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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-5975
HUMANA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 61-0647538
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
500 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 502-580-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------ -------------------------
<S> <C>
COMMON STOCK, $.16 2/3 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in the Registrant's 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
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 1, 1995, was $3,623,515,292 calculated using the average
price on such date of $23.875. The number of shares outstanding of the
Registrant's Common Stock as of March 1, 1995, was 161,680,695.
DOCUMENTS INCORPORATED BY REFERENCE
Part II and portions of Part IV incorporate herein by reference the
Registrant's 1994 Annual Report to Stockholders; Part III incorporates herein by
reference portions of the Registrant's Proxy Statement filed pursuant to
Regulation 14A covering the Annual Meeting of Stockholders scheduled to be held
May 11, 1995.
The Exhibit Index begins on page 13.
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PART I
ITEM 1. BUSINESS
GENERAL
Humana Inc. is a Delaware corporation organized in 1961. Its principal
executive offices are located at 500 West Main Street, Louisville, Kentucky
40202 and its telephone number at that address is (502) 580-1000. As used
herein, the terms "the Company" or "Humana" include Humana Inc. and its
subsidiaries.
On March 1, 1993, Humana separated its managed care health plan and
acute-care hospital businesses into two independent publicly-held companies (the
"Spinoff"). The Spinoff was effected through the distribution to Humana
stockholders of all the outstanding shares of common stock of a new hospital
company, Galen Health Care, Inc. ("Galen") (now a part of Columbia/HCA
Healthcare Corporation). The Company retained and continues to operate the
managed care health plan business.
Since 1983, the Company has offered managed health care products which
integrate management with the delivery of health care services through a network
of providers who share financial risk or who have incentives to deliver
cost-effective medical services. These products are marketed primarily through
health maintenance organizations ("HMOs") and preferred provider organizations
("PPOs") that encourage, and in most HMO products require, use of contracting
providers. HMOs and PPOs also control health care costs by various means,
including utilization controls such as pre-admission approval for hospital
inpatient services and pre-authorization of outpatient surgical procedures.
The Company's HMO and PPO products are primarily marketed to employer and
other groups ("Commercial") and Medicaid and Medicare-eligible individuals. The
Company's Commercial products are marketed in 14 states and the District of
Columbia. At December 31, 1994, the Company had a total of 20,700 Commercial
customers with an average group size of 35 per customer. Commercial membership
at December 31, 1994, includes 27,500 Medicaid-eligible individuals. The
products marketed to Medicare-eligible individuals are either HMO products that
provide health care services which include all Medicare benefits, and in certain
circumstances, additional health care services that are not included in Medicare
benefits ("Medicare risk") or indemnity insurance policies that supplement
Medicare benefits ("Medicare supplement"). At December 31, 1994, the Company had
287,400 Medicare risk members and 131,700 Medicare supplement members.
COMMERCIAL PRODUCTS
HMOs
An HMO provides prepaid health care services to its members through primary
care and specialty physicians employed by the HMO at facilities owned by the
HMO, and/or through a network of independent primary care and specialty
physicians and other health care providers who contract with the HMO to furnish
such services. Primary care physicians include internists, family practitioners
and pediatricians. Generally, access to specialty physicians and other health
care providers must be approved by the member's primary care physician. These
other health care providers include, among others, hospitals, nursing homes,
home health agencies, pharmacies, mental health and substance abuse centers,
diagnostic centers, optometrists, outpatient surgery centers, dentists, urgent
care centers, and durable medical equipment suppliers. Because access to these
other health care providers must be approved by the primary care physician, the
HMO product is the most restrictive form of managed care.
At December 31, 1994, the Company owned and operated 15 HMOs, which
contract with approximately 28,700 physicians (including approximately 6,900
primary care physicians) and 460 hospitals. In addition, the Company has
approximately 1,300 contracts with other providers to provide services to HMO
members. The Company also employed 370 physicians in its HMOs at December 31,
1994.
An HMO member, typically through the member's employer, pays a monthly fee
which generally covers, with minimal co-payments, health care services received
from or approved by the member's primary care
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physician. For the year ended December 31, 1994, Commercial HMO premium revenues
totaled approximately $1.7 billion or 47% of the Company's premium revenues.
Approximately $250 million of the Company's Commercial premium revenues for the
year ended December 31, 1994, were derived from contracts with the United States
Office of Personnel Management ("OPM") under which the Company provides health
care benefits to approximately 174,500 federal civilian employees and their
dependents. Pursuant to these contracts, payments made by OPM may be
retrospectively adjusted downward by OPM if an audit discloses that a comparable
product was offered by the Company to a similar size subscriber group using a
rating formula which resulted in a lower premium rate than that offered to OPM.
The Company has undergone audits in certain markets. Management believes that
any retrospective adjustments as a result of OPM audits will not have a material
impact on the Company's results of operations, financial position or cash flows.
PPOs
PPO products include many elements of managed health care. PPOs are also
similar to traditional health insurance because they provide a member with the
freedom to choose a physician or other health care provider. In a PPO, the
member is encouraged, through financial incentives, to use participating health
care providers which have contracted with the PPO to provide services at
favorable rates. In the event a member chooses not to use a participating health
care provider, the member may be required to pay a portion of the provider's
fees.
At December 31, 1994, approximately 33,100 physicians and 520 hospitals
contracted with the Company to provide services to PPO members. In addition, the
Company has approximately 1,500 contracts with other providers to provide
services to PPO members.
For the year ended December 31, 1994, premium revenues from Commercial PPOs
totaled $359 million or 10 percent of the Company's premium revenues.
Over the previous four years, the Company's Commercial premium rate
increases have ranged between approximately 11 percent for the year ended
December 31, 1992, to approximately 3 percent for the year ended December 31,
1994. Given the competitive environment, the Company expects 1995 Commercial
premium rates will remain the same as in 1994.
MEDICAID PRODUCT
Medicaid is a state-operated program which utilizes both state and federal
funding to provide health care services to low-income residents. Each state
which chooses to do so, develops through a state specific regulatory agency, a
Medicaid managed care initiative which must be approved by the federal
government's Health Care Financing Administration ("HCFA"). HCFA requires that
Medicaid managed care plans meet federal standards and cost no more than the
amount that would have been spent on a comparable fee-for-service basis. States
currently use either a formal proposal process reviewing many bidders or award
individual contracts to qualified bidders which apply for entry to the program.
In either case, the contractual relationship with the state is generally for a
one-year period. The Company believes that the risks associated with
participation in a state Medicaid managed care initiative are similar to the
risks associated with the Medicare risk product discussed below. In both
instances, the Company receives a fixed monthly payment from a government agency
for which it is required to provide managed health care services to a member.
During the fourth quarter ended December 31, 1994, the Company received approval
in two states (Florida and Illinois) to market a Medicaid product. In December
1994, the Company acquired CareNetwork, Inc. ("CareNetwork"), a federally
qualified HMO located in Milwaukee and Southeastern Wisconsin which has 25,900
Medicaid members.
MEDICARE PRODUCTS
Medicare is a federal program that provides persons age 65 and over and
some disabled persons certain hospital and medical insurance benefits, which
include hospitalization benefits for up to 90 days per incident of illness plus
a lifetime reserve aggregating 60 days. Each Medicare eligible individual is
entitled to receive
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inpatient hospital care (Part A) without the payment of any premium, but is
required to pay a premium to the federal government, which is annually adjusted,
to be eligible for physician and other services (Part B).
Even though participating in both Part A and Part B of Medicare,
beneficiaries are still required to pay certain deductible and co-insurance
amounts. They may, if they choose, supplement their Medicare coverage by
purchasing policies which pay these deductibles and co-insurance amounts. Many
of these policies also cover other services (such as prescription drugs) which
are not included in Medicare coverage. These policies are known as Medicare
supplement policies.
Certain managed care companies which operate HMOs contract with HCFA to
provide medical benefits to Medicare-eligible individuals residing in the
geographic areas in which their HMOs operate in exchange for a fixed monthly
payment per member from HCFA. Individuals who elect to participate in these
Medicare risk programs are relieved of the obligation to pay some or all of the
deductible or co-insurance amounts but are required to use exclusively the
services provided by the HMO. Other than the Part B premium paid by the member
to the Medicare program, the enrollee does not pay the HMO a premium for these
services except where the benefits provided by the HMO exceed the benefits
provided by the Medicare Program.
Medicare Risk
A Medicare risk product involves a contract between an HMO and HCFA
pursuant to which HCFA makes a fixed monthly payment to the HMO on behalf of
each Medicare-eligible individual who chooses to enroll for coverage in the HMO.
Membership may be terminated by the member upon 30 days' notice. The fixed
monthly payment is determined and adjusted annually by HCFA, and takes into
account, among other things, the cost of providing medical care in the
geographic area where the member resides.
The Company markets a variety of Medicare risk HMO products. All of these
products provide an enrolled individual with all of the benefits covered by the
Medicare program but relieve the enrolled individual of the obligation to pay
deductibles and co-insurance that would otherwise apply. Some of these products
also provide additional benefits not covered by Medicare, such as vision and
dental care services and prescription drugs.
Where competitive conditions permit, the Company charges a premium to
members (in addition to the payment from HCFA) for some of its Medicare risk
products. At December 31, 1994, approximately 75,100 members in ten markets were
paying premiums which totaled $43 million for the year ended December 31, 1994.
The Company provides Medicare risk services under seven contracts with HCFA
("HCFA Contracts") in ten markets. At December 31, 1994, HCFA Contracts covered
approximately 287,400 Medicare risk members for which the Company received HCFA
revenues of approximately $1.4 billion or 38 percent of the Company's premium
revenues for the year ended December 31, 1994. At December 31, 1994, one such
HCFA Contract covered approximately 215,400 members in Florida. For the year
ended December 31, 1994, this Florida HCFA Contract accounted for $1.1 billion,
which represented 78 percent of the Company's HCFA revenues and 30 percent of
the Company's total premium revenues. Each HCFA Contract is renewed each
December 31 unless HCFA or the Company terminates it upon at least 90 days'
notice prior thereto. Management believes termination of the HCFA Contract
covering the members in Florida would have a material adverse effect on the
Company's revenues, profitability and business prospects. Moreover, changes in
the Medicare risk program as a result of legislative change, such as a reduction
in payments by HCFA or mandated increases in benefits without corresponding
increases in payments, could also have a material adverse effect on the
Company's revenues, profitability and business prospects.
The Company's average rate of increase under the 1995 HCFA Contracts is
expected to approximate 6 percent. Over the last five years, annual increases
have ranged from as low as 2 percent in January 1991 to as high as 12 percent in
January 1993, with an average of 6 percent.
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Medicare Supplement
The Company's Medicare supplement product is an insurance policy which pays
for hospital deductibles, co-payments and co-insurance for which the
Medicare-eligible individual is responsible.
Under the terms of existing Medicare supplement policies, the Company may
not reduce or cancel the benefits contracted for by policyholders. These
policies are annually renewable by the insured at the Company's prevailing
rates, which may increase subject to approval by appropriate state insurance
regulators.
At December 31, 1994, the Company provided Medicare supplement benefits to
approximately 131,700 members. Premium revenues derived from this product for
the year ended December 31, 1994, totaled $114 million.
PROVIDER ARRANGEMENTS
The Company's HMOs contract with individual or groups of primary care
physicians, generally for an actuarially determined, fixed, per-member-per-month
fee called a "capitation" payment. These contracts typically obligate primary
care physicians to provide or arrange for the provision of all covered managed
health care services to HMO members, including services provided by specialty
physicians and other providers. The capitation payment does not vary with the
nature or extent of services arranged for or provided to the member and is
generally designed to shift a portion of the HMO's financial risk to the primary
care physician. However, the degree to which the Company shifts its risk varies
by provider. During the year ended December 31, 1994, approximately 8 percent of
the Company's total medical costs were incurred under primary care capitation
arrangements. The Company also employs 370 physicians in markets where it
operates staff model HMOs. The Company is directly responsible for all services
provided by these employed physicians. During the year ended December 31, 1994,
approximately 9 percent of the Company's total medical costs represented salary
and similar costs incurred in its staff model HMOs. In order to control costs,
improve quality and create comprehensive networks, the Company also contracts
with medical specialists and other providers to which a primary care physician
may refer a member. During the year ended December 31, 1994, approximately 12
percent of the Company's total medical costs were incurred under specialty and
other non-primary care capitation arrangements. Typically, payments by the
Company to these specialists and other providers reduce the ultimate payment
that otherwise would be made to a primary care physician. The Company remains
financially responsible for the provision of or payment for such services if a
primary care or specialty physician fails to perform his or her obligations
under the contract.
The focal point for cost control in the Company's HMOs is the primary care
physician, whether employed or under contract, who provides services and
controls utilization of services by directing or approving hospitalization and
referrals to specialists and other providers. Cost control is further achieved
by directly negotiating provider discounts. Cost control in the Company's PPOs
is achieved primarily by establishing a cost-effective network of participating
health care providers and providing incentives for members to use such
providers. With respect to both HMO and PPO products, cost control is further
achieved through the use of a utilization review system designed to reduce
unnecessary hospital admissions, lengths of stay and unnecessary or
inappropriate medical procedures.
The Company's HMOs and PPOs generally contract for hospital services under
a per diem arrangement for inpatient hospital services and a discounted
fee-for-service arrangement for outpatient services. Effective March 1, 1995,
the Company began the third year of a three-year operating agreement with Galen,
whereby the Company uses the services of Galen's hospitals guaranteeing certain
minimum utilization levels. Rate increases charged for such services are defined
under the terms of the agreement. Commercial product rate increases are limited
to the lesser of the increase in the hospital Consumer Price Index or the
Company's Commercial product premium rate increases, less one percent. Medicare
risk product rate increases approximate the percentage adjustment in HCFA's
market specific hospital payment rate to the Company. Management believes that
the contract rates under the operating agreement are competitive. During the
year ended December 31, 1994, 13 percent of the Company's total medical costs
were incurred in Galen's hospitals while 25 percent were incurred in other
hospitals. Management believes the renegotiation or expiration of the
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operating agreement will not have a material adverse affect on the Company's
results of operations, financial position or cash flows.
QUALITY ASSESSMENT
Physician participation in the Company's HMOs and PPOs is conditioned upon
meeting its HMO and PPO requirements concerning the physician's professional
qualifications. When considering whether to contract with a physician, the
Company performs certain credentialing procedures including reviewing licensure,
status of certification by the governing specialty boards and malpractice claims
history.
In addition to ensuring the professional qualifications of its physician
and other providers, the Company regularly monitors various critical indicators
including network access, and quality and service performance measurements. The
Company has also contracted with a third-party vendor to provide software which
aggregates treatment protocols into patterns of care for analyzing the
appropriateness of care and frequency of services provided by the Company and
similar companies. In June 1994, the Company began reporting Health Plan
Employer Data Information Sets (HEDIS). HEDIS will be useful to purchasers of
managed health care services to measure individual health plan quality and
service. Finally, the Company is developing practice guidelines for frequent
membership diagnosis in order to reduce the variation in disease management and
improve the health outcomes of its membership.
HEALTH MAINTENANCE ORGANIZATION ACCREDITATION
With the increasing significance of managed care in the health care
industry, several independent organizations have been formed with the purpose of
responding to external demands for accountability over the managed care
industry. One such organization utilized by the Company is the National
Committee for Quality Assurance ("NCQA"). NCQA performs site reviews of
standards established for quality assurance, credentialing, utilization
management and medical records, preventive services and member rights and
evaluates the mechanisms that the organization has established to ensure
continuous quality improvement.
In the states of Kansas and Florida, where the Company operates seven
markets, accreditation is mandatory and is generally required for licensure. At
December 31, 1994, four of the Company's markets have received various levels of
provisional or one year accreditation and three, South Florida, Jacksonville,
Florida, and Milwaukee, Wisconsin (prior to purchase in December 1994), were
denied accreditation. As a result of the accreditation denials in South Florida
and Jacksonville, the Company and the State of Florida have mutually developed a
corrective action process, approved by NCQA, which is intended to address the
issues identified by NCQA which primarily relate to quality data accumulation.
Management believes the Company has substantially corrected all the deficiencies
identified in the review. The Company believes these denials will not have a
material adverse impact on its results of operations, financial position or cash
flows.
MANAGEMENT INFORMATION SYSTEMS
The Company's managed care health plans use integrated information systems
developed and/or customized specifically to meet the Company's needs and to
allow for aggregation of data and comparison across markets. These information
systems support marketing, sales, underwriting, contract administration,
billing, financial and other administrative functions as well as customer
service, appointment scheduling, authorization and referral management,
concurrent review, physician capitation and claims administration, provider
management, quality management and utilization review.
Key to the Company's information systems is the decision support database,
used by market office and corporate personnel for such items as provider
profiling, quality assessment, member satisfaction measurement, employer
reporting, and utilization review among many others.
The Company's information systems are continually being upgraded to support
new products in an integrated manner as well as to take advantage of the latest
advances in technology. For example, the Company is currently implementing:
laptop computers for processing information from concurrent reviews at the
bedside, interactive voice response for customer service inquiries, claims
imaging to improve productivity,
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and extensive electronic data interchange between customers, providers and
employees. Future information system initiatives include provider practice
guidelines and outcomes measurement.
MARKETING
Individuals become members of the Company's Commercial HMOs and PPOs
through their employer or other groups which typically offer employees or
members a selection of managed health care products, pay for all or part of the
premiums and make payroll deductions for any premiums payable by the employees.
The Company attempts to become an employer's or group's exclusive source of
managed health care benefits by offering HMO and PPO products that provide
cost-effective quality care consistent with the needs and expectations of the
employees or members. At December 31, 1994, the Company was an exclusive carrier
for 43 percent of its Commercial customers.
The Company uses various methods to market its Commercial and Medicare
products, including television, radio, telemarketing and mailings. At December
31, 1994, the Company used approximately 2,570 independent licensed brokers and
agents and 170 licensed employees to sell its Commercial products. Many of the
Company's employer group customers are represented by insurance brokers and
consultants who assist these groups in the design and purchase of health care
products. The Company generally pays brokers a commission based on premiums,
with commissions varying by market and premium volume.
In addition to the above, at December 31, 1994, approximately 300
independent licensed brokers and 370 employed sales representatives, who are
each paid a salary and/or per member commission, marketed the Company's Medicaid
and Medicare products. The Company also uses 290 telemarketing representatives
who assist in the marketing of Medicaid and Medicare products by making
appointments for broker/sales representatives with prospective members.
The following table lists the Company's membership at December 31, 1994, by
state and product:
<TABLE>
<CAPTION>
MEMBERS
---------------------------------------------------------------
COMMERCIAL
--------------------- MEDICARE MEDICARE
PPO HMO(1) RISK SUPPLEMENT TOTAL
------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Florida 107,700 301,500 215,400 16,500 641,100
Illinois 30,800 272,400 28,900 100 332,200
Kentucky 14,000 261,300 2,700 37,200 315,200
Texas 54,600 84,300 17,400 20,300 176,600
Missouri/Kansas 12,600 92,800 8,100 6,600 120,100
District of Columbia 109,900 109,900
Other 17,900 168,500 14,900 51,000 252,300
------- --------- ------- -------- ---------
Subtotal 237,600 1,290,700 287,400 131,700 1,947,400
Administrative services 93,500
------- --------- ------- -------- ---------
TOTAL MEMBERSHIP 237,600 1,290,700 287,400 131,700 2,040,900
======= ========= ======= ======== =========
</TABLE>
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(1) Includes 27,500 Medicaid members at December 31, 1994, located in Wisconsin,
Florida and Illinois.
The Company's 25 largest group contracts at December 31, 1994, accounted
for approximately 33 percent of total Commercial membership. No one group
contract accounted for as much as 5 percent of the Company's Commercial product
premium revenues; however, certain employer groups accounted for a significant
percentage of Commercial insurance premiums in some markets. The loss of one or
more of these contracts in a particular market could have a material adverse
effect on the Company's operations in that market.
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RISK MANAGEMENT
Through the use of internally developed underwriting criteria, the Company
determines the risk it is willing to assume and the amount of premium to charge
for its Commercial products. Employer and other groups must meet the Company's
underwriting standards in order to qualify to contract with the Company for
coverage. Underwriting techniques are not employed in connection with Medicare
risk HMO products because of HCFA regulations that require the Company to accept
all eligible Medicare applicants regardless of their health or prior medical
history. The Company also is not permitted to employ underwriting criteria for
the Medicaid product but rather follows HCFA and state requirements.
COMPETITION
The managed health care industry is highly competitive and contracts for
the sale of Commercial products are generally bid or renewed annually. The
Company's competitors vary by local market and include Blue Cross/Blue Shield
(including HMOs and PPOs owned by Blue Cross/Blue Shield plans), national
insurance companies and other HMOs and PPOs. Many of the Company's competitors
have larger membership in local markets or greater financial resources. The
Company's ability to sell its products and to retain customers is or may be
influenced by such factors as benefits, pricing, contract terms, number and
quality of participating physicians and other managed health care providers,
utilization review, claims processing, administrative efficiency and
accreditation results.
GOVERNMENT REGULATION
Of the Company's fifteen licensed HMO subsidiaries, nine are qualified
under the Federal Health Maintenance Organization Act of 1973, as amended. Four
of these federally qualified subsidiaries are parties to HCFA Contracts to
provide Medicare risk HMO products.
An HMO which is federally qualified may require employers, with more than
25 employees, that offer health insurance benefits to include federally
qualified HMO products as an option available to their employees. To obtain
federal qualification, an HMO must meet certain requirements, including
conformance with financial criteria, a standard method of rate setting, a
comprehensive benefit package, and prohibition of medical underwriting of
individuals. In certain markets, and for certain products, the Company operates
HMOs that are not federally qualified because this provides greater flexibility
with respect to product design and pricing than is possible for federally
qualified HMOs.
HCFA audits Medicare risk HMOs at least biannually and may perform other
reviews more frequently to determine compliance with federal regulations and
contractual obligations. These audits include review of the HMO's administration
and management (including management information and data collection systems),
fiscal stability, utilization management and incentive arrangements, health
services delivery, quality assurance, marketing, enrollment and disenrollment
activity, claims processing and complaint systems. HCFA regulations require
quarterly and annual submission of financial statements and restrict the number
of Medicare risk members to no more than the HMO's Commercial membership in a
specified service area. HCFA regulations also require independent review of
medical records and quality of care, review and approval by HCFA of all
advertising, marketing and communication materials, and independent review of
all denied claims and service complaints which are not resolved in favor of a
member.
During 1994, HCFA performed an investigation of the Company's South Florida
health plan. HCFA's findings, which focused primarily on the collection and use
of data, indicated the plan was not fully meeting HCFA requirements in the areas
of utilization management, quality assurance and availability/accessibility. The
Company and HCFA have agreed upon an implementation plan for a mutually
developed corrective action process. The Company believes this investigation
will not have a material adverse impact on the results of operations, financial
position or cash flows of the Company.
The Company's Medicaid product is regulated by the applicable state agency
in the state which the Company sells its Medicaid product and is subject to
periodic reviews by these agencies. The reviews are similar in nature to those
performed by HCFA.
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Laws in each of the states in which the Company operates its HMOs and PPOs
regulate its operations, including the scope of benefits, rate formula, delivery
systems, utilization review procedures, quality assurance, enrollment
requirements, claim payments, marketing and advertising. The PPO products
offered by the Company are generally sold under insurance licenses issued by the
applicable state insurance regulators. The Company's HMOs and PPOs are required
to be in compliance with certain minimum capital requirements. These
requirements must be satisfied by investing in approved investments that
generally cannot be used for other purposes. Under state laws, the Company's
HMOs and PPOs are audited by state departments of insurance for financial and
contractual compliance, and its HMOs are audited for compliance with health
services standards by respective state departments of health.
Management believes that the Company is in substantial compliance with all
governmental laws and regulations affecting its business.
HEALTH CARE REFORM
There has been diverse legislative and regulatory initiatives at both the
federal and state levels to address aspects of the nation's health care system.
National
During 1994, Congress debated health care legislation which included
proposals covering cost controls, universal coverage and the creation of
statewide health alliances that would cover individuals not enrolled in large
employer managed care health plans. No material substantive legislation was
passed in 1994, nor has any been proposed to date in 1995.
State
Legislation enacted in the states has included, among other things,
universal access, employer purchasing pools and statewide purchasing alliances.
Other managed care issues being discussed include any willing provider,
guaranteed renewal, portability, rating restrictions, and freedom of choice
requirements.
The State of Florida has adopted health care reform legislation which,
among other things, establishes a mechanism through which small employers and
self-employed individuals may acquire health care coverage through state
chartered non-profit entities known as Community Health Purchasing Alliances
(CHPAs). It is intended the CHPAs will also be used to acquire insurance for
state employees and Medicaid beneficiaries in the future. The legislation
divides the state into 11 geographic areas and establishes a separate CHPA for
each area. The Company is offering products in each of these geographic areas.
The Commonwealth of Kentucky has passed legislation which, among other
things, requires standardization of health care policies by July 15, 1995 and
establishes a health care policy board to recommend health insurance reform
measures to the Kentucky legislature. At this time, neither the standardization
of health insurance policies nor any health reform proposals have been finalized
and the Company cannot predict what effect, if any, such legislation will have
on its operations in Kentucky.
The Company is unable to predict how existing federal or state laws and
regulations may be changed or interpreted, what additional laws or regulations
affecting its businesses may be enacted or proposed, when and which of the
proposed laws will be adopted, or what effect any such new laws and regulations
will have on its revenues, profitability and business prospects.
OTHER BUSINESSES
Hospital
The Company owns a 170-bed hospital in Lexington, Kentucky, which provides
care primarily to members of the Company's managed care plans in Lexington. The
Company has contracted with an independent hospital management company (the
"Management Company"), whereby effective March 1, 1995, all operational
functions of the hospital are managed by the Management Company.
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Captive Insurance Company
The Company insures substantially all of its professional liability risks
through a wholly-owned subsidiary (the "Captive Subsidiary") which was
incorporated in the State of Vermont. The annual premiums paid to the Captive
Subsidiary are determined by independent actuaries. The Captive Subsidiary
reinsures levels of coverage for losses in excess of its retained limits with
various unrelated insurance carriers.
Centralized Management Services
Centralized management services are provided to each health plan from the
Company's headquarters. These services include management information systems,
product administration, financing, personnel, development, accounting, legal
advice, public relations, marketing, insurance, purchasing, risk management,
actuarial, underwriting and claims processing.
EMPLOYEES
As of December 31, 1994, the Company and its subsidiaries had approximately
12,000 employees. Approximately 1,400 employees of the Company are covered by
collective bargaining agreements. The Company has not experienced any work
stoppages and believes it has good relations with its employees.
ITEM 2. PROPERTIES
The Company owns its principal executive office, which is located in the
Humana Building, 500 West Main Street, Louisville, Kentucky 40202.
The Company provides medical services in medical centers owned or leased
ranging in size from approximately 1,200 to 80,000 square feet. The Company's
administrative market offices are generally leased, with square footage ranging
from 500 to 75,000. The following chart lists the location of properties used in
the operation of the Company at December 31, 1994:
<TABLE>
<CAPTION>
MEDICAL ADMINISTRATIVE
CENTERS OFFICES
-------------- --------------
STATES AND DISTRICTS OWNED LEASED OWNED LEASED TOTAL
--------------------------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Florida 7 53 25 85
Illinois 7 20 4 31
Kentucky 8 3 4 15
Texas 5 1 4 10
Missouri/Kansas 3 11 3 17
District of Columbia 4 2 6
Other 4 5 1 14 24
----- ----- ----- ----- -----
TOTAL 34 97 1 56 188
===== ===== ===== ===== =====
</TABLE>
In addition, the Company owns buildings in Louisville, Kentucky, and San
Antonio, Texas, and leases a facility in Jacksonville, Florida, all of which are
used for customer service and claims processing. The Louisville facility also
performs enrollment processing and other corporate functions.
The Company also owns a hospital and medical office building in Lexington,
Kentucky.
ITEM 3. LEGAL PROCEEDINGS
1. A class action law suit styled Mary Forsyth, et al v. Humana Inc., et al,
Case #CV-5-89-249-PMP (L.R.L.), (now restyled Marietta Cade, et al v. Humana
Health Insurance of Nevada, Inc., et al) was filed on March 29, 1989, in the
United States District Court for the District of Nevada (the "Forsyth" case).
There have been no material changes since those described in the Company's
Form 10-Q for the quarterly period ended June 30, 1994.
9
<PAGE> 11
2. On April 22, 1993, an alleged stockholder of the Company filed a purported
shareholder derivative action in the Court of Chancery of the State of
Delaware, County of New Castle, styled Lewis v. Austen, et al, Civil Action
No. 12937. There have been no changes since those described in the Company's
Form 10-K for the fiscal year ended December 31, 1993.
Damages for claims for personal injuries and medical benefit denials are
usual in the Company's business. Personal injury claims are covered by insurance
from the Captive Subsidiary and excess carriers, except to the extent that
claimants seek punitive damages, which may not be covered by insurance if
awarded. Punitive damages generally are not paid where claims are settled and
generally are awarded only where there has been a willful act or omission to
act.
The Company does not believe that any pending actions will have a material
adverse effect on its consolidated results of operations, financial position or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE> 12
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are names and ages of all of the current executive officers
of the Company as of March 1, 1995, their positions, date of election to such
position and the date first elected an officer of the Company:
<TABLE>
<CAPTION>
SERVED
IN SUCH FIRST
CAPACITY ELECTED
NAME AGE POSITION SINCE OFFICER
------------------------- --- ------------------------------------ -------- -------
<S> <C> <C> <C> <C>
David A. Jones 63 Chairman of the Board and Chief 08/69 09/64(1)
Executive Officer
Wayne T. Smith 49 President and Chief Operating 03/93 06/78
Officer and Director
W. Larry Cash 46 Senior Vice President -- Finance and 09/88 08/82
Operations
Karen A. Coughlin 47 Senior Vice President -- Region II 02/93 09/88
W. Roger Drury 48 Chief Financial Officer 05/92 08/83
Philip B. Garmon 51 Senior Vice President -- Region I 09/88 11/82
Arthur P. Hipwell 46 Senior Vice President and General 06/94 08/90(2)
Counsel
Ronald S. Lankford, M.D. 43 Senior Vice President -- Medical 03/93 08/87
Affairs
James E. Murray 41 Vice President and Controller 03/93 08/90
</TABLE>
---------------
(1) Elected an officer of a predecessor corporation in 1961.
(2) Mr. Hipwell was initially elected an officer of the Company in 1990 and
previously served in this same capacity since July 1992. Effective with the
Spinoff, he became Senior Vice President and General Counsel of Galen. Mr.
Hipwell returned to the Company in January 1994 and was named Senior Vice
President and General Counsel of the Company on June 15, 1994.
Executive officers are elected annually by the Company's Board of Directors
and serve until their successors are elected or until resignation or removal.
There are no family relationships among any of the directors or executive
officers of the Company, except that Mr. Jones is the father of David A. Jones,
Jr., a director of the Company. Except for Mr. Hipwell, all of the above-named
executive officers have been employees of the Company for more than five
consecutive years.
11
<PAGE> 13
PART II
Information for Items 5 through 8 of this Report, which appears in the 1994
Annual Report to Stockholders as indicated on the following table, is
incorporated by reference in this report and filed as an exhibit hereto:
<TABLE>
<CAPTION>
ANNUAL REPORT
TO
STOCKHOLDERS
PAGE
-------------
<S> <C> <C>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 36
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19-22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Consolidated financial statements 23-32
Quarterly financial information 33
</TABLE>
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
The information required by this Item other than the information set forth
in Part I under the Section entitled "EXECUTIVE OFFICERS OF THE COMPANY," is
herein incorporated by reference from the Registrant's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on May 11, 1995, appearing
under the caption "ELECTION OF DIRECTORS OF THE COMPANY FOR 1995" of such Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 11, 1995, appearing under the caption "EXECUTIVE COMPENSATION OF
THE COMPANY" of such Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 11, 1995, appearing under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK" of such Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 11, 1995 appearing under the caption "CERTAIN TRANSACTIONS WITH
MANAGEMENT AND OTHERS" of such Proxy Statement.
12
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<S> <C> <C>
(a) The financial statements, financial statement schedules and exhibits set forth below are
filed as part of this report.
(1) Financial Statements -- The response to this portion of Item 14 is submitted as a
separate section of this report.
(2) Index to Consolidated Financial Statement Schedules:
Consolidated Schedules as of and for the years ended December 31, 1994, 1993 and
1992:
I Parent Company Financial Information
II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable.
(3) Exhibits:
3 (a) Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1989, as restated pursuant to Item 102(c) of
regulation S-T to incorporate the amendment of January 9, 1992, and the
correction of March 23, 1992. Exhibit 4(i) to the Company's
Post-Effective Amendment to the Registration Statement on Form S-8 (Reg.
No. 33-49305) filed February 2, 1994, is incorporated by reference
herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current Report on Form
8-K (File No. 1-5975) filed March 5, 1993, is incorporated by reference
herein.
4 (a) Restated Certificate of Incorporation as amended and corrected and
By-laws as amended. (See 3(a) and (b) above.)
(b) Form of Rights Agreement dated March 5, 1987, between Humana Inc. and
Mid-America Bank of Louisville and Trust Company (the "Rights
Agreement"). Exhibit 1 to the Form SE for the Registration Statement
(File No. 1-5975) on Form 8-A dated March 9, 1987, is incorporated by
reference herein.
(c) Amendment No. 1, dated December 7, 1992, to the Rights Agreement. Exhibit
1.1 to the Company's Form 8 (File No. 1-5975) filed December 16, 1992, is
incorporated by reference herein.
(d) Amendment No. 2, dated March 2, 1993, to the Rights Agreement. Exhibit
1.2 to the Company's Form 8 (File No. 1-5975) filed March 2, 1993, is
incorporated by reference herein.
(e) There are no instruments defining the rights of holders with respect to
long-term debt in excess of 10% of the total assets of the Company and
its subsidiaries on a consolidated basis. Other long-term indebtedness of
the Company is described in Note 7 of Notes to Consolidated Financial
Statements in the Company's 1994 Annual Report to Stockholders. The
Company agrees to furnish copies of all such instruments defining the
rights of the holders of such indebtedness to the Commission upon
request.
10 (a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit 10(c) to Form
SE filed on November 25, 1987, is incorporated by reference herein.
</TABLE>
---------------
* Exhibits 10(a) through and including 10(t) and 10(mm) are compensatory plans
or management contracts.
13
<PAGE> 15
<TABLE>
<C> <S> <C>
10 (b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option Plan, as amended.
Annex A to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the Proxy Statement
covering the Annual Meeting of Stockholders on January 11, 1990, is
incorporated by reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for Employees. Annex B to
the Company's Proxy Statement covering the Annual Meeting of Stockholders
on February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for Employees. Exhibit
10(e) to the Company's Form 10-K for the year ended December 31, 1993, is
incorporated by reference herein.
(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the Proxy
Statement covering the Annual Meeting of Stockholders on January 11,
1990, is incorporated by reference herein.
(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Employee Directors.
Annex C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors.
Exhibit 10(h) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(i)* Executive Management Incentive Compensation Plan -- Group A, Corporate.
Exhibit C to the Proxy Statement covering the Annual Meeting of
Stockholders held on May 26, 1994, is incorporated by reference herein.
(j)* Executive Management Incentive Compensation Plan -- Group I, Corporate.
Exhibit 10(j) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(k)* Regional Incentive Compensation Plan -- Group I, Regional Senior Vice
President. Exhibit 10(k) to the Company's Form 10-K for the year ended
December 31, 1993, is incorporated by reference herein.
(l)* Senior Management Incentive Compensation Plan -- Group II, Corporate. Ex-
hibit 10(l) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(m)* Restated agreement providing for termination benefits in the event of a
change of control, filed herewith.
(n)* Employment Agreement -- Wayne T. Smith, filed herewith.
(o)* Employment Agreement -- David A. Jones, as amended. Exhibit 10(m) to the
Company's Annual Report on Form 10-K filed for the fiscal year ended
August 31, 1991, (File No. 1-5975) is incorporated by reference herein.
(p)* Directors' Retirement Policy as amended. Exhibit 10(m) to the Company's
Annual Report on Form 10-K filed for the fiscal year ended August 31,
1992, (File No. 1-5975) is incorporated by reference herein.
(q)* Humana Officers' Target Retirement Plan as amended, filed herewith.
</TABLE>
---------------
* Exhibits 10(a) through and including 10(t) and 10(mm) are compensatory plans
or management
contracts.
14
<PAGE> 16
<TABLE>
<C> <S> <C>
10 (r)* Form Letter Agreement concerning Humana Officers' Target Retirement Plan
dated June 18, 1992, for Mr. Jones. Exhibit 10(s) to the Company's Form
10-K for the year ended December 31, 1993, is incorporated by reference
herein.
(s)* Humana Thrift Excess Plan as amended, filed herewith.
(t)* Humana Supplemental Executive Retirement Plan as amended, filed herewith.
(u) Indemnity Agreement. Appendix B to the Proxy Statement covering the
Annual Meeting of Stockholders held on January 8, 1987, is incorporated
by reference herein.
(v) Agreement between The Secretary of the Department of Health and Human
Services and Humana Medical Plan, Inc. Exhibit 10(w) to the Company's
Form 10-K for the year ended December 31, 1993, is incorporated by
reference herein.
(w) Humana Inc. $200 million Credit Agreement dated January 12, 1994. Exhibit
10(x) to the Company's Form 10-K for the year ended December 31, 1993, is
incorporated by reference herein.
(x) Humana Inc. Agreement and Amended Credit Agreement dated October 27,
1994, filed herewith.
(y) Operating Agreement between the Company and Galen Health Care, Inc.
("Galen"), now a subsidiary of Columbia/HCA Healthcare Corporation.
Exhibit 10(d) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(z) Form of Hospital Services Agreement between the Company and Galen.
Exhibit 10(e) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(aa) Medicare Supplement Agreement between the Company and Galen. Exhibit
10(f) to the Company's Current Report on Form 8-K filed on March 5, 1993,
is incorporated by reference herein.
(bb) Assumption of Liabilities and Indemnification Agreement between the
Company and Galen. Exhibit 10(g) to the Company's Current Report on Form
8-K filed on March 5, 1993, is incorporated by reference herein.
(cc) Employee Benefits Allocation Agreement between the Company and Galen. Ex-
hibit 10(h) to the Company's Current Report on Form 8-K filed on March 5,
1993, is incorporated by reference herein.
(dd) Tax Sharing and Indemnification Agreement between the Company and Galen.
Exhibit 10(i) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(ee) Loss Portfolio Reinsurance Agreement between Health Care Indemnity, Inc.
and Managed Care Indemnity, Inc. Exhibit 10(j) to the Company's Current
Report on Form 8-K filed on March 5, 1993, is incorporated by reference
herein.
(ff) Intellectual Property Agreement between the Company and Galen. Exhibit
10(p) to the Company's Current Report on Form 8-K filed on March 5, 1993,
is incorporated by reference herein.
(gg) Information Systems Split Agreement between the Company and Galen.
Exhibit 10(s) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
</TABLE>
---------------
* Exhibits 10(a) through and including 10(t) and 10(mm) are compensatory plans
or management
contracts.
15
<PAGE> 17
<TABLE>
<C> <S> <C>
10 (hh) Intercompany Information Systems Agreement between the Company and Galen.
Exhibit 10(t) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(ii) Intercompany Communications Agreement between the Company and Galen. Ex-
hibit 10(u) to the Company's Current Report on Form 8-K filed on March 5,
1993, is incorporated by reference herein.
(jj) Alternative Dispute Resolution Agreement between the Company and Galen
dated March 8, 1993. Exhibit 10(qq) to the Company's Form 10-K for the
year ended December 31, 1993, is incorporated by reference herein.
(kk) Workers' Compensation Administrative Services Agreement between Humana
Health Insurance Company of Florida, Inc., a wholly-owned subsidiary of
the Company, and Galen. Exhibit 10(w) to the Company's Current Report on
Form 8-K filed on March 5, 1993, is incorporated by reference herein.
(ll) Administrative Services Agreement between Humana Insurance Company, a
wholly-owned subsidiary of the Company, and Galen. Exhibit 10(x) to the
Company's Current Report on Form 8-K filed on March 5, 1993, is
incorporated by reference herein.
(mm)* Letter agreement with Company officers concerning health insurance
availability, filed herewith.
12 Statement re Computation of Ratio of Earnings to Fixed Charges, filed
herewith.
13 1994 Annual Report to Stockholders, filed herewith. The Annual Report
shall not be deemed to be filed with the Commission except to the extent
that information is specifically incorporated by reference herein.
21 Subsidiary list filed herewith.
23 Consent of Coopers & Lybrand L.L.P., filed herewith.
27 Financial Data Schedule, filed herewith.
</TABLE>
---------------
* Exhibits 10(a) through and including 10(t) and 10(mm) are compensatory plans
or management contracts.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Sections 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, thereto duly authorized.
HUMANA INC.
By: /s/ W. ROGER DRURY
------------------------------------
W. Roger Drury
Chief Financial Officer
Date: March 30, 1995
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
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
--------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
/s/ JAMES E. MURRAY Vice President and Controller March 30, 1995
--------------------------------------------- (Principal Accounting
James E. Murray Officer)
/s/ DAVID A. JONES Chairman of the Board and Chief March 30, 1995
--------------------------------------------- Executive Officer
David A. Jones
/s/ WAYNE T. SMITH President and Chief Operating March 30, 1995
--------------------------------------------- Officer and Director
Wayne T. Smith
/s/ K. FRANK AUSTEN, M.D. Director March 30, 1995
---------------------------------------------
K. Frank Austen, M.D.
/s/ MICHAEL E. GELLERT Director March 30, 1995
---------------------------------------------
Michael E. Gellert
/s/ JOHN R. HALL Director March 30, 1995
---------------------------------------------
John R. Hall
/s/ DAVID A. JONES, JR. Director March 30, 1995
---------------------------------------------
David A. Jones, Jr.
/s/ IRWIN LERNER Director March 30, 1995
---------------------------------------------
Irwin Lerner
/s/ W. ANN REYNOLDS, Ph.D. Director March 30, 1995
---------------------------------------------
W. Ann Reynolds, Ph.D.
</TABLE>
17
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Humana Inc.
Our report on the consolidated financial statements of Humana Inc. dated
February 13, 1995, which includes an explanatory paragraph relating to a change
in 1993 in the method of accounting for certain investments in debt and equity
securities, has been incorporated by reference in this Form 10-K from page 33 of
the 1994 Annual Report to Shareholders of Humana Inc. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the index in Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
February 13, 1995
18
<PAGE> 20
HUMANA INC.
SCHEDULE I -- PARENT COMPANY FINANCIAL INFORMATION(A)
CONDENSED BALANCE SHEET
DECEMBER 31, 1994 AND 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
-----------------
1994 1993
------ ------
<S> <C> <C>
Cash and cash equivalents $ 27
Marketable securities 103
Other current assets $ 142 168
------ ------
Total current assets 142 298
Property and equipment, net 139 125
Investments in subsidiaries 725 509
Long-term marketable securities 235 110
Other 33 35
------ ------
TOTAL ASSETS $1,274 $1,077
====== ======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities $ 199 $ 164
Other 17 24
------ ------
Total liabilities 216 188
------ ------
Contingencies(b)
Common stock $.16 2/3 par; authorized 300,000,000 shares; issued and
outstanding 161,330,064 shares -- 1994, 160,343,788 shares -- 1993 27 27
Other stockholders' equity 1,031 862
------ ------
Total common stockholders' equity 1,058 889
------ ------
TOTAL LIABILITIES AND COMMON STOCKHOLDERS' EQUITY $1,274 $1,077
====== ======
</TABLE>
---------------
(a) Parent company financial information has been derived from the consolidated
financial statements of the Company and excludes the accounts of all
operating subsidiaries. This information should be read in conjunction with
the consolidated financial statements of the Company.
(b) In the normal course of business, the parent company indemnifies certain of
its subsidiaries for health plan obligations its subsidiaries may be unable
to meet. In addition, the parent remains contingently liable for
approximately $55 million of Galen debt.
19
<PAGE> 21
HUMANA INC.
SCHEDULE I -- PARENT COMPANY FINANCIAL INFORMATION(A)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Revenues:
Management fees charged to operating subsidiaries $153 $121 $ 87
Interest income 19 14
---- ---- -----
172 135 87
---- ---- -----
Expenses:
Selling, general and administrative 164 147 101
Depreciation and amortization 18 18 19
Restructuring and unusual charges 58
Interest expense (recovery) (24) 16 11
---- ---- -----
158 181 189
---- ---- -----
Income (loss) before income taxes and equity in income (loss) of
subsidiaries 14 (46) (102)
Income tax benefit 17 34
---- ---- -----
Income (loss) before equity in income (loss) of subsidiaries 14 (29) (68)
Equity in income (loss) of subsidiaries 162 118 (39)
---- ---- -----
Net income (loss) $176 $ 89 $(107)
==== ==== =====
</TABLE>
---------------
(a) Parent company financial information has been derived from the consolidated
financial statements of the Company and excludes the accounts of all
operating subsidiaries. This information should be read in conjunction with
the consolidated financial statements of the Company.
20
<PAGE> 22
HUMANA INC.
SCHEDULE I -- PARENT COMPANY FINANCIAL INFORMATION(A)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1994 1993 1992
----- ----- ----
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ 81 $ 20 $(79)
----- ----- ----
Cash flows from investing activities:
Change in property and equipment (10) (1) 3
Change in marketable securities (28) (208) 6
Parent funding of operating subsidiaries (170) (160) (19)
Dividends from operating subsidiaries 98 40 24
Other (22) (21) (39)
----- ----- ----
Net cash used in investing activities (132) (350) (25)
----- ----- ----
Cash flows from financing activities:
Equity funding 383 72
Other 24 (26) 32
----- ----- ----
Net cash provided by financing activities 24 357 104
----- ----- ----
Increase (decrease) in cash and cash equivalents (27) 27
Cash and cash equivalents at beginning of period 27
----- ----- ----
Cash and cash equivalents at end of period $ $ 27 $
===== ===== ====
</TABLE>
---------------
(a) Parent company financial information has been derived from the consolidated
financial statements of the Company and excludes the accounts of all
operating subsidiaries. This information should be read in conjunction with
the consolidated financial statements of the Company.
21
<PAGE> 23
HUMANA INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS END OF
OF PERIOD EXPENSES OR WRITE-OFFS PERIOD
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Allowance for loss on premiums receivable:
Year ended December 31, 1992 $ 10 $8 $(4) $ 14
Year ended December 31, 1993 14 4 (1) 17
Year ended December 31, 1994 17 5 (2) 20
</TABLE>
22
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibits:
3 (a) Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1989, as restated pursuant to Item 102(c) of
regulation S-T to incorporate the amendment of January 9, 1992, and the
correction of March 23, 1992. Exhibit 4(i) to the Company's
Post-Effective Amendment to the Registration Statement on Form S-8 (Reg.
No. 33-49305) filed February 2, 1994, is incorporated by reference
herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current Report on Form
8-K (File No. 1-5975) filed March 5, 1993, is incorporated by reference
herein.
4 (a) Restated Certificate of Incorporation as amended and corrected and
By-laws as amended. (See 3(a) and (b) above.)
(b) Form of Rights Agreement dated March 5, 1987, between Humana Inc. and
Mid-America Bank of Louisville and Trust Company (the "Rights
Agreement"). Exhibit 1 to the Form SE for the Registration Statement
(File No. 1-5975) on Form 8-A dated March 9, 1987, is incorporated by
reference herein.
(c) Amendment No. 1, dated December 7, 1992, to the Rights Agreement. Exhibit
1.1 to the Company's Form 8 (File No. 1-5975) filed December 16, 1992, is
incorporated by reference herein.
(d) Amendment No. 2, dated March 2, 1993, to the Rights Agreement. Exhibit
1.2 to the Company's Form 8 (File No. 1-5975) filed March 2, 1993, is
incorporated by reference herein.
(e) There are no instruments defining the rights of holders with respect to
long-term debt in excess of 10% of the total assets of the Company and
its subsidiaries on a consolidated basis. Other long-term indebtedness of
the Company is described in Note 7 of Notes to Consolidated Financial
Statements in the Company's 1994 Annual Report to Stockholders. The
Company agrees to furnish copies of all such instruments defining the
rights of the holders of such indebtedness to the Commission upon
request.
10 (a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit 10(c) to Form
SE filed on November 25, 1987, is incorporated by reference herein.
(b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option Plan, as amended.
Annex A to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the Proxy Statement
covering the Annual Meeting of Stockholders on January 11, 1990, is
incorporated by reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for Employees. Annex B to
the Company's Proxy Statement covering the Annual Meeting of Stockholders
on February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for Employees. Exhibit
10(e) to the Company's Form 10-K for the year ended December 31, 1993, is
incorporated by reference herein.
(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the Proxy
Statement covering the Annual Meeting of Stockholders on January 11,
1990, is incorporated by reference herein.
(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Employee Directors.
Annex C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors.
Exhibit 10(h) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(i)* Executive Management Incentive Compensation Plan -- Group A, Corporate.
Exhibit C to the Proxy Statement covering the Annual Meeting of
Stockholders held on May 26, 1994, is incorporated by reference herein.
(j)* Executive Management Incentive Compensation Plan -- Group I, Corporate.
Exhibit 10(j) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(k)* Regional Incentive Compensation Plan -- Group I, Regional Senior Vice
President. Exhibit 10(k) to the Company's Form 10-K for the year ended
December 31, 1993, is incorporated by reference herein.
(l)* Senior Management Incentive Compensation Plan -- Group II, Corporate. Ex-
hibit 10(l) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(m)* Restated agreement providing for termination benefits in the event of a
change of control, filed herewith.
(n)* Employment Agreement -- Wayne T. Smith, filed herewith.
(o)* Employment Agreement -- David A. Jones, as amended. Exhibit 10(m) to the
Company's Annual Report on Form 10-K filed for the fiscal year ended
August 31, 1991, (File No. 1-5975) is incorporated by reference herein.
(p)* Directors' Retirement Policy as amended. Exhibit 10(m) to the Company's
Annual Report on Form 10-K filed for the fiscal year ended August 31,
1992, (File No. 1-5975) is incorporated by reference herein.
(q)* Humana Officers' Target Retirement Plan as amended, filed herewith.
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
10 (r)* Form Letter Agreement concerning Humana Officers' Target Retirement Plan
dated June 18, 1992, for Mr. Jones. Exhibit 10(s) to the Company's Form
10-K for the year ended December 31, 1993, is incorporated by reference
herein.
(s)* Humana Thrift Excess Plan as amended, filed herewith.
(t)* Humana Supplemental Executive Retirement Plan as amended, filed herewith.
(u) Indemnity Agreement. Appendix B to the Proxy Statement covering the
Annual Meeting of Stockholders held on January 8, 1987, is incorporated
by reference herein.
(v) Agreement between The Secretary of the Department of Health and Human
Services and Humana Medical Plan, Inc. Exhibit 10(w) to the Company's
Form 10-K for the year ended December 31, 1993, is incorporated by
reference herein.
(w) Humana Inc. $200 million Credit Agreement dated January 12, 1994. Exhibit
10(x) to the Company's Form 10-K for the year ended December 31, 1993, is
incorporated by reference herein.
(x) Humana Inc. Agreement and Amended Credit Agreement dated October 27,
1994, filed herewith.
(y) Operating Agreement between the Company and Galen Health Care, Inc.
("Galen"), now a subsidiary of Columbia/HCA Healthcare Corporation.
Exhibit 10(d) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(z) Form of Hospital Services Agreement between the Company and Galen.
Exhibit 10(e) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(aa) Medicare Supplement Agreement between the Company and Galen. Exhibit
10(f) to the Company's Current Report on Form 8-K filed on March 5, 1993,
is incorporated by reference herein.
(bb) Assumption of Liabilities and Indemnification Agreement between the
Company and Galen. Exhibit 10(g) to the Company's Current Report on Form
8-K filed on March 5, 1993, is incorporated by reference herein.
(cc) Employee Benefits Allocation Agreement between the Company and Galen. Ex-
hibit 10(h) to the Company's Current Report on Form 8-K filed on March 5,
1993, is incorporated by reference herein.
(dd) Tax Sharing and Indemnification Agreement between the Company and Galen.
Exhibit 10(i) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(ee) Loss Portfolio Reinsurance Agreement between Health Care Indemnity, Inc.
and Managed Care Indemnity, Inc. Exhibit 10(j) to the Company's Current
Report on Form 8-K filed on March 5, 1993, is incorporated by reference
herein.
(ff) Intellectual Property Agreement between the Company and Galen. Exhibit
10(p) to the Company's Current Report on Form 8-K filed on March 5, 1993,
is incorporated by reference herein.
(gg) Information Systems Split Agreement between the Company and Galen.
Exhibit 10(s) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(hh) Intercompany Information Systems Agreement between the Company and Galen.
Exhibit 10(t) to the Company's Current Report on Form 8-K filed on March
5, 1993, is incorporated by reference herein.
(ii) Intercompany Communications Agreement between the Company and Galen. Ex-
hibit 10(u) to the Company's Current Report on Form 8-K filed on March 5,
1993, is incorporated by reference herein.
(jj) Alternative Dispute Resolution Agreement between the Company and Galen
dated March 8, 1993. Exhibit 10(qq) to the Company's Form 10-K for the
year ended December 31, 1993, is incorporated by reference herein.
(kk) Workers' Compensation Administrative Services Agreement between Humana
Health Insurance Company of Florida, Inc., a wholly-owned subsidiary of
the Company, and Galen. Exhibit 10(w) to the Company's Current Report on
Form 8-K filed on March 5, 1993, is incorporated by reference herein.
(ll) Administrative Services Agreement between Humana Insurance Company, a
wholly-owned subsidiary of the Company, and Galen. Exhibit 10(x) to the
Company's Current Report on Form 8-K filed on March 5, 1993, is
incorporated by reference herein.
(mm)* Letter agreement with Company officers concerning health insurance
availability, filed herewith.
12 Statement re Computation of Ratio of Earnings to Fixed Charges, filed
herewith.
13 1994 Annual Report to Stockholders, filed herewith. The Annual Report
shall not be deemed to be filed with the Commission except to the extent
that information is specifically incorporated by reference herein.
21 Subsidiary list filed herewith.
23 Consent of Coopers & Lybrand L.L.P., filed herewith.
27 Financial Data Schedule, filed herewith.
</TABLE>
---------------
* Exhibits 10(a) through and including 10(t) and 10(mm) are compensatory plans
or management contracts.
<PAGE> 1
EXHIBIT 10(m)
AMENDED AND RESTATED AGREEMENT
This AMENDED AND RESTATED AGREEMENT ("AGREEMENT") is made by and between
HUMANA INC., Louisville, Kentucky (the "COMPANY") and _______________
________________________________ (the "EMPLOYEE").
WHEREAS, the Board of Directors (the "BOARD") of Humana Inc. desires to
foster the continuous employment of the Employee and has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Employee to his/her duties free from
distractions which could arise in the event of a threatened Change in Control of
the Company; and
WHEREAS, the Company and Employee have previously entered into an agreement
relating to Change in Control, and the Company and Employee desire to amend and
restate such agreement,
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Company and the Employee agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of November 3, 1994
and shall continue in effect until December 31, 1995; provided, however,
commencing on January 1, 1996 and on each January 1 thereafter, there shall
automatically be an extension of one (1) year on the then-current term of this
Agreement, unless either the Company or the Employee shall have given written
notice to the other at least ninety (90) days prior thereto that the term of
this Agreement shall not be so extended. Notwithstanding any such notice by the
Company not to extend, the term of this Agreement shall not expire prior to the
expiration of thirty-six (36) months after a Change in Control (as hereinafter
defined) if the Agreement is still in effect on the date of the Change in
Control. Furthermore, if the Employee's employment with the Company shall be
terminated prior to a Change in Control, this Agreement shall automatically
expire.
2. TERMINATION BENEFITS.
a) If, following a Change in Control and during the term of this
Agreement (including any extensions of such term as provided in Section 1
hereof), the Employee's
<PAGE> 2
employment with the Company shall be terminated, the Employee shall be entitled
to the following compensation and benefits (in addition to any compensation and
benefits provided for under any of the Company's employee benefit plans,
policies and practices or under the terms of any other contracts):
1) If the Employee's employment with the Company shall be terminated by
the Employee other than for Good Reason, except during the Voluntary Termination
Period (as hereinafter defined) or other than by reason of the Employee's
Disability, Retirement or death as set forth in Subsection 2. a) 4), the Company
shall pay the Employee his/her full base salary earned but not yet paid through
the Date of Termination at the greater of the rate in effect at the time the
Change in Control occurred or when the Notice of Termination was given, plus any
bonuses or incentive compensation which pursuant to the terms of any
compensation or benefit plan have been earned and are payable as of the Date of
Termination. For purposes of this Agreement, bonuses and incentive compensation
shall be considered payable if all conditions for earning them have been met,
and any requirement that Employee be actively employed as of the date of payment
shall be disregarded.
2) If the Employee's employment with the Company shall be terminated for
Cause, the Company shall pay the Employee his/her full base salary earned but
not yet paid through the Date of Termination at the rate in effect at the time
Notice of Termination is given and the Company shall have no further obligations
to the Employee under this Agreement.
3) If the Employee's employment with the Company shall be terminated (A)
by the Company other than for Cause, or (B) by the Employee for Good Reason, or
(C) by the Employee during the Voluntary Termination Period, then the following
provisions shall apply:
A) The Company shall, within five (5) days after the Date of
Termination, pay the Employee his/her full base salary earned but not yet paid
through the Date of Termination at the greater of the rate in effect at the time
the Change in Control occurred or when the Notice of Termination was given, plus
any bonuses or incentive compensation which
2
<PAGE> 3
pursuant to the terms of any compensation or benefit plan have been earned and
are payable as of the Date of Termination, but which have not yet been paid.
B) The Company shall within five (5) days after the Date of
Termination pay the Employee a lump sum in an amount equal to ____________ times
the amount equal to the sum of (1) the Employee's Annual Base Salary at the
greater of the rate in effect at the time the Change in Control occurred or when
the Notice of Termination was given plus (2) the maximum bonus or incentive
compensation which could have been earned by the Employee during the
then-current fiscal year of the Company pursuant to the terms of the incentive
compensation plan in which he/she participates. If there is no incentive
compensation plan in effect at the time the Notice of Termination is given, then
for purposes of this Subsection it shall be assumed that the amount of incentive
compensation to be paid to the Employee shall be the same as the amount which
he/she could have earned during the last year during which there was an
incentive compensation plan in effect.
C) The Company shall maintain in full force and effect for the
benefit of the Employee and the Employee's dependents and beneficiaries, at the
Company's expense until the earlier of (A) the second (2nd) anniversary of the
Date of Termination, (B) the effective date of the Employee's coverage under
equivalent benefits from a new employer (provided that no such equivalent
benefits shall be considered effective unless and until all pre-existing
condition limitations and waiting period restrictions have been waived or have
otherwise lapsed), or (C) the death of the Employee, all life insurance, health
insurance, dental insurance, accidental death and dismemberment insurance and
disability insurance under plans and programs in which the Employee and/or the
Employee's dependents and beneficiaries participated immediately prior to the
Date of Termination, provided that continued participation is possible under the
general terms and provisions of such plans and programs. If participation in any
such plan or program is barred, the Company shall arrange at its own expense to
provide the Employee with benefits substantially similar to those which he/she
was entitled to receive under such plans and programs. At the end of the period
of coverage, the Employee shall have the right to have assigned to him/her, at
no cost and with no apportionment of prepaid premiums, any assignable insurance
policy relating specifically to him/her. Employee shall be entitled to
3
<PAGE> 4
continuation coverage as provided by the Consolidated Omnibus Budget
Reconciliation Act (COBRA) at the conclusion of the coverage provided under this
Subsection.
D) In the event that any payment or benefit [within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"CODE")] to the Employee or for his/her benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with or arising out of his/her employment with the Company or a
Change in Control of the Company or of a substantial portion of its assets (a
"PAYMENT" or "PAYMENTS") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereafter collectively referred to as the "EXCISE TAX"), then the
Employee will be entitled to receive an additional payment (a "GROSS-UP
PAYMENT") in an amount such that after payment by the Employee of all taxes
(including any interest or penalties, other than interest and penalties imposed
by reason of the Employee's failure to file timely a tax return or pay taxes
shown due on his/her return imposed with respect to such taxes and the Excise
Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
E) An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by the accounting firm of Coopers and
Lybrand L.L.P., or another accounting firm designated by and reasonably
acceptable to the Employee which is designated as one of the five largest
accounting firms in the United States (the "ACCOUNTING FIRM"). The Accounting
Firm shall provide its determination (the "DETERMINATION"), together with
detailed supporting calculations and documentation, to the Company and the
Employee within five (5) days of the Termination Date if applicable, or such
other time as requested by the Company or by the Employee (provided the
Employee reasonably believes that any of the Payments may be subject to the
Excise Tax); and if the Accounting Firm determines that no Excise Tax is
payable by the Employee with respect to a Payment or Payments, it shall furnish
the Employee with an
4
<PAGE> 5
opinion reasonably acceptable to the Employee that no Excise Tax will be imposed
with respect to any such Payment or Payments. Within ten (10) days of the
delivery of the Determination to the Employee, the Employee shall have the right
to dispute the Determination (the "DISPUTE"). The Gross-Up Payment, if any, as
determined pursuant to this Subsection, shall be paid by the Company to the
Employee within five (5) days of the receipt of the Accounting Firm's
Determination. The existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance with the
Determination. If there is no Dispute, the Determination shall be binding, final
and conclusive upon the Company and the Employee subject to the application of
Subsection 2.a)3)F) below.
F) As a result of the uncertainty in the application of Sections 4999
and 280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "EXCESS PAYMENT") or a
Gross-Up Payment (or a portion thereof) which should have been paid will not
have been paid (an "UNDERPAYMENT"). An Underpayment shall be deemed to have
occurred (A) upon notice (formal or informal) to the Employee from any
governmental taxing authority that the Employee's tax liability (whether in
respect of the Employee's current taxable year or in respect of any prior
taxable year) may be increased by reason of the imposition of the Excise Tax on
a Payment or Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment, (B) upon a determination by a court, (C) by reason
of determination by the Company (which shall include the position taken by the
Company, together with its consolidated group, on its federal income tax
return), or (D) upon the resolution of the Dispute to the Employee's
satisfaction. If an Underpayment occurs, the Employee shall promptly notify the
Company and the Company shall promptly, but in any event at least five (5) days
prior to the date on which the applicable government taxing authority has
requested payment, pay to the Employee an additional Gross-Up Payment equal to
the amount of the Underpayment plus any interest and penalties (other than
interest and penalties imposed by reason of the Employee's failure to file
timely a tax return or pay taxes shown due on the Employee's return) imposed on
the Underpayment. An Excess payment shall be deemed to have occurred upon a
Final
5
<PAGE> 6
Determination (as hereinafter defined) that the Excise Tax shall not be imposed
upon a Payment or Payments (or portion thereof) with respect to which the
Employee had previously received a Gross-Up Payment. A "FINAL DETERMINATION"
shall be deemed to have occurred when the Employee has received from the
applicable government taxing authority a refund of taxes or other reduction in
the Employee's tax liability by reason of the Excise Payment and upon either (A)
the date a determination is made by or an agreement is entered into with the
applicable governmental taxing authority which finally and conclusively binds
the Employee and such taxing authority, or in the event that a claim is brought
before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired, or (B) the statute
of limitations with respect to the Employee's applicable tax return has expired.
If an Excess Payment is determined to have been made, the amount of the Excess
Payment shall be treated as a loan by the Company to the Employee and the
Employee shall pay to the Company on demand [but not less than ten (10) days
after the Determination] such Excess Payment plus interest at an annual rate
equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code
from the date the Gross-Up Payment (to which the Excess Payment relates) was
paid to the Employee until the date of repayment to the Company.
G) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding the amount of the Excise
Tax that the Company has actually withheld from the Payment or Payments.
4) If the Employee's employment with the Company shall be terminated by
reason of the Employee's Disability, Retirement or death at any time after the
occurrence of a Change in Control but prior to the end of the Voluntary
Termination Period, the Employee shall be entitled to the benefits described in
Subsection 2. a) 3). Thereafter, for the duration of this Agreement, if
Employee's employment is terminated due to Disability, Retirement or death,
Employee shall be entitled to the benefits described in Subsection 2. a) 1).
6
<PAGE> 7
b) The Employee shall not be required to mitigate the amount of any
payment or benefit provided for in Subsection 2(a) by seeking other employment;
nor shall the amount of any payment or benefit provided for in Subsection 2(a)
be reduced by any compensation earned by the Employee as a result of employment
or otherwise. The amount of any payment or benefit provided for in Section 2
shall be in addition to any compensation or benefits due the Employee under any
other written agreement entered into between the Company and the Employee,
unless such other agreement expressly provides otherwise.
c) For purposes of this Agreement, the following definitions shall
apply:
1) "CHANGE IN CONTROL" shall mean any of the following events:
A) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "VOTING SECURITIES") by any Person [as the
term "Person" is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 ACT")] immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of twenty percent (20%) or more of the combined voting power
of the Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "NON-CONTROL
ACQUISITION" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (1) the Company or (2) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a "SUBSIDIARY"), (B) the Company or any Subsidiary, or (C) any Person
in connection with a Non-Control Transaction (as hereinafter defined).
B) The individuals who, as of the date this Agreement is
approved by the Board, are members of the Board (the "INCUMBENT BOARD") cease
for any reason to constitute at least two-thirds (2/3) of the Board; provided,
however, that if the election or nomination for election by the Company's
stockholders of any new director was approved by a vote of at least two-thirds
(2/3) of the Incumbent Board, such new director shall, for purposes
7
<PAGE> 8
of this Agreement, be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened Election Contest (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "PROXY
CONTEST"), including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
C) Approval by stockholders of the Company of:
i) A merger, consolidation or reorganization involving the
Company, unless
(a) The stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy-five
percent (75%) of the combined voting power of the outstanding Voting Securities
of the corporation resulting from such merger or consolidation or reorganization
or the ultimate entity controlling such corporation (the "SURVIVING
CORPORATION") in substantially the same proportion as their ownership of the
Voting Securities immediately before such merger, consolidation or
reorganization;
(b) The individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds (2/3) of the
members of the board of directors of the Surviving Corporation and no agreement,
plan or arrangement is in place to change the composition of the board following
the merger, consolidation or reorganization; and
(c) No Person [other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty percent (20%) or more of the then-outstanding Voting
Securities] has Beneficial Ownership of twenty
8
<PAGE> 9
percent (20%) or more of the combined voting power of the Surviving
Corporation's then-outstanding Voting Securities;
(d) A transaction described in clauses (a) through (c) shall
herein be referred to as a "NON-CONTROL TRANSACTION."
ii) A complete liquidation or dissolution of the Company; or
iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "SUBJECT PERSON") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person, provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by the Company, and after
such share acquisition by the Company the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then-outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
2) "DISABILITY" shall mean a physical or mental illness which impairs
the Employee's ability to substantially perform his/her duties as an Employee
and as a result of which the Employee shall have been absent from his/her duties
with the Company on a full-time basis for six (6) consecutive months.
3) "RETIREMENT" shall mean the voluntary termination of the Employee's
employment after having attained age sixty-five (65) or such other age as shall
have been fixed in any retirement arrangement established by the Company with
the Employee's consent.
9
<PAGE> 10
4) A termination for "CAUSE" is a termination by reason of the
conviction of the Employee, by a court of competent jurisdiction and following
the exhaustion of all possible appeals, of a criminal act involving the Company
or its assets.
5) "GOOD REASON" shall mean the occurrence after a Change in Control of
any of the following events without the Employee's express written consent:
A) Any change in the Employee's title, authorities, responsibilities
(including reporting responsibilities) which, in the Employee's reasonable
judgment, does not represent a promotion from his/her status, title, position or
responsibilities (including reporting responsibilities) which were in effect
immediately prior to the Change in Control; the assignment to him/her of any
duties or work responsibilities which, in his/her reasonable judgment, are
inconsistent with such status, title, position or work responsibilities; or any
removal of the Employee from or failure to reappoint or re-elect him/her to any
of such positions, except if any such changes are because of Disability,
Retirement, death or Cause;
B) A reduction by the Company in the Employee's Annual Base Salary
as in effect on the date hereof or as the same may be increased from time to
time or a failure by the Company to increase, within twelve (12) months of the
Employee's last increase in Annual Base Salary, his/her Annual Base Salary by an
amount not less than the greater of (A) six percent (6%) or (B) the average
percentage increase in Annual Base Salary for all employees of the Company at
the Employee's grade level during the twelve (12) month period immediately
following the Employee's last increase in base salary; provided, however that
the Company's failure to increase the Employee's Annual Base Salary more than
eight percent (8%) annually shall not constitute Good Reason under this
Subsection under any circumstances;
C) The relocation of the Employee's office at which he/she is to
perform his/her duties to a location more than thirty (30) miles from the
location at which the Employee performed his/her duties prior to the Change in
Control, except for required travel on the Company's business to an extent
substantially consistent with his/her business travel obligations prior to the
Change in Control;
10
<PAGE> 11
D) The adverse and substantial alteration of the nature and quality
of the office space within which the Employee performed his/her duties prior to
a Change in Control, including the size and location thereof, as well as in the
secretarial and administrative support provided to the Employee;
E) The failure by the Company to continue in effect any incentive,
bonus or other compensation plan in which the Employee participates, including
but not limited to the Company's stock-related incentive plans and annual
incentive compensation plans, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan
in connection with the Change in Control, or the failure by the Company to
continue the Employee's participation therein, or any action by the Company
which would directly or indirectly materially reduce his/her participation
therein or reward opportunities thereunder;
F) The failure by the Company to continue in effect any employee
benefit plan (including any medical, hospitalization, life insurance, dental or
disability benefit plan in which the Employee participated) or any material
fringe benefit or perquisite enjoyed by the Employee at the time of the Change
in Control, unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan in connection with
the Change in Control, or the failure by the Company to continue the Employee's
participation therein, or any action by the Company which would directly or
indirectly materially reduce his/her participation therein, or the failure by
the Company to provide the Employee with the number of paid vacation days to
which he/she would be entitled on the basis of years of service with the Company
in accordance with the Company's normal vacation policy in effect immediately
prior to the Change in Control;
G) Any material breach by the Company of any provision of this
Agreement;
H) The failure of the Company to obtain a satisfactory agreement
from any successor or assign of the Company to assume and agree to perform this
Agreement, as contemplated in Section 3 hereof; or
11
<PAGE> 12
I) Any purported termination of the Employee's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Subsection 2.c)6); and for purposes of this Agreement, no such purported
termination shall be effective. The Employee's right to terminate employment for
Good Reason shall not be affected by his/her incapacity due to physical or
mental illness.
6) "NOTICE OF TERMINATION" shall mean a notice which shall indicate the
specific termination provision in this Agreement which is relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated. Any purported termination by the Company or by the Employee shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 5 hereof. For purposes of this Agreement, no such
purported termination shall be effective without such Notice of Termination.
7) "DATE OF TERMINATION" shall mean:
A) If the Employee's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given [provided that the Employee shall
not have returned to the performance of his/her duties on a full-time basis
during such thirty (30) day period]; and
B) If the Employee's employment is terminated for any other reason,
the date specified in the Notice of Termination [which in the case of a
termination pursuant to Subsection 2.c)4) above shall not be less than thirty
(30) days, and in the case of a termination pursuant to Subsection 2.c)5) above
shall not be more than sixty (60) days, after the date such Notice of
Termination is given]; provided that if within thirty (30) days after any Notice
of Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined either
by mutual written agreement of the parties, or by the final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been taken). Notwithstanding the pendency of
any such dispute, the Company will continue to pay the Employee his/her full
base salary and
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<PAGE> 13
will continue the Employee as a participant in all compensation, incentive,
bonus, pension, profit sharing, benefit and insurance plans in which he/she was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with this Subsection.
8) "ANNUAL BASE SALARY" shall mean that yearly compensation rate
established from time to time by the Company as an employee's regular
compensation for the next succeeding twelve (12) month period payable to an
Employee by the Company's payroll checks on a periodic basis.
9) "VOLUNTARY TERMINATION PERIOD" shall mean the thirty (30) day period
beginning twelve (12) months following a Change in Control during which the
Employee may terminate employment voluntarily, without Good Reason, and be
entitled to the Termination Benefits set forth in Subsection 2.a)3). If the
Employee provides Notice of Termination at any time during the thirty (30) day
period, the termination shall be deemed to have occurred within the Voluntary
Termination Period, regardless when the Employee's Date of Termination shall
occur. The failure of the Employee to provide Notice of Termination during the
Voluntary Termination Period shall not be construed as a waiver of any other
rights under this Agreement, including any right to assert that a termination is
for Good Reason, regardless whether the occurrence of the event giving rise to
Good Reason shall have been before or after the Voluntary Termination Period.
3. SUCCESSORS; BINDING AGREEMENT.
a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent the Company would be required to perform it if no such succession or
assignment had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor or assign to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law or otherwise.
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<PAGE> 14
b) This Agreement shall inure to the benefit of and be enforceable by
the Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts would still be payable to him/her hereunder if he/she had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee, and if there is no such devisee, legatee or designee,
to the Employee's estate.
4. FEES AND EXPENSES. Following a Change in Control, the Company shall pay
all legal fees and related expenses (including the costs of experts, evidence
and counsel) incurred by the Employee as a result of (A) the Employee's
termination of employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment whether
or not such contest or dispute is resolved in the Employee's favor), or (B) the
Employee seeking to obtain or enforce any right or benefit provided by this
Agreement or by any other plan or arrangement maintained by the Company under
which the Employee is or may be entitled to receive benefits, or (C) the
Employee's challenge of any Determination by the IRS that Payments together with
any Gross-Up Payment would be subject to the Excise Tax imposed by Section 4999
of the Code.
5. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses last given by each party to the other, provided that all notices to
the Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith. All notices and
communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
6. MISCELLANEOUS. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in writing
and signed by
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<PAGE> 15
the Employee and such officer of the Company as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
7. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of Kentucky without giving effect to the
conflicts of laws principles thereof.
8. SEVERABILITY. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, between the parties hereto with respect to
the subject matter hereof, including specifically the agreement between the
parties which was effective on _________________.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Employee has executed this Agreement, each
as of the day and year set forth below.
ATTEST: HUMANA INC.
BY: BY:
-------------------------- ---------------------------
(Assistant) Secretary Senior Vice President
DATE:
-------------------------
"EMPLOYEE"
------------------------------
DATE:
-------------------------
15
<PAGE> 1
Exhibit 10(n)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made by and between Wayne T. Smith ("Employee") and
Humana Inc. ("Humana") as of January 1, 1995.
WITNESSETH
WHEREAS, Employee serves as President and Chief Operating Officer of
Humana; and
WHEREAS, Employee has participated in and continues to participate in
the major decisions affecting Humana, its employees and its shareholders and
through his services has made a major contribution to the management of Humana;
and
WHEREAS, it is in the best interest of Humana to retain employees with
the level of expertise and experience which Employee possesses; and
WHEREAS, the Compensation Committee of the Board of Directors
("Committee") of Humana has determined that it is in the best interest of
Humana to enter into an Employment Agreement with Employee;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the
parties agree as follows:
1. TERM OF THE AGREEMENT. This Agreement shall commence as of
January 1, 1995, and shall continue in effect for one (1) year; provided,
however, that, commencing on the first anniversary of the Agreement and each
anniversary thereafter, this Agreement shall automatically renew for an
additional one-year term unless Employee or the Board of Directors ("Board")
determines to terminate it and provides notice of such determination within one
hundred eighty (180) days prior to the beginning of any renewal term.
2. CONTINUED EMPLOYMENT. Employee agrees to continue in the
employment of Humana during the term of this Agreement and devote his best
efforts to the business and affairs of Humana.
3. CONFIDENTIAL INFORMATION.
(i) Employee recognizes and acknowledges that during the term
of employment Employee will develop, have access to and come into
possession of trade secrets and confidential information of Humana
including, without limitation, software systems, specifications,
programs and documentation, the methods and data which Humana owns,
plans or develops, whether for its own use or for use by its clients,
developments, designs, inventions and improvements, trade secrets and
works of authorship, customer lists, supplier lists, proposals,
marketing plans and procedures, all of which are confidential and are
the property of Humana. Employee further recognizes and acknowledges
that in order to enable Humana to perform services for its customers,
those customers may furnish to Humana confidential information
concerning their business
<PAGE> 2
affairs, property, methods of operation or other data and that the
goodwill afforded to Humana and its employees requires keeping such
services and information confidential. All of these materials and
information including, without limitation, those relating to Humana's
systems and customers, will be referred to below as "Proprietary
Information."
(ii) Employee agrees that during the term of Employee's
employment with Humana and thereafter, Employee will keep any and all
Proprietary Information confidential and will not disclose any
Proprietary Information, directly or indirectly, to any third person
or entity, without the prior written consent of Humana. Employee
further agrees that during the term of Employee's employment with
Humana and thereafter Employee will not use, handle, copy or
duplicate, in part or in whole, any Proprietary Information, except as
directed by Humana and in the ordinary course of Humana's business.
This confidentiality covenant has no temporal, geographic or
territorial restriction.
(iii) Employee agrees that upon request by Humana, and in any
event immediately upon termination of Employee's employment, Employee
shall turn over to Humana all property, keys, notes, memoranda,
writings, lists, files, reports, customer lists, correspondence,
tapes, software, cards, surveys, maps, logs, machines, technical data,
work product or any other tangible product or document which has been
produced by, received by or otherwise submitted or made available to
Employee during or prior to Employee's employment with Humana.
(iv) Employee understands and agrees that all Proprietary
Information is and shall remain the property of Humana and that
Employee has not and will not appropriate for Employee's own use or
for the use of any third party any Proprietary Information.
Furthermore, Employee hereby assigns and agrees to assign to Humana or
its subsidiaries or affiliates, as appropriate, its successors,
assigns or nominees, Employee's entire right, title and interest in
any developments, designs, patents, inventions and improvements, trade
secrets, trademarks, copyrightable subject matter or other Proprietary
Information which Employee has made or conceived, or may make or
conceive, either solely or jointly with others, while providing
services to Humana, or with the use of time, material or facilities of
Humana or relating to any actual or anticipated business, research,
development, product, service or activity of Humana known to Employee
while employed by Humana, or suggested by or resulting from any task
assigned to Employee or work performed by Employee for or on behalf of
Humana, whether or not such work was performed prior to the date of
this Agreement.
4. COVENANT NOT TO COMPETE. Employee agrees that because of the
confidential and sensitive nature of the Proprietary Information and because
the use of, or even the appearance of the use of, the Proprietary Information
in certain circumstances may cause irreparable damage to Humana and its
reputation, or to customers of Humana, Employee will not, from the date of this
Agreement until the expiration of one (1) year after the date on which
Employee's
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<PAGE> 3
employment with Humana terminates for any reason, directly or indirectly, own,
manage, operate, join, control, be employed by, or participate in the
ownership, management, operation or control of or be connected in any manner,
including as director, officer, consultant, independent contractor, employee,
partner, or investor with any business, enterprise, organization or other
individual or entity which solicits business, performs services or delivers
goods that are comparable to or competitive with any business of Humana;
provided, however, that the ownership of less than five percent (5%) of the
outstanding capital stock of any entity with securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, shall not be
prohibited by this Section 4.
5. NON-SOLICITATION. Employee agrees that during the term of
Employee's employment with Humana and for a period of one (1) year thereafter,
Employee will not interfere with Humana's relationship with, or endeavor to
entice away from Humana, any business, enterprise, organization or other
individual or entity, which is an employee, customer or supplier of Humana, or
which maintains a business relationship with any business of Humana.
6. COMPENSATION AND BENEFITS.
(i) Employee's base salary will be set by Humana from time to
time and will not be less than Employee's base salary as of the
effective date of this Agreement. Humana may raise Employee's base
salary, but shall not lower such base salary. Each year's base salary
will be payable in arrears in twenty-six (26) equal bi-weekly
installments.
(ii) Employee shall be eligible to participate in (a) all
management incentive compensation plans, stock option and other equity
based incentive plans, bonus plans and deferred compensation plans
maintained by Humana from time to time (awards under which shall be
subject to the discretion of the Compensation Committee) as well as
(b) Humana's savings and retirement plans, (c) Humana's health plan,
disability income plan, life insurance plan (collectively the "Welfare
Plans"), and (d) all other employee benefit plans now in effect or
hereafter adopted by Humana so long as they are maintained during the
term of the Agreement, Employee's participation therein to be
commensurate with his compensation and position and to be determined
in accordance with the same general principles applied in determining
the participation of other employees, other than as otherwise
specified herein.
7. TERMINATION WITHOUT CAUSE. If Employee is terminated by
Humana at any time during the term of this Agreement other than for Cause, as
defined herein, or shall receive the notification described in Section 1 of
this Agreement, he shall be entitled to the following:
(i) Payment in a lump sum within five (5) days of
termination of an amount equal to one time his then-current base
salary.
(ii) Immediate and full vesting of any stock options which
are not otherwise exercisable or payable as of the date of termination
of employment. The expiration or
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<PAGE> 4
termination of awards will be governed by the terms of the plans under
which they were initially granted; provided that Employee shall be
treated as retiring from the Company for purposes of determining when
his stock options expire.
(iii) Payment of benefits under the Humana Officers' Target
Retirement Plan ("Target Plan") calculated so that Employee is
deemed, for the purpose of vesting under the Target Plan , to be the
greater of age fifty-five (55) or Employee's actual age at date of
termination. For purposes of the Target Plan, Average Participating
Compensation shall be calculated, based on the highest three (3) of
the last ten (10) Plan years coincident with or preceding Employee's
termination.
(iv) Continuation of life insurance coverage at no cost to
employee to age sixty-five (65) on the same terms and at the same
levels as when he was employed.
(v) Continuation of health insurance coverage, under an
insured health program available to Humana employees, until age
sixty-five (65) at the cost for such coverage calculated in the manner
provided under the Consolidated Omnibus Budget Reconciliation Act
(COBRA). Employee's spouse also shall be entitled, as Employee's
dependent, to continuation of health insurance coverage until she
reaches age sixty-five (65) under the same plans as Employee and
subject to the same terms and cost of coverage under those plans as
Employee. However, once Employee reaches age sixty-five (65) and is
entitled to coverage under Medicare (or its successor), he shall not
be entitled to dependent coverage under his spouse's coverage.
8. TERMINATION FOR CAUSE. If Humana terminates Employee's
employment with Humana for Cause, then this Agreement shall terminate and
Humana shall have no further obligation to pay Employee any amounts under this
Agreement except base salary already earned and payable, but not yet paid.
Termination of participation and benefits under the Welfare Plans and other
employee benefit plans of the Company shall be in accordance with the
particular terms and provisions of each such plan.
A termination is for "Cause" if Employee (a) intentionally engaged in
conduct which is demonstrably and materially injurious to Humana; provided,
however, that no act, nor failure to act, on Employee's part, shall be
considered "intentional" unless he has acted, or failed to act, with a lack of
good faith and with a lack of reasonable belief that his action or failure to
act was in the best interest of Humana, or (b) is convicted by a court of
competent jurisdiction and following the exhaustion of all possible appeals, of
a criminal act involving Humana or its assets. Notwithstanding the foregoing,
Employee shall not be deemed to have been terminated for Cause unless there
shall have been delivered to Employee a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to Employee and an opportunity for Employee, together with
his counsel, to be heard before the Board), finding that in the opinion of the
Board that the acts set forth in (a) or (b) above occurred as set forth herein
and specifying the particulars thereof in detail.
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<PAGE> 5
9. VOLUNTARY RESIGNATION DURING THE TERM. In the event that
Employee shall voluntarily resign during the term of this Agreement, he shall
be entitled to the compensation and benefits set forth in Section 7(i), (iii),
(iv) and (v). Termination of participation under other benefit plans of the
Company shall be in accordance with the particular terms and provisions of such
plans.
10. TERMINATION DUE TO DISABILITY OR DEATH. Employee's severance
of employment during the term of this Agreement due to permanent and total
disability shall not be considered a voluntary resignation. In this event,
Employee shall be entitled to the benefits set forth in Section 7(i), (ii),
(iii), (iv) and (v). In the event Employee dies during the term of this
Agreement, Employee's beneficiary or beneficiaries or estate as appropriate
shall be entitled to the benefits set forth in Section 7(i), (ii) and (iii).
11. CHANGE IN CONTROL. In the event of a Change in Control, as
defined in Employee's severance protection agreement dated February 19, 1993,
as amended and restated as of November 3, 1994, and as it may be amended from
time to time ("Severance Protection Agreement"), his benefit under the Target
Plan shall be calculated with additional service credits, if necessary, so that
he is deemed to have thirty (30) years of service. In addition, his benefit
shall be calculated in accordance with the terms of the Target Plan or in
accordance with Section 7(iii) hereunder, whichever shall be more beneficial to
Employee. The benefits set forth in Section 7(iv) and (v) shall commence at
the conclusion of the continuation of benefits described in Subsection 2)a)3)C)
of the Severance Protection Agreement.
12. THIS AGREEMENT supersedes and rescinds the Letter Agreement
between Humana and Employee dated June 18, 1992, and the Employment Agreement
between Employee and Humana dated April 1, 1987. All other agreements between
Humana and Employee continue in full force and effect.
13. BINDING EFFECT. This Agreement and any amendments hereto
shall be binding upon and inure to the benefit of the parties hereto and their
successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky without
regard to its rules of conflict of laws. The parties hereby irrevocably and
unconditionally consent to submit to the exclusive jurisdiction of the courts
of the Commonwealth of Kentucky and of the United States of America located in
the Commonwealth of Kentucky for any litigation arising out of or relating to
this Agreement and the transactions contemplated hereby; and agree not to
commence any litigation relating thereto except in such courts.
15. SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so
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<PAGE> 6
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
IN WITNESS WHEREOF, Humana has caused this Agreement to be executed by
its duly authorized officer and Employee has executed this Agreement, each as
of the day and year set forth above.
HUMANA INC.
Arthur P. Hipwell
By:____________________________________
Senior Vice President
Wayne T. Smith
Employee:______________________________
Wayne T. Smith
6
<PAGE> 1
EXHIBIT 10(q)
HUMANA OFFICERS' TARGET RETIREMENT PLAN
AMENDED AND RESTATED AS OF
JANUARY 1, 1995
<PAGE> 2
HUMANA OFFICERS' TARGET RETIREMENT PLAN
AMENDED AND RESTATED AS OF
JANUARY 1, 1995
WHEREAS, on May 10, 1990, Humana Inc. ("Humana"), a Delaware corporation
with its principal place of business in Louisville, Kentucky ("Sponsoring
Employer"), adopted the Humana Officers' Target Retirement Plan ("Plan"), and
WHEREAS, the Board of Directors of the Sponsoring Employer desires to amend
the Plan, and has authorized and approved the amendment and restatement of the
Plan provided for herein,
NOW, THEREFORE, the Sponsoring Employer, pursuant to the right to amend in
Article 8, hereby approves and adopts this amendment and restatement of the Plan
effective January 1, 1995, which should read as follows:
ARTICLE 1
PURPOSE AND APPLICABILITY OF PLAN
1.01 The purpose of the Plan shall be to provide supplemental retirement
benefits to Participants upon the terms and conditions and subject to the
limitations contained herein.
1.02 The provisions of the Plan shall apply only to persons who are
Officers of the Sponsoring Employer or other key management employees designated
by the Committee on and after the Effective Date.
ARTICLE 2
DEFINITIONS
As used herein the following words and phrases shall have the meanings
specified below, unless a different meaning is plainly required by context. The
meaning of any term not specifically defined below will be governed by the
definition in the Humana Retirement and Savings Plan.
2.01 The term "Attained Age" shall mean, unless clearly indicated to the
contrary, the age of a Participant as of the Participant's last birthday.
2.02 The term "Average Participating Compensation" shall mean the average
of Participating Compensation as determined using the highest three (3) Plan
Years of the Participant's last five (5) Plan Years (including any partial Plan
Year) coincident with or preceding the Participant's Early or Normal Retirement
Date, Disability Retirement Date, Late
<PAGE> 3
Retirement Date, date of death or Change in Control. If the Participant has
fewer than three (3) full Plan Years of Participating Compensation, Average
Participating Compensation shall be based on the number of full Plan Years that
the Participant has Participating Compensation.
2.03 The term "Annual Retirement Benefit" shall mean an amount equal to the
Participant's Average Participating Compensation multiplied by the lesser of (i)
fifty percent (50%), or (ii) a percentage equal to 1.67% times the Participant's
Service.
2.04 The term "Beneficiary and Secondary Beneficiary" shall mean the person
or persons (or an estate or trust) as set forth under the Employer Retirement
Account.
2.05 The term "Board of Directors" shall mean the Board of Directors of the
Sponsoring Employer.
2.06 The term "Change in Control" shall mean the following:
A) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any Person (as the term
"Person" is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of twenty percent (20%) or more of the combined voting power
of the Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (1) the Company or (2) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), (B) the Company or any Subsidiary, or (C) any Person
in connection with a Non-Control Transaction (as hereinafter defined).
B) The individuals who, as of the date of this Plan, are members of
the Board (the "Incumbent Board") cease for any reason to constitute at least
two-thirds (2/3) of the Board; provided, however, that if the election or
nomination for election by the Company's stockholders of any new director was
approved by a vote of at least two-thirds (2/3) of the Incumbent Board, such new
director shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened Election Contest (as
described in Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest"), including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
C) Approval by stockholders of the Company of:
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<PAGE> 4
i) A merger, consolidation or reorganization involving the Company,
unless;
(a) The stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy-five
percent (75%) of the combined voting power of the outstanding Voting Securities
of the corporation resulting from such merger or consolidation or reorganization
or the ultimate entity controlling such corporation (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
Voting Securities immediately before such merger, consolidation or
reorganization;
(b) The individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds (2/3) of the
members of the board of directors of the Surviving Corporation and no agreement,
plan or arrangement is in place to change the composition of the board following
the merger, consolidation or reorganization; and
(c) No Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of twenty percent (20%) or more of the then-outstanding Voting
Securities) has Beneficial Ownership of twenty percent (20%) or more of the
combined voting power of the Surviving Corporation's then-outstanding Voting
Securities;
(d) A transaction described in clauses (a) through (c) shall
herein be referred to as a "Non-Control Transaction."
ii) A complete liquidation or dissolution of the Company; or
iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Sponsoring Employer which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of Shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Sponsoring Employer, and
after such share acquisition by the Sponsoring Employer, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
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2.07 The term "Code" shall mean the Internal Revenue Code of 1986, as it
has been and may be amended from time to time. Reference to any section of the
Code shall include any provision which is a successor thereto.
2.08 The term "Committee" shall mean the Compensation Committee of the
Board of Directors.
2.09 The term "Current Compensation" shall mean the Participant's current
annual base salary, plus the maximum percentage of base salary which the
Participant could receive based on any incentive compensation or bonus plan in
which he/she participates.
2.10 The term "Disability Retirement Date" shall mean the date a
Participant's employment is terminated due to Total and Permanent Disability.
2.11 The term "Disabled Participant" shall mean any Participant who has
been credited with at least ten (10) Years of Service and who is Totally and
Permanently Disabled.
2.12 The term "Disability Payment" shall mean Monthly Retirement Income due
a Disabled Participant.
2.13 The term "Early Retirement Date" shall mean, for each Participant who
has been credited with at least ten (10) Years of Service and whose Attained Age
is at least fifty-five (55), the first day of the month immediately following or
coinciding with the date such Participant shall retire prior to the
Participant's Normal Retirement Date.
2.14 The term "Effective Date" shall mean May 10, 1990.
2.15 The term "Humana SERP" shall mean the Humana Supplemental Executive
Retirement Plan as it may be amended from time to time.
2.16 The term "Retirement Account and SERP Benefit" shall mean an amount
equal to the life annuity equivalent of the account balances in the Retirement
Account in the Humana Retirement and Savings Plan and the Humana SERP, using a
conversion factor based upon an interest rate of eight percent (8%) and the 1983
GAM table with no setback.
2.17 The term "Late Retirement Date" shall mean the first day of any month
subsequent to the Participant's Normal Retirement Date coinciding with or
immediately following the date the Participant terminates employment for any
reason other than death.
2.18 The term "Monthly Retirement Income" shall mean a monthly income due a
Retired Participant which shall commence as of his Early, Normal or Late
Retirement Date, or the commencement date of payments due to disability.
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2.19 The term "Normal Retirement Date" shall mean the first day of the
month coinciding with or immediately following the Participant's sixty-fifth
(65th) birthday.
2.20 The term "Officer" shall mean the Chief Executive Officer, President,
all Vice-Presidents, Secretary and Treasurer of the Sponsoring Employer who have
been duly elected as officers of the Sponsoring Employer by the Board of
Directors.
2.21 The term "Participant" shall mean any Officer of the Sponsoring
Employer or other key management employee who has become a Participant as
provided in Article 3 hereof.
2.22 The term "Participating Compensation" shall mean the Participant's
annual base salary in effect for the first full pay period in the Plan Year,
plus any incentive compensation or bonus earned by the Participant in the
immediately preceding Plan Year and payable during the current Plan Year,
whether or not actually paid to the Participant during the Plan Year.
2.23 The term "Plan Administrator" shall mean the Sponsoring Employer.
2.24 The term "Plan Year" shall mean the twelve (12) month period
commencing on the first day of January and ending on the last day of the
immediately following December.
2.25 The term "Primary Insurance Amount" as of any date shall mean the
monthly amount of old age benefits payable to a Participant commencing at the
Participant's unreduced Social Security retirement age. The amount will be
calculated based on the Social Security Act in effect as of the date of
calculation, without regard to any dependent benefits.
2.26 The term "Retired Participant" shall mean any Participant who has
retired from Humana and who is receiving a Monthly Retirement Income.
2.27 The term "Retirement and Savings Plan" shall mean the Humana
Retirement and Savings Plan adopted effective as of the Distribution Date, as it
may be amended from time to time or its successor plan.
2.28 The term "Retirement Account" shall mean the Retirement Account in the
Humana Retirement and Savings Plan.
2.29 The term "Service" shall mean all years and completed months of
Service with the Sponsoring Employer or any corporation which is a member of the
"affiliated group" (as defined in Section 1054(a) of the Code) of the Sponsoring
Employer.
2.30 The term "Sponsoring Employer" shall mean Humana Inc., a Delaware
corporation.
2.31 The term "Spouse" shall mean the legally married spouse of the
Participant at the Participant's date of death; provided, however, that for
purposes of Section 4.04(b), "Spouse"
5
<PAGE> 7
shall mean the legally married spouse of the Participant at the earlier of the
Participant's date of death or commencement of benefits under that section.
2.32 The term "Target Plan" or "Plan" shall mean the Humana Officers'
Target Retirement Plan provided for herein, as it may be amended from time to
time.
2.33 The term "Total and Permanent Disability" shall mean a physical or
mental condition that renders the Participant eligible for disability benefits
under the Retirement and Savings Plan.
ARTICLE 3
PARTICIPATION IN THE PLAN
3.01 Each person who is an Officer of the Sponsoring Employer on and after
the Effective Date or a key management employee designated by or at the
direction of the Committee shall be a Participant in this Plan to the extent of
the benefits provided herein.
3.02 Each Officer or key management employee designated hereunder shall be
notified upon becoming a Participant.
ARTICLE 4
RETIREMENT INCOME
4.01 When a Participant retires on his Normal Retirement Date, he shall be
entitled to receive a Monthly Retirement Income under this Plan in an amount
provided in Section 4.01(a), reduced by the amounts provided in Section 4.01(b)
and (c).
4.01(a) An amount equal to one twelfth (1/12) of the Participant's Annual
Retirement Benefit.
4.01(b) The amount provided in 4.01(a) shall be reduced by the Retirement
Account and Humana SERP Benefit.
4.01(c) The amount provided in 4.01(a) shall also be reduced by the
Participant's Primary Insurance Amount; provided that in the case
of a Participant taking Early Retirement, such reduction shall only
apply when the Participant is eligible for an unreduced Primary
Insurance Amount.
4.02 A Participant may remain in the employ of the Sponsoring Employer
after his Normal Retirement Date, in which event no Monthly Retirement Income
shall be paid until the
6
<PAGE> 8
Participant's Late Retirement Date. The benefit payable at the Participant's
Late Retirement Date shall be equal to the amount as determined in Section 4.01
except that the Participant's Average Participating Compensation, Years of
Service, Retirement Account and Humana SERP Benefit and Primary Insurance Amount
shall be determined as of the Participant's Normal or Late Retirement Date,
whichever would produce the greater benefit under this Plan. In no event,
however, will the Participant's Annual Retirement Benefit exceed fifty percent
(50%) of his Average Participating Compensation as of his Normal or Late
Retirement Date, whichever is greater.
4.03 Upon the written application of the Participant received by the Plan
Administration, a Participant whose Attained Age is at least fifty-five (55) and
who has been credited with at least ten (10) Years of Service shall be retired
as of an Early Retirement Date. Commencing at his Early Retirement Date, such
Participant shall be entitled to a benefit computed in accordance with Section
4.01; provided, that the amount set forth in Section 4.01(a) shall be reduced by
two/twelfths percent (2/12%) of that amount for each full month that payments
commence prior to the Participant's Normal Retirement Date to a maximum
reduction not to exceed twenty percent (20%). Such reduction shall not apply in
the event of a Change in Control. A Participant taking an Early Retirement
Benefit may also request an alternate form of distribution in accordance with
Section 4.04.
4.04 The basic form of payment of the Annual Retirement Benefit shall be a
Monthly Retirement Income specified in Section 4.01 which shall be paid on a
monthly basis commencing on the Participant's Disability, Early, Normal or Late
Retirement Date, payable for the life of the Participant.
A Participant may request the Committee to approve an alternate form of
payment of the benefits under this Plan. Such request shall be in writing and
shall be filed at least sixty (60) days before the payment is to be made or
commenced. Once a request is approved, it shall be binding on the Participant.
Alternative forms of payment are as follows:
4.04(a) A monthly income payable to the Participant for either sixty (60),
one hundred and twenty (120), one hundred and eighty (180), or two
hundred and forty (240), payments guaranteed. Upon the
Participant's death, distribution of his remaining benefit, if any,
shall be made to the Participant's Beneficiary or Secondary
Beneficiary.
4.04(b) A monthly income payable for the lifetime of the Participant, with
one-half (1/2) of such amount continuing to the Participant's
Spouse after the Participant's death, for the lifetime of the
Spouse.
4.04(c) A single sum payment to the Participant.
4.04(d) Any other form of payment which is actuarially equivalent and is
approved by the Committee.
7
<PAGE> 9
If the single sum value of the Participant's Monthly Retirement Income is
less than fifty thousand dollars ($50,000), the benefit shall be paid to the
Participant as a single sum.
The alternate forms as provided in 4.04(a), (b) and (c) above, shall be
determined using the same conversion factor as is used to determine the
Retirement Account and SERP Benefit as defined in Section 2.16.
4.05 If a Participant who has been credited with at least ten (10) Years of
Service should die before benefit payments under the Plan commence, a death
benefit shall be payable. Such death benefit shall be equal to the present value
of the Participant's monthly retirement income as of the Participant's date of
death calculated in accordance with this Article 4 as if the Participant had
retired on his date of death; provided, however, that the reduction for the
Primary Insurance Amount set forth in Section 4.01(c) shall not apply. Such
death benefit shall be paid to the Participant's Beneficiary as a single sum in
accordance with the provisions of Section 4.04(c).
If a death benefit is payable under this Article 4, and the designated
Beneficiary has predeceased the Participant, the death benefit shall be paid to
the Secondary Beneficiary. If neither the Beneficiary nor the Secondary
Beneficiary is living at the time of the death of the Participant, or if there
is not a valid Beneficiary designated, the Sponsoring Employer shall pay the
death benefit to the Participant's estate. If the Beneficiary or Secondary
Beneficiary is living at the death of the Participant, but such person dies
prior to receiving the entire death benefit, the remaining portion of such death
benefit shall be paid in a single sum to the estate of such deceased Beneficiary
or Secondary Beneficiary.
ARTICLE 5
BENEFITS UPON DISABILITY
5.01 If a Participant who has been credited with ten (10) or more Years of
Service is determined to be Totally and Permanently Disabled prior to his Normal
Retirement Date, such Disabled Participant shall be retired as of the date
provided in the Retirement and Savings Plan. In such event, the Disabled
Participant's benefit under this Plan shall be deferred until his Normal
Retirement Date. The amount of the Participant's Monthly Retirement Income
payable on account of such Disability Retirement shall be calculated in
accordance with Section 4.01, provided that his Average Participating
Compensation shall be determined as of his date of disability. Years of Service
shall be calculated as though the Disabled Participant had continued in
employment until his Normal Retirement Date, and the Participant's life annuity
equivalent of the account balance in the Retirement Plan Account shall be based
on such account balance at time of distribution (if prior to age sixty-five (65)
projected to age sixty-five (65) at eight percent (8%) per annum).
8
<PAGE> 10
5.02 As an alternative, a Participant who has met the requirements for
Early Retirement shall be entitled to apply for an Early Retirement Benefit
pursuant to the provisions of Section 4.03. If such Early Retirement Benefit is
elected, the continued accruals provided for above will cease as of the
Participant's Early Retirement Date.
5.03 If a Disabled Participant should die before benefit payments under
this Plan commence, a death benefit shall be payable. Such death benefit shall
be equal to the present value of the Participant's monthly retirement income as
of the Participant's date of death calculated in accordance with Article 4 and
shall be paid to the Participant's Beneficiary as a single sum in accordance
with the provisions of Section 4.04(c).
In calculating the death benefit, the continued accruals of 5.01 will cease
at date of death and the benefit will be reduced as for Early Retirement (as set
forth in Section 4.03). The reduction for the Primary Insurance Amount set forth
in Section 4.01(c) shall not apply. A Participant under age fifty-five (55) will
be deemed to be age fifty-five (55) for purposes of calculating his benefit.
If a death benefit is payable under this Article 5, and the designated
Beneficiary has predeceased the Participant, the death benefit shall be paid to
the Secondary Beneficiary. If neither the Beneficiary nor the Secondary
Beneficiary is living at the time of the death of the Participant, or if there
is not a valid Beneficiary designated, the Sponsoring Employer shall pay the
death benefit to the Participant's estate. If the Beneficiary or Secondary
Beneficiary is living at the death of the Participant, but such person dies
prior to receiving the entire death benefit, the remaining portion of such death
benefit shall be paid in a single sum to the estate of such deceased Beneficiary
or Secondary Beneficiary.
ARTICLE 6
BENEFITS UPON CHANGE IN CONTROL
6.01 In the event of a "Change in Control" of the Sponsoring Employer, the
benefit of any Participant shall be fully vested and shall be paid out as soon
as administratively feasible as a single sum payment in accordance with the
provisions of Section 4.04(c). This shall apply to active, retired or disabled
Participants regardless of Years of Service. In the case of an active
Participant, any benefit to which the Participant is entitled under this Article
6 as a result of a Change in Control ("Change in Control Benefit") shall reduce
the benefit to which the Participant would otherwise be entitled under the Plan.
6.02 Any Participant who is under age fifty-five (55) will be deemed to be
age fifty-five (55) for purposes of calculating his benefit.
6.03 The amount of benefit will be calculated in accordance with Article 4,
except that (i) the reductions in Section 4.01(c) and 4.03 shall not apply, and
(ii) until December 31, 1998,
9
<PAGE> 11
Average Participating Compensation shall mean the higher of the Average
Participating Compensation as defined in Section 2.02 or Current Compensation as
defined in Section 2.09 as of the date of the Change in Control.
6.04 Notwithstanding the provisions of Section 6.01, if at least 30 days
prior to a Change in Control, a Participant elects, in such manner as the
Committee shall determine, to defer the payment of all or any portion of the
Change in Control Benefit which the Participant would be entitled to receive
upon a Change in Control ("Deferral Election"), then the single sum payment
referred to in Section 6.01 shall not be made at the time referred to in Section
6.01 and such Change in Control Benefit shall instead be made at the time or
times provided for in the Deferral Election. Payment of the Benefit must
commence no later than the earlier to occur of (i) the date or age specified by
the Participant in the Deferral Election, or (ii) the date on which the
Participant terminates employment with the Sponsoring Employer for any reason
other than voluntary retirement, death or disability. A Participant deferring
any portion of a Change in Control Benefit may further provide for the payment
of the Change in Control Benefit in installments over a period not to exceed 10
years. Notwithstanding the foregoing, if a Change in Control occurs after
amounts have been deferred by Participants and placed in the Rabbi Trust
referred to in Section 6.05 (i.e., a second Change in Control), then the Change
in Control Benefit, adjusted as provided in accordance with Section 6.06, shall
be paid to Participants as soon as administratively possible following such
second Change in Control. A Participant making a Deferral Election may, at any
time and from time to time, designate a Beneficiary to receive the Participant's
Change in Control Benefit in the event of the Participant's death.
6.05 Upon the effective date of a Change in Control, the Sponsoring
Employer shall create a "Rabbi Trust" (i.e., a grantor trust designed to hold
funds to be used to pay benefits under a deferred compensation arrangement
without such funds becoming taxable to the participants entitled to such
benefits until paid to such participants) in the form set forth on Attachment A
with a major financial institution in Louisville, Kentucky, selected by the
Sponsoring Employer, to which the Sponsoring Employer shall transfer funds in an
amount equal to the portion of the Change in Control Benefits elected to be
deferred by all Participants making a Deferral Election.
6.06 All deferred Change in Control Benefits shall be deemed invested in
one or more of the investments set forth below, as selected by the deferring
Participant in the Deferral Election; provided, however, that no less than 10%
of the Participant's deferred Change in Control Benefit may be deemed invested
in any one investment. A Participant may elect, once during each calendar
quarter, to change the manner in which the Participant's Change in Control
Benefit is deemed invested beginning on the first day of each calendar quarter.
The investments in which Change in Control Benefits may be deemed invested are
as follows:
1. Fidelity Balanced Fund;
2. Fidelity Contrafund;
3. Harbor International Fund;
4. Provident Small Cap Fund;
10
<PAGE> 12
5. An interest income fund selected by the Trustee;
6. A stock index fund selected by the Trustee.
Notwithstanding the foregoing, in the event an investment set forth above is no
longer in existence, then the Committee shall substitute another investment
having investment objectives similar to the investment which ceased to exist.
The payments to be made to Participants shall be based upon the initial Change
in Control Benefit and the effects of the deemed investment of the Change in
Control Benefit thereafter.
6.07 If a Participant who has made a Deferral Election is required to
include the amount of the Change in Control Benefit in income for federal income
tax purposes prior to actual receipt thereof and agrees in a written document
delivered to the Internal Revenue Service to pay income tax thereon, such
Participant, upon advising the trustee of the Rabbi Trust and the Sponsoring
Employer of such fact (and supplying such documents as the trustee of the Rabbi
Trust shall require to substantiate such facts), shall be entitled to receive
the Change in Control Benefit, as adjusted in accordance with Section 6.06 as
soon as administratively possible.
ARTICLE 7
PLAN ADMINISTRATION
7.01 The Committee shall be responsible for making all policy decisions
which arise under the Plan. The Plan Administrator shall be responsible for
administering the Plan.
7.02 Subject to the limitations of the Plan, the Plan Administrator shall
from time to time establish rules for the administration of the Plan. Without
limiting the generality of the preceding sentence, it is specifically provided
that the Plan Administrator shall set forth the procedures to be followed in
presenting claims for benefits under the Plan. The Plan Administrator shall rely
on the records of the Sponsoring Employer, as certified to it, with respect to
any and all factual matters dealing with the employment of a Participant. In
case of any factual dispute hereunder, the Committee shall resolve such dispute
giving due weight to all evidence available to it. The Committee shall interpret
the Plan and shall determine all questions arising in the administration,
interpretation and application of the Plan. All such determinations shall be
final, conclusive and binding.
7.03 Except as otherwise specifically provided herein, every decision and
action of the Committee shall be valid if concurred in by a majority of the
members then in office, which concurrence may be had without a formal meeting.
7.04 The Plan Administrator shall be responsible for the determination of a
Participant's benefit in accordance with this Plan.
11
<PAGE> 13
7.05 In discharging its duties under this Plan, the Plan Administrator and
the Committee may employ such counsel, accountants and other agents as they
shall deem advisable. The Sponsoring Employer shall pay the compensation of such
counsel, accountants and other agents and any other expenses incurred by the
Plan Administrator and the Committee in carrying out their duties under the
plan.
ARTICLE 8
MODIFICATION AND TERMINATION
8.01 The Sponsoring Employer reserves the right at any time, by action of
its Board of Directors, to modify or amend, in whole or in part, any or all of
the provisions of the Plan.
8.02 Notwithstanding the provisions of Section 8.01, no amendment,
suspension or termination shall adversely affect:
8.02(a) the Monthly Retirement Income of any Participant, or the
Beneficiary or Secondary Beneficiary of any Participant who has
retired prior thereto, or
8.02(b) the right of any Participant then employed by the Sponsoring
Employer who has attained age fifty-five (55) and been credited
with ten (10) Years of Service to receive upon death, retirement or
disability, the benefit to which such person would have been
entitled under the Plan prior to its amendment, suspension or
termination.
8.03 The provision of 8.01 shall be inoperative upon a Change in Control.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.01 Neither the interest of a Participant or any other person nor the
benefit payable hereunder is subject to the claim of creditors of Participants
or their Beneficiaries and will not be subject to attachment, garnishment or any
other legal process. Neither a Participant nor his Beneficiaries may assign,
sell, borrow against or otherwise encumber any of his beneficial interest in the
Plan, nor shall any such benefits be in any manner liable for or subject to the
deeds, contracts, liabilities, engagements or torts of any Participant or
Beneficiary. All such payments and rights thereto are expressly declared to be
non-assignable and non-transferable, and in the event of any attempt of
assignment or transfer by the Participant or Beneficiaries, the Sponsoring
Employer shall have no further liability hereunder.
12
<PAGE> 14
9.02 Although it is the intention of the Sponsoring Employer that this Plan
shall be continued, this Plan is entirely voluntary on the part of the
Sponsoring Employer, and, subject to the provisions of Article 8, the
continuance of the Plan is not assumed as a contractual obligation of the
Sponsoring Employer.
9.03 Benefits under this Plan shall be paid exclusively from the general
assets of the Sponsoring Employer and no Participant or other person shall have
any right or claim to the payment of a benefit which in any manner whatsoever is
superior to or different from the right or claim of a general and unsecured
creditor of the Sponsoring Employer.
9.04 This Plan shall not be deemed to constitute a contract between the
Sponsoring Employer and any Participant or to be a consideration or an
inducement for the employment of any Participant. Nothing contained in this Plan
shall be deemed to give any Participant the right to be retained in the
employment of the Sponsoring Employer or to interfere with the right of the
Sponsoring Employer to discharge any Participant at any time regardless of the
effect which such discharge shall have upon such individual as a Participant in
the Plan.
9.05 This Plan shall be construed and enforced according to the laws of the
Commonwealth of Kentucky, and all provisions hereunder shall be administered
according to the laws thereof. It is intended that this Plan be exempt from
Title I of the Employee Retirement Income Security Act of 1974, as amended,
under Section 4(b)(5) thereof, as an excess benefit plan which is unfunded, and
any ambiguities in construction shall be resolved in favor of interpretation
which will effectuate such intention.
9.06 Any words herein used in the masculine or neuter shall read and be
construed in the feminine, masculine or neuter where they would so apply. Words
in the singular shall be read and construed as though used in the plural in all
cases where they would so apply. Titles of articles are inserted for convenience
of reference only and, in the event of any conflict, the text of the Plan,
rather than such titles shall control.
9.07 In making any payment to or for the benefit of any minor or
incompetent Beneficiary, the Plan Administrator, in its sole, absolute and
uncontrolled discretion, may, but need not, make such payment to a legal or
natural guardian or other relative of such minor or court appointed committee of
such incompetent, or to any adult with whom such minor or incompetent
temporarily or permanently resides, with any such guardian, committee, relative
or other person shall have full authority and discretion to expend such
distribution for the use and benefit of such minor or incompetent, and the
receipt of such guardian, committee, relative or other person shall be a
complete discharge of the Sponsoring Employer, without any responsibility on its
part or on the part of the Committee to see to the application thereof.
9.08 If a Participant's employment is terminated due to his commission of
theft, fraud, or other criminal acts against the Sponsoring Employer or any
corporation which is a member of the "affiliated group" (as defined in Section
1054(a) of the Code) with the Sponsoring Employer, such Participant shall not be
entitled to receive any benefit under this Plan.
13
<PAGE> 15
IN WITNESS WHEREOF, the Sponsoring Employer has caused this instrument to
be executed and attested thereto by its duly authorized officers as of this
______ day of ___________________, 19____.
HUMANA INC.
Wayne T. Smith
By: ________________________
Attest: Title: President & Chief Operating Officer
Joan O. Kroger ___________________________________
____________________________
Secretary
14
<PAGE> 1
EXHIBIT 10(s)
HUMANA THRIFT EXCESS PLAN
AMENDED AND RESTATED AS OF
JANUARY 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
PURPOSE AND APPLICABILITY OF PLAN
1.1 Purpose of Plan ....................................................................... 1
1.2 Applicability of Plan ................................................................. 2
ARTICLE 2
DEFINITIONS
2.1 Beneficiary and Secondary Beneficiary ................................................. 2
2.2 Benefit ............................................................................... 2
2.3 Board of Directors .................................................................... 2
2.4 Change in Control ..................................................................... 2
2.5 Code .................................................................................. 4
2.6 Compensation Committee ................................................................ 4
2.7 Effective Date ........................................................................ 4
2.8 Employee .............................................................................. 4
2.9 Employer .............................................................................. 4
2.10 Employer Thrift Account ............................................................... 4
2.11 Interest Income Fund .................................................................. 4
2.12 Normal Retirement Date ................................................................ 4
2.13 Participant ........................................................................... 4
2.14 Participation Date .................................................................... 4
2.15 Plan .................................................................................. 5
2.16 Plan Administrator .................................................................... 5
2.17 Plan Year ............................................................................. 5
2.18 Retirement and Savings Plan ........................................................... 5
2.19 Sponsoring Employer ................................................................... 5
ARTICLE 3
PARTICIPATION IN THE PLAN
3.1 Eligible Employees .................................................................... 5
3.2 Provisions of Plan Binding on Participants ............................................ 5
3.3 Notification of Participation ......................................................... 5
3.4 Termination of Benefit Accrual ........................................................ 5
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 4
BENEFITS
4.1 Amount of Benefits ............................................................................... 5
4.2 Adjustments to Benefits .......................................................................... 6
4.3 Eligibility for Payment of Benefits .............................................................. 6
4.4 Form of Payment of Benefits ...................................................................... 6
4.5 Source of Benefits ............................................................................... 6
4.6 Distributions to Beneficiaries ................................................................... 6
4.7 Acceleration Due to Change in Control ............................................................ 7
ARTICLE 5
PLAN ADMINISTRATION
5.1 Compensation Committee and Plan Administrator .................................................... 8
5.2 Plan Administrator to Establish Rules and Claims Procedure ....................................... 9
5.3 Decisions of Compensation Committee .............................................................. 9
5.4 Employment of Counsel, Etc ....................................................................... 9
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Rights Generally to Make Amendments .............................................................. 9
6.2 Condition to Amendment ........................................................................... 9
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Prohibition Against Assignment ................................................................... 10
7.2 Plan Voluntary on Part of Employers .............................................................. 10
7.3 Plan Not Contract of Employment .................................................................. 10
7.4 Construction ..................................................................................... 10
7.5 Payment to Minors, Etc ........................................................................... 11
</TABLE>
<PAGE> 4
HUMANA THRIFT EXCESS PLAN
AMENDED AND RESTATED AS OF
JANUARY 1, 1995
WHEREAS, HUMANA INC. ("Humana"), a Delaware corporation with its principal
place of business in Louisville, Kentucky ("Sponsoring Employer"), has adopted
the Humana Retirement and Savings Plan ("Retirement and Savings Plan") which is
intended to be qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended, ("Code"), and
WHEREAS, certain employees of the Sponsoring Employer and its subsidiaries
are eligible for allocations of contributions to Employer Thrift Accounts under
the Retirement and Savings Plan, and
WHEREAS, pursuant to the terms of the Retirement and Savings Plan, the
allocations of contributions for certain employees of the Sponsoring Employer
and its subsidiaries have been and will be restricted because of the limitation
on compensation of Section 401(a)(17) of the Code, the nondiscrimination
requirements of Sections 401(k) and 401(m) of the Code and the limitation on
allocations of contributions of Section 415 of the Code, and
WHEREAS, the Board of Directors of the Sponsoring Employer ("Board of
Directors") desires to provide supplemental benefits to a select group of
management and highly compensated employees in the amount of the allocations of
contributions to Employer Thrift Accounts which would have been made on behalf
of such persons in the absence of the aforementioned and any other legal
limitations on their participation, and
WHEREAS, effective on May 11, 1988, the Sponsoring Employer adopted the
Humana Thrift Excess Plan ("Plan"), and
WHEREAS, the Board of Directors desires to amend and restate the Plan and
has authorized this amendment and restatement of the Plan provided for herein,
NOW, THEREFORE, the Sponsoring Employer hereby approves and adopts this
amendment and restatement, effective January 1, 1995, which shall read as
follows:
ARTICLE 1
PURPOSE AND APPLICABILITY OF PLAN
1.1 PURPOSE OF PLAN. The purpose of the Plan shall be to provide
supplemental benefits to Participants whose allocations of contributions to
Employer Thrift Accounts under the Retirement and Savings Plan are or will be
reduced because of the compensation limitation of Section 401(a)(17) of the
Code, the nondiscrimination requirements of Sections 401(k) and 401(m) of the
Code, the limitation on allocations of contributions of Section 415 of the Code,
<PAGE> 5
and any other legal limitations on participation and contributions, upon the
terms and conditions, and subject to the limitations, contained herein.
1.2 APPLICABILITY OF PLAN. The provisions of the Plan shall apply only to
persons employed by an Employer on and after the Effective Date.
ARTICLE 2
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below, unless a different meaning is plainly required by the context.
The meaning of any term not specifically defined below will be governed by the
definition in the Humana Retirement and Savings Plan.
2.1 BENEFICIARY AND SECONDARY BENEFICIARY. The person or persons (or a
trust) as set forth under the Retirement and Savings Plan.
2.2 BENEFIT. The benefit described in Article 4.
2.3 BOARD OF DIRECTORS. The Board of Directors of the Sponsoring Employer.
2.4 CHANGE IN CONTROL. Change in Control shall mean any of the following
events:
(A) An acquisition (other than directly from the Sponsoring Employer)
of any voting securities of the Sponsoring Employer ("Voting Securities") by any
"Person" (as the term Person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended ("1934 Act")) immediately after
which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 20% or more of the combined voting power of
the Sponsoring Employer's then outstanding Voting Securities; provided, however,
that in determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall
not constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) the Sponsoring
Employer or (B) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned directly or
indirectly by the Sponsoring Employer ("Subsidiary"), (ii) the Sponsoring
Employer or any Subsidiary, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined).
(B) The individuals who, as of the date of this Plan, are members of
the Board of Directors ("Incumbent Board"), cease for any reason to constitute
at least two-thirds of the Board of Directors; provided, however, that if the
election, or nomination for election by the
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Sponsoring Employer's stockholders, of any new director was approved by a vote
of at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board ("Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(C) Approval by stockholders of the Sponsoring Employer of:
(i) A merger, consolidation or reorganization involving the
Sponsoring Employer, unless,
(a) The stockholders of the Sponsoring Employer, immediately
before such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least 75%
of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(b) The individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the members of
the board of directors of the Surviving Corporation;
(c) No person (other than the Sponsoring Employer, any
subsidiary, any employee benefit plan (or any trust forming a part thereof)
maintained by the Sponsoring Employer, the Surviving Corporation or any
subsidiary, or any Person who, immediately prior to such merger, consolidation
or reorganization had Beneficial Ownership of 20% or more of the then
outstanding Voting Securities) has Beneficial Ownership of 20% or more of the
combined voting power of the Surviving Corporation's then outstanding Voting
Securities; and
(d) A transaction described in clauses (a) through (c) shall
herein be referred to as a "Non Control Transaction;"
(ii) A complete liquidation or dissolution of the Sponsoring
Employer; or
(iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Sponsoring Employer to any Person (other
than a transfer to a Subsidiary).
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Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Sponsoring Employer which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of Shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Sponsoring Employer, and
after such share acquisition by the Sponsoring Employer, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
2.5 CODE. The Internal Revenue Code of 1986, as it has been and may be
amended from time to time. Reference to any section of the Code shall include
any provision successor thereto.
2.6 COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors of the Sponsoring Employer.
2.7 EFFECTIVE DATE. Effective Date shall mean May 1, 1988.
2.8 EMPLOYEE. A member of a select group of management and highly
compensated employees as selected by the Compensation Committee.
2.9 EMPLOYER. The Sponsoring Employer and each corporation which is a
member of the affiliated group with the Sponsoring Employer. When used with
reference to an Employee or Participant, the term shall mean the Employer
employing the Employee or Participant.
2.10 EMPLOYER THRIFT ACCOUNT. The accounts established by that name on
behalf of a participant in the Retirement and Savings Plan.
2. 11 INTEREST INCOME FUND. The fund established by that name under the
Retirement and Savings Plan.
2.12 NORMAL RETIREMENT DATE. The first day of the month coincident with or
immediately following the Participant's 65th birthday.
2.13 PARTICIPANT. An Employee who has met the requirements of Article 3 for
participation hereunder. Where the context so permits or requires, the term
shall also include a person who was a Participant prior to the termination of
the Participant's employment with an Employer and who is entitled to a Benefit
after such person's employment terminates.
2.14 PARTICIPATION DATE. The later of the Effective Date or the date the
Participant becomes eligible for a Benefit.
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2.15 PLAN. The Humana Thrift Excess Plan provided for herein, as it may be
amended from time to time.
2.16 PLAN ADMINISTRATOR. The Plan Administrator shall be the Sponsoring
Employer.
2.17 PLAN YEAR. The twelve consecutive month period commencing on the first
day of January and ending on the last day of the immediately following December.
2.18 RETIREMENT AND SAVINGS PLAN. The Humana Retirement and Savings Plan,
as it may be amended from time to time.
2.19 SPONSORING EMPLOYER. Humana Inc., a Delaware corporation.
ARTICLE 3
PARTICIPATION IN THE PLAN
3.1 ELIGIBLE EMPLOYEES. Each Employee who is an active participant in the
Retirement and Savings Plan on or after the Effective Date, and who meets the
requirements for benefits under Article 4 shall participate in this Plan to the
extent of the benefits stated herein.
3.2 PROVISIONS OF PLAN BINDING ON PARTICIPANTS. Upon becoming a
Participant, a Participant shall be bound then and thereafter by the terms of
this Plan, including all amendments to the Plan.
3.3 NOTIFICATION OF PARTICIPATION. Each Employee shall be notified when the
Employee becomes a Participant.
3.4 TERMINATION OF BENEFIT ACCRUAL. An Employee's accrual of benefits under
this Plan shall cease upon the Employee's termination of employment.
ARTICLE 4
BENEFITS
4.1 AMOUNT OF BENEFITS. Each Participant shall become entitled to Benefits
under this Plan consisting of the difference, if any, between the actual
contribution by the Employer to the Employer Thrift Account on behalf of the
Participant for such Plan Year and the amount of the contribution which would
otherwise have been made by the Employer on behalf of such Participant for such
Plan Year but for the legal limitations on the Participant's contributions and
Employer contributions; provided, however, that the Participant shall become
entitled to Benefits under this Plan only if such difference is equal to or
greater than eight hundred dollars ($800.00)
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in such Plan Year. No Benefits will accrue with respect to any Plan Year if the
Participant ceases to be an active employee before the end of such Plan Year,
unless cessation of employment is due to death, retirement, disability or a
Change in Control, in which case the Participant will be entitled to any
Benefits accrued hereunder until the date on which Participant ceases to be an
active employee.
4.2 ADJUSTMENTS TO BENEFITS. The amount of the Benefit set forth in Section
4.1 shall be further adjusted for gains (or losses) as if such amounts were
invested in the Interest Income Fund, as such fund is maintained in the
Retirement and Savings Plan. The adjustments of earnings (or losses) shall be
made in accordance with the same procedures and in the same manner as provided
under the Retirement and Savings Plan and, except as otherwise modified herein,
the amount of the Participant's Benefit on account of retirement, death or other
termination of employment shall be determined as if such amounts were actually
invested pursuant to and being paid from the Interest Income Fund.
4.3 ELIGIBILITY FOR PAYMENT OF BENEFITS. The payment of Benefits under the
Plan shall commence no later than sixty (60) days following the Participant's
termination of employment for any reason, whether voluntarily or involuntarily,
or by reason of death, total and permanent disability or retirement. The form of
the payment of the Participant's Benefit shall be governed by Section 4.4
notwithstanding the form of distribution of benefits from the Participant's
Employer Thrift Account. The Benefit shall be valued in the same manner as
distributions from the Interest Income Fund.
4.4 FORM OF PAYMENT OF BENEFITS. A Participant or Beneficiary may request a
manner of payment of the Benefits under the Plan as provided hereinafter. The
request by the Participant, or the Beneficiary shall be in writing and shall be
filed with the Plan Administrator at least 30 days before the payment is to be
made or commenced. The Plan Administrator may approve such request or may
disapprove such request and substitute another alternative form. The alternative
forms of distribution are as follows:
(a) A lump sum distribution in cash; or
(b) Periodic substantially equal installments (either monthly,
quarterly or annually) for a period not to exceed 20 years.
4.5 SOURCE OF BENEFITS. The Benefit shall be paid exclusively from the
general assets of the Employer and no Participant or other person shall have any
right or claim to the payment of a Benefit which in any manner whatsoever is
superior to or different from the right or claim of a general and unsecured
creditor of the Employer.
4.6 DISTRIBUTIONS TO BENEFICIARIES. If at the time of a Participant's death
a distribution has commenced, the remaining Benefit, if any, shall be paid to
the Participant's Beneficiary in a manner at least as fast as the distribution
to the Participant. If at the time of a Participant's death while a distribution
is still outstanding and the Participant's Beneficiary
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<PAGE> 10
does not survive the Participant, the remaining benefits shall be paid to the
Participant's Secondary Beneficiary. If distribution has not commenced at the
time of the Participant's death, the Beneficiary may request the form of payment
of Benefits set forth in Section 4.4. If at the time of a Participant's death
while a distribution is still outstanding and the Participant's Beneficiary does
not survive the Participant, the remaining benefits shall be paid in a single
sum to the estate of the Participant and the Plan Administrator shall be fully
protected in paying such benefits to such deceased Participant's personal
representative, irrespective of whether payments are actually made to a person
or persons who in fact are not the personal representative of the deceased
Participant.
4.7 ACCELERATION DUE TO CHANGE IN CONTROL.
(a) In the event of a Change in Control of the Sponsoring Employer, the
Benefit of any Participant shall, except as otherwise provided in Section
4.7(b), be distributed as soon as administratively feasible in a lump sum in
cash in accordance with the Section 4.4(a). This shall apply to active, retired
or disabled Participants. In the case of an active Participant, any benefit to
which the Participant is entitled under this Section 4.7(a) as a result of a
Change in Control ("Change in Control Benefit") shall reduce the benefit to
which the Participant would otherwise be entitled under the Plan.
(b) Notwithstanding the provisions of Section 4.7(a), if at least 30
days prior to a Change in Control, a Participant elects, in such manner as the
Committee shall determine, to defer the payment of all or any portion of the
Change in Control Benefit which the Participant would be entitled to receive
upon a Change in Control ("Deferral Election"), then the single sum payment
referred to in Section 4.7(a) shall not be made at the time referred to in
Section 4.7(a) and such Change in Control Benefit shall instead be made at the
time or times provided for in the Deferral Election. Payment of the Benefit must
commence no later than the earlier to occur of (i) the date or age specified by
the Participant in the Deferral Election, or (ii) the date on which the
Participant terminates employment with the Sponsoring Employer for any reason
other than voluntary retirement, death or disability. A Participant deferring
any portion of a Change in Control Benefit may further provide for the payment
of the Change in Control Benefit in installments over a period not to exceed 10
years. Notwithstanding the foregoing, if a Change in Control occurs after
amounts have been deferred by Participants and placed in the Rabbi Trust
referred to in Section 4.7(c) (i.e., a second Change in Control), then the
Change in Control Benefit, adjusted as provided in accordance with Section
4.7(d), shall be paid to Participants as soon as administratively possible
following such second Change in Control. A Participant making a Deferral
Election may, at any time and from time to time, designate a beneficiary to
receive the Participant's Change in Control Benefit in the event of the
Participant's death.
(c) Upon the effective date of a Change in Control, the Sponsoring
Employer shall create a "Rabbi Trust" (i.e., a grantor trust designed to hold
funds to be used to pay benefits under a deferred compensation arrangement
without such funds becoming taxable to the Participants entitled to such
benefits until paid to such participants) in the form set forth on Attachment A
with a major financial institution in Louisville, Kentucky selected by the
7
<PAGE> 11
Sponsoring Employer, to which the Sponsoring Employer shall transfer funds in an
amount equal to the portion of the Change in Control Benefits elected to be
deferred by all Participants making a Deferral Election.
(d) All deferred Change in Control Benefits shall be deemed invested in
one or more of the investments set forth below, as selected by the deferring
Participant in the Deferral Election; provided, however, that no less than 10%
of the Participant's deferred Change in Control Benefit may be deemed invested
in any one investment. A Participant may elect, once during each calendar
quarter, to change the manner in which the Participant's Change in Control
Benefit is deemed invested beginning on the first day of the following calendar
quarter. The investments in which Change in Control Benefits may be deemed
invested are as follows:
1. Fidelity Balanced Fund;
2. Fidelity Contrafund;
3. Harbor International Fund;
4. Provident Small Cap Fund;
5. An interest income fund selected by the Trustee;
6. A stock index fund selected by the Trustee.
Notwithstanding the foregoing, in the event an investment set forth above is no
longer in existence, then the Committee shall substitute another investment
having investment objectives similar to the investment which ceased to exist.
The payments to be made to Participants shall be based upon the initial Change
in Control Benefit and the effects of the deemed investment of the Change in
Control Benefit thereafter.
(e) If a Participant who has made a Deferral Election is required to
include the amount of the Change in Control Benefit in income for federal income
tax purposes prior to actual receipt thereof and agrees in a written document
delivered to the Internal Revenue Service to pay income tax thereon, such
Participant, upon advising the trustee of the Rabbi Trust and the Sponsoring
Employer of such fact (and supplying such documents as the trustee of the Rabbi
Trust shall require to substantiate such facts), shall be entitled to receive
the Change in Control Benefit, as adjusted in accordance with Section 4.7(d), as
soon as administratively possible.
ARTICLE 5
PLAN ADMINISTRATION
5.1 COMPENSATION COMMITTEE AND PLAN ADMINISTRATOR. The Compensation
Committee shall be responsible for making all policy decisions which arise under
the Plan. The Plan Administrator shall be responsible for administering the Plan
and keeping records of supplemental benefits.
8
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5.2 PLAN ADMINISTRATOR TO ESTABLISH RULES AND CLAIMS PROCEDURE. Subject to
the limitations of the Plan, the Plan Administrator shall from time to time
establish rules for the administration of the Plan. Without limiting the
generality of the preceding sentence, it is specifically provided that the Plan
Administrator shall set forth the procedures to be followed in presenting claims
for benefits under the Plan. The Plan Administrator shall rely on the records of
the Employer, as certified to it, with respect to any and all factual matters
dealing with the employment of an Employee or Participant. In case of any
factual dispute hereunder, the Compensation Committee shall resolve such dispute
giving due weight to all evidence available to it. The Compensation Committee
shall interpret the Plan and shall determine all questions arising in the
administration, interpretation and application of the Plan. All such
determinations shall be final, conclusive and binding.
5.3 DECISIONS OF COMPENSATION COMMITTEE. Except as otherwise specifically
provided herein, every decision and action of the Compensation Committee shall
be valid if concurred in by a majority of the members then in office, which
concurrence may be had without a formal meeting.
5.4 EMPLOYMENT OF COUNSEL, ETC. In discharging its duties under this Plan,
the Plan Administrator and the Compensation Committee may employ such counsel,
accountants and other agents as they shall deem advisable. The Sponsoring
Employer shall pay the compensation of such counsel, accountants and other
agents and any other expenses incurred by the Plan Administrator and the
Compensation Committee in carrying out their duties under the Plan.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 RIGHTS GENERALLY TO MAKE AMENDMENTS. The Sponsoring Employer reserves
the right at any time, by action of its Board of Directors, to modify or amend,
in whole or in part, any or all of the provisions of the Plan. Provided,
however, that the preceding sentence shall be inoperative upon a Change in
Control. Provided further that no amendment, suspension or termination shall
adversely affect the right of any Participant then employed by the Employer to
receive the accrued Benefit to which such person would have been entitled under
the Plan prior to its amendment, suspension or termination.
6.2 CONDITION TO AMENDMENT. In the event of an amendment which limits
eligibility for participation in this Plan, any Participant who ceases to be
eligible shall be entitled to receive Benefits accrued as of the date
eligibility ends. Such Participants shall be entitled to payment in the manner
set forth in Section 4.4.
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ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 PROHIBITION AGAINST ASSIGNMENT. Neither the interest of a Participant
or any other person nor the Benefit payable hereunder, is subject to the claim
of creditors of Participants or their Beneficiaries, and will not be subject to
attachment, garnishment or any other legal process. Neither a Participant nor
the Participant's Beneficiaries may assign, sell, borrow on or otherwise
encumber any of the Participant's beneficial interest in the Plan, nor shall any
such benefits be in any manner liable for or subject to the deeds, contracts,
liabilities, engagements or torts of any Participant or Beneficiary. All such
payments and rights thereto are expressly declared to be nonassignable and
non-transferrable, and in the event of any attempt of assignment or transfer,
the Employer shall have no further liability hereunder.
7.2 PLAN VOLUNTARY ON PART OF EMPLOYERS. Although it is the intention of
each Employer that this Plan shall be continued, this Plan is entirely voluntary
on the part of each Employer, and the continuance of the Plan is not assumed as
a contractual obligation of an Employer.
7.3 PLAN NOT CONTRACT OF EMPLOYMENT. This Plan shall not be deemed to
constitute a contract between the Employer and any Participant or to be a
consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give any Participant
or Employee the right to be retained in the service of the Employer or to
interfere with the right of the Employer to discharge any Participant or
Employee at any time regardless of the effect which such discharge shall have
upon such individual as a Participant in the Plan.
7.4 CONSTRUCTION.
(a) This Plan shall be construed and enforced according to the laws of
the Commonwealth of Kentucky, and all provisions hereunder shall be administered
according to the laws thereof. It is intended that this Plan be exempt from
Title I of the Employee Retirement Income Security Act of 1974, as amended,
under Section 4(b)(5) thereof, as an excess benefit plan and as a plan which is
unfunded and maintained by the Employer for the purpose of providing deferred
compensation for a select group of highly compensated employees, and any
ambiguities in construction shall be resolved in favor of interpretation which
will effectuate such intentions.
(b) Any words herein used in the singular shall be read and construed
as though used in the plural in all cases where they would so apply.
(c) Titles of articles and headings to sections are inserted for
convenience of reference only and, in the event of any conflict, the text of the
Plan, rather than such titles and headings, shall control.
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7.5 PAYMENT TO MINORS, ETC. In making any payment to or for the benefit of
any minor or incompetent Beneficiary, the Plan Administrator, in its sole,
absolute and uncontrolled discretion, may, but need not, make such payment to a
legal or natural guardian or other relative of such minor or court appointed
committee of such incompetent, or to any adult with whom such minor or
incompetent temporarily or permanently resides, and any such guardian,
committee, relative or other person shall have full authority and discretion to
expend such distribution for the use and benefit of such minor or incompetent,
and the receipt by such guardian, committee, relative or other person shall be a
complete discharge to the Employer, without any responsibility on its part or on
the part of the Plan Administrator to see to the application thereof.
IN WITNESS WHEREOF, the Sponsoring Employer has caused this instrument to
be executed and attested thereto by its duly authorized officers this _______
day of _________________, 1995.
HUMANA INC.
ATTEST:
By: Wayne T. Smith
Joan O. Kroger ---------------------------
----------------------------- President & Chief Operating Officer
Secretary
11
<PAGE> 1
EXHIBIT 10(t)
HUMANA SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDED AND RESTATED AS OF
JANUARY 1, 1995
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1
PURPOSE AND APPLICABILITY OF PLAN
1.1 Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Applicability of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
DEFINITIONS
2.1 Beneficiary and Secondary Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Normal Retirement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Participation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Related Employer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Retirement Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 Retirement and Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Retirement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.19 Sponsoring Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20 Supplemental Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.21 Supplemental Plan or Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.22 Vested Pension Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
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TABLE OF CONTENTS
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ARTICLE 3
PARTICIPATION IN THE PLAN
3.1 Eligible Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Provisions of Plan Binding on Participants . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Notification of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Termination of Benefit Accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4
SUPPLEMENTAL BENEFITS
4.1 Amount of Supplemental Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Defined Contribution Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Pension Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Adjustments to Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 Eligibility for Payment of Supplemental Benefit . . . . . . . . . . . . . . . . . . . . 7
4.6 Form of Payment of Supplemental Benefit . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Source of Supplemental Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.8 Distributions to Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.9 Investment of Deferred Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.10 Acceleration Due to Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5
PLAN ADMINISTRATION
5.1 Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Compensation Committee to Establish Rules and Claims Procedure . . . . . . . . . . . . . 10
5.3 Organization and Decisions of Compensation Committee . . . . . . . . . . . . . . . . . . 10
5.4 Determination of Supplemental Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 Employment of Counsel, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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TABLE OF CONTENTS
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ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Rights Generally to Make Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Conditions to Amendment, Suspension or Termination . . . . . . . . . . . . . . . . . . . 11
ARTICLE 7
CHANGE IN EMPLOYMENT
7.1 Participant Transfer from Employer to Employer . . . . . . . . . . . . . . . . . . . . . 12
7.2 Participant Transfer from Employer to Related Employer . . . . . . . . . . . . . . . . . 12
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Prohibition Against Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.2 Plan Voluntary on Part of Employers . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.3 Plan Not Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.5 Payment to Minors, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 5
HUMANA SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDED AND RESTATED AS OF
JANUARY 1, 1995
WHEREAS, HUMANA INC. ("Humana"), a Delaware corporation with its principal
place of business in Louisville, Kentucky ("Sponsoring Employer"), has adopted
the Humana Retirement and Savings Plan ("Retirement and Savings Plan"), which is
intended to be qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended ("Code"), and
WHEREAS, certain employees of the Sponsoring Employer and its subsidiaries
are eligible for allocations of contributions to Retirement Accounts under the
Retirement and Savings Plan and were eligible for allocations of contributions
under the (now terminated) Humana Employee Stock Ownership Plan ("ESOP"), and
the Humana Inc. Retirement Plan (collectively, "Qualified Plans"), and
WHEREAS, pursuant to the terms of the Qualified Plans, the benefits of
certain employees of the Sponsoring Employer and its subsidiaries have been and
will be reduced because of the limitation on compensation of Section 401(a)(17)
of the Code and the limitation on allocations of contributions of Section 415 of
the Code, and
WHEREAS, the Board of Directors of the Sponsoring Employer ("Board of
Directors") desires to continue to provide a supplemental benefit to such
persons in the amount of the reduction of their benefits under the Qualified
Plans, and
WHEREAS, on September 1, 1982, the Sponsoring Employer adopted the Humana
Supplemental Executive Retirement Plan ("Plan"), and
WHEREAS, the Board of Directors desires to amend and restate the Plan in
light of the foregoing changes in the Qualified Plans and laws, and has
authorized and approved the amendment and restatement of the Humana Supplemental
Executive Retirement Plan provided for herein.
NOW, THEREFORE, the Sponsoring Employer, pursuant to the right to amend
contained in Article 6 of the Plan, hereby approves and adopts this amendment
and restatement, effective January 1, 1995, which shall read as follows:
ARTICLE 1
PURPOSE AND APPLICABILITY OF PLAN
1.1 PURPOSE OF PLAN. The purpose of the Plan shall be to provide
supplemental benefits to Participants whose benefits under the Qualified Plans
are or will be reduced because of the compensation limitation of Section
401(a)(17) of the Code and the limitation on allocations
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of contributions of Section 415 of the Code, upon the terms and conditions, and
subject to the limitations, contained herein.
1.2 APPLICABILITY OF PLAN. The provisions of the Plan shall apply only to
persons employed by an Employer on and after the Effective Date.
ARTICLE 2
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below, unless a different meaning is plainly required by the context.
2.1 BENEFICIARY AND SECONDARY BENEFICIARY. The person or persons (or a
trust) as set forth under the Retirement and Savings Plan.
2.2 BOARD OF DIRECTORS. The Board of Directors of the Sponsoring Employer.
2.3 CHANGE IN CONTROL. Change in Control shall mean any of the following
events:
(A) An acquisition (other than directly from the Sponsoring Employer)
of any voting securities of the Sponsoring Employer ("Voting Securities") by any
"Person" (as the term Person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended ("1934 Act")) immediately after
which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 20% or more of the combined voting power of
the Sponsoring Employer's then outstanding Voting Securities; provided, however,
that in determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall
not constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit
plan (or a trust forming a part thereof) maintained by (A) the Sponsoring
Employer or (B) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned directly or
indirectly by the Sponsoring Employer ("Subsidiary"), (ii) the Sponsoring
Employer or any Subsidiary, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined).
(B) The individuals who, as of the date of this Plan, are members of
the Board of Directors ("Incumbent Board"), cease for any reason to constitute
at least two-thirds of the Board of Directors; provided, however, that if the
election, or nomination for election by the Sponsoring Employer's stockholders,
of any new director was approved by a vote of at least two-thirds of the
Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided, further, however, that
no individual
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shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board ("Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(C) Approval by stockholders of the Sponsoring Employer of:
(i) A merger, consolidation or reorganization involving the
Sponsoring Employer, unless,
(a) The stockholders of the Sponsoring Employer, immediately
before such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least 75%
of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(b) The individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the members of
the board of directors of the Surviving Corporation;
(c) No person (other than the Sponsoring Employer, any
subsidiary, any employee benefit plan (or any trust forming a part thereof)
maintained by the Sponsoring Employer, the Surviving Corporation or any
subsidiary, or any Person who, immediately prior to such merger, consolidation
or reorganization had Beneficial Ownership of 20% or more of the then
outstanding Voting Securities has Beneficial Ownership of 20% or more of the
combined voting power of the Surviving Corporation's then outstanding Voting
Securities; and
(d) A transaction described in clauses (a) through (c) shall
herein be referred to as a "Non-Control Transaction;"
(ii) A complete liquidation or dissolution of the Sponsoring
Employer; or
(iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Sponsoring Employer to any Person (other
than a transfer to a Subsidiary).
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Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Sponsoring Employer which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of Shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Sponsoring Employer, and
after such share acquisition by the Sponsoring Employer, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which increases
the percentage of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
2.4 CODE. The Internal Revenue Code of 1986, as it has been and may be
amended from time to time. Reference to any section of the Code shall include
any provision successor thereto.
2.5 COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors of the Sponsoring Employer.
2.6 EFFECTIVE DATE. The effective date of this Plan, which shall be
September 1, 1982.
2.7 EMPLOYEE. Any person employed by an Employer.
2.8 EMPLOYER. The Sponsoring Employer and each corporation which is a
member of the "affiliated group" (as defined in Section 1504(a) of the Code)
with the Sponsoring Employer. When used with reference to an Employee or
Participant, the term shall mean the Employer employing the Employee or
Participant.
2.9 ESOP. The Humana Employee Stock Ownership Plan, which terminated
effective June 15, 1989.
2.10 NORMAL RETIREMENT DATE. The first day of the month coincident with or
immediately following the Participant's 65th birthday.
2.11 PARTICIPANT. An Employee who has met the requirements of Article 3 for
participation hereunder. Where the context so permits or requires, the term
shall also include a person who was a Participant prior to the termination of
the Participant's employment with an Employer and who is entitled to a
Supplemental Benefit after such person's employment terminates.
2.12 PARTICIPATION DATE. The later of the Effective Date or the date the
Participant becomes eligible for a Supplemental Benefit.
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2.13 PLAN YEAR. The twelve consecutive month period commencing on the first
day of January and ending on the last day of the immediately following December.
2.14 QUALIFIED PLANS. The Retirement Plan, the ESOP and the Retirement
Account under the Retirement and Savings Plan.
2.15 RELATED EMPLOYER. Any subsidiary or affiliate of the Sponsoring
Employer, which is designated by the Board of Directors to be a Related
Employer.
2.16 RETIREMENT ACCOUNT. The account established by that name on behalf of
a Participant in the Retirement and Savings Plan.
2.17 RETIREMENT AND SAVINGS PLAN. The Humana Retirement and Savings Plan,
as it may be amended from time to time.
2.18 RETIREMENT PLAN. The Humana Inc. Retirement Plan, which terminated
effective December 31, 1982.
2.19 SPONSORING EMPLOYER. Humana Inc., a Delaware corporation.
2.20 SUPPLEMENTAL BENEFIT. The benefit described in Article 4.
2.21 SUPPLEMENTAL PLAN OR PLAN. The Humana Supplemental Executive
Retirement Plan provided for herein, as it may be amended from time to time.
2.22 VESTED PENSION ACCOUNT. The account established by that name on behalf
of a Participant in the Retirement and Savings Plan who was a Participant in the
Retirement Plan.
ARTICLE 3
PARTICIPATION IN THE PLAN
3.1 ELIGIBLE EMPLOYEES. Each Employee who is a participant in a Qualified
Plan after August 31, 1982 shall participate in this Plan to the extent of the
benefits stated herein; provided, however, that if the Participant is employed
partially by the Sponsoring Employer and partially by another Employer who has
adopted the Qualified Plans, such person shall not fully participate herein
unless such person's Employer has agreed to bear its proportionate share of the
cost of this Plan with respect to its Employees.
3.2 PROVISIONS OF PLAN BINDING ON PARTICIPANTS. Upon becoming a
Participant, a Participant shall be bound then and thereafter by the terms of
this Plan, including all amendments to the Plan.
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3.3 NOTIFICATION OF PARTICIPATION. Each Employee shall be notified when the
Employee becomes a Participant.
3.4 TERMINATION OF BENEFIT ACCRUAL. An Employee's accrual of benefits under
this Plan shall cease upon the Employee's termination of employment.
ARTICLE 4
SUPPLEMENTAL BENEFITS
4.1 AMOUNT OF SUPPLEMENTAL BENEFITS. Each Participant shall receive a
Supplemental Benefit under this Supplemental Plan consisting of the following:
(a) A defined contribution benefit as set forth in Section 4.2; and
(b) If the Participant participated in the Retirement Plan, a pension
benefit as set forth in Section 4.3.
4.2 DEFINED CONTRIBUTION BENEFIT. The defined contribution benefit shall
equal the aggregate of the benefit accrued by the Participant during each Plan
Year of participation as such amounts are further adjusted under Section 4.4.
The Participant's defined contribution benefit accrued in a Plan Year shall
equal the difference, if any, between the actual contribution by the Employer to
the Retirement Account or other Qualified Plan (other than the Retirement Plan)
on behalf of the Participant for such Plan Year and the amount of the
contribution which would otherwise have been made by the Employer on behalf of
such Participant for such Plan Year but for the compensation limitation of
Section 401(a)(17) of the Code and the annual additions limitations imposed by
Section 415 of the Code.
4.3 PENSION BENEFIT. As further adjusted under Section 4.4, the vested
pension benefit shall be an amount equal to the difference, if any, between the
value of the Participant's Vested Pension Account at the time it was established
and the value such Account would have been had the Participant's benefit under
the Retirement Plan been determined without regard to the limitation established
in Section 11.12(a)(iii) of the Retirement Plan.
4.4 ADJUSTMENTS TO BENEFITS. The amount of the benefit set forth in
Sections 4.2 and 4.3 shall be further adjusted for gains (or losses) as if such
amounts were invested in the following investment funds maintained for the
Participant's Retirement Account, in accordance with the Participant's
directions:
1. Interest Income Fund
2. Fidelity Balanced Fund
3. Stock Index Fund
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4. Harbor International Fund
5. Fidelity Contrafund
6. Provident Small Cap Fund
7. Humana Common Stock Fund
Notwithstanding the foregoing, in the event an investment set forth
above is no longer available, the Committee shall substitute another investment,
and the Participant shall have the opportunity to change investment directions.
In the event the Participant provides no investment direction, the
Participant's benefit shall be deemed invested in accordance with the same
directions in effect with respect to the investment of the Participant's
Retirement Account. The adjustments of earnings (or losses) shall be made in
accordance with the same procedures and in the same manner as provided for the
Participant's Retirement Account, except as otherwise modified herein. The
amount of the Participant's benefit on account of retirement, death or other
termination of employment shall be determined as if such amounts were actually
invested pursuant to and being paid from the Participant's Retirement Account
and Vested Pension Account.
4.5 ELIGIBILITY FOR PAYMENT OF SUPPLEMENTAL BENEFIT. The payment of the
Participant's Supplemental Benefit shall commence no later than sixty (60) days
following the Participant's termination of employment for any reason, whether
voluntary or involuntary, or by reason of death, total and permanent disability
or retirement. The form of the payment of the Participant's Supplemental Benefit
shall be governed by Section 4.6 notwithstanding the form of distribution of the
Participant's benefits from the Retirement Account. All payments shall be made
in cash.
4.6 FORM OF PAYMENT OF SUPPLEMENTAL BENEFIT. A Participant, Beneficiary or
a Secondary Beneficiary may request a manner of payment of the Supplemental
Benefits under the Plan as provided hereinafter. The request by the Participant,
the Beneficiary or the Secondary Beneficiary shall be in writing and shall be
filed with the Compensation Committee at least thirty (30) days before the
payment is to be made or commenced. The Compensation Committee may approve such
request or may disapprove such request and substitute another alternative form.
The alternative forms of distribution are as follows:
(a) A lump sum distribution in cash;
(b) Periodic substantially equal installments (either monthly,
quarterly or annually) for a period not to exceed 20 years; or
(c) An annuity in any form permitted from the Retirement Account.
4.7 SOURCE OF SUPPLEMENTAL BENEFIT. The Supplemental Benefit shall not be
funded but shall constitute liabilities of the Sponsoring Employer, payable when
due from the general
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assets of the Sponsoring Employer. The Sponsoring Employer shall pay all costs,
charges and expenses related thereto. No Participant or other person shall have
any right or claim to the payment of a Supplemental Benefit which in any manner
whatsoever is superior to or different from the right or claim of a general and
unsecured creditor of the Sponsoring Employer.
4.8 DISTRIBUTIONS TO BENEFICIARIES. If at the time of a Participant's death
a distribution is still outstanding, the remaining benefits shall be paid to the
Participant's Beneficiary. If at the time of a Participant's death while a
distribution is still outstanding and the Participant's Beneficiary does not
survive the Participant, the remaining benefits shall be paid to the
Participant's Secondary Beneficiary. If a deceased Participant is not survived
by either a Beneficiary or Secondary Beneficiary (or if no Beneficiary was
effectively named), the benefits shall be paid in a single sum to the estate of
the Participant and the Compensation Committee shall be fully protected in
paying such benefits to such deceased Participant's personal representative,
irrespective of whether payments are actually made to a person or persons who in
fact are not the personal representative of the deceased Participant.
4.9 INVESTMENT OF DEFERRED DISTRIBUTION. The Supplemental Benefit of a
Participant or Beneficiary which will be distributed in installments, or which
will not be distributed immediately, after the amount of the benefit is
determined shall continue to be deemed invested in the Participant's Retirement
Account as described in Section 4.4. The Participant or Beneficiary may direct
the investment of the deferred distribution, provided such directions shall be
filed with the Compensation Committee in accordance with the same rules and
procedures and subject to the same conditions as then in effect with respect to
the investment of the Participant's Retirement Account. Such investment
directions shall remain in effect until amended or superseded. The adjustment of
the Supplemental Benefit under Section 4.4 shall continue:
(a) If distribution is to be made under Section 4.6(a) or (b), through
the last valuation date, as defined in the Retirement and Savings Plan with
respect to the Participant's Retirement Account, immediately preceding the lump
sum distribution or the last periodic installment, whichever is applicable; or
(b) If the benefit is to be distributed in the form of annuity under
Section 4.6(c), through the last valuation date, as defined in the Retirement
and Savings Plan with respect to the Participant's Retirement Account,
immediately preceding the date such annuity payments are to commence.
4.10 ACCELERATION DUE TO CHANGE IN CONTROL.
(a) In the event of a Change in Control of the Sponsoring Employer, the
Supplemental Benefit of any Participant shall, except as otherwise provided in
Section 4.10(b), be distributed as soon as administratively feasible in a lump
sum in cash in accordance with Section 4.6(a). This shall apply to active,
retired or disabled Participants. In the case of an
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active Participant, any benefit to which the Participant is entitled under this
Section 4.10(a) as a result of a Change in Control ("Change in Control Benefit")
shall reduce the benefit to which the Participant would otherwise be entitled
under the Plan.
(b) Notwithstanding the provisions of Section 4.10(a), if at least 30
days prior to a Change in Control, a Participant elects, in such manner as the
Committee shall determine, to defer the payment of all or any portion of the
Change in Control Benefit which the Participant would be entitled to receive
upon a Change in Control ("Deferral Election"), then the single sum payment
referred to in Section 4.10(a) shall not be made at the time or times referred
to in Section 4.10(a) and such Change in Control Benefit shall instead be made
at the time provided for in the Deferral Election. Payment of the Change in
Control Benefit must commence no later than the earlier to occur of (i) the date
or age specified by the Participant in the Deferral Election, or (ii) the date
on which the Participant terminates employment with the Sponsoring Employer for
any reason other than voluntary retirement, death or disability, or (iii) a
subsequent (second) Change in Control. A Participant deferring any portion of a
Change in Control Benefit may further provide for the payment of the Change in
Control Benefit in installments over a period not to exceed 10 years. A
Participant making a Deferral Election may, at any time and from time to time,
designate a beneficiary to receive the Participant's Change in Control Benefit
in the event of the Participant's death.
(c) Upon the effective date of a Change in Control, the Sponsoring
Employer shall create a "Rabbi Trust" (i.e., a grantor trust designed to hold
funds to be used to pay benefits under a deferred compensation arrangement
without such funds becoming taxable to the participants entitled to such
benefits until paid to such participants) in the form set forth on Attachment A
with a major financial institution in Louisville, Kentucky selected by the
Sponsoring Employer to which the Sponsoring Employer shall transfer funds in an
amount equal to the portion of the Change in Control Benefits elected to be
deferred by all Participants making a Deferral Election.
(d) All deferred Change in Control Benefits shall be deemed invested in
one or more of the investments set forth below, as selected by the deferring
Participant in the Deferral Election; provided, however, that no less than 10%
of the Participant's deferred Change in Control Benefit may be deemed invested
in any one investment. A Participant may elect, once during each calendar
quarter, to change the manner in which the Participant's Change in Control
Benefit is deemed invested beginning on the first day of the following calendar
quarter. The investments in which Change in Control Benefits may be deemed
invested are as follows:
1. Fidelity Balanced Fund;
2. Fidelity Contrafund;
3. Harbor International Fund;
4. Provident Small Cap Fund;
5. An interest income fund selected by the Trustee;
6. A stock index fund selected by the Trustee.
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Notwithstanding the foregoing, in the event an investment set forth above is no
longer in existence, then the Committee shall substitute another investment
having investment objectives similar to the investment which ceased to exist.
The payments to be made to Participants shall be based upon the initial Change
in Control Benefit and the effects of the deemed investment of the Change in
Control Benefit thereafter.
(e) If a Participant who has made a Deferral Election is required to
include the amount of the Change in Control Benefit in income for federal income
tax purposes prior to actual receipt thereof and agrees in a written document
delivered to the Internal Revenue Service to pay income tax thereon, such
Participant, upon advising the trustee of the Rabbi Trust and the Sponsoring
Employer of such fact (and supplying such documents as the trustee of the Rabbi
Trust shall require to substantiate such facts), shall be entitled to receive
the Change in Control Benefit, as adjusted in accordance with Section 4.7(d), as
soon as administratively possible.
ARTICLE 5
PLAN ADMINISTRATION
5.1 COMPENSATION COMMITTEE. The Compensation Committee shall be responsible
for making all policy decisions which arise under the Plan. The Compensation
Committee shall be responsible for administering the Plan and keeping records of
Supplemental Benefits. All members of the Compensation Committee shall serve
until their resignation or dismissal and vacancies shall be filled in the same
manner as the original appointments.
5.2 COMPENSATION COMMITTEE TO ESTABLISH RULES AND CLAIMS PROCEDURE. Subject
to the limitations of the Plan, the Compensation Committee shall from time to
time establish rules for the administration of the Plan. Without limiting the
generality of the preceding sentence, it is specifically provided that the
Compensation Committee shall set forth the procedures to be followed in
presenting claims for benefits under the Plan. The Compensation Committee shall
rely on the records of the Employer, as certified to it, with respect to any and
all factual matters dealing with the employment of an Employee or Participant.
In case of any factual dispute hereunder, the Compensation Committee shall
resolve such dispute giving due weight to all evidence available to it. The
Compensation Committee shall interpret the Plan and shall determine all
questions arising in the administration, interpretation and application of the
Plan. All such determinations shall be final, conclusive and binding.
5.3 ORGANIZATION AND DECISIONS OF COMPENSATION COMMITTEE. Except as
otherwise specifically provided herein, every decision and action of the
Compensation Committee shall be valid if concurred in by a majority of the
members then in office, which concurrence may be had without a formal meeting.
The Compensation Committee shall select a Secretary, who may
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or may not be a member of the Committee, and any other officers deemed
necessary. The Compensation Committee shall keep a permanent record of its
meetings and actions.
5.4 DETERMINATION OF SUPPLEMENTAL BENEFITS. The Compensation Committee
shall be responsible for the determination of Supplemental Benefits.
5.5 EMPLOYMENT OF COUNSEL, ETC. The Compensation Committee may employ such
counsel, accountants and other agents as it shall deem advisable. The Sponsoring
Employer shall pay the compensation of such counsel, accountants and other
agents and any other expenses incurred by the Compensation Committee in the
administration of the Plan.
5.6 PAYMENT OF EXPENSES. The reasonable costs and expenses incurred by the
Compensation Committee in the performance of its duties hereunder, excluding
compensation for services, but including, without limitation, reasonable fees
for legal, accounting and other services rendered, shall be paid by the
Sponsoring Employer.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 RIGHTS GENERALLY TO MAKE AMENDMENTS. The Sponsoring Employer reserves
the right at any time, by action of its Board of Directors, to modify or amend,
in whole or in part, any or all of the provisions of the Plan. Provided,
however, that this provision shall be inoperative upon a Change in Control.
6.2 CONDITIONS TO AMENDMENTS, SUSPENSION OR TERMINATION. Notwithstanding
the provisions of Section 6.1, no amendment, suspension or termination shall
adversely affect:
(a) The Supplemental Benefit of any Participant, or the Beneficiary or
Secondary Beneficiary of any Participant who has retired prior thereto; or
(b) The right of any Participant then employed by the Employer to
receive upon retirement or other termination of employment, or the Participant's
Beneficiary or Secondary Beneficiary to receive upon the Participant's death,
the accrued Supplemental Benefit to which such person would have been entitled
under the Supplemental Plan prior to its amendment, suspension or termination.
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ARTICLE 7
CHANGE IN EMPLOYMENT
7.1 PARTICIPANT TRANSFER FROM EMPLOYER TO EMPLOYER. A Participant who
transfers employment from one Employer to another Employer shall not be
considered as terminating employment with an Employer and shall continue to be a
Participant in this Plan without interruption.
7.2 PARTICIPANT TRANSFER FROM EMPLOYER TO RELATED EMPLOYER. A Participant
who transfers employment to a Related Employer shall not be considered as
terminating employment with an Employer and shall remain an active Participant
in the Plan, except that no further benefits shall be accrued on such
Participant's behalf under Section 4.2. Although no further benefits may be
accrued, the Participant's benefit shall continue to be adjusted in accordance
with Section 4.4. For purposes of this Section 7.2, a Related Employer shall
mean a corporation which would qualify as an Employer but for the fact that it
has not adopted the Supplemental Plan.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 PROHIBITION AGAINST ASSIGNMENT. Neither the interest of a Participant
or any other person nor the Supplemental Benefit payable hereunder, is subject
to the claim of creditors of Participants or their Beneficiaries, and will not
be subject to attachment, garnishment or any other legal process. Neither a
Participant nor the Participant's Beneficiaries may assign, sell, borrow on or
otherwise encumber any of the Participant's beneficial interest in the Plan, nor
shall any such benefits be in any manner liable for or subject to the deeds,
contracts, liabilities, engagements or torts of any Participant or Beneficiary.
All such payments and rights thereto are expressly declared to be non-assignable
and non-transferable, and in the event of any attempt of assignment or
transfer, the Employer shall have no further liability hereunder.
8.2 PLAN VOLUNTARY ON PART OF EMPLOYERS. Although it is the intention of
each Employer that this Plan shall be continued, this Plan is entirely voluntary
on the part of each Employer, and the continuance of the Plan is not assumed as
a contractual obligation of an Employer other than as may be provided by Article
6.
8.3 PLAN NOT CONTRACT OF EMPLOYMENT. This Plan shall not be deemed to
constitute a contract between the Employer and any Participant or to be a
consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give any Participant
or Employee the right to be retained in the service of the Employer or to
interfere with the right of the Employer to discharge any Participant or
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Employee at any time regardless of the effect which such discharge shall have
upon such individual as a Participant in the Plan.
8.4 CONSTRUCTION.
(a) This Plan shall be construed and enforced according to the laws of
the Commonwealth of Kentucky, and all provisions hereunder shall be administered
according to the laws thereof. It is intended that this Supplemental Plan be
exempt from Title I of the Employee Retirement Income Security Act of 1974, as
amended, under Section 4(b)(5) thereof, as an excess benefit plan and as a plan
which is unfunded and maintained by the Employer for the purpose of providing
deferred compensation for a select group of highly compensated employees, and
any ambiguities in construction shall be resolved in favor of interpretation
which will effectuate such intentions.
(b) Any words herein used in the singular shall be read and construed
as though used in the plural in all cases where they would so apply.
(c) Titles of articles and headings to sections are inserted for
convenience of reference only and, in the event of any conflict, the text of the
Plan, rather than such titles and headings, shall control.
8.5 PAYMENT TO MINORS, ETC. In making any payment to or for the benefit of
any minor or incompetent Beneficiary, the Compensation Committee, in its sole,
absolute and uncontrolled discretion, may, but need not, make such payment to a
legal or natural guardian or other relative of such minor or court appointed
committee of such incompetent, or to any adult with whom such minor or
incompetent temporarily or permanently resides, and any such guardian,
committee, relative or other person shall have full authority and discretion to
expend such distribution for the use and benefit of such minor or incompetent,
and the receipt by such guardian, committee, relative or other person shall be a
complete discharge to the Employer, without any responsibility on its part or on
the part of the Compensation Committee to see to the application thereof.
IN WITNESS WHEREOF, the Sponsoring Employer has caused this instrument to
be executed and attested thereto by its duly authorized officers this ________
day of _____________________, 19_____.
HUMANA INC.
Attest: By: Wayne T. Smith
__________________________
Joan O. Kroger President and Chief Operating Officer
____________________________
Secretary
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Exhibit 10(x)
AGREEMENT AND AMENDMENT
AGREEMENT AND AMENDMENT, dated as of October 27, 1994, among HUMANA
INC., a Delaware corporation (the "Company"), the several banks and other
financial institutions from time to time parties hereto (the "Banks") and
CHEMICAL BANK, a New York banking corporation, as agent for the Banks hereunder
(in such capacity, the "Agent") and as CAF Loan agent (in such capacity, the
"CAF Loan Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Agent, the CAF Loan Agent and certain banks
and other financial institutions (the "Original Banks") are parties to the
Credit Agreement, dated as of January 12, 1994 (as amended, supplemented or
otherwise modified to the date hereof, the "Original Credit Agreement"),
pursuant to which the Original Banks committed to make loans to the Company for
a period of three years;
WHEREAS, effective as of the Closing Date (as defined below), the
Company intends to terminate the Commitments (as defined in the Original Credit
Agreement) of the Original Banks under the Original Credit Agreement pursuant to
subsection 2.4(a) thereof;
WHEREAS, the Company has requested that the Agent, the CAF Loan Agent
and the Banks enter into a new agreement adopting and incorporating by reference
all of the terms and provisions of the Original Credit Agreement with certain
amendments and modifications thereto; and
WHEREAS, the Agent, the CAF Loan Agent and the Banks are willing to so
enter into a new agreement, but only upon the terms and subject to the
conditions set forth below;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
parties hereto hereby agree as follows:
SECTION 1. Adoption and Incorporation of Original Credit Agreement.
Subject to the amendments and modifications set forth in Sections 3 through 13
of this Agreement, all of the terms and provisions of the Original Credit
Agreement are hereby adopted and incorporated by reference into this Agreement,
with the same force and effect as if fully set forth herein. This Agreement
shall not constitute an amendment or waiver of any provision of the Original
Credit Agreement not expressly referred to herein and shall not be construed as
an amendment, waiver or consent to any action on the part of the Company that
would
<PAGE> 2
2
require an amendment, waiver or consent of the Agent or the Banks except as
expressly stated herein. Except as expressly amended hereby, the provisions of
the Original Credit Agreement as adopted and incorporated by reference into this
Agreement are and shall remain in full force and effect.
SECTION 2. Definitions. As used in this Agreement, terms defined
herein are used as so defined and, unless otherwise defined herein, terms
defined in the Original Credit Agreement are used herein as therein defined.
SECTION 3. Defined Terms. For purposes of this Agreement, subsection
1.1 of the Original Credit Agreement as adopted and incorporated by reference
into this Agreement is hereby amended as follows:
(a) by deleting the defined terms "Level I Utilization Period", "Level
II Utilization Period" and "Level III Utilization Period" in their entirety.
(b) by deleting the defined terms "Agreement", "Applicable Margin",
"Closing Date", "L/C Sublimit" and "Termination Date" in their entirety and
substituting in lieu thereof the following:
"`Agreement': this Credit Agreement as adopted and incorporated by
reference into the Agreement and Amendment, as amended by the Agreement and
Amendment and as further amended, supplemented or otherwise modified from
time to time.";
"`Applicable Margin': for each Type of Revolving Credit Loan, for any
fiscal quarter, the applicable rate per annum set forth in Schedule 2
hereto opposite the Consolidated Capitalization Ratio then in effect. Such
Applicable Margin shall be in effect for the period beginning the first
Business Day following the date to which the Consolidated Capitalization
Ratio Certificate is applicable."
"`Closing Date': the date on which all of the conditions precedent for
the Closing Date set forth in Section 14 of the Agreement and Amendment
shall have been fulfilled; provided, however, that for purposes of Section
5 of the Original Credit Agreement, the term "Closing Date" shall mean the
Original Closing Date.";
"'L/C Sublimit': $100,000,000."; and
"`Termination Date': the date one day before the fifth anniversary of
the Closing Date (or, if such date is not a Business Day, the next
succeeding Business Day), or such other Business Day to which the
Termination Date may be changed pursuant to subsection 2.4 of the Original
Credit
<PAGE> 3
3
Agreement as adopted and incorporated by reference into the
Agreement and Amendment.".
(c) by inserting in said subsection 1.1 of the Original Credit
Agreement in the appropriate alphabetical order the following defined terms:
"`Agreement and Amendment': the Agreement and Amendment, dated as of
October 27, 1994, among the Company, the Banks, the Agent and the CAF
Loan Agent.";
"`Average Quarterly Commitment': as defined in subsection 2.3(a)
hereto.";
"`Banks': the several banks and other financial institutions (which
may include certain Original Banks) from time to time parties to the
Agreement and Amendment.";
"`Consolidated Capitalization Ratio': as at the end of any fiscal
quarter, the ratio of (i) Consolidated Total Debt to (ii) the sum of (A)
Consolidated Total Debt and (B) Consolidated Net Worth, in each case at
such date.";
"`Consolidated Capitalization Ratio Certificate': as defined in
subsection 6.4(b) hereto.";
"`Original Banks': as defined in the recitals to the Agreement and
Amendment.";
"`Original Closing Date': January 12, 1994."; and
"`Original Credit Agreement': as defined in the recitals to the
Agreement and Amendment.".
SECTION 4. Fees.
For purposes of this Agreement, subsection 2.3(a) of the Original
Credit Agreement as adopted and incorporated by reference into this Agreement is
hereby amended by deleting such subsection in its entirety and substituting in
lieu thereof the following:
"(a) The Company agrees to pay to the Agent, for the account of
each Bank, on the last day of each fiscal quarter, a facility fee in
respect of the average daily amount of the Commitment of such Bank
during such fiscal quarter (such amount, the "Average Quarterly
Commitment"). Such fee shall be computed at the rate per annum set
forth in the table below opposite the Consolidated Capitalization
Ratio then in effect (as determined in accordance with the definition
of Applicable Margin).
<PAGE> 4
4
<TABLE>
<CAPTION>
Consolidated Facility Fee
Capitalization Ratio (Rate Per Annum)
-------------------- --------------
<S> <C>
less than .20 .1250%
at least .20 but less than .30 .1750%
at least .30 but less than .40 .2250%
at least .40 .3125%.".
</TABLE>
SECTION 5. Extension of Commitments. For purposes of this Agreement,
subsection 2.4(b) of the Original Credit Agreement as adopted and incorporated
by reference into this Agreement is hereby amended by deleting the word "fifth"
in the ninth line thereof and substituting in lieu thereof the word "seventh".
SECTION 6. Letters of Credit. For purposes of this Agreement,
subsection 3.3(a) of the Original Credit Agreement as adopted and incorporated
by reference into this Agreement is hereby amended by deleting such subsection
in its entirety and substituting in lieu thereof the following:
"(a) The Company shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a letter of credit commission with
respect to each Letter of Credit, computed at the rate per annum set forth
in the table below opposite the Consolidated Capitalization Ratio then in
effect (as determined in accordance with the definition of Applicable
Margin), of which .125% per annum shall be payable to the Issuing Bank and
the balance shall be payable to the L/C Participants to be shared ratably
among them in accordance with their respective Commitment Percentages. Such
fee shall be payable on each L/C Fee Payment Date and shall be
nonrefundable.".
<TABLE>
<CAPTION>
Consolidated L/C Commission
Capitalization Ratio (Rate per Annum)
-------------------- ----------------
<S> <C>
less than .20 .3750%
at least .20 but less than .30 .4500%
at least .30 but less than .40 .5000%
at least .40 .5625%.".
</TABLE>
SECTION 7. Litigation. For purposes of this Agreement, subsection 4.3
of the Original Credit Agreement as adopted and incorporated by reference into
this Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following:
<PAGE> 5
5
"4.3 Litigation. Except as disclosed in the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1993 and the Company's
Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1994
and June 30, 1994 filed with the Securities and Exchange Commission and
previously distributed to the Banks, there is no litigation, at law or in
equity, or any proceeding before any federal, state, provincial or
municipal board or other governmental or administrative agency, including
without limitation, HMO Regulators and Insurance Regulators, pending or to
the knowledge of the Company threatened which, after giving effect to any
applicable insurance, may involve any material risk of a Material Adverse
Effect or which seeks to enjoin the consummation of any of the transactions
contemplated by this Agreement or any other Loan Document, and no judgment,
decree, or order of any federal, state, provincial or municipal court,
board or other governmental or administrative agency, including without
limitation, HMO Regulators and Insurance Regulators, has been issued
against the Company or any Subsidiary which has, or may involve, a material
risk of a Material Adverse Effect. The Company does not believe that the
final resolution of the matters disclosed in its Annual Report on Form 10-K
for its fiscal year ended December 31, 1993 and the Company's Quarterly
Reports on Form 10-Q for its fiscal quarters ended March 31, 1994 and June
30, 1994 filed with the Securities and Exchange Commission and previously
distributed to the Banks, will have a Material Adverse Effect."
SECTION 8. Financial Condition. For purposes of this Agreement,
subsection 4.6 of the Original Credit Agreement as adopted and incorporated by
reference into this Agreement is hereby amended by deleting such subsection in
its entirety and substituting in lieu thereof the following:
"4.6 Financial Condition. The Company has furnished to the Agent and
each Bank copies of the following:
(a) The Annual Report of the Company on Form 10-K for the fiscal
year ended December 31, 1993; and
(b) the Quarterly Reports of the Company on Form 10-Q for each of
the fiscal quarters ended March 31, 1994 and June 30, 1994.".
The financial statements included therein, including the related schedules
and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the
<PAGE> 6
6
periods involved (except as disclosed therein). As of the date of such
financial statements, neither the Company nor any of its Subsidiaries had
any known contingent liabilities of any significant amount which in
accordance with GAAP are required to be referred to in said financial
statements or in the notes thereto which could reasonably be expected to
have a Material Adverse Effect. During the period from December 31, 1993 to
and including the date hereof, there has been no sale, transfer or other
disposition by the Company or any of its consolidated Subsidiaries of any
asset reflected on the balance sheet referred to above that would have been
a material part of its business or property and no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the consolidated financial condition
of the Company and its consolidated Subsidiaries at December 31, 1993.".
SECTION 9. Changes in Condition. For purposes of this Agreement,
subsection 4.7 of the Original Credit Agreement as adopted and incorporated by
reference into this Agreement is hereby amended by deleting such subsection in
its entirety and substituting in lieu thereof the following:
"4.7 Changes in Condition. Since December 31, 1993, there has been no
development or event nor any prospective development or event, which has
had, or may have, a Material Adverse Effect.".
SECTION 10. Financial Statements. For purposes of this Agreement,
subsection 6.4(b) of the Original Credit Agreement as adopted and incorporated
by reference into this Agreement is hereby amended adding the following sentence
to the end thereof:
"At such time that annual statements or quarterly statements, as the
case may be, are furnished to each Bank pursuant to subsections 6.4(a) and
6.4(b), respectively, herein, the treasurer of the Company shall deliver to
the Agent and the CAF Loan Agent a certificate showing the Consolidated
Capitalization Ratio (the "Consolidated Capitalization Ratio Certificate")
as of the last day of such fiscal quarter.".
SECTION 11. Financial Condition Covenants. For purposes of this
Agreement, subsection 7.1(a) of the Original Credit Agreement as adopted and
incorporated by reference into this Agreement is hereby amended by deleting the
phrase "the Closing Date" in the sixth and seventh lines thereof and
substituting in lieu thereof the phrase "September 30, 1993".
SECTION 12. Commitment Amounts and Percentages; Lending Offices;
Addresses for Notice. For purposes of this
<PAGE> 7
7
Agreement, Schedule 1 to the Original Credit Agreement as adopted and
incorporated by reference into this Agreement is hereby amended by deleting such
Schedule in its entirety and substituting in lieu thereof Schedule 1 to this
Agreement.
SECTION 13. Applicable Margins. For purposes of this Agreement,
Schedule 2 to the Original Credit Agreement as adopted and incorporated by
reference into this Agreement is hereby amended by deleting such Schedule in its
entirety and substituting in lieu thereof Schedule 2 to this Agreement.
SECTION 14. Conditions Precedent. The obligations of each Bank to make
the Loans contemplated by subsections 2.1 and 2.2 and of the Issuing Bank to
issue Letters of Credit contemplated by Section 3 of the Original Credit
Agreement as adopted and incorporated by reference into this Agreement shall be
subject to the compliance by the Company with its agreements herein contained
(including its agreements contained in the Original Credit Agreement as adopted
and incorporated by reference into this Agreement) and to the satisfaction on or
before the Closing Date of the following further conditions:
(a) Loan Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Company, with a counterpart for each Bank, and (ii) for the account of
each Bank, a Revolving Credit Note and a Grid CAF Loan Note conforming
to the requirements hereof and executed by a duly authorized officer
of the Company.
(b) Legal Opinions. On the Closing Date as the Agent shall
request, each Bank shall have received from any general, associate, or
assistant general counsel to the Company, such opinions as the Agent
shall have reasonably requested with respect to the transactions
contemplated by this Agreement.
(c) Company Officers' Certificate. The representations and
warranties contained in Section 4 of the Original Credit Agreement as
adopted and incorporated by reference into, and as amended by, this
Agreement shall be true and correct on the Closing Date with the same
force and effect as though made on and as of such date; on and as of
the Closing Date and after giving effect to this Agreement, no Default
shall have occurred (except a Default which shall have been waived in
writing or which shall have been cured) and no Default shall exist
after giving effect to the Loan to be made; and the Agent shall have
received a certificate containing a representation
<PAGE> 8
8
to these effects dated the Closing Date and signed by a Responsible
Officer.
SECTION 15. Expenses. The Company agrees to pay or reimburse the Agent
for all of its reasonable out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement and the Notes and any
other documents prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent.
SECTION 16. GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
SECTION 17. Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Company and the Agent.
<PAGE> 9
9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
HUMANA INC.
By: /s/ James W. Doucette
----------------------------------
Title: Vice President-Investments &
Treasurer
CHEMICAL BANK, as Agent, as CAF
Loan Agent and as a Bank
By: /s/ B. Joseph Lillis
-----------------------------------
Title: Managing Director
CITIBANK, N.A.
By: /s/ Barbara A. Cohen
----------------------------------
Title: Vice President
NATIONSBANK OF GEORGIA, N.A.
By: /s/ John E. Ball
----------------------------------
Title: Senior Vice President
NATIONAL CITY BANK, KENTUCKY
By: /s/ Charles P. Denny
----------------------------------
Title: Senior Vice President
PNC BANK, KENTUCKY, INC.
By: /s/ Michael B. Vairin
----------------------------------
Title: Senior Vice President
<PAGE> 10
10
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ J.P. Peyton
--------------------------------
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST
& SAVINGS ASSOCIATION
By: /s/ Wyatt R. Ritchie
--------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Dana Maloney
--------------------------------
Title: Relationship Manager
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Michael K. Baxley
--------------------------------
Title: Vice Prseident
FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/ Daniel H. Hom
--------------------------------
Title: Vice President
By: /s/ Wendy V.C. Purcell
--------------------------------
Title: Vice President
LIBERTY NATIONAL BANK AND TRUST
CO. OF KENTUCKY
By: /s/ Earl A. Darsey, Jr.
--------------------------------
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Jay G. Sepanski
--------------------------------
Title: Corporate Banking Officer
<PAGE> 11
11
THE SUMITOMO BANK, LTD.,
NEW YORK BRANCH
By: /s/ Yoshinori Kawamura
-------------------------------
Title: Joint General Manager
THE TORONTO-DOMINION BANK
By: /s/ Warren Finlay
-------------------------------
Title: Manager Credit
THE SANWA BANK, LIMITED,
ATLANTA AGENCY
By: /s/ Naoki Ueyama
-------------------------------
Title: Assistant Vice President
BANK OF LOUISVILLE & TRUST COMPANY
By: /s/ Roy L. Johnson Jr.
-------------------------------
Title: Senior Vice President
<PAGE> 12
12
BARNETT BANK OF BROWARD
COUNTY, N.A.
By: /s/ Michael Cooney
--------------------------------
Title: Vice President
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By: /s/ Douglas W. Thornsberry
--------------------------------
Title: Corporate Banking Officer
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ Manfred D. Eigenbrod
--------------------------------
Title: Managing Director
<PAGE> 13
SCHEDULE 1
Commitment Amounts and Percentages;
Lending Offices; Address for Notices
A. Commitment Amounts and Percentages
<TABLE>
<CAPTION>
Commitment Commitment
Name of Bank Amount Percentage
-------------------------------- ------------ ----------
<S> <C> <C>
Chemical Bank $ 31,000,000 8.857%
Citibank, N.A. $ 25,000,000 7.143%
NationsBank of Georgia, N.A. $ 25,000,000 7.143%
National City Bank, Kentucky $ 25,000,000 7.143%
PNC Bank, Kentucky, Inc. $ 25,000,000 7.143%
Wachovia Bank of Georgia, N.A $ 25,000,000 7.143%
Bank of America National Trust &
Savings Association $ 18,000,000 5.143%
The First National Bank of
Chicago $ 18,000,000 5.143%
The Chase Manhattan Bank, N.A. $ 18,000,000 5.143%
First Interstate Bank of
California $ 18,000,000 5.143%
Liberty National Bank and Trust
Co. of Kentucky $ 18,000,000 5.143%
The Sumitomo Bank, Ltd.,
New York Branch $ 18,000,000 5.143%
The Toronto-Dominion Bank $ 18,000,000 5.143%
The Sanwa Bank, Limited, Atlanta
Agency $ 18,000,000 5.143%
The Bank of Nova Scotia $ 10,000,000 2.857%
Bank of Louisville & Trust
Company $ 10,000,000 2.857%
Barnett Bank of Broward County,
N.A. $ 10,000,000 2.857%
The Boatmen's National Bank of
St. Louis $ 10,000,000 2.857%
Shawmut Bank Connecticut, N.A. $ 10,000,000 2.857%
------------ -----
Total $350,000,000 100.00 %
</TABLE>
<PAGE> 14
2
B. LENDING OFFICES; ADDRESSES FOR NOTICES
CHEMICAL BANK
Domestic Lending Office
Chemical Bank
270 Park Avenue
New York, NY 10017
Eurodollar Lending Office
Chemical Bank
270 Park Avenue
New York, NY 10017
Address for Notices
Chemical Bank
270 Park Avenue
New York, NY 10017
Attention: James Ely
Telecopy: (212) 270-3279
CITIBANK, N.A.
Domestic Lending Office
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Eurodollar Lending Office
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Address for Notices
Citicorp North America, Inc.
2001 Ross Ave., Suite 1400
Dallas, TX 75201
Attn: J. Lang Aston
Telecopy: (214) 953-3888
NATIONSBANK OF GEORGIA, N.A.
Domestic Lending Office
NationsBank of Georgia, N.A.
600 Peachtree Street, N.E.
21st Floor
Atlanta, GA 30308
Eurodollar Lending Office
NationsBank of Georgia, N.A.
600 Peachtree Street, N.E.
21st Floor
Atlanta, GA 30308
Address for Notices
NationsBank of Georgia, N.A.
1 NationsBank Plaza
Corporate Banking Dept.
Nashville, TN 37239-1697
Attention: Ashley M. Crabtree
Telecopy: (615) 749-4112
<PAGE> 15
3
NATIONAL CITY BANK, KENTUCKY
Domestic Lending Office
National City Bank, Kentucky
101 S. Fifth Street
Louisville, KY 40202
Eurodollar Lending Office
National City Bank, Kentucky
101 S. Fifth Street
Louisville, KY 40202
Address for Notices
National City Bank, Kentucky
101 S. Fifth Street
Louisville, KY 40202
Attention: Charles P. Denny
Telecopy: (502) 581-4424
PNC BANK, KENTUCKY, INC.
Domestic Lending Office
PNC Bank, Kentucky, Inc.
500 W. Jefferson Street
Louisville, KY 40202
Eurodollar Lending Office
PNC Bank, Kentucky, Inc.
500 W. Jefferson Street
Louisville, KY 40202
Address for Notices
PNC Bank, Kentucky, Inc.
500 W. Jefferson Street
Louisville, KY 40202
Attention: Donald Buchanan
Telecopy: (502) 581-3355
WACHOVIA BANK OF GEORGIA, N.A.
Domestic Lending Office
Wachovia Corporate Services, Inc.
191 Peachtree Street, N.E.
Atlanta, GA 30303
Eurodollar Lending Office
Wachovia Corporate Services, Inc.
191 Peachtree Street, N.E.
Atlanta, GA 30303
Address for Notices
Wachovia Corporate Services, Inc.
191 Peachtree Street, N.E.
Atlanta, GA 30303
Attention: Solomon Elisha
Telecopy: (404) 332-6898
<PAGE> 16
4
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
Domestic Lending Office
Bank of America
1850 Gateway Blvd., 4th Floor
Concord, CA 94520
Eurodollar Lending Office
Bank of America
1850 Gateway Blvd., 4th Floor
Concord, CA 94520
Address for Notices
Bank of America
555 S. Flower Street, 11th Floor
Mail Code 5618
Los Angeles, CA 90071
Attention: Wyatt Ritchie
Telecopy: (213) 228-9734
THE FIRST NATIONAL BANK OF
CHICAGO
Domestic Lending Office
The First National Bank of Chicago
1 First National Plaza
Chicago, IL 60670
Eurodollar Lending Office
The First National Bank of Chicago
1 First National Plaza
Chicago, IL 60670
Address of Notices
The First National Bank of Chicago
1 First National Plaza
Chicago, IL 60670
Attention: Jennifer Childe
Telecopy : (312) 732-2016
<PAGE> 17
5
THE BANK OF NOVA SCOTIA
Domestic Lending Office
The Bank of Nova Scotia,
Atlanta Agency
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Eurodollar Lending Office
The Bank of Nova Scotia,
Atlanta Agency
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Address for Notices
The Bank of Nova Scotia,
Atlanta Agency
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Attention: Greg Hurst
Telecopy: (312) 201-4108
THE CHASE MANHATTAN BANK, N.A.
Domestic Lending Office
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza, 5th Floor
New York, NY 10081
Eurodollar Lending Office
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza, 5th Floor
New York, NY 10081
Address for Notices
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza, 5th Floor
New York, NY 10081
Attention: Michael Bayley
Telecopy: (212) 552-1457
FIRST INTERSTATE BANK OF CALIFORNIA
Domestic Lending Office
First Interstate Bank of California
Commercial Loan Service Center, B10-6
1055 Wilshire Blvd.
Los Angeles, CA 90017
Eurodollar Lending Office
First Interstate Bank of California
Commercial Loan Service Center, B10-6
1055 Wilshire Blvd.
Los Angeles, CA 90017
<PAGE> 18
6
Address for Notices
First Interstate Bank of California
707 Wilshire Blvd., W16-12
Los Angeles, CA 90017
Attention: Bruce P. McDonald
Telecopy: (213) 614-2569
LIBERTY NATIONAL BANK AND TRUST CO. OF KENTUCKY
Domestic Lending Office
Liberty National Bank and Trust
Co. of Kentucky
416 W. Jefferson Street
Louisville, KY 40202
Eurodollar Lending Office
Liberty National Bank and Trust
Co. of Kentucky
416 W. Jefferson Street
Louisville, KY 40202
Address for Notices
Liberty National Bank and Trust
Co. of Kentucky
416 W. Jefferson Street
Louisville, KY 40202
Attention: Earl Dorsey, Jr.
Telecopy: (502) 566-2367
THE SUMITOMO BANK, LTD.,
NEW YORK BRANCH
Domestic Lending Office
The Sumitomo Bank, Ltd.,
New York Branch
One World Trade Center, Suite 9651
New York, NY 10048
Eurodollar Lending Office
The Sumitomo Bank, Ltd.,
New York Branch
One World Trade Center, Suite 9651
New York, NY 10048
Address for Notices
The Sumitomo Bank, Ltd.,
New York Branch
One World Trade Center, Suite 9651
New York, NY 10048
Attention: Jeff Toner
Telecopy: (212) 524-0612
<PAGE> 19
7
THE TORONTO-DOMINION BANK
Domestic Lending Office
The Toronto-Dominion Bank
909 Fanin Street, Suite 1700
Houston, Texas 77010
Eurodollar Lending Office
The Toronto-Dominion Bank
909 Fanin Street, Suite 1700
Houston, Texas 77010
Address for Notices
The Toronto-Dominion Bank
31 West 52nd Street
New York, New York 10019
Attention: Robert F. Maloney
Telecopy: (212) 262-1929
THE SANWA BANK, LIMITED, ATLANTA AGENCY
Domestic Lending Office
The Sanwa Bank, Limited,
Atlanta Agency
133 Peachtree Street, Suite 4750
Atlanta, GA 30303
Eurodollar Lending Office
The Sanwa Bank, Limited,
Atlanta Agency
133 Peachtree Street, Suite 4750
Atlanta, GA 30303
Address for Notices
The Sanwa Bank, Limited,
Atlanta Agency
133 Peachtree Street, Suite 4750
Atlanta, GA 30303
Attention: Peter J. Pawlak
Telecopy: (404) 589-1629
<PAGE> 20
8
BANK OF LOUISVILLE & TRUST COMPANY
Domestic Lending Office
Bank of Louisville & Trust Company
500 West Broadway
Louisville, KY 40202
Eurodollar Lending Office
Bank of Louisville & Trust Company
500 West Broadway
Louisville, KY 40202
Address for Notices
Bank of Louisville & Trust Company
500 West Broadway
Louisville, KY 40202
Attention: Roy L. Johnson, Jr.
Telecopy: (502) 566-2367
BARNETT BANK OF BROWARD COUNTY, N.A.
Domestic Lending Office
Barnett Bank of Broward County, N.A.
One East Broward Blvd., 2nd Floor
Ft. Lauderdale, FL 33301
Eurodollar Lending Office
Barnett Bank of Broward County, N.A.
One East Broward Blvd., 2nd Floor
Ft. Lauderdale, FL 33301
Address for Notices
Barnett Bank
50 North Laura Street, 17th Floor
Jacksonville, FL 32202
Attention: Larry Katz
Telecopy: (904) 791-7023
<PAGE> 21
9
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
Domestic Lending Office
The Boatmen's National Bank
of St. Louis
800 Market Street
P.O. Box 236
St. Louis, MO 63166-0236
Eurodollar Lending Office
The Boatmen's National Bank
of St. Louis
800 Market Street
P.O. Box 236
St. Louis, MO 63166-0236
Address for Notices
The Boatmen's National Bank
of St. Louis
800 Market Street
P.O. Box 236
St. Louis, MO 63166-0236
Attention: Doug Thornsberry
Telecopy: (314) 466-6499
SHAWMUT BANK CONNECTICUT, N.A.
Domestic Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
MSN 397
Hartford, CT 06115
Eurodollar Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
MSN 397
Hartford, CT 06115
Address for Notices
Shawmut Bank Connecticut, N.A.
777 Main Street
MSN 397
Hartford, CT 06115
Attention: Manfred Eigenbrod
Telecopy: (203) 986-5367
<PAGE> 22
SCHEDULE 2
Applicable Margins
REVOLVING CREDIT LOANS
<TABLE>
<CAPTION>
Consolidated Capitalization Alternate Base
Ratio Rate Loans Eurodollar Loans
--------------------------- -------------- ----------------
<S> <C> <C>
less than .20 .000% .2500%
at least .20 but
less than .30 .000% .3250%
at least .30 but
less than .40 .000% .3750%
at least .40 .000% .4375%
</TABLE>
<PAGE> 1
EXHIBIT 10(mm)
MEMO TO: Officers - Humana Inc.
COPY TO:
FROM:
DATE:
SUBJECT: EXTENDED HEALTH BENEFIT
This is to advise you that the Compensation Committee of the Board of Directors
has decided to make available an extended post-termination health insurance
benefit to persons who are officers of Humana Inc.
Such benefit will apply to persons who are officers at the time of termination
whether such termination is voluntary or involuntary or by reason of disability
or retirement; provided, that the benefit will not be available if termination
shall be for cause.
Participants will be entitled to continuation of health coverage, under an
insured program available to Humana employees, until age sixty-five (65) by
paying an amount for such coverage calculated in the manner provided under the
Consolidated Omnibus Budget Reconciliation Act (COBRA). This amount is equal
to the total premium for such coverage, plus a small administrative fee. Each
participant's spouse also shall be entitled, as participant's dependent, to
continuation of health insurance coverage until the spouse reaches age
sixty-five (65) under the same plans as the participant and subject to the same
terms and cost of coverage under those plans as the participant. However, once
the participant or spouse reaches age sixty-five (65) and is entitled to
coverage under Medicare (or its successor), the Medicare-eligible individual
shall not be entitled to dependent coverage under the other's coverage. If the
participant discontinues coverage for any reason, coverage will not be
reinstated.
<PAGE> 1
EXHIBIT 12
HUMANA INC.
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Earnings:
Income (loss) before income taxes $ 257 $ 143 $ (154)
Fixed charges 9 11 15
----- ----- ------
$ 266 $ 154 $ (139)
===== ===== ======
Fixed charges:
Interest charged to expense $ 4(a) $ 7 $ 11
One-third of rent expense (c) 5 4 4
----- ----- ------
$ 9 $ 11 $ 15
===== ===== ======
Ratio of earnings to fixed charges 28.9 14.1 (b)
===== ===== ======
</TABLE>
(a) Interest expense for the year ended December 31, 1994, excludes the impact
of the nonrecurring item related to the second quarter favorable
settlement of tax disputes with the Internal Revenue Service.
(b) Earnings were inadequate to cover fixed charges by $139 million for the
year ended December 31, 1992. The deficiency for the year ended December
31, 1992, was caused by the recording of $171 million of restructuring and
unusual charges in August 1992.
(c) One-third of rent expense is considered representative of the underlying
interest.
<PAGE> 1
Exhibit 13
FINANCIAL SECTION
--------------------------------------------------------------------------------
Humana Inc.
Selected Financial Data 18
Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
Consolidated Balance Sheet 23
Consolidated Statement of Operations 24
Consolidated Statement of Common 25
Stockholders' Equity
Consolidated Statement of Cash Flows 26
Notes to Consolidated Financial Statements 27
Report of Independent Accountants 33
Quarterly Financial Information (Unaudited) 33
Directors 34
Executive Management and Officers 35
Additional Information 36
<PAGE> 2
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
Humana Inc.
<TABLE>
<CAPTION>
Dollars in millions except per share results
---------------------------------------------------------------------------------------------------------------------------------
December 31, August 31,
----------------------------------- ------------------------------------
For the years ended 1994 1993 1992 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums:
Commercial $2,056 $1,709 $1,642 $1,576 $1,239 $ 776
Medicare risk 1,406 1,296 1,112 1,073 898 653
Medicare supplement 114 132 127 122 94 65
---------------------------------------------------------------------------------------------------------------------------------
Total premiums 3,576 3,137 2,881 2,771 2,231 1,494
Interest 62 48 36 37 36 31
Other income 16 10 4 3 2
--------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,654 3,195 2,921 2,811 2,269 1,525
Income (loss) before income taxes 257(a) 143 (154)(b) (164)(b) 14 (9)
Net income (loss) 176(a) 89 (107)(b) (114)(b) 9 (4)
Earnings (loss) per common share 1.10(a) .56 (.68)(b) (.72)(b) .06 (.03)
Net cash provided by
(used in) operations 298 185 124 (57) 66 165
FINANCIAL POSITION
---------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and
marketable securities $1,203 $1,134 $ 614 $ 431 $ 486 $ 411
Total assets 1,957 1,731 1,189 1,011 1,005 704
Medical costs payable 527 448 400 381 317 282
Stockholders' equity 1,058 889 376 367 407 216
OPERATING DATA
---------------------------------------------------------------------------------------------------------------------------------
Medical loss ratio 81.6% 83.8% 86.3% 86.0% 84.4% 86.1%
Administrative cost ratio 13.6% 13.2% 14.1% 14.7% 16.1% 16.9%
Membership:
Commercial 1,528,300 1,214,000 1,219,800 1,237,500 1,208,100 819,600
Medicare risk 287,400 270,800 266,300 262,300 249,900 193,400
Medicare supplement 131,700 153,600 198,900 203,900 203,100 159,100
---------------------------------------------------------------------------------------------------------------------------------
1,947,400 1,638,400 1,685,000 1,703,700 1,661,100 1,172,100
Administrative services 93,500 63,700 30,600 30,400 29,900 10,300
---------------------------------------------------------------------------------------------------------------------------------
Total membership 2,040,900 1,702,100 1,715,600 1,734,100 1,691,000 1,182,400
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $11 million before income tax ($17 million or $.10 per
share, net of tax) related to the favorable settlement of income
tax disputes with the Internal Revenue Service partially offset by
the write-down of a nonoperational asset.
(b) Includes $171 million before income tax ($118 million or $.75 per
share, net of tax) of restructuring and unusual charges.
18
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Humana Inc.
The selected financial data of Humana Inc. ("Humana" or the "Company") in this
Annual Report sets forth certain information with respect to the Company's
financial position, results of operations and cash flows and should be read in
conjunction with the following discussion and analysis.
INTRODUCTION
On March 1, 1993, Humana separated into two independent publicly-held companies
(the "Spinoff"), one to operate the managed care health plan business and the
other to operate the acute-care hospital business (Galen Health Care, Inc.
("Galen")). Humana retained and continues to operate the managed care health
plan business. The financial information contained herein for periods prior to
the Spinoff represents the financial information of what had historically been
the managed care health plan business of Humana and does not correspond with or
represent the historical consolidated financial information of Humana.
In conjunction with the Spinoff, the Company changed its fiscal year end from
August 31 to December 31. For purposes of comparability, the Company restated
1992 results on a calendar year basis and therefore, the following discussion of
"Results of Operations" compares the years ended December 31, 1994 and 1993, and
the year ended December 31, 1993, to the twelve months ended December 31, 1992
(the "year ended December 31, 1992").
The Company offers managed care products which integrate financing and
management with the delivery of managed care services through a network of
providers who share financial risk or who have incentives to deliver quality,
cost-effective medical services. These products are marketed primarily through
health maintenance organizations ("HMOs") and preferred provider organizations
("PPOs").
Humana's HMO and PPO products are primarily marketed to employer and other
groups ("Commercial") as well as Medicaid and Medicare-eligible individuals. The
products marketed to Medicare-eligible individuals are either HMO products that
provide managed care services which include all Medicare benefits and, in
certain circumstances, additional managed care services that are not included in
Medicare benefits ("Medicare risk") or indemnity insurance policies that
supplement Medicare benefits ("Medicare supplement").
COMPARISON OF RESULTS OF OPERATIONS
Years Ended December 31, 1994 and 1993
The Company's premium revenues increased 14 percent to $3.6 billion for the year
ended December 31, 1994, compared to $3.1 billion for the year ended December
31, 1993. The increase in premium revenues is attributable to same-store
Commercial and Medicare risk membership gains, average premium rate increases of
3 percent for the Commercial product and 4 percent for the Medicare risk product
and the February 1994 acquisition of Group Health Association ("GHA"). GHA
premium revenues during the year ended December 31, 1994, totaled approximately
$164 million. Given the competitive environment, the Company expects that 1995
Commercial premium rates will remain the same as in 1994. The 1995 Medicare risk
premium rate increase is expected to approximate 6 percent.
On a same-store basis, Commercial membership increased 120,000 (10 percent) for
the year ended December 31, 1994, while Medicare risk membership increased
16,600 (6 percent). The same-store increase in Commercial membership is the
result of increased penetration in areas contiguous to the Company's existing
markets, expanded hospital and physician delivery networks, and the Company's
ability to price its products more competitively as a result of medical cost
reductions. Sales in contiguous markets, network expansion and competitive
pricing are expected to continue, and as a result, management estimates that
same-store Commercial growth will exceed 10 percent during 1995. The January
1995 same-store Commercial membership gain was approximately 96,200 (7 percent)
compared to 37,100 (3 percent) in January 1994. Medicare supplement membership
declined by 21,900 members during the year ended December 31, 1994, as
anticipated, continuing the decline first experienced in 1993. Membership data
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Amounts in thousands 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning membership 1,638.4 1,685.0
Same-store sales 376.7 267.9
Acquisitions (divestitures) 194.3 (6.4)
Same-store cancellations (262.0) (308.1)
--------------------------------------------------------------------------------------------------------
Ending membership 1,947.4 1,638.4
--------------------------------------------------------------------------------------------------------
Average membership 1,802.4 1,637.9
--------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 4
In addition to the membership above, the Company also provides administrative
services only ("ASO") products. ASO membership at December 31, 1994 and 1993,
was 93,500 and 63,700, respectively. Net ASO membership for January 1995
increased 136,200 members compared to a minor decrease for the same period last
year.
The medical loss ratio for the year ended December 31, 1994, was 81.6 percent
compared to 83.8 percent for the year ended December 31, 1993. This improvement
was primarily due to decreased hospital utilization in both the Commercial and
Medicare risk products. Patient days per thousand members for the year ended
December 31, 1994, decreased 4 percent from the same period a year ago to 267
days per thousand for the Commercial product and 7 percent to 1,412 days for the
Medicare risk product. Because the Company does not expect its 1995 Commercial
product premium rate to increase, additional improvements in hospital and other
medical services costs are necessary to achieve further reductions in the
medical loss ratio.
The administrative cost ratio (which excludes costs associated with
restructuring and unusual charges) was 13.6 percent and 13.2 percent for the
years ended December 31, 1994 and 1993, respectively. This increase is the
result of increased marketing efforts, costs associated with the integration of
acquired plans and the expansion of market service areas. Although the Company
expects these types of costs to continue, the administrative cost ratio is
expected to decline during the latter part of 1995 as a result of membership
growth.
In August 1992, the Company recorded restructuring and unusual charges amounting
to $171 million in connection with the Spinoff. At December 31, 1994,
liabilities totaling $52 million, primarily related to disputed contract
obligations, remain. Final resolution of these contract disputes is expected in
two to three years. The recurring effect of the August 1992 charges did not
materially impact results of operations for the year ended December 31, 1994.
Management regularly evaluates the continued reasonableness of the
restructuring and unusual charges and to the extent adjustments are necessary,
earnings are charged or credited in the current period.
Interest income totaled $62 million for the year ended December 31, 1994,
compared to $48 million for the year ended December 31, 1993. The increase in
interest income is primarily attributable to increased levels of cash, cash
equivalents and marketable securities. Tax equivalent yield on invested assets
approximated 6 percent for the years ended December 31, 1994 and 1993. Tax
equivalent yield is the rate earned on invested assets, excluding unrealized
gains and losses, adjusted for the benefit of nontaxable investment income. The
weighted average investment life was 2.3 and 2.0 years at December 31, 1994 and
1993, respectively.
The Company's income before income taxes totaled $257 million for the year ended
December 31, 1994, compared to $143 million for the year ended December 31,
1993. Income before income taxes for 1994 included $29 million related to the
favorable settlement of tax disputes with the Internal Revenue Service (the
"IRS") partially offset by an $18 million charge related to the write-down of a
nonoperational asset. Net income increased to $176 million or $1.10 per share
from $89 million or $.56 per share for the years ended December 31, 1994 and
1993, respectively. Net income for the year ended December 31, 1994, included
$17 million or $.10 per share related to the unusual items discussed above. As a
result of the tax settlement and asset write-down, the Company's interest,
depreciation and income tax expenses decreased. The recurring effect of these
expense reductions during the year ended December 31, 1994, was $7 million or
$.04 per share. The 1995 effect of these expense reductions is estimated to be
$.05 per share.
Years Ended December 31, 1993 and 1992
The following discussion comparing the year ended December 31, 1993, to the year
ended December 31, 1992, excludes the impact of the $171 million in
restructuring and unusual charges recorded in August 1992. With respect to these
charges, $77 million related to the write-down of assets and $42 million was
used to pay restructuring and unusual costs. The remaining $52 million
represented liabilities related to disputed contract obligations, product
discontinuances and market closures. The asset write-downs discussed above had
the effect of reducing depreciation and amortization expense by $5 million for
the year ended December 31, 1993.
The Company's premium revenues increased 9 percent to $3.1 billion for the year
ended December 31, 1993, compared to $2.9 billion for the year ended December
31, 1992, due to average Commercial product premium rate increases of 7 percent
and Medicare risk product premium rate increases of 14 percent. The impact of
the 1993 premium rate increases on premium revenues was partially offset by the
membership reductions discussed below.
20
<PAGE> 5
Membership data follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Amounts in thousands 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning membership 1,685.0 1,673.7
Same-store sales 267.9 280.8
Acquisitions (divestitures) (6.4) 79.9
Same-store cancellations (308.1) (349.4)
------------------------------------------------------------------------------------------------------
Ending membership 1,638.4 1,685.0
------------------------------------------------------------------------------------------------------
Average membership 1,637.9 1,699.4
------------------------------------------------------------------------------------------------------
</TABLE>
Membership declined 3 percent during the year ended December 31, 1993,
primarily due to a decline in Medicare supplement product membership. This
decline was the result of management's decision to increase Medicare supplement
product premium rates effective January 1, 1993, to more closely approximate
competitive levels. Commercial product membership increased during the third
and fourth quarters of 1993 as medical cost improvements allowed the Company to
be more competitive in its pricing. The increase in Commercial product
membership in the last six months of 1993 offset the decline in Commercial
product enrollment during the first six months of 1993. The decline resulted
primarily from the Company's pricing policy which attempted to maintain
operating margins during a period when the Company's cost structure was high.
Medicare risk membership levels remained relatively constant during 1993.
The medical loss ratio for the year ended December 31, 1993, was 83.8 percent
compared to 86.3 percent for the year ended December 31, 1992. Principal factors
contributing to the improvement in the medical loss ratio included Medicare
product premium rate increases, improved hospital utilization and favorable
other medical services costs experience in the Commercial and Medicare risk
products.
The administrative cost ratio was 13.2 percent and 14.1 percent for the years
ended December 31, 1993 and 1992, respectively. The improvement in the
administrative cost ratio was attributable to the impact of 1992 work force
reductions and an emphasis by management in controlling administrative costs.
Interest income totaled $48 million for the year ended December 31, 1993,
compared to $36 million for the year ended December 31, 1992. The increase in
interest income was attributable to interest being earned on notes receivable
and cash payments received in connection with the Spinoff. Tax equivalent yield
on invested assets approximated 6 percent and 8 percent for the years ended
December 31, 1993 and 1992, respectively.
The Company's income before income taxes totaled $143 million for the year ended
December 31, 1993, compared to $17 million (excluding the impact of the
previously mentioned restructuring and unusual charges) for the year ended
December 31, 1992.
LIQUIDITY
Cash provided by the Company's operations totaled $298 million and $185 million
for the years ended December 31, 1994 and 1993, respectively. The timing of the
receipt of Medicare risk premiums reduced cash provided by operations by $110
million for the year ended December 31, 1994, and increased cash provided by
operations by $8 million for the year ended December 31, 1993. Excluding the
effect of the timing of the receipt of Medicare risk premiums, cash provided by
operations was $408 million and $177 million for the years ended December 31,
1994 and 1993, respectively. The increase in operating cash flows was primarily
attributable to increased net income, the $71 million favorable settlement of
tax disputes with the IRS, and the timing of payments for medical costs and
other expenses.
Cash provided by operations for the year ended December 31, 1993, totaled $185
million compared to $124 million for the year ended December 31, 1992. The
improvement in 1993 operating cash flows was the result of increased net income,
improved premiums receivable collections and the timing of payments for medical
costs and other expenses. In addition, operating cash flows for the year ended
December 31, 1992, were reduced due to the prepayment to the IRS of taxes and
interest related to the current deductibility of medical costs payable.
The Company's subsidiaries operate in states which require certain levels of
equity and regulate the payment of dividends to the parent company. As a result,
the Company's ability to use operating subsidiaries' cash flows is restricted to
the extent that the subsidiaries' ability to pay dividends to its parent company
requires regulatory approval. At December 31, 1994, the Company had
approximately $220 million of unrestricted cash, cash equivalents and marketable
securities compared to approximately $250 million at December 31, 1993.
Management believes that existing working capital, including the aforementioned
unrestricted funds, future operating cash flows and the availability of a $350
million line of credit, which was consummated in October 1994, are sufficient to
meet liquidity needs, allow the Company to pursue acquisition and expansion
opportunities and fund capital requirements.
21
<PAGE> 6
CAPITAL RESOURCES
The Company's ongoing capital expenditures relate primarily to medical care
facilities used by either employed or affiliated physicians as well as
administrative facilities and related computer information systems necessary for
activities such as claims processing, billing and collections, medical
utilization review, and customer service. Total capital expenditures amounted to
$39 million, $28 million and $34 million for the years ended December 31, 1994,
1993 and 1992, respectively.
Excluding acquisitions, planned capital spending in 1995 will approximate $45
million to $50 million most of which will relate to the expansion and
improvement of medical care facilities, administrative facilities and related
computer information systems.
During February 1994, the Company acquired GHA, a health plan in Washington,
D.C., with approximately 116,700 members for $55 million. During December 1994,
the Company acquired CareNetwork, Inc., a health plan in Milwaukee, Wisconsin
with approximately 84,400 members for $126 million. During the year ended
December 31, 1992, the Company acquired three health plans for $38 million with
approximately 80,000 members. The Company may make acquisitions from time to
time and is currently reviewing various acquisition opportunities.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's operations are regulated by various state and federal government
agencies. Actuarially determined premium rate increases for Commercial and
Medicare supplement products are generally approved by the respective state
insurance commissions, while increases in premiums for Medicare risk products
are determined by the Health Care Financing Administration ("HCFA"). Medicare
risk premiums approximated 39 percent, 41 percent and 39 percent of the
Company's premium revenues for the years ended December 31, 1994, 1993 and 1992,
respectively. The Company's 1995 average rate of increase under the Medicare
risk contracts is approximately 6 percent. Although annual increases have varied
significantly, increases have averaged 5.7 percent over the last five years,
including the January 1995 increase. The Company's Medicare risk contracts with
the federal government are renewed for a one-year term each December 31 unless
terminated 90 days prior thereto. The loss of these contracts or significant
changes in the Medicare program as a result of legislative action, including
reductions in payments or increases in benefits without corresponding increases
in payments, would have a material adverse effect on the revenues, profitability
and business prospects of the Company.
Effective March 1, 1995, the Company entered its third year of a three-year
operating agreement with Galen whereby the Company uses the services of Galen's
hospitals guaranteeing certain minimum utilization levels. Rate increases
charged for such services are defined under the terms of the agreement.
Commercial product rate increases for hospital services are limited to the
lesser of the increase in the hospital Consumer Price Index or the Company's
Commercial product premium rate increases, less one percent. Medicare risk
product rate increases for hospital services approximate the percentage
adjustment in HCFA's market specific hospital payment rate to the Company.
Management believes that the contract rates under the operating agreement are
competitive. During the years ended December 31, 1994, 1993 and 1992, 13
percent, 16 percent and 18 percent, respectively, of the Company's total medical
costs were incurred in Galen's hospitals.
OTHER INFORMATION
Resolution of various loss contingencies, including litigation pending against
the Company in the ordinary course of business, is not expected to have a
material adverse effect on its results of operations, financial position or cash
flows.
During 1994, HCFA began an investigation of the Company's South Florida health
plan (the "Plan"). HCFA's findings, which focused primarily on the collection
and use of data, indicated the Plan was not fully meeting HCFA requirements in
the areas of utilization management, quality assurance and
availability/accessibility. In addition, the Plan was denied accreditation by
the National Committee for Quality Assurance ("NCQA"). The Company has
implemented various corrective action procedures developed jointly with
regulatory agencies to resolve the issues identified and expects no material
effects on its results of operations, financial position or cash flows as a
result of the HCFA investigation or NCQA accreditation denial.
22
<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
Humana Inc.
Dollars in millions except per share amounts
------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 1993
------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 272 $ 372
Marketable securities 609 427
Premiums receivable, less allowance for doubtful
accounts of $20 in 1994 and $17 in 1993 74 37
Deferred income taxes 45 129
Other 38 37
------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,038 1,002
------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 317 300
Other assets:
Long-term marketable securities 322 335
Cost in excess of net assets acquired 155 1
Deferred income taxes 56 16
Other 69 77
------------------------------------------------------------------------------------------------------------------------------
Total other assets 602 429
------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,957 $1,731
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 527 $ 448
Trade accounts payable and accrued expenses 233 154
Unearned premium revenues 110
Income taxes payable 56 59
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 816 771
Long-term obligations 83 71
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 899 842
------------------------------------------------------------------------------------------------------------------------------
Contingencies
Common stockholders' equity:
Common stock, $.16 2/3 par; authorized 300,000,000
shares; issued and outstanding 161,330,064 shares - 1994
and 160,343,788 shares - 1993 27 27
Capital in excess of par value 803 785
Retained earnings 249 73
Net unrealized investment gains (losses) (21) 4
------------------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 1,058 889
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND COMMON STOCKHOLDERS' EQUITY $1,957 $1,731
------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
23
<PAGE> 8
CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Humana Inc.
<TABLE>
<CAPTION>
Dollars in millions except per share results
----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums $3,576 $3,137 $2,881
Interest 62 48 36
Other income 16 10 4
----------------------------------------------------------------------------------------------------------------------------
Total revenues 3,654 3,195 2,921
----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Medical costs 2,918 2,630 2,485
Selling, general and administrative 436 368 355
Depreciation and amortization 50 47 52
Restructuring and unusual charges 18 (a) 171
----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,422 3,045 3,063
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 232 150 (142)
Interest expense (recovery) (25)(a) 7 12
----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 257 (a) 143 (154)
Provision (benefit) for income taxes 81 (a) 54 (47)
----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 176 (a) $ 89 $ (107)
----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share $ 1.10 (a) $ .56 $ (.68)
----------------------------------------------------------------------------------------------------------------------------
----------------------------
(a) Net income includes the favorable settlement of tax disputes with the
Internal Revenue Service partially offset by the write-down of a nonoperational
asset.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
24
<PAGE> 9
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Humana Inc.
<TABLE>
<CAPTION>
In millions
-----------------------------------------------------------------------------------------------------------------------------
Common Stock Capital In Net Unrealized
------------------ Excess of Retained Investment Equity TOTAL
Shares Amount Par Value Earnings Gains (Losses) Funding EQUITY
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ 411 $ 411
Net loss (107) (107)
Equity funding 72 72
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 376 376
Net income $ 73 16 89
Capital contributions $408 408
Spinoff capitalization 159 $ 26 366 (392)
Other 1 1 11 $ 4 16
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 160 27 785 73 4 889
Net income 176 176
Other 1 18 (25) (7)
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 161 $ 27 $803 $249 $(21) $1,058
----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
25
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
Humana Inc.
Dollars in millions
---------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 176 $ 89 $(107)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Restructuring and unusual charges 18 171
Depreciation and amortization 50 47 52
Deferred income taxes 58 (13) (126)
Changes in operating assets and liabilities:
Premiums receivable (8) 16 1
Other current assets 8 (16) 1
Medical costs payable 36 58 41
Other current liabilities 67 (18) 75
Unearned premium revenues (110) 8 14
Other 3 14 2
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 298 185 124
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of health plan assets (162) (5) (43)
Purchase of property and equipment (39) (28) (34)
Disposition of property and equipment 13 8 7
Purchases of marketable securities (523) (1,667) (238)
Maturities and sales of marketable securities 337 1,299 217
Other (28) (23)
--------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (402) (416) (91)
--------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 383 72
Other 4 (13) (9)
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4 370 63
--------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (100) 139 96
Cash and cash equivalents at beginning of period 372 233 137
--------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 272 $372 $233
--------------------------------------------------------------------------------------------------------------------------------
Interest payments (refunds), net $ (20) $ 1 $ 25
Income tax payments, net 21 58 58
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
26
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Humana Inc.
1. REPORTING ENTITY
Basis of Presentation
On March 1, 1993, Humana Inc. ("Humana" or the "Company") separated its managed
care health plan and acute-care hospital businesses into two independent
publicly-held companies (the "Spinoff"). The Spinoff was effected through the
distribution to Humana stockholders of record as of the close of business on
March 1, 1993, of all the outstanding shares of common stock of a new hospital
company, Galen Health Care, Inc. ("Galen") (now a subsidiary of Columbia/HCA
Healthcare Corporation ("Columbia")). Humana retained and continues to operate
the managed care health plan business.
The Company and Galen entered into various agreements in connection with the
Spinoff. These agreements include a hospital services operating agreement,
liability and tax sharing agreements, and various administrative services
agreements. Total medical costs incurred by the Company for hospital services
provided by Galen amounted to $375 million, $426 million and $444 million, for
the years ended December 31, 1994, 1993 and 1992, respectively.
The consolidated financial statements contained herein are the separate
financial statements of what historically had been the managed care health plan
business of Humana and do not correspond with or represent the consolidated
financial statements of Humana prior to the Spinoff. For the year ended December
31, 1992, certain Spinoff-related allocations and estimates were made by
management in the accompanying consolidated financial statements to present the
results of operations of the Company as a separate entity. In conjunction with
the Spinoff, the Company changed its fiscal year end from August 31 to December
31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include all subsidiaries of the Company.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include cash, money market funds, commercial paper,
and certain U.S. Government securities with an original maturity of three months
or less.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS
No.115"), "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993.
At December 31, 1994 and 1993, marketable equity and debt securities have been
categorized as available for sale and, as a result, are stated at fair value
based generally on quoted market prices. Marketable equity and debt securities
being held for the Company's future acquisition, capital spending and
professional liability requirements are classified as long-term assets. Other
marketable securities available for current operations are classified as current
assets. Unrealized holding gains and losses, net of applicable deferred taxes,
are included as a component of common stockholders' equity until realized.
Premium Revenue Recognition
Premium revenues are reported as revenues in the period in which members are
entitled to receive managed care services. Premiums received prior to such
period are recorded as unearned premium revenues.
Property and Equipment
Property and equipment is carried at cost and is comprised of the following at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Dollars in millions 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 29 $ 25
Buildings 231 224
Equipment 278 248
---------------------------------------------------------------------------------------------------------
538 497
Accumulated depreciation (221) (197)
---------------------------------------------------------------------------------------------------------
$ 317 $ 300
---------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Humana Inc.
Depreciation is computed using the straight-line method over estimated useful
lives generally ranging from 3 to 25 years. Depreciation expense was $39
million, $35 million and $34 million, for the years ended December 31, 1994,
1993 and 1992, respectively.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired represents the unamortized excess of cost
over the fair value of tangible and identifiable intangible assets acquired and
is being amortized on a straight-line basis over periods not exceeding 40 years.
The carrying value of all intangible assets is periodically reviewed by
management and impairments are recognized when the expected undiscounted future
operating cash flows derived from operations associated with such intangible
assets are less than their carrying value. Accumulated amortization totaled $2
million and $1 million, at December 31, 1994 and 1993, respectively.
Medical Costs
Medical costs include claim payments and estimates of future payments to be
made for hospital and other medical claims incurred prior to the balance
sheet date. Substantially all claims are paid within 90 days from the date
service is provided. Estimates for future payments relating to services
incurred in current and prior periods are continually reviewed by management,
and to the extent necessary, adjustments are reflected in current operations.
Such adjustments were not significant for the years ended December 31, 1994,
1993 or 1992. In addition to medical claims, the Company pays physician
salaries and capitation costs as well as various additional operating costs.
Capitation costs represent monthly prepaid fees paid to participating primary
care physicians and other medical specialists for the provision of medical care
to the Company's members.
Common Stockholders' Equity
The Company's equity, prior to the Spinoff, was the result of managed care
health plan business net income or loss, as well as funding from Galen.
Therefore, pre-Spinoff equity is referred to as "Equity Funding" in the
accompanying consolidated statement of common stockholders' equity.
Earnings per Common Share
Earnings per common share are based upon the weighted average number of common
shares outstanding. Shares used in computing earnings per common share were
160,910,641, 159,283,680 and 158,619,551, for the years ended December 31, 1994,
1993 and 1992, respectively.
3. RESTRUCTURING AND UNUSUAL CHARGES
In June 1994, the Company recorded an $18 million charge before income tax ($11
million or $.07 per share net of tax) to reduce the net book value of a
nonoperational asset to its estimated fair value.
In August 1992, the Company recorded restructuring and unusual charges amounting
to $171 million primarily in connection with the Spinoff. Included in these
restructuring and unusual charges were write-downs of $77 million related to the
impairment of operational and administrative assets, and $94 million related to
disputed contract obligations, anticipated market closures and costs directly
associated with the Spinoff. At December 31, 1994, liabilities totaling $52
million, primarily related to disputed contract obligations, remain. Final
resolution of these disputed contract obligations is expected in two to three
years. Management regularly evaluates the continued reasonableness of these
charges, and to the extent adjustments are necessary, current earnings are
charged or credited.
28
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Humana Inc.
4. INVESTMENTS
Marketable securities classified as current assets at December 31, 1994 and
1993, include the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
1994 1993
----------------------------------------- -------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities $ 35 $ (2) $ 33 $ 20 $ 1 $ 21
Tax exempt municipal bonds 472 $ 2 (17) 457 391 4 $ (1) 394
Marketable equity securities 52 (5) 47
Other 76 (4) 72 12 12
-------------------------------------------------------------------------------------------------------------------
$ 635 $ 2 $(28) $ 609 $ 423 $ 5 $ (1) $ 427
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Management does not anticipate realization of the above gross unrealized losses
in the upcoming year due to the anticipated availability of cash flows from
operations to fund current operating requirements.
Marketable securities classified as long-term assets at December 31, 1994 and
1993, include the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
1994 1993
---------------------------------------- -------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities $ 5 $ 5 $ 29 $ 29
Tax exempt municipal bonds 252 $ (9) 243 158 $ 1 $ (1) 158
Marketable equity securities 64 (1) 63 103 3 (1) 105
Other 11 11 42 1 43
-------------------------------------------------------------------------------------------------------------------
$ 332 $(10) $ 322 $ 332 $ 5 $ (2) $ 335
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The contractual maturities of debt securities available for sale at December 31,
1994, regardless of their balance sheet classification, follow:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Amortized Fair
Dollars in millions Cost Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 143 $ 143
Due after one year through five years 297 289
Due after five years through ten years 126 119
Due after ten years 36 35
Not due at a single maturity date 249 235
-----------------------------------------------------------------------------------------------------
$ 851 $ 821
-----------------------------------------------------------------------------------------------------
</TABLE>
Gross realized gains and gross realized losses from the sale of securities
classified as available for sale were not material for the years ended December
31, 1994 and 1993. For the purpose of determining gross realized gains and
losses, the cost of securities sold is based upon specific identification.
29
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Humana Inc.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------------
Dollars in millions 1994 1993 1992
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision (benefit):
Federal $ 72 $ 57 $ 80
State 11 6 (1)
----------------------------------------------------------------------------------------------------
83 63 79
----------------------------------------------------------------------------------------------------
Deferred provision (benefit):
Federal (2) (8) (138)
State (1) 12
----------------------------------------------------------------------------------------------------
(2) (9) (126)
----------------------------------------------------------------------------------------------------
$ 81 $ 54 $ (47)
----------------------------------------------------------------------------------------------------
</TABLE>
The income tax provision (benefit) was different from the amount computed using
the federal statutory income tax rate due to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------------------
Dollars in millions 1994 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax provision (benefit) at federal
statutory rate $ 90 $ 50 $ (52)
State income taxes, net of federal benefit 7 4 (4)
Tax exempt investment income (12) (7) (4)
Amortization 1 4 18
Other items, net (5) 3 (5)
------------------------------------------------------------------------------------------------------
$ 81 $ 54 $ (47)
------------------------------------------------------------------------------------------------------
</TABLE>
Cumulative temporary differences which give rise to deferred tax assets and
liabilities at December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
Assets Assets
(Liabilities) (Liabilities)
-------------------------------------------------------------------------------------------------------
Dollars in millions 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medical costs payable $ 4 $ 94
Professional liability insurance 25 18
Investments 15 (3)
Intangible amortization 13
Restructuring and unusual charges 25 17
Other 36 38
Depreciation (17) (19)
-------------------------------------------------------------------------------------------------------
$101 $145
-------------------------------------------------------------------------------------------------------
</TABLE>
Management believes that the deferred tax assets will ultimately be realized
based primarily on the existence of sufficient taxable income within the
allowable carryback periods.
During 1994, the Company received $71 million income tax refunds for
the settlement of disputes with the Internal Revenue Service related to the
timing of medical claims deductions and the deductibility of intangible
amortization for tax years 1988 through 1991. The Company had previously
prepaid tax and interest for these issues for the 1988 and 1989 tax years to
stop the accrual of interest on the disputed amounts. As a result of the
settlement, the Company recognized a $29 million reduction of interest expense
($18 million or $.11 per share after tax) and a $10 million reduction of tax
expense ($.06 per share), both of which represented the cumulative effect from
1988 to present of amounts previously provided.
At December 31, 1994, the Company had net operating loss carryforwards of
approximately $29 million related to a 1992 acquisition. These loss
carryforwards, if unused to offset future taxable income of the acquired
subsidiary, will expire in 2001 through 2006.
6. PROFESSIONAL LIABILITY RISKS
The Company insures substantially all professional liability risks through a
wholly-owned subsidiary (the "Captive Subsidiary"). Provisions for such risks,
including expenses incident to claim settlements, were $22 million, $17 million
and $13 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The Captive Subsidiary reinsures levels of coverage for losses in
excess of its retained limits with unrelated insurance carriers. Allowance for
professional liability risks and the equivalent amounts of marketable securities
related to the funding thereof included in the accompanying consolidated balance
sheet were $63 million and $50 million at December 31, 1994 and 1993,
respectively.
30
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Humana Inc.
7. LONG-TERM OBLIGATIONS
On October 27, 1994, the Company consummated an unsecured credit agreement with
a group of banks which provided for a $350 million revolving line of credit (the
"Credit Agreement"). Principal amounts outstanding under the Credit Agreement
will bear interest depending on the ratio of debt to debt plus net worth at
rates ranging from LIBOR plus 25.0 basis points to LIBOR plus 43.75 basis
points. No amounts were drawn against the line during the year ended December
31, 1994.
8. COMMON STOCKHOLDERS' EQUITY
For financial reporting purposes, the historical equity of the Company at the
time of the Spinoff consisted of the cumulative net income or loss of the
managed care health plan business, as well as contributions by Galen. In
connection with the Spinoff, Galen contributed cash and other assets with a book
value of $160 million to the Company. Also in connection with the Spinoff,
certain subsidiaries of Galen issued promissory notes ("Notes") to the Company.
Under the terms of the Notes, the full principal amount of $250 million became
due upon certain "change of control" transactions. As a result of the Columbia
merger with Galen, during 1993 the Company received cash of $248 million in full
satisfaction of the Notes.
The Company has plans under which options to purchase common stock have been
granted to officers, certain directors and key employees. Options were granted
at not less than market price on the date of grant. Exercise provisions vary,
but most options are exercisable in whole or in part beginning one to four years
after grant and ending ten years after grant.
In connection with the Spinoff, each Humana employee who held options in Humana
prior to the Spinoff retained their options to purchase Company stock and also
received a like number of Galen options for which the exercise price and number
of shares were adjusted based upon the terms of the Spinoff. The percentages
used to adjust the exercise price, which were based on the relative fair market
values of the underlying Company and Galen common stock immediately after the
Spinoff,were 37.8 percent and 62.2 percent, respectively. In addition, each
Galen employee maintained his or her options to purchase Company shares at an
adjusted exercise price. The Galen options held by Humana employees and the
Company options held by Galen employees expire on the earlier to occur of (a)
March 1, 1995, or (b) the exercise period pursuant to the original option
agreement. At December 31, 1994, there were 347,342 options held by Galen
employees.
The following shares of common stock of the Company were reserved at December
31, 1994:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Shares
----------------------------------------------------------------------------------------------------
<S> <C>
Stock option plans 11,279,744
Other 992,382
----------------------------------------------------------------------------------------------------
12,272,126
----------------------------------------------------------------------------------------------------
</TABLE>
The Company's option plan activity for the years ended December 31, 1994, 1993
and 1992, is summarized below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Shares Option Price
Under Option Per Share
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1992 3,778,941 $ 3.88 to $12.12
Granted 30,000 9.26 to 10.66
Exercised (437,449) 3.88 to 6.87
Cancelled or lapsed (27,672) 4.32 to 11.01
--------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 3,343,820 4.32 to 12.12
Granted 6,467,500 6.56 to 14.44
Exercised (967,446) 4.32 to 11.01
Cancelled or lapsed (324,139) 6.56 to 12.12
--------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,519,735 4.32 to 14.44
Granted 419,500 16.94 to 17.94
Exercised (931,701) 4.32 to 11.01
Cancelled or lapsed (337,333) 6.56 to 17.94
--------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 7,670,201 $ 4.32 to $17.94
--------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, options for 1,304,201 shares were exercisable while
3,609,543 shares of common stock were available for future grants. In January
1995, a total of 2,496,500 additional options were granted.
As a result of current and pending state regulatory requirements, the Company
must maintain various levels of equity in certain of its subsidiaries which
indirectly limits the Company's ability to pay dividends. At December 31, 1994,
$150 million of equity was restricted under these regulations.
31
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Humana Inc.
9. CONTINGENCIES
The Company's Medicare risk contracts with the federal government are renewed
for a one-year term each December 31 unless terminated 90 days prior thereto.
The loss of these contracts or significant changes in the Medicare risk program
as a result of legislative action, including reductions in payments or increases
in benefits without corresponding increases in payments, would have a material
adverse affect on the revenues, profitability and business prospects of the
Company.
During 1994, the Company's South Florida health plan (the "Plan") was denied
accreditation by the National Committee for Quality Assurance ("NCQA"). In
addition, the Health Care Financing Administration ("HCFA") notified the
Company, regarding its separate investigation of the Plan, that the Plan was not
fully meeting data collection and use requirements in the areas of utilization
management, quality assurance and availability/accessibility. The Company has
begun various corrective action procedures developed jointly with regulatory
agencies to resolve the issues identified and expects no material effects on
its results of operations, financial position or cash flows as a result of the
HCFA investigation or NCQA accreditation denial.
During the ordinary course of business, the Company is subject to pending and
threatened legal actions. In addition, for periods prior to the Spinoff, the
Company assumed liability for specified claims and continues to share risks with
Galen with respect to certain litigation and other contingencies, both
identified and unknown, existing at the time of the Spinoff. Management of the
Company does not believe that any of these actions will have a material adverse
effect on its results of operations, financial position or cash flows.
The Company remains contingently liable as guarantor for approximately $55
million of debt incurred by Humana prior to the Spinoff.
10. ACQUISITIONS
During the year ended December 31, 1994, the Company acquired two health plans
with approximately 201,100 members for $181 million. During the year ended
December 31, 1992, the Company acquired three health plans with approximately
80,000 members for $38 million.
Each of the above acquisitions was accounted for by the purchase method. In
connection with these acquisitions, the Company allocated the acquisition cost
to tangible and identifiable intangible assets based upon their fair values.
Identifiable intangible assets generally include subscriber and provider
contracts. Any remaining cost not able to be allocated to tangible or
identifiable intangible assets was then allocated to cost in excess of net
assets acquired. Subscriber and provider contracts are amortized over their
estimated useful lives (7-14 years) while cost in excess of net assets acquired
is amortized over periods not exceeding 40 years.
The results of operations associated with all the previously mentioned
acquisitions have been included in the accompanying consolidated statement of
operations since the date of the respective acquisitions. Pro forma results of
operations as if the transactions had occurred at the beginning of the year are
not shown as the effect would not be material.
32
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors
Humana Inc.
We have audited the accompanying consolidated balance sheet of Humana
Inc. as of December 31, 1994 and 1993, and the related consolidated statements
of operations, common stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Humana
Inc. as of December 31, 1994 and 1993, and the consolidated results of
operations and cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, Humana
Inc. adopted the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
February 13, 1995
<PAGE> 18
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------
Humana Inc.
A summary of the Company's quarterly results of operations follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Dollars in millions except per share results 1994
----------------------------------------------------------------------------------------------------------
First Second (a) Third Fourth
----------------------------------------------------------------------------------------------------------
<S> <S> <S> <S> <S>
Revenues $ 869 $ 917 $ 926 $ 942
Income before income taxes 51 57 65 73
Net income 32 37 42 48
Earnings per common share $ .20 $ .23 $ .27 $ .30
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Dollars in millions except per share results 1993
----------------------------------------------------------------------------------------------------------
First Second Third Fourth
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 798 $ 795 $ 796 $ 806
Income before income taxes 29 30 38 46
Net income 18 19 23 29
Earnings per common share $ .11 $ .12 $ .15 $ .18
</TABLE>
(a) Excludes $11 million before income tax ($17 million or $.10 per share, net
of tax) related to the favorable settlement of income tax disputes with the
Internal Revenue Service partially offset by the write-down of a
nonoperational asset.
33
<PAGE> 19
<TABLE>
<CAPTION>
DIRECTORS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT JOHN R. HALL
Chairperson of the Department of Rheumatology General Partner, Windcrest Partners, Chairman of the Board
and Immunology, private investment partnership and Chief Executive Officer,
Brigham and Women's Hospital, Ashland, Inc.
and Professor of Medicine,
Harvard Medical School
DAVID A. JONES DAVID A. JONES, JR. IRWIN LERNER
Chairman of the Board and Chief Principal, Chrysalis Ventures, Inc., Retired Chairman of the Board and
Executive Officer, Humana Inc. venture capital firm Executive Committee,
Hoffmann-La Roche Inc.
W. ANN REYNOLDS, PH.D. WAYNE T. SMITH
Chancellor - City University of President and Chief Operating Officer,
New York Humana Inc.
EXECUTIVE COMMITTEE
-----------------------------------------------------------------------------------------------------------------------------------
DAVID A. JONES MICHAEL E. GELLERT WAYNE T. SMITH
Chairman
AUDIT COMMITTEE
-----------------------------------------------------------------------------------------------------------------------------------
MICHAEL E. GELLERT K. FRANK AUSTEN, M.D. JOHN R. HALL
Chairman
IRWIN LERNER
COMPENSATION COMMITTEE
-----------------------------------------------------------------------------------------------------------------------------------
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT IRWIN LERNER
Chairman
W. ANN REYNOLDS, PH.D.
INVESTMENT COMMITTEE
-----------------------------------------------------------------------------------------------------------------------------------
W. ANN REYNOLDS, PH.D. MICHAEL E. GELLERT JOHN R. HALL
Chairwoman
DAVID A. JONES, JR.
NOMINATING COMMITTEE
-----------------------------------------------------------------------------------------------------------------------------------
JOHN R. HALL K. FRANK AUSTEN, M.D. DAVID A. JONES, JR.
Chairman
W. ANN REYNOLDS, PH.D.
</TABLE>
34
<PAGE> 20
<TABLE>
<CAPTION>
EXECUTIVE MANAGEMENT
-------------------------------------------------------------------------------------------------
<S> <C>
DAVID A. JONES WAYNE T. SMITH
Chairman of the Board President and
and Chief Executive Officer Chief Operating Officer
W. LARRY CASH KAREN A. COUGHLIN
Senior Vice President - Finance and Operations Senior Vice President - Region II
W. ROGER DRURY PHILIP B. GARMON
Chief Financial Officer Senior Vice President - Region I
ARTHUR P. HIPWELL RONALD S. LANKFORD, M.D.
Senior Vice President and General Counsel Senior Vice President - Medical Affairs
OFFICERS
-------------------------------------------------------------------------------------------------------
JOSE G. ABREU GEORGE G. BAUERNFEIND
Vice President - Medicare Sales Vice President - Taxes
DOUGLAS R. CARLISLE JAMES W. DOUCETTE
Vice President Operations - Region I Vice President - Investments and Treasurer
ROBERT A. HORRAR GAIL H. KNOPF
Vice President - Human Resources Vice President - Information Systems
JOAN O. KROGER JERRY L. MCCLELLAN
Secretary Vice President - Financial Services
MARY M. MCKINNEY SHERI E. MITCHELL
Vice President - Internal Audit Vice President - Quality and Service Excellence
JAMES E. MURRAY WALTER E. NEELY
Vice President and Controller Vice President and Associate General Counsel
BRUCE D. PERKINS THOMAS D. STROUD
Vice President Operations - Region II Vice President - Sales and Marketing
DAVID W. WILLE
Vice President and Chief Actuary
</TABLE>
35
<PAGE> 21
ADDITIONAL INFORMATION
-------------------------------------------------------------------------------
TRANSFER AGENT
Bank of Louisville
Security Transfer Department
Post Office Box 1497
Louisville, Kentucky 40201
800-925-0810
FORM 10-K
Copies of Form 10-K filed with the Securities and Exchange Commission may be
obtained, without charge, by writing:
Investor Relations
Humana Inc.
Post Office Box 1438
Louisville, Kentucky 40201-1438
STOCK LISTING
The Company's common stock trades on the New York Stock Exchange under the
symbol HUM. The following table shows the range of high and low closing sales
prices as reported on the New York Stock Exchange Composite Tape beginning March
1, 1993, the date of the Spinoff.
<TABLE>
<CAPTION>
1994 HIGH LOW
<S> <C> <C>
First Quarter 22 1/8 16 7/8
Second Quarter 20 3/4 16 1/8
Third Quarter 23 5/8 16 3/8
Fourth Quarter 24 7/8 18 1/2
<CAPTION>
1993 HIGH LOW
<S> <C> <C>
First Quarter 8 1/4 6 1/8
Second Quarter 12 6 5/8
Third Quarter 13 3/4 10 5/8
Fourth Quarter 18 5/8 12 5/8
</TABLE>
CORPORATE HEADQUARTERS
Humana Inc.
The Humana Building
500 West Main Street
Post Office Box 1438
Louisville, Kentucky 40201-1438
(502) 580-1000
ANNUAL MEETING
The Company's Annual Meeting of Stockholders will be held on Thursday, May
11, 1995, in the Auditorium on the 25th floor of the Humana Building at 10:00
a.m.
36
<PAGE> 1
Exhibit 21
SUBSIDIARY LIST
ALABAMA
1. Humana Health Plan of Alabama, Inc.
ALASKA
1. Humana Health Plan of Alaska, Inc.
ARKANSAS
1. Humana Health Plan of Arkansas, Inc.
CALIFORNIA
1. Humana Medical Plan of California, Inc.
DELAWARE
1. Health Value Management, Inc.
2. Humana Compensation Management Source, Inc.
3. Humana Enterprises, Inc.
4. Humana HealthChicago, Inc. - Doing Business As:
a. HC Services (IL)
5. Humana Inc. - Doing Business As:
a. H.A.C. Inc.
6. Humana Military Healthcare Services, Inc. - Doing Business As:
a. Humana Military Health Services, Inc. (IL)
7. Humrealty, Inc.
8. Managed Prescription Services, Inc.
9. MedBenefixx, Inc.
FLORIDA
1. Humana Health Insurance Company of Florida, Inc.
2. Humana Health Plan of Florida, Inc.
3. Humana Medical Plan, Inc. - Doing Business As:
a. Advanced Orthopaedics
b. Apopka Health Care
c. Atlantic Family Practice
d. Casselberry Health Care
e. Coastal Pediatrics
f. Community Medical Associates
g. Daytona Gastroenterology
h. Deland Family Health Care
i. Edgewood Health Care
j. Flagler Family Practice
k. Internal Medicine of Daytona Beach
l. Palm Coast Family Health Care
m. Personal Care Physicians of St. Mary
n. Personal Care Physicians of Casselberry
o. Professional Dermatology
p. Rosemont Health Care
q. South Broward Neurosurgical Associates
r. Sugar Mill Medical Associates
s. Suncoast Medical Associates
t. Water's Edge Medical Center
<PAGE> 2
GEORGIA
1. Humana Health Plan of Georgia, Inc.
ILLINOIS
1. Humana HealthChicago Insurance Company
2. Humana Link, Inc.
KENTUCKY
1. HMPK, INC.
2. HPLAN, INC.
3. Humana Broadway Corp.
4. Humana Health Plan, Inc. - Doing Business As:
a. Bluegrass Family Practice
b. Central Kentucky Family Practice
c. Franklin Medical Center
d. Humana MedFirst
e. Humana Health Care Plans of Indiana (IN)
f. Madison Family and Industrial Medicine
5. Humana Insurance Agency, Inc.
6. Humco, Inc. - Doing Business As:
a. Eagle Creek Medical Plaza
b. Humana Hospital - Lexington
LOUISIANA
1. Humana Health Plan of Louisiana, Inc.
MARYLAND
1. Humana Health Plan of Maryland, Inc.
2. Randmark, Inc.
MICHIGAN
1. Humana Health Plan of Michigan, Inc.
MISSOURI
1. Humana Kansas City, Inc. - Doing Business As:
a. Humana Prime Health Plan
2. Humana Insurance Company - Doing Business As:
a. Managed Prescription Services (MO)
b. Managed Prescription Services, Inc. (NJ)
<PAGE> 3
NEVADA
1. Humana Health Insurance of Nevada, Inc.
NORTH CAROLINA
1. Humana Health Plan of North Carolina, Inc.
OHIO
1. Humana Health Plan of Ohio, Inc.
PENNSYLVANIA
1. Humana Health Plan of Pennsylvania, Inc.
TEXAS
1. Humana HMO Texas, Inc.
2. Humana Health Plan of Texas, Inc. - Doing Business As:
a. Humana Health Plan of Corpus Christi
b. Humana Health Plan of Dallas
c. Humana Health Plan of Houston
d. Humana Health Plan of San Antonio
e. Humana Regional Service Center
f. MedCentre Plaza Health Center
g. Perrin Oaks Health Center
h. Val Verde Health Center
i. West Lakes Health Center
3. Prescription Benefits, Inc.
UTAH
1. Humana Health Plan of Utah, Inc.
VERMONT
1. Managed Care Indemnity, Inc. - Doing Business As:
a. Witherspoon Parking Garage (KY)
VIRGINIA
1. Humana Group Health Plan, Inc.
WASHINGTON
1. Humana Health Plan of Washington, Inc.
WISCONSIN
1. CareNetwork, Inc. - Doing Business As:
a. CARENETWORK
2. CNI Medical Management Corporation
3. Geneva Benefits Administration Corporation
4. Independent Care, Inc.
5. Network EPO, Inc.
6. Wisconsin Health Organization Insurance Corporation - Doing
Business As:
a. WHOIC
b. WHO
<PAGE> 1
(COOPERS & LYBRAND L.L.P. LETTERHEAD)
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Humana Inc. on Form S-8 (Registration No. 2-39061, No. 2-79239,
No. 2-96154, No. 33-33072, No. 33-49305, No. 33-52593 and No. 33-54455), of
our report dated February 13, 1995, which includes an explanatory paragraph
relating to a change in 1993 in the method of accounting for certain
investments in debt and equity securities, on our audits of the consolidated
financial statements and financial statement schedules of Humana Inc. as of
December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993,
and 1992, which report is incorporated by reference in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Humana Inc.'s Form 10-K for the Twelve Months Ended December 31, 1994,
and is qualified in its entirety by reference to such financial
statement.
</LEGEND>
<CIK> 0000049071
<NAME> HUMANA INC.
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 272
<SECURITIES> 609
<RECEIVABLES> 94
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 1,038
<PP&E> 538
<DEPRECIATION> 221
<TOTAL-ASSETS> 1,957
<CURRENT-LIABILITIES> 816
<BONDS> 0
<COMMON> 27
0
0
<OTHER-SE> 1,031
<TOTAL-LIABILITY-AND-EQUITY> 1,957
<SALES> 3,576
<TOTAL-REVENUES> 3,654
<CGS> 2,918
<TOTAL-COSTS> 3,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (25)
<INCOME-PRETAX> 257
<INCOME-TAX> 81
<INCOME-CONTINUING> 176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
