Non-Employee Director Deferred Stock and Deferred Compensation Plan - Aetna Inc.
NON-EMPLOYEE DIRECTOR DEFERRED STOCK
AND DEFERRED COMPENSATION PLAN
SECTION 1. ESTABLISHMENT OF PLAN; PURPOSE.
The Plan is hereby established to permit Eligible Directors
of the Company, in recognition of their contributions to the
Company, to receive Shares in the manner described below. The
Plan is intended to enable the Company to attract, retain and
motivate qualified Directors and to enhance the long-term
mutuality of interest between Directors and stockholders of the
SECTION 2. DEFINITIONS.
When used in this Plan, the following terms shall have the
definitions set forth in this Section:
'Accounts' shall mean an Eligible Director's Stock Unit
Account and Interest Account, as described in Section 8.
'Affiliate' shall mean an entity at least a majority of the
total voting power of the then-outstanding voting securities of
which is held, directly or indirectly, by the Company and/or one
or more other Affiliates.
'Board of Directors' shall mean the Board of Directors of the
'Committee' shall mean the Nominating and Corporate
Governance Committee of the Board of Directors or such other
committee of the Board as the Board shall designate from time to
'Company' shall mean Aetna Inc.
'Compensation' shall mean the annual retainer fees earned by
an Eligible Director for service as a Director, the annual
retainer fee, if any, earned by an Eligible Director for service
as a member of a committee of the Board of Directors; and any fees
earned by an Eligible Director for attendance at meetings of the
Board of Directors and any of its committees.
'Director' shall mean any member of the Board of Directors,
whether or not such member is an Eligible Director.
'Disability' shall mean an illness or injury that lasts at
least six months, is expected to be permanent and renders a
Director unable to carry out his/her duties.
'Effective Date' shall mean the date, if any, on which the
Plan is approved by the shareholders of Aetna Life and Casualty
Company and U.S. Healthcare, Inc. and the transactions
contemplated by the Merger Agreement are consummated.
'Eligible Director' shall mean a member of the Board of
Directors who is not an employee of the Company.
'Exchange Act' shall mean the Securities Exchange Act of
1934, as amended.
'Fair Market Value' shall mean on any date, with respect to a
Share of Common Stock, the closing price of a Share of Common
Stock as reported by the Consolidated Tape of New York Stock
Exchange Listed Shares on the next preceding date on which there
was such a trade.
'Government Service' shall mean the appointment or election
of the Eligible Director to a position with the federal, state or
local government or any political subdivision, agency or
'Grant' shall mean a grant of Units under Section 5.
'Interest Account' shall mean the bookkeeping account
established to record the interests of an Eligible Director with
respect to deferred Compensation that is not deemed invested in
'Merger Agreement' shall mean the Agreement and Plan of
Merger, dated as of March 30, 1996, among Aetna Life and Casualty
Company, U.S. Healthcare, Inc., the Company, Antelope Sub, Inc.
and New Merger Corporation, as amended by Amendment No. 1 thereto
dated as of May 30, 1996.
'Prior Plan' shall mean the Aetna Life and Casualty Company
Non-Employee Director Deferred Stock and Deferred Compensation
'Retirement' shall mean termination of service as a Director
on account of the Company's mandatory Director retirement policy
as may be in effect on the date of such termination of service.
'Shares' shall mean shares of Stock.
'Stock' shall mean the Common Stock, $.01 par value, of the
'Stock Unit Account' shall mean, with respect to an Eligible
Director who has elected to have deferred amounts deemed invested
in Units, a bookkeeping account established to record such
Eligible Director's interest under the Plan related to such Units.
'Subsidiary' shall mean any entity of which the Company
possesses directly or indirectly fifty percent (50%) or more of
the total combined voting power of all classes of stock of such
'Unit' shall mean a contractual obligation of the Company to
deliver a Share or pay cash based on the Fair Market Value of a
Share to an Eligible Director or the beneficiary or estate of such
Eligible Director as provided herein.
'Year of Service as a Director' shall mean a period of 12
months of service as a Director, measured from the effective date
of a Grant.
SECTION 3. ADMINISTRATION.
The Plan shall be administered such that awards under the
Plan shall be deemed to be exempt under
Rule 16b-3 of the Securities and Exchange Commission under the
Exchange Act ('Rule 16b-3'), as such Rule is in effect on the
Effective Date of the Plan and as it may be subsequently amended
from time to time.
SECTION 4. SHARES AUTHORIZED FOR ISSUANCE.
4.1. Maximum Number of Shares. The aggregate number of
Shares with respect to which Grants may be made to Eligible
Directors under the Plan shall not exceed 99,600 Shares, subject
to adjustment as provided in Section 4.2 below. If any Unit is
settled in cash or is forfeited without a distribution of Shares,
the Shares otherwise subject to such Unit shall again be available
for Grants hereunder.
4.2. Adjustment for Corporate Transactions. In the event
that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights
offering to purchase Stock at a price substantially below Fair
Market Value, or other similar event affects the Stock such that
an adjustment is required to preserve, or to prevent enlargement
of, the benefits or potential benefits made available under the
Plan, then the Board of Directors shall adjust the number and kind
of shares which thereafter may be awarded under the Plan and the
number of Units that have been, or may be, granted under the Plan.
SECTION 5. UNIT GRANTS.
5.1. Unit Awards. Each Eligible Director (other than any
Eligible Director who has received an award under the Prior Plan)
who is first elected or appointed to the Board of Directors on or
after the Effective Date of the Plan shall be awarded 1,500 Units
on such date (or such other number of Units as the Board shall
determine). In addition, on the date of each Annual Meeting of
Shareholders of the Company occurring after 1996 and during the
term of the Plan an eligible Director serving as a Director on
such date shall be awarded 350 Units (or such other number of
Units as the Board shall determine).
5.2. Delivery of Shares. Subject to satisfaction of the
applicable vesting requirements set forth in Section 6 and except
as otherwise provided in Section 7, all Shares that are subject to
any Units shall be delivered to an Eligible Director and
transferred on the books of the Company on the date which is the
first business day of the month immediately following the
termination of such Eligible Director's service as a Director.
Notwithstanding the foregoing, an Eligible Director may elect that
all or a portion of his or her Units shall be payable in cash as
soon as practicable following the first business day of the month
immediately following the termination of such Eligible Director's
service as a Director. Any fractional Shares to be delivered in
respect of Units shall be settled in cash based upon the Fair
Market Value on the date any whole Shares are transferred on the
books of the Company to the Eligible Director or the Eligible
Director's beneficiary. The amount of any cash payment shall be
determined by multiplying the number of Units and the number of
Units subject to a cash payment election by the Fair Market Value
on the first business day of such month. Upon the delivery of a
Share (or cash with respect to a whole or fractional Share)
pursuant to the Plan, the corresponding Unit (or fraction thereof)
shall be canceled and be of no further force or effect.
5.3. Nontransferability. Units may not be assigned or
transferred, in whole or in part, either directly or by operation
of law (except in the event of an Eligible Director's death by
will or applicable laws of descent and distribution), including,
but not by way of limitation, by execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Eligible Director in the Plan shall be
subject to any obligation or liability of such Eligible Director.
5.4. Dividend Equivalents. An Eligible Director shall have
no rights as a shareholder of the Company with respect to any
Units until Shares are delivered to the Director pursuant to this
Section 5 hereof; provided that, each Eligible Director shall have
the right to receive an amount equal to the dividend per Share for
the applicable dividend payment date (which, in the case of any
dividend distributable in property other than Shares, shall be the
per Share value of such dividend, as determined by the Company for
purposes of income tax reporting) times the number of Units held
by such Eligible Director on the record date for the payment of
such dividend (a 'Dividend Equivalent'). Each Eligible Director
may elect, prior to any calendar year, whether the Dividend
Equivalent is (i) payable in cash, on or as soon as practicable
after each date on which dividends are paid to shareholders with
respect to Shares; (ii) treated as reinvested in an additional
number of Units determined by dividing (A) the cash amount of any
such dividend by (B) the Fair Market Value on the related dividend
payment date; or (iii) deferred and credited to the Eligible
Director's Interest Account pursuant to Section 8.4.
SECTION 6. VESTING.
6.1. Service Requirements. Except as otherwise provided in
this Section 6 or Section 7, an Eligible Director shall vest in
his or her Units as provided in this Section 6.1. If an Eligible
Director terminates service prior to the completion of three Years
of Service as a Director, the number of Shares to be delivered to
such Eligible Director in respect of Units granted upon his or her
election to the Board shall equal the amount obtained by
multiplying 1,500 by a fraction, the numerator of which is the
number of full months of service completed by such Director from
the applicable date of Grant and the denominator of which is 36.
If an Eligible Director terminates service prior to the completion
of three Years of Service as a Director, the number of Shares to
be delivered to such Eligible Director in respect of any annual
Grant of Units made prior to 1996 shall equal the amount obtained
by multiplying 200 by a fraction, the numerator of which is the
number of full months of service completed by such Director from
the applicable date of Grant and the denominator of which is 36.
If an Eligible Director terminates service prior to the completion
of one Year of Service as a Director from the date of Grant with
respect to any annual grant of Units made after 1995, the number
of Shares to be delivered to such Eligible Director in respect of
such Grant shall equal the amount obtained by multiplying 350 by a
fraction, the numerator of which is the number of full months of
service completed by such Director from the applicable date of
Grant and the denominator of which is 12. Notwithstanding the
foregoing, and except as provided in Section 6.2, if the Eligible
Director terminates service by reason of his/her death,
Disability, Retirement, or acceptance of a position in Government
Service prior to the completion of the period of service required
to be performed to fully vest in any Grant, all Shares that are
the subject of such Grant (or, if elected by the Eligible
Director, the value thereof in cash) shall be delivered to such
Eligible Director (or the Eligible Director's beneficiary or
6.2. Six Months' Minimum Service. If an Eligible Director
has completed less than six consecutive months of service as a
Director, all Units held by such Eligible Director shall be
immediately forfeited. If an Eligible Director has completed less
than six consecutive months of service from any date on which any
annual Grant of Units is made, all Units held by such Eligible
Director that relate to such annual Grant shall be immediately
forfeited; provided, however, that this sentence shall not apply
to any annual Grant of Units made prior to 1996.
6.3. Distribution on Death. Except as provided in Section
6.2, in the event of the death of an Eligible Director, the Shares
corresponding to such Units or, at the election of the Eligible
Director's beneficiary or estate, the value thereof in cash shall
be delivered to the beneficiary designated by the Eligible
Director on a form provided by the Company, or, in the absence of
such designation, to the Eligible Director's estate.
SECTION 7. CHANGE IN CONTROL.
7.1. Immediate Vesting. Upon the occurrence of a Change in
Control, each Eligible Director's right and interest in Units
which have not previously vested under Section 6 shall become
vested and nonforfeitable regardless of the period of the Eligible
Director's service since the date such Units were granted.
7.2. Cash Settlement. Upon the occurrence of a Change in
Control, in lieu of delivering Shares with respect to the Units
then held by an Eligible Director, the Company shall pay such
Eligible Director, not later than 60 days after the Change in
Control occurs, cash in an aggregate amount equal to the product
of (i) the number of Shares that are subject to all Units credited
to such Eligible Director at the time of the Change in Control
multiplied by (ii) the Fair Market Value on the date of the Change
7.3. Definition. 'Change in Control' shall mean the
occurrence of any of the following events:
(i) When any 'person' as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act')
and as used in Sections 13(d) and 14(d) thereof, including a
'group' as defined in Section 13(d) of the Exchange Act but
excluding the Company and any Subsidiary thereof and any employee
benefit plan sponsored or maintained by the Company or any
Subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the 'beneficial owner' (as defined
in Rule 13d-3 under the Exchange Act, as amended from time to
time), of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then
(ii) When, during any period of 24 consecutive months the
individuals who, at the beginning of such period, constitute the
Board (the 'Incumbent Directors') cease for any reason other than
death to constitute at least a majority thereof, provided that a
Director who was not a Director at the beginning of such 24-month
period shall be deemed to have satisfied such 24-month requirement
(and be an Incumbent Director) if such Director was elected by, or
on the recommendation of or with the approval of, at least two-
thirds of the Directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of
such 24-month period) or by prior operation of this Paragraph
(iii) The occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other
than the Company or a Subsidiary through purchase of assets, or by
merger, or otherwise.
SECTION 8. DEFERRED COMPENSATION PROGRAM.
8.1. Election to Defer. On or before December 31 of any
calendar year, an Eligible Director may elect to defer receipt of
all or any part of any Compensation payable in respect of the
calendar year following the year in which such election is made,
and to have such amounts credited, in whole or in part, to a Stock
Unit Account or an Interest Account. Any person who shall become
an Eligible Director during any calendar year may elect, not later
than the 30th day after his or her term as a Director begins, to
defer payment of all or any part of his or her Compensation
payable for the portion of such calendar year following such
8.2. Method of Election. A deferral election shall be made
by written notice filed with the Corporate Secretary of the
Company. Such election shall continue in effect (including with
respect to Compensation payable for subsequent calendar years)
unless and until the Eligible Director revokes or modifies such
election by written notice filed with the Corporate Secretary of
the Company. Any such revocation or modification of a deferral
election shall become effective as of the end of the calendar year
in which such notice is given and only with respect to
Compensation payable for services rendered thereafter; provided,
however, that it shall in no event become effective if the
modification would cause liability under Section 16(b) of the
Exchange Act. Amounts credited to the Eligible Director's Stock
Unit Account prior to the effective date of any such revocation or
modification of a deferral election shall not be affected by such
revocation or modification and shall be distributed only in
accordance with the otherwise applicable terms of the Plan. An
Eligible Director who has revoked an election to participate in
the Plan may file a new election to defer Compensation payable for
services to be rendered in the calendar year following the year in
which such election is filed.
8.3. Investment Election. At the time an Eligible Director
elects to defer receipt of Compensation pursuant to Section 8.1,
the Eligible Director shall designate in writing the portion of
such Compensation, stated as a whole percentage, to be credited to
the Interest Account (or such other account as may be established
from time to time by the Committee) and the portion to be credited
to the Stock Unit Account. If an Eligible Director fails to
notify the Corporate Secretary as to how to allocate any
Compensation between the Accounts, 100% of such Compensation shall
be credited to the Interest Account. By written notice to the
Corporate Secretary of the Company, an Eligible Director may
change the manner in which the Compensation payable with respect
to services rendered after the end of such calendar year are
allocated among the Accounts, provided that any such election
shall not be effective if the change would cause liability under
Section 16(b) of the Exchange Act.
8.4. Dividend Equivalents. In addition to the deferral of
Compensation permitted under Section 8.1, an Eligible Director may
elect, in the manner and at the time described in Section 5.4, to
have Dividend Equivalents payable in respect of his or her Units
credited to his or her Interest Account in the manner and at the
time described in such Section 5.4.
8.5. Interest Account. Any Compensation allocated to the
Interest Account shall be credited to the Interest Account as of
the date such Fees would have been paid to the Eligible Director.
Any amounts credited to the Interest Account shall be credited
with interest at the same rate and in the manner in which interest
is credited under the Fixed
Investment Fund (or, if such fund no longer exists, the fund with
the investment criteria most clearly comparable to that of such
Fund) under the Aetna Inc. Incentive Savings Plan (or any
8.6. Stock Unit Account. Any Compensation allocated to the
Stock Unit Account shall be deemed to be invested in a number of
Units equal to the quotient of (i) such Compensation divided by
(ii) the Fair Market Value on the date the Fees then being
allocated to the Stock Unit Account would otherwise have been
paid. Fractional Units shall be credited, but shall be rounded to
the nearest hundredth percentile, with amounts equal to or greater
than .005 rounded up and amounts less than .005 rounded down.
Whenever a dividend other than a dividend payable in the form of
Shares is declared with respect to the Shares, the number of Units
in the Eligible Director's Stock Unit Account shall be increased
by the number of Units determined by dividing (i) the product of
(A) the number of Units in the Eligible Director's Stock Unit
Account on the related dividend record date, and (B) the amount of
any cash dividend declared by the Company on a Share (or, in the
case of any dividend distributable in property other than Shares,
the per share value of such dividend, as determined by the Company
for purposes of income tax reporting), by (ii) the Fair Market
Value on the related dividend payment date. In the case of any
dividend declared on Shares which is payable in Shares, the
Eligible Director's Stock Unit Account shall be increased by the
number of Units equal to the product of (i) the number of Units
credited to the Eligible Director's Stock Unit Account on the
related dividend record date, and (ii) the number of Shares
(including any fraction thereof) distributable as a dividend on a
Share. In the event of any stock split, stock dividend,
recapitalization, reorganization or other corporate transaction
affecting the capital structure of the Company, the Committee
shall make such adjustments to the number of Units credited to
each Eligible Director's Stock Unit Account as the Committee shall
deem necessary or appropriate to prevent the dilution or
enlargement of such Eligible Director's rights.
8.7. Distribution Election. At the time an Eligible
Director makes a deferral election pursuant to Section 8.1, the
Eligible Director shall also file with the Corporate Secretary of
the Company a written election (a 'Distribution Election') with
respect to whether:
(i) the aggregate amount, if any, credited to the Interest
Account at any time and the value of any Units credited to the
Stock Unit Account shall be distributed in cash, in Shares or in a
combination thereof at the election of the Director;
(ii) such distribution shall commence as soon as
practicable following the first business day of the calendar month
following the date the Eligible Director ceases to be a Director
or on the first business day of any calendar year following the
calendar year in which the Eligible Director ceases to be a
(iii) such distribution shall be in one lump sum payment or
in such number of annual installments (not to exceed ten) as the
Eligible Director may designate.
The amount of any installment payment shall be determined by
multiplying the amount credited to the Accounts of an Eligible
Director immediately prior to the distribution by a fraction, the
numerator of which is one and the denominator of which is the
number of installments (including the current installment)
remaining to be paid. An Eligible Director may at any time, and
from time to time, change any Distribution Election applicable to
his or her Accounts, provided that no election to change the
timing of any final distribution shall be effective unless it is
made in writing and received by the Corporate Secretary of the
Company at least one full calendar year prior to the time at which
the Eligible Director ceases to be a director.
8.8. Financial Hardship Withdrawal. Any Eligible Director
may, after submission of a written request to the Corporate
Secretary of the Company and such written evidence of the Eligible
Director's financial condition as the Committee may reasonably
request, withdraw from his Interest Account up to such amount as
the Committee shall determine to be necessary to alleviate the
Eligible Director's financial hardship.
8.9. Timing and Form of Distributions. Any distribution to
be made hereunder, whether in the form of a lump sum payment or
installments, following the termination of an Eligible Director's
service as a Director shall commence in accordance with the
Distribution Election made by the Eligible Director pursuant to
Section 8.7. If an Eligible Director fails to specify a form of
payment for a distribution in accordance with Section 8.7, the
distribution from the Interest Account shall be made in cash and
the distribution from the Stock Unit Account shall be made in
Shares. If an Eligible Director fails to specify in accordance
with Section 8.7 a commencement date for a distribution or whether
such distribution shall be made in a lump sum payment or a number
of installments, such distribution shall be made in a lump sum
payment and commence on the first business day of the month
immediately following the date on which the Eligible Director
ceases to be a Director. In the case of any distribution being
made in annual installments, each installment after the first
installment shall be paid on the first business day of each
subsequent calendar year, or as soon as practical thereafter,
until the entire amount subject to such Distribution Election
shall have been paid.
8.10. Effect on Prior Plan. Subject to the approval of the
Company's shareholders and the shareholders of Aetna Life and
Casualty Company and U.S. Healthcare, Inc., upon the consummation
of the transactions contemplated by the Merger Agreement, the
amounts standing to the credit of each Eligible Director under the
Prior Plan shall be transferred to the Plan and credited to the
Eligible Director's Interest and/or Stock Unit Accounts, as
applicable. Any elections in effect under such Prior Plan shall
be deemed to be an election made pursuant to and in accordance
with the terms of this Section 8 unless and until the Eligible
Director elects to change such elections in accordance with the
provisions of this Section 8.
SECTION 9. UNFUNDED STATUS.
The Company shall be under no obligation to establish a fund
or reserve in order to pay the benefits under the Plan. A Unit
represents a contractual obligation of the Company to deliver
Shares or pay cash to a Director as provided herein. The Company
has not segregated or earmarked any Shares or any of the Company's
assets for the benefit of a Director or his/her beneficiary or
estate, and the Plan does not, and shall not be construed to,
require the Company to do so. The Director and his/her
beneficiary or estate shall have only an unsecured, contractual
right against the Company with respect to any Units granted or
amounts credited to a Director's Accounts hereunder, and such
right shall not be deemed superior to the right of any other
creditor. Units shall not be deemed to constitute options or
rights to purchase Stock.
SECTION 10. AMENDMENT AND TERMINATION.
The Plan may be amended at any time by the Board of
Directors, provided that, except as provided in Section 4.2, the
Board of Directors may not, without approval of the shareholders
of the Company: (i) modify the number of Shares with respect to
which Units may be awarded under the Plan; (ii) modify the vesting
requirements established under Section 6 or Section 7; or (iii)
otherwise change the times at which, or the period within which,
Shares may be delivered under the Plan. The Plan shall terminate
on April 30, 2001, except with respect to previously awarded
Grants and amounts credited to the Accounts of Directors.
Notwithstanding the foregoing, no termination of the Plan shall
materially and adversely affect any rights of any Director under
any Grant made pursuant to the Plan. Unless the Board otherwise
specifies at the time of such termination, a termination of the
Plan will not result in the distribution of the amounts credited
to an Eligible Director's Accounts.
SECTION 11. GENERAL PROVISIONS.
11.1. No Right to Serve as a Director. This Plan shall not
impose any obligations on the Company to retain any Eligible
Director as a Director nor shall it impose any obligation on the
part of any Eligible Director to remain as a Director of the
11.2. Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan, and the
rights relating to the Plan, shall be determined solely in
accordance with the laws of the State of Connecticut.
11.3. No Right to Particular Assets. Nothing contained in
this Plan and no action taken pursuant to this Plan shall create
or be construed to create a trust of any kind or any fiduciary
relationship between the Company and any Eligible Director, the
executor, administrator or other personal representative or
designated beneficiary of such Eligible Director, or any other
persons. Any reserves that may be established by the Company in
connection with Units granted under this Plan shall continue to be
treated as the assets of the Company for federal income tax
purposes and remain subject to the claims of the Company's
creditors. To the extent that any Eligible Director or the
executor, administrator, or other personal representative of such
Eligible Director, acquires a right to receive any payment from
the Company pursuant to this Plan, such right shall be no greater
than the right of an unsecured general creditor of the Company.
11.4. Listing of Shares and Related Matters. If at any time
the Board of Directors shall determine in its discretion that the
listing, registration or qualification of the Shares covered by
this Plan upon any national securities exchange or under any state
or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or
in connection with, the delivery of Shares under this Plan, no
Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Board of Directors.
11.5. Severability of Provisions. If any provision of this
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and
this Plan shall be construed and enforced as if such provision had
not been included.
11.6. Incapacity. Any benefit payable to or for the benefit
of a minor, an incompetent person or other person incapable of
receipting therefor shall be deemed paid when paid to such
person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment
shall fully discharge any liability or obligation of the Board of
Directors, the Company and all other parties with respect thereto.
11.7. Headings and Captions. The headings and captions
herein are provided for reference and convenience only, shall not
be considered part of this Plan, and shall not be employed in the
construction of this Plan.