1,080,000
1,900,000 570,000 760,000 950,000 1,140,000
2,000,000 600,000 800,000 1,000,000 1,200,000
- - ---------
(1) Compensation covered by the retirement plans includes: W-2 earnings,
deferred compensation, Employees' Thrift Plan and 401(k) Restoration plan
contributions and amounts excluded from income under Section 125 of the
Internal Revenue Code (flexible spending accounts and flex benefit
amounts). Under the Retirement Plan's formula, a participant's annual
retirement benefit at normal retirement age (65 years) is equal to 60% of
the average of the participant's highest five consecutive years' covered
compensation in the last ten years, minus 50% of the participant's primary
social security benefit, all multiplied by years of credited service and
divided by 30. Participants become vested in the plans with five years of
credited service. The Pension Plan Table and Summary Compensation Table
may be used to estimate pension benefits for each of the Named Executive
Officers based on their credited years of service as of December 31, 1997:
Mr. Davis, 30 years; Mr. Snead, 12 years; Mr. Bargatze, 21 years; Mr.
Nezi, 1 year; and Mr. Berry, 11 years. The covered compensation under both
the Retirement Plan and the Supplemental Executive Retirement Plan for
1997 was: Mr. Davis, $689,609; Mr. Snead, $247,635; Mr. Bargatze,
$248,486; Mr. Nezi, $500,381; and Mr. Berry, $239,869.
Deferred Compensation
The Company offers a non-qualified deferred compensation plan to all Board
members and officers of Trigon BCBS at or above the level of Vice President.
Interest credited to plan participants is funded through Trigon BCBS-owned life
insurance. The plan is called The Limited Fixed Return Plan. Interest rates are
guaranteed in four-year increments and are initially set at the dividend
reinvestment rate specified by the life insurance carrier. Those electing to
defer may begin receiving benefit payouts no sooner than age 55. As of December
31, 1997, 24 officers have deferred a balance of $1,125,267. Interest credited
in 1997 to the various participants equaled $91,364. As of December 31, 1997,
eight directors and three past directors have deferred a balance of $1,804,007
and interest credited to the various participants in 1997 equaled $146,830.
The Directors Plan allows each eligible director to elect in advance to
receive all or a part of his or her directors's fees in the form of Common
Stock. The number of shares earned is the amount of the fees divided by the
fair market value of the Common Stock on the last trading day of each calendar
quarter. If a director elects to receive 100% of his or her annual
10
<PAGE>
fees as Common Stock, the director also receives additional Common Stock equal
to 30% of the fees. After the first quarter of 1997, when the Directors Plan
was adopted, every eligible director elected to receive 100% of his or her
Board fees in the form of Common Stock.
Mr. Davis also has a separate defined salary deferral plan established in
1989, which permitted salary deferrals from 1990 through 1995. A total of
$43,000 of his compensation has been deferred. Amounts deferred are invested by
Trigon BCBS in investments selected by a Trigon BCBS-appointed investment
manager. Mr. Davis bears all risk of gain or loss with respect to the
investments made. Distribution of plan assets will be upon termination of
employment.
Employment Agreements
Norwood H. Davis, Jr., Chairman of the Board of the Company and Chairman
of the Board and Chief Executive Officer of Trigon BCBS, entered into an
employment agreement with Trigon BCBS as of March 13, 1996, which agreement was
amended on January 2, 1998. This agreement superseded all prior agreements.
Under Mr. Davis' agreement, his employment is at will and he may resign at any
time. Also, Trigon BCBS may discharge Mr. Davis at any time, with or without
cause. Mr. Davis is entitled to receive an annual base salary of an amount
determined by the Board which can be adjusted upward each year as determined by
the Board. He is also eligible for an award of incentive compensation each
year. While employed by Trigon BCBS, Mr. Davis is entitled to benefits offered
to all employees. In addition, Trigon BCBS will provide an automobile
allowance, tax and financial planning services and reimbursement for other
business expenses. Also, if Mr. Davis becomes disabled and is entitled to
receive benefits under the Long-Term Disability Program, Trigon BCBS will make
supplemental monthly payments so that the entire benefit is equal to 60% of his
base salary. Under this agreement, Mr. Davis agrees not to compete as an equity
owner or employee with Trigon BCBS or its affiliates for four years after his
resignation as an employee or his termination with cause. The agreement also
provides that upon termination of Mr. Davis's employment for any reason (other
than a termination resulting from his resignation if he fails to give Trigon
BCBS at least six months' prior written notice of the resignation), Mr. Davis
is entitled to receive a severance payment equal to four times the highest
annual cash compensation received by him during the three calendar years
preceding the termination of his employment.
The employment agreement also sets forth an enhanced retirement benefit
for Mr. Davis. Under the enhanced benefit, Trigon BCBS agrees to pay Mr. Davis
an amount equal to the difference between (i) the benefit Mr. Davis would
receive under the Retirement Plan and the Supplemental Executive Retirement
Plan if Mr. Davis had remained in the employ of Trigon BCBS receiving credited
service until age 65 (3/10/2005) (assuming continued annual compensation at a
rate equal to his highest annual compensation during the three calendar years
immediately preceding retirement) and (ii) the benefit Mr. Davis actually
receives under the Retirement Plan and Supplemental Executive Retirement Plan.
If retirement occurs at or after age 61 (3/10/2001), 100% of the enhanced
benefit is payable. If retirement occurs at age 60 (3/10/2000), 96% of the
difference between the enhanced and basic benefit is payable. For each
additional year of retirement earlier than age 61, the percentage difference
between the enhanced and basic benefit decreases by four percentage points.
Trigon BCBS also maintains at-will employment agreements with each of the
Named Executive Officers other than Mr. Davis. The employment agreements
between Trigon BCBS and Messrs. Snead and Berry, each dated December 12, 1990,
provide that upon resignation or termination of employment for any reason other
than cause, they are entitled to receive a severance payment equal to 12
months' salary. Their agreements also contain non-competition provisions
pursuant to which Messrs. Snead and Berry agree that for a period of one year
following the termination of their employment with Trigon BCBS, they will not
become an officer, director, employee or 10% shareholder of an entity competing
with Trigon BCBS or its affiliates at the time of such termination or employ
any employee of Trigon BCBS or its affiliates.
Mr. Bargatze's employment agreement, dated May 30, 1996, contains similar
terms as those discussed above with respect to Messrs. Snead and Berry, except
that Mr. Bargatze's agreement provides for a severance payment upon resignation
or termination of employment for any reason other than cause equal to 24
months' salary if he has been employed for more than five years and a
non-competition period of two years. Mr. Bargatze resigned from the Company and
its subsidiaries effective January 2, 1998, commencing his two-year severance
and non-compete periods.
The employment agreement between Trigon BCBS and Mr. Nezi, entered into on
September 11, 1996, provides for a severance payment equal to 12 months' salary
and 12 months' continuing health and life insurance coverage upon termination
of employment by Trigon BCBS for any reason other than his resignation or
termination of employment for cause. The agreement also contains
non-competition provisions similar to those described above with respect to
Messrs. Snead and Berry. The agreement also entitles Mr. Nezi to participate in
the Annual Incentive Program, with a guaranteed minimum
11
<PAGE>
annual incentive payment for 1997 of 50% of his starting base salary. Mr.
Nezi's agreement entitled him to an employment bonus of $250,000, which was
paid in installments in 1996 and 1997, but which must be repaid in part if he
resigns before the end of 1999.
Severance Agreements
Trigon BCBS and each Named Executive Officer have entered into employment
agreements, discussed above, which contain severance agreements. Trigon BCBS
and each Named Executive Officer (other than Mr. Davis) have also entered into
Executive Continuity Agreements, which replace the Named Executive Officers'
severance agreements in the event of a change of control. A change of control
is defined as (i) the acquisition of 20% or more of the Company's Common Stock
or voting power by a person or group, (ii) a change in the majority of the
Board of Directors, (iii) approval by Company shareholders of a reorganization,
merger or consolidation if, after such transaction, the persons who had
beneficial ownership of the Common Stock and voting power of the Company before
such transaction will not have beneficial ownership of at least 50% of the
Common Stock and voting power of the Company after the transaction, (iv) a
liquidation or dissolution or sale of all or substantially all of the assets of
the Company or (v) the sale by the Company of 50% or more of the Common Stock.
The Executive Continuity Agreements are intended to provide greater
employment security to key executives and to assure shareholders that the
business of the Company will continue with a minimum of disruption if such a
change of control occurs. Accordingly, the Agreements provide for salary and
benefit continuation upon termination of the executive's employment within
three months before or within three years after a change of control of the
Company. The salary continuation entitles the executive to a sum equal to the
greater of either two (in the cases of Messrs. Berry and Nezi) or three (in the
case of Mr. Snead) times the highest amount of compensation received by the
executive during any one of the three full calendar years ended immediately
before the executive's employment terminates or 155% of the executive's annual
base salary for the year in which the executive's employment terminates. The
benefit continuation entitles the executive and his dependents to continued
coverage, for a period of two (in the cases of Messrs. Berry and Nezi) or three
(in the case of Mr. Snead) years following such termination, under all welfare
plans in which they participated immediately before the executive's employment
terminates. The agreements also provide qualifying executives with certain
supplemental retirement benefits. In addition, upon a change of control of the
Company, each executive is entitled to receive a payment under the Company's
Annual Incentive Plan and Long-Term Performance Plan, computed as if the
Company and the executive had achieved the target level of performance under
each plan.
REPORT OF THE HUMAN RESOURCES, COMPENSATION
AND EMPLOYEE BENEFITS COMMITTEE
The Human Resources, Compensation and Employee Benefits Committee of the
Board of Directors (the "Committee") reviews and approves, subject to Board
ratification in certain cases, actions regarding the executive compensation
programs of the Company and its subsidiaries. The Committee is composed
entirely of outside directors.
The purpose of the Company's compensation program is to attract, motivate
and retain the executive management necessary to enhance profitability of the
Company and increase shareholder value. The philosophy underlying the Company's
executive compensation program is to create:
-- a competitive total compensation level that appropriately rewards both
short and long-term success; and
-- variable pay opportunities that subject a significant portion of the
executive's total compensation to performance risk.
The goal is a compensation program that results in total compensation
generally at the median for the competitive market when the Company's
performance is at the desired level as compared with its competitors and above
or below market levels when performance varies.
The Company's executive compensation program is currently composed of four
basic elements: base salary, an annual cash incentive program, a long-term cash
incentive program and a stock incentive plan. The Company requires executive
stock ownership as a means to link management interests and shareholder
interests.
12
<PAGE>
Base Salary -- Base salaries are targeted at the average of the
competitive market, consisting of national managed care companies, national
insurance companies and local financial institutions. The base salary
compensation of senior officers of the Company and its subsidiaries is reviewed
by the Committee every 12 months and any changes must be approved by the
Committee.
Annual Management Incentive -- Trigon BCBS's annual cash incentive program
is based on yearly performance objectives. Program participants include
executives and key management employees. The Chief Executive Officer recommends
the amount of potential awards and the targeted performance goals for
participants. For each performance objective, a performance range and potential
payout from "Threshold" to "Maximum" is determined. The Committee reviews and
approves objectives, performance targets and potential payouts for all senior
officers. The Board of Directors ratifies the objectives, targets and potential
payouts for the Chief Executive Officer. After the end of the fiscal year, the
Committee measures the Company's performance against the objectives and
certifies the amount of payment, if any. For 1997, the annual management
incentive for the Chief Executive Officer and most other executive officers was
based exclusively on the amount of the Company's consolidated operating income.
For 1997, each participant's award contained a minimum consolidated operating
income level that had to be reached before any annual payments would be made.
The target award opportunities represented between 11% and 55% of a
participant's salary, and the maximum award opportunities represented between
22% and 110% of a participant's salary. For 1997, the Company's consolidated
operating income reached the maximum level for payment of annual incentives.
Long-Term Management Incentive -- The Trigon BCBS long-term cash
management incentive program is based on the achievement of three-year
strategic performance objectives. Most officers, including all of the Named
Executive Officers, participate in the program. The program provides incentives
based on rolling three-year performance periods. Company performance measures
are set at the beginning of the three-year period and are measured at the end
of the period. The awards are paid in a single lump sum at the end of the
period, based on the degree of achievement of the specified performance goals.
Each of the three-year performance periods currently in operation measures
average annual growth in consolidated operating income and the Company's
commercial medical loss ratio versus the Company's peer group for the third
year of the performance cycle. Each three-year cycle provides target awards
between 10% and 40% of a participant's salary, and maximum awards between 20%
and 80% of a participant's salary. A performance range and potential payout
from "Threshold" to "Maximum" is established by the Committee for each cycle.
The Committee reviews and approves objectives, performance targets and
potential payouts for all senior officers. The Board of Directors ratifies the
objectives, targets and earned payouts for the Chief Executive Officer. After
the end of the three-year cycle, the Committee measures the Company's
performance against the objectives and certifies the amount of payment, if any.
Awards under the 1996-1997 performance cycle for Named Executive Officers are
included in the Summary Compensation Table. In 1997, the executive officers
participating in the program earned the maximum award for the 1996-1997 cycle
on the operating income objective. The payout for the second objective, which
depends on the Company's commercial medical loss ratio compared to the
commercial medical loss ratio of the peer group companies, will not be known
until April 1998.
The Committee believes that the interests of senior management are more
closely aligned with the interests of the shareholders if senior management has
a significant investment in the Company. In December 1997, the Board of
Directors adopted stock ownership guidelines that require senior management to
own stock in the Company with a market value that is a multiple of base salary.
The guidelines, which must be reached within seven years, are Chairman and
Chief Executive Officer, 5 times salary; President and Chief Operating Officer,
3 times salary; and certain other officers, from 2 times salary to .75 times
salary, depending upon position. To facilitate the acquisition of shares by
senior management, the Board of Directors modified the Long-Term Incentive Plan
to provide that from 1998 through 2002, at least 50% of the LTIP awards, if
any, will be paid in Restricted Stock and that under certain circumstances, the
awards of Restricted Stock will be increased by 30%. See "Compensation of
Executive Officers -- Long-Term Incentive Plan."
Stock Incentive Plan -- The shareholders of the Company approved the 1997
Stock Incentive Plan at the annual meeting of shareholders held on April 16,
1997. Under the 1997 Stock Incentive Plan, employees, including management,
receive equity-based compensation as incentive to focus on enhancements to
shareholder value. Under the Plan, certain incentive awards, including
performance awards, restricted stock, performance stock, options and stock
appreciation rights, may be awarded based upon annual performance objectives,
which are established by the Committee. In 1997, the only stock-based
compensation awarded under the Stock Incentive Plan was in the form of
nonstatutory stock options, all of which were awarded at an exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant. All of the officers of the Company were awarded stock options on June
11, 1997, and several received supplemental awards later in the year in
recognition of their promotions to positions of greater responsibility. The
Committee considered a number of factors in determining the number of options
to be awarded to particular executives, including the executive's salary level,
13
<PAGE>
the ability of the executive to affect the net income of the Company, the
amount of stock in the Company that the executive owned, and the level of stock
options awarded to comparable executives at companies that compete with the
Company.
Chief Executive Officer -- The Company's Chief Executive Officer, Norwood
H. Davis, Jr., participates in each of the compensation programs available to
executives. Other aspects of Mr. Davis' compensation are described under
"Employment Agreements." The Chief Executive Officer's base salary is based on
the same market criteria used for other senior officers and is ratified by the
Board of Directors. Mr. Davis' base salary for 1997 was slightly below the
median of the peer group of managed care companies. In 1997, the Chief
Executive Officer earned the maximum annual incentive compensation award and
the maximum award for one of the two objectives for the long-term incentive
compensation award for the 1996-1997 cycle. The payout for the second
objective, which depends on the Company's commercial medical loss ratio for
1997 in comparison to the commercial medical loss ratio of companies in a peer
group, will not be known until April 1998.
Internal Revenue Code 162(m) Compliance -- The Company's pay philosophy is
to make a large percentage of potential total compensation for executives
performance-focused. In support of this compensation philosophy, executives can
be rewarded at or above market levels when the Company performs above
expectations. Section 162(m) of the Internal Revenue Code provides generally
that compensation paid to the Named Executive Officers in excess of $1 million
is deductible only if paid pursuant to qualifying performance-based
compensation plans approved by shareholders. The 1997 Stock Incentive Plan
allows the use of short and long-term cash compensation and stock compensation
that qualifies as performance-based compensation under Section 162(m). Under
the 1997 Stock Incentive Plan, all compensation paid is deductible for federal
income tax purposes. The Committee intends to continue to maximize the
effectiveness of the Company's compensation programs and preserve tax
deductibility to the extent consistent with the best interests of the Company
and its shareholders.
This report is submitted by the Human Resources, Compensation and Employee
Benefits Committee of the Company's Board of Directors.
Jackie M. Ward, Chairperson
Lenox D. Baker, Jr., M.D.
William R. Harvey, Ph.D.
Elizabeth G. Helm
William N. Powell
Hubert R. Stallard
14
<PAGE>
Performance Graph
The following graph compares the cumulative total shareholder return on
the Company's Common Stock with the cumulative total shareholder return on the
published Standard & Poor's 500 Stock Index and a managed care industry-based
peer group for the period commencing January 31, 1997 and ending December 31,
1997. The peer group is based upon the Morgan Stanley Health Care Payor Index.
The following is a list of the companies included in the index and their
respective weighting within the index: Aetna Inc. (8.982%), Oxford Health Plan
Inc. (8.998%), United Healthcare Corp. (9.102%), Wellpoint Health Networks,
Inc. (10.474%), Cigna Corp. (7.865%), Coventry Corp. (8.342%), First Health
Group (6.422%), Foundation Health (7.930%), Humana, Inc. (9.127%), Mid-Atlantic
Medical (6.976%), Pacificare Health (8.005%) and the Company (7.897%). The
graph assumes an investment of $100 in the Company's Common Stock and each of
the indices at the market close on January 31, 1997, the date the Company's
Common Stock began trading on the New York Stock Exchange, and the reinvestment
of all dividends. Historic stock price performance is not indicative of future
stock price performance.
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C>
1/31/97 3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- ------- --------
Trigon $ 100 $ 136 $ 187 $ 191 $ 201
S&P 500 Index $ 100 $ 97 $ 113 $ 121 $ 124
Morgan Stanley Health
Care Payor Index $ 100 $ 115 $ 128 $ 135 $ 108
</TABLE>
15
<PAGE>
ITEM TWO -- RATIFICATION OF
SELECTION OF INDEPENDENT AUDITORS
The Board, upon the recommendation of its Audit Committee, has selected
KPMG Peat Marwick LLP as independent auditors to examine and report upon the
financial statements of the Company and its consolidated subsidiaries for the
year 1998 and is submitting this matter to shareholders for their ratification.
KPMG Peat Marwick LLP has served as the independent auditors of Trigon BCBS and
its predecessors since 1971. If shareholders do not ratify the selection of
KPMG Peat Marwick LLP, other independent auditors will be considered. One or
more partners of the firm of KPMG Peat Marwick LLP will be present at the
Annual Meeting to make a statement, if they desire to do so, and to respond to
appropriate questions that may be asked by shareholders.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS TO EXAMINE AND
REPORT UPON THE FINANCIAL STATEMENTS OF THE COMPANY AND ITS CONSOLIDATED
SUBSIDIARIES FOR THE YEAR 1998.
ITEM THREE -- OTHER BUSINESS
If any other business properly comes before the meeting, your proxy may be
voted by the persons named in it in such manner as they deem proper. At this
time, the Company does not know of any other business that will be presented at
the meeting.
PROPOSALS BY SHAREHOLDERS FOR PRESENTATION
AT THE 1999 ANNUAL MEETING
Proposals that any shareholder desires to have included in the proxy
statement for the 1999 Annual Meeting of Shareholders must be received by the
Company no later than November 13, 1998.
Section 1.3 of the Company's Bylaws provides that, in addition to other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must give timely written notice to
the Secretary or an Assistant Secretary at the principal office of the Company.
To be timely, a shareholder's notice must be given, either by personal delivery
to the Secretary or an Assistant Secretary of the Company at the principal
office of the Company, or by first class United States mail, with postage
prepaid, addressed to the Secretary of the Company at the principal office of
the Company. Any such notice must be received (i) on or after the first day of
February and before first day of March of the year in which the meeting will be
held, if clause (ii) is not applicable, or (ii) not less than 60 days before
the date of the meeting if the date of such meeting, as prescribed in the
Company's Bylaws, has been changed by more than 30 days. Each such
shareholder's notice shall set forth as to each matter the shareholder proposes
to bring before the annual meeting (i) the name and address, as they appear on
the Company's stock transfer books, of the shareholder proposing business, (ii)
the class and number of shares of stock of the Company beneficially owned by
such shareholder, (iii) a representation that such shareholder is a shareholder
of record at the time of the giving of the notice and intends to appear in
person or by proxy at the meeting to present the business specified in the
notice, (iv) a brief description of the business desired to be brought before
the meeting, including the complete text of any resolutions to be presented and
the reasons for wanting to conduct such business, and (v) any interest which
the shareholder may have in such business.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
MAY BE OBTAINED BY ANY SHAREHOLDER AFTER MARCH 31, 1998, FREE OF CHARGE, UPON
WRITTEN REQUEST TO CHERYL F. MIDKIFF, OFFICE OF INVESTOR RELATIONS, TRIGON
HEALTHCARE, INC., P.O. BOX 27401, RICHMOND, VIRGINIA 23279, OR BY CALLING (804)
354-3224.
By Order of the Board of Directors
/s/ J. Christopher Wiltshire
--------------------------------------
J. Christopher Wiltshire, Secretary
March 27, 1998
16
<PAGE>
P
Trigon Healthcare, Inc.
R PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
O APRIL 29, 1998
X The undersigned, having received the Annual Report to Shareholders and the
accompanying Notice of Annual Meeting of Shareholders and Proxy Statement
Y dated March 27, 1998, hereby appoints Ronald M. Nash and J. Christopher
Wiltshire, and each of them, proxies, with full power of substitution, and
hereby authorizes them to represent and vote the shares of Class A Common
Stock of Trigon Healthcare, Inc. (the " Company"), which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company to be held on Wednesday, April 29, 1998, at
9:00 a.m., Eastern Daylight Time, and any adjournment thereof, and
especially to vote as set forth on the reverse hereof.
Election of Directors, Nominees:
James K. Candler, William R. Harvey, Ph.D., Gary A. Jobson,
William N. Powell, J. Carson Quarles
and R. Gordon Smith
(CONTINUED ON REVERSE)
Please mark your
[X] votes as in this
example.
IF YOU SPECIFY A CHOICE AS TO THE ACTION TO BE TAKEN ON AN ITEM, THIS PROXY WILL
BE VOTED IN ACCORDANCE WITH SUCH CHOICE. IF YOU DO NOT SPECIFY A CHOICE, IT WILL
BE VOTED FOR THE NAMED NOMINEES IN THE PROXY STATEMENT, "FOR" ITEM 2 AND IN THE
PROXIES' DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
FOR all nominees WITHHOLD AUTHORITY
listed on reverse to vote for all nominees
listed on reverse
1. Election of
Directors [ ] [ ]
(see reverse)
For all nominees, except vote withheld from the following
nominee(s):
- - ----------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of the
selection of KPMG [ ] [ ] [ ]
Peat Marwick LLP
as Independent
Auditors.
3. IN THEIR DISCRETION
the proxies are authorized
to vote upon such other
business as may properly
come before the meeting
and any adjournments thereof.
For all nominees, except vote withheld from the following
nominee(s):
- - ----------------------------------------------------------
Any proxy or proxies previously given for the meeting are revoked.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
SIGNATURE(S)________________________________ DATE:_______________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If executed by a corporation this proxy card should be
signed by a duly elected officer. If executed by a partnership, please sign in
partnership name by authorized persons.
