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FORM 10-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 1-12749
HARTFORD LIFE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1470915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06089
(Address of principal executive offices)
(860) 525-8555
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: the following, which
are registered on the New York Stock Exchange, Inc.:
Class A Common Stock, par value $0.01 per share
7.2% Trust Preferred Securities, Series A, issued by Hartford Life
Capital I
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 29, 2000, there were outstanding 25,934,517 shares of Class A
Common Stock, $0.01 par value per share, and 114,000,000 of Class B Common
Stock, $0.01 par value per share, of the registrant. The aggregate market value
of the shares of the registrant's common equity held by non-affiliates of the
registrant was $910,113,213 based on the closing price of $35.375 per share of
Class A Common Stock on the New York Stock Exchange on February 29, 2000.
Documents Incorporated by Reference:
None
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EXPLANATORY NOTE
This Annual Report on Form 10-K/A is being filed as an amendment to the
Registrant's Annual Report filed on Form 10-K filed with the Securities and
Exchange Commission on March 24, 2000 for the purpose of providing the
information required by Items 10, 11, 12 and 13 of Part III of the Registrant's
Form 10-K.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF HARTFORD LIFE
DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
RAMANI AYER
Mr. Ayer, 52, has been Chairman of Hartford Life, Inc. (the "Company" or
"Hartford Life") since 1997,The Hartford Financial Services Group, Inc. (The
Hartford) and became Chairman, President and Chief Executive Officer of The
Hartford on February 1, 1997. Prior to that, he served as an Executive Vice
President of The Hartford since the ITT Corporation Spin-Off in December 1995,
a transaction in which The Hartford became a separate public company from ITT
Corporation (the "ITT Spin-Off"), until February 1997. Mr. Ayer has been
President and Chief Operating Officer of Hartford Fire Insurance Company
("Hartford Fire"), The Hartford's principal property and casualty insurance
subsidiary, since 1991 and previously served as Executive Vice President of
Hartford Fire from 1990 to April 1991 and Senior Vice President from 1989 to
1990. Mr. Ayer joined The Hartford in 1973 as a member of the operations
research department. During his career, he has been Director of corporate
reinsurance, Vice President of HartRe, The Hartford's reinsurance subsidiary,
and President of Hartford Specialty Company. He is Vice Chairman of the
American Insurance Association, a member of the Listed Company Advisory
Committee to the New York Stock Exchange Board of Directors, and serves on
the Boards of the American Institute for CPCU/IIA, and the Insurance
Information Institute. Mr. Ayer is a director of Hartford Hospital, the
Greater Hartford Chamber of Commerce, and is a trustee of the Mark Twain
House in Hartford, Connecticut. He also is a member of the Business
Roundtable.
DONALD R. FRAHM
Mr. Frahm, 68, has served as a director of the Company since 1997, and
served as Chairman, President and Chief Executive Officer of The Hartford from
April 1988 until his retirement on January 31, 1997. He has been a director of
The Hartford since 1985. Mr. Frahm is a director of Hartford Hospital and the
University of Hartford. He also is a corporator of Connecticut Children's
Medical Center.
ROBERT E. PATRICELLI
Mr. Patricelli, 60, has been a director of the Company since 1997. Since
1997 he has been Chairman and Chief Executive Officer of Women's Health USA,
Inc., a health care services company, and since 1999 has been Chairman of
GoToMyDoc, Inc., an Internet health care company. Prior to that, he was the
founder and Chairman, President and Chief Executive Officer of Value Health,
Inc., a provider of specialty managed care and health care information services,
from 1987 to 1997. From 1983 to 1987, Mr. Patricelli was Executive Vice
President of Cigna Corp. and President of its Affiliated Businesses Group. He is
a director of Northeast Utilities, Curagen Corporation, the Connecticut Business
and Industry Association, Wesleyan University and The Bushnell. Mr. Patricelli
also held various positions in the federal government, starting as a White House
Fellow in 1965, and serving as a minority counsel to a U. S. Senate
subcommittee, Deputy Undersecretary of the Department of Health, Education and
Welfare, and Administrator of the Urban Mass Transportation Administration. He
is a graduate of Wesleyan University and Harvard Law School, and was a Fulbright
Scholar at the University of Paris.
H. PATRICK SWYGERT
Mr. Swygert, 57, has been a director since 1997. He has been President of
Howard University, Washington, D.C., since August 1995. Prior to that, he was
President of the University at Albany, State University of New York, since 1990.
Mr. Swygert received his undergraduate and law degrees from Howard University,
has been a visiting professor and lecturer abroad and is the author of numerous
articles and publications on higher education and the law. He is a member of the
Board of Directors of The Hartford, The Victory Funds, Cleveland, Ohio and
Fannie Mae, Washington, D.C. Mr. Swygert is the immediate past Chairman of the
Washington, D.C. Area Consortium of Colleges and Universities and currently
serves as Chairman of the Community-Business Partnership of the Greater
Washington Board of Trade.
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DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
PAUL G. KIRK, JR.
Mr. Kirk, 62, has served as a director of the Company since 1997. He became
a partner in the law firm of Sullivan & Worcester in 1977 and is presently of
counsel to the firm. Mr. Kirk served as Chairman of the Democratic Party of the
United States from 1985 to 1989 and as Treasurer from 1983 to 1985. Following
his resignation in 1989 as Chairman of the Democratic Party of the United
States, he returned to Sullivan & Worcester as a partner in general corporate
practice at the firm's Boston and Washington offices. Mr. Kirk is a director of
The Hartford and Kirk & Associates, Inc., of which he also is Chairman and
Treasurer. He is a director of Bradley Real Estate, Inc. and Rayonier, Inc. Mr.
Kirk is Co-chairman of the Commission on Presidential Debates, Chairman of the
John F. Kennedy Library Foundation Board of Directors, Chairman of the Board of
Directors of the National Democratic Institute for International Affairs and a
trustee of St. Sebastian's School. He is a graduate of Harvard College and
Harvard Law School.
THOMAS M. MARRA
Mr. Marra, 41, has served as a director of the Company since 1998. On March
20, 2000, Mr. Marra was promoted to Chief Operating Officer of the Company. He
was also named President of the Company's life insurance subsidiaries. Prior to
his promotion, Mr. Marra was Executive Vice President and Director of the
Investment Products Division, and also oversaw the Individual Life Division.
Prior to that, he was Director of the Individual Life and Annuities Division of
the Company. Mr. Marra joined Hartford Life in 1980 as an associate actuary. He
held positions of increasing responsibility and in 1991 was named Vice President
and Director of Individual Annuities. He was elected Senior Vice President in
1994 and Executive Vice President in 1996. He is a past Chairman of the National
Association of Variable Annuities. He also is a Fellow of the Society of
Actuaries.
GORDON I. ULMER
Mr. Ulmer, 67, has been a director since 1997. He is former Chairman and
Chief Executive Officer of the former Connecticut Bank and Trust Company ("CBT")
and retired President of the former Bank of New England Corporation, the former
holding company of CBT ("BNEC"). He joined CBT in 1957 and held numerous
positions before being elected President and a director in 1980 and Chairman and
Chief Executive Officer in 1985. In 1988 he was elected President of BNEC, and
retired as President in December 1990. Mr. Ulmer also serves as a director of
The Hartford, Rayonier, Inc. and the Old State House Association. He is a
graduate of Middlebury College, the American Institute of Banking and Harvard
Business School Advanced Management Program. He attended New York University's
Graduate School of Engineering.
DAVID K. ZWIENER
Mr. Zwiener, 45, has been a director since 1997. He has been Executive Vice
President and Chief Financial Officer of The Hartford since August 1995, and has
also served on The Hartford's Board of Directors since 1997. He previously
served as Executive Vice President and Chief Financial Officer of ITT Financial
Corporation from March 1993 until February 1995. From November 1987 to February
1993, Mr. Zwiener served as Senior Vice President and Treasurer, and Executive
Vice President -- Capital Markets Division of Heller International Corporation.
He also is a director of Sheridan Healthcare, the Connecticut Business and
Industry Association, and is a trustee of The Wadsworth Atheneum.
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DIRECTORS WHOSE TERMS EXPIRE AT THE 2002 ANNUAL MEETING
GAIL DEEGAN
Ms. Deegan, 53, has served as a director since 1997. She has been Executive
Vice President and Chief Financial Officer of Houghton Mifflin Company, a
publishing company, since 1996. Prior to that, Ms. Deegan was Senior Vice
President -- Regulatory and Government Affairs of NYNEX. From 1991 to 1994, she
was Vice President and Chief Financial Officer of New England Telephone Company.
From 1988 to 1990, Ms. Deegan was Senior Vice President, Chief Financial Officer
and Treasurer at Eastern Enterprises (formerly Eastern Gas & Fuel Associates),
located in Weston, Massachusetts. Ms. Deegan is a director of the Greater Boston
Chamber of Commerce and Woods Hole Oceanographic Institute. She serves on the
Executive Committee and as Chairperson of the Administration and Finance
Committee of the United Way of Massachusetts Bay. Ms. Deegan has an MBA from the
Simmons College Graduate School of Management.
ROBERT W. SELANDER
Mr. Selander, 49, was elected a director of the Company at the 1999 Annual
Meeting. He has been President and Chief Executive Officer of MasterCard
International since May 1997. For three years prior to that, Mr. Selander was an
Executive Vice President of MasterCard International and President of
MasterCard's Europe, Middle East/Africa and Canada regions. Before joining
MasterCard, he served for over twenty years in positions of increasing
responsibility at Citicorp/Citibank, N.A., including having served as director
of Global Retail Strategy and director of the bank's Diners Club International
credit card business in the United States, Canada, United Kingdom, Germany and
Benelux. Mr. Selander is a director of Europay International and MasterCard
International. Mr. Selander is a member of the Board of Directors of The
Hartford. He is a graduate of Cornell University and has a Master's degree in
business from Harvard University.
LOWNDES A. SMITH
Mr. Smith, 60, became President and Chief Executive Officer of the Company
in connection with the Company's initial public offering of Class A Common Stock
that was completed in May 1997 (the "Hartford Life IPO"), and became Vice
Chairman of The Hartford on February 1, 1997. Effective December 1, 1998, Mr.
Smith also became responsible for the International Operations of The Hartford.
He served as an Executive Vice President of The Hartford since the ITT Spin-Off
until his appointment as Vice Chairman. He also served as President and Chief
Operating Officer of The Hartford's life insurance companies from 1989 to March
20, 2000, and he remains Chief Executive Officer of these subsidiaries. Prior to
1989, he served as Senior Vice President and Group Controller for all companies
owned or operated by The Hartford. Mr. Smith joined The Hartford in 1968 as a
member of the corporate accounting department. In 1972 he was appointed the
Secretary and Director of corporate accounting. He was elected Assistant Vice
President in 1974, and he was named Controller in 1977. Mr. Smith is a director
of the Connecticut Children's Medical Center, The American Council of Life
Insurers, and a Director Emeritus of the Connecticut Business and Industry
Association.
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ITEM 11. EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
This report sets forth the executive compensation policies of the
Compensation and Personnel Committee (the "Committee") of the Company's Board of
Directors and discusses the 1999 compensation of the Company's Chief Executive
Officer and certain other executive officers. Following this report is a Summary
Compensation Table that sets forth all 1999 compensation earned by, and awarded
or paid to, Lowndes A. Smith, who served as President and Chief Executive
Officer during 1999, and the other Named Executives (defined below) included in
that table. Other tables following this report provide information on stock
option and other long-term performance grants, and a performance graph compares
the cumulative total return on the Class A Common Stock to the cumulative total
returns of the S&P 500 Index and an index consisting of peer life insurance
companies.
COMMITTEE ROLE IN OVERSEEING EXECUTIVE COMPENSATION POLICY
A primary role of the Committee is to determine and oversee the
administration of compensation for the Company's executives, including its
senior executive officers ("Senior Executives"). In this capacity, the Committee
is dedicated to ensuring that the Company's compensation policies and practices
are used effectively to support the achievement of the Company's short-term and
long-term business objectives.
There are several principles that guide the Committee in its
decision-making capacity. The Committee:
- Adheres to a pay-for-performance philosophy, ensuring that aggregate
compensation levels paid to Senior Executives reflect the extent to
which the Company's key operating goals are fulfilled.
- Reinforces the central importance of shareholder value creation by
relying heavily on compensation programs that deliver value to Senior
Executives only when shareholders realize corresponding gains.
- Encourages the acquisition of Class A Common Stock by Senior
Executives with the objective of strengthening the common interests of
management and shareholders, thereby promoting the maximization of
shareholder value.
- Establishes Senior Executive compensation levels in relation to the
pay rates that are offered at companies with which the Company
competes for senior management talent.
- Maintains a total compensation perspective on Senior Executive pay in
judging the appropriateness of rewards for the Company's Senior
Executives.
DESCRIPTION OF EXECUTIVE COMPENSATION POLICIES
The compensation program of the Company's Senior Executives is
characterized by base salary levels that are targeted somewhat below market
rates, a heavy emphasis on performance-based, variable compensation, which, when
combined with base salary, provides above market total compensation for
successful performance, and a commitment to promote enhanced share ownership
among Senior Executives. Consistent with the shareholder value orientation of
this program, the Committee has authorized guidelines for Senior Executive share
ownership which should serve to further align the interests of management and
investors. The guidelines provide that within a five-year period from the year
of hire, Senior Executives should attain an investment position in the Company's
stock that is equal to two or three times their base salary, depending on the
position of the Senior Executive. The Committee believes that this compensation
program will effectively catalyze Senior Executive activities in achieving the
Company's goals and appropriately recognize the contributions of every Senior
Executive.
It is the Company's policy to target Senior Executive compensation levels
in relation to pay rates that are typical at organizations with which the
Company competes for senior management talent. For corporate Senior Executives,
the competitive market generally includes other leading insurance and financial
services companies, although general industry practices are also considered when
reviewing pay for certain Senior Executives whose functional responsibilities
are not exclusively insurance or financial services related. For line of
business Senior Executives, pay is in line with practices that are common at
leading insurance companies, as well as other financial institutions that offer
competing insurance and financial products.
Consistent with the Company's pay-for-performance orientation, Senior
Executive base salaries are targeted at levels that represent ninety percent of
prevailing market rates. Total compensation is designed to reach 120 percent of
market norms, but only when the Company's challenging performance goals are
fully achieved. Actual compensation levels may lead or lag these
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goals, but the terms of the compensation program ensure such variances depend
principally on the Company's stock price appreciation and demonstrated operating
success.
The principal elements of the compensation program are: a base salary tied
to individual value added; an annual incentive opportunity dependent on
operating results and promoting Senior Executive share ownership; and stock
options and long-term compensation tied to earnings growth and stock price
appreciation. Each of these elements is discussed below.
1999 COMPENSATION
1999 BASE SALARY
The Company's compensation policy is to pay base salaries for Senior
Executives at levels that represent ninety percent of the median salaries paid
by organizations with which the Company competes for senior executive talent.
Total compensation, comprised of base and variable pay, can achieve 120 percent
of the market norm when performance goals are fully met. In assessing a Senior
Executive's salary level each year, the Committee's principal consideration is
the Senior Executive's performance on the job, including his or her demonstrated
contributions to the Company's goal achievement. In considering salary actions,
the Committee also reviews internal compensation equity and the Senior
Executive's level of responsibility, experience and expertise.
Effective February 1, 1999, the Committee approved salary increases of
$150,000, $100,000, $55,000 and $45,000 for Messrs. Smith and Marra, Ms. Zlatkus
and Mr. Znamierowski, respectively. These increases reflected competing pay
practices at other peer corporations. In addition, Mr. Smith has an employment
agreement with the Company and The Hartford that provides for an annual base
salary, as described below under the heading "Employment Agreement and Severance
Plans."
1999 VARIABLE COMPENSATION
Variable compensation reinforces the Company's pay-for-performance
philosophy and is a key element to the overall compensation program. Variable
compensation includes annual and long-term incentive compensation opportunities.
Annual incentive compensation is designed to deliver about twenty-five percent
of variable compensation, while long-term incentives are designed to deliver the
remaining seventy-five percent. All variable compensation programs also
facilitate Senior Executives' acquisition of the Company's stock, thereby
promoting a coordination of interest between management and shareholders.
ANNUAL INCENTIVES
Each year, the Committee reviews management's suggestions for performance
goals, the achievement of which will enhance the Company's value. The Committee
also reviews and approves, with respect to each Senior Executive, annual
incentive payment levels payable in the event performance goals are fully
achieved. Actual annual incentive payments vary with performance relative to
such goals. Better performance generates larger awards; lesser results yield
smaller awards.
Ordinarily, corporate or staff Senior Executives earn annual incentives
based on corporate and individual performance. Incentives for line of business
Senior Executives may relate to corporate, line of business and individual
performance. On occasion, the Committee may approve management's recommendation
for customized annual incentive arrangements where they are appropriate to
address competitive market requirements or business needs.
The amounts of annual incentive awards are based on financial performance
for the year compared to annual performance goals established by the Committee
at the beginning of the year. For 1999, the performance goals for Mr. Smith were
Hartford Life core earnings growth and Hartford Life return on equity. The
performance goals for Mr. Marra included operating income, division net income,
return on equity and sales compared to budget. The performance goals for Ms.
Zlatkus included corporate and division net income and division premium growth.
The performance goals for Mr. Znamierowski included operating income, portfolio
returns and business support. The performance goals for Mr. Boyko included
division operating income, sales and business development.
For 1999, based on these goals, the Committee awarded an annual incentive
of $1,385,000, $1,121,675, $255,189, $260,600 and $196,000 to Messrs. Smith and
Marra, Ms. Zlatkus, and Messrs. Znamierowski and Boyko, respectively.
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Consistent with the Company's interest in promoting a strong alignment
between management and shareholder interests, Senior Executives may elect to
forego receiving up to half their annual incentives in exchange for the right to
receive shares of Class A Common Stock ("Hartford Life Stock Units") under the
1997 Hartford Life, Inc. Deferred Restricted Stock Unit Plan (the "Stock Unit
Plan"). Receipt of actual shares of Class A Common Stock is deferred during a
three-year restriction period applicable to the Hartford Life Stock Units.
Senior Executives who elect to convert a portion of their annual incentive
payments to Hartford Life Stock Units are rewarded with additional Hartford Life
Stock Units ("Hartford Life Premium Stock Units") equal to ten percent of the
amount exchanged, and actual shares relating to these incremental Hartford Life
Premium Stock Units also will be deferred as to receipt and restricted for a
period of three years.
1999 LONG-TERM INCENTIVES: STOCK OPTIONS
For 1999, the Committee provided eligibility to executives and key
employees for grants of stock options under the 1997 Hartford Life, Inc.
Incentive Stock Plan (the "Incentive Stock Plan"). Stock options provide
executives with the opportunity to acquire an equity interest in the Company and
to participate in the creation of shareholder value as reflected in growth in
the price of the Company's stock. The option exercise price equals 100 percent
of the fair market value of the Class A Common Stock on the date of option
grant, thereby ensuring that plan participants will derive benefits only as
shareholders realize corresponding gains. To ensure a long-term perspective,
options have a maximum term of ten years and two days.
The Committee believes that the practice of annually granting stock options
reinforces the Company's policy of encouraging stock ownership by Senior
Executives in support of building shareholder value. Furthermore, options
provide value to Senior Executives only when shareholders realize positive
returns on their investment in the Company. In this way, stock option grants
reward Senior Executives in conjunction with value creation for shareholders.
On February 18, 1999, options to purchase an aggregate of 141,465 shares of
Class A Common Stock were granted under the Incentive Stock Plan to Messrs.
Smith and Marra, Ms. Zlatkus, and Messrs. Znamierowski and Boyko at an exercise
price of $54.50 per share (the closing price of a share of Class A Common Stock
on the New York Stock Exchange (the "NYSE") on February 18, 1999). The option
granted to Mr. Smith represented 60 percent of the target award value determined
appropriate by the Committee. Also on February 18, 1999, the Compensation and
Personnel Committee of the Board of Directors of The Hartford (the "Hartford
Committee") granted to Mr. Smith an option to purchase 35,822 shares of common
stock of The Hartford ("Hartford Common Stock") under The Hartford 1995
Incentive Stock Plan at an exercise price of $51.00 per share, which was the
closing price of a share of Hartford Common Stock on the NYSE on February 18,
1999. This option represented the remaining 40 percent of the target award value
determined appropriate for Mr. Smith.
To further align the interests of Senior Executives and shareholders, the
above options granted to Messrs. Smith and Marra included a performance-based
provision that would allow the options to become exercisable upon the earlier to
occur of (i) the closing price of the Class A Common Stock on the NYSE equaling
or exceeding 125 percent of the option exercise price for a period of at least
ten consecutive trading days or (ii) seven years from the date of option grant.
All other options, including those granted to other Senior Executives, become
exercisable at the cumulative rate of one-third per year for the first three
years from the date of grant.
Further information regarding option grants to the named Senior Executives
is included in the option tables following this report.
LONG-TERM INCENTIVES PAYABLE IN 1999: 1997 LONG-TERM PERFORMANCE PLAN
Prior to 1999, Senior Executives and other executives received the
opportunity under the Company's former Long-Term Performance Plan to earn shares
of Class A Common Stock contingent on the Company achieving certain performance
objectives over a three-year period. Under the terms of these contingent awards,
there were two equally weighted performance objectives measured over the
three-year period beginning with the year the award was made: (i) core earnings
per share and (ii) total shareholder return (stock price appreciation and
dividends reinvested) relative to the returns generated by an index of the
Company's competitors. Target level core earnings per share coupled with a total
shareholder return equal to the average of the peer group would result in the
awarding of a target number of shares. Better performance (up to a maximum of
150 percent of each of the performance measures) would yield a larger payout, up
to a maximum combined payout of 200 percent; poorer performance (to a minimum of
75 percent of each of the performance measures) would result in proportionally
smaller payments. If the minimum threshold was not achieved, no shares would
ultimately be awarded.
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Effective for Plan years beginning in 1999, the Long-Term Performance Plan
was discontinued. In 1999, all long-term incentives for Senior Executives and
other executives were granted in the form of stock options. It is expected that
long-term incentives in the future, if any, will be granted in the form of stock
options. Payouts under the 1997 Long-Term Performance Plan are described below
and payouts under the 1998 Long-Term Performance Plan, if any, will be made in
accordance with the terms of that Plan.
On January 27, 2000, the Committee approved payments under the 1997
Long-Term Performance Plan based on performance over the 1997 through 1999
period. The combined payout factor for core earnings per share and total
shareholder return was 152.0%. Based on this result, the Committee approved the
distribution of 23,425, 10,410, 2,142, 2,152, and 4,685 shares of Class A Common
Stock to Messrs. Smith and Marra, Ms. Zlatkus, and Messrs. Znamierowski and
Boyko, respectively. The shares distributed to Mr. Smith represented 60% of the
target award value determined appropriate by the Committee in 1997. These
performance shares were payable 50 percent in Class A Common Stock and 50
percent in cash, unless receipt of all or a portion of this amount was deferred
under the Stock Unit Plan described above.
Also on January 27, 2000, the Hartford Committee approved a payment to Mr.
Smith under The Hartford's 1997 Long-Term Performance Plan based on the
performance of The Hartford over the 1997 through 1999 period. (Effective for
years beginning in 1999, The Hartford's Long-Term Performance Plan is also
discontinued.) The combined payout factor for The Hartford core earnings per
share and The Hartford total shareholder return under The Hartford's 1997
Long-Term Performance Plan was 151.4%. Based on this result, the Hartford
Committee approved the distribution of 13,456 shares of Hartford Common Stock to
Mr. Smith under this Plan. These shares represented the remaining 40% of the
target award value determined appropriate for Mr. Smith in 1997. These
performance shares were payable 50 percent in Hartford Common Stock and 50
percent in cash, unless receipt of all or a portion of this amount was deferred
under The Hartford 1997 Long-Term Performance Plan.
COMPLIANCE WITH SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly-traded company a Federal income tax deduction for compensation
in excess of $1 million paid to certain of its executive officers unless the
amount of such excess is payable based solely upon the attainment of objective
performance criteria. The Committee believes that tax deductibility of
compensation is an important factor, but not the sole factor, to be considered
in setting executive compensation policy. Accordingly, the Committee generally
intends to take such reasonable steps as are required to avoid the loss of a tax
deduction due to Section 162(m), but reserves the right to pay amounts which are
not deductible in appropriate circumstances.
SUMMARY
The Committee is responsible for reviewing, monitoring and approving all
compensation decisions affecting Senior Executives. The Committee expects that
all compensation paid to Senior Executives will be consistent with the Company's
interest in providing market competitive compensation opportunities, within the
context of a pay-for-performance environment, and in a manner that is supportive
of the Company's business mission. The Committee will continue to actively
monitor the effectiveness of the Company's Senior Executive compensation plans
and assess the appropriateness of Senior Executive pay levels to assure prudent
use of Company resources.
THE COMPENSATION AND PERSONNEL COMMITTEE:
Gordon I. Ulmer, Chairman
Gail Deegan
Donald R. Frahm
H. Patrick Swygert
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Donald R. Frahm, a member of the Compensation and Personnel Committee of
the Company's Board of Directors, served as the Chairman, President and Chief
Executive Officer of The Hartford, and was an officer of various subsidiaries of
The Hartford and the Company, until his retirement on January 31, 1997. Mr.
Frahm has abstained from participation in the Compensation and Personnel
Committee's consideration of matters involving Section 162(m).
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COMPENSATION OF EXECUTIVE OFFICERS
The following table provides information regarding the cash and other
compensation of those persons who, during 1999, (i) served as the Company's
Chief Executive Officer and (ii) were the four other most highly compensated
executive officers (together with the Chief Executive Officer, the "Named
Executives"):
SUMMARY COMPENSATION TABLE
Long-Term Compensation
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Annual Compensation Awards Payouts
---------------------- -------------------------- -------------
Securities
Restricted Underlying LTIP All Other
Stock Awards Options Payouts Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) (#)(1) ($) ($)(14)
- --------------------------- ---- ---------- --------- ------------ ---------- ------------- ------------
Lowndes A. Smith............. 1999 837,500 1,385,500 47,338(2) 45,895(8) 960,755(11) 32,390
President and Chief 35,822(9) 534,939(12)
Executive Officer 1998 691,667 946,750 - 129,947(8) 1,423,369(13) 27,285
88,574(9)
1997 593,750 418,400 745,461(3) 65,675(10) - 24,505
733,750(4) 237,736(9)
889,375(5)
15,500(6)
Thomas M. Marra.............. 1999 591,667 1,121,675 11,819(2) 73,942(8) 423,557(11) 25,324
Chief Operating Officer (15) 1998 489,583 787,900 25,725(7) 115,690(8) 614,274(13) 22,108
1997 372,917 643,125 1,118,207(3) 29,190(10) - 16,855
21,350(6) 75,000(9)
Lizabeth H. Zlatkus.......... 1999 265,833 255,189 - 7,958(8) 87,153(11) 9,304
Executive Vice President, 1998 220,000 123,160 - 19,665(8) 127,018(13) 7,700
Director of Employee 1997 220,000 121,440 - 6,003(10) - 7,700
Benefits (15)
David M. Znamierowski........ 1999 276,250 260,600 - 8,577(8) 87,560(11) 9,915
Senior Vice President and 1998 233,750 211,794 - 22,040(8) 34,526(13) 8,423
Chief Investment 1997 220,000 238,260 - 6,036(10) - 7,904
Officer
Gregory A. Boyko............. 1999 245,000 196,000 3,631(2) 5,093(8) 193,681(11) 11,652
Senior Vice President, 1998 243,750 145,244 2,250(7) 20,395(8) 62,116(13) 11,608
International Operations(15) 1997 222,500 90,000 2,250(6) 13,135(10) - 10,673
- ----------
(1) Except as otherwise noted, the number of shares of Hartford Common Stock
and the related prices per share set forth in the table and in the
footnotes reflect a two-for-one split effected in the form of a 100% stock
dividend on July 15, 1998.
(2) Pursuant to the Stock Unit Plan, certain executives of the Company elected
to forego a certain percentage of 1998 bonus payments that were ultimately
awarded in 1999 in exchange for the right to receive Hartford Life Stock
Units. The number of Hartford Life Stock Units granted to an executive is
equal to the amount of the bonus forgone divided by the closing price of
Class A Common Stock on the NYSE on the date of grant of the Hartford Life
Stock Units. As an incentive for foregoing the percentage of bonus,
participating executives were also granted additional Hartford Life Premium
Stock Units equal to 10% of the Hartford Life Stock Units. Shares of Class
A Common Stock underlying Hartford Life Stock Units and Hartford Life
Premium Stock Units may not be received until three years from the date of
grant but are fully vested, except that shares underlying Hartford Life
Premium Stock Units may be forfeited if employment with the Company is
terminated under certain circumstances before three years from the date of
grant. Dividends are paid (and automatically reinvested) on the shares
underlying the Hartford Life Stock Units and Hartford Life Premium Stock
Units in the same amount and to the same extent as dividends are paid on
shares of Class A Common Stock held by all shareholders of the Company. The
amounts identified in this column represent the value of the Hartford Life
Premium Stock Units awarded on March 15, 1999 when the closing price of
Class A Common Stock on the NYSE was $52.625 per share. On December 31,
1999, the values
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of such Hartford Life Premium Stock Units (including those acquired by
dividend reinvestment) for Messrs. Smith, Marra and Boyko were $39,725,
$9,918 and $3,047, respectively, based on the closing price of Class A
Common Stock on the NYSE of $44.00 per share on that date.
(3) Represents the market value of 23,205 and 34,808 restricted shares of Class
A Common Stock granted to Messrs. Smith and Marra, respectively, on May 22,
1997 based on the closing price of the Class A Common Stock on the NYSE of
$32.125 per share on that date. The 23,205 restricted shares of Class A
Common Stock were granted to Mr. Smith in replacement of and as substitutes
for 10,000 (pre-split) restricted shares of Hartford Common Stock that had
been granted to Mr. Smith on February 1, 1997. Mr. Smith's shares became
fully vested on February 1, 2000. Mr. Marra's shares will vest as to
one-third of the grant on May 22, 2000 and as to the remaining two-thirds
on May 22, 2004; these shares may be forfeited if employment with the
Company is terminated prior thereto under certain circumstances. The market
value of such shares was $1,021,020 and $1,531,552 for Messrs. Smith and
Marra, respectively, on December 31, 1999 based on the NYSE closing price
of $44.00 per share on that date. Dividends are paid on the shares of
restricted Class A Common Stock in cash, in the same amount and to the same
extent as dividends are paid on shares of Class A Common Stock held by all
shareholders of the Company.
(4) Represents the market value of 20,000 restricted shares of Hartford Common
Stock granted to Mr. Smith on February 1, 1997 based on the closing price
of Hartford Common Stock on the NYSE of $36.6875 per share on Friday,
January 31, 1997. These shares vested on February 1, 2000. The market value
of these shares was $947,500 on December 31, 1999 based on the NYSE closing
price of $47.375 per share on that day. Dividends are paid on the shares of
restricted Hartford Common Stock in cash, in the same amount and to the
same extent as dividends are paid on shares of Hartford Common Stock held
by all shareholders of The Hartford.
(5) Represents the market value of 20,000 shares of restricted Hartford Common
Stock granted to Mr. Smith on December 17, 1997 based on the closing price
of Hartford Common Stock on the NYSE of $44.46875 per share on that day.
The market value of these shares was $947,500 on December 31, 1999 based on
the NYSE closing price of $47.375 per share on that day. This restricted
stock grant is subject to the following performance-based vesting: the
restrictions on 50% of the shares will lapse on March 1, 2001 only if the
closing price of Hartford Common Stock on the NYSE is $61.50 per share or
more for at least ten consecutive trading days at any time prior to such
date; the restrictions on an additional 25% of such shares will lapse on
March 1, 2001 only if the closing price of Hartford Common Stock on the
NYSE is $63.00 per share or more for at least ten consecutive trading days
at any time prior to such date; and the restrictions on the remaining 25%
of such shares will lapse on March 1, 2001 only if the closing price of
Hartford Common Stock on the NYSE is $65.00 per share or more for at least
ten consecutive trading days at any time prior to such date. Any restricted
shares not vested by March 1, 2001 shall be forfeited. Vested restricted
Common Stock cannot be disposed of until March 1, 2001. Dividends are paid
on the restricted shares in cash, in the same amount and to the same extent
as dividends are paid on shares of Hartford Common Stock held by all
shareholders of The Hartford. In May 1999, The Hartford's Common Stock
traded at or above $63.00 per share for more than ten consecutive trading
days. As a result, 75% of the foregoing shares became vested, such that the
restrictions on these shares will lapse on March 1, 2001.
(6) Prior to the Hartford Life IPO, certain executives of the Company were
eligible to participate in The Hartford 1996 Deferred Restricted Stock Unit
Plan. Under this plan certain executives of the Company elected to forego a
certain percentage of 1996 bonus payments that were ultimately awarded in
1997 in exchange for the right to receive shares of Hartford Common Stock
("Hartford Stock Units"). The number of Hartford Stock Units granted to an
executive is equal to the amount of the bonus forgone divided by the
closing price of Hartford Common Stock on the NYSE on the date of grant of
the Hartford Stock Units. As an incentive for foregoing the percentage of
bonus, participating executives were granted additional Hartford Stock
Units equal to 10% of the Hartford Stock Units ("Hartford Premium Stock
Units"). Shares of Hartford Common Stock underlying Hartford Stock Units
and Hartford Premium Stock Units may not be received until three years from
the date of grant but are fully vested, except that shares underlying
Hartford Premium Stock Units may be forfeited if employment with The
Hartford is terminated under certain circumstances before three years from
the date of grant. Dividends are paid (and automatically reinvested) on the
shares underlying the Hartford Stock Units and Hartford Premium Stock Units
in the same amount and to the same extent as dividends are paid on shares
of Hartford Common Stock held by all shareholders of The Hartford. The
amounts identified in this column represent the value of the Hartford
Premium Stock Units awarded on March 10, 1997 when the closing price of
Hartford Common Stock on the NYSE was $39.1875 per share. On December 31,
1999, the values of such Hartford Premium Stock Units (including those
acquired by dividend reinvestment) for Messrs. Smith, Marra, and Boyko were
$19,677, $27,104 and $2,856, respectively, based on the closing price of
Hartford Common Stock on the NYSE of $47.375 per share on that date.
(7) Pursuant to the Stock Unit Plan, certain executives of the Company elected
to forego a certain percentage of 1997 bonus payments that were ultimately
awarded in 1998 in exchange for the right to receive Hartford Life Stock
Units. The number of Hartford Life Stock Units granted to an executive is
equal to the amount of the bonus forgone divided by the closing price of
Class A Common Stock on the NYSE on the date of grant of the Hartford Life
Stock Units. As an incentive for foregoing the percentage of bonus,
participating executives were granted additional Hartford Life Premium
Stock Units equal to 10% of the Hartford Life Stock Units. Shares of Class
A Common Stock underlying Hartford Life Stock Units and Hartford Life
Premium Stock Units may not be received until three years from the date of
grant but are fully vested, except that shares
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underlying Hartford Life Premium Stock Units may be forfeited if employment
with the Company is terminated under certain circumstances before three
years from the date of grant. Dividends are paid (and automatically
reinvested) on the shares underlying the Hartford Life Stock Units and
Hartford Life Premium Stock Units in the same amount and to the same extent
as dividends are paid on shares of Class A Common Stock held by all
shareholders of the Company. The amounts identified in this column
represent the value of the Hartford Life Premium Stock Units awarded on
March 13, 1998 when the closing price of Class A Common Stock on the NYSE
was $47.50 per share. On December 31, 1999, the values of such Hartford
Life Premium Stock Units (including those acquired by dividend
reinvestment) for Messrs. Marra and Boyko were $24,087 and $2,107,
respectively, based on the closing price of Class A Common Stock on the
NYSE of $44.00 per share on that date.
(8) Represents shares underlying stock options to purchase Class A Common Stock
granted pursuant to the Incentive Stock Plan.
(9) Represents shares underlying stock options to purchase Hartford Common
Stock granted pursuant to The Hartford 1995 Incentive Stock Plan.
(10) Each of the Named Executives had been granted options to purchase shares of
Hartford Common Stock (the "Hartford Options") prior to the Hartford Life
IPO. After the Hartford Life IPO, each Named Executive elected to
substitute certain of his or her Hartford Options for options to purchase
shares of the Company's Class A Common Stock (the "Substituted Options").
The options identified by this footnote are Substituted Options.
(11) In 1997, each of the Named Executives was granted a certain number of
performance shares relating to the Class A Common Stock. The grants were
contingent upon the Company achieving two general performance objectives
over a three-year period that ended on December 31, 1999. The amounts in
this column represent the value of the payout made by the Company on
January 27, 2000 in respect of performance shares awarded in 1997.
(12) In 1997, Mr. Smith was granted a certain number of performance shares
relating to Hartford Common Stock. The grants were contingent upon The
Hartford achieving two general performance objectives over a three-year
period that ended on December 31, 1999. The amount in this column
represents the value of the payout made by The Hartford on January 27, 2000
in respect of performance shares awarded in 1997.
(13) In 1996, each of the Named Executives was granted a certain number of
performance shares relating to Hartford Common Stock. The grants were
contingent upon The Hartford achieving two general performance objectives
over three-year periods that ended on December 31, 1998. The amounts in
this column represent the value of the payout made by The Hartford on
February 15, 1999 in respect of performance shares awarded in 1996.
(14) Amounts shown in this column represent Company contributions under The
Hartford Investment and Savings Plan and The Hartford Excess Savings Plan,
which are defined contribution plans. Under these plans, the Company makes
a matching contribution in an amount equal to 50% of an employee's
contribution, such matching contribution not to exceed three percent (3%)
of such employee's salary. The Company also makes a non-matching
contribution equal to one-half of one percent (1/2 of 1%) of an employee's
salary. Company contributions under these plans for 1999 were $29,313 and
$20,708 for Messrs. Smith and Marra, $9,304 for Ms. Zlatkus, and $9,669 and
$8,575 for Messrs. Znamierowski and Boyko, respectively. The Company's
flexible benefit programs allow for the sale back to the Company of up to
one week of vacation time capped at a 1999 limit of $3,077. Amounts of
$3,077 are included in this column for Messrs. Smith, Marra, and Boyko. The
Company also provides certain group term life insurance coverage to
employees, and employees may purchase additional amounts of coverage. For
Federal tax purposes, income will be imputed to an employee who purchases
more than $50,000 of life insurance coverage to the extent that the value
of the coverage is greater than the premium paid. For 1999, income in the
amounts of $1,539 and $246 were imputed to Messrs. Marra and Znamierowski,
respectively, and such amounts are included in this column.
(15) Through 1999, Mr. Marra served as the Company's Executive Vice President
and Director of the Investment Products Division and also oversaw the
Individual Life Division and Ms. Zlatkus served as the Company's Senior
Vice President and Director of the Employee Benefits Division. Mr. Boyko's
responsibilities also included serving as the Company's Chief Financial
Officer and Treasurer through August of 1998.
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STOCK OPTIONS
Under the Incentive Stock Plan, the Compensation and Personnel Committee of
the Board of Directors selects key employees to receive various awards,
including stock options, with or without stock appreciation rights, shares of
restricted Class A Common Stock and performance shares. The table below provides
information regarding grants of stock options to the Named Executives during
1999:
OPTION GRANTS IN FISCAL YEAR 1999
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Number of Assumed Annual Rates of
Securities % of Total Stock Price Appreciation
Underlying Options Granted for Option Term ($) (8)
Options to Employees in Exercise Price Expiration ------------------------------
Name Granted (#)(1) 1999(6) ($/Share)(7) Date 5% 10%
---- -------------- --------------- -------------- ---------- ------------ ------------
Lowndes A. Smith........ 45,895(2)(4) 7.40 54.50 02/20/09 1,572,822 3,986,440
35,822(3)(4) 3.37 51.00 02/20/09 1,148,812(9) 2,911,612(9)
Thomas M. Marra......... 73,942(2)(4) 11.92 54.50 02/20/09 2,533,992 6,422,602
Lizabeth H. Zlatkus..... 7,958(2)(5) 1.28 54.50 02/20/09 272,721 691,232
David M. Znamierowski... 8,577(2)(5) 1.38 54.50 02/20/09 293,934 744,998
Gregory A. Boyko........ 5,093(2)(5) .82 54.50 02/20/09 174,537 442,378
- ----------
(1) The exercisability, payment or vesting of options shown in the table
related to Hartford Common Stock and Class A Common Stock may be
accelerated upon the occurrence of a change of control (as defined in The
Hartford 1995 Incentive Stock Plan and the Incentive Stock Plan) of The
Hartford or the Company, respectively.
(2) Represents shares of Class A Common Stock underlying stock options granted
pursuant to the Incentive Stock Plan.
(3) Represents shares of Hartford Common Stock underlying stock options granted
to Mr. Smith pursuant to The Hartford 1995 Incentive Stock Plan.
(4) The options granted to Mr. Smith and Mr. Marra become exercisable upon the
earlier of: (i) seven years from the date of grant or (ii) the date on
which the closing price of the Hartford Common Stock or Class A Common
Stock, as applicable, on the NYSE is 125% or more of the option grant price
for at least ten consecutive trading days.
(5) The options are exercisable in three equal annual installments commencing
on the first anniversary of the date of grant.
(6) For options to purchase shares of Class A Common Stock, percentages
indicated are based on options to purchase a total of 620,351 shares of
Class A Common Stock granted to 364 employees of the Company during 1999.
For options to purchase shares of Hartford Common Stock, percentages are
based on options to purchase a total of 1,062,658 shares of Hartford Common
Stock granted to 792 employees of The Hartford during 1999.
(7) Stock options were granted by the Company on February 18, 1999 at an
exercise price that was 100% of the fair market value of the Class A Common
Stock on the date of grant, and stock options were granted by The Hartford
on February 18, 1999 at an exercise price that was 100% of the fair market
value of Hartford Common Stock on the date of grant.
(8) At the end of the term of the options granted on February 18, 1999, the
projected price of a share of the Class A Common Stock would be $88.77 and
$141.36 at assumed annual appreciation rates of 5% and 10%, respectively.
(9) At the end of the term of the option granted to Mr. Smith on February 18,
1999, the projected price of a share of Hartford Common Stock would be
$83.07 and $132.28 at assumed annual appreciation rates of 5% and 10%,
respectively.
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1999 OPTION EXERCISES AND 1999 YEAR-END OPTION VALUES
The following table provides information on stock options that were
exercised and the value of unexercised stock options held at December 31, 1999
by the Named Executives:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
-------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options Held
Acquired Year-End (#) at Fiscal Year-End ($)
on Value -------------------------- ------------------------------
Name Exercise (#) Realized($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------------- ----------- ------------- ------------ -------------
Lowndes A. Smith........ -- -- 195,622(3) 45,895(3) 1,065,448(4) --
125,000(1) 4,878,158 363,742(1) 235,822(1) 6,532,714(5) 581,000(5)
Thomas M. Marra......... -- -- 144,880(3) 73,942(3) 581,189(4) --
51,002(1) 2,253,771 97,944(1) 75,000(1) 2,532,012(5) 217,875(5)
Lizabeth H. Zlatkus..... -- -- 12,558(3) 21,068(3) 88,339(4) 22,282(4)
4,854(1) 191,785 31,780(1) -- 855,371(5) --
David M. Znamierowski... -- -- 11,371(3) 25,282(3) 63,066(4) 48,510(4)
622(1) 22,820 -- -- -- --
Gregory A. Boyko........ -- -- 26,760(3) 11,863(3) 115,618(4) 19,311(4)
-- -- 3,300(1) -- 70,538(5) --
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(1) Represents shares of Hartford Common Stock.
(2) Value realized upon the exercise of an option represents the difference
between the fair market value of the stock on the date of exercise and the
exercise price of the option.
(3) Represents shares of Class A Common Stock.
(4) Values of "in-the-money" options to purchase shares of Class A Common Stock
are calculated by subtracting the exercise price per share of the options
from the per share NYSE closing price of $44.00 of the Class A Common Stock
on December 31, 1999.
(5) Values of "in-the-money" options to purchase shares of Hartford Common
Stock are calculated by subtracting the exercise price per share of the
options from the per share NYSE closing price of $47.375 of Hartford Common
Stock on December 31, 1999.
THE HARTFORD RETIREMENT PROGRAM
The Hartford Fire Retirement Plan (the "Retirement Plan") is a defined
benefit plan that covers substantially all eligible U.S. salaried employees of
The Hartford and its subsidiaries, including the Company and its subsidiaries.
An employee's annual pension will equal two percent of his or her average final
compensation for each of the first thirty years of benefit service, reduced by
one and two-thirds percent of the employee's primary Social Security benefit for
each year of benefit service to a maximum of thirty years, provided that no more
than one-half of an employee's primary Social Security benefit is used for such
reduction. An employee's average final compensation is defined under the
Retirement Plan as the total of (i) an employee's average annual base salary for
the five calendar years of the last 120 consecutive calendar months of
eligibility service affording the highest such average plus (ii) an employee's
average annual compensation not including base salary for the five calendar
years of his or her last 120 consecutive calendar months of eligibility service
affording the highest such average. The Retirement Plan also provides for
undiscounted early retirement pensions for employees who retire at or after age
sixty following completion of fifteen years of eligibility service. An employee
will be vested in benefits accrued under the Retirement Plan upon completion of
five years of eligibility service.
Applicable Federal law limits the amount of benefits that can be paid and
compensation which may be recognized under a tax-qualified retirement plan.
Therefore, Hartford Fire has a non-qualified unfunded retirement plan (the
"Hartford Excess Benefit Plan") for payment of those benefits at retirement that
cannot be paid from the qualified Retirement Plan. Such plan also covers
eligible employees of The Hartford and its subsidiaries, including the Company
and its subsidiaries. The practical effect of the Hartford Excess Benefit Plan
is to continue calculation of retirement benefits to all employees on a uniform
basis. Hartford
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Fire also maintains an excess plan trust pursuant to which excess benefits under
the Hartford Excess Benefit Plan for certain officers of the Company are funded.
Any such employee may indicate a preference, subject to certain conditions, to
receive any excess benefit in the form of a single discounted lump sum payment.
Any "excess" benefit accrued to any such employee will be immediately payable in
the form of a single discounted lump sum payment upon the occurrence of a change
in corporate control (as defined in the Hartford Excess Benefit Plan).
Based on various assumptions as to remuneration and years of service,
before Social Security reductions, the following table illustrates the estimated
annual benefits payable from the Retirement Plan and the Hartford Excess Benefit
Plan at retirement at age 65 that are paid for by the Company:
PENSION PLAN TABLE
Average Years of service
Final ----------------------------------------------------------------------
Compensation 5 10 15 20 25 30
- ------------ -------- -------- -------- ---------- ---------- ----------
$ 400,000 $ 40,000 $ 80,000 $120,000 $ 160,000 $ 200,000 $ 240,000
500,000 50,000 100,000 150,000 200,000 250,000 300,000
750,000 75,000 150,000 225,000 300,000 375,000 450,000
1,000,000 100,000 200,000 300,000 400,000 500,000 600,000
1,500,000 150,000 300,000 450,000 600,000 750,000 900,000
2,000,000 200,000 400,000 600,000 800,000 1,000,000 1,200,000
2,500,000 250,000 500,000 750,000 1,000,000 1,250,000 1,500,000
3,000,000 300,000 600,000 900,000 1,200,000 1,500,000 1,800,000
The amounts shown under "Salary" and "Bonus" opposite the names of the
Named Executives in the Summary Compensation Table comprise the compensation
that is used for purposes of determining "average final compensation" under the
Retirement Plan and the Hartford Excess Benefit Plan. The years of service with
the Company of each of the Named Executives for eligibility and benefits
purposes as of December 31, 1999, were as follows: Lowndes A. Smith, 30.00
years; Thomas M. Marra, 19.58 years; Lizabeth Zlatkus, 16.25 years; David M.
Znamierowski, 3.67 years; and Gregory A. Boyko, 4.08 years. Although Mr. Smith
has 31.75 years of service, a maximum of 30 years of service may be considered
when determining benefits under the Retirement Plan.
EMPLOYMENT AGREEMENT AND SEVERANCE PLANS
Lowndes A. Smith has an employment agreement with the Company and The
Hartford pursuant to which he is employed as President and Chief Executive
Officer of the Company and Vice Chairman of The Hartford (the "Employment
Agreement"). The initial term of the Employment Agreement began on July 1, 1997
and continues for three years, unless terminated earlier in accordance with the
Employment Agreement. However, when the original term of the Employment
Agreement or any renewal term ends, the Employment Agreement will be
automatically extended for successive one-year periods unless either party gives
the other its written notice of its intention not to renew the Employment
Agreement at least fifteen months prior to any renewal date. In addition, upon
the occurrence of a "change of control" (as defined in the Employment Agreement)
of the Company or The Hartford, the terms of the Employment Agreement will be
automatically extended for three years after the change of control occurs.
The Employment Agreement provides, among other things, for an annual base
salary for Mr. Smith, as determined from time to time by the Board of Directors,
and his participation in the Company's and/or The Hartford's benefit plans and
awards under executive incentive bonus and other programs. Mr. Smith's current
annual base salary is $850,000. In addition, Mr. Smith is entitled to certain
payments and benefits if his employment terminates for certain reasons,
including a termination without "cause" (as defined in the Employment
Agreement). If a termination without cause occurs, Mr. Smith is entitled to a
severance payment equal to two times (a) his base salary and (b) a target bonus
amount, each for the year in which the termination occurs, and the vesting of
stock options and restricted stock awards. In addition, if a change of control
or potential change of control of the Company or The Hartford occurs and Mr.
Smith's employment is terminated for certain reasons within certain time periods
(generally, within three years after a change of control), then he is entitled
to receive certain payments and benefits. Specifically, if after a change of
control, Mr. Smith's employment is terminated without cause, or he voluntarily
terminates his employment for any reason within six months following a change of
control, or voluntarily terminates his employment for "good reason" (as defined
in the Employment Agreement) within the remaining two years and six months
following a change of control, then he is
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generally entitled to receive (i) a severance payment equal to three times the
sum of his base salary then in effect and his target bonus for the year and (ii)
certain other benefits, including those that would otherwise be payable under
the Company's and/or The Hartford's various employee benefit plans. While Mr.
Smith is employed, and for one year after any voluntary termination of his
employment (other than after a change of control), he is subject to a
noncompetition agreement in favor of the Company.
In addition, Mr. Marra and Ms. Zlatkus have agreements with the Company
that entitle them to certain benefits upon a change of control of the Company or
The Hartford (as defined in such agreements). The agreements provide, among
other things, that the Company shall employ the executive for three years (the
"Employment Period") after a change of control of the Company or The Hartford
occurs, if the executive was employed on the date the change of control occurs.
During the Employment Period, the executive is entitled to (i) a base salary of
not less than his or her base salary in effect prior to a change of control or
potential change of control, and such salary may be increased from time to time;
(ii) an opportunity to earn an annual bonus in accordance with the Company's
bonus policies; and (iii) participate in Long-Term compensation programs and
stock incentive plans, and to receive the benefits under the Company's and/or
The Hartford's various benefit programs. If the executive's employment
terminates during the Employment Period for certain specified reasons, including
termination for "cause," "without cause," for "good reason," voluntarily or due
to retirement, death or disability (all as defined in such agreement), then the
executive is entitled to certain payments and/or benefits, depending on the
reason for termination. Specifically, if the executive's employment is
terminated without cause, or he or she terminates his or her employment for good
reason, he or she is entitled to receive, among other things, (i) a lump sum
severance payment equal to two times his or her base salary and target bonus in
effect in the year in which his or her employment terminated and (ii) certain
other benefits, including those that would otherwise be payable under the
Company's and/or The Hartford's various benefit plans.
On October 15, 1998 and February 1, 1999, amended and restated versions of
The Hartford's Senior Executive Severance Pay Plan (the "Senior Executive Plan")
and Executive Severance Pay Plan (the "Executive Plan"), respectively, became
effective (collectively, the "Severance Plans"). The Severance Plans, each of
which covers executive employees at certain levels of The Hartford and the
Company, provide generally for the payment of amounts to such executives upon
termination of their employment, unless such termination is initiated by the
executive, is due to certain misconduct or disciplinary action, is in connection
with certain other specified circumstances, or results from the executive's
retirement, death or disability. The Senior Executive Plan and the Executive
Plan provide for payments of amounts up to a maximum of two years and one year,
respectively, of the qualifying executive's salary depending primarily on such
executive's years of service (as defined in the Severance Plans). While
receiving periodic payments pursuant to these Severance Plans, the executive is
generally eligible to continue participating in certain of the Company's and/or
The Hartford's employee benefit plans, subject, however, to the specific
provisions in the respective benefit plans.
Mr. Marra and Ms. Zlatkus, who are covered by the Senior Executive Plan,
have separate agreements that entitle them to certain benefits upon a change of
control (see description of such agreements above). For executives who are not
covered by such agreements, including Messrs. Znamierowski and Boyko, the
Executive Plan contains change of control provisions that provide for the
payment of incrementally increased amounts to such executives if, within three
years following the change of control, the executive is involuntarily terminated
for reasons other than "cause" or due to death or disability (all as defined in
such plan). An executive covered by these provisions is generally entitled to
receive a lump sum severance payment in an amount that depends primarily on the
executive's years of service, but is subject to an aggregate maximum of one and
one-half years of such executive's salary. Other benefits due to the executive
in these circumstances are governed by the Company's and/or The Hartford's
various benefit plans.
DIRECTORS' COMPENSATION
STANDARD FEES. Members of the Board of Directors who are employees of the
Company or its subsidiaries or The Hartford or its subsidiaries are not
compensated for service on the Board or any of its committees. Compensation for
non-employee directors currently consists of an annual retainer fee of $30,000
payable solely in restricted shares of Class A Common Stock pursuant to the 1997
Hartford Life Restricted Stock Plan for Non-Employee Directors (the
"Non-Employee Directors Plan") described below, a $1,200 fee for each meeting of
the Board attended, a $1,000 fee for each committee meeting attended, and an
option to purchase 1,000 shares of Class A Common Stock. In addition, each
committee chairperson receives an annual retainer of $1,500. Directors also are
reimbursed for travel and related expenses incurred on behalf of the Company.
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS. Under the Non-Employee
Directors Plan, non-employee directors receive grants of shares of restricted
Class A Common Stock as payment for their annual retainer fee. Restricted stock
grants are made automatically on the date of each annual meeting of shareholders
to each non-employee director elected at, or continuing in office following, the
annual meeting. The number of shares of restricted stock is determined by
dividing the annual retainer for the year of the award by the closing price per
share of the Class A Common Stock as reported on the NYSE as of the date of the
award.
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Non-employee directors receiving restricted stock may not sell, assign or
otherwise dispose of the stock until the restriction period ends. The
restriction period ends upon the earliest to occur of: (i) five years after the
grant date, (ii) retirement at age seventy-two, (iii) a "change of control" (as
defined in the plan) of the Company or The Hartford, (iv) death, (v) disability
or (vi) resignation under certain circumstances, as set forth in the plan. If a
non-employee director resigns other than under such circumstances before the
restriction period ends, he or she will forfeit his or her restricted shares.
STOCK OPTIONS. Beginning with the Company's 1999 Annual Meeting of
Shareholders, each non-employee director elected at, or continuing in office
following, each annual meeting of shareholders is granted on the annual meeting
date an option to purchase 1,000 shares of Class A Common Stock at an exercise
price equal to the closing price per share of the Class A Common Stock on the
NYSE as of the date of grant. Each option may be exercised to purchase one-third
of the shares underlying the option after two years from the date of grant and
will become fully exercisable after three years from the date of grant. The
maximum term of each option is ten years and two days from the date of grant and
any unexercised portion will terminate within a certain period of time after a
director's termination of service on the Board, unless the termination occurs
under certain circumstances, as set forth under the Incentive Stock Plan.
INSURANCE. The Company provides each non-employee director with $100,000 of
group life insurance coverage and $750,000 of accidental death and dismemberment
and permanent total disability coverage while he or she is serving on the Board.
Non-employee directors may purchase additional benefits under these policies.
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PERFORMANCE OF THE CLASS A COMMON STOCK
The graph below compares the yearly percentage change in cumulative
shareholder return on the Class A Common Stock for the period from May 22, 1997
through December 31, 1999 with (i) the cumulative total return of the Standard &
Poor's 500 Index(R) and (ii) the Merrill Lynch Life Index(R). The figures
presented below assume the reinvestment of all dividends into shares of Class A
Common Stock on any given dividend payment date and that $100 was invested in
Class A Common Stock, in the Standard & Poor's 500 Index(R), and in the Merrill
Lynch Life Index(R). Class A Common Stock performance information is provided
only since May 22, 1997, the date the Hartford Life IPO was completed, the
Company became a public company and trading of the Class A Common Stock on the
NYSE began.
COMPANY NAME / INDEX 5/22/97 12/31/97 12/31/98 12/31/99
- -------------------- ------- -------- -------- --------
HARTFORD LIFE, INC.- CLASS A 100 161 209 159
S&P 500 INDEX (R) 100 117 151 183
MERRILL LYNCH LIFE INDEX (R) 100 166 200 177
*The Merrill Lynch Life Index(R) total return reflects the average of the total
returns on all of the companies in the index as of 12/31/99. These companies
include AFLAC Incorporated (AFL), American General Corporation (AGC), AXA
Financial, Inc. (AXF), Conseco, Inc. (CNC), Hartford Life, Inc. (HLI),
Jefferson-Pilot Corporation (JP), Lincoln National Corporation (LNC), Nationwide
Financial Services, Inc. (NFS), Protective Life Corporation (PL), Reliastar
Financial Corp.(RLR), Torchmark Corporation (TMK), and UnumProvident Corporation
(UNM).
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN SHAREHOLDERS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as of February 29, 2000 the number of shares
of Class A Common Stock beneficially owned by each director and nominee for
election as a director, by each of the Named Executives, and by the directors
and all executive officers as a group:
Amount and
Name of Nature of Beneficial
Beneficial Owner Ownership(1)(2)
---------------- --------------------
Ramani Ayer......................................................... 12,000
Gregory A. Boyko.................................................... 39,099
Gail Deegan......................................................... 1,689
Donald R. Frahm..................................................... 7,620
Paul G. Kirk, Jr. .................................................. 3,679
Thomas M. Marra..................................................... 209,227
Robert E. Patricelli................................................ 2,337
Robert W. Selander.................................................. 4,600
Lowndes A. Smith.................................................... 254,827
H. Patrick Swygert.................................................. 2,649
Gordon I. Ulmer..................................................... 4,620
Lizabeth Zlatkus.................................................... 26,011
David M. Znamierowski............................................... 24,438
David K. Zwiener.................................................... 5,000
All directors and executive officers as a group (17 persons)........ 675,332
- ----------------------
(1) Pursuant to regulations of the Securities and Exchange Commission (the
"SEC"), shares (i) that may be acquired by directors and executive officers
upon exercise of stock options exercisable within sixty days after February
29, 2000, (ii) that have been allocated to the accounts of certain
executive officers under The Hartford Investment and Savings Plan and The
Hartford Excess Savings Plan based on a valuation of plan accounts as of
February 29, 2000, (iii) that have been acquired by directors and executive
officers under the Company's Dividend Reinvestment and Cash Payment Plan
through February 29, 2000, (iv) that are owned by a director's or executive
officer's spouse or minor child or (v) that have been granted under the
Incentive Stock Plan or the Non-Employee Directors Restricted Stock Plan
and are restricted, but as to which the directors or executive officers
have the right to vote, are deemed to be beneficially owned by such
directors and executive officers as of such date and are included in the
number of shares of Class A Common Stock listed in the table above. Of the
number of shares of Class A Common Stock shown above, the following
represent shares that may be acquired upon exercise of stock options that
are exercisable within sixty days after February 29, 2000 by: Mr. Smith,
195,622 shares; Mr. Marra, 144,880 shares; Ms. Zlatkus, 18,030 shares; Mr.
Znamierowski, 19,809 shares; Mr. Boyko, 28,555 shares; and all directors
and executive officers as a group, 468,381 shares.
(2) The shares of Class A Common Stock beneficially owned by each person named
above do not exceed one percent of the outstanding shares of Class A Common
Stock. The shares beneficially owned by the group of directors and
executive officers as a whole represent 2.56% of the outstanding shares of
Class A Common Stock.
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CERTAIN SHAREHOLDERS
The following table sets forth those persons known to the Company as of
February 29, 2000 to be the beneficial owners of more than five percent of each
class of the Company's Common Stock. In furnishing the information below, the
Company has relied on information filed with the SEC by the beneficial owners.
Amount
and Nature
of Beneficial Percent of
Title of Class Name and Address of Beneficial Owner Ownership Class
-------------- ------------------------------------ ------------- ----------
Class A Common Stock...... FMR Corp. 2,824,600(1) 10.9%(2)
82 Devonshire Street
Boston, MA 02109
Class B Common Stock...... The Hartford Financial Services Group, Inc. 114,000,000(3) 100%
690 Asylum Avenue
Hartford, CT 06115
- ----------
(1) Based on Schedule 13G filed with the SEC on February 14, 2000. The Schedule
13G reported that FMR Corp. has sole voting power with respect to 348,640
shares of Class A Common Stock and sole dispositive power with respect to
2,824,600 shares of Class A Common Stock.
(2) Calculated on the basis of the number of shares of Class A Common Stock
outstanding as of February 29, 2000.
(3) The shares of Class B Common Stock are held of record by Hartford Accident
and Indemnity Company. The 114,000,000 shares of Class B Common Stock
represent approximately 95.6% of the combined voting power of all shares of
the Class A Common Stock and Class B Common Stock outstanding as of
February 29, 2000. Each share of Class B Common Stock may, at the option of
the holder thereof, be converted into one share of Class A Common Stock,
subject to certain limitations set forth in the Company's restated
certificate of incorporation.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS WITH THE HARTFORD
INTERCOMPANY ARRANGEMENTS
On May 22, 1997, the Company completed the Hartford Life IPO and became a
public company that is majority-owned by The Hartford. The Hartford owns all of
the outstanding shares of Class B Common Stock of the Company, representing
approximately 81.5% of the total equity interest in the Company, and
approximately 95.6% of the combined voting power of the outstanding Class A
Common Stock and Class B Common Stock as of February 29, 2000.
In connection with the Hartford Life IPO, The Hartford and the Company
entered into various agreements, including a master intercompany agreement, an
investment management agreement, a tax sharing agreement and a sublease, the
general terms of which are summarized below. The agreements are intended to
generally maintain the relationship between The Hartford and the Company in a
manner consistent in all material respects with past practice prior to the
Hartford Life IPO. The descriptions set forth below are intended to be summaries
and are qualified in their entirety by reference to the relevant agreement or
form thereof filed with the SEC in connection with the Hartford Life IPO.
MASTER INTERCOMPANY AGREEMENT
SERVICES. The Hartford and the Company entered into a master intercompany
agreement (the "Master Intercompany Agreement"), which provides for those
services that The Hartford provides to the Company and that the Company provides
to The Hartford. The costs of such services are allocated according to
established methodologies determined on an annual basis by The Hartford. These
services include, among others, certain corporate relations, executive,
government affairs, human resources, legal, investment, finance, real estate,
information management, internal audit, cash management, tax and treasury
services.
APPROVAL OF CORPORATE ACTIVITIES. The Master Intercompany Agreement
requires that prior to the date on which The Hartford ceases to beneficially own
50% or more of the combined voting power of the Company's Class A Common Stock
and Class B Common Stock, neither the Company nor any of its subsidiaries may
undertake or agree to undertake certain fundamental corporate actions without
the prior written consent of The Hartford. Such actions include material mergers
or consolidations or other acquisitions, and certain other transactions.
REGISTRATION RIGHTS. The Master Intercompany Agreement also provides that,
upon the request of The Hartford, the Company will use its best efforts to
effect the registration for sale under the applicable federal and state
securities laws of any of the shares of the Company's Common Stock beneficially
owned by The Hartford, subject to certain limitations. The Hartford also has the
right, subject to certain limitations, to "piggy back registration," that is, to
include shares of the Company's Common Stock beneficially owned by The Hartford
in certain other registrations of such securities initiated by the Company on
its own behalf or on behalf of its other stockholders. The Company, subject to
the provisions of the Master Intercompany Agreement, is generally obligated to
pay all out-of-pocket costs and expenses in connection with each such
registration that The Hartford requests or in which The Hartford participates.
INDEMNIFICATION. The Master Intercompany Agreement further provides for the
assumption of liabilities and cross-indemnities allocating liability in respect
of the Company's businesses to the Company and in respect of The Hartford's
businesses (other than the businesses of the Company and its subsidiaries) to
The Hartford. In addition, for those liabilities not specifically arising out of
or allocable to either of their respective former or present businesses, the
parties will share such liabilities, allocating 30% of the cost of such
liabilities to the Company and 70% of the cost of such liabilities to The
Hartford. In addition, the Company is responsible for 30% of certain shared
liabilities under certain agreements executed in connection with the ITT
Spin-Off and for which The Hartford has responsibility thereunder, including tax
sharing liabilities.
LICENSE AND SUBLICENSE. Hartford Fire, a principal subsidiary of The
Hartford, granted to the Company a license to use the "Hartford" name, the
"Stag" logo and certain other trademarks and service marks. Such license is
subject to customary usage restrictions. Subject to certain limitations, each of
the licenses is perpetual, except that if The Hartford reduces its beneficial
ownership below 50% of the combined voting power of the outstanding voting stock
of the Company, Hartford Fire may revoke its license to the Company upon the
later of the fifth anniversary of the date of consummation of the Hartford Life
IPO or one year after receipt by the Company of written notice of Hartford
Fire's intention to revoke the license.
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TAX SHARING AGREEMENT AND TAX CONSOLIDATION
The Hartford and the Company entered into a tax sharing agreement (the "Tax
Sharing Agreement") pursuant to which they agreed to allocate federal, state and
local tax liabilities between them. So long as The Hartford continues to
beneficially own, directly or indirectly, at least 80% of the combined voting
power and the value of the outstanding capital stock of the Company, the Company
will be included for federal income tax purposes in the consolidated group of
which The Hartford is the common parent. However, under the Tax Sharing
Agreement, The Hartford and the Company make payments between them such that,
with respect to any period, the amount of taxes to be paid by the Company,
subject to certain adjustments, generally will be determined as though the
Company was filing separate federal, state and local income tax returns. With
respect to certain tax items, however, such as foreign tax credits, alternative
minimum tax credits, net operating losses and net capital losses, the Company's
right to reimbursement will be determined based on the usage of such credits or
losses by the consolidated group.
INVESTMENT MANAGEMENT AGREEMENTS
The Hartford and the Company also entered into investment management
agreements (the "Investment Management Agreements"). These agreements provide
that the investment staff of The Hartford will implement (e.g., selection,
purchase and sale of securities) the investment strategies determined by the
investment strategy group of the Company and act as advisor to certain of the
Company's non-guaranteed separate accounts and mutual funds. The Investment
Management Agreements also provide that the Company pay a fee designed to
reflect the actual costs of providing such services. The Company paid
$26,088,000 in fees in 1999.
SIMSBURY SUBLEASE
The Company's headquarters, located in Simsbury, Connecticut, is currently
leased from a third party by Hartford Fire pursuant to a sale-leaseback
arrangement. After the Hartford Life IPO, the Company subleased from Hartford
Fire the right to use the headquarters building pursuant to a sublease
agreement. Hartford Fire retained the right to purchase the facility and the
renewal option in respect of the sale-leaseback arrangement. In addition, a
subsidiary of The Hartford owns the land underlying and surrounding the
headquarters building. The sublease expires on January 1, 2010. Rental payments
are fixed (but not level) over the term of the lease. In 1999, the Company paid
rent of $12 million, and it is anticipated that it will pay rent of $21 million
in each of 2000, 2001, 2002 and 2003 and $131 million thereafter in the
aggregate over the remaining term of the sublease.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HARTFORD LIFE, INC.
By: /s/ Mary Jane B. Fortin
-----------------------------------
Mary Jane B. Fortin
Vice President and Chief Accounting
Officer
Date: April 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Ramani Ayer Chairman April 27, 2000
- ----------------------------------
Ramani Ayer
/s/ Lowndes A. Smith President, Chief Executive Officer April 27, 2000
- ---------------------------------- and Director
Lowndes A. Smith
/s/ Thomas M. Marra Chief Operating Officer April 27, 2000
- ---------------------------------- and Director
Thomas M. Marra
/s/ David T. Foy Senior Vice President April 27, 2000
- ---------------------------------- and Chief Financial Officer
David T. Foy
/s/ Mary Jane B. Fortin Vice President April 27, 2000
- ---------------------------------- and Chief Accounting Officer
Mary Jane B. Fortin
/s/ Gail Deegan Director April 27, 2000
- ----------------------------------
Gail Deegan
/s/ Donald R. Frahm Director April 27, 2000
- ----------------------------------
Donald R. Frahm
/s/ Paul G. Kirk, Jr. Director April 27, 2000
- ----------------------------------
Paul G. Kirk, Jr.
/s/ Robert E. Patricelli Director April 27, 2000
- ----------------------------------
Robert E. Patricelli
/s/ Robert W. Selander Director April 27, 2000
- ----------------------------------
Robert W. Selander
/s/ H. Patrick Swygert Director April 27, 2000
- ----------------------------------
H. Patrick Swygert
/s/ Gordon I. Ulmer Director April 27, 2000
- ----------------------------------
Gordon I. Ulmer
/s/ David K. Zwiener Director April 27, 2000
- ----------------------------------
David K. Zwiener
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