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
The Hartford Steam Boiler Inspection and Insurance Company
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which
transaction applies:
----------------------------------------------
2) Aggregate number of securities to which
transaction applies:
----------------------------------------------
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
----------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------
5) Total fee paid:
----------------------------------------------
[] 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:
------------------------------------------------
2) Form, Schedule or Registration Statement No.
------------------------------------------------
3) Filing Party:
------------------------------------------------
4) Date Filed:
------------------------------------------------
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
March 26, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
on Thursday, April 24, 1997 at 2:00 P.M. at our Home Office at One State Street,
Hartford, Connecticut.
The Notice of the Annual Meeting and Proxy Statement are contained on the
following pages. In addition to the proposals discussed in the Proxy Statement,
we will also be discussing the Company's results for 1996 and outlook for 1997
and beyond.
At this meeting, stockholders will not be asked to consider a proposal
concerning the formation of a holding company structure as previously announced.
It is anticipated that a special meeting will be held later this year to
consider this important proposal.
Your proxy is very important in making up the total number of shares
necessary to hold the meeting, even though you may own only a few shares.
Whether or not you plan to attend the meeting, please fill out, sign and return
your proxy card in the envelope provided as soon as possible. Your cooperation
is appreciated.
Sincerely,
Gordon W. Kreh
President and
Chief Executive Officer
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
NOTICE OF ANNUAL MEETING
March 26, 1997
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of The
Hartford Steam Boiler Inspection and Insurance Company will be held on Thursday,
April 24, 1997, at 2:00 o'clock P.M., at the office of the Company, One State
Street, Hartford, Connecticut, for the following purposes:
1. To elect three directors for three-year terms;
2. To consider and act upon a proposal to amend and restate the 1995
Stock Option Plan to increase the number of shares available for
the granting of awards;
3. To appoint independent public accountants for the ensuing year;
and
4. To transact any other business proper to come before the meeting.
A Proxy Statement to assist you in the consideration of the foregoing
matters is attached.
The Board of Directors has fixed February 13, 1997, at the close of
business, as the record date and time for the determination of the stockholders
entitled to notice of and to vote at said Annual Meeting and any adjournment
thereof.
It is hoped that you will be able to attend this meeting. If you cannot,
you are urgently requested to sign and return the enclosed proxy card in the
envelope provided.
By order of the Board of Directors.
R. K. PRICE
Corporate Secretary
PROXY STATEMENT
GENERAL
The enclosed proxy is solicited by the Board of Directors of The Hartford
Steam Boiler Inspection and Insurance Company for use at the Annual Meeting of
Stockholders to be held April 24, 1997, and at any and all adjournments thereof.
The Company is a Connecticut corporation and its principal office is located at
One State Street, P.O. Box 5024, Hartford, Connecticut 06102-5024, (860)
722-1866.
You are urged to read this Proxy Statement and to fill in, date, sign and
return the enclosed form of proxy. The giving of a proxy does not affect your
right to vote should you attend the meeting and the proxy may be revoked at any
time before it is voted. Properly executed proxies not revoked will be voted as
specified.
Arrangements will be made with brokers, nominees and fiduciaries to
distribute proxy material to their principals, and their postage and clerical
expenses in so doing will be paid by the Company. The entire cost of soliciting
proxies on behalf of management will be borne by the Company. Directors,
officers and regular employees of the Company may solicit proxies personally if
proxies are not received promptly. The Company has retained Corporate Investor
Communications, Inc. ("CIC") to aid in the solicitation of proxies. CIC's fee is
not expected to exceed $3,500 in addition to out-of-pocket expenditures.
Only holders of Company common stock and Company preferred stock of record
at the close of business on February 13, 1997 are entitled to notice of, and to
vote at, the meeting. Each stockholder of record on said date is being mailed
the Notice, Proxy Statement and Proxy card on or about March 26, 1997. The
Annual Report of the Company for the fiscal year ended December 31, 1996 was
mailed to stockholders of record under separate cover on or about March 6, 1997.
On February 13, 1997, there were 20,041,678 outstanding shares of Company common
stock, each entitled to one vote, and 2,000 shares of Company preferred stock,
each entitled to 199 votes.
Abstentions and broker non-votes are included in the total number of
shares represented for matters to be voted upon at the meeting for quorum
purposes. Abstentions and broker non-votes will not be counted as either FOR or
AGAINST a nominee or matter and will have no effect upon the election of
directors, the approval of the Stock Option Plan amendment or the ratification
of auditors.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Charter provides for a Board of not less than nine nor more
than fourteen directors, the exact number of directorships to be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
Board. The directors are divided into three classes each consisting, as nearly
as possible, of one-third of the total number of directors constituting the
entire Board. Each class is elected for a three-year term at successive annual
meetings. At the Annual Meeting, the number of directorships will be eleven.
Three directors are to be elected for terms of three years and until
their successors are elected and qualified. Unless otherwise instructed, the
shares represented by the enclosed proxy will be voted for William B. Ellis, E.
James Ferland and Wilson Wilde. In the event any nominee is unable to serve as a
director on the date of the Annual Meeting, the proxies may be voted for a
substitute nominee recommended by the Board of Directors. A plurality of the
votes cast by the shares entitled to vote is required for the election of each
director.
The nominees for election to the Board of Directors were elected to
their present term at the 1994 Annual Meeting.
Stated below are the names and ages of the nominees and directors
continuing in office, the principal occupation of each during at least the last
five years, the date on which each individual was first elected as a director of
the Company, and other directorships and business and civic affiliations of such
persons. The information set forth on the following pages with respect to each
nominee's and director's principal occupation, other directorships and
affiliations and beneficial ownership of Company common stock has been furnished
by the nominee or director. No information is being provided for Mr. John A.
Powers, who will retire from the Board of Directors effective with the 1997
Annual Meeting.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Term Expiring in 2000
William B. Ellis
Mr. Ellis, 56, is Senior Fellow at the Yale University School of
Forestry and Environmental Studies, a position he has held since
----- September 1995. In August 1995, he retired from his position as
Chairman of the Board of Northeast Utilities and its principal
subsidiaries, as well as from Connecticut Yankee Atomic Power
PHOTO Company, after serving as Chief Executive Officer of those
companies from 1983 to 1993. Mr. Ellis is a director of Advest
Group, Inc., Catalytica Combustion Systems, Inc., Massachusetts
----- Mutual Life Insurance Company, Connecticut Capitol Region Growth
Council, Inc. and The Greater Hartford Chamber of Commerce. He is
also a member of the Board of The National Museum of Natural
History of the Smithsonian Institution and a member of the
Conservation Science Advisory Board of The Nature Conservancy.
Mr. Ellis has served as a director of the Company since April
1991.
E. James Ferland
Mr. Ferland, 54, is Chairman, President and Chief Executive
----- Officer of Public Service Enterprise Group Incorporated and
Chairman and Chief Executive Officer of its principal subsidiary,
PHOTO Public Service Electric and Gas Company, a position he has held
since 1986. Mr. Ferland is a director of Foster Wheeler
----- Corporation and the Nuclear Energy Institute.
Mr. Ferland has served as a director of the Company since
November 1986.
Wilson Wilde
Mr. Wilde, 69, retired in April of 1994 from his position as
----- Chairman and Chief Executive Officer of the Company, which he had
held since September of 1993. He joined the Company in 1953 and
PHOTO was elected President in 1971. He is a director of PXRE
Corporation and Front Royal, Inc. and is Chairman of the Board of
----- Trustees of The Loomis Chaffee School.
Mr. Wilde has served as a director of the Company since March
1967.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Term Expiring in 1998
Richard H. Booth
Mr. Booth, 49, is Executive Vice President of Phoenix Home Life
Mutual Insurance Company, a position he has held since October of
1994. Prior to joining Phoenix, Mr. Booth served as President,
Chief Operating Officer and a director of The Travelers
----- Corporation from 1991 to 1994. Mr. Booth is a director of Phoenix
Duff & Phelps and Aberdeen Trust PLC. He is a member of the Board
PHOTO of Trustees and Treasurer of the Wadsworth Atheneum. He is also a
member of the Board of Trustees of the Old State House, the Board
----- of Regents of the University of Hartford, a member of the Babson
College Corporation, a member of the Corporate Associates
Advisory Board of The Nature Conservancy, Connecticut Chapter,
and a board member of the World Affairs Council.
Mr. Booth has served as a director of the Company since July
1996.
Colin G. Campbell
Mr. Campbell, 61, is President of Rockefeller Brothers Fund, a
position he has held since 1988. Mr. Campbell is a director of
----- Pitney Bowes, SYSCO Corporation, Rockefeller Financial Services
and HSB Engineering Insurance Limited, a subsidiary of the
PHOTO Company. He is Chairman of the University of Cape Town Fund and
Winrock International Institute for Agricultural Development. He
----- is a trustee of the Colonial Williamsburg Foundation, Institute
for the Future and Charles E. Culpeper Foundation, and a director
of Public Broadcasting Services.
Mr. Campbell has served as a director of the Company since
September 1983.
Simon W. Leathes
Mr. Leathes, 49, is Group Finance Director of Hambros PLC in the
United Kingdom, a position he has held since 1996. Prior to
----- joining Hambros PLC, he served as Chief Financial Officer of
Caspian Securities Ltd. in the United Kingdom from 1995 to 1996.
PHOTO From 1980 through 1995, Mr. Leathes was with S.G. Warburg Group
PLC in the United Kingdom, most recently serving as Chief
----- Financial Officer/Group Finance Director from 1992 to 1995. Mr.
Leathes is a director of HSB Engineering Insurance Limited, a
subsidiary of the Company.
Mr. Leathes has served as a director of the Company since
February 1997.
John M. Washburn, Jr.
Mr. Washburn, 69, is Chairman of the Board of Directors of The
Merrow Machine Company, a manufacturer of industrial sewing
----- machines. He joined Merrow in 1953, and served in a variety of
positions before being named President in 1978, a position he
PHOTO held until his retirement in April 1995. Mr. Washburn is a
director of Walton Company and a trustee of the YMCA of Greater
----- Hartford.
Mr. Washburn has served as a director of the Company since March
1973.
Term Expiring In 1999
Joel B. Alvord
Mr. Alvord, 58, is currently Chairman of the Executive Committee
and a director of Fleet Financial Group, having served as its
Chairman from November 1995 until December 1996. He became
----- Chairman and Chief Executive Officer of Shawmut National
Corporation in 1988 and was elected to Chairman of Fleet
PHOTO Financial Group in November 1995 following the merger of Shawmut
National Corporation with Fleet Financial Group. Mr. Alvord is a
----- director of CUNO Incorporated and the Harvard Eating Disorders
Center, a trustee of The Wang Center for the Performing Arts,
Boston, and an Overseer of the Museum of Fine Arts, Boston and
The Boston Symphony Orchestra.
Mr. Alvord has served as a director of the Company since December
1971.
Richard G. Dooley
Mr. Dooley, 67, is a consultant to Massachusetts Mutual Life
Insurance Company. Mr. Dooley joined Massachusetts Mutual in 1955
----- and served in a variety of positions before being named Executive
Vice President and Chief Investment Officer in 1978, a position
PHOTO he held until his retirement in 1993. Mr. Dooley is a director of
Advest Group, Inc., Jefferies Group, Inc., Kimco Realty Corp.,
----- Investment Technology Group, Inc. and certain Massachusetts
Mutual-sponsored investment companies. He is a trustee of Saint
Anselm College.
Mr. Dooley has served as a director of the Company since May
1984.
Gordon W. Kreh
Mr. Kreh, 49, is President, Chief Executive Officer and a
director of the Company. He joined The Boiler Inspection and
Insurance Company of Canada, a subsidiary of the Company, in
1971, before moving to the Company's home office in 1975. He
became an officer of the Company in 1980 and was elected Vice
----- President in 1984. In 1988, he was named Senior Vice President of
Engineering Insurance Group, an affiliate of the Company, and
PHOTO became its President in 1989. He was elected Senior Vice
President of the Company in 1992, President in 1993 and assumed
----- his present position in April of 1994. Mr. Kreh is chair of the
executive committee of Industrial Risk Insurers, a board member
of the American Insurance Association, and a director of The
Boiler Inspection and Insurance Company of Canada and HSB
Engineering Insurance Limited, subsidiaries of the Company. He is
also president of the board of directors of the Greater Hartford
Arts Council and a trustee of the Wadsworth Atheneum.
Mr. Kreh has served as a director of the Company since September
1993.
Lois D. Rice
Mrs. Rice, 63, is a Guest Scholar, Program in Economic Studies,
at the Brookings Institution, a position she has held since
----- October 1991. From 1981 until 1991, she served as Senior Vice
President, Government Affairs and a director of Control Data
PHOTO Corporation. Mrs. Rice is a director of McGraw-Hill Companies,
International Multifoods, Fleet Financial Group and UNUM Corp.
----- She is a trustee of The Urban Institute, the Center for Naval
Analysis and the Public Agenda Foundation. Mrs. Rice also serves
as a member of the President's Foreign Intelligence Advisory
Board.
Mrs. Rice has served as a director of the Company since April
1990.
Meetings and Remuneration of the Directors
During 1996, the Board of Directors held ten meetings and twenty-two
committee meetings. Each director attended at least 75% of the meetings of the
Board and committees on which he or she served combined.
The annual retainer in effect during 1996 for each director who was neither
a present or retired employee of the Company nor of a subsidiary was $25,000. In
1996, under the 1989 Restricted Stock Plan for Non-Employee Directors, one-half
of the annual retainer was paid in restricted stock of the Company and one-half
was paid in cash. Each non-employee director is paid a fee of $1,200 for
attendance at a Board or a committee meeting and an additional $350 for each
committee meeting chaired. Directors who are present or retired employees of the
Company or a subsidiary do not receive such compensation for service on the
Board or committees thereof and are not eligible to participate in the plans
described herein for non-employee directors. Non-employee directors are not
eligible to participate in any of the plans discussed in the Human Resources
Committee Report on Executive Compensation. Directors may be reimbursed for
reasonable travel expenses incurred in attending Board and committee meetings.
In 1996, the Governance Committee of the Board of Directors reviewed
compensation policies currently in place for non-employee members of the Board
of Directors and adopted a formal policy for the compensation of directors in
order to further link director compensation with the long-term interests of
stockholders. According to the policy, director compensation should: a) enable
the Company to attract and retain the talent needed to fulfill the
responsibilities of the Board of Directors in a superior and independent
fashion; b) align the interests of the directors with the long-term interests of
stockholders through stock ownership; c) compensate directors for their time,
efforts and capacity to assist the Company in the achievement of its long-term
goals; and d) be validated in its efficacy through review by an independent
compensation consultant.
In connection with the adoption of the director compensation policy,
several changes were made to the director compensation program in 1996. The 1989
Restricted Stock Plan for Non-Employee Directors was terminated effective
September 23, 1996. The annual retainer was reduced effective January 1, 1997,
from $25,000 to $15,000 and the Directors Stock and Deferred Compensation Plan
(the "Directors Plan"), described below, was adopted effective September 23,
1996. The Retirement Plan for non-employee directors was terminated for current
and future directors effective September 23, 1996. Former directors who had
retired from the Board prior to September 23, 1996 will continue to receive
benefits under the Retirement Plan. Under the terms of the Retirement Plan as
formerly in effect, a director who retired after ten years of service on the
Board was entitled to receive an annual lifetime retirement benefit equal to the
annual retainer paid to such director immediately prior to retirement. All
current directors waived any right to receive retirement benefits under the
Retirement Plan, and the value of such benefits was converted into stock
equivalent units under the Directors Plan. In addition, shares of restricted
stock previously awarded to directors under the 1989 Restricted Stock Plan for
Non-employee Directors as to which an election for current taxation had not been
made were canceled, and an equal number of stock equivalent units was awarded.
In the case of restricted shares as to which an election for current taxation
had been made, the restrictions on such shares were canceled.
Under the Directors Plan, each non-employee director receives an annual
award of 550 stock equivalent units, and may elect to defer all or a portion of
his or her cash compensation (annual retainer and meeting fees) for payment to a
future date specified by the director. A participating director may elect to
have his or her deferred account either credited annually with interest (accrued
at the rate of the average of the yields at issuance of five-year U.S. Treasury
Notes issued during the prior twelve-month period plus 1%) on the average daily
balance held in such accounts for the preceding plan year, or translated into
stock equivalent units. The number of stock equivalent units is equal to the
amount of cash compensation divided by the fair market value of Company common
stock on the date such compensation would otherwise have been paid.
Account balances held under the Directors Plan are paid out in cash or
an equivalent number of shares of Company common stock, at the election of the
director. Amounts may be paid out either in a lump sum or in installments, at
the directors' election. Dividend equivalents, in an amount equal to the amount
of dividends that would have been payable had each stock equivalent unit
constituted a share of Company common stock, are payable in cash at the end of
each plan year on all stock equivalent units credited under the plan.
In 1992 the Board of Directors established a Charitable Endowment
Program for members of the Board of Directors who have at least one year of
service as a director. A portion of the program is currently funded by life
insurance. The Company intends to make tax deductible charitable contributions
of $1 million to charities recommended by each director, paid out over a period
of ten years following the death of the director. Directors derive no financial
benefit from the program since any insurance proceeds and charitable deductions
accrue solely to the Company.
The Company's Board of Directors annually appoints certain directors to
serve on standing committees of the Board of Directors, which currently include
the Audit, Human Resources, Governance, Finance and Executive Committees.
The Audit Committee's primary responsibility is to review and report to the
Board on the Company's accounting policies, the adequacy of its financial and
internal auditing controls, and the reliability of financial information
reported to the public. The Committee has the authority to approve the scope of
the annual audit and to authorize the release of quarterly and annual financial
statements. The Audit Committee held four meetings during 1996. Mr. Ferland
(Chairman), Mr. Booth, Mr. Powers and Mr. Washburn, none of whom is an employee
of the Company or a subsidiary, presently serve on the Audit Committee.
The Human Resources Committee reviews remuneration for the Company's
executives as described in the Human Resources Committee Report on Executive
Compensation located on page 9. The Committee reviews the Company's benefit
plans and policies and practices with respect to employee relations. The
Committee acts as Plan Administrator for the 1985 Stock Option Plan, the 1995
Stock Option Plan, the Directors' Retirement Plan, the Directors Stock and
Deferred Compensation Plan, and the Long-Term and Short-Term Incentive Plans.
The Human Resources Committee held six meetings during 1996. Mr. Ellis
(Chairman), Mr. Campbell, Mr. Powers and Mrs. Rice, none of whom is an employee
of the Company or a subsidiary, presently serve on the Human Resources
Committee.
The Governance Committee reviews the organization and performance of the
Board of Directors and reviews and recommends Director compensation. The
Committee also reviews the Company's policies and practices with respect to
community relations and recruits and nominates candidates for Board membership
in conjunction with the Chief Executive Officer. In accordance with the
Company's Bylaws, any nomination by a stockholder must have been made by proper
written notice given to the Corporate Secretary not later than February 15, 1997
in order to be considered for the 1997 Annual Meeting. The Governance Committee
held seven meetings during 1996. Mr. Campbell (Chairman), Mr. Alvord, Mr.
Dooley, Mr. Ellis and Mrs. Rice, none of whom is an employee of the Company or a
subsidiary, presently serve on the Governance Committee.
Other committees of the Board of Directors are the Finance Committee
and the Executive Committee. The Finance Committee reviews the investment plan
of the Company, investor relation activities, and other matters involving the
Company's financial resources. Mr. Dooley (Chairman), Mr. Alvord, Mr. Booth, Mr.
Ferland and Mr. Washburn, none of whom is an employee of the Company or a
subsidiary, presently serve on the Finance Committee, which held five meetings
in 1996. The Executive Committee acts on behalf of the Board of Directors in the
interim between meetings of the Board when prompt, formal action is necessary.
Mr. Wilde (Chairman), Mr. Alvord, Mr. Campbell, Mr. Dooley, Mr. Ellis and Mr.
Ferland presently serve on the Executive Committee, which did not meet in 1996.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is unaware of any stockholder who on February 1, 1997 was
the beneficial owner of 5 percent or more of Company common stock outstanding
except as noted in the following table.
Name of Beneficial Owner Amount of Shares Percent of Class
- ------------------------ ---------------- ----------------
Scudder Stevens & Clark, Inc. 1,114,210(1) 5.56%
Two International Place
Boston, MA 02110-4103
(1) Information provided as of 12/31/96 by Scudder, Stevens & Clark, Inc.
indicates that Scudder, Stevens & Clark, Inc. has sole voting power with
respect to 331,900 shares and sole dispositive power with respect to
1,114,210 shares.
The number of shares of Company common stock beneficially owned as of
February 1, 1997 by each nominee and director, by each executive officer named
in the Summary Compensation Table, which in each case represents less than 1% of
the Company common stock outstanding as of such date, and by all current
directors and executive officers as a group, is shown in the table below. The
table also sets forth the number of stock equivalent units credited to
non-employee directors participating in the Directors Stock and Deferred
Compensation Plan, which is explained in detail beginning on page 6. Individuals
are fully at risk as to the value of stock equivalent units held in their
deferred accounts, which will be converted to an equal number of shares of
Company common stock, or their equivalent cash value, at the election of the
director, upon his or her termination of board service.
Unless otherwise indicated, each officer, nominee and director has sole
voting and investment power (or shares such powers with a family member) with
respect to Company common stock shown as held directly. All shares shown as held
indirectly reflect sole voting and investment power exercised by the individual
specified unless otherwise indicated.
Stock Equivalent Total Number of Shares
Beneficial Owner Directly Held Indirectly Held Units and Stock Equivalent Units
- ---------------- ------------- --------------- ----- --------------------------
Joel B. Alvord 618 3,008 3,626
Saul L. Basch 41,770(1) 41,770
Richard H. Booth 1,000 1,000
Colin G. Campbell 2,386 1,200(2) 2,404 5,990
Richard G. Dooley 6,791 6,030 12,821
Michael L. Downs 99,420(3) 99,420
William B. Ellis 600 3,029 3,629
E. James Ferland 1,000 2,000(4) 3,206 6,206
John J. Kelley 112,877(5) 112,877
William A. Kerr 40,739(1) 40,739
Gordon W. Kreh 256,703(6) 700(7) 257,403
Simon W. Leathes 0
John A. Powers 2,045 6,350 8,395
Lois D. Rice 752 200(8) 3,597 4,549
John M. Washburn, Jr. 10,503 2,000(4) 6,235 18,738
Wilson Wilde 891 655(9) 1,546
All Current Directors and Executive Officers
as a Group (19 in number): 774,019 (10)
(1) Includes 40,000 shares subject to options to purchase shares of Company
common stock which are exercisable on or before April 1, 1997.
(2) 400 shares held in trusts for benefit of children and 800 shares held as
trustee of trusts for benefit of nieces and nephews, over which Mr.
Campbell exercises shared voting and investment power.
(3) Includes 85,000 shares subject to options to purchase shares of Company
common stock which are exercisable on or before April 1, 1997.
(4) Shares held by spouse.
(5) Includes 104,200 shares subject to options to purchase shares of Company
common stock which are exercisable on or before April 1, 1997.
(6) Includes 242,500 shares subject to options to purchase shares of Company
common stock which are exercisable on or before April 1, 1997.
(7) 300 shares held by spouse, 200 shares held by daughter and 200 shares
held by son.
(8) As trustee.
(9) 160 shares held by spouse. 495 shares held in a charitable foundation,
over which Mr. and Mrs. Wilde exercise shared voting and investment
power.
(10) Includes 657,200 shares subject to options to purchase shares of
Company common stock which are exercisable on or before April 1, 1997.
Assuming the exercise of all such options, the percentage of Company
common stock owned by directors and executive officers as a group would
be 3.74% of the Company common stock outstanding.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in Company stock by executive officers and
directors of the Company are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934. To the Company's knowledge, based solely on a review of the copies of
reports that were furnished to the Company and written representations that no
other reports were required, all required reports were made in a timely manner
with respect to the fiscal year ended December 31, 1996.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive compensation programs for the Senior Vice Presidents and Chief
Executive Officer of the Company (the "executives") are administered by the
Human Resources Committee of the Board of Directors (the "Committee"). A
nationally recognized compensation consultant also reviews and analyzes the
Company's executive compensation policies and practices in order to advise the
Committee as more fully described below. The Committee believes that the
structure of the Company's compensation programs provides a direct link between
Company performance and executive compensation.
Under the direction of the Committee, executive compensation programs
are structured to provide performance-based incentives to achieve the Company's
short and long-term goals, and to enable the Company to attract and retain key
individuals. In 1996, the Company used a group of comparison companies (the
"Comparison Group") to determine competitive executive pay levels and practices.
The Comparison Group was composed of 18 leading property/casualty insurance and
engineering companies (including five of the six insurance companies in the S&P
500 Property/Casualty Insurance Index used in the Performance Graphs located on
page 17). Practices analyzed included pay level and components, stock ownership
levels and short and long-term incentives. Base salary and variable compensation
paid under the Company's incentive plans (Short-Term and Long-Term Incentive
Plans and the 1995 Stock Option Plan) in 1996 to executives as a group, and for
Mr. Kreh individually, were below the median range of that paid to executives by
the companies in the Comparison Group according to information compiled by the
Company's compensation consultant.
Base salary adjustments are made for executives based upon an analysis of
individual performance, changes in responsibilities, and comparative data for
base salaries paid to executives with similar responsibilities in the Comparison
Group. Annual salary adjustments for executives are recommended by the Chief
Executive Officer and approved by the Human Resources Committee in its
discretion. The Committee determines adjustments for the Chief Executive Officer
in its discretion. For 1996, base salary adjustments for executives other than
Mr. Kreh were made for competitive reasons based upon comparisons with the
Comparison Group. Mr. Kreh received an 8% base salary increase based on the
Committee's analysis of the comparative data for base salaries paid to
executives with similar responsibilities in the Comparison Group.
The Company's Short-Term Incentive Plan provides for the annual award of
bonuses to key employees (presently limited to the officer group of the Company,
including the executives) at the end of the fiscal year provided certain
performance measures are achieved. Under a schedule defined by the plan that
establishes threshold, target and maximum levels, the Committee establishes a
pool of incentive award dollars based on the actual percentage of Annual
Budgeted Net Income Per Share (cited in the Business Plan of the Company)
achieved for the year and the performance of the Company as compared to the
performance of the insurance industry and/or other appropriate industries with
reference to such performance measures as the Committee deems appropriate. In
evaluating Company performance, the Committee considers such factors as (listed
in order of importance, from highest to lowest): growth in operating income;
insurance combined ratio; return on equity; and engineering services' margin.
Once the pool is established, individual awards are then determined by the Chief
Executive Officer, based on his evaluation of the participant's contributions to
results during the plan year. The awards may range from 0 to 100% of the
participant's base salary. The Committee determines the award for the Chief
Executive Officer and has final discretionary authority over all awards made
under the plan.
For 1996, the Committee evaluated Company results achieved for growth in
operating income, insurance combined ratio, return on equity and engineering
services' margin, as compared, where appropriate, to published results achieved
or anticipated for the property/casualty insurance industry as a whole. In 1996,
the Actual Percentage of Budgeted Net Income Per Share achieved the threshold
level set under the schedule defined under the plan for establishment of the
bonus pool. In 1996, the Committee determined that the Company substantially
outperformed the property/casualty insurance industry for both return on equity
and insurance combined ratio (the Company's return on equity for 1996 was 15.6%
and the insurance combined ratio was 94.7), and determined that the Company's
engineering services' margin of 13.2% was superior. Mr. Kreh was awarded
$135,000 under the plan based on the Committee's evaluation of Mr. Kreh's
contributions to these results. Mr. Kreh determined the executives' awards for
1996, based on his evaluation of these results, and each executive's
contributions to such results.
Long-term incentives are provided to executives through awards made under
the Company's Long-Term Incentive Plan. Under the plan, the Committee
establishes specific Performance Goals for each participant (or all participants
as a group) at the beginning of each Performance Period based on one or more of
the following Performance Measures: insurance combined ratio; expense ratio; net
income per share; return on equity; total stockholder return; return on assets;
revenues; engineering services' margin; increase in book value; and market
share. For each Performance Goal, an award schedule of Performance Contingent
Units is established for minimum, target and maximum attainment of such goal,
based on a percentage of a participant's base salary rate at the beginning of
the period (adjusted for any promotional increases during the Performance
Period) divided by the average of the high and low trading prices of Company
common stock on the first trading date of the Performance Period. If the minimum
level of achievement is not reached for the Performance Measures, the payout
will be zero.
The actual Performance Contingent Award to be paid to a participant at
the conclusion of the Performance Period is based on the level of attainment of
the Performance Goals established for such period. The maximum award of
Performance Contingent Units for any participant for a Performance Period cannot
exceed 60% of the participant's base salary divided by the fair market value of
Company common stock on the first trading day of the Performance Period. Awards
are prorated for actual length of service as an eligible executive during the
Performance Period. Any payments are made in cash or in shares of Company common
stock (which may be restricted shares), as determined by the Committee. At the
discretion of the Committee, dividend equivalents may be paid in conjunction
with award payouts made under the plan, equal to the amount of cash dividends
that would have been paid during the Performance Period with respect to an award
of Performance Contingent Units if the award had been made in Company common
stock. For the three-year Performance Period which runs January 1, 1996 through
December 31, 1998, the Performance Measures are net income per share, expense
ratio and return on equity.
The Committee determined that payouts to be made under the plan for the
Performance Period ending in 1996 would be made in shares of restricted stock in
order to further link executives' interests with long-term Company performance.
These shares cannot be sold or transferred and will be forfeited if the
executive leaves the Company within a period of five years for reasons other
than death, disability, retirement, involuntary termination other than for
cause, or resignation with the consent of the Human Resources Committee of the
Board of Directors of the Company.
For the Performance Period ending in 1996, the Committee established
specific Performance Goals at the beginning of the Performance Period based on
the following Performance Measures: net income per share, expense ratio and
return on equity. For each Performance Goal, an award schedule of Performance
Contingent Units was established for minimum, target and maximum attainment of
such goals, based on a percentage of the participant's base salary rate at the
beginning of the period (adjusted for any promotional increases during the
period), divided by the average of the high and low trading prices of Company
common stock on January 3, 1994. For the 1994 through 1996 Performance Period,
the net income per share threshold was not achieved, the expense ratio target
was exceeded, and the return on equity threshold was exceeded. Awards made to
executives under the plan for the Performance Period ending in 1996, including
Mr. Kreh's award of 2,666 shares of restricted stock, were calculated under the
award schedule established by the Committee based on these results.
During 1996, executive officers were eligible for awards under the
Company's 1995 Stock Option Plan. Plan awards provide executives with long-term
incentives and reinforce the link between executives' long-term interests and
those of stockholders. Stock options are awarded based upon the market price of
Company common stock on the date of the grant and provide a vehicle to reward
executives only if the price of Company common stock increases above the grant
price.
Awards to be made to specific participants are determined by the Committee
at its discretion. The Company's outside compensation consultant reviews each
executive's award in comparison to awards made to individuals employed by
companies in the Comparison Group and makes recommendations as to whether the
awards made to Company executives should be adjusted. Several factors were
considered in determining the size of stock option grants to executive officers
in 1996, including competitive practices at companies in the Comparison Group,
the Committee's perception of the recipient's ability to affect the results of
the Company over time and individual levels of responsibility. Awards made to
executives in 1996, including Mr. Kreh's award of 75,000 stock options, were
determined by the Committee in its discretion based on its evaluation of these
criteria.
Under Internal Revenue Service rules, publicly held corporations may not
deduct certain types of compensation paid to the Chief Executive Officer and the
next four most highly compensated individuals to the extent such compensation
exceeds $1 million. Certain types of compensation are excluded from this
limitation, including performance-based compensation paid under plans that are
approved by stockholders and administered by outside directors.
Based on the current provisions of this law, any compensation derived
from the exercise of stock options granted under the 1985 and 1995 Stock Option
Plans or awards made under the Long-Term Incentive Plan will be exempt from the
limit on the corporate tax deduction. Any amounts payable under the Short-Term
Incentive Plan to the named executives would count toward the limitation as
would base salary and the value of any vesting restricted stock under the Stock
Option Plan, but these amounts are not expected to reach the $1 million limit
for any of the named executives. Under the current provisions of the law,
compensation paid to executives during 1996 was fully deductible and the Company
believes that all compensation paid to executives during 1997 will also be fully
deductible.
Respectfully submitted by the Human Resources Committee of the Board of
Directors of the Company
William B. Ellis (Chairman)
Colin G. Campbell
John A. Powers
Lois D. Rice
SUMMARY COMPENSATION TABLE
The following table sets forth cash compensation for the five most
highly compensated executive officers of the Company serving as executive
officers on December 31, 1996 for services rendered in all capacities to the
Company and its subsidiaries during the last three fiscal years.
Annual Compensation Long-Term Compensation
Awards Payouts
Securities
Restricted Underlying All Other
Stock Options LTIP Compen-
Name and Principal Position Year Salary Bonus Award(s)(1) (Number Payouts(2) sation(3)
of shares)
Gordon W. Kreh, President 1996 $527,692 $135,000 $121,636 75,000 0 $ 4,750
and Chief Executive Officer 1995 $484,615 $300,000 0 47,500 $ 50,625 $ 6,532
1994 $419,231 $157,500 0 50,000 $ 94,380 $ 7,210
John J. Kelley 1996 $302,692 $ 60,000 $ 49,549 30,000 0 $ 2,250
Senior Vice President 1995 $267,308 $125,000 0 30,000 $ 18,563 $ 5,922
1994 $229,077 $ 75,000 0 25,000 $ 38,125 $ 6,737
Michael L. Downs 1996 $301,154 $ 30,000 $ 47,313 30,000 0 $ 4,500
Senior Vice President 1995 $248,462 $125,000 0 30,000 $ 11,645 $ 6,532
1994 $180,442 $ 60,000 0 25,000 $ 9,319 $ 7,160
Saul L. Basch, Senior 1996 $310,385 $ 60,000 $ 22,539 20,000 0 $ 4,500
Vice President, Treasurer 1995 $75,000 $ 30,000 0 20,000 $ 1,689 0
and Chief Financial Officer(4)
William A. Kerr 1996 $267,308 $ 50,000 $ 20,029 20,000 0 $ 4,750
Senior Vice President(4) 1995 $72,115 $ 30,000 0 20,000 $ 1,875 0
(1) For 1996, represents Long-Term Incentive Plan awards for 1994-1996
Performance Period, which were paid out in shares of Restricted Stock with a
five-year vesting period as explained in more detail in the Human Resources
Committee Report on Executive Compensation located beginning on page 9. The
value of restricted stock shown in this column is calculated by multiplying the
closing price of Company common stock on the date the restricted shares were
granted by the number of shares awarded. Recipients are entitled to receive
dividends on restricted stock to the extent paid on Company common stock
generally. None of the named executives held any shares of restricted stock as
of 12/31/96.
(2) The LTIP payouts column shows cash payouts made under the Company's
Long-Term Incentive Plan for the performance periods that ended in 1995 and
1994. Payouts for the performance period that ended in 1996 were made in shares
of restricted stock, as reflected in the Restricted Stock Awards column.
(3) For 1996, reflects Company contributions under the Company's Thrift
Incentive Plan.
(4) Compensation for Mr. Basch and Mr. Kerr is reported beginning in 1995, when
they became executive officers of the Company, and their 1995 cash compensation
reflects the fact that they were not employed by the Company for a full year in
1995.
STOCK OPTION AND LONG-TERM INCENTIVE PLAN TABLES
The following tables show information with respect to stock options and
potential awards under the Company's Long-Term Incentive Plan for the
individuals named in the Summary Compensation Table.
Option Grants in Last Fiscal Year (ended 12/31/96)
Potential Realizable
Individual Grants Value at Assumed Annual
Rates of Stock Price
Percent of Appreciation for
Number of Total Option Term(2)
Securities Options
Underlying Granted to Exercise
Options Employees or Base Expira-
Name Granted in Fiscal Price tion
(1) Year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------
Gordon W. Kreh 75,000 19% $50.00 3/24/2006 $ 2,357,250 $5,976,000
John J. Kelley 30,000 7.6% $50.00 3/24/2006 $ 942,900 $2,390,400
Michael L. Downs 30,000 7.6% $50.00 3/24/2006 $ 942,900 $2,390,400
Saul L. Basch 20,000 5.1% $50.00 3/24/2006 $ 628,600 $1,593,600
William A. Kerr 20,000 5.1% $50.06 1/1/2006 $ 630,800 $1,596,800
20,000 5.1% $50.00 3/24/2006 $ 628,600 $1,593,600
(1) Options granted are nonstatutory stock options. The exercise price of the
option is equal to the fair market value of the stock on the date of the grant.
Payment for the shares as to which an option is exercised may be made in cash or
in shares of Company common stock or a combination of cash and stock. These
options may not be exercised any earlier than one year or any later than ten
years from the date of the grant. Participants will be permitted to satisfy any
federal, state or local tax requirements due upon exercise of a stock option by
delivering to the Company already-owned Company common stock or by directing the
Company to retain stock otherwise issuable upon such exercise to the
participant, having a fair market value equal to the amount of the tax.
(2) These figures are calculated pursuant to SEC rules by multiplying the number
of options granted by the difference between the option exercise price and a
future hypothetical stock price, assuming the value of Company common stock
appreciates 5% or 10% each year over the original option price, compounded
annually, for the life of the options. These figures are not intended to
forecast possible future appreciation, if any, of the Company's stock price.
Aggregated Option Exercises in Last Fiscal Year (ended 12/31/96) and FY-End
Option Values
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-money
Shares Options at Options at
Acquired on Value Fiscal Year-end Fiscal Year-end
Name Exercise Realized (#) ($)
(#) ($) Exercisable/ Exercisable/
Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
Gordon W. Kreh 0 $0 167,500/75,000 $208,525/0
John J. Kelley 0 $0 74,200/0 $130,450/0
Michael L. Downs 0 $0 55,000/30,000 $130,450/0
Saul L. Basch 0 $0 20,000/20,000 0/0
William A. Kerr 0 $0 0/40,000 0/0
Long-Term Incentive Plan -- Awards in Last Fiscal Year (ended 12/31/96)
Estimated Future Payouts under Non-stock
Number of Performance Price-based Plans(2)
Shares, or Other
Units or Period until
Other Maturation or
Name Rights (1) Payout Threshold Target Maximum
- --------------------------------------------------------------------------------------------------
Gordon W. Kreh * 1996-1998 2,847 3,746 5,993
John J. Kelley * 1996-1998 1,044 1,373 3,296
Michael L. Downs * 1996-1998 1,025 1,348 3,236
Saul L. Basch * 1996-1998 1,139 1,498 3,596
William A. Kerr * 1996-1998 949 1,249 2,996
(1) The actual number of performance units awarded at the end of each period, if
any, is not yet determinable because the number of units earned will be based on
Company performance during the Performance Period as described below.
(2) Represents the potential number of Performance Contingent Units that may be
awarded to participants for the 1996-1998 Performance Period for the indicated
levels of performance under the terms of the Long-Term Incentive Plan, a
detailed description of which is contained in the Human Resources Committee
Report on Executive Compensation beginning on page 9. If the threshold, target
or maximum goals are reached, payouts under the plan will be made in shares of
Company common stock (which may be restricted shares) at the end of the
Performance Period, or their corresponding cash value at that time. Awards are
prorated for length of service during the Performance Period, and for varying
degrees of performance between the threshold and maximum levels of performance.
(For the Performance Period that ended on December 31, 1996, payouts were made
in shares of restricted stock as indicated in the Summary Compensation Table
located on page 12).
Retirement Plans
The following table shows the estimated annual amounts payable on a life annuity
basis to a participant retiring on 12/31/96 at age 65 under the Company's
qualified defined benefit pension plan, as well as nonqualified supplemental
pension plans that provide benefits that would otherwise be denied participants
by reason of certain Internal Revenue Code limitations on qualified plan
benefits, based on compensation that is covered under the plans and years of
service with the Company. All of the executives named in the Summary
Compensation Table participate in these plans. (A small portion of Mr. Kreh's
annual retirement benefit as calculated pursuant to the table shown below will
be paid from The Boiler Inspection and Insurance Company of Canada's retirement
plan due to Mr. Kreh's initial service and earnings with that affiliate.)
Final Years of Service
Average
Earnings 15 20 25 30 35
- -------- -- -- -- -- --
200,000 45,932 61,242 76,553 82,553 88,553
300,000 69,932 93,242 116,553 125,553 134,553
400,000 93,932 125,242 156,553 168,553 180,553
500,000 117,932 157,242 196,553 211,553 226,553
600,000 141,932 189,242 236,553 254,553 272,553
700,000 165,932 221,242 276,553 297,553 318,553
800,000 189,932 253,242 316,553 340,553 364,553
900,000 213,932 285,242 356,553 383,553 410,553
Benefits payable under the Company's Retirement Plan are based on the average of
the participant's highest three consecutive years of earnings in the 5-year
period before retirement, and on years of service. Earnings covered under the
plan include compensation listed in the Summary Compensation Table under the
"Salary", "Bonus", "Restricted Stock Awards" and "LTIP Payouts" columns.
(Restricted stock awarded under the Company's stock option plans is included in
the year the shares vest due to the expiration of the restricted period of time,
based on the fair market value of the shares on the vesting date. Restricted
stock awarded under the Company's stock option plans after January 1, 1994 is
not included in the definition of earnings under the plan. Restricted stock
awarded under the Company's Long-Term Incentive Plan is included as earnings
under the plan in the year the shares are awarded, based on the fair market
value of the shares on the award date.) Credited years of service as of December
31, 1996 for the individuals named in the Summary Compensation Table is as
follows: Mr. Kreh, 26 years; Mr. Kelley, 25 years; Mr. Downs, 24 years; Mr.
Basch, one year; and Mr. Kerr, one year.
In addition, the executive officers named in the Summary Compensation Table
are covered under a supplemental retirement/death benefit program. Under this
program, if the executive officer should die prior to his retirement, his
beneficiary will be entitled to one of the following two options that has been
selected by the executive: 1) an annual death benefit equal to 50% of the
executive's base salary for fifteen years; or 2) three times the executive's
base salary at the time of his death. At retirement, the executive is entitled
to an annual retirement supplement equal to 35% of his base salary for fifteen
years. An executive's right to the retirement benefit vests over a five-year
period, beginning on the date he is appointed an executive officer.
Employment Arrangements
The members of the Board of Directors believe that it is in the best
interests of the stockholders for the Company to have employment agreements with
each of the executive officers named in the Summary Compensation Table (and
certain other key employees) to (i) encourage them to remain in the Company's
employ during the uncertain times that attend a threatened or actual change in
control of the Company; and (ii) provide specified benefits in the event of
certain terminations unrelated to a change in control event. Under the terms of
the agreements, generally, a change in control shall be deemed to have occurred
if (i) any person acquires securities of the Company representing 25% or more of
the Company's then outstanding securities; (ii) current directors and those
replacement or additional members of the Board subsequently approved by a vote
of at least two-thirds of the Board, cease to make up at least two-thirds of the
Board; (iii) a merger or consolidation of the Company occurs such that the
stockholders of the Company prior to such merger own less than 60% of the
surviving corporation; or (iv) a complete liquidation or dissolution of the
Company or disposition of all or substantially all of the assets of the Company
occurs. A threatened change in control shall be deemed to have occurred if (i)
the Company enters an agreement, which if consummated would result in a change
in control; (ii) the Company or any person announces an intention to take
actions which if consummated would constitute a change in control; (iii) any
person acquires securities of the Company representing 10% or more of the
Company's then outstanding securities; or (iv) the Board determines that a
threatened change in control has occurred.
Upon a change in control, the following will occur: (i) under the
Company's Long-Term Incentive Plan, the fair market value of Performance
Contingent Units allocated to the executive for each three-year Performance
Period within which the date of the change in control falls, prorated for
actual service within each Performance Period prior to such date, will be paid,
and the restrictions on any shares of restricted stock awarded will lapse and
any amounts deferred will be paid; (ii) under the Company's Short-Term Incentive
Plan, an award will be paid calculated as though target performance was achieved
for the year within which the change in control occurs; (iii) under the
Company's Stock Option Plan, all stock options outstanding on the date of the
change in control will become immediately exercisable and the restrictions on
any restricted stock previously awarded will lapse.
If an executive's employment with the Company is terminated within the term
of the agreement following a change in control or, under certain circumstances,
a threatened change in control, other than for cause or resignation (other than
for good reason, which means termination as a result of, among other things, the
involuntary assignment of such executive to duties inconsistent with the
executive's position prior to such event or a reduction of the executive's
current compensation or benefits), the executive becomes entitled to the
following: (i) three times the sum of the executive's base salary in effect at
the time of such event and the three-year average of amounts paid to the
executive under the Company's Short-Term and Long-Term Incentive Plans; (ii) a
fully vested supplemental retirement benefit, as described above under
Retirement Plans; (iii) credit for an additional three years of service under
the Company's retirement plans; (iv) three years of welfare benefits provided at
the Company's then current subsidy rate; (v) reimbursement of any costs incurred
by the executive to enforce the agreement; (vi) outplacement services; and (vii)
payment to the executive equal to the amount of any excise tax imposed upon the
executive with respect to the foregoing payments as a result of the occurrence
of such event.
The agreements also provide certain severance benefits in the event that
the Company terminates the employment of the executive other than for cause or
in connection with a change in control. In such event, the executive would be
entitled to receive severance payments in installments over a period of two
years equal to two times the executive's base salary, outplacement services and
reimbursement of any costs incurred to enforce the agreement if the executive is
successful in such effort.
The Company has established a trust (which would be funded upon a
threatened change in control) pursuant to which payments under these agreements
and certain other benefit plans will be paid in the event of a threatened or
actual change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are none.
TRANSACTIONS WITH MANAGEMENT
Fleet Financial Group, of which Mr. Alvord served during 1996 as
Chairman and a director, performed various services for the Company in 1996,
among which were acting as the trustee for the Company's Thrift Incentive Plan,
the Retirement Plan and the Employee Stock Ownership Plan. The Company and
certain of its subsidiaries also maintained various accounts with Fleet
Financial Group during 1996. In the opinion of the Company, the fees for these
services were comparable to those charged by other financial institutions. The
Company and its subsidiaries maintain banking relationships with various other
financial institutions.
PERFORMANCE GRAPHS
The following two line-graphs compare cumulative, five-year and ten-year
total stockholder returns on Company common stock on an indexed basis with the
S&P 500 Stock Index and the S&P 500 Property/Casualty Insurance Index, based on
initial investments on December 31, 1991 and December 31, 1986, respectively, of
$100, assuming that all dividends, if any, were reinvested.
1991 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------
Hartford Steam Boiler 100 105.47 83.72 78.54 103.51 100.80
S&P Property/Casualty 100 117.11 115.04 120.67 163.38 198.53
S&P 500 100 107.62 118.46 120.03 165.13 203.05
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------
Hartford Steam Boiler 100 100.98 167.70 252.36 237.83 290.23 306.12 242.98 227.95 300.43 292.56
S&P Property/Casualty 100 95.97 98.88 144.55 141.24 176.83 207.08 203.42 213.38 288.91 351.06
S&P 500 100 105.25 122.73 161.62 156.60 204.31 219.88 242.04 245.24 337.39 414.86
PROPOSAL 2
PROPOSAL TO AMEND THE 1995 STOCK OPTION PLAN
The Board of Directors believes that the Company's 1995 Stock Option Plan
has been of substantial value in facilitating the efforts of the Company to
attract and retain key employees of outstanding ability by providing them an
opportunity to acquire a proprietary interest in the Company and giving them an
additional incentive to remain with the Company and to use their best efforts on
its behalf.
The plan currently provides that a maximum of 850,000 shares of Company
common stock may be issued pursuant to grants made under the plan and that the
plan will terminate on April 17, 2005. The Board of Directors believes that the
grants made pursuant to the plan are an important component of the Company's
overall compensation program and are necessary to attract and retain outstanding
executives and other key employees. On February 1, 1997, 329,650 shares remained
available for future grants to be made pursuant to the plan. Since the adoption
of the plan in 1995, the Company's compensation practices have been modified to
make equity ownership of the Company a larger component of compensation, and
therefore, the Board of Directors believes the number of shares presently
available for the grant of awards under the plan will be insufficient for the
number of awards to be made by the Company. The Board therefore adopted on
November 3, 1996, subject to the approval of the stockholders, an amendment to
the plan which would increase the number of shares subject to issuance under the
plan to 1,850,000.
The full text of the proposed plan amendment is annexed as Appendix A to
this Prospectus and Proxy Statement.
The closing price of Company common stock on March 14, 1997 as reported in
The Wall Street Journal was $46.25.
Material Features of the Plan
General
Executive and middle management employees of the Company or its
subsidiaries are eligible to participate in the plan. The Board estimates that
approximately two hundred persons participate in the plan. Participants are
recommended by their management. Under the plan, The Human Resources Committee
of the Board of Directors, as plan administrator (the "Committee"), is
authorized to grant incentive and nonstatutory stock options, stock appreciation
rights in tandem with such options and restricted stock awards to eligible
employees.
As approved by stockholders at the 1995 Annual Meeting, a maximum of
850,000 shares of Company common stock has been reserved for issuance under the
plan. (If the proposed amendment is approved, the maximum number of shares
reserved for issuance will be 1,850,000.) No single participant may be granted
awards pursuant to the plan in excess of 100,000 shares of Company common stock
in any calendar year. The plan permits adjustments, in the Board of Directors'
discretion, in the number of shares of Company common stock authorized to be
issued in the event of stock splits, stock dividends and other changes in the
capitalization of the Company. The plan provides that preferred stock may be
issued in lieu of common stock. The Company has no present intention to issue
preferred stock pursuant to the plan. Shares of Company common stock issued
under the plan may be newly issued or shares previously repurchased by the
Company.
The Committee is responsible for determining the type and particular
provisions of awards for eligible employees and is responsible for interpreting
the plan and for issuing such rules as are necessary for its administration. The
Committee is composed of directors who are ineligible to participate in the
plan.
Under the terms of the plan, the Board of Directors is permitted to
amend, suspend or discontinue the plan except that no amendment may be made
without the approval of stockholders that increases the number of shares
reserved for options and restricted stock awards under the plan, changes the
class of persons eligible to participate, permits an option grant at a price
less than fair market value or extends the term of the plan or the term during
which an option may be granted or exercised.
Option Grants
The plan provides that the option price of both incentive and
nonstatutory stock option grants will not be less than the fair market value of
Company common stock on the date an option is granted. The fair market value is
defined as the average of the high and low prices per share of Company common
stock as quoted by the New York Stock Exchange Composite Transaction Reporting
System.
The specific terms of an option grant to a plan participant are determined
by the Committee. However, in no event may an option be exercised within one
year of, or beyond ten years from, the date of the grant. In addition, no option
or associated stock appreciation right may be exercised more than two years
after termination of the participant's employment, if such termination occurred
following the death, disability or retirement of the participant or a change in
control of the Company, as such terms are defined in the plan. If termination of
employment occurs for any other reason (other than termination for cause) no
option or associated stock appreciation right may be exercised more than three
months following the date of termination. However, if the participant dies
within this three-month period, the participant's beneficiary will be permitted
to exercise the option or stock appreciation right within one year of the date
of termination of employment. No option may be exercised by a participant or a
beneficiary beyond the term specified in the option grant. Options and stock
appreciation rights will generally be nontransferable during the lifetime of the
participant, except that the Committee may, in its discretion, grant
nonqualified stock options that may be transferred pursuant to a qualified
domestic relations order, or to an immediate family member or a trust for the
benefit of an immediate family member. Payment for the shares as to which an
option is exercised will be made in cash, or if permitted by the Committee, in
shares of Company common stock that have been held by the participant for at
least six months, or a combination of cash and stock. The Committee may permit
participants to satisfy, in whole or in part, any federal, state, or local tax
requirements due upon exercise of a stock option by delivering to the Company
already owned Company common stock or by directing the Company to retain stock
otherwise issuable upon such exercise to the participant, having a fair market
value equal to the amount of the tax.
Under the terms of the plan, an option grant may, in the discretion of
the Committee, also include a stock appreciation right which will entitle a
participant to surrender the option, in whole or in part, and receive in
exchange an amount equal to the excess of the fair market value, on the date of
surrender, of the shares covered by the option over the option price of such
shares. This excess may be paid in shares of Company common stock, cash or a
combination of both, at the discretion of the Committee.
Restricted Stock Awards
A restricted stock award is an award of common shares that may not be
sold, assigned, transferred, or otherwise encumbered, except by will or the laws
of descent and distribution, for a period (the "restricted period") of five
years, or such shorter period as the Committee shall determine, from the date on
which the award is granted. The Committee may provide that the foregoing
restrictions shall lapse with respect to specified percentages of the awarded
shares on successive anniversaries of the date of the award. In addition, the
Committee has the authority to cancel all or any portion of any outstanding
restrictions prior to the expiration of the restricted period.
During the restricted period, the participant is the registered owner
of the shares and is entitled to receive dividends with respect to such stock
and to vote such shares, but participants do not receive stock certificates. If
during the restricted period the participant's continuous employment terminates
for any reason (other than by reason of death, disability, retirement or
pursuant to a change in control as such terms are defined under the plan), any
shares remaining subject to restrictions are forfeited by the participant and
transferred at no cost to the Company, provided however, that as noted above,
the Committee has the authority to cancel any or all outstanding restrictions
prior to the end of the restricted period, including cancellation of
restrictions in connection with certain types of termination of employment. When
the restricted period ends, the restrictions on shares lapse and stock
certificates are delivered to the participant. The Committee may permit
participants to satisfy, in whole or in part, any federal, state, or local tax
requirements due upon the lapse of such restrictions by delivering already-owned
Company common stock or by directing the Company to retain Company common stock
otherwise issuable to the participant upon the lapse of such restrictions,
having a fair market value equal to the amount of the tax.
Federal Income Tax Consequences
A participant is not taxed upon the grant of a Nonstatutory Stock
Option (NSO). Upon the exercise of an NSO, the participant is taxed at ordinary
income rates on the difference between the fair market value of the shares on
the date of exercise and the option price. The Company is entitled to a tax
deduction equal in amount to ordinary income recognized by the participant. The
participant's basis in the Company common stock acquired upon exercise of an NSO
is equal to the option price plus the amount of ordinary income recognized.
A participant does not recognize any income for federal income tax
purposes upon either the grant or timely exercise of an Incentive Stock Option
(ISO). However, the spread at exercise will constitute an item includible in
alternative minimum taxable income, and thereby may subject the optionee to the
alternative minimum tax.
If the participant holds the shares purchased through the exercise of
the ISO for two years from the date of the grant of the option and one year from
the exercise date, the participant will be eligible for long-term capital gains
treatment on the sale of the shares equal to the difference between the amount
realized on the sale and the option price. The Company is not entitled to a tax
deduction in this event. If the participant disposes of the shares within two
years from the date of the grant or within one year from the exercise date (a
"disqualifying disposition"), the participant will be subject to ordinary income
tax treatment on the difference between the option price and the lesser of the
fair market value of the shares on the date of exercise or the amount realized
on disposition. The Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the participant.
The Committee may, in its discretion permit a participant to deliver
previously acquired shares in payment for the option price of an NSO or ISO. If
the participant uses shares of Company common stock to pay the option price of
an NSO, gain or loss is not recognized on the exchange to the extent that the
number of shares received does not exceed the number turned in as payment. The
shares received in the exchange have the same basis and holding periods as the
shares used for payment. Any additional shares received upon the exercise of an
NSO have a tax basis equal to the amount of ordinary income realized by the
participant and holding period beginning on the date of exercise.
If the participant uses shares of Company common stock to pay the option
price of an ISO, gain or loss is not generally recognized on the exchange. The
equivalent number of shares received in exchange for the shares turned in have
the basis and holding period of the shares turned in for capital gain or loss
purposes. Any additional shares received have a zero basis with a holding period
beginning on the exercise date. However, if Company common stock acquired upon a
prior exercise of an ISO is transferred in payment for subsequent exercise of an
ISO or NSO, before the requisite holding periods for the surrendered shares have
been met, the optionee will recognize ordinary income on the gain resulting from
the disposition of such shares. "Gain" for this purpose is defined as the lesser
of i) the difference between the fair market value of the stock on the date of
exercise of the first option and the option price of the first option, or ii)
the difference between the fair market value of the stock on the date of
exercise of the second option and the option price of the first option.
Upon the exercise of a Stock Appreciation Right (SAR) a participant
will be subject to ordinary income tax treatment on the cash plus the fair
market value of shares of Company common stock received. The Company will be
entitled to a tax deduction in the same amount as the ordinary income realized
by the participant. A participant's basis in any stock acquired upon the
exercise of an SAR is equal to the amount of ordinary income recognized
excluding any cash received.
In the case of a restricted stock award, a participant is not taxed upon
the grant of any such award, but rather, the participant realizes ordinary
income in an amount equal to the fair market value of Company common stock at
the time the shares are no longer subject to a substantial risk of forfeiture
(as defined in the Internal Revenue Code [the "Code"]). The Company is entitled
to a deduction at the time and in the amount that the participant realizes
ordinary income, unless such amount exceeds the limit on compensation payable to
executives pursuant to Section 162(m) of the Code. A participant may elect under
Section 83(b) of the Code (not later than 30 days after acquiring such
restricted shares) to realize ordinary income at the time the restricted shares
are awarded in an amount equal to their fair market value at that time,
notwithstanding the fact that such shares are subject to restrictions and a
substantial risk of forfeiture. If such an election is made, no additional
taxable income will be recognized by such participant at the time the
restrictions lapse. However, if shares in respect of which such election was
made are later forfeited, no tax deduction is allowable to the participant for
the forfeited shares, and the Company will be deemed to realize ordinary income
equal to the amount of the deduction allowed to the Company at the time of the
election in respect of such forfeited shares.
It cannot be determined at this time what benefits or amounts, if any,
will be received by or allocated to any person or group of persons under the
plan if the amendment is adopted or what benefits or amounts would have been
received by or allocated to any person or group of persons for the last fiscal
year if the amendment had been in effect.
Stockholder Vote Required for Approval
Approval of Proposal 2 requires that the number of votes cast in favor
of the proposal exceed the number of votes cast opposing the proposal. The Board
of Directors unanimously recommends a vote FOR Proposal 2.
PROPOSAL 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors recommends that the firm of Coopers & Lybrand
L.L.P. be appointed as independent public accountants for the Company for the
year ending December 31, 1997. Coopers & Lybrand L.L.P. has served as the
Company's independent public accountants since 1965.
Representatives of Coopers & Lybrand L.L.P. will be present at the
meeting to make a statement if they wish to do so, and will be available to
respond to appropriate questions raised by stockholders.
Unless otherwise directed, the shares represented by the enclosed proxy
card will be voted for the appointment of Coopers & Lybrand L.L.P. as
independent public accountants for 1997. Approval of Proposal 3 requires that
the number of votes cast in favor of the proposal exceed the number of votes
cast opposing the proposal.
The Board of Directors unanimously recommends a vote FOR Proposal 3.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholders who wish to submit written proposals for possible inclusion in
next year's proxy statement must make certain that they are received no later
than October 30, 1997. Proposals should be sent to the Corporate Secretary, The
Hartford Steam Boiler Inspection and Insurance Company, One State Street, P.O.
Box 5024, Hartford, Connecticut 06102-5024.
OTHER BUSINESS TO COME BEFORE THE MEETING
The management does not know of any matters to be presented for
consideration at the meeting other than the matters described in the Notice of
Annual Meeting; but if other matters are properly presented, it is the intention
of the persons named in the accompanying proxy to vote on such matters in
accordance with their judgment. Stockholders desiring to nominate persons for
election as directors or to bring other business before stockholders at the
meeting must provide the appropriate written notice required by the Company's
Bylaws, copies of which are available upon request to the Corporate Secretary of
the Company.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION. STOCKHOLDERS MAY RECEIVE A COPY OF THE 10-K BY SENDING A
WRITTEN REQUEST TO THE OFFICE OF THE TREASURER, THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY, ONE STATE STREET, P.O. BOX 5024, HARTFORD,
CONNECTICUT 06102-5024.
By Order of the Board of Directors,
R. K. PRICE
Corporate Secretary
Printed on recycled paper
APPENDIX A
AMENDMENT AND RESTATEMENT TO THE 1995 STOCK OPTION PLAN
RESOLVED, that the following amendment shall be made to The Hartford
Steam Boiler Inspection and Insurance Company 1995 Stock Option Plan
(the "plan"), subject to approval by the holders of a majority of the
shares voting at the stockholders' Annual Meeting scheduled to be held
on April 24, 1997 [amendment is underlined]:
The first sentence of Section 1.5(a) of the plan shall be amended effective
April 24, 1997 to read as follows:
The maximum number of shares which may be optioned or awarded under the plan
shall be 1,850,000 shares of Stock.
---------
RESOLVED, that the plan be restated to reflect the above amendment.
Appendix B
As amended and restated
effective 4/24/97
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
1995 STOCK OPTION PLAN
ARTICLE I - PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose of Plan
The purpose of the 1995 Stock Option Plan is to attract and retain
persons of ability as employees of the Company and its Subsidiaries and
to motivate such employees to exert their best efforts to contribute to
the long-term growth of the Company by encouraging ownership in the
Company. The Plan is further designed to promote a closer identity of
interest between key employees and the Company's shareholders.
1.2 Definitions
(a) "Appreciation" shall mean the excess of the Fair Market Value of
a share over the specified option price per share multiplied by
the number of shares subject to the option or portion thereof
which is surrendered.
(b) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(c) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(d) "Beneficiary" shall mean the legal representative of the estate
of a deceased Optionee or the person or persons who shall acquire
the right to exercise an option or Stock Appreciation Right by
bequest or inheritance or by reason of the death of the Optionee.
In the case where a Participant's right to shares of Restricted
Stock vest as provided in Section 2.5(d) on or prior to the
Participant's date of death, the term "Beneficiary" shall also
mean the legal representative of the estate of the Participant or
the person or persons who shall acquire the right to such vested
shares of Stock by bequest or inheritance or by reason of the
death of such Participant.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not
including in the securities beneficially owned by such
Person any securities acquired directly from the
Company or its affiliates) representing 25% or more of
the combined voting power of the Company's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph (III)
below; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on December 23, 1996,
constitute the Board and any new director (other than a
director whose initial assumption of office is in
connection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board
or nomination for election by the Company's
shareholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still
in office who either were directors on December 23,
1996 or whose appointment, election or nomination for
election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior to such merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary
of the Company, at least 60% of the combined voting
power of the securities of the Company or such
surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii)
a merger or consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company (not including in the securities
Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power
of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or
disposition by the Company of all or substantially all
of the Company's assets, other than a sale or
disposition by the Company of all or substantially all
of the Company's assets to an entity, at least 60% of
the combined voting power of the voting securities of
which are owned by shareholders of the Company in
substantially the same proportions as their ownership
of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control"
shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated
transactions immediately following which the record holders of
the common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the
Company immediately following such transaction or series of
transactions.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall mean the Human Resources Committee of the Board
or any future committee of the Board performing similar
functions.
(i) "Company" shall mean The Hartford Steam Boiler Inspection and
Insurance Company and, except in determining under Section 1.2(f)
hereof whether or not any Change in Control of the Company has
occurred, shall include any successor to its business and/or
assets which assumes this Plan by operation of law, or otherwise.
(j) "Disability" shall mean any condition which would entitle an
employee of the Company or a Subsidiary to receive benefits under
the Company's Long-Term Disability Plan or any long-term
disability plan maintained by the Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock as reported by the New
York Stock Exchange Composite Transaction Reporting System (NYSE)
on the date for which the Fair Market Value is being determined,
or if no quotations are available for the Company's Stock, for
the next preceding date for which such a quotation is available.
If shares of Company Stock are not then listed on the NYSE, Fair
Market Value shall be reasonably determined by the Committee, in
its sole discretion.
(m) "Incentive Stock Option" shall mean an option described in
Section 422 of the Code.
(n) "Nonstatutory Stock Option" shall mean an option which does not
qualify as an Incentive Stock Option under Section 422 of the
Code.
(o) "Optionee" shall mean an employee of the Company or a Subsidiary
to whom an option is granted.
(p) "Participant" shall mean an employee of the Company or a
Subsidiary to whom an option is granted or to whom Restricted
Stock is awarded.
(q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(r) "Plan" shall mean The Hartford Steam Boiler Inspection and
Insurance Company 1995 Stock Option Plan, as amended.
(s) "Restricted Stock" shall mean one or more shares of Stock awarded
to an eligible employee under Section 2.5 of the Plan and subject
to the terms and conditions set forth in Section 2.5.
(t) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan or any
Subsidiary's retirement plan.
(u) "Stock" shall mean the common stock of the Company.
(v) "Stock Appreciation Right" shall mean a right to surrender to the
Company all or any portion of an option and, as determined by the
Committee, to receive in exchange therefor cash or whole shares
of Stock (valued at current Fair Market Value) or a combination
thereof having an aggregate value equal to the excess of the
current Fair Market Value of one (1) share over the option price
of one (1) share specified in such option grant multiplied by the
number of shares subject to such option or the portion thereof
which is surrendered.
(w) "Subsidiary" shall mean any corporation of which at least 50% of
the voting stock is owned by the Company and/or one or more of
the Company's other Subsidiaries.
1.3 Administration
The Plan shall be administered by the Committee as defined herein. No
member of the Committee shall be eligible to be granted an option under
the Plan. Each member of the Committee shall be a "disinterested
director" within the meaning of Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act and an "outside
director" within the meaning of Section 162(m) of the Code. The
Committee shall have the responsibility of interpreting the Plan and
establishing and amending such rules and regulations necessary or
appropriate for the administration of the Plan or for the continued
qualification of any Incentive Stock Options granted hereunder. In
addition, the Committee shall have the authority to designate the
employees who shall be granted options and awarded Restricted Stock
under the Plan and the amount and nature of the options, related rights
and awards to be granted to each such employee. All interpretations of
the Plan or of any options, related rights or awards issued under it
made by the Committee shall be final and binding upon all persons
having an interest in the Plan. No member of the Committee shall be
liable for any action or determination taken or made in good faith with
respect to this Plan or any option granted hereunder.
1.4 Eligibility
Executive and middle management employees of the Company or its
Subsidiaries shall be eligible to receive grants of stock options and
awards of Restricted Stock under the Plan.
1.5 Stock Subject to the Plan
(a) The maximum number of shares which may be optioned or awarded
under the Plan shall be 1,850,000 shares of Stock. Preferred
Stock may be used in lieu of grants of Stock under the Plan
subject to further authorization of the Board of the Company.
Notwithstanding the foregoing, in no event shall the Committee
grant any Participant Incentive Stock Options, Nonstatutory Stock
Options, Stock Appreciation Rights or Restricted Stock in any
single calendar year for more than 100,000 shares of Stock. The
limitation on the number of shares which may be optioned or
awarded under the Plan or to an individual Participant shall be
subject to adjustment under Section 3.2 of this Plan.
(b) If any outstanding option under the Plan for any reason expires,
lapses or is terminated, the shares of the Stock which were
subject to such option shall be restored to the total number of
shares available for grant pursuant to the Plan. Shares as to
which there is a surrender in whole or in part of an option upon
the exercise of a Stock Appreciation Right shall not again be
available for grant pursuant to the Plan. Stock delivered upon
the exercise of a Stock Appreciation Right shall not be charged
against the number of shares of Stock available for the grant of
options.
(c) Upon the exercise of an option or a Stock Appreciation Right, or
payment of a Restricted Stock award, the Company may distribute
newly issued shares, or shares previously repurchased on
behalf of the Company through a broker or other independent
agent designated by the Committee. Such repurchases shall be
subject to such rules and procedures as the Committee may
establish hereunder and shall be consistent with such
conditions as may be prescribed from time to time by law or
by the Securities and Exchange Commission ("SEC") in any rule or
regulation or in any exemptive order or no-action letter issued
by the SEC to the Company or the broker with respect to the
making of such purchase or otherwise.
ARTICLE II - OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK
2.1 Granting of Options
The Committee may grant Incentive Stock Options (ISOs), Nonstatutory
Stock Options or any combination thereof, provided that the aggregate
Fair Market Value (determined at the time the option is granted) of the
shares of Stock with respect to which ISOs are exercisable for the
first time by an employee during any calendar year (under this Plan and
any other option plan of the Company or its Subsidiaries) shall not
exceed $100,000. No such maximum limitation shall apply to Nonstatutory
Stock Options.
2.2 Terms and Conditions of Options
Each option granted under the Plan shall be authorized by the Committee
and shall be evidenced by an instrument delivered to the Participant,
in a form approved by the Committee, containing the following terms and
conditions and such other terms and conditions as the Committee may
deem appropriate.
(a) Option Term - Each option shall specify the term for which the
option thereunder is granted and shall provide that the option
shall expire at the end of such term. In no event shall any
option be exercisable any earlier than one year after the date
of such grant. The Committee shall have authority to grant
options exercisable in cumulative or non-cumulative
installments. No option shall be exercisable after the
expiration of ten years from the date upon which such option
is granted. Notwithstanding anything to the contrary contained
herein, in the event of a Change in Control, all outstanding
options shall immediately become exercisable.
(b) Option Price - The option price per share shall be determined
by the Committee at the time an option is granted, and shall
not be less than the Fair Market Value of one share of Stock
on the date the option is granted.
(c) Exercise of Option -
(1) Options may be exercised only by written notice to the
Company accompanied by the proper amount of payment for
the shares.
(2) The Committee may postpone any exercise of an option or
a Stock Appreciation Right or the delivery of Stock
following the lapse of certain restrictions with
respect to awards of Restricted Stock for such time as
the Committee in its discretion may deem necessary, in
order to permit the Company with reasonable diligence
(i) to effect or maintain registration of the Plan or
the shares issuable upon the exercise of the option or
the Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock
under the Securities Act of 1933, as amended, or the
securities laws of any applicable jurisdiction, or (ii)
to determine that such shares and Plan are exempt from
such registration; the Company shall not be obligated
by virtue of any option or any provision of the Plan to
recognize the exercise of an option or the exercise of
a Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock to
sell or issue shares in violation of said Act or of the
law of the government having jurisdiction thereof. Any
such postponement shall not extend the term of an
option; neither the Company nor its directors or
officers shall have any obligation or liability to the
Optionee of an option or Stock Appreciation Right, or
to the Optionee's Beneficiary with respect to any
shares as to which the option or Stock Appreciation
Right shall lapse because of such postponement.
(3) To the extent an option is not exercised for the total
number of shares with respect to which such options
become exercisable, the number of unexercised shares
shall accumulate and the option shall be exercisable,
to such extent, at any time thereafter, but in no event
later than ten years from the date the option was
granted or after the expiration of such shorter period
(if any) which the Committee may have established with
respect to such option pursuant to Subsection (a) of
this Section 2.2.
(d) Payment of Purchase Upon Exercise - Payment for the shares as
to which an option is exercised shall be made in one of the
following ways:
(1) payment in cash of the full option price of the shares
purchased;
(2) if permitted by the Committee, the delivery of Stock of
the Company held by the purchaser for at least six
months accompanied by the certificates therefor
registered in the name of such purchaser and properly
endorsed for transfer, having a Fair Market Value (as
of the date of exercise) equal to the full option
price; or
(3) if permitted by the Committee, a combination of cash
and Stock (as described in (2) above) such that the sum
of the amount of cash and the Fair Market Value of the
Stock (as of the date of exercise) is equal to the full
option price.
(e) Nontransferability - No option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution subject to Section 2.4 hereunder, unless the
Committee shall permit (on such terms and conditions as it shall
establish) such option to be transferred to a member of the
Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members, or to an
"alternate participant" pursuant to a Qualified Domestic
Relations Order as defined in the Code. During the lifetime of an
Optionee, an option shall be exercisable only by such Optionee,
or if applicable, a transferee. For purposes of Section 2.4
hereunder, a transferred option may be exercised by the
transferee to the extent that the Participant would have been
entitled had the option not been transferred.
(f) Laws and Regulations - The Committee shall have the right to
condition any issuance of shares to any Optionee or Participant
hereunder upon such Optionee's or Participant's undertaking in
writing to comply with such restrictions on the subsequent
disposition of such shares as the Committee shall deem necessary
or advisable as a result of any applicable law or regulation. In
the case of Stock issued or cash paid upon exercise of options or
associated Stock Appreciation Rights, or the lapse of
restrictions with respect to Restricted Stock awarded to a
Participant under the Plan, the Optionee, Participant or other
person receiving such Stock or cash shall be required to pay to
the Company or a Subsidiary the amount of any taxes which the
Company or Subsidiary is required to withhold with respect to
such Stock or cash. The Company or a Subsidiary may, in its sole
discretion, permit an Optionee or Participant or other person
receiving such Stock or cash to satisfy any Federal, state or
local (if any) tax withholding requirements, in whole or in part
by (i) delivering to the Company or subsidiary shares of Stock
held by such Optionee, Participant or other person having a Fair
Market Value equal to the amount of the tax or (ii) directing the
Company or Subsidiary to retain Stock otherwise issuable to the
Optionee, Participant or other person under the Plan having a
Fair Market Value equal to the amount of the tax. If Stock is
used to satisfy tax withholding, such Stock shall be valued based
on the Fair Market Value when the tax withholding is required to
be made.
(g) Modification - The Committee shall have authority to modify an
option without the consent of the Optionee, provided that such
modification does not affect the exercise price or otherwise
materially diminish the value of such option to the Optionee, and
provided further, that except in connection with an amendment to
the Plan, the Committee shall not have authority to make any
modification to any particular option that materially increases
the value of the option to the Optionee.
2.3 Stock Appreciation Rights
(a) The Committee may, but shall not be required to, grant a Stock
Appreciation Right to the Optionee either at the time an option
is granted or by amending the option at any time during the term
of such option. A Stock Appreciation Right shall be exercisable
only during the term of the option with which it is associated.
The Stock Appreciation Right shall be an integral part of the
option with which it is associated and shall have no existence
apart therefrom. The conditions and limitations of the Stock
Appreciation Right shall be determined by the Committee and shall
be set forth in the option or amendment thereto. An amendment
granting a Stock Appreciation Right shall not be deemed to be a
grant of a new option for purposes of the Plan.
(b) A Stock Appreciation Right may be exercised by:
(1) filing with the Secretary of the Company a written election,
which election shall be delivered by the Secretary to the
Committee specifying:
(i) the option or portion thereof to be surrendered; and
(ii) the percentage of the Appreciation which the
Optionee desires to receive in cash, if any; and
(2) surrendering such option for cancellation or partial
cancellation, as the case may be, provided, however, that
any election to receive any portion of the Appreciation in
cash shall be of no force or effect unless and until the
Committee shall have consented to such election.
(c) No election to receive any portion of the Appreciation in cash
shall be filed with the Secretary and no Stock Appreciation Right
shall be exercised to receive any cash unless such election and
exercise shall occur during the period (hereinafter referred to
as the "Cash Window Period") beginning on the third business day
following the date of release for publication by the Company of a
regular quarterly or annual statement of sales and earnings and
ending on the twelfth business day following such date. The
Committee may consent to the election of a holder to receive any
portion of the Appreciation in cash at any time after such
election has been made. If such election is consented to, the
Stock Appreciation Right shall be deemed to have been exercised
during the Cash Window Period in which, or next occurring after
which, the Optionee completed all acts required of such Optionee
under the preceding paragraphs to exercise the Stock Appreciation
Right. Any Stock Appreciation Right exercised during said Cash
Window Period shall be valued and deemed exercised as of the date
during such Cash Window Period when the average of the high and
low prices for the shares of Stock as reported by the NYSE is the
highest.
2.4 Exercise of Option or Stock Appreciation Right in the Event of
Termination of Employment or Death
(a) Options and associated Stock Appreciation Rights shall terminate
immediately upon the termination of the Optionee's employment
with the Company or a Subsidiary unless the written option
instrument of such Optionee provides otherwise. The conditions
established by the Committee in the instrument for exercising
options and Stock Appreciation Rights following termination of
employment are limited by the following restrictions.
(1) If termination of employment is by reason of the death of
the Optionee, no exercise by the Optionee's Beneficiary may
occur more than two years after the Optionee's death.
(2) If termination of employment is the result of Disability or
Retirement, no exercise by the Optionee or his Beneficiary
may occur more than two years following such termination of
employment.
(3) If termination of employment is for a reason other than
death, Disability, Retirement or "involuntary termination
for cause", no exercise by the Optionee may occur more than
three months following such termination of employment. As
used herein "involuntary termination for cause" shall mean
termination of employment by reason of the Optionee's
commission of a felony, fraud or willful misconduct which
has resulted, or is likely to result, in substantial and
material damage to the Company or its Subsidiaries. Whether
an involuntary termination is for "cause" will be determined
in the sole discretion of the Committee.
(b) If the Optionee should die after termination of employment, such
termination being for a reason other than Disability, Retirement
or involuntary termination for cause, but while the option is
still exercisable, the option or associated Stock Appreciation
Right, if any, may be exercised by the Beneficiary of the
Optionee no later than one year from the date of termination of
employment of the Optionee.
(c) Under no circumstances may an option or Stock Appreciation Right
be exercised by an Optionee or Beneficiary after the expiration
of the term specified for the option.
2.5 Awarding of Restricted Stock
(a) The Committee shall from time to time in its absolute discretion
select from among the eligible employees the Participants to whom
awards of Restricted Stock shall be granted and the number of
shares subject to such awards. Each award of Restricted Stock
under the Plan shall be evidenced by an instrument delivered to
the Participant in such form as the Committee shall prescribe
from time to time in accordance with the Plan. The Restricted
Stock subject to such award shall be registered in the name of
the Participant and held in escrow by the Committee during the
Restricted Period (as defined herein).
(b) Upon the award to a Participant of shares of Restricted Stock
pursuant to Section 2.5(a), the Participant shall, subject to
Subsection (c) of this Section 2.5, possess all incidents of
ownership of such shares, including the right to receive
dividends with respect to such shares and to vote such shares.
(c) Shares of Restricted Stock awarded to a Participant may not be
sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and
distribution, for a period of five years, or such shorter period
as the Committee shall determine, from the date on which the
award is granted (the "Restricted Period"). The Committee may
also impose such other restrictions and conditions on the shares
as it deems appropriate and any attempt to dispose of any such
shares of Restricted Stock in contravention of such restrictions
shall be null and void and without effect. In determining the
Restricted Period of an award, the Committee may provide that the
foregoing restrictions shall lapse with respect to specified
percentages of the awarded shares on successive anniversaries of
the date of such award. In no event shall the Restricted Period
end with respect to awarded shares prior to the satisfaction by
the Participant of any liability arising under Section 2.2(f).
(d) The restrictions described in Section 2.5(c) shall lapse upon the
completion of the Restricted Period with respect to specific
shares of Restricted Stock and the Participant's right to such
shares shall vest on such date or, if earlier, on the date that
the Participant's employment terminates on account of the death,
Disability or Retirement of the Participant. The Company shall
deliver to the Participant, or the Beneficiary of such
Participant, if applicable, within 30 days of the termination of
the Restricted Period, the number of shares of Stock that were
awarded to the Participant as Restricted Stock and with respect
to which the restrictions imposed under Section 2.5(c) have
lapsed, less any stock returned by the Company to satisfy tax
withholding pursuant to Section 2.2(f), if applicable.
(e) Except as provided in Sections 2.5(d) and (f), if the
Participant's continuous employment with the Company or a
Subsidiary shall terminate for any reason prior to the expiration
of the Restricted Period of an award, any shares remaining
subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, the Company or
a Subsidiary at no cost to the Company or Subsidiary.
(f) The Committee shall have the authority (and the instrument
evidencing an award of Restricted Stock may so provide) to cancel
all or any portion of any outstanding restrictions prior to the
expiration of the Restricted Period with respect to any or all of
the shares of Restricted Stock awarded to an employee hereunder
on such terms and conditions as the Committee may deem
appropriate.
(g) In the event of a Change in Control, all restrictions on any
outstanding shares of restricted stock shall lapse as of the date
of such Change in Control.
ARTICLE III - GENERAL PROVISIONS
3.1 Authority
Appropriate officers of the Company designated by the Committee
are authorized to execute and deliver written instruments evidencing
awards hereunder, and amendments thereto, in the name of the Company,
as directed from time to time by the Committee.
3.2 Adjustments in the Event of Change in Common Stock of the Company
In the event of any change in the Stock of the Company by reason of any
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Stock at a price substantially below Fair Market
Value, or of any similar change affecting the Stock, the number and
kind of shares which thereafter may be obtained and sold under the Plan
and the number and kind of shares subject to options in outstanding
option instruments and the purchase price per share thereof and the
number of shares of Restricted Stock awarded pursuant to Section 2.5(a)
with respect to which all restrictions have not lapsed, shall be
appropriately adjusted consistent with such change in such manner as
the Board in its discretion may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants in the Plan. Any fractional shares resulting from such
adjustments shall be eliminated. However, without the consent of the
Optionee, no adjustment shall be made in the terms of an ISO which
would disqualify it from treatment under Section 421(a) of the Code or
would be considered a modification, extension or renewal of an option
under Section 425(h) of the Code.
3.3 Rights of Employees
The Plan and any option or award granted under the Plan shall not
confer upon any Optionee or Participant any right with respect to
continuance of employment by the Company or any Subsidiary nor shall
they interfere in any way with the right of the Company or Subsidiary
by which an Optionee or Participant is employed to terminate his
employment at any time. The Company shall not be obligated to issue
Stock pursuant to an option or an award of Restricted Stock for which
the restrictions hereunder have lapsed if such issuance would
constitute a violation of any applicable law. No Optionee shall have
any rights as a shareholder with respect to any shares subject to
option prior to the date of issuance to such Optionee of a certificate
or certificates for such shares. Except as provided herein, no
Participant shall have any rights as a shareholder with respect to any
shares of Restricted Stock awarded to such Participant.
3.4 Amendment, Suspension and Discontinuance of the Plan
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without shareholder approval, take any
of the following actions unless such actions fall within the provisions
of Section 3.2 herein:
(a) increase the number of shares reserved for options pursuant to
Section 1.5;
(b) alter in any way the class of persons eligible to participate in
the Plan;
(c) permit the granting of any option at an option price less than
that provided under Section 2.2(b) hereof; or
(d) extend the term of the Plan or the term during which any option
may be granted or exercised.
No amendment, suspension or discontinuance of the Plan shall impair an
Optionee's rights under an option previously granted to an Optionee
without the Optionee's consent.
3.5 Governing Law
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Connecticut.
3.6 Effective Date of the Plan
The Plan as amended and restated shall be effective on April 18, 1995,
subject to the requisite approval of shareholders. No option shall be
granted pursuant to this Plan later than April 17, 2005, but options
granted before such date may extend beyond it in accordance with their
terms and the terms of the Plan.
EDGAR APPENDIX
The following is the text of the Company's 1997 form of proxy and memo to
employees participating in Company plans:
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
ONE STATE STREET, P.O. BOX 5024, HARTFORD, CONNECTICUT 06102-5024
ANNUAL MEETING OF STOCKHOLDERS - APRIL 24, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoints Joel B. Alvord, Richard G. Dooley, Gordon W.
Kreh and Lois D. Rice, each with the power to appoint his or her substitute, and
hereby authorizes them to represent and to vote, as designated on the reverse
side, all the shares of common stock of the Company held on record by the
undersigned on February 13, 1997 at the Annual Meeting of Stockholders to be
held on April 24, 1997 or any adjournment thereof, upon all matters properly
coming before said Annual Meeting including but not limited to the matters set
forth on the reverse side, hereby revoking any proxy heretofore given.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
(Important - To be signed and dated on reverse side)
SEE REVERSE SIDE
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY 1866
THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT
Regardless of whether you plan to attend the Annual Meeting of Stockholders, you
can be sure your shares are represented at the meeting by promptly returning
your proxy in the enclosed envelope.
COMPANY HIGHLIGHTS DURING 1996
Highlights of the Company's 1996 financial results include:
- a 15.3% increase in net earned premium from insurance operations to $448.6
million.
- an 11.9% increase in Engineering Services revenue to $55.8 million
(excluding Radian International LLC)
- a 94.7 combined ratio - far better than the industry average of
approximately 107;
- a decline in the insurance expense ratio to 49.1% from 50.9%; and
- a 14.5% increase in net investment income to $32.3 million.
- 1996 was also the 31st consecutive year that the Company paid increased
dividends to stockholders.
/X/ Please mark votes as in this example.
The Board of Directors recommends a vote FOR proposals 1, 2 AND 3.
1. Election of Directors.
Nominees: William B. Ellis, E. James Ferland and Wilson
Wilde
FOR ALL NOMINEES / /
WITHHELD FROM ALL NOMINEES / /
/ / -----------------------
For all nominees except as noted above
2. Approval of proposal to amend the 1995 Stock Option Plan.
/ /FOR
/ /AGAINST
/ /ABSTAIN
3. Appointment of Independent public accountants.
/ /FOR
/ /AGAINST
/ /ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
MARK HERE IF YOU HAVE MADE COMMENTS / /
Please sign exactly as your name appears. If acting as attorney, executor,
trustee or in other representative capacity, sign name and print title. Please
date proxy and return in the enclosed post-paid return envelope.
Signature: --------------------------- Date:----------
Signature: --------------------------- Date:----------
To: Employees of The Hartford Steam Boiler Inspection and Insurance Company
From: R. K. Price, Senior Vice President and Corporate Secretary
Date: March 27, 1997
If you are a participant in any of the Company's stock plans (Payroll Investment
Plan, Employee Stock Ownership Plan, Thrift Incentive Plan - HSB Stock Fund, or
the Stock Option and Restricted Stock Plan), you should receive proxy materials
for this year's Annual Meeting to be held on April 24, 1997 through the U.S.
mail shortly.
Annual reports were distributed under separate cover beginning on March 6, 1997
via bulk mail in order to save on postage expenses. HSB has used bulk mail for
several years for this reason, and although cost effective, it can result in
some delays in delivery. Proxy materials were distributed via first class mail
separately beginning on March 26, 1997. You may receive additional copies of the
materials if you hold shares registered other than in your name alone. You are
encouraged to return any excess copies of the Annual Report to your department
or Branch Office, and extra copies of the proxy statement to Jean Cohn at the
Home Office.
Included with the proxy materials is a card upon which to register your vote in
connection with actions proposed to be taken at the Annual Meeting. The proxy
card lists the number of shares allocated to your account under each of the
plans in which you participate, as well as any shares you hold directly. The
following abbreviations are used to identify your holdings:
COM - Shares held directly or through the Payroll Investment
Plan
RST - Restricted Stock held under the Stock Option and
Restricted Stock Plan
TIP - Shares allocated to your account under the Thrift Incentive Plan if you
participate in the HSB Stock Fund
ESO - Shares allocated to your account under the Employee Stock Ownership Plan
(ESOP)
If you hold shares jointly with another individual or as custodian for a minor's
account, you will receive a separate card for that account.
Whether you own one share or a thousand, it is very important that your shares
be represented at the Annual Meeting. As a shareholder, you have the right and
an obligation to have your vote count at the Annual Meeting. I encourage you to
use this opportunity by completing the proxy card and sending it back in the
envelope provided.
If you do not receive your materials by April 7, or if you misplace your card,
please contact Jean Cohn, Home Office, Ext. 5724.