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.
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(Name of Registrant as Specified In Its Charter)
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(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.
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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
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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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Notes:
[LOGO OF HUMANA APPEARS HERE]
March 31, 1999
Dear Fellow Stockholders:
We would like to invite you to attend our 1999 Annual Meeting of Stockholders
of Humana Inc. to be held on Thursday, May 6, 1999, at 10:00 a.m., EDT at the
Company's headquarters, 500 West Main Street, 25th Floor Auditorium,
Louisville, Kentucky. We have enclosed a copy of our 1998 annual report to
stockholders for your review.
At the meeting, we will review our 1998 performance and answer stockholder
questions. In addition, stockholders will vote on the annual election of
directors.
We hope you can attend the meeting. If you are unable to join us, however, we
urge you to exercise your right as a stockholder and vote. The vote of every
stockholder is important. Please mark, sign, date and return the enclosed proxy
card in the envelope provided, vote by telephone or the Internet (see
instructions on proxy card). Your cooperation is appreciated.
The Proxy Statement is first being mailed to the Company's stockholders on or
about March 31, 1999.
Sincerely,
/s/ DAVID A. JONES /s/ GREGORY H. WOLF
David A. Jones Gregory H. Wolf
Chairman of the Board and Director
Stockholder President and
Chief Executive Officer and
Stockholder
Humana Inc.
March 31, 1999
Notice of Annual Meeting of Stockholders
Thursday, May 6, 1999
10:00 a.m., EDT
Humana Building
25th Floor Auditorium
500 West Main Street
Louisville, Kentucky 40202
AGENDA
1.Elect directors.
2.To transact any other business properly brought before the meeting.
Stockholders of record at the close of business on March 12, 1999 will be
entitled to vote.
Your vote is important so that as many shares as possible will be
represented. Please MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, VOTE BY TELEPHONE OR THE INTERNET (see instructions on proxy
card).
By Order of the Board of Directors,
/s/ Joan O. Lenahan
Joan O. Lenahan
Secretary
TABLE OF CONTENTS
Questions and Answers....................................................... 1
Election of Directors....................................................... 3
Director Attendance....................................................... 5
Director Compensation..................................................... 5
Board Committees.......................................................... 6
Corporate Governance...................................................... 8
Stock Ownership Information
Section 16(a) Beneficial Ownership Reporting Compliance................... 9
Security Ownership of Certain Beneficial Owners of Company Common Stock... 9
Security Ownership of Directors and Executive Officers.................... 11
Executive Compensation
Executive Compensation of the Company..................................... 13
1998 Stock Option Grants.................................................. 15
1998 Option Exercises and Year-End Values................................. 16
Ten Year Option Repricings................................................ 17
Officer's Target Retirement Plan.......................................... 18
Certain Agreements........................................................ 19
Certain Transactions with Management and Others............................. 20
Organization & Compensation Committee Report................................ 21
Company Stock Performance................................................... 25
Appointment of Independent Accountants...................................... 25
QUESTIONS & ANSWERS
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Q:When is the proxy statement first being sent to stockholders?
A:This proxy statement is first being sent to stockholders on or about March
31, 1999.
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Q:What am I voting on?
A: You will be asked to elect nominees to serve on the Board of Directors. The
Board of Directors is not aware of any other matters to be presented for
action at the Annual Meeting. However, if other matters are presented for a
vote, the proxies will be voted for these matters in accordance with the
judgment of the persons acting under the proxies.
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Q:How does the Board recommend I vote on the proposals?
A: The Board recommends a vote FOR each of the nominees for director. All
Shares of Company Common Stock that are represented at the Annual Meeting by
properly executed proxies received before or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the
instructions indicated in the proxies. If no instructions are indicated, the
executed proxies will be voted FOR approval of the election of the Board of
Directors' eight nominees as directors of the Company.
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Q:Who is entitled to vote?
A: Stockholders as of the close of business on March 12, 1999 (the Record Date)
are entitled to vote at the Annual Meeting or any adjournment or
postponement of the meeting.
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Q:How many votes are required to elect the directors?
A. The affirmative vote of a plurality of the Shares of Company 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.
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).
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Q:How many shares can vote?
A: As of the Record Date, March 12, 1999, 167,579,888 Shares of Company Common
Stock were issued and outstanding. Every stockholder of Common Stock is
entitled to one vote for each share held.
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1
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Q:How do I vote?
A: There are three methods. This year on-line voting is available via the
Internet. If you have access to the Internet, we encourage you to vote at
the following web address: www.proxyvote.com. You may also vote by telephone
1-800-690-6903 or by completing and mailing your proxy card. If you return
your signed proxy card, but do not mark the boxes showing how you wish to
vote, your shares will be voted FOR the proposals.
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Q:How do I revoke my proxy?
A: You have the right to revoke your proxy at any time before the meeting. To
do so, you must give written notice of revocation to the Automatic Data
Processing, Investor Communication Services, 51 Mercedes Way, Edgewood, NY
11717 or by fax at (516) 254-7733, submit another properly signed proxy with
a more recent date, or vote in person at the meeting. For written and fax
notices, you must include the control number that is printed on the upper
portion of the proxy card.
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Q:What is a "quorum"?
A: A "quorum" is a majority of the outstanding shares. They may be present at
the meeting or represented by proxy. There must be a quorum for the meeting
to be held. Any stockholder of record present at the annual meeting, but who
abstains from voting shall be counted for purposes of determining whether a
quorum is present at the annual meeting.
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Q:Who will count the votes?
A: Automatic Data Processing, Investor Communication Services, will tabulate
the votes cast by proxy.
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Q:When are the stockholder proposals for the 2000 Annual Meeting due?
A: Stockholder proposals for inclusion in the proxy materials relating to the
Annual Meeting of Stockholders to be held in May 2000 must be submitted in
writing no later than December 1, 1999.
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Q:How much did this proxy solicitation cost?
A: D. F. King & Co., Inc. was hired to assist in the distribution of proxy
materials and solicitation of votes for $10,000 plus expenses. The Company
will reimburse stockbrokers and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses for forwarding proxy and
solicitation material to the owner's of Common Stock.
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2
ELECTION OF DIRECTORS
The Board of Directors Recommends a Vote "For" All Nominees
The Board of Directors of Humana Inc. (the "Company"), in accordance with the
provisions of the Company's Articles of Incorporation and Bylaws, has
determined that the number of directors of the Company shall be eight. The
directors are elected to hold office until the Annual Meeting of Stockholders
in 2000 and until a successor is elected and qualified.
If any nominee becomes unable to serve for any reason (which is not
anticipated), the Shares of Common Stock represented by the enclosed proxy may
be voted for the substituted nominee as may be designated by the Board of
Directors.
The following table shows certain information concerning the nominees at
March 1, 1999.
First elected
Name Age Position director
---- --- -------------------------- -------------
David A. Jones(1) 67 Chairman of the Board 09/64
David A. Jones, Jr. 41 Vice Chairman of the Board 05/93
K. Frank Austen, M.D. 71 Director 01/90
Michael E. Gellert 67 Director 02/68
John R. Hall 66 Director 05/92
Irwin Lerner 68 Director 11/93
W. Ann Reynolds, Ph.D. 61 Director 01/91
Gregory H. Wolf 42 Director, President & 09/97
Chief Executive Officer
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(1) A director of a predecessor corporation since 1961.
David A. Jones has been Chairman of the Board of the Company since its
inception. He was Chief Executive Officer of the Company from August 1969 to
December 1997. He is a director of Abbott Laboratories.
David A. Jones, Jr. was elected Vice Chairman of the Board in September 1996.
Mr. Jones, Jr. is Chairman and Managing Member of Chrysalis Ventures LLC, a
venture capital firm in Louisville, Kentucky, and is the son of David A. Jones,
Chairman of the Board. From October 1992 to December 1993, Mr. Jones, Jr. was
an attorney with a law firm in Louisville, Kentucky. He is a director of Mid-
America Bancorp.
K. Frank Austen, M.D. is the Theodore B. Bayles Professor of Medicine at the
Harvard Medical School in the Division of Rheumatology, Immunology and Allergy
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. Dr. Austen is a director of Abbott Laboratories.
Michael E. Gellert is a general partner of Windcrest Partners, a private
investment partnership in New York, New York, having held that position since
April 1967. From January 1958 until his retirement in October 1989, Mr. Gellert
served in executive capacities with Drexel Burnham Lambert and its predecessors
in New York, New York. Mr. Gellert is a director of Devon Energy Corporation;
Premier Parks Inc.; Seacor Smit, Inc.; Smith Barney Worldwide Funds; and Member
of the Putnam Trust Advisory Board to The Bank of New York.
John R. Hall is the retired Chairman of the Board and Chief Executive Officer
of Ashland Inc., positions he held since 1981. He is also a member of the
American Petroleum Institute Executive Committee, a member of the Transylvania
University Board of Trustees and
3
President of Vanderbilt University Board of Trustees. He is a director of Arch
Coal, Inc; Bank One Corporation; Canada Life Assurance Company; CSX
Corporation; Reynolds Metals Company; UCAR International Inc.; and United
States Enrichment Corporation.
Irwin Lerner is the retired Chairman of the Board and Chairman of the
Executive Committee of Hoffmann-La Roche Inc. From April 1, 1980 to December
30, 1992, Mr. Lerner was President and Chief Executive Officer of Hoffmann-La
Roche Inc. He serves on the U.S. Advisory Board of the Zurich Insurance
Company, and was Chairman of the Board of the 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. He is a director of Axys
Pharmaceuticals, Inc.; Covance Inc.; Medarex Inc.; Public Service Enterprise
Group and its wholly owned subsidiary, Public Service Electric and Gas Company;
and V. I. Technologies. Inc.
W. Ann Reynolds, Ph.D. is President of the University of Alabama at
Birmingham, a position she has held since September 1997. Before that, she
served as Chancellor of the City University of New York, in New York, New York
for seven years and Chancellor of the California State University system for
eight years. She is director of Abbott Laboratories, Maytag Corporation and
Owens-Corning Fiberglass Corporation.
Gregory H. Wolf currently serves as President and Chief Executive Officer of
the Company, having been elected on December 1, 1997. Before that, Mr. Wolf was
President and Chief Operating Officer of the Company from September 1996 until
December 1997 and served as Chief Operating Officer since July 1996. Mr. Wolf
was initially elected an officer of the Company at the time of the acquisition
of EMPHESYS Financial Group, Inc. in October 1995. Mr. Wolf had been President
and Chief Operating Officer of EMPHESYS since November 1994. He is a director
of National City Bank of Kentucky, ProVantage Health Services, Inc., and ShopKo
Stores, Inc.
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 the
nominees.
4
DIRECTOR ATTENDANCE
During 1998 the Board of Directors met 11 times (6 regular meetings and 5
special meetings). All directors attended at least 75% of the scheduled Board
of Directors' meetings and meetings held by Committees of which they were
members.
DIRECTOR COMPENSATION
The following table shows compensation for Directors who are not employees:
Compensation
Annual Board Retainer $10,000
1,000 shares of Humana Stock at
Fair Market Value Cash Payment
of 30 % of the Fair Market Value
of Stock award
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Annual Stock Option Grant * 5,000 stock options
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Annual Fee for Committee Chairperson $3,000
(except Executive Committee)
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Annual Fee--Executive Committee Members $5,000
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Board Attendance Fee (per meeting) $2,000
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* Options granted on January 2, 1998 had an exercise price of $21.25, the fair
market value on that date.
In addition, the Company paid certain local taxes which averaged
approximately $550 per outside director.
Effective March 1999, a director will also receive $1,000 per Committee
meeting attended.
In 1998 as the Company's Chairman of the Board of Directors, Mr. Jones
received a $200,000 annual cash retainer in lieu of attendance fees and the
annual board retainer fee outlined above. Mr. Jones does receive fees as an
Executive Committee member. In addition to Board of Directors'
responsibilities, Mr. Jones' compensation reflects his continuing consultation
on major initiatives of the Company and on corporate strategy and policy, and
his external activities, including preserving and enhancing the image of the
Company within the health care industry. Mr. Jones was provided office space,
with an annual value of approximately $43,500 and administrative and
secretarial support with an annual cost of approximately $174,577. In addition,
during 1998 the Company provided to Mr. Jones medical insurance, life and
accidental death insurance, parking, use of the Company airplane, occupational
tax, and membership to the fitness club at a cost of $58,564. The Company will
continue to provide the benefits and arrangements described above to Mr. Jones
for at least as long as he serves as Chairman of the Board.
In 1998 in connection with his position as Vice Chairman of the Board, David
A. Jones, Jr. received $30,000 as reimbursement for office expenses. Mr. Jones,
Jr. also was granted options for 40,000 Shares of Company Common Stock.
5
The following table shows benefits for Directors who are not employees:
Benefits
Charitable Contributions Matches up to $20,000
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Group Life and Accidental Death Insurance $100,000
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Business Travel Accident Insurance $250,000
Directors may elect to participate in the medical and dental benefit programs
offered to all employees of the Company at the same rate that all employees
pay. Only one director has elected this option.
The Company also maintains the 1989 Stock Option Plan for Non-employee
Directors pursuant to which options to purchase 15,000 Shares of the Common
Stock are granted at 100% of fair market value to each Non-employee Director
upon his or her initial election to the Board of Directors. 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 fair market value to each Non-employee
Director who has been a director continuously for at least the full calendar
year prior thereto.
No new director will receive any retirement benefits. The current directors
have been grandfathered under the Company's Retirement Policy (the "Policy").
The Policy provides that 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 (1) an annual retirement
benefit for the life of the director in the amount of $38,000, the annual
retainer fee in effect for 1997, or (2) in lieu thereof, an actuarially
equivalent joint and survivor annuity payment. In addition, each retiring
director also receives an annual matching charitable contribution benefit of
50% of the annual retirement benefit. Benefits are prorated for any retiring
director who has not served at least ten years on the Board of Directors.
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 before the adoption of the Policy. The benefits under the
letter agreement are comparable to those under the Policy
BOARD COMMITTEES
The Company has Audit, Executive, Investment, Medical Affairs, Nominating &
Corporate Governance, and Organization & Compensation Committees of its Board
of Directors. Membership as of the Record Date was as follows:
Audit Executive Investment
----- --------- ----------
Michael E. David A. Jones, Chairman W. Ann Reynolds, Ph.D., Chairwoman
Gellert, Chairman
K. Frank Austen,
M.D. Michael E. Gellert K. Frank Austen, M.D.
John R. Hall David A. Jones, Jr. Michael E. Gellert
David A. Jones,
Jr. Gregory H. Wolf David A. Jones, Jr.
Irwin Lerner
6
Nominating & Organization
Medical Affairs Corporate Governance & Compensation
--------------- -------------------- --------------
K. Frank Austen, M.D. Chairman John R. Hall, Chairman Irwin Lerner, Chairman
Irwin Lerner David A. Jones, Jr. K. Frank Austen, M.D.
W. Ann Reynolds, Ph.D. W. Ann Reynolds, Ph.D. Michael E. Gellert
John R. Hall
AUDIT COMMITTEE 5 meetings in 1998
. Recommends the appointment of the Company's independent accountants;
. Reviews the scope and results of the audit plans of the independent
accountants and the internal auditors;
. Oversees the scope and adequacy of the Company's internal accounting
control, and compliance systems;
. Reviews the objectivity, effectiveness and resources of the internal audit
function which reports directly to the Audit Committee;
. Confers independently with the internal auditors and the independent
accountants;
. Determines the appropriateness of fees for audit and non-audit services
performed by the independent accountants.
EXECUTIVE COMMITTEE 3 meetings in 1998
. Exercises all the powers of the Board of Directors except as otherwise
provided by Delaware law and the Company's Bylaws.
INVESTMENT COMMITTEE 2 meetings in 1998
. Establishes objectives and policies for the various investment portfolios of
the Company and related employee benefit plans; and
. Analyzes and ratifies the investment performance decisions.
MEDICAL AFFAIRS COMMITTEE 5 meetings in 1998
. Identifies customers' needs in the facilitation of health services and
oversees their implementation;
. Reviews the effectiveness of the functions which form managed care
partnerships with physicians and which develop medical management processes
which improve the quality of care delivered to the Company's members; and
. Reviews processes which allow the Company to maintain accreditation and meet
quality based regulatory requirements.
NOMINATING & CORPORATE GOVERNANCE COMMITTEE No meetings in 1998
. Establishes general criteria regarding the qualifications of nominees;
. Recommends to the full Board of Directors the nominees for election of
directors;
. Considers nominations from stockholders as outlined in the Company's Bylaws;
. Considers from time to time the overall relationship of the Board and
management;
. Studies and reviews with management the overall effectiveness of the Board.
7
ORGANIZATION & COMPENSATION COMMITTEE 3 meetings in 1998
. Develops and administers the compensation policies and equity compensation
plans of the Company;
. Reviews and approves the salary and incentive compensation, including bonus,
stock options and restricted stock for the Chief Executive Officer and other
senior executives;
. Establishes the annual performance goals under the Company's incentive
plans; and
. Submits annually its report on executive compensation which is included in
this Proxy Statement.
CORPORATE GOVERNANCE
The Board's corporate governance guidelines incorporate principles by which
the Board has been operating for many years. The guidelines are intended to
serve as a flexible network within which the Board may conduct its business,
not as a set of legally binding obligations. They should be interpreted in the
context of all applicable laws and the Company's articles of incorporation,
bylaws and other governing legal documents. The guidelines are as follows:
. Established the Nominating & Corporate Governance Committee of the
Board.
. A majority of the Directors should come from outside the Company and
independence is important in the selection of new candidates. The
Board selects candidates and extends invitations to join the Board.
. The Board of Directors meets on a bi-monthly basis. Special sessions
are scheduled as required. The Chairman and the President set the
agenda, and directors may suggest items for inclusion. Information
is made available to the Board of Directors a reasonable period of
time before each meeting.
. Only outside directors serve on the Company's Audit and Organization
& Compensation Committees.
. All directors stand for election every year.
. Outside directors meet in executive session as required.
. Every year the Board of Directors reviews and approves a one-year
operating plan for the Company.
Organization & Compensation Committee Interlocks and Insider Participation
All members of the Organization & Compensation Committee are Non-employee
Directors and no member has any direct or indirect material interest in, or a
relationship with, the Company, other than stock holdings as discussed herein
and as related to his or her position as director. During 1998, no member of
the Organization & Compensation Committee had a relationship that would
constitute an interlocking relationship with executive officers or directors of
another entity.
8
STOCK OWNERSHIP INFORMATION
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("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 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 the forms they file.
During the year ended December 31, 1998, based upon the Company's knowledge
of stock transfers, review of copies of these reports and written
representations by the 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
The following table shows certain data with respect to those persons known by
the Company to be the beneficial owners of 5% or more of the outstanding Common
Stock of the Company as of the Record Date.
FMR Corp. (and Affiliates)
82 Devonshire Street
Boston, MA 02109 16,974,386 shares 10.1%(1)(2)
Franklin Resources, Inc.
Charles B. Johnson
Rupert H. Johnson, Jr.
777 Mariners Island Boulevard
San Mateo, CA 94404
- -and-
Templeton Global Advisors Limited
Lyford Cay, P.O. Box N-7759
Nassau, Bahamas 14,370,898 shares 8.6%(1)(3)
Scudder Kemper Investments, Inc.
Scudder, Stevens & Clark Inc.
Two International Place
Boston, MA 02110 9,311,869 shares 5.6%(1)(4)
Dreman Value Management, L.L.C.
10 Exchange Place
Jersey City, NJ 07203 8,973,685 shares 5.4%(1)(5)
David A. Jones
Chairman of the Board 8,427,363 shares 5.0%(1)
9
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(1) The percentage is based on 167,579,888 shares outstanding on the Record
Date.
(2) Based on a Form 13G filed with the SEC for the year ended December 31,
1998. FMR Corp. (and Affiliates) has sole power to vote or to direct the
vote of 269,886 shares; and has sole power to dispose or to direct the
disposition of 16,974,386 shares.
(3) Based on a Form 13G/A filed with the SEC for the year ended December 31,
1998, the following companies and/or principal shareholders vote shares as
follows:
Sole power to vote or direct the vote:
Franklin Resources, Inc. (Parent Holding Co.)
Charles B. Johnson (Principal Shareholder of Parent Holding Com-
pany)
Rupert H. Johnson, Jr. (Principal Shareholder of Parent Holding
Company)
Templeton Global Advisors Limited (Investment Advisor) 13,921,868
Templeton Management Limited (Advisory Subsidiary) 386,200
Templeton/Franklin Investment Services, Inc. (Advisory Subsidi-
ary) 59,330
Templeton Investment Management Limited (Advisory Subsidiary) 3,500
Sole power to dispose or to direct the disposition of shares:
Franklin Resources, Inc. (Parent Holding Co.)
Charles B. Johnson (Principal Shareholder of Parent Holding Com-
pany)
Rupert H. Johnson, Jr. (Principal Shareholder of Parent Holding
Company)
Templeton Global Advisors Limited (Investment Advisor) 13,921,868
Templeton Management Limited (Advisory Subsidiary) 386,200
Templeton/Franklin Investment Services, Inc. (Advisory Subsidi-
ary) 59,330
Templeton Investment Management Limited (Advisory Subsidiary) 3,500
No shared power to vote, direct to vote, dispose of or direct the
disposition of any shares.
(4) Based on a Form 13G filed with the SEC for the year ended December 31,
1998, Scudder Kemper Investments, Inc. has sole power to vote 123,099
shares; has shared power to vote 9,125,370 shares; has sole power to
dispose of 1,413,799 shares; and has shared power to dispose of 7,898,070
shares.
(5) Based on a Form 13G filed with the SEC for the year ended December 31,
1998, Dreman Value Management, L.L.C. has sole power to vote 742,630
shares; has shared power to vote 331,490 shares; has sole power to dispose
of 8,973,685 shares; and has no shared power to dispose of shares.
10
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows stock ownership by each Named Executive Officer,
(see "Executive Compensation of the Company"), and by the Company's directors
and executive officers as a group as of March 1, 1999, unless otherwise
indicated.
Company
Common Stock
Beneficially
Owned as of Percent
March 1, 1999(1)(2) of Class(3)
------------------- -----------
David A. Jones(4) 8,427,363 5.0
K. Frank Austen, M.D. 42,300
Michael E. Gellert 147,700
John R. Hall 52,588
David A. Jones, Jr. 351,237
Irwin Lerner 39,000
W. Ann Reynolds, Ph.D. 46,600
Gregory H. Wolf(5) 450,000
Michael B. McCallister 262,049
Jerry D. Reeves, M.D. 16,000
Arthur P. Hipwell 256,456
Kenneth J. Fasola 34,404
All directors and executive officers as a
group (18 in number, including those named
above) 10,603,444 6.3
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(1) Beneficial ownership of Shares of Company Common Stock, for purposes of
this Proxy Statement, includes Shares of Company Common Stock 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 of Company Common Stock beneficially owned by them.
As described in the footnotes, the number of Shares of Company Common Stock
listed excludes:
(a) the interest of certain persons in Shares of Company Common Stock held
by family members in their own right; and
(b) certain Shares of Company Common Stock held for the benefit of such
individuals by the Humana Retirement and Savings Plan (the "HRSP") on
February 1, 1999, (the latest date for which the information is
available), over which the employee participant has no voting or
investment power. They are as follows: G. H. Wolf, 677; M. B.
McCallister, 9,441; J. D. Reeves, 134; A. P. Hipwell, 896; K. J.
Fasola, 628; and Group, 19,114.
The number of Shares of Company Common Stock listed, however, includes:
(a) certain Shares of Company Common Stock held for the benefit of the
individuals in the HRSP as of February 1, 1999, 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 of Company Common Stock pass to the individual HRSP
participant in which case all HRSP Shares of Company Common Stock could
be deemed to be beneficially owned. They are as follows: G. H. Wolf, 0;
M. B. McCallister, 20,050; J. D. Reeves, 0; A. P. Hipwell, 4,687; K. J.
Fasola, 16,874; and Group, 87,208.
11
(b) Shares of Company Common Stock which may be acquired by these
individuals through the exercise of options, which are exercisable
currently or within 60 days after March 1, 1999 under the Company's
1981 Non-Qualified Stock Option Plan, the 1989 Stock Option Plan for
Employees, the 1989 Stock Option Plan for Non-employee Directors and
the 1996 Stock Incentive Plan for Employees (collectively the "Stock
Option Plans"). They are as follows: D. A. Jones, 475,000; K. F.
Austen, 37,800; M. E. Gellert, 25,000; J. R. Hall, 40,000; D. A. Jones,
Jr., 131,668; I. Lerner, 35,000; W. A. Reynolds, 40,000; G. H. Wolf,
175,000; M. B. McCallister, 229,000; A. P. Hipwell, 231,580; and Group,
1,740,714.
(2) Excludes shares of Company Common Stock held by directors' spouse over
which they have no voting or investment power. They are as follows: D. A.
Jones, Jr., 72; I. Lerner, 1,000; and W. A. Reynolds, 87.
(3) Unless indicated, less than 1% of the class.
(4) Excludes 1,385 Shares of Company Common Stock held by Mr. Jones' wife over
which Mr. Jones has no voting or investment power. Also excludes Shares of
Company Common Stock owned by other children of Mr. Jones who are past the
age of majority over which Mr. Jones has no voting or investment power.
(5) Also includes 166,666 shares of restricted stock, which will vest from 1999
to 2000.
12
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION OF THE COMPANY
The following Summary Compensation Table shows the compensation earned for
the time period served as an executive officer during the past three years by
(1) the President and Chief Executive Officer and (2) each of the four other
highest compensated executive officers of the Company serving at December 31,
1998, (collectively the "Named Executive Officers").
Summary Compensation Table
Annual Compensation Long-Term Compensation
-------------------------------- --------------------------- Number of
Restricted Value of Securities
Other Annual Stock Restricted Stock Underlying All Other
Name and Salary Bonus(1) Compensation(3) Awards(2) at Year End(2) Options Compensation(3)
Principal Position Year $ $ $ # $ # $
------------------ ---- ------- -------- --------------- ---------- ---------------- ---------- ---------------
Gregory H. Wolf 1998 800,000 697,600 56,921 -- -- 434,664 122,713
President and Chief 1997 571,233 200,000 35,771 100,000 1,231,241 384,000 114,095
Executive Officer 1996 368,913 417,418 108,116 100,000 1,855,210 350,000 68,106
Michael B. McCallister 1998 350,000 228,900 282,680 12,000 222,625 152,860 62,279
Sr. Vice President-- 1997 280,384 100,000 151,665 -- -- 60,000 47,845
Health System 1996 228,931 38,700 81,975 -- -- 135,000 33,509
Management
Jerry D. Reeves, M.D. 1998 320,000 209,280 11,698 10,000 185,521 166,200 11,256
Sr. Vice President 1997 265,627 180,000 95,298 6,000 -- 100,000
and Chief Medical
Officer
Arthur P. Hipwell 1998 300,000 196,200 15,524 -- -- 161,580 39,379
Sr. Vice President 1997 260,000 80,000 11,470 -- -- 40,000 34,627
and General Counsel 1996 252,000 32,611 12,084 -- -- -- 50,157
Kenneth J. Fasola 1998 284,792 186,194 19,470 15,000 278,282 249,440 48,579
Sr. Vice President-- 1997 260,000 145,000 13,769 -- -- 80,000 52,496
Sales, Marketing and 1996 256,375 137,955 86,534 -- -- 90,000 32,299
Business Development
- --------
(1) The amounts include retention bonuses for Messrs. Wolf and Fasola in 1997
in connection with the merger of EMPHESYS Financial Group, Inc. ("EFG") in
the amounts $200,000 and $75,000. Dr. Reeves' 1997 award reflects a bonus
of $100,000 received when he joined the Company in January 1997.
(2) Mr. Wolf was awarded 100,000 Shares of restricted stock both at the time of
his promotion to Chief Executive Officer in 1997 and upon his election as
President in 1996. Mr. Wolf's 1997 Shares of Company Common Stock vest
ratably over three years from date of grant (with the first 33,334 shares
having vested 12/01/98) and the 1996 award vests 100% at the end of three
years from the date of grant. Dr. Reeves was awarded 6,000 Shares of
restricted stock upon his date of hire, which vested one year from date of
grant (1/27/98). The 1998 restricted stock awards for Messrs. Fasola,
McCallister and Dr. Reeves vest in equal one-third installments beginning
on January 1, 2000, provided the Company achieves earnings per share
("EPS") equal to the minimum management incentive plan goal for the
previous year. The value of unvested restricted stock is based on the
average price of the Company Common Stock at December 31, 1998 of $18.7188
less amounts paid by recipient. The Company does not pay dividends, but the
holder of restricted stock is entitled to dividends if paid.
13
(3) Other Annual Compensation includes Company provided transportation,
executive insurance and relocation expense which are listed in the table
below. All Other Compensation represents amounts contributed or accrued to
the HRSP and contributions and earnings related to the Supplemental
Executive Retirement Plan and Thrift Excess Plan ("Long Term Benefit
Plans"). The breakdown is listed in the table below.
All Other Compensation
Other Annual Compensation Long Term Benefit Plan
----------------------------------------- ------------------------------
Transportation Exec. Ins. Relocation/Misc Contribution Earnings/(Losses)
Year $ $ $ $ $
---- -------------- ---------- --------------- ------------ -----------------
Gregory H. Wolf 1998 53,925 2,996 -- 108,584 14,129
1997 33,665 2,106 -- 106,706 7,389
1996 19,938 448 87,730 61,023 7,083
Michael B. McCallister 1998 10,892 1,310 270,478 47,750 14,529
1997 16,226 1,032 134,407 33,511 14,334
1996 9,020 661 72,294 31,289 2,220
Jerry D. Reeves, M.D. 1998 10,500 1,198 -- 11,256 --
1997 9,490 982 84,826 -- --
Arthur P. Hipwell 1998 14,401 1,123 -- 40,084 (705)
1997 10,500 970 -- 28,526 6,101
1996 11,214 870 -- 47,205 2,952
Kenneth J. Fasola 1998 18,412 1,058 -- 45,180 3,399
1997 13,301 468 -- 45,229 7,267
1996 7,798 -- 78,736 29,769 2,530
14
1998 STOCK OPTION GRANTS
The following table provides information on stock options granted to the
Named Executive Officers during the year ended December 31, 1998.
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Exercise Annual Rates of
Underlying Granted Price Stock Price
Options To Per Appreciation For
Granted Employees Share Option Term (3)
Date (1) in 1998 (2) Expiration 5% 10%
of Award(1) # % $ Date $ $
----------- ---------- ---------- -------- ---------- ---------- ----------
Gregory H. Wolf 9/17/98 434,664 6.86 15.5938 11/16/05- 3,442,743 8,364,607
12/01/07
Michael B. McCallister 1/15/98 40,000 .63 20.1563 01/15/08 507,044 1,284,953
9/17/98 112,860 1.78 15.5938 01/12/05- 875,805 2,125,488
------- ---- ---------- ----------
152,860 2.41 01/15/08 1,382,849 3,410,441
======= ==== ========== ==========
Jerry D. Reeves, M.D. 1/15/98 40,000 .63 20.1563 01/15/08 507,044 1,284,953
9/17/98 126,200 1.99 15.5938 01/27/07- 1,030,779 2,514,696
------- ---- ---------- ----------
166,200 2.62 01/15/08 1,537,823 3,799,649
======= ==== ========== ==========
Arthur P. Hipwell 1/15/98 30,000 .47 20.1563 01/15/08 380,283 963,715
9/17/98 131,580 2.08 15.5938 01/12/05- 908,196 2,161,109
------- ---- ---------- ----------
161,580 2.55 01/15/08 1,288,479 3,124,824
======= ==== ========== ==========
Kenneth J. Fasola 1/15/98 40,000 .63 20.1563 01/15/08 507,044 1,284,953
9/17/98 209,440 3.31 15.5938 11/16/05- 1,609,836 3,884,574
------- ---- ---------- ----------
249,440 3.94 01/15/08 2,116,880 5,169,527
======= ==== ========== ==========
- --------
(1) Messrs. Fasola, Hipwell, McCallister and Dr. Reeves each received 14,883
incentive stock options on 1/15/98, with the balance being non-qualified
options. The 1/15/98 options become exercisable in equal annual one third
installments. The 9/17/98 stock option grant reflects options that were
exchanged at the election of the optionee. See the Ten Year Option
Repricings Table for further information. 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 60-
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 per share for all options was equal to the fair market
value of the Common Stock on the date of grant. The exercise price may be
paid in cash or, at the discretion of the Organization & 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
of Company Common Stock 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.
15
1998 OPTION EXERCISES AND YEAR-END VALUES
The following table provides information on the value of stock options
exercised during the year ended December 31, 1998 and the year-end values of
unexercised options for the Named Executive Officers.
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money" Options
Options at Year End at Year End(1)
Shares Acquired Value ------------------------- -------------------------
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
$ $ # # $ $
--------------- -------- ----------- ------------- ----------- -------------
Gregory H. Wolf......... -- -- 175,000 609,664 -- 1,358,325
Michael B. McCallister.. 999 25,739 229,000 157,860 1,932,888 491,909
Jerry D. Reeves, M.D.... -- -- -- 126,200 -- 394,375
Arthur P. Hipwell....... -- -- 75,000 156,580 77,347 436,970
Kenneth J. Fasola....... -- -- -- 209,440 -- 654,500
- --------
(1) The Value of Unexercised "In-the-Money" options is based on the difference
between the December 31, 1998 (the last trading day of 1998) average
trading price of the Company's Common Stock of $18.7188 as reported on the
New York Stock Exchange Composite Tape, and the exercise price of the
options. If the December 31, 1998 average trading price of $18.7188 is less
than the per share exercise price, no amounts are shown.
16
TEN YEAR OPTION REPRICINGS
In September 1998, the Board of Directors, including the Organization and
Compensation Committee, authorized the exchange of certain stock options at the
then fair market value of the Company's Common Stock. All active employees,
including executive officers, who held outstanding options under the Company's
Stock Option Plans were given the opportunity to reprice. Outstanding stock
options with an exercise price in excess of $18.125 per share could be
exchanged in return for a reduced number of options, with a deferred vesting
date to a point one year after the exchange date. Non-employee directors did
not participate in the repricing.
The explanation of the Organization and Compensation Committee for this
exchange is included in the Organization and Compensation Committee Report in
this Proxy Statement. Approximately 413 employees participated in the exchange
which resulted in the cancellation of 5,503,491 options and the granting of
options to purchase 4,559,438 shares.
Original Market Length of
Number New Price Original
Securities Options of Stock Exercise Option Term
Underlying Received at Time Price at New Remaining at
Options In of Time of Exercise Date of
Reprice Repricing Repricing Repricing Price Repricing
Name Date # # $ $ $ #
- ---- ------- ---------- --------- --------- --------- -------- ------------
Gregory H. Wolf 9/17/98 234,000 186,264 15.5938 22.6563 15.5938 9.17
9/17/98 150,000 137,550 15.5938 18.8125 15.5938 8.27
9/17/98 150,000 110,850 15.5938 22.6250 15.5938 7.13
------- -------
534,000 434,664
Michael B. McCallister 9/17/98 40,000 34,800 15.5938 20.1563 15.5938 9.29
9/17/98 40,000 30,480 15.5938 23.4375 15.5938 8.77
9/17/98 20,000 18,340 15.5938 18.8125 15.5938 8.27
9/17/98 42,500 29,240 15.5938 23.0625 15.5938 6.28
------- -------
142,500 112,860
Jerry D. Reeves, M.D. 9/17/98 40,000 34,800 15.5938 20.1563 15.5938 9.29
9/17/98 100,000 91,400 15.5938 18.3125 15.5938 8.32
------- -------
140,000 126,200
Arthur P. Hipwell 9/17/98 30,000 26,100 15.5938 20.1563 15.5938 9.29
9/17/98 40,000 36,680 15.5938 18.8125 15.5938 8.27
9/17/98 100,000 68,800 15.5938 23.0625 15.5938 6.28
------- -------
170,000 131,580
Kenneth J. Fasola 9/17/98 40,000 34,800 15.5938 20.1563 15.5938 9.29
9/17/98 80,000 73,360 15.5938 18.8125 15.5938 8.27
9/17/98 90,000 79,110 15.5938 19.1875 15.5938 7.86
9/17/98 30,000 22,170 15.5938 22.6250 15.5938 7.13
------- -------
240,000 209,440
17
OFFICER'S TARGET RETIREMENT PLAN
The Company also has in effect the Officer's 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)
Average Rate
of
Compensation 10 Years 15 Years 20 Years 25 Years 30 Years
- ------------ --------- --------- --------- --------- ----------
$ 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
- --------
(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.
The benefits will be based on salary and incentive compensation under the
OTRP. The maximum years of service credited under the OTRP are 30 years, unless
otherwise changed by the Board of Directors. The years of service for each of
the other Named Executive Officers are as follows: Gregory H. Wolf--10; Michael
B. McCallister--25; Jerry D. Reeves, M.D.--2; Arthur P. Hipwell--18; and
Kenneth J. Fasola--9; Messrs. Wolf and Fasola were credited for their years of
service with EFG.
18
CERTAIN AGREEMENTS
In December 1997, the Company entered into and amended in December 1998, an
agreement with Mr. Wolf pursuant to which he 1) serves as President and Chief
Executive Officer of the Company at an annual base salary in an amount not less
than his base salary at the effective date of the agreement, 2) participates in
an incentive plan providing for a target incentive compensation amount of not
less than 100% of his base salary and 3) shall be eligible for participation in
all benefit plans and programs made available by the Company for its executive
employees. In the event of termination of employment without Good Cause (as
defined in the agreement), or with Good Cause under certain circumstances as
set out in the Agreement, or pursuant to disability or death, the Company will
pay to him or his estate a prorated bonus calculated on the basis of 100% of
base salary, plus an amount equal to his base salary plus bonus calculated at
100% of his base salary. He is also entitled to continue coverage under the
Company's life, health and disability plans for a 12-month period upon the same
terms and costs for other employees of the Company. Additionally, all
restricted shares shall become vested and all stock options shall become fully
vested and shall be exercisable for a two-year period following his
termination.
In the event of termination of employment with Good Cause, Mr. Wolf would
receive an amount equal to his then current base salary earned but not yet paid
and shall have a period of 90 days to exercise any vested options. Mr. Wolf
would forfeit any unvested options or restricted shares.
In the event of termination of employment because Mr. Wolf gives notice of
termination of the agreement, or because Mr. Wolf voluntarily terminates his
employment during the Employment Period, then the Company shall pay to him an
amount equal to his base salary. Any bonus payable shall be prorated. He is
also entitled to continue coverage for a 12-month period under the Company's
life, health and disability plans upon the same terms and costs for other
similarly situated employees of the Company.
In the event of termination of employment following a Change in Control, as
defined in the agreement, then Mr. Wolf shall receive 1) his full base salary
earned but not yet paid through the termination date at the greater of the rate
in effect at the time of the Change in Control or the Termination Date (Higher
Annual Base Salary), plus any incentive compensation which has been earned, 2)
an amount equal to two and one-half times the amount equal to the sum of the
Higher Annual Base Salary plus the maximum target incentive compensation which
could have been earned, and 3) continued coverage for a two-year period, at the
Company's expense, under all life, health, dental, accidental death and
dismemberment and disability insurance.
All officers elected by the Board of Directors, including the Named Executive
Officers, generally receive health benefits upon termination for themselves and
their eligible dependents at a predetermined rate until the earlier of
attainment of age 65 or obtaining other coverage.
The Company has entered into agreements with all other officers, including
the Named Executive Officers, and key management employees, which for a two-
year period following a Change in Control provide certain benefits upon
termination. Such termination shall be involuntary or shall be due to a
resignation as a result of a change in responsibilities or compensation. Under
these 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 one and one-half.
In addition, in the event of a Change in Control of the Company, benefits are
payable under the Company's Stock Option Plans, and health, life and disability
insurance coverage is available.
19
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
In 1994, the Company entered into an agreement with JAPC, Inc. ("JAPC"),
which is owned by David A. Jones. 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. Either party upon 30 days' written notice generally may terminate
the agreement. For the year ended December 31, 1998, the Company was reimbursed
by JAPC $51,759.
Effective January 1998, the Company entered into an Aircraft Interchange
Agreement with JAPC. Under the terms of the Agreement, the Company leases its
aircraft to JAPC and JAPC leases its aircraft to the Company. The lessee
exchanges with the lessor equal time on the lessee's aircraft. The Company and
JAPC each bill the other for any flights that occurred in the preceding month.
Any difference in number of hours is carried over to succeeding months and is
offset against flight hours on aircraft of the other party. Either party upon
60 days' written notice generally may terminate the agreement. For the year
ended December 31, 1998 the Company used JAPC's aircraft 19.8 hours and JAPC
used the Company's aircraft 21.4 hours.
Chrysalis Ventures, LLC ("CV") is a venture capital firm in Louisville,
Kentucky. David A. Jones, Jr., director nominee and Vice Chairman of the Board,
is Chairman and Managing Member of CV. CV manages two entities that together
have a 36% investment ("CV Investment") in Community Physician Network, a
physician services company ("CPN"). David A. Jones, director nominee and
Chairman of the Board, owns an interest in the CV Investment. In November 1998
a subsidiary of the Company entered into a five-year contract with the North
Central Florida Medical Network, a physician network ("NCFMN"). The contract
may be terminated by either party upon 180 days notice. NCFMN is managed by a
company ("Management Company") that is controlled by CPN. Through their CV
Investment, Mr. Jones and Mr. Jones, Jr., may be deemed indirectly to hold
approximately 6.8% of CPN. Mr. Jones. Jr., as controlling shareholder of CV,
exercises control of the investment and voting decisions of the CV Investment.
During 1998, the Company made total payments directly or indirectly to the
Management Company of $442,000 consisting primarily of a management fee. The
arrangement with NCFMN is comparable to those with other physician networks in
the Florida area.
In 1995, the Company completed a commitment to invest $1 million in the
African-American Venture Capital Fund, LLC., a Kentucky Limited Liability
Company ("Fund"). This investment makes the Company a greater than 10%
stockholder of the Fund. David A. Jones made a similar investment in the Fund
and is also a greater than 10% stockholder of the Fund. David A. Jones, Jr. is
a director 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 August 1997, the Company loaned Michael B. McCallister, Vice President,
$250,000, with interest at 8.50%, to assist him in moving from the Company's
Louisville, Kentucky office to its Florida Regional office. The largest amount
outstanding during 1998 was $268,772. Mr. McCallister repaid the loan in full
in July 1998.
20
ORGANIZATION & COMPENSATION COMMITTEE REPORT
Executive Officer Compensation Policy
The Organization & Compensation Committee (the "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 Committee is an independent non-employee 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. One component, the
annual incentive bonus, permits team and 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 are
included in the compensation program to reward executive officers for longer-
term strategic actions that increase Company value. This use of stock options
directly relates a significant portion of each executive officer's long-term
remuneration to the Company's stock price, and thus aligns the executive's
compensation with the interests of the Company's other stockholders. The
granting of stock options, as well as the limited use of restricted stock is
used to: (1) recognize promotions of executives into positions of significant
responsibilities, (2) recognize significant accomplishments of executives,
particularly as the accomplishments impact growth, profits and/or competitive
positioning, and (3) as an additional incentive to attract and retain high
level executive talent. The Committee uses outside consultants to assist it in
evaluating the various components of executive officer compensation.
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 approximating the Company's revenue and employee size, and (2)
specific companies in the managed care industry. Although data from specific
competitors in the managed care industry is used in the compensation analysis,
because of mergers in the managed care industry, the Company uses a health care
index in its Stock Performance graph instead of a specific peer group. The
Committee believes this definition of the marketplace provides a good benchmark
for analyzing competitiveness of the Company's executive compensation program.
The Committee considers the overall compensation package when setting any one
component of compensation.
Base Compensation
Base compensation for executive officers is determined by an assessment of
overall company performance, executive officer performance, changes in
executive officer responsibilities and relevant industry survey findings. While
many aspects of performance can be measured in financial terms, the 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
associates, innovation and improvement in the Company's products and processes,
as well as the executive's involvement in industry groups and in the
communities that the Company serves. The Company's policy is to collectively
set executive base salaries between the marketplace median and the 75th
percentile of the Company's peer group. Individual salaries are established in
alignment with this target to ensure the attraction, development and retention
of superior talent and in relation to individual executive performance.
21
Incentive Compensation
The Company's incentive compensation plans are designed to reward officers
and designated key associates for the attainment of financial goals and other
performance objectives approved annually by the Committee. Incentive
compensation objectives are constructed to optimize responsible and profitable
growth while taking into account non-routine factors such as acquisitions that
are integral to the growth strategy of the Company. During 1998, the Company
had two incentive compensation plans that covered its executive officers. Mr.
Wolf participated in the Humana Inc. Executive Management Incentive
Compensation Plan--Group A, providing for an award based solely on the
attainment of pre-established Company consolidated net income objectives, with
maximum potential payments of 100% of base pay. In addition, Mr. Wolf also
participated in a discretionary bonus plan with a potential of an additional
25% of base pay. For 1998, Mr. Wolf did not receive any payment under this
discretionary plan. All other executive officers, including the Named Executive
Officers, were covered by the Company's 1998 Management Incentive Plan, which
based awards on the attainment of certain earnings and growth goals for 1998
with maximum potential payments ranging from 55% to 75% of base pay. For 1998,
approximately 87.2% of the target award was earned based on consolidated net
income objectives.
Equity Compensation
The Company uses stock options and restricted stock awards to reward officers
and key 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 results 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 Committee, through review of stock programs at
comparable companies, determines the aggregate amounts, terms and timing of
stock option and restricted stock awards 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.
The Company awarded performance-based, restricted stock to approximately 86
employees, including the Named Executive Officers other than Mr. Wolf, which
vest in equal one-third installments beginning January 1, 2000, provided the
Company achieves earnings per share objectives equal to the minimum management
incentive compensation goal in the previous fiscal year. While the Committee
limits the use of restricted stock awards, it believes that attainment of the
performance objectives provides an appropriate safeguard.
In 1998, excluding the repricing described hereafter, the Committee granted
options and restricted stock totaling approximately 1.1% of the Company's
outstanding Common Stock. See "Chief Executive Officer Compensation" below for
a description of stock awards to Mr. Wolf. See "Summary Compensation Table,"
"1998 Stock Option Grants" and "The Ten Year Option Repricing Table" for a
description of stock options and restricted stock granted to the other Named
Executive Officers.
22
Stock Option Repricing Report
In September 1998, the Board of Directors, including the Organization and
Compensation Committee thereof, authorized the exchange of certain stock
options at the then fair market value of the Company's Common Stock. All active
employees, including executive officers, who held outstanding options under the
Company's Stock Option Plans, were given the opportunity to reprice. Non-
employee directors did not participate in the repricing.
Optionees were permitted to exchange outstanding options with an exercise
price greater than $18.125 for a reduced number of new options at the fair
market value on September 17, 1998 of $15.5938. The exchange methodology used
to determine the new number of shares was provided by an outside compensation
consultant and the Committee believes it was fair to both our stockholders and
our employee option holders. The exchange ratio varied based on the option
price and the remaining term. Depending on the particular option, the exchange
ratio ranged from 60.9% to 91.7%.
To ensure that options continued to be a retention tool, vesting was deferred
until September 17, 1999 (one year after repricing), for any options increments
that were currently vested or which would otherwise vest before then. All other
option increments retained their original vesting.
The Committee used the following factors in its decision to reprice certain
options:
- During 1998, a merger agreement between the Company and another
healthcare company was terminated and the stock price fell
substantially. The market and the entire healthcare industry encountered
difficulties beyond the control of management.
- During these times, the need to retain and motivate key employees was
heightened. Although the merger involving the Company was not
consummated, the healthcare industry continues to consolidate and there
is intense competition for experienced personnel.
- The Company had not repriced options at any time during the last 10
years.
During its deliberations over whether to authorize this stock option exchange
program, the Committee considered at length the potential disadvantages of such
an exchange program, including the potential negative reactions among the
existing stockholders of the Company. It was the conclusion of the Committee,
that given the intense competition in the Company's industry for experienced
employees, the stock option exchange program was critical to the Company's
ability to implement its new business strategies, including the retention and
incentivizing of key executives.
Chief Executive Officer Compensation
In December 1997, upon his election as the Company's President and Chief
Executive Officer, Mr. Wolf received an increase in base salary to $800,000
which then became his base salary for 1998. Mr. Wolf participated in an
incentive compensation program that had been approved by stockholders. Pursuant
to this program, for 1998 Mr. Wolf received an incentive compensation bonus in
the amount of $697,600. Mr. Wolf received an option grant and grant of
restricted stock in December 1997 and also participated in the option exchange
program in 1998. In November 1998, the Committee approved an increase in Mr.
Wolf's base salary to $850,000 effective January 1999. The Company also signed
a revised Employment Contract with Mr. Wolf that is more fully described in
this Proxy Statement under "Executive Compensation of the Company Certain
Agreements." The Committee used an outside compensation consultant, evaluated
the Company's performance and received comparative data in making decisions
regarding Mr. Wolf's compensation package.
23
Executive Compensation Tax Deductibility
The Omnibus Budget Reconciliation Act of 1993 amended the Code to generally
provide 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 Committee's policy to maximize
the effectiveness of the Company's executive compensation plans. In that
regard, the 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. The Company also
believes that all compensation paid for 1998 is deductible for federal income
tax purposes, except for approximately $664,250 in the aggregate paid to Mr.
Wolf.
All members of the Organization & Compensation Committee of the Company whose
members are as follows submit the foregoing report:
ORGANIZATION & COMPENSATION COMMITTEE
Irwin Lerner, Chairman
K. Frank Austen, M.D
Michael E. Gellert
John R. Hall
The foregoing report of the Organization & 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.
24
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 ("S&P 500") and
the Morgan Stanley Healthcare Payor Index for the 70 months ended December 31,
1998. 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 ("Peer Group") on March 1, 1993, and also assumes
reinvestment of all dividends.
3/1/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------ -------- -------- -------- -------- -------- --------
Humana Inc. $100 $241 $307 $371 $257 $281 $241
S&P 500 $100 $105 $104 $139 $167 $219 $278
Morgan Stanley
Healthcare
Payor Index $100 $158 $206 $259 $226 $234 $249
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, in accordance with the recommendation of its Audit
Committee, the members of which are not employees of the Company, has appointed
PricewaterhouseCoopers LLP as independent accountants to audit the consolidated
financial statements of the Company for the year ending December 31, 1999.
Representatives of PricewaterhouseCoopers LLP 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,
/s/ Joan O. Lenahan
Joan O. Lenahan, Secretary
25
HUMANA INC.
ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 6, 1999
10:00 a.m., EDT
Humana Building
25th Floor Auditorium
500 West Main Street
Louisville, Kentucky 40202
HUMANA INC.
YOUR VOTE IS IMPORTANT
VOTE BY TELEPHONE OR INTERNET OR MAIL
Humana Inc. encourages you to take advantage of two new cost-effective and
convenient ways to vote your shares.
You may now vote your proxy 24 hours a day, 7 days a week, using either a
touch-tone telephone or through the Internet. Your TELEPHONE OR INTERNET VOTE
MUST BE RECEIVED BY 11:00 p.m. NEW YORK TIME ON MAY 5, 1999.
Your telephone or Internet vote authorizes the proxies named on the proxy card
to vote your shares in the same manner as if you marked, signed, and returned
your proxy card.
VOTE BY TELEPHONE: ON A TOUCH-TONE TELEPHONE DIAL 1-800-690-6903 FROM THE U.S.
AND CANADA. You will be asked to enter the CONTROL NUMBER
located below. Then follow the instructions.
OR
VOTE BY INTERNET: ACCESSING THE INTERNET VOTING SITE AT WWW. PROXYVOTE.COM.
Click on the "PROXY VOTING" icon--You will be asked to enter
the CONTROL NUMBER located below. Then follow the
instructions.
OR
VOTE BY MAIL: Mark, sign and date your proxy card and return it in the
postage-paid envelope. PLEASE DO NOT MAIL YOUR PROXY CARD
IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
HUMANA INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR 1999 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 of
Stockholders of Humana Inc. (the Annual Meeting) to be held in the Auditorium
on the 25th Floor of the Humana Building, 500 West Main Street, Louisville,
Kentucky on Thursday, the 6th day of May, 1999 at 10:00 a.m., EDT and at any
postponements or adjournments thereof, according to the number of votes the
undersigned would be entitled to vote on the proposals set forth below if
personally present.
The Board of Directors recommends a vote FOR the following proposal:
1. The election of (1) K. Frank Austen, M.D., (2) Michael E. Gellert, (3) John
R. Hall, (4) David A. Jones, (5) David A. Jones, Jr., (6) Irwin Lerner, (7)
W. Ann Reynolds, Ph.D. and (8) Gregory H. Wolf as Directors except as
indicated below.
FOR ALL [_] WITHHOLD AUTHORITY [_]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- --------------------------------------------------------------------------------
At their discretion, the Proxies are authorized to vote upon any other
matters as may come before the Meeting.
THE SHARES OF COMMON STOCK COVERED BY THIS PROXY WILL BE VOTED AS SPECIFIED.
IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED
IN FAVOR OF THE PROPOSALS.
The undersigned hereby revokes any proxy heretofore given to vote or act with
respect to the Meeting.
PLEASE COMPLETE, DATE, SIGN
AND RETURN THIS PROXY IN THE
ACCOMPANYING ENVELOPE.
Date: , 1999
- -----------------------------------
Signature
- -----------------------------------
Signature (if held jointly)
Signatures of stockholders should
correspond exactly with the names
shown on this proxy card.
Attorneys, trustees, executors,
administrators, guardians and
others signing in a representative
capacity should designate their
full titles. When Shares of
Company Common Stock are held by
joint tenants, both should sign.
If a corporation, please sign in
full corporate name by authorized
officer. If a partnership, please
sign in partnership name by
authorized person.