<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HUMANA INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
LOGO
March 28, 1997
Dear Fellow Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Humana Inc. to be held on Thursday, May 8, 1997, at 10:00 a.m., at the
Company's headquarters, 500 West Main Street, 25th Floor Auditorium,
Louisville, Kentucky.
The matters expected to be acted on at the meeting are described in detail
in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.
We hope you can attend the meeting. However, if you will not be able to join
us, we urge you to exercise your right as a stockholder and vote. The vote of
every stockholder is important, and your cooperation in completing, signing
and returning the enclosed proxy card promptly will be appreciated.
The Proxy Statement is first being mailed to the Company's stockholders on
or about March 28, 1997.
Sincerely,
LOGO LOGO
David A. Jones Gregory H. Wolf
Chairman of the Board and President and
Chief Executive Officer and Chief Operating Officer and
Stockholder Stockholder
<PAGE>
HUMANA INC.
500 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
To the Stockholders:
The 1997 Annual Meeting of Stockholders of Humana Inc. will be held on
Thursday, May 8, 1997, at 10:00 a.m., in the Auditorium on the 25th Floor of
the Humana Building, 500 West Main Street, Louisville, Kentucky, for the
following purposes:
1. To elect seven directors of the Company to serve for the ensuing year
and until their successors are elected and qualified;
2. To approve the Company's 1997 Management Incentive Plan for Executive
Management; and
3. To transact such other business as may properly come before the Annual
Meeting.
The Board of Directors of the Company has fixed the close of business on
March 17, 1997, as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof (the "Stockholders of Record"). Only Stockholders of Record at the
close of business on that date will be entitled to notice of and to vote at
the Annual Meeting.
This Proxy Statement is first being mailed to the Company's Stockholder of
Record on or about March 28, 1997.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED STAMPED
ENVELOPE. A STOCKHOLDER OF RECORD ATTENDING THE ANNUAL MEETING MAY VOTE IN
PERSON EVEN IF HE OR SHE HAS PREVIOUSLY SENT A PROXY CARD.
By Order of the Board of Directors,
LOGO
Joan O. Kroger
Secretary
Louisville, Kentucky
March 28, 1997
<PAGE>
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy voting card are being
furnished to Stockholders of Record of Humana Inc. on or about March 28, 1997,
in connection with the solicitation of proxies by the Board of Directors for
use at the Annual Meeting of Stockholders of the Company to be held on
Thursday, May 8, 1997, ("Annual Meeting") and at any adjournment or
postponement thereof.
Humana Inc. is a Delaware corporation and is referred to in this Proxy
Statement as Humana or the Company. The principal executive offices of the
Company are located at 500 West Main Street, Louisville, Kentucky 40202.
PURPOSES OF THE ANNUAL MEETING
At the Annual Meeting, Stockholders of Record of the Company's common stock,
$.16 2/3 per share, ("Common Stock") will be asked to consider and to vote
upon the following matters:
(i) To elect seven directors of the Company for 1997;
(ii) To approve the Company's 1997 Management Incentive Plan for Executive
Management ("1997 MIP"); and
(iii) To transact such other business as may properly come before the
Annual Meeting.
The Board unanimously recommends that stockholders vote FOR the election of
the Board's nominees for election as directors of the Company. The Board has
approved the 1997 MIP and recommends that stockholders vote FOR its adoption.
As of the date of this Proxy Statement, the Board knows of no other business
to come before the Annual Meeting.
PROPOSAL 1: ELECTION OF DIRECTORS OF THE COMPANY FOR 1997
At the Annual Meeting, in accordance with the provisions of the Company's
Articles of Incorporation and Bylaws, seven Directors are to be elected, each
to serve a one-year term until the 1998 Annual Meeting of Stockholders or
until a successor is elected and qualified.
A proxy cannot be voted for more than seven persons. If any nominee becomes
unable to serve for any reason (which is not anticipated), the shares
represented by the enclosed proxy may be voted for such substituted nominee as
may be designated by the Board of Directors.
Unless otherwise directed, the shares represented by the enclosed proxy
voting card, when signed and returned, will be voted FOR the election of the
seven nominees.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE COMPANY'S NOMINEES FOR ELECTION AS A DIRECTOR.
BIOGRAPHICAL INFORMATION
The names of the nominees proposed for election as directors, all of whom
are presently directors of the Company, and biographical information
concerning each nominee follows:
<TABLE>
<CAPTION>
FIRST ELECTED
NAME AGE POSITION DIRECTOR
- ---- --- -------- -------------
<S> <C> <C> <C>
David A. Jones(1) 65 Chairman of the Board and Chief Executive Officer 09/64
David A. Jones, Jr. 39 Vice Chairman of the Board 05/93
K. Frank Austen, M.D. 69 Director 01/90
Michael E. Gellert 65 Director 02/68
John R. Hall 64 Director 05/92
Irwin Lerner 66 Director 11/93
W. Ann Reynolds, Ph.D. 59 Director 01/91
</TABLE>
- --------
(1)A director and chief executive officer of a predecessor corporation since
1961.
<PAGE>
David A. Jones has been Chairman of the Board and Chief Executive Officer of
the Company since August 1969.
David A. Jones, Jr., was elected Vice Chairman of the Board in September
1996. Mr. Jones, Jr. is a managing director of Chrysalis Ventures, Inc., a
venture capital firm in Louisville, Kentucky, and is the son of David A.
Jones, Chairman of the Board and Chief Executive Officer of the Company. From
October 1992 to December 1993, Mr. Jones, Jr. was an attorney with a law firm
in Louisville, Kentucky. He previously served with the U.S. Department of
State from 1988 to 1992, most recently as an attorney-advisor to the Bureau of
East Asian and Pacific Affairs.
K. Frank Austen, M.D., is the Theodore B. Bayles Professor of Medicine at
the Harvard Medical School in the Division of Rheumatology and Immunology at
Brigham and Women's Hospital in Boston, Massachusetts. Dr. Austen is a member
of the Board of Trustees of Amherst College and a member of the National
Academy of Sciences.
Michael E. Gellert is general partner of Windcrest Partners, a private
investment partnership in New York, New York, having held that position since
April 1967. From 1976 until his retirement in October 1989, Mr. Gellert was a
director of Drexel Burnham Lambert Group and served in executive capacities
for its wholly owned subsidiary, Drexel Burnham Lambert Incorporated, from
1972 until October 1989. Mr. Gellert is a member of the Putnam Trust Advisory
Board to the Bank of New York.
John R. Hall retired on October 1, 1996, as Chief Executive Officer and on
January 31, 1997, as Chairman of the Board of Directors of Ashland Inc., in
Ashland, Kentucky, positions he had held since 1981. He is also a member of
American Petroleum Institute Executive Committee, a member of Transylvania
University Board of Trustees and President of Vanderbilt University Board of
Trust.
Irwin Lerner is the retired Chairman of the Board and Executive Committee of
Hoffmann-La Roche Inc. From April 1, 1980 to December 30, 1992, Mr. Lerner was
Hoffmann-La Roche Inc.'s President and Chief Executive Officer. He presently
serves on the boards of Project Hope, the U.S. Advisory Board of the Zurich
Insurance Company, and is Chairman of the Board of New Jersey Governor's
Council for a Drug Free Workplace. He is a Distinguished Executive-in-
Residence at the Rutgers University Graduate School of Management.
W. Ann Reynolds, Ph.D. is Chancellor-City University of New York, in New
York, New York, having held that position since September 1990. She previously
served for eight years as Chancellor of the California State University
system.
The following is a list of directorships held by the nominees in other
publicly traded companies:
<TABLE>
<C> <S>
David A. Jones Abbott Laboratories
K. Frank Austen, M.D. Abbott Laboratories
Michael E. Gellert Devon Energy Corporation; Premier Parks Inc.; Regal
Cinemas, Seacor Holdings, Inc.; and Member of Putnam
Trust Advisory Board to the Bank of New York
John R. Hall Banc One Corporation; Canada Life Assurance Company;
CSX Corporation; Reynolds Metals Company; and UCAR
International Inc.
Irwin Lerner Covance Inc.; Medarex Inc.; Public Service Enterprise
Group and its wholly owned subsidiary, Public Service
Electric and Gas Company; and Sequana
Therapeutics, Inc.
W. Ann Reynolds, Ph.D. Abbott Laboratories; Maytag Corporation; and Owens-
Corning Fiberglass Corporation
</TABLE>
The information given in this Proxy Statement concerning the nominees is
based upon statements made or confirmed to the Company by or on behalf of such
nominees.
2
<PAGE>
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are not employees of the Company are paid an annual retainer
fee of $38,000 for serving on the Board plus an attendance fee of $2,000 per
regular and special meeting. Each nonemployee member of the Executive
Committee receives an additional $5,000 annually. Each committee chairperson
is paid an annual amount of $3,000. Committee members receive no additional
compensation for their service on committees or for attending committee
meetings.
David A. Jones, Jr. was elected Vice Chairman of the Board in September
1996. For his services as Vice Chairman of the Board, Mr. Jones, Jr. receives
an annual fee of $100,000. In addition, his employer, Chrysalis Ventures,
Inc., receives $30,000 per year as reimbursement for a portion of Mr. Jones,
Jr.'s office expenses. These amounts were paid on a prorata basis in 1996 for
the period Mr. Jones, Jr. served as Vice Chairman.
The Company matches, on an annual basis, up to $20,000 in charitable
contributions made by each nonemployee director.
The Company provides each nonemployee director with group life and
accidental death insurance in the amount of $100,000, business travel accident
insurance in the amount of $250,000 and pays certain local taxes on their
behalf.
The Company also maintains the 1989 Stock Option Plan for Nonemployee
Directors (the "Directors Plan") pursuant to which options to purchase 15,000
shares of the Common Stock are granted at 100% of the fair market value to
each nonemployee director upon his or her initial election to the Board. In
addition, options to purchase 5,000 shares of the Common Stock are granted on
the first business day of each January at 100% of the fair market value to
each nonemployee director who has been a director continuously for at least
the full calendar year prior thereto.
In September 1996 in connection with his election as Vice Chairman of the
Board, Mr. Jones, Jr. also was granted options for 85,000 shares of Company
common stock which are included in the totals below.
In 1996, total awards under the Company stock option plans were as follows:
<TABLE>
<S> <C>
K. Frank Austen, M.D............................................... 5,000
Michael E. Gellert................................................. 5,000
John R. Hall....................................................... 5,000
David A. Jones, Jr................................................. 90,000
Irwin Lerner....................................................... 5,000
W. Ann Reynolds, Ph.D.............................................. 5,000
</TABLE>
Under the Company's Directors' Retirement Policy, as amended in 1995 (the
"Policy"), a director who is not an employee must retire at the annual meeting
following his or her seventy-third birthday. The retiring director is entitled
to elect to receive either (i) an annual retirement benefit for the life of
the director in the amount of the basic retainer fee in effect at the time of
retirement; or (ii) in lieu thereof, an actuarially equivalent joint survivor
annuity payment. In addition, each retiring director also receives an annual
matching charitable contribution benefit of 50% of the basic retainer fee in
effect at the time of retirement. Benefits are prorated for any retiring
director who has not served at least ten years on the Board. Currently, the
Company is paying benefits under the Policy to two former directors and has a
separate letter agreement with one other former director that was executed
prior to the adoption of the Policy. The benefits under the letter agreement
are comparable to those under the Policy.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings in 1996.
3
<PAGE>
The chart below sets forth the composition of the Board's committees, as well
as the number of meetings each committee held in 1996.
<TABLE>
<CAPTION>
MEETINGS
COMMITTEE MEMBER IN 1996
--------- ------ --------
<C> <S> <C>
Audit Michael E. Gellert, Chairman 7
K. Frank Austen, M.D.
John R. Hall
Irwin Lerner
Compensation K. Frank Austen, M.D., Chairman 3
Michael E. Gellert
Irwin Lerner
W. Ann Reynolds, Ph.D.
Executive David A. Jones, Chairman 2
Michael E. Gellert
David A. Jones, Jr.
Investment W. Ann Reynolds, Ph.D., Chairwoman 2
Michael E. Gellert
John R. Hall
David A. Jones, Jr.
Nominating John R. Hall, Chairman 0
K. Frank Austen, M.D.
David A. Jones, Jr.
W. Ann Reynolds, Ph.D.
</TABLE>
The Audit Committee is comprised entirely of outside Directors and is
responsible for the review of the programs of the Company's internal auditors,
the results of their audits and the adequacy of the Company's internal control
structure. In addition, the Audit Committee reviews prior to its commencement,
the scope of the annual audit of the Company's consolidated financial
statements by the Company's independent accountants, Coopers & Lybrand L.L.P.,
the results of their audits, and the types of services for which the Company
retains Coopers & Lybrand L.L.P.
The Compensation Committee is comprised entirely of outside Directors and is
responsible for developing the compensation policies for the Company's
executive officers, establishing annual goals under the Company's incentive
compensation program, and administering the stock option, stock bonus,
incentive compensation and retirement plans. The Compensation Committee's
report on executive compensation is also included in this Proxy Statement.
The Executive Committee may exercise broad powers and authority as granted to
it under the Delaware General Corporation Law and the Company's Bylaws.
The responsibilities of the Investment Committee are to establish objectives
and policies, to ratify investments, and to analyze the investment performance
decisions of the various funds, assets, and portfolios of the Company and
related employee benefit plans.
The Nominating Committee establishes general criteria regarding the
qualifications of nominees and recommends to the full Board such nominees for
election as directors. The Nominating Committee will consider suggestions from
stockholders regarding possible director candidates.
4
<PAGE>
CORPORATE GOVERNANCE
In 1996 the Board began to review and formalize its corporate governance
guidelines; incorporating principles, some of which the Board has been
operating under for many years. The process includes, among other things:
. A written self evaluation.
. Only outside directors serve on the Company's Audit and Compensation
Committees.
. The Board meets on a bi-monthly basis. Special sessions are scheduled as
required. The agenda is set by the Chairman and the President, and
directors may suggest items for inclusion. Information is made available
to the Board a reasonable period of time before each meeting.
. Outside directors meet in executive session as required.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of the Compensation Committee are nonemployee directors and no
member has any direct or indirect material interest in, or a relationship
with, the Company, other than stockholdings as discussed herein and as related
to his or her position as director. During 1996, no member of the Compensation
Committee had a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the
"Commission") and the New York Stock Exchange, reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Executive officers, directors and greater than ten percent
stockholders are required to furnish the Company with copies of all such forms
they file. During the year ended December 31, 1996, based upon the Company's
knowledge of stock transfers, review of copies of such reports and written
representations by such persons furnished to the Company, all executive
officers, directors and greater than ten percent beneficial owners of the
Company's Common Stock complied with Section 16(a) filing requirements
applicable to the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS OF COMPANY COMMON STOCK
PRINCIPAL STOCKHOLDERS OF THE COMPANY
As of the Annual Meeting Record Date, the Company knows of no person who may
be deemed to own beneficially more than 5% of the outstanding Common Stock
except for:
<TABLE>
<S> <C> <C>
David A. Jones 8,956,286 shares 5.5%(1)
Chairman of the Board and
Chief Executive Officer
Ark Asset Management 11,713,300 shares 7.2%(1)(2)
One New York Plaza, 29th Floor
New York, NY 10004-1902
J. P. Morgan & Co., Incorporated 9,027,741 shares 5.5%(1)(3)
60 Wall Street
New York, NY 10260
</TABLE>
- --------
(1) The percentage is based on 162,716,329 shares outstanding at March 1,
1997.
(2) Based upon a Form 13F filed with the Commission for the period ended
December 31, 1996.
(3) Based upon a Schedule 13G/A filed with the Commission for the period ended
December 31, 1996, J.P. Morgan has sole power to vote 5,254,217 shares and
shared power to vote 187,335 shares. J.P. Morgan has sole power to invest
8,706,611 shares and shared power to invest 295,430 shares.
5
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
In order to more closely align management interests with that of the
Company's stockholders, the Board of Directors established a stock ownership
requirement for the officers and other key employee/associates of the Company.
At January 1, 1998 participants will be required to own between 50% and 300%
of annual base salary (depending upon their position with the Company) in
order to be eligible for future stock option awards. The Humana Common Stock
ownership guidelines became effective January 1, 1997 and will be phased in
over three years.
The following table sets forth, as of March 1, 1997, certain information
with respect to the beneficial ownership of Common Stock by each director of
the Company, by each executive officer named in the Summary Compensation Table
(see "EXECUTIVE COMPENSATION OF THE COMPANY") and by the Company's directors
and executive officers as a group.
<TABLE>
<CAPTION>
COMPANY
COMMON STOCK
BENEFICIALLY
OWNED AS OF PERCENT
MARCH 1, 1997(1) OF CLASS(2)
---------------- -----------
<S> <C> <C>
K. Frank Austen, M.D.(3) 30,300
Michael E. Gellert(4) 135,700
John R. Hall(5) 40,588
David A. Jones, Jr.(6) 199,866
Irwin Lerner(7) 27,000
W. Ann Reynolds, Ph.D.(8) 33,000
David A. Jones(9) 8,956,286 5.5
Gregory H. Wolf(10) 175,000
Karen A. Coughlin (11) 299,027
Kenneth J. Fasola (12) 7,688
David R. Astar(13) 17,810
All directors and executive officers as a group
(22 in number,
including those named above)(14) 10,681,489 6.6
</TABLE>
- --------
(1) Beneficial ownership of shares, for purposes of this Proxy Statement, as
determined in accordance with applicable Commission rules, includes shares
as to which a person has or shares voting and/or investment power. These
footnotes describe whenever an individual shares voting and/or investment
power over the shares beneficially owned by them.
As described in the footnotes, the number of shares listed does not
include:
(i)the interest of certain persons in shares held by family members in
their own right; and
(ii) certain shares held for the benefit of such individuals by the Humana
Retirement and Savings Plan (the "HRSP") on February 1, 1997, (the
latest date for which such information is available), over which the
employee participant generally has no voting or investment power.
The number of shares listed, however, does include:
(i) certain shares held for the benefit of such individuals in the HRSP as
of February 1, 1997, over which the employee participant has no voting
power but does have investment power. In certain circumstances such as
a merger or reorganization, voting rights on all shares pass to the
individual HRSP participant in which case all HRSP shares could be
deemed to be beneficially owned; and
(ii) shares which may be acquired by such individuals through the exercise
of options, which are exercisable currently or within 60 days after
March 1, 1997, under the Company's 1981 Non-Qualified Stock Option
Plan, the 1989 Stock Option Plan for Employees, the Directors Plan
and the 1996 Stock Incentive Plan for Employees ( the "1996 Plan"),
(collectively the "Stock Option Plans").
(2) Unless indicated less than 1% of such class.
6
<PAGE>
(3) Includes 27,800 shares that may be acquired by Dr. Austen through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
(4) Includes 15,000 shares that may be acquired by Mr. Gellert through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
Excludes the following, over which Mr. Gellert has no voting or investment
power: 20,800 shares held by members of Mr. Gellert's family, 20,800
shares owned by Mr. Gellert's son who is past the age of majority, and
42,000 shares held in trusts for the benefit of Mr. Gellert's children.
(5) Includes 30,000 shares that may be acquired by Mr. Hall through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
(6) Includes 25,000 shares that may be acquired by Mr. Jones, Jr. through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
Also excludes 2,900 shares held for the benefit of his minor children and
72 shares held by Mr. Jones, Jr.'s wife over which he has no voting or
investment power.
(7) Includes 25,000 shares that may be acquired by Mr. Lerner through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
Excludes 1,000 shares held by Mr. Lerner's wife over which he has no
voting or investment power.
(8) Includes 30,000 shares that may be acquired by Dr. Reynolds through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
Excludes 87 shares held by Dr. Reynolds' husband over which she has no
voting or investment power.
(9) Excludes 773,367 shares held by Mr. Jones' wife over which Mr. Jones has
no voting or investment power. Also excludes shares owned by other
children of Mr. Jones who are past the age of majority over which Mr.
Jones has no voting or investment power. Includes 197,166 shares held for
the benefit of Mr. Jones by the HRSP on February 1, 1997, over which Mr.
Jones has no voting power but does have investment power, but excludes
73,274 shares held for his benefit by the HRSP on February 1, 1997, over
which he has no voting or investment power.
(10) Excludes 335 shares held for Mr. Wolf's benefit by the HRSP on February
1, 1997, over which he has no voting or investment power.
(11) Includes 284,250 shares that may be acquired by Ms. Coughlin through the
exercise of options which are currently exercisable or become exercisable
within 60 days after March 1, 1997, pursuant to the Stock Option Plans.
Excludes 500 shares held by Ms. Coughlin's daughter over which Ms.
Coughlin has no voting or investment power. Also includes 11,707 shares
held for the benefit of Ms. Coughlin by the HRSP on February 1, 1997,
over which Ms. Coughlin has no voting power but does have investment
power, but excludes 2,511 shares held for her benefit by the HRSP on
February 1, 1997, over which she has no voting or investment power.
(12) Includes 7,658 shares held for the benefit of Mr. Fasola by the HRSP on
February 1, 1997, over which Mr. Fasola has no voting power but does have
investment power, but excludes 293 shares held for his benefit by the
HRSP on February 1, 1997, over which he has no voting or investment
power.
(13) Includes 12,810 shares held for the benefit of Mr. Astar by the HRSP on
February 1, 1997, over which Mr. Astar has no voting power but does have
investment power, but excludes 258 shares held for his benefit by the
HRSP on February 1, 1997, over which he has no voting or investment
power.
(14) Includes 1,078,385 shares that may be acquired by all executive officers
and directors as a group upon the exercise of options which are currently
exercisable or become exercisable within 60 days after March 1, 1997,
pursuant to the Stock Option Plans. Also includes 286,465 shares held for
the benefit of all executive officers as a group by the HRSP on February
1, 1997, over which the executive officers individually have no voting
power but do have investment power, but excludes 94,668 shares held for
their benefit by the HRSP on February 1, 1997, over which they have no
voting or investment power.
7
<PAGE>
EXECUTIVE COMPENSATION OF THE COMPANY
The following Summary Compensation Table sets forth the compensation earned
for the time period served as an executive officer during the past three years
by (i) the Chairman of the Board and Chief Executive Officer of the Company at
December 31, 1996, (ii) each of the four other highest compensated executive
officers of the Company serving at December 31, 1996, and (iii) one additional
former executive officer (collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ---------------------
NUMBER OF
NAME AND RESTRICTED SECURITIES
PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION AWARDS OPTIONS COMPENSATION(2)
- ------------- ---- -------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David A.
Jones 1996 $973,500 $148,026(3) 300,000 $ 120,325
Chairman of
the 1995 936,000 $476,547 124,463(3) 699,090
Board and
Chief 1994 900,000 900,000 141,045(3) 362,038
Executive
Officer
Gregory H.
Wolf 1996 368,913 417,418 108,116(4) 100,000 350,000 68,106
President
and Chief 1995 43,269 9,821(4) 150,000
Operating
Officer
Karen A.
Coughlin 1996 317,625 26,246 11,842(5) 28,944
Division
II-- 1995 297,000 172,260 12,255(5) 90,000 84,325
President 1994 275,000 275,000 12,721(5) 42,920
Kenneth J.
Fasola 1996 256,375 137,955 86,534(6) 90,000 32,299
Vice Presi-
dent and
National
Sales Man-
ager
David A.
Astar 1996 184,850 166,158 47,145(7) 100,000 31,212
Vice Presi-
dent--
Customer
Service
and Quality
Wayne T.
Smith 1996 505,455 92,135(8) 4,568,985
Former Pres-
ident 1995 702,000 358,020 142,658(8) 250,000 222,336
and Chief 1994 675,000 675,000 110,161(8) 117,306
Operating
Officer
</TABLE>
- --------
(1) The Bonus amounts for Messrs. Wolf, Fasola and Astar include retention
bonuses in connection with the merger of EMPHESYS Financial Group, Inc.
("EFG") in the amounts of $200,000, $100,000, and $100,000, respectively.
8
<PAGE>
(2) All other compensation represents amounts contributed or accrued to the
HRSP, contributions and earnings related to the Supplemental Executive
Retirement Plan and Thrift Excess Plan, and severance payments to Mr.
Smith due to his resignation on July 10, 1996, as follows:
<TABLE>
<CAPTION>
JONES WOLF COUGHLIN FASOLA ASTAR SMITH
-------- ------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996
Retirement and Savings
Plan,
Supplemental Executive
Retirement Plan and
Thrift
Excess Plan:
Contributions.......... $105,897 $61,023 $ 52,535 $29,769 $28,321 $ 4,500
Earnings/(Losses)...... 14,428 7,083 (23,591) 2,530 2,891 (95,960)
Severance payments...... 4,660,445
-------- ------- -------- ------- ------- ----------
TOTAL 1996............. $120,325 $68,106 $ 28,944 $32,299 $31,212 $4,568,985
======== ======= ======== ======= ======= ==========
1995
Retirement and Savings
Plan,
Supplemental Executive
Retirement Plan and
Thrift
Excess Plan:
Contributions.......... $154,252 $ 61,627 $ 150,342
Earnings/(Losses)...... 544,838 22,698 71,994
-------- -------- ----------
TOTAL 1995............. $699,090 $ 84,325 $ 222,336
======== ======== ==========
1994
Retirement and Savings
Plan,
Supplemental Executive
Retirement Plan and
Thrift
Excess Plan:
Contributions.......... $196,613 $ 28,874 $ 72,776
Earnings/(Losses)...... 165,425 14,046 44,530
-------- -------- ----------
TOTAL 1994............. $362,038 $ 42,920 $ 117,306
======== ======== ==========
</TABLE>
(3) Other annual compensation for Mr. Jones includes Company provided
transportation of $97,769, $60,458, and $93,354 for 1996, 1995, and 1994,
respectively. Mr. Jones also received Company provided executive insurance
of $50,257, $61,590, and $45,622 in 1996, 1995, and 1994, respectively.
(4) Other annual compensation for Mr. Wolf includes Company provided
transportation of $19,938 and $6,165 for 1996 and 1995, respectively, and
relocation of $66,250 for 1996.
(5) Other annual compensation for Ms. Coughlin includes Company provided
transportation of $10,853, $11,217 and $11,806 for 1996, 1995 and 1994,
respectively.
(6) Other annual compensation for Mr. Fasola includes Company provided
transportation of $7,798 and relocation of $69,242 for 1996.
(7) Other annual compensation for Mr. Astar includes Company provided
transportation of $2,423 and relocation of $34,317 for 1996.
(8) Other annual compensation for Mr. Smith includes Company provided
transportation of $42,857, $79,157, and $62,903 for 1996, 1995, and 1994,
respectively. Mr. Smith also received Company provided executive insurance
of $49,278, $61,590, and $45,622 in 1996, 1995, and 1994, respectively.
9
<PAGE>
1996 STOCK OPTION GRANTS
The following table provides information on stock options granted to the
Named Executive Officers during the year ended December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR THE
OPTIONS TO PRICE OPTION TERM (3)
GRANTED EMPLOYEES PER EXPIRATION ----------------------
(1) IN 1996 SHARE (2) DATE 5% 10%
---------- --------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A.
Jones........ 300,000 15.9% $19.3125 11/14/06 $3,643,658 $ 9,233,745
Gregory H.
Wolf......... 350,000 18.5% 19.1875 08/12/06 4,223,420 10,702,977
Karen A.
Coughlin..... 0
Kenneth J.
Fasola....... 90,000 4.8% 19.1875 08/12/06 1,086,022 2,752,194
David A.
Astar........ 100,000 5.3% 19.1875 08/12/06 1,206,692 3,057,993
Wayne T.
Smith........ 0
</TABLE>
- --------
(1) These non-qualified options have vesting periods ranging from one year to
four years following the date of grant, and expire ten years after the
date of grant. The options become exercisable in equal installments. The
exercise price per share was equal to the fair market value of the Common
Stock on the date of grant. In the event of a Change in Control of the
Company, all outstanding stock options become fully vested and immediately
exercisable in their entirety. In addition, during the sixty day period
following the Change in Control, any stock option (or portion thereof) may
generally be surrendered for cancellation for a payment of the difference
between the market and option price as more fully described in the 1996
Plan.
(2) The exercise price may be paid in cash or, at the discretion of the
Compensation Committee, in shares of Company Common Stock valued at fair
market value on the date immediately preceding the date of exercise, or
any combination thereof.
(3) The dollar amounts in this table represent the potential realizable value
of the stock options granted, assuming that the market price of the shares
appreciate in value from the date of grant to the end of the option term
at annualized rates of 5% and 10%. Therefore, these amounts are not the
actual value of the options granted and are not intended to forecast
possible future appreciation, if any, of Company Common Stock prices. No
assurances can be given that the stock price will appreciate at these
rates or experience any appreciation at all.
1996 OPTION EXERCISES AND YEAR-END VALUES
The following table provides information as to the year-end values of
unexercised options for the Named Executive Officers. No Named Executive
Officer exercised any Company stock options during the year ended December 31,
1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED "IN-THE-MONEY" OPTIONS
OPTIONS AT YEAR END AT YEAR END (1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David A. Jones.............. 300,000
Gregory H. Wolf............. 500,000
Karen A. Coughlin........... 191,750 185,000 $1,977,161 $1,554,688
Kenneth J. Fasola........... 120,000
David R. Astar.............. 130,000
Wayne T. Smith.............. 1,005,714 9,170,060
</TABLE>
- --------
(1) The Value of Unexercised "In-the-Money" options is based on the difference
between the December 31, 1996 (the last trading day of 1996) closing price
of the Company's Common Stock of $19.00 as reported on the New York Stock
Exchange Composite Tape, and the exercise price of the options. If the
December 31, 1996 closing price of $19.00 is less than the per share
exercise price, no amounts are shown.
10
<PAGE>
OFFICERS' TARGET RETIREMENT PLAN
The Company also has in effect the Officers' Target Retirement Plan
("OTRP"), which is a non-qualified, unfunded plan providing supplemental
retirement benefits to each Company officer, including the Named Executive
Officers, and other designated key employees.
The following table illustrates the estimated maximum annual benefit which
would be payable at age 65 to a participant, at various average compensation
levels for specified years of credited service, under the OTRP:
ESTIMATED OTRP MAXIMUM ANNUAL BENEFIT AT AGE 65
FOR YEARS OF CREDITED SERVICE SHOWN(1)(2)
<TABLE>
<CAPTION>
AVERAGE RATE
OF
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 16,700 $ 25,050 $ 33,400 $ 41,750 $ 50,000
200,000 33,400 50,100 66,800 83,500 100,000
300,000 50,100 75,150 100,200 125,250 150,000
400,000 66,800 100,200 133,600 167,000 200,000
500,000 83,500 125,250 167,000 208,750 250,000
600,000 100,200 150,300 200,400 250,500 300,000
700,000 116,900 175,350 233,800 292,250 350,000
1,000,000 167,000 250,500 334,000 417,500 500,000
1,500,000 250,500 375,750 501,000 626,250 750,000
2,000,000 334,000 501,000 668,000 835,000 1,000,000
</TABLE>
- --------
(1) These estimates are based on the assumption that (a) the OTRP will be
continued under its present terms; (b) the participant will continue with
the Company until, and retire at, age 65; and (c) the participant elected
to receive an annual distribution instead of a lump sum payment.
(2) The amounts shown are the total targeted retirement benefit and are
reduced with respect to benefits received under the Retirement Account in
the HRSP, the Supplemental Executive Retirement Plan and Social Security
benefits.
Under the OTRP, the benefits will be based on salary and incentive
compensation. The maximum years of service credited under the OTRP, unless
otherwise changed by the Board, is 30 years. Mr. Jones has been given credit
for his actual years of service. For 35 years of service his target benefit
before reductions is estimated to be $583,500, $875,250, and $1,167,000 for
average rates of compensation of $1,000,000, $1,500,000 and $2,000,000,
respectively. The years of service for each of the Named Executive Officers
are as follows: David A. Jones--35; Gregory H. Wolf--8; Karen A. Coughlin--17;
Kenneth J. Fasola--7; David R. Astar--12. Messrs. Wolf, Fasola and Astar were
credited for their years of service with EFG.
CERTAIN AGREEMENTS
Since April 1987, Mr. Jones has had an agreement pursuant to which he serves
as Chairman of the Board and Chief Executive Officer of the Company at an
annual base salary not less than his base salary at the effective date of the
agreement. In the event of termination of employment other than for cause, the
Company will continue to pay him his base salary for one year following
termination and any amounts earned prior to such termination under any of the
Company's incentive compensation plans. He is also entitled to continued
coverage at the Company's expense during the one-year period under the
Company's life, health and disability plans.
Mr. Smith had an agreement since 1994 pursuant to which he was paid upon his
resignation. Mr. Smith's agreement provided that upon his termination he would
receive an amount equal to his current base salary, full vesting of all
Company stock options, payment under the OTRP calculated based on his 23 years
of service as if he had attained age 55 and continuation of life and health
insurance benefits until he reaches age 65. These amounts are included in the
Summary Compensation Table.
11
<PAGE>
All officers upon termination, including the Named Executive Officers, are
entitled to continuation of health benefits at a predetermined rate until the
earlier of attainment of age 65 or obtaining other coverage.
The Company has entered into agreements with all officers, including the
Named Executive Officers, and key management employees which for a three year
period following a Change in Control provide certain benefits upon
termination. Such termination may be involuntary, generally as a result of a
change in responsibilities or compensation, or at the election of the employee
during a 30-day period occurring one year after the Change in Control.
Pursuant to the agreements, these individuals would be entitled to receive
severance pay which generally is determined by multiplying the sum of each
individual's annual base salary, and the maximum incentive compensation
payable to him or her, by a multiple ranging from one to two. The agreements
also provide that if any funds received by these employees subject them to a
federal excise tax pursuant to Section 4999 of the Internal Revenue Code (the
"Code"), then the payments will be grossed up to permit them to receive a net
amount equal to what would have been received had the excise tax not been
imposed (the "Gross Up Payment"). Mr. Jones' agreement provides only for a
Gross Up Payment, if applicable.
In addition, in the event of a Change in Control of the Company, benefits
are payable under the Company's OTRP, Thrift Excess Plan, Supplemental
Executive Retirement Plan and the Stock Option Plans, and health, life and
disability insurance coverage is available.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
In performing the physician credentialing function required by various
accrediting bodies, the Company has utilized the services of its employees and
its internally developed systems, and contracted for the site visit portion of
the credentialing process with Louisville, Kentucky based Resource Factor,
Inc. and related companies ("RF"). In the year ended December 31, 1996, the
Company paid approximately $5,636,000 to RF, of which approximately $1,400,000
related to credentialing services with the balance primarily related to health
clinic staffing expenses. During 1996, the Company and RF entered into
negotiations to form a new company, combining the Company's credentialing
resources with those of RF in order to take advantage of a perceived growing
business in physician credentialing. In early 1997, the new company, Aperture
Credentialing, Inc. ("Aperture") was formed. The Company and RF each
contributed approximately $3 million worth of assets, and an additional $6
million in cash was contributed as follows: $1 million from the Company and $5
million from independent venture capitalists unrelated to the Company or RF
(the "Venture Capitalists"). The Company's investment resulted in its owning
approximately 33% of Aperture. The Company's employees who had been involved
in the credentialing function became employees of Aperture.
Chrysalis Ventures, Inc. ("Chrysalis") is a venture capital firm in
Louisville, Kentucky. David A. Jones, Jr., director nominee and Vice Chairman
of the Board of the Company, is a managing director of Chrysalis. In November
1994, in a transaction unrelated to Aperture, Chrysalis loaned $300,000 to RF
for which it received a note (the "Note") and options to purchase up to 15% of
the equity of RF (the "Options"). David A. Jones, director nominee and
Chairman of the Board and Chief Executive Officer of the Company, participated
in the loan through Chrysalis and together with Mr. Jones, Jr. may be deemed
indirectly to have held slightly less than two-thirds of the value of the Note
and Options. At the time of the funding of Aperture, the Joneses converted
their portion of the Note into equity of RF and exercised their portion of the
Options resulting in the Joneses owning slightly less than 4 1/2% of the
equity of Aperture. The Board of Directors of Aperture consists of five
individuals: Mr. Jones, Jr., one appointed by the Company and three unrelated
to the Company.
The Company has entered into agreements with Aperture which run through 1999
which the Company believes will reduce the cost of credentialing it otherwise
would have incurred. The price, terms and conditions of the Aperture
investment were negotiated at arm's length by various executives of the
Company, RF and the
12
<PAGE>
Venture Capitalists. Additionally, a regional investment banking firm gave the
Company a written opinion that the proposed combination was fair to the Company
from a financial point of view. The decision of the Company to participate in
the Aperture venture was reviewed and approved by the Company's Board of
Directors without the participation of either of the Joneses.
In 1994 the Company entered into an agreement with JAPC, Inc. ("JAPC"), which
is owned by David A. Jones. Pursuant to such agreement, the Company provides
hangar space, pilot services and maintenance for an airplane owned by JAPC, and
the Company may also use the JAPC pilots to fly Company-owned aircraft. The
rate paid for the hangar space is at least as favorable to the Company as
market rates for comparable space. The Company is fully reimbursed for the cost
of airplane maintenance. The agreement generally may be terminated by either
party upon 30 days' written notice. For the fiscal year ended December 31,
1996, pursuant to the agreement, the Company was reimbursed by JAPC $49,419.
In 1995, the Company completed a commitment to invest $1 million in The
African-American Venture Capital Fund, Inc., a Kentucky Limited Liability
Company ("Fund"). This investment makes the Company a greater than 10% owner of
the Fund. David A. Jones made a similar investment in the Fund and is a
director, officer and greater than 10% stockholder of the Fund. The Fund was
established to provide capital and management resources to enhance the growth
and development of businesses owned by African-Americans living in the
metropolitan Louisville, Kentucky area.
In June 1996, the Company loaned Kenneth J. Fasola, Vice President, $75,000,
with interest at 8.25%, to assist him in moving to the Company's Louisville,
Kentucky office. The largest amount outstanding during the 1996 fiscal year was
$77,373. Mr. Fasola repaid the loan in full in October 1996.
In July 1996, the Company loaned Michael B. McCallister, Division I-
President, $154,000, with interest at 8.25%, to assist him in moving to the
Company's Louisville, Kentucky office. The largest amount outstanding during
the 1996 fiscal year was $156,223. Mr. McCallister repaid the loan in full in
November 1996.
In August 1996, the Company loaned Gregory K. Rotherham, Vice President,
$90,000, with interest at 8.25%, to assist him in moving to the Company's
Louisville, Kentucky office. The largest amount outstanding during the 1996
fiscal year was $91,898. Mr. Rotherham repaid the loan in full in November
1996.
COMPENSATION COMMITTEE REPORT
EXECUTIVE OFFICER COMPENSATION POLICY
The Compensation Committee administers the Company's executive officer
compensation program, the key components of which are base salary, incentive
compensation, stock option and restricted stock awards. Each member of the
Compensation Committee is an independent nonemployee director who has never
been an employee of the Company.
The executive officer compensation program rewards executive officers for
short and long-term performance. In addition to base salary, executive officers
are compensated on a performance oriented basis through the use of incentive
compensation linking both short and long-term results. Stock options are
included in the compensation program to reward executive officers for longer-
term strategic actions which increase Company value. This use of stock options
in the compensation program also links executive officer rewards to increases
in stockholder value. Thus, compensation for the Company's executive officers
involves a significant proportion of pay which is at risk. One component, the
variable annual bonus, permits individual performance to be recognized on an
annual basis and is based, in part, on an evaluation of the contribution made
by the officer to Company performance. Stock options directly relate a
significant portion of each executive officer's long-term
13
<PAGE>
remuneration to the Company's stock price, and thus align the executive's
compensation with the interest of the Company's other stockholders. The
granting of restricted stock may also be used, but to date only two such
grants have been made.
The executive officer compensation program is designed to allow the Company
to be competitive in the marketplace in attracting, motivating and retaining
key executive officers. The marketplace is defined as both (1) publicly traded
companies near the Company's revenue size and (2) specific companies in the
managed care industry. Because of mergers in the managed health care industry,
the peer group historically used by the Company in its Stock Performance graph
has been replaced with a health care index. However, data from specific
competitors in the health care industry is used in the compensation analysis.
The Compensation Committee believes this definition of the marketplace
provides a good benchmark for analyzing competitiveness of the Company's
executive compensation program. The Compensation Committee considers the
overall compensation package when setting any one component of compensation.
In the summer of 1996, the Company's Board of Directors, with the full
support of the Compensation Committee, persuaded David A. Jones, the Company's
Co-Founder, Chairman and Chief Executive Officer, to remain in his position
past his normal retirement date of September 1, 1996 in order to lead the
Company through the reorganization of its senior management team. Mr. Jones
and the Board began that process by appointing Gregory H. Wolf as President
and Chief Operating Officer of the Company and working with Mr. Wolf to
realign the Company's management. That activity was taken into account by the
Compensation Committee in determining executive officer compensation.
BASE COMPENSATION
Base compensation was determined by an assessment of overall Company
performance (including this year, leadership restructuring), executive officer
performance, and changes in executive officer responsibilities. While many
aspects of performance can be measured in financial terms, the Compensation
Committee also evaluates senior management in areas of performance which are
more subjective. These areas include the development and execution of
strategic plans, the exercise of leadership in the development of management
and employee/associates, innovation and improvement in the Company's products
and processes, and the executive's involvement in industry groups and in the
communities that the Company serves. All of these factors are collectively
taken into account by the Compensation Committee in determining the
appropriate level of base compensation and any merit increase.
INCENTIVE COMPENSATION
The Company's prior incentive compensation plans had been designed to reward
officers and designated key associates for the attainment of financial goals
and other performance objectives established annually by the Compensation
Committee. Beginning in 1997, a new multi-year Management Incentive Plan will
be implemented. Potential award maximums range from 25% to 100% of base pay.
Awards earned may be paid in a combination of cash and restricted stock. When
fully phased in, each year's award will be based on the attainment of
performance objectives established by the Committee covering a three-year
period and which will weight the current year by 1/2, the prior year by 1/3
and the second prior year by 1/6. This program will link both short and
longer-term results and incorporate quality, growth and profit goals of the
Company.
Potential incentive compensation for 1996 for Mr. Jones, the Company's Chief
Executive Officer, was based solely on the attainment of pre-established
Company consolidated net income objectives as governed by the Humana Inc.
Executive Management Incentive Compensation Plan-Group A. Mr. Jones did not
receive any incentive compensation for 1996, because the objectives were not
met.
14
<PAGE>
Potential incentive compensation for 1996 for Gregory H. Wolf, the Company's
President and Chief Operating Officer, was based in large part on the
attainment of pre-established goals for EFG. EFG was acquired by the Company
in 1995 and Mr. Wolf was its President. Kenneth J. Fasola and David R. Astar,
Named Executive Officers, were also compensated based on the EFG goals. For
1996, Messrs. Wolf, Astar and Fasola earned approximately 60% of the target
award in addition to retention bonuses agreed to at the time of the
acquisition of EFG.
A portion of incentive compensation available to certain other executive
officers of the Company, including Karen A. Coughlin, a Named Executive
Officer, was based on the attainment of the same Company consolidated net
income objectives as Mr. Jones. The remainder of any potential incentive
compensation award was based on various operational or departmental goals,
both financial and otherwise. For 1996, Ms. Coughlin earned no incentive
compensation related to the net income objectives, but as reflected in the
Summary Compensation Table, did earn some incentive compensation based on the
achievement of certain market goals and overall performance. Wayne T. Smith, a
Named Executive Officer, received no incentive compensation for 1996 because
the Company did not attain the consolidated net income objectives.
STOCK OPTIONS/RESTRICTED STOCK AWARDS
The Company uses stock options and restricted stock awards to reward
officers and key employees/associates for long-term performance and as a
method to attract, motivate, and retain these key employees. The use of equity
based compensation provides a vital, long-term link between the result
achieved for the Company's stockholders and the rewards provided to executive
officers and other associates.
All stock options are granted at the fair market value of the Company's
stock on the date of grant. The amounts, terms and timing of stock option and
restricted stock awards are determined by the Compensation Committee through
review of stock programs at comparable companies with the assistance of
outside consultants. The number of shares covered by each award reflects the
executive's level of responsibility along with past and anticipated future
contributions to the Company.
In 1996 the Compensation Committee granted options totaling approximately
1.2% of the Company's outstanding Common Stock. As discussed below, Mr. Jones
received an option grant of 300,000 shares. Upon his election as President and
Chief Operating Officer, Mr. Wolf received an option grant of 350,000 shares
vesting ratably over four years and a restricted stock award of 100,000 shares
which will vest 100% at the end of three years. See "1996 Stock Option Grants"
for a description of stock options granted to the other Named Executive
Officers. No other awards of restricted stock were made in 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
At the beginning of calendar year 1996, David A. Jones, Chairman of the
Board and Chief Executive Officer, received a 4% increase in base salary to
$973,500. To determine the appropriate compensation, with the assistance of
outside consultants, the Compensation Committee reviewed Mr. Jones' base
compensation in comparison to chief executive officers in other managed care
companies and also took into account his tenure and service to the Company.
During calendar year 1996 certain unusual events occurred which contributed
directly to the structure of compensation for Mr. Jones. As described above,
the Board of Directors persuaded Mr. Jones to postpone his retirement and
continue to lead the Company through its change in management.
The Compensation Committee decided to credit Mr. Jones for his actual years
of service under the Officers Target Retirement Plan (removing the 30 year
cap) and to grant Mr. Jones 300,000 stock options which would vest in one
year. In making its decisions, the Compensation Committee considered: i) the
value of his continued
15
<PAGE>
contributions to the leadership of the Company in a time of strategic change;
ii) the Company's performance; iii) the strength of Mr. Jones' reputation in
the managed care industry; iv) his personal commitment to postpone his
retirement; and v) the fact that Mr. Jones had declined to receive any Company
stock options since 1991.
For 1996, Mr. Jones' incentive compensation was based solely on the
Company's attaining certain pre-determined consolidated net income objectives.
As discussed above, Mr. Jones did not receive any incentive compensation for
1996.
EXECUTIVE COMPENSATION TAX DEDUCTIBILITY
The Omnibus Budget Reconciliation Act of 1993 amended the Code to provide
generally that compensation paid by publicly-held corporations to the chief
executive officer and the four most highly paid senior executive officers in
excess of $1 million per year per executive will be deductible by the Company
only if paid pursuant to qualifying performance-based compensation plans
approved by stockholders of the Company. Compensation as defined by the Code
includes, among other things, base salary, incentive compensation and gains on
stock options and restricted stock. It is the Compensation Committee's policy
to maximize the effectiveness of the Company's executive compensation plans.
In that regard, the Compensation Committee intends to maintain flexibility to
take actions which it deems to be in the best interest of the Company and its
stockholders. Such actions may not always qualify for tax deductibility under
the Code. The Company believes it has taken the necessary steps to qualify the
Company's performance-based compensation plans for tax deductibility and that
all compensation paid for 1996 is deductible for federal income tax purposes.
The foregoing report is submitted by all members of the Compensation
Committee of the Company whose members are as follows:
Compensation Committee
K. Frank Austen, M.D., Chairman
Michael E. Gellert
Irwin Lerner
W. Ann Reynolds, Ph.D.
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933 or the
Exchange Act, and shall not otherwise be deemed filed under such Acts except
to the extent that the Company specifically incorporates this information by
reference.
16
<PAGE>
COMPANY STOCK PERFORMANCE
The following performance graph compares the performance of the Company's
Common Stock to the Standard & Poor's Composite 500 Stock Index and the Morgan
Stanley Healthcare Payor Index for the 46 months ended December 31, 1996. The
Peer Group comparison has been discontinued after 1995 as described below. The
graph assumes an investment of $100 in each of the Company's Common Stock, the
Standard & Poor's Composite 500 Stock Index, and the Morgan Stanley Healthcare
Payor Index on March 1, 1993, and also assumes reinvestment of all dividends.
LOGO
<TABLE>
<CAPTION>
3/1/93 12/31/93 12/31/94 12/31/95 12/31/96
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Humana Inc....................... $100 $241 $307 $371 $257
S&P 500 Stock Index.............. $100 $105 $104 $139 $167
Morgan Stanley
Healthcare Payor Index.......... $100 $158 $206 $259 $226
Discontinued Peer Group.......... $100 $135 $152 $194 N/A
</TABLE>
The Company's Peer Group previously consisted of FHP International
Corporation, Foundation Health Corporation, PacifiCare Health Systems, Inc.,
United Healthcare Corporation, U.S. Healthcare, Inc., and WellPoint Health
Networks Inc. Mergers have either been consummated or proposed for many of
these companies. Therefore, the Company has decided to use the Morgan Stanley
Healthcare Payor Index and no comparison is possible with the former peer
group for fiscal year 1996.
The Company believes any comparisons of the price of the Company's Common
Stock before March 1, 1993, are misleading since the value of the Company's
Common Stock prior to that date included the value of the hospital business
which was distributed to the Company's stockholders in a spinoff transaction
(the "Spinoff") to a separate publicly held company, Galen Health Care, Inc.
("Galen"). On March 1, 1993, the date on which the Spinoff was consummated,
the closing price of the post-Spinoff Common Stock was $7.75 and the closing
price of the common stock of Galen was $12.125. On February 26, 1993, the last
trading day prior to the consummation of the Spinoff, the closing price of
historical combined Humana common stock was $19.375.
17
<PAGE>
PROPOSAL 2: APPROVAL OF 1997 MANAGEMENT INCENTIVE PLAN FOR EXECUTIVE
MANAGEMENT
On November 14, 1996, the Compensation Committee of the Board of Directors
(the "Committee") adopted the Humana Inc. 1997 Management Incentive Plan for
Executive Management (the "1997 MIP"). Under Section 162(m) of the Code, the
amount of compensation paid to the Chief Executive Officer and the four other
most highly paid executive officers of the Company in the year for which a
deduction is claimed by the Company (including its subsidiaries) is limited to
$1,000,000 per person, except that compensation that is performance-based will
be excluded for purposes of calculating the amount of compensation subject to
this $1,000,000 limitation. The Company has structured the 1997 MIP so that
any compensation paid pursuant to the 1997 MIP will all be "performance-based
compensation" within the meaning of Section 162(m) of the Code.
The principal provisions of the 1997 MIP are summarized below. This summary,
however, does not purport to be complete and is qualified in its entirety by
reference to the provisions of the 1997 MIP, a copy of which is attached
hereto as Annex A. Terms not defined herein shall have the same meaning as set
forth in the 1997 MIP.
The Committee will administer the 1997 MIP and have final authority to
construe and interpret it. The Committee will annually select those executive
officers who shall be eligible to participate in the 1997 MIP and establish
benchmarks for both profit and growth objectives.
Any portion of an Award at or below Target Benchmarks will be paid entirely
in cash. In 1998 and thereafter the portion of an Award relating to
performance above Target Benchmarks will, at the discretion of the Committee,
be paid up to 50% in restricted stock and the remainder in cash. The
restricted stock will vest in two increments over a two-year period. The
restricted stock component will be awarded pursuant to the Company's 1996
Stock Incentive Plan for Employees.
Awards earned will be paid on or before March 15 following the close of the
calendar year in which they are earned based on the Participant's base salary
paid for the Performance Period. In 1998, awards will be based 2/3 on 1998
results and 1/3 on 1997 results. In 1999 and thereafter, awards will be based
1/2 on results for the current Performance Period, 1/3 on results of the
preceding Performance Period and 1/6 on results of the Performance Period
occurring two years prior to then current Performance Period.
The Maximum Award for any Performance Period shall be equal to 100% of a
Participant's base salary paid, but shall not exceed $2 million.
If approved by stockholders, it is intended that David A. Jones and Gregory
H. Wolf will participate in the 1997 MIP for the first time in 1998. Each
would be eligible for a maximum bonus of 100% of their base salary earned
during that year.
No other executive officer or employee is expected to participate in the
1997 MIP in 1998. The Nonemployee directors are not eligible to participate in
the 1997 MIP.
Approval of the 1997 MIP requires the affirmative vote of the holders of a
majority of the Shares represented at the Annual Meeting, in person or by
proxy, and entitled to vote.
FOR THE REASONS STATED HEREIN, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL OF THE 1997 MIP.
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<PAGE>
OTHER INFORMATION
VOTING RIGHTS AND PROXY INFORMATION
Stockholders of Record of the Company's outstanding shares of common stock
as of the close of business on March 17, 1997, (the "Annual Meeting Record
Date") are entitled to vote at the Annual Meeting or any adjournment or
postponement thereof. Stockholders of Record are entitled to one vote per
share on any matter which may properly come before the Annual Meeting.
The presence at the Annual Meeting, in person or by proxy, of Stockholders
of Record of a majority of the shares issued and outstanding on the Annual
Meeting Record Date, and entitled to vote, shall be necessary and sufficient
to constitute a quorum for the transaction of business. Any Stockholder of
Record present (including broker non-votes) at the Annual Meeting, but who
abstains from voting, shall be counted for purposes of determining whether a
quorum exists. As of the Annual Meeting Record Date, there were 162,804,946
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
The affirmative vote of a plurality of the shares of Common Stock
represented in person or by properly executed proxy is required to approve the
election of each of the Company's nominees for election as a director.
The affirmative vote of a majority of the shares represented at the Annual
Meeting, in person or by proxy, and entitled to vote at the Annual Meeting,
will be necessary to approve the 1997 MIP.
Since only a plurality is required for the election of directors,
abstentions or broker non-votes will have no effect on the election of
directors (except for purposes of determining whether a quorum is present at
the Annual Meeting). With respect to the approval of the 1997 MIP, an
abstention (or broker non-vote) has the same effect as a vote against the
proposal.
All shares of Common Stock that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
executed proxies will be voted for approval of the election of the Board's
seven nominees as directors of the Company and for approval of the 1997 MIP.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with Mid-America Bank of Louisville & Trust Company in its capacity as
transfer agent for the Company (the "Transfer Agent"), at or before the Annual
Meeting, a written notice of revocation bearing a date later than the proxy,
(ii) duly executing a subsequent proxy relating to the same shares of Common
Stock and delivering it to the Transfer Agent at or before the Annual Meeting,
or (iii) attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself constitute a
revocation of a proxy). Any executed proxy or written notice revoking a proxy
should be sent to Mid-America Bank of Louisville & Trust Company, Securities
Transfer Department, 500 West Broadway, Louisville, Kentucky 40202.
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of Common Stock and will reimburse them for their reasonable expenses
in so doing. Certain directors, officers and other employees of the Company,
not specially employed for this purpose, may solicit proxies, without
additional remuneration therefor, by personal interview, mail, telephone,
facsimile or other electronic means. In addition, the Company has retained
D.F. King & Co., Inc., to assist in the solicitation for a fee of $8,500 plus
expenses.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials relating to the
1998 Annual Meeting of Stockholders must be received by the Company no later
than November 28, 1997.
19
<PAGE>
OTHER MATTERS
The Board of Directors does not intend to present any item of business at the
Annual Meeting other than those specifically set forth in the notice of the
meeting. However, if other matters are presented for a vote, the proxies will
be voted for such matters in accordance with the judgment of the persons acting
under the proxies.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS TO AUDIT THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS
The Board, in accordance with the recommendation of its Audit Committee, the
members of which are not employees of the Company, has appointed Coopers &
Lybrand L.L.P., as independent accountants to audit the consolidated financial
statements of the Company for the fiscal year ending December 31, 1997.
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting and will be afforded the opportunity to make a statement if they desire
to do so and to respond to appropriate questions.
By Order of the Board of Directors,
LOGO
Joan O. Kroger, Secretary
20
<PAGE>
HUMANA INC. 1997 MANAGEMENT INCENTIVE PLAN
FOR
EXECUTIVE MANAGEMENT
1. PURPOSE. The purpose of the Humana Inc. 1997 Management Incentive Plan
for Executive Management (the "Plan") is to advance the interests of the
Company by encouraging and rewarding teamwork, providing management with a
strong incentive to increase value, creating a sense of ownership among the
Company's management, and recognizing the interdependency of short-term and
long-term goals.
2. DEFINITIONS. As used in this Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by
such definitions, and the terms set forth below shall have the following
meanings:
(a) "Award" shall mean, individually or collectively, a payment under the
Plan of Restricted Stock or cash.
(b) "Board" shall mean the Board of Directors of the Company.
(c) A "Change in Control" shall have the same meaning as that term has in
the Stock Incentive Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any referenced section thereof shall include any
successor provision thereto.
(e) "Committee" shall mean the Compensation Committee of the Board.
(f) "Company" shall mean Humana Inc.
(g) "Disabled" shall have the same meaning as the term "Disability" has
in the Stock Incentive Plan.
(h) "Effective Date" shall mean January 1, 1997.
(i) "Employee" shall mean an individual who is a full-time employee of
the Company or a Subsidiary.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any referenced section thereof, or rule or
regulation promulgated thereunder, and shall include any successor
provision thereto.
(k) "Executive Officer" shall mean an Employee who is an executive
officer of the Company or a Subsidiary.
(l) "Fair Market Value" shall have the same meaning as that term has in
the Stock Incentive Plan.
(m) "Growth Objectives" shall mean the objectives established by the
Committee in accordance with Section 5.1.
(n) "Incentive Base" shall mean the Participant's base salary received
during the Performance Period.
(o) "Maximum Award" shall mean the maximum Award for which a Participant
is eligible in accordance with Section 6.
(p) "Maximum Growth Benchmark" shall mean the maximum Growth Objective
established by the Committee in accordance with Section 5.1.
(q) "Maximum Profit Benchmark" shall mean the maximum Profit Objective
established by the Committee in accordance with Section 5.2.
(r) "Minimum Growth Benchmark" shall mean the minimum Growth Objective
established by the Committee in accordance with Section 5.1.
(s) "Minimum Profit Benchmark" shall mean the minimum Profit Objective
established by the Committee in accordance with Section 5.2.
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(t) "Participant" shall mean any Employee selected by the Committee as
eligible to receive an Award under the Plan.
(u) "Performance Period" shall mean the 12 month period beginning January
1 and ending December 31.
(v) "Plan" shall mean this Humana Inc. 1997 Management Incentive Plan for
Executive Management as the same may be amended from time to time.
(w) "Profit Objectives" shall mean the objectives established by the
Committee in accordance with Section 5.2.
(x) "Restricted Stock" shall mean Shares issued in accordance with the
Plan, but pursuant to the Stock Incentive Plan.
(y) "Shares" shall have the same meaning as that term has in the Stock
Incentive Plan.
(z) "Stock Incentive Plan" means the Humana Inc. 1996 Stock Incentive
Plan for Employees.
(aa) "Subsidiary" shall mean 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.
(bb) "Target Growth Benchmark" shall mean the target Growth Objective
established by the Committee in accordance with Section 5.1.
(cc) "Target Profit Benchmark" shall mean the target Profit Objective
established by the Committee in accordance with Section 5.2.
3. ADMINISTRATION.
3.1 The Committee. The Plan shall be administered by the Committee, the
members of which shall be appointed from time to time by, and shall serve at
the discretion of, the Board. The Committee shall be composed solely of two or
more directors who are outside directors, within the meaning of Section 162(m)
of the Code and regulations promulgated thereunder, and who are non-employee
directors within the meaning of Rule 16b-3 promulgated under the Exchange Act.
3.2 Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full authority to:
(a) select Participants to whom Awards may be granted;
(b) determine the size, types and frequency of Awards granted under the
Plan;
(c) determine the terms and conditions of Awards, including any
restrictions or conditions to the Awards, which need not be identical;
(d) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(e) establish, amend and rescind rules and regulations for the Plan's
administration; and
(f) amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee as
provided in the Plan.
The Committee shall have sole discretion to make all other determinations
which may be necessary or advisable for the administration of the Plan. To
the extent permitted by law, Rule 16b-3 promulgated under the Exchange Act
and Section 162(m) of the Code and the regulations thereunder, the
Committee may delegate its authority as identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan, and all related orders or resolutions
of the Board, shall be final, conclusive and binding
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upon all persons, including the Company, its stockholders, Employees,
Participants and their estates and beneficiaries.
3.4 Compliance; Bifurcation of Plan. It is the intention of the Company that
the Plan and the administration of the Plan satisfy the requirements of Rule
16b-3 promulgated under the Exchange Act and Section 162(m) of the Code.
Accordingly, if any aspect of the administration of the Plan, or the operation
of any provision of the Plan, would conflict with this intent, such
administration or provision shall be deemed null and void, and in all events
the Plan shall be construed in favor of its operation and administration in
accordance with such intent. Notwithstanding anything in the Plan to the
contrary, the Board or the Committee, in its discretion, may bifurcate the Plan
so as to restrict, limit or condition the use of any provision of the Plan to
Participants who are subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants.
4. ELIGIBILITY. The Committee shall annually select those Executive Officers
who, in the sole discretion of the Committee, shall be eligible to participate
in the Plan. Annually, the Committee shall advise those eligible Executive
Officers that they are Participants in the Plan for a Performance Period.
5. PERFORMANCE OBJECTIVES. Annually, within the applicable period provided
under Treas. Reg. (S) l.162-27(e)(2), the Committee shall establish in writing
the Growth Objectives and Profit Objectives and the relative weightings of each
for the Performance Period.
5.1 Growth Objectives. The Committee shall establish a Minimum Growth
Benchmark, Target Growth Benchmark and a Maximum Growth Benchmark for any
relevant Performance Period based on membership enrollment or premium revenue
for any relevant Performance Period as determined by the Committee.
5.2 Profit Objectives. The Committee shall establish a Minimum Profit
Benchmark, Target Profit Benchmark and a Maximum Profit Benchmark for any
relevant Performance Period based on consolidated net income or earnings per
share as determined by the Committee.
5.3 Rolling Weighted Average.
(a) For the Performance Period beginning January 1, 1997, the Award shall
be based only on the results for that Performance Period.
(b) For the Performance Period beginning January 1, 1998, the award shall
be based one-third on the results achieved for the 1997 Performance Period
and two-thirds on the results achieved for the 1998 Performance Period.
(c) For Performance Periods beginning on or after January 1, 1999, the
Award shall be based one-sixth on the results achieved for the Performance
Period occurring two years prior to the current Performance Period, two-
sixths on the results achieved for the Performance Period one year prior to
the current Performance Period, and three-sixths on the results achieved
for the current Performance Period.
(d) To the extent that, in any single year, the growth or profit results
exceeded a Benchmark ("Excess") with the result that the Excess was not
taken into account in calculating a Participant's Award, the Committee may
apply the Excess to the prior Performance Period's or subsequent
Performance Period's results in calculating the Participant's Award for the
then current Performance Period.
6. AWARDS. Awards will be determined as soon as reasonably practicable after
the close of each Performance Period and will be certified by the Committee
before distribution. The Maximum Award available for any Participant shall be
equal to 100% of the Participant's Incentive Base. Notwithstanding anything in
this Section 6 to the contrary, the Maximum Award available for any Participant
with respect to any Performance Period shall be $2 million.
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7. PAYMENT OF AWARDS.
7.1 Form of Payment. Awards shall be paid as follows:
(a) For any portion of an Award calculated based on results at or below
the combination of the Target Growth Benchmark and the Target Profit
Benchmark, the Award will be distributed solely in cash in a single sum;
and
(b) For the Performance Period beginning January 1, 1997, at the
discretion of the Committee, the portion of an Award based upon results in
excess of the combination of the Target Growth Benchmark and the Target
Profit Benchmark will be paid (i) in Shares of Restricted Stock having a
Fair Market Value on the date of issuance of up to 25% (50% for Performance
Periods beginning on or after January 1, 1998) of such excess and (ii) the
remainder in a single sum in cash.
The number of shares of Restricted Stock granted, which may consist in
whole or in part of authorized and unissued Shares or treasury Shares, will
be the whole number of Shares which can be purchased for the dollar amount
computed above. Notwithstanding the foregoing, if there are an insufficient
number of Shares authorized under the Stock Incentive Plan to issue the
number of shares of Restricted Stock to which a Participant is entitled,
any amount not paid in shares of Restricted Stock shall be paid in cash.
7.2 Payment of Award. The Award shall be paid to each Participant as soon as
reasonably practicable following the end of the Performance Period, but no
later than March 15 of each year following the Performance Period to which the
Award relates.
7.3 Withholding for Taxes. The Company shall have the right to deduct from
all cash Awards any taxes required to be withheld as a result thereof, whether
federal, state or local. If the Company has a withholding obligation upon the
issuance or vesting of Shares under the Plan, a Participant may, subject to the
discretion of the Committee, elect to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair Market
Value on the date the withholding tax is to be determined equal to the amount
required to be withheld under applicable law. Notwithstanding the foregoing,
the Committee may, by the adoption of rules or otherwise, modify the provisions
of this Section 7.3 or impose such other restrictions or limitations on such
elections as may be necessary to ensure that such elections will be exempt
transactions under Section 16(b) of the Exchange Act. Notwithstanding anything
in this Section 7.3 to the contrary, the Participant shall be obligated to make
arrangements with the Company to enable the Company to satisfy its withholding
obligation with respect to the issuance of Shares.
8. RESTRICTED STOCK.
8.1 Restricted Stock Distribution. The Restricted Stock shall be issued in
accordance with the terms of the Stock Incentive Plan.
8.2 Vesting. One-half of the Restricted Stock will become fully vested on the
first anniversary of the date of its issuance. The remainder of the Restricted
Stock will become vested on the second anniversary of the date of its issuance.
Notwithstanding the foregoing, if a Participant dies or becomes Disabled while
owning Restricted Stock, the Restricted Stock shall immediately become fully
vested.
9. TERMINATION OF EMPLOYMENT DURING ANY PERFORMANCE PERIOD.
9.1 Termination for Reasons Other Than Death or Disability. If the
Participant's employment by the Company or a Subsidiary terminates for any
reason (other than death or disability) during any Performance Period, such
Participant shall not be entitled to any Award for that Performance Period.
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<PAGE>
9.2 Death or Disability During Performance Period. If a Participant dies or
becomes Disabled during any Performance Period, the amount of the Award shall
be calculated in the same manner as described in Section 10.2. Such Award
shall be nonforfeitable and shall be distributed in the same manner as
described in Section 10.3.
10. CHANGE IN CONTROL. If there is a Change in Control while the Plan
remains in effect, then the following shall apply:
10.1 Nonforfeitability. Each Participant's Restricted Stock shall become
fully vested and nonforfeitable and the Participant's accrued Award,
calculated in accordance with Section 10.2 below shall automatically become
nonforfeitable on the date of such Change in Control.
10.2 Calculation of Awards. The Committee, as soon as reasonably practicable
after the date of such Change in Control, shall determine each Participant's
Award accrued through the end of the calendar month which immediately precedes
the date of such Change in Control. The Award shall be in an amount which is
equal to the greater of (a) the Maximum Award available multiplied by a
percentage equal to the percentage of the Maximum Award that would have been
earned assuming that the rate at which the Growth Objectives and Profit
Objectives have been achieved as of the date of such Change in Control would
have continued until the end of the Performance Period or (b) the Maximum
Award available multiplied by the percentage of the Performance Period
completed at the time of the Change in Control.
10.3 Payment of Awards. Each Participant's accrued Award (determined as
provided in Section 10.2) shall be paid in a single sum in cash and Shares (in
the percentages provided in Section 7.1) as soon as reasonably practicable
after the date of the Committee's determination of the Award.
11. AMENDMENTS, MODIFICATION AND TERMINATION OF THE PLAN. The Board may
terminate the Plan, in whole or in part, may amend the Plan from time to time,
including the adoption of amendments deemed necessary or desirable to correct
any defect, supply an omission or reconcile any inconsistency in the Plan.
Notwithstanding the foregoing, no amendment shall be made without stockholder
approval if: (a) such approval is necessary to satisfy any applicable (i)
provision of the Code or the Exchange Act or any regulation promulgated
thereunder, (ii) requirement of any national securities exchange or system on
which the Shares are then listed or reported, or (iii) any other regulatory
law or regulation, and (b) the Board determines that it is appropriate to seek
stockholder approval.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Participant with respect to a current Performance Period
without the written consent of such Participant.
12. GOVERNING LAW. The Plan and all determinations made and actions taken
pursuant thereto shall, to the extent not preempted by federal law, be
governed by, and construed in accordance with, the laws of the State of
Delaware, without regard to the conflict of law provisions thereof.
13. GENDER AND NUMBER. Unless otherwise indicated by the context, reference
to the masculine gender shall include the feminine gender and vice-versa, the
plural shall include the singular and the singular shall include the plural.
14. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
15. NON-TRANSFERABILITY. A Participant's rights under this Plan may not be
assigned, pledged or otherwise transferred other than by will or the laws of
descent and distribution, except that upon a Participant's death, the
Participant's rights to payment may be transferred pursuant to the laws of
descent and distribution.
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16. NO GRANTING OF EMPLOYMENT RIGHTS. Neither the Plan, nor any action taken
under the Plan, shall be construed as giving any Employee the right to become
a Participant, nor shall the fact that an Employee is a Participant be
construed as giving such Employee any right with respect to continuance of
employment by the Company. The Company expressly reserves the right to
terminate, whether by dismissal, discharge or otherwise, a Participant's
employment at any time, with or without cause, except as may otherwise be
provided by any written agreement between the Company and the Participant.
17. INDEMNIFICATION. No member of the Board or the Committee, nor any
officer or Employee acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or
made with respect to the Plan, and all members of the Board, the Committee and
each and any officer or Employee of the Company acting on their behalf shall,
to the extent permitted by law, be fully indemnified and protected by the
Company with respect to any such action, determination or interpretation.
18. SUCCESSORS. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such
successor is a result of a direct or indirect purchase, merger, consolidation
or otherwise, of all or substantially all of the business and/or assets of the
Company.
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HUMANA INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints David A. Jones and Gregory H. Wolf, and each of
them, their attorneys and agents, with full power of substitution to vote as
Proxy for the undersigned, as herein stated, at the annual meeting (the
"Meeting") of stockholders of Humana Inc. to be held in the Auditorium on the
25th Floor of the Humana Building, 500 West Main Street, Louisville, Kentucky
on Thursday, the 8th day of May, 1997 at 10:00 a.m., and at any postponements
or adjournments thereof, according to the number of votes the undersigned would
be entitled to vote if personally present on the proposals set forth below.
The Board of Directors recommends a vote FOR the following proposals:
1. FOR [_] the election of K. Frank Austen, M.D., Michael E. Gellert, John R.
Hall, David A. Jones, David A. Jones, Jr., Irwin Lerner and W. Ann Reynolds,
Ph.D. as Directors except as indicated below, or WITHHOLD AUTHORITY [_] to
vote for all nominees in such election. INSTRUCTION: TO WITHHOLD AUTHORITY
TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME
ABOVE.
2. The approval of the Company's 1997 Management Incentive Plan for Executive
Management
FOR [_] AGAINST [_] ABSTAIN [_]
3. At their discretion, the Proxies are authorized to vote upon such other
matters as may come before the Meeting.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED AS PLEASE COMPLETE,
SPECIFIED. DATE, SIGN AND RETURN
IF NO SPECIFICATION IS MADE, THE PROXY WILL BE THIS PROXY IN THE
VOTED ACCOMPANYING
IN FAVOR OF THE PROPOSALS. ENVELOPE.
The undersigned hereby revokes any proxy Date: , 1997
heretofore given to vote ----------------------
or act with respect to the Meeting. SIGNATURE
----------------------
SIGNATURE (if held
jointly)
Signature of stock-
holders should corre-
spond exactly with
the names shown on
this proxy card. At-
torneys, trustees,
executors, adminis-
trators, guardians
and others signing in
a representative ca-
pacity should desig-
nate their full ti-
tles. When shares are
held by joint ten-
ants, both should
sign. If a corpora-
tion, please sign in
full corporate name
by authorized offi-
cer. If a partner-
ship, please sign in
partnership name by
authorized
person.
