1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE CHUBB CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
THE CHUBB CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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 transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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 registrations 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:
- --------------------------------------------------------------------------------
- ---------------
(1)Set forth the amount on which the filing fee is calculated and state how
it was determined.
2
THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
------------------
March 12, 1996
Dear Shareholder:
The Annual Meeting of Shareholders of The Chubb Corporation will be held on
Tuesday, April 23, 1996 at 11:00 a.m., at 15 Mountain View Road, Warren, New
Jersey and I hope that you will attend. Notice of the meeting and a Proxy
Statement are attached and I ask you to read them carefully.
In addition to the election of Directors and approval of independent
auditors for the year 1996, Shareholders will be asked to approve the three
compensation plans described below. Plans similar to these were last approved by
Shareholders in 1994 and 1992.
The Annual Incentive Compensation Plan (1996) is being brought before
Shareholders in order to provide for the tax deductibility of competitively
positioned awards for eligible key employees of the Corporation and its
subsidiaries. The Long-Term Stock Incentive Plan (1996) is being presented to
Shareholders because the Long-Term Stock Incentive Plan (1992) shall terminate
at the end of this year. Approval of the 1996 Plan will allow for the continued
granting of stock-based awards to key employees and for the tax deductibility of
such awards. The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1996) is being presented so that Shareholders have the opportunity to review
and approve the Corporation's major employee and Director incentive compensation
plans at the same time. The Board of Directors believes the approval of these
plans will best serve the overall interests of Shareholders.
The Corporation continues to recognize the importance and value of
encouraging increased levels of share ownership participation by Directors and
management of the Corporation. An important concern to all of us as Shareholders
is dilution. For that reason, the 1996 Long-Term Stock Incentive Plan places a
limit on the number of newly-issued shares available for awards while
authorizing additional awards if the Corporation reacquires shares after the
date of the 1996 Annual Meeting. In a similar vein, the number of shares to be
authorized under the 1996 Stock Option Plan for Non-Employee Directors is equal
to the number of shares remaining available for stock option grants to Directors
under the Directors plan approved by Shareholders in 1992.
Since it is important that your shares be represented at the meeting
whether or not you plan to attend in person, please indicate on the enclosed
proxy your decisions about how you wish to vote, and sign, date and return the
proxy promptly in the envelope provided. If you find it possible to attend the
meeting and wish to vote in person, you may withdraw your proxy at that time.
Sincerely yours,
/s/ DEAN R. O'HARE
------------------
Dean R. O'Hare
Chairman, President and
Chief Executive Officer
3
[CHUBB LOGO]
THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of The Chubb Corporation will be held at
15 Mountain View Road, Warren, New Jersey on April 23, 1996 at 11:00 A.M., local
time, for the following purposes:
1. To elect fourteen Directors to serve until the next Annual Meeting
of Shareholders and until their respective successors are elected and shall
qualify.
2. To approve The Chubb Corporation Annual Incentive Compensation
Plan (1996), such Plan being set forth as Exhibit A to the accompanying
Proxy Statement.
3. To approve The Chubb Corporation Long-Term Stock Incentive Plan
(1996), such Plan being set forth as Exhibit B to the accompanying Proxy
Statement.
4. To approve The Chubb Corporation Stock Option Plan for Non-
Employee Directors (1996), such Plan being set forth as Exhibit C to the
accompanying Proxy Statement.
5. To approve the selection of independent auditors for the year
1996.
6. To transact such other business as may properly be brought before
the meeting and any adjournment thereof.
Shareholders of record at the close of business on March 4, 1996 will be
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
By order of the Board of Directors,
HENRY G. GULICK
Vice President and Secretary
Dated: March 12, 1996
- --------------------------------------------------------------------------------
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE FILL IN, SIGN, DATE
AND RETURN THE PROXY SUBMITTED HEREWITH, IN THE ENCLOSED ADDRESSED ENVELOPE. THE
GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY BY
APPROPRIATE WRITTEN NOTICE OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO
ATTEND THE MEETING.
4
[CHUBB CORP LOGO]
THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
------------------
PROXY STATEMENT
------------------
March 12, 1996
The Proxy accompanying this Proxy Statement is solicited by the Board of
Directors of The Chubb Corporation to be voted at the Annual Meeting of
Shareholders on April 23, 1996 and at any adjournment thereof. The Proxy may be
revoked by appropriate written notice at any time before it is exercised. See
"Voting, Solicitation of Proxies and Shareholder Proposals".
A copy of the Corporation's Annual Report to Shareholders for 1995 has been
previously mailed to all Shareholders. This Proxy Statement and Proxy are first
being mailed to Shareholders on March 12, 1996.
As of March 4, 1996, the record date for the determination of Shareholders
entitled to vote at the Annual Meeting, 87,311,778 shares of Common Stock of the
Corporation were issued and outstanding. Each share of Common Stock entitles the
holder to one vote on all matters brought before the Annual Meeting.
As previously announced by the Corporation on March 1, 1996, the Board of
Directors has authorized a two-for-one split of the shares of Common Stock of
the Corporation. As the record date for the split is April 19, 1996, the
determination of shares entitled to vote at the Annual Meeting and the share
information reflected in this Proxy Statement do not take into account the
effect of the split.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY RECORD HOLDER OR
BENEFICIAL OWNER OF ITS COMMON STOCK ON SUCH RECORD DATE, UPON RECEIPT OF A
WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K. WRITTEN REQUESTS SHOULD BE DIRECTED TO THE CHUBB
CORPORATION TO THE ATTENTION OF HENRY G. GULICK, VICE PRESIDENT AND SECRETARY,
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615.
The Corporation is a holding company and is principally engaged, through
subsidiaries, in the businesses of property and casualty insurance, life and
health insurance and real estate development. Its principal subsidiaries are
Chubb & Son Inc., Federal Insurance Company ("Federal"), Pacific Indemnity
Company ("Pacific"), Vigilant Insurance Company ("Vigilant"), Great Northern
Insurance Company ("Great Northern"), Chubb Insurance Company of Canada ("Chubb
Canada"), Chubb Insurance Company of Australia, Limited, Chubb Insurance Company
of Europe, S.A., Chubb Life Insurance Company of America ("Chubb Life"), The
Colonial Life Insurance Company of America and Bellemead Development Corporation
("Bellemead").
ELECTION OF DIRECTORS
The following persons have been nominated by the Board of Directors to
serve as Directors until the next Annual Meeting of Shareholders and until their
respective successors shall be elected and shall qualify. All of the nominees
were elected as members of the Board of Directors at the 1995 Annual Meeting
except James I. Cash, Jr., who at the recommendation of the Nominating Committee
and the Board of Directors is standing for election for the first time. Pursuant
to the provisions of the By-Laws, the Board of Directors has fixed the number of
Directors to be elected at fourteen. In the event that any of the nominees
should be unable or unwilling to serve as a Director, it is intended that the
Proxy will be voted for such person, if any, as shall be designated by the Board
of Directors. However, the Board of Directors has no reason to believe that any
nominee will be unable or unwilling to serve as a Director.
5
NOMINEES FOR DIRECTOR
NAME AGE(1)
John C. Beck 64
Managing Partner, Beck, Mack & Oliver, an investment counselling firm. Mr. Beck has
been associated with Beck, Mack & Oliver since 1958 and first became a partner in
1962. He was a Director of Bellemead from 1984 to 1989. He first became a Director of
the Corporation in 1988. Mr. Beck is also a Director of Russell Reynolds Associates,
Inc.
James I. Cash, Jr. 48
The James E. Robison Professor of Business Administration, Harvard University.
Professor Cash has been a member of the Harvard Business School faculty since 1976. He
is a Director of Cambridge Technology Partners, Inc., Knight-Ridder, Inc., State
Street Bank & Trust and The Tandy Corporation. He is a Trustee of the Massachusetts
Computer Software Council, Massachusetts General Hospital and Texas Christian
University. Professor Cash is also an overseer for the Boston Museum of Science and
The Gardner Museum. Professor Cash is standing for election as a Director of the
Corporation for the first time in 1996.
Percy Chubb, III 61
Vice Chairman of the Corporation since June 1986. Prior to his election as Vice
Chairman, Mr. Chubb had been an Executive Vice President since 1981. He is also Vice
Chairman of Chubb & Son Inc., Bellemead and Chubb Life, a Senior Vice President of
Federal and Chairman of Chubb Canada. Mr. Chubb has been associated with Chubb & Son
Inc. since 1958. He first became a Director of the Corporation in 1978.
Joel J. Cohen 58
Managing Director, Investment Banking Department, and Director, Mergers and
Acquisitions, Donaldson, Lufkin & Jenrette Securities Corporation since October 1989.
Mr. Cohen was a consultant from February 1988 until October 1989. Mr. Cohen had been
General Counsel: Presidential Task Force on Market Mechanisms from November 1987
through January 1988 and a Partner of Davis Polk & Wardwell, attorneys, until
September 1987. He had been associated with Davis Polk & Wardwell from 1963 until
September 1987 and became a Partner in 1969. He first became a Director of the
Corporation in 1984. Mr. Cohen is also a Director of GTECH Holdings Corporation,
Maersk, Inc., Maersk Line, Limited and Atlantic Pacific Marine Corporation.
David H. Hoag 56
Chairman, President and Chief Executive Officer, The LTV Corporation since January 1991
and President and Chief Executive Officer of LTV Steel Company from 1983 until 1990.
He continues as Chief Executive Officer of LTV Steel Company. Mr. Hoag has been
associated with The LTV Corporation since 1960. He first became a Director of the
Corporation in 1994. Mr. Hoag is also a Director of The LTV Corporation and Lubrizol
Corporation. Mr. Hoag serves as Chairman of the Board of Trustees of Allegheny College
and Chairman of Cleveland Tomorrow.
Robert V. Lindsay 70
Former President and former Director of J. P. Morgan & Co. Incorporated and its
wholly-owned subsidiary, Morgan Guaranty Trust Company of New York, and Chairman of
the latter's International Council from 1987 to 1989. Mr. Lindsay had been associated
with The Morgan Bank from 1949 until his retirement in 1986. He first became a
Director of the Corporation in 1977. Mr. Lindsay is also a Director of The Fluor
Corporation, Hudson Chartered Corp., Russell Reynolds Associates, Inc. and United
Meridian Corporation and is Senior Advisor to Unibank Denmark A/S. Mr. Lindsay serves
as Chairman of the John Simon Guggenheim Memorial Foundation.
Thomas C. MacAvoy 67
Professor of Business Administration, University of Virginia since 1988. He is a former
Vice Chairman and Director of Corning, Inc. Mr. MacAvoy had been associated with
Corning, Inc. from 1957 until his retirement in 1987. He first became a Director of
the Corporation in 1981. Mr. MacAvoy is also a Director of Lubrizol Corporation and
Quaker Oats Company.
Gertrude G. Michelson 70
Former Senior Advisor, R.H. Macy & Co., Inc. ("Macy's") from September 1992 until her
retirement in December 1994. Prior to September 1992, Mrs. Michelson had been Senior
Vice President of Macy's since 1981. Mrs. Michelson had been associated with Macy's
since 1947. In January 1992, Macy's filed a voluntary petition under Chapter 11 of the
U.S. Bankruptcy Code. Macy's emerged from bankruptcy in December 1994. Mrs. Michelson
first became a Director of the Corporation in 1974. Mrs. Michelson serves as a
Director of Federated Department Stores, General Electric Company, The Goodyear Tire
and Rubber Company and The Stanley Works, Inc. Mrs. Michelson is a Governor of the
American Stock Exchange and is Chairman-Emeritus of the Board of Trustees of Columbia
University.
2
6
NAME AGE(1)
Dean R. O'Hare 53
Chairman, President and Chief Executive Officer of the Corporation since January 1995.
Prior to January 1995, Mr. O'Hare had been Chairman and Chief Executive Officer since
June 1988. Mr. O'Hare had been President from 1986 until 1988, an Executive Vice
President since 1985 and a Senior Vice President since 1979. He is Chairman and
President of Federal, Vigilant and Great Northern, and Chairman of Pacific, Chubb &
Son Inc., Bellemead and Chubb Life. Mr. O'Hare has been associated with Chubb & Son
Inc. since 1963. He first became a Director of the Corporation in 1984.
Warren B. Rudman 65
Partner, Paul, Weiss, Rifkind, Wharton & Garrison, attorneys, since January 5, 1993.
Prior to January 5, 1993, Senator Rudman had been a United States Senator from New
Hampshire since 1980. Senator Rudman first became a Director of the Corporation in
1993. He is also a Director of Collins & Aikman and Raytheon Company and a Director of
eighteen funds in the Dreyfus Family of Mutual Funds. Senator Rudman is also Vice
Chairman of the President's Foreign Intelligence Advisory Board, Co-Chairman of the
Concord Coalition and a Trustee of Boston College and serves on the Senior Advisory
Board of the Institute of Politics of the John F. Kennedy School of Government at
Harvard University.
Sir David G. Scholey, CBE 60
Chairman of International Advisory Council, Swiss Bank Corporation since November 1995.
Prior to November 1995, Sir David had been Chairman and Chief Executive Officer of SBC
Warburg Group plc, an investment banking firm, from February 1995 until November 1995.
Prior to February 1995, Sir David had been Chairman of SBC Warburg Group plc since
1984. He first became a Director of the Corporation in 1991. Sir David is also a
Director of Bank of England and a Governor of the British Broadcasting Corporation. He
is also a Governor of London School of Economics and Political Science and a Trustee
of the Glyndebourne Arts Trust and The National Portrait Gallery.
Raymond G.H. Seitz 55
Senior Managing Director, Lehman Bros. International (Europe) since January 1995. Prior
to January 1995, Ambassador Seitz had been a Professional Writer since May 1994,
following his retirement as Ambassador of the United States of America to the Court of
St. James's since 1991 and Assistant Secretary of State for European and Canadian
Affairs from 1989 to 1991. Ambassador Seitz had served as an Officer in the United
States Foreign Service since 1966 wherein he held many positions in the U.S. and
abroad. He first became a Director of the Corporation in 1994. Ambassador Seitz is
also a Director of British Airways plc, Cable & Wireless Co. plc, The General Electric
Company plc, Siiandwick plc and The Telegraph Group plc. He is a Trustee of the
National Gallery, the Royal Academy and the World Monument Fund, a member of the
Advisory Board of Stanford University and a member of the British-American Business
Council and the Institute for U.S. Studies at Oxford University.
Lawrence M. Small 54
President and Chief Operating Officer, Federal National Mortgage Association ("Fannie
Mae") since February 1992. Prior to September 1991, when Mr. Small started with Fannie
Mae, he had served as Vice Chairman and Chairman of the Executive Committee, Citicorp
and Citibank, N.A. since January 1990. Prior to assuming that position, Mr. Small had
been Sector Executive since 1985, responsible for Citicorp's and Citibank's
Institutional Bank. He had been associated with Citibank since 1964. He first became a
Director of the Corporation in 1989. Mr. Small is also a Director of Fannie Mae and
Marriott International, Inc. He is also a Director of New York City's Spanish
Repertory Theatre. He is a Trustee of Morehouse College and New York University
Medical Center, a Trustee-Emeritus of Brown University and a member of the U.S.
Holocaust Memorial Council.
Richard D. Wood 69
Former Chairman of the Board, Eli Lilly and Company from 1973 until his retirement in
June 1993. Mr. Wood also served as President and Chief Executive Officer until
November 1991. Eli Lilly and Company is a global-based corporation that develops,
manufactures and markets pharmaceuticals, medical instruments, diagnostic products and
animal health products. Mr. Wood had been associated with Eli Lilly and Company since
1950. He first became a Director of the Corporation in 1990. Mr. Wood is also a
Director of Amoco Corporation, Chemical Banking Corporation, Chemical Bank and Dow
Jones & Company, Inc. He is Vice Chairman of the Advisory Board of CID Equity Partners
and is also a Trustee of DePauw University and is Chairman of the Indianapolis Museum
of Art. He is a Director of the Indianapolis Symphony Orchestra and recently completed
a term of office as Chairman of the Indiana State Symphony Society.
- ------------------
(1) As of April 23, 1996.
3
7
BENEFICIAL SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table lists beneficial ownership of the Corporation's Common
Stock by Directors, the Chief Executive Officer, the four most highly
compensated executive officers other than the Chief Executive Officer, and
Directors and executive officers as a group in accordance with the definitions
adopted by the Securities and Exchange Commission under Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "Act"). No Director or officer
beneficially owns as much as one half of 1% of the outstanding Common Stock,
except for Mr. Chubb, whose beneficial ownership reflected in the table is 1.2%.
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED
MARCH 4,
NAME 1996(1)
- --------------------------------------------------------------------- --------------
John C. Beck......................................................... 34,691(2)(19)
James I. Cash, Jr.................................................... 100
Percy Chubb, III..................................................... 1,043,012(3)(16)(17)
Joel J. Cohen........................................................ 16,450(9)(19)
David H. Hoag........................................................ 2,300(6)(19)
Robert V. Lindsay.................................................... 17,350(10)(19)
Thomas C. MacAvoy.................................................... 12,450(8)(19)
Gertrude G. Michelson ............................................... 16,450(10)(19)
Dean R. O'Hare....................................................... 120,135(12)(16)(17)
Warren B. Rudman..................................................... 6,100(7)
Sir David G. Scholey, CBE............................................ 8,150(13)
Raymond G. Seitz..................................................... 2,100(6)
Lawrence M. Small ................................................... 15,500(14)
Richard D. Wood...................................................... 10,509(15)(19)
Robert P. Crawford, Jr. ............................................. 32,877(4)(16)(17)
John J. Degnan....................................................... 19,765(5)(16)(17)
Edward Dunlop........................................................ 20,514(11)(16)(17)
Directors and Executive Officers as a group ......................... 1,674,498(18)
- ---------------
(1) Each person has sole voting and investment power with respect to the
shares listed, unless otherwise indicated.
(2) Includes 18,691 shares held in accounts managed by Beck, Mack & Oliver,
of which Mr. Beck disclaims beneficial ownership, and 14,000 shares that may be
purchased within 60 days pursuant to The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1992).
(3) Includes 92,450 shares held by trusts for Mr. Chubb's benefit, 9,542
shares owned by a member of Mr. Chubb's family who lives in his home, 702 shares
held in trusts of which a member of Mr. Chubb's family who lives in his home is
trustee, 794,775 shares owned by the Victoria Foundation Inc., of which Mr.
Chubb is President and one of thirteen trustees, 30,600 shares which Mr. Chubb
has the right to purchase within 60 days under the Stock Option Plan (1984) and
The Chubb Corporation Long-Term Stock Incentive Plan (1992) and 353 shares which
Mr. Chubb has the right to purchase within 60 days under the Stock Purchase Plan
(1989). Mr. Chubb disclaims beneficial ownership of 805,019 of such shares.
(4) Includes 2,526 shares owned by a member of Mr. Crawford's family who
lives in his home, 18,550 shares which Mr. Crawford has the right to purchase
within 60 days under the Stock Option Plan (1984) and The Chubb Corporation
Long-Term Stock Incentive Plan (1992), 353 shares which Mr. Crawford has the
right to purchase within 60 days under the Stock Purchase Plan (1989), 282
shares held by Mr. Crawford under the Corporation's Dividend Reinvestment Plan
and 170 shares held under the Dividend Reinvestment Plan by a member of Mr.
Crawford's family who lives in his home. Mr. Crawford disclaims beneficial
ownership of 2,696 of such shares.
(5) Includes 216 shares held by members of Mr. Degnan's family who live in
his home, 14,200 shares which Mr. Degnan has the right to purchase within 60
days under The Chubb Corporation Long-Term Stock Incentive Plan (1992), 300
shares which Mr. Degnan has the right to purchase within 60 days under the
4
8
Stock Purchase Plan (1989) and 1,553 shares represented by 295 units in the
Corporation Stock Fund of the Capital Accumulation Plan of The Chubb
Corporation. Mr. Degnan disclaims beneficial ownership of 216 of such shares.
(6) Includes 2,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(7) Includes 6,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(8) Includes 8,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(9) Includes 12,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(10) Includes 16,000 shares that may be purchased within 60 days pursuant
to The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(11) Includes 10,785 shares which Mr. Dunlop has the right to purchase
within 60 days under The Chubb Corporation Long-Term Stock Incentive Plan (1992)
and 353 shares which Mr. Dunlop has the right to purchase within 60 days under
the Stock Purchase Plan (1989).
(12) Includes 1,420 shares held by Mr. O'Hare as custodian for his children
who live in his home, 62,942 shares which Mr. O'Hare has the right to purchase
within 60 days under the Stock Option Plan (1984) and The Chubb Corporation
Long-Term Stock Incentive Plan (1992) and 353 shares which Mr. O'Hare has the
right to purchase within 60 days under the Stock Purchase Plan (1989). Mr.
O'Hare disclaims beneficial ownership of 1,420 of such shares.
(13) Includes 50 shares owned by a member of Sir David Scholey's family who
lives in his home, of which Sir David disclaims beneficial ownership, and 8,000
shares that may be purchased within 60 days pursuant to The Chubb Corporation
Stock Option Plan for Non-Employee Directors (1992).
(14) Includes 100 shares held by Mr. Small as Custodian for his daughter
who lives in his home, 1,500 shares held by a member of Mr. Small's family who
lives in his home and 12,000 shares that may be purchased within 60 days
pursuant to The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1992). Mr. Small disclaims beneficial ownership of 1,600 of such shares.
(15) Includes 9 shares held by Mr. Wood under the Corporation's Dividend
Reinvestment Plan and 10,000 shares that may be purchased within 60 days
pursuant to The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1992).
(16) Includes 5,158, 203, 122, 396 and 8,436 shares which Messrs. Chubb,
Crawford, Degnan, Dunlop and O'Hare, respectively, may acquire within 60 days by
the conversion of convertible debentures issued pursuant to The Chubb
Corporation Long-Term Stock Incentive Plan (1992).
(17) Includes 975, 783, 580, 974 and 975 shares which were allocated to
Messrs. Chubb, Crawford, Degnan, Dunlop and O'Hare, respectively, pursuant to
The Chubb Corporation Employee Stock Ownership Plan (the "ESOP").
(18) Such shares include the shares reflected above as to which Messrs.
Beck, Chubb, Crawford, Degnan, O'Hare, Scholey and Small disclaim beneficial
ownership, 9,216 shares which executive officers other than those listed in the
table above disclaim beneficial ownership, 18 shares held under the
Corporation's Dividend Reinvestment Plan by one executive officer other than
those listed in the table above, 7,655 shares which were allocated to executive
officers other than those listed in the table above pursuant to the ESOP,
141,873 shares which executive officers other than those listed in the table
above have the right to purchase within 60 days under the Stock Option Plan
(1984) and The Chubb Corporation Long-Term Stock Incentive Plan (1992), 2,015
shares which executive officers other than those listed in the table above have
the right to purchase within 60 days under the Stock Purchase Plan (1989), 4,258
shares which executive officers other than those listed in the table above have
the right to purchase within 60 days by conversion of convertible debentures
issued pursuant to The Chubb Corporation Long-Term Stock Incentive Plan (1992)
and 6,283 shares represented by 1,196 units in the Corporation Stock Fund of the
Capital Accumulation Plan which are beneficially owned by four executive
officers other than those listed in the table above, and shares owned by Mr.
Henry U. Harder, a Director not standing for re-election. Mr. Harder
beneficially owned 61,162 shares of
5
9
Common Stock including 3,602 shares owned by a member of Mr. Harder's family who
lives in his home, 4,000 shares held in a trust of which Mr. Harder is a trustee
and a beneficiary and 10,000 shares which he has the right to purchase within 60
days pursuant to The Chubb Corporation Stock Option Plan for Non-Employee
Directors (1992). Mr. Harder disclaims beneficial ownership of 7,602 of said
shares. All Directors and Executive Officers as a group own 1.9% of the
outstanding Common Stock.
(19) Does not include compensation allocated to the Market Value Account of
the Deferred Compensation Plan for Non-Employee Directors (See "Directors
Compensation" on page eight). The value of units allocated to this account is
based upon the market value of the Corporation's Common Stock. All payments from
this plan, including those attributable to the Market Value Account, are made in
cash. At March 4, 1996, Directors' allocations to the Market Value Account were
as follows:
UNIT ALLOCATION
DIRECTOR (SHARE EQUIVALENT)
--------------------------------------------------------------------- ------------------
John C. Beck......................................................... 4,784
Joel J. Cohen........................................................ 3,692
David H. Hoag........................................................ 420
Robert V. Lindsay.................................................... 483
Thomas C. MacAvoy.................................................... 168
Gertrude G. Michelson................................................ 5,448
Richard D. Wood...................................................... 2,136
As required by Securities and Exchange Commission rules, the Corporation
notes that during 1995, Ernesta G. Procope, a former Director of the Corporation
who did not stand for re-election on April 26, 1995, was late in filing a report
with the Securities and Exchange Commission under Section 16 of the Act with
respect to a sale in September, 1995 of 565 shares and Robert P. Crawford, Jr.,
Executive Vice President of the Corporation, was also late in filing a report
with respect to a sale by his wife of 270 shares in November, 1995.
CERTAIN SHAREHOLDERS
As of March 4, 1996, Sun Alliance Group plc ("Sun Alliance") (at 1
Bartholomew Lane, London, EC2N 2AB, England) held 4,511,958 shares of Common
Stock of the Corporation (approximately 5.16% of the outstanding Common Stock at
March 4, 1996). Sun Alliance has reported that it holds such shares for the
purpose of investment.
FMR Corp. ("FMR") (at 82 Devonshire Street, Boston, MA 02109) has filed a
Schedule 13G under the Securities Exchange Act of 1934 (the "1934 Act")
indicating that as of December 31, 1995, it beneficially owned 4,645,294 shares
of Common Stock (approximately 5.29% of the outstanding Common Stock at December
31, 1995) through (i) two wholly-owned subsidiaries: Fidelity Management &
Research Company ("Fidelity") and Fidelity Management Trust Company ("Fidelity
Trust") and (ii) its interest in Fidelity International Limited ("FIL") (at
Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda), a Bermuda joint-stock company.
FMR has reported that its shares of Common Stock were not acquired with the
purpose or effect of changing or influencing control of the Corporation.
Fidelity is the beneficial owner of 4,092,754 shares of Common Stock
(approximately 4.66% of the outstanding Common Stock at December 31, 1995).
Fidelity has reported that it holds these shares as a result of acting as
investment adviser to various investment companies. FMR, through its control of
Fidelity, has sole power to dispose of Fidelity's shares of Common Stock,
although voting power with respect to such shares remains with Fidelity's
investors. In addition, Fidelity is the beneficial owner of $40,570,000
principal amount of 6% Guaranteed Exchangeable Notes due 1998 of Chubb Capital
Corporation which is exchangeable in certain circumstances for 471,748 shares of
Common Stock. Fidelity Trust, a bank as defined in Section 3(a)(6) of the 1934
Act, is the beneficial owner of 502,040 shares of Common Stock (0.57% of the
outstanding Common Stock at December 31, 1995). FMR, through its control of
Fidelity Trust, has sole power to dispose of Fidelity Trust's shares of Common
Stock and sole power to vote or direct the voting of 402,240 (approximately 80%)
of such shares.
6
10
FIL, an investment adviser to various foreign investment companies and
certain institutional investors, is the beneficial owner of 50,500 shares of
Common Stock (0.06% of the outstanding Common Stock at December 31, 1995) and
has sole voting and dispositive power over such shares. FIL currently operates
as a separate entity independent from FMR; however, Mr. Edward C. Johnson 3rd,
the chairman of FIL, is also chairman of FMR. In addition, a partnership
controlled by Mr. Johnson and members of his family owns approximately 47.22% of
the voting shares of FIL. FMR and FIL have reported that they are of the view
that they are not acting as a group for purposes of Section 13(d) under the 1934
Act and are not otherwise required to attribute their beneficially owned
securities to one another. FMR believes its filing with respect to FIL ownership
of shares of Common Stock should not be construed as an admission that FMR is
the beneficial owner of such shares of Common Stock.
Mr. Johnson, members of his family and trusts for their benefit
beneficially own approximately 49% of the voting stock of FMR. In addition,
Abigail Johnson is a Director. All current shareholders, including the Johnson
family group, have entered into a shareholders' voting agreement under which all
of their shares are voted in accordance with the majority vote of such shares.
Accordingly, members of the Johnson family may be deemed, under the Investment
Company Act of 1940, to form a controlling group with respect to FMR.
The Board of Directors knows of no other beneficial owner of five percent
or more of the Corporation's Common Stock nor does it know of any arrangement
which may at a subsequent date result in a change in control of the Corporation.
See "Transactions with Certain Shareholders".
AUDIT, ORGANIZATION & COMPENSATION AND NOMINATING COMMITTEES
The Board of Directors has, among other Committees, an Audit Committee, an
Organization & Compensation Committee and a Nominating Committee.
The Audit Committee is composed of Messrs. Small (Chairman), Cohen, Hoag,
Seitz and Wood and Mrs. Michelson. No officer of the Corporation or of any of
its subsidiaries may serve on the Audit Committee. In 1995, the Committee met
four times. The functions of the Audit Committee include reviewing the
accounting principles and practices employed by the Corporation and, to the
extent the Committee deems appropriate, of the Corporation's subsidiaries;
meeting with the Corporation's independent auditors to review their reports on
their audits of the Corporation's accounts, their comments on the internal
accounting controls and internal audit procedures of the Corporation and the
action taken by management with regard to such comments; and recommending
annually to the Board of Directors the appointment of the Corporation's
independent auditors. The Committee has the power at its discretion to order
interim and surprise audits and to perform such other duties as may be assigned
to it from time to time by the Board of Directors.
The Organization & Compensation Committee is composed of Messrs. Lindsay
(Chairman), Small and Wood and Mrs. Michelson. No officer of the Corporation or
any of its subsidiaries may serve on the Organization & Compensation Committee.
In 1995, the Committee met six times. The Committee monitors the performance and
oversees the promotion of the senior executive officers of the Corporation and
its principal operating subsidiaries and periodically consults with the Chief
Executive Officer and other members of senior management regarding the
development of qualified replacements to succeed key executives and other
aspects of succession planning. The Committee determines overall compensation
policy for senior management of the Corporation, recommending to the Board of
Directors new compensation programs or changes in existing programs which the
Committee finds appropriate. Any action to be taken with regard to the salary of
any employee of the Corporation or any of its subsidiaries, which is in excess
of certain amounts, is subject to ratification by the Committee. In addition,
the Committee performs administrative functions pursuant to The Chubb
Corporation Director's Charitable Award Program, The Chubb Corporation Long-Term
Stock Incentive Plan (1992) (the "Long-Term Stock Incentive Plan"), the Annual
Incentive Compensation Plan (1994) (the "Annual Incentive Compensation Plan"),
The Profit Sharing Plan of The Chubb Corporation, Chubb & Son Inc. and
Participating Affiliates (1987) (the "Profit Sharing Plan (1987)"), The Chubb
Corporation Investment Department/Chubb Asset Managers, Inc. Incentive
Compensation Plan, the Stock Purchase Plan (1989) of The Chubb Corporation (the
"Stock Purchase Plan (1989)") and The Chubb Corporation Stock Option Plan (1984)
(the "Stock Option Plan (1984)") and ratifies certain awards made pursuant to
incentive or bonus plans of subsidiaries of the Corporation.
7
11
The Nominating Committee is composed of Mrs. Michelson (Chairperson) and
Messrs. Cohen and Lindsay. The Committee seeks out, evaluates and recommends
qualified nominees for election as Directors, considers Director performance
before recommending re-election and makes recommendations concerning the size
and composition of the Board. In 1995, the Committee met once. The Committee
will consider Shareholder recommendations for Director upon receipt of
appropriate biographical information and confirmation of the proposed nominee's
bona fide intent to serve on the Board of Directors if nominated and elected.
For additional information on this process, Shareholders should write to Henry
G. Gulick, Vice President and Secretary, The Chubb Corporation, 15 Mountain View
Road, P.O. Box 1615, Warren, New Jersey 07061-1615.
DIRECTORS' ATTENDANCE
In fiscal year 1995, there were four meetings of the Board of Directors of
the Corporation. All of the incumbent Directors attended 75% or more of the
aggregate of their respective Board and Committee meetings.
DIRECTORS' COMPENSATION
All Directors of the Corporation are also directors of three of the
Corporation's subsidiaries: Federal, Vigilant and Chubb Life. Certain of the
Corporation's Directors are also directors of other subsidiaries of the
Corporation. It is the practice of the Corporation's Board of Directors to hold
concurrent meetings with the Boards of Directors of Federal, Vigilant and Chubb
Life.
Each Director receives an annual stipend in the amount of $25,000, all of
which is paid by the Corporation. In addition, a meeting fee of $1,000 is paid
to Directors for each meeting of the Board of Directors attended, of which the
Corporation, Federal, Vigilant and Chubb Life each pay $250. Directors receive a
fee of $1,000 for each Committee meeting attended. In those instances where
Committees of the Corporation, Federal, Vigilant and Chubb Life meet
concurrently, each shares proportionately in the payment of the fee. In
addition, members of the Finance Committee, the Executive Committee, the
Organization & Compensation Committee, the Audit Committee and the Pension and
Profit Sharing Committee receive an annual stipend from the Corporation of
$5,000. The Chairmen of the Audit Committee and of the Organization &
Compensation Committee receive annual stipends from the Corporation of $10,000
for service on those committees in lieu of the foregoing committee stipends.
Members of the Life Advisory Committee of Chubb Life receive an annual stipend
of $5,000 in addition to a fee of $1,000 for each Committee meeting attended,
both of which are paid by Chubb Life. Directors who are officers of the
Corporation receive meeting fees for attendance at Directors' meetings only and
do not receive stipends or fees for Committee meetings.
For the year 1995, Messrs. Chubb, Harder, a Director not standing for
re-election, and O'Hare also received directors' fees from certain subsidiaries
of the Corporation totalling $1,500, $3,500 and $2,000, respectively.
In connection with the establishment of the International Advisory Board of
The Chubb Corporation, Messrs. O'Hare, Scholey and Seitz each received meeting
fees totalling $5,000 in 1995.
Pursuant to the Deferred Compensation Plan for Non-Employee Directors
adopted by the Corporation in 1987, Directors may elect to defer, until a date
specified, receipt of all or a portion of their compensation. This plan provides
that, in addition to a Cash Account upon which amounts deferred earn interest
compounded quarterly, at the prime rate of Citibank, N.A. in effect on certain
specified dates, amounts deferred may also be allocated to a Market Value
Account, the value of which is based upon the market value of the Corporation's
Common Stock from time to time, a Shareholder's Equity Account, the value of
which is based upon the book value of the Corporation's Common Stock established
on an annual basis, or a combination of such accounts. At its regular Board
meeting in December 1995, the Board of Directors adopted guidelines suggesting
that eligible Non-Employee Directors voluntarily defer 50% of all stipends into
the Market Value Account starting in 1996. At March 4, 1996, deferred
compensation accounts were maintained for eleven Directors, all of whom are
currently deferring compensation pursuant to this plan. For 1995, Directors
deferred receipt of $297,250 of compensation from the Corporation and its
subsidiaries. At December 31,
8
12
1995, the aggregate account values reflecting Directors' deferrals and earnings
on such deferrals were as follows: $1,657,924 for the Market Value Account,
$1,073,972 for the Shareholder's Equity Account and $15,028 for the Cash
Account.
DIRECTOR'S CHARITABLE AWARD PROGRAM
Effective January 1, 1992, the Corporation established the Director's
Charitable Award Program. Under the Program, which is administered by the
Organization & Compensation Committee, each non-employee Director following his
or her first election to the Board of Directors by Shareholders may recommend
that the Corporation direct one or more charitable contributions totalling
$500,000 to eligible tax exempt organizations. Generally, eligible Directors are
paired, and contributions are made to the organizations selected by a Director
upon the death of the second paired Director. At March 4, 1996, twelve eligible
Directors were participating in the Program. The Program may be funded by the
Corporation through, among other vehicles, the purchase of life insurance
policies on the lives of the Directors. Individual Directors derive no financial
benefit from this Program since all charitable deductions accrue solely to the
Corporation. The Program may be terminated at any time by the Organization &
Compensation Committee.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1988)
was adopted by the Board of Directors and approved by Shareholders in 1988 and
was amended, extended and renamed The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1992) (the "1992 Non-Employee Directors Plan") by the
Board of Directors and approved by Shareholders in 1992. The 1992 Non-Employee
Directors Plan provides that an aggregate of 300,000 shares of Common Stock of
the Corporation are available for issuance upon exercise of options granted
thereunder. The 1992 Non-Employee Directors Plan shall terminate on the day
following the 1997 Annual Meeting of Shareholders. The Board of Directors has
unanimously recommended the extension and amendment of the 1992 Non-Employee
Director Plan by Shareholders at the 1996 Annual Meeting. See "Proposal to
Approve The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1996)". If the 1996 Non-Employee Directors Plan is approved by Shareholders,
the 1992 Non-Employee Directors Plan will terminate the day after the 1996
Annual Meeting.
The 1992 Non-Employee Directors Plan is administered by the Board of
Directors. Only Eligible Directors, as defined, are eligible for grant of
options under the 1992 Non-Employee Directors Plan. There are currently twelve
Eligible Directors. Following the election of Directors, as of the date of each
Annual Meeting that occurs while the 1992 Non-Employee Directors Plan is in
effect, each individual who is then an Eligible Director will be granted an
option to purchase 2,000 shares of Common Stock of the Corporation. The purchase
price per share of the Common Stock deliverable upon exercise of the option
shall be 100% of the fair market value per share of Common Stock on the day the
option is granted.
Options granted under the 1992 Non-Employee Directors Plan are nonstatutory
options. The options shall be exercisable in whole or in part at all times after
the date of grant. All outstanding options held by an optionee shall be
automatically canceled upon termination of the optionee's service as an Eligible
Director, except for terminations due to retirement and under certain other
specified circumstances.
In the case of certain mergers, consolidations or combinations of the
Corporation with or into other corporations, or in the event of a Change of
Control of the Corporation, as defined, the holder of each option then
outstanding shall, unless the Board of Directors determines otherwise, have the
right to receive on the date or effective date of such event a cash payment in
an amount calculated as set forth in the 1992 Non-Employee Directors Plan.
9
13
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
I. SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------------------
AWARDS
----------
SECURITIES PAYOUTS
ANNUAL COMPENSATION UNDERLYING ---------- ALL OTHER
----------------------------- OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) SARS(3) PAYOUTS(4) SATION(5)
- ------------------------------- ----- -------- ---------- ---------- ---------- ----------
Dean R. O'Hare................. 1995 $803,116 $1,227,390 20,040 $342,810 $141,631
Chairman, President and 1994 765,232 628,260 12,000 289,229 116,504
Chief Executive Officer 1993 735,270 661,275 12,000 250,113 121,958
Percy Chubb, III............... 1995 356,462 579,915 8,400 115,733 60,955
Vice Chairman 1994 340,770 275,007 5,000 102,868 46,619
1993 326,001 269,285 4,500 100,045 48,897
Robert P. Crawford, Jr......... 1995 295,001 568,321 9,260 124,313 57,316
Executive Vice President 1994 260,001 298,559 5,000 89,951 37,553
1993 212,500 143,275 4,500 84,450 31,795
John J. Degnan................. 1995 260,001 456,482 6,800 111,443 44,092
Senior Vice President 1994 235,000 194,026 4,000 89,951 34,227
1993 207,307 133,173 3,500 62,528 31,701
Edward Dunlop.................. 1995 246,985 346,278 6,180 102,863 41,164
Senior Vice President 1994 222,193 175,952 3,400 86,761 32,110
1993 210,001 165,058 3,500 81,287 33,036
- ---------------
(1) Includes directors fees for 1995, 1994 and 1993 of $11,000, $6,000 and
$7,000 for Mr. O'Hare and $5,500, $6,000 and $7,000 for Mr. Chubb.
(2) Includes amounts paid for such years under the Annual Incentive Compensation
Plan and for 1994 and 1995 under the Profit Sharing Plan (1987) and for 1993
a special 1% payment in lieu of profit sharing and also includes for Messrs.
O'Hare, Chubb and Dunlop amounts paid for such years and for Messrs.
Crawford and Degnan amounts paid for 1994 and 1995 in settlement of equity
share awards under the Long-Term Stock Incentive Plan and includes for 1995
for Mr. Degnan an award of unrestricted shares of Common Stock of the
Corporation under the Long-Term Stock Incentive Plan. Payments in settlement
of equity share awards were made in cash for 1995 and for 1994 and 1993
partly in cash and partly in convertible debentures. The convertible
debentures are subordinated to the Corporation's other indebtedness and are
convertible into shares of the Corporation's Common Stock at a conversion
price which is equal to the fair market value of such stock on the date of
issuance of the convertible debenture. The debentures have a ten year term
and bear a market rate of interest fixed on the date of issuance. If the
executive terminates employment prior to five years after the issuance of a
debenture, the debenture, or the shares if conversion has occurred, are
forfeited except for certain specified terminations. The debentures are
non-transferable except in the event of death. Shares received upon
conversion are also non-transferable (except in the case of death) for a
period of five years after the date of conversion.
(3) Includes options granted in such years under the Long-Term Stock Incentive
Plan.
(4) Includes payments made in settlement of performance share awards for Messrs.
O'Hare, Chubb, Crawford and Degnan for the three year periods ended
December 31, 1993 and 1994 and for the two year period ended December 31,
1995 and for Mr. Dunlop for the three year periods ended December 31, 1993,
1994 and 1995 under the Long-Term Stock Incentive Plan.
(5) Includes allocations for 1995, 1994 and 1993 under the qualified Capital
Accumulation Plan and the Capital Accumulation Plan benefit equalization
plan of $53,885, $49,369 and $48,691 for Mr. O'Hare, $23,622, $19,791 and
$19,121 for Mr. Chubb, $22,364, $16,000 and $13,100 for Mr. Crawford,
$17,284, $14,600 and $12,253 for Mr. Degnan and $16,171, $13,688 and $12,760
for Mr. Dunlop and allocations for 1995, 1994 and 1993 under the ESOP
qualified plan and the ESOP excess plan of $87,746, $67,135 and $73,267 for
Mr. O'Hare, $37,333, $26,828 and $29,776 for Mr. Chubb, $34,952, $21,553 and
$18,695 for Mr. Crawford, $26,808, $19,627 and $19,448 for Mr. Degnan and
$24,993, $18,422 and $20,276 for Mr. Dunlop.
10
14
II. OPTIONS/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZED
% OF VALUE
TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS/ OF STOCK PRICE
SECURITIES SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS/ EMPLOYEES OR BASE -----------------------
SARS IN FISCAL PRICE EXPIRATION
NAME GRANTED(1) YEAR(2) PER SHARE DATE 5% 10%
- ------------------------------- ----------- ----------- --------- -------------- ---------- ----------
Dean R. O'Hare................. 20,040 2.06% $ 82.0625 June 8, 2005 $1,034,238 $2,620,961
Percy Chubb, III............... 8,400 .86 $ 82.0625 June 8, 2005 433,513 1,098,607
Robert P. Crawford, Jr......... 9,260 .95 $ 82.0625 June 8, 2005 477,896 1,211,083
John J. Degnan................. 6,800 .70 $ 82.0625 June 8, 2005 350,939 889,348
Edward Dunlop.................. 6,180 .63 $ 82.0625 June 8, 2005 318,942 808,261
- ---------------
(1) The number of shares for each person represents a stock option granted under
the Long-Term Stock Incentive Plan without a related stock appreciation
right. These options are exercisable for 50% of the number of shares shown
on June 9, 1996 and 100% on June 9, 1997. The exercise price for each stock
option is the fair market value of the Corporation's Common Stock on the
date of grant.
(2) Based on total grants during the year of 974,725 shares.
(3) The assumed 5% and 10% annual rates of stock price appreciation used in the
table are prescribed by the proxy rules and are not intended to forecast
possible future appreciation in the price of the Corporation's Common Stock.
III. AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- -------- ------------- --------------------
Dean R. O'Hare............... -- -- 62,942/26,040 $2,114,661/$383,212
Percy Chubb, III............. -- -- 30,600/10,900 1,221,215/ 160,406
Robert P. Crawford, Jr. ..... 2,600 $138,600 19,350/11,760 608,997/ 173,038
John J. Degnan............... -- -- 14,200/ 8,800 389,600/ 129,500
Edward Dunlop................ 2,047 $ 81,108 10,785/ 7,880 241,809/ 115,950
- ---------------
(1) Based on a value per share at December 31, 1995 of $96.75.
11
15
IV. LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
NUMBER OF OTHER PERIOD UNDER NON-STOCK PRICE-BASED
SHARES, UNITS UNTIL PLANS (UNITS OR $)
OR OTHER MATURATION OR ----------------------------
NAME RIGHTS(1) PAYOUT THRESHOLD TARGET MAXIMUM
- ------------------------------------------- ------------- -------------- --------- ------ -------
Dean R. O'Hare............................. 4,200 1995-97 2,100 4,200 6,300
Percy Chubb, III........................... 2,000 1995-97 1,000 2,000 3,000
Robert P. Crawford, Jr..................... 2,300 1995-97 1,150 2,300 3,450
John J. Degnan............................. 1,500 1995-97 750 1,500 2,250
Edward Dunlop.............................. 1,400 1995-97 700 1,400 2,100
- ---------------
(1) Includes performance share awards granted under the Corporation's Long-Term
Stock Incentive Plan in 1995 with respect to the three year performance
cycle ending December 31, 1997. The number of shares earned is dependent on
the achievement of a specified earnings per share target established by the
Organization & Compensation Committee for the three year period. Settlement
of the awards may be in shares or cash or a combination of both in the
discretion of the Organization & Compensation Committee.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Performance Graph and the Organization & Compensation Committee Report on pages
13 through 18 shall not be incorporated by reference into any such filings.
12
16
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE CORPORATION'S COMMON STOCK,
THE STANDARD & POOR'S 500 STOCK INDEX, THE STANDARD & POOR'S
PROPERTY AND CASUALTY INDEX AND THE STANDARD & POOR'S
MULTI-LINE INSURANCE INDEX
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
CHUBB 100 145 171 153 156 199
S&P 500(R) 100 130 140 155 157 215
S&P P&C(R) 100 125 147 144 151 205
S&P M-L(R) 100 133 152 170 179 263
- ---------------
* Assumes that the investment in the Corporation's Common Stock and each index
was $100 on December 31, 1990 and that all dividends were reinvested.
13
17
ORGANIZATION & COMPENSATION COMMITTEE REPORT
EXECUTIVE OFFICER COMPENSATION POLICIES
The Corporation's executive compensation program is designed to align
Shareholder interests with business strategy, company values and management
initiatives. It is based on the following four principles: (i) to link the
interests of management with those of Shareholders by making a substantial
portion of executive compensation depend upon the Corporation's financial
performance and by encouraging stock ownership in the Corporation, (ii) to
attract and retain superior executives by providing them with the opportunity to
earn total compensation packages that are among the most competitive in the
industry, (iii) to reward individual results by recognizing performance through
salary, annual cash incentive and long-term incentives and (iv) to manage
compensation based on the level of skill, knowledge, effort and responsibility
needed to perform the job successfully.
A position evaluation program establishes grade levels among all positions
reflecting the importance and value of each position to the Corporation. A
position's grade level determines a range of values within which the executive's
compensation is administered.
Executive officers' compensation includes: annual cash compensation
(consisting of base salary and annual incentive awards paid in cash) and
long-term incentive awards, as well as additional features which are available
to most other employees of the Corporation and its subsidiaries, including
profit sharing plans, pension plans, a stock purchase plan and an employee stock
ownership plan, all of which allocate payments generally based on an
individual's level of annual cash compensation.
It is the general policy of the Corporation that executive officer
compensation qualify for tax deductibility under the regulations under Section
162(m) of the Internal Revenue Code, which was added by the 1993 Omnibus Budget
Reconciliation Act ("OBRA"). Under Section 162(m), which became effective
January 1, 1994, in order to qualify for tax deductibility, payment of
compensation in excess of $1 million to the chief executive officer and the four
other highest paid executive officers must be made in accordance with
performance criteria disclosed to and approved by Shareholders and pursuant to
pre-established arrangements which, among other things, limit the exercise of
discretion to increase the awards beyond the limits initially set. The Committee
believes that mathematical formulas cannot always anticipate and fairly address
every situation which may arise. For this reason, the Committee has historically
retained the authority to adjust compensation awarded in light of extraordinary,
unusual or non-recurring events. The Committee continues to believe that this
reservation of authority, and its exercise under appropriate circumstances,
operates in the best interests of the Corporation and its Shareholders even
though in exercising such authority, compensation might not be deductible.
The cornerstone of the Corporation's compensation program is to pay for
performance. Other than base salary, all major elements of the Corporation's
executive compensation programs vary directly with both corporate and individual
performance. As part of that, the Committee sets difficult performance targets
for its executives. The Committee also sets its total compensation target to be
superior to industry peers, contingent upon superior performance. Executives
have substantial portions of their compensation at risk for annual and long-term
performance, with the largest portion at risk for the most senior executives.
Compensation at a peer group of insurance companies is monitored at least
annually to ensure that the Corporation is achieving its competitive
compensation goals. Compensation at a secondary group of broader financial
service companies is used as an additional reference point for those senior
executives whose talents could be sought by those firms.
In 1995 the Committee completed a comprehensive review of the Corporation's
executive officer compensation strategy working with a nationally recognized
executive compensation consulting firm. This review resulted in actions by the
Committee to more closely align, relative to peer groups in the insurance and
financial services industries, the competitive position of the compensation
potentially available to executive officers of the Corporation. These actions
included: effective 1995, increasing stock option grant guidelines 15% to 25%,
dependent on the executive officer's position, and increasing performance share
award guidelines
14
18
50%; and effective 1996, increasing annual cash incentive targets 5% to 25%
based on the executive officer's position and replacing equity share/convertible
debenture awards in favor of performance-based restricted stock grants.
ANNUAL CASH COMPENSATION
Amounts paid as base salary, including merit salary increases, are
determined by the executive's performance, placement in the salary range
established for the executive's position and the salaries offered in the
industry for comparable positions. Outside independent consultants are
periodically used to gather and analyze industry comparisons of salary data to
ensure that the salary ranges used in the compensation program are competitive
for comparable positions. The Committee monitors and approves changes in base
salary for senior executive officers (including the executive officers named in
the Summary Compensation Table). Promotional salary increases reflect the
executive's movement from one grade level to another and are granted when
earned.
The Committee sets and approves the formulas which establish the amounts
available for annual incentive awards. For 1995, incentive awards paid to most
executive officers were determined under the Annual Incentive Compensation Plan.
This plan's formula measures the Corporation's performance, including combined
loss and expense ratio ("combined ratio"), net income and return on equity
against the results of an industry comparison group. Net income under this
formula is the Corporation's investment income arising from the property and
casualty insurance business and underwriting profit or loss from that business.
Each year the Committee approves goals for the combined ratio and net income
based on the outlook for business conditions that year. After the close of
business each year, the formula takes into account how well the Corporation
performed against its own goals and how well it performed against an industry
comparison group's average combined ratio and return on equity. Included in this
industry comparison group are four out of the seven companies which, along with
the Corporation, comprise the Standard & Poor's Property and Casualty Index and
three of the four companies which comprise the Standard & Poor's Multi-Line
Insurance Index used in the Performance Graph on page 13 as well as two other
insurance companies against which the Corporation has over time compared itself.
The annual incentive pool actually paid is determined by weighing the
combined ratio result as well as the net income and return on equity results to
generate a total award pool under the Plan. A percent is applied to the target
dollar award pool for each job grade to develop a final cash award pool. The
pool can range from 0% to 200% of the target dollar award for all participants
covered by the Plan.
Amounts actually paid for annual incentive awards to executives are based
on the executive's individual performance and salary grade midpoint. Where
applicable, individual performance is judged on the following considerations:
profit, growth, expense control, productivity, leadership, staff development,
diversity management, performance/compensation management, innovation,
collaboration and internal/external customer service. Awards are approved by the
Committee based upon recommendations by management after year end. Over the past
few years, annual cash compensation has been administered to slow the growth in
base salaries and place a greater proportion of the executive's annual cash
compensation at risk through the variable amounts available for an annual
incentive award.
Other annual cash incentive plans in which certain executive officers
participate include the Bellemead Development Corporation Incentive Compensation
Plan (the "Bellemead Incentive Plan"), the Chubb LifeAmerica Incentive
Compensation Plan (the "Chubb Life Incentive Plan"), The Chubb Corporation
Investment Department/Chubb Asset Managers, Inc. Incentive Compensation Plan
(the "Investment Department Incentive Plan"), The Profit Sharing Plan (1987),
The Bellemead Profit Sharing Plan and the Chubb Life Profit Sharing Plan. The
Bellemead Incentive Plan and the Chubb Life Incentive Plan are each based on a
formula which measures the achievement of actual net income against planned net
income. The Investment Department Incentive Plan provides both annual and
long-term cash awards which are competitive with those provided by similar
financial institutions, including property and casualty insurance companies and
banks. Such awards are granted to the Corporation's investment professionals and
are based on results measured against market indices which represent standards
of investment performance regularly used by investment analysts to compare and
analyze the performance of investment professionals responsible for managing a
particular asset class. The Profit Sharing Plan (1987) provides employees of the
Corporation and
15
19
its participating subsidiaries with cash awards on a sliding scale of 0% to 4%
of a participant's eligible compensation based on a schedule relating to the
consolidated return on premiums earned by the property and casualty insurance
subsidiaries of the Corporation. The Bellemead Profit Sharing Plan provides for
cash awards on a sliding scale of 0% to 10% of a participant's annual
compensation depending upon the relationship of planned to actual net income for
the year. The Chubb Life Profit Sharing Plan provides for cash awards on a
sliding scale of 0% to 11% of a participant's annual compensation depending on
Chubb Life's annual results.
LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are made under the Long-Term Stock Incentive
Plan. The Long-Term Stock Incentive Plan, which is administered by the
Committee, is an omnibus plan and provides stock based awards to eligible
employees which include most levels of management as well as the Corporation's
executive officers. The Plan was designed in consultation with a nationally
recognized executive compensation consulting firm which periodically provides
advice with regard to the ongoing administration of the Plan. Awards granted to
executive officers include stock options, performance share awards, restricted
stock awards and equity share/convertible debenture awards.
Stock option awards are based on guidelines that provide for larger awards
commensurate with position levels and that reflect competitive grant practices
of a primary comparison group within the insurance industry and a secondary
comparison group within the broader financial services industry. Included in the
primary comparison group are four of the seven companies which, along with the
Corporation, comprise the Standard & Poor's Property and Casualty Index, three
of the four companies which comprise the Standard & Poor's Multi-Line Index and
two additional insurance companies against which the Corporation has over time
compared itself. The secondary comparison group is comprised of fifteen
financial services companies, including a member of the Standard & Poor's
Property and Casualty Index, reflecting the fact that the Corporation, while
principally engaged in the business of insurance, also operates generally within
the financial services industry. The number of option shares granted to an
executive in any year may vary based upon the most recent assessment of the
executive's performance.
Performance share awards are generally granted annually and are earned
based on earnings per share targets or other selected corporate financial goals
for three year performance periods. As with options, the number of performance
shares granted is based on position level and the executive's most recent level
of performance. Payment values are dependent on the Corporation's stock price at
the end of the performance period, thus linking executives' interests directly
with Shareholders, as well as the achievement of selected corporate financial
goals. In 1995, a performance goal was established for the three year
performance period ending in 1997 reflecting a cumulative operating earnings per
share target for such period. In determining operating income under performance
share award calculations for the three year performance period ended December
31, 1995, the Committee eliminated the effect of the previously disclosed 1993
third quarter net charge to income of $357.5 million after taxes (the "third
quarter charge") relating to two unrelated events, the Fibreboard asbestos
litigation settlement and the commutation of a medical malpractice reinsurance
agreement.
Restricted stock awards are generally granted as an alternative to
performance shares to a limited number of executive officers in positions
requiring specialized skills and knowledge that do not entail the broad
management responsibilities most appropriately tied to performance share grants.
With respect to equity share/convertible debenture awards, the Committee
approved a profit participation pool which historically has not exceeded
one-half of one percent of the Corporation's operating income above a ten
percent return on beginning equity. Certain percentage amounts of the pool were
allocated to selected senior corporate executives based on their potential
performance and long range contribution to the Corporation. Awards earned for
1995 were paid in cash. As previously noted, the Committee has determined to
discontinue use of equity share/convertible debenture awards in 1996.
16
20
CEO COMPENSATION
Mr. O'Hare is a participant in all of the aforementioned components of the
compensation program except restricted stock awards. The value of his
compensation from each component of the program is a direct reflection of both
his individual performance and the Corporation's performance as described below.
Mr. O'Hare's salary was reviewed in September 1995 under the Corporation's
normal merit guidelines. Based upon the Committee's judgment that his
performance was excellent during the 15 month review period, Mr. O'Hare received
an increase of 5.8%. The principal performance criteria considered by the
Committee were the Corporation's key financial measures such as growth in
earnings per share, net income, operating income, return on equity and revenue
against established targets. Additional criteria considered were global
expansion, industry leadership, corporate citizenship and succession planning.
Mr. O'Hare's annual cash incentive award for 1995 was $1,000,000, which
represents an increase of 80% from the incentive award paid for 1994. The
Corporation achieved a combined loss and expense ratio of 96.8%, which
outperformed the combined ratio average of 108.1% for the industry comparison
group referred to above under the discussion concerning Annual Cash
Compensation. In addition, the Corporation outperformed its net income (as
defined) goal and achieved an operating earnings return on equity of 12.9%,
which surpassed the industry comparison group's average of 9.5%. The Committee
determined that Mr. O'Hare's leadership skills and financial management talent
contributed substantially to these results and reflected this in the incentive
award paid to him. Mr. O'Hare, as did all other eligible employees, received a
payment of three percent (3%) of eligible compensation for the 1995 plan year
pursuant to the terms of the Profit Sharing Plan (1987).
In March 1995, Mr. O'Hare was granted 4,200 performance shares for the
three year performance period ending December 1997. In June 1995, Mr. O'Hare was
granted stock options for 20,040 shares. This grant was designed to reflect the
repositioning of the executive officer compensation strategy as described above
under the "Executive Officer Compensation Policies" section of this report. As
this repositioning was approved and effective as of June 1995, in order to
comply with regulations under Section 162(m) of the Internal Revenue Code, Mr.
O'Hare was not granted additional performance shares which he otherwise would
have been granted under the revised grant guidelines as they would not have
qualified for tax deductibility. Instead, the Committee granted Mr. O'Hare
approximately three additional options for each performance share he would have,
but did not receive. The Committee recognized that the Corporation achieved
outstanding results in 1994 as measured by, among other things, the principal
performance criteria described above. The Committee decided to award grants that
were highly competitive within the insurance and financial services industry
described above under the general discussion concerning Long-Term Incentive
Awards. Each of the grants is near the top of the grant guideline range which
the Committee has established for Mr. O'Hare's position.
With respect to performance shares granted in March 1994 for the two year
performance period which ended December 1995, the cumulative earnings per share
during this performance period was slightly below the target established by the
Committee in 1994. On this basis, Mr. O'Hare earned performance shares having a
value of $342,810, compared with the performance share award payment made last
year of $289,229.
Based on the Corporation's operating income, Mr. O'Hare was paid a gross
equity share award of $186,977 for 1995 results. This compares with his gross
1994 equity share award of $60,918. After applying appropriate tax withholding,
the net amount of the award was paid to Mr. O'Hare in cash. The Committee
believes that the percentage of the profit participation pool granted to Mr.
O'Hare reflects his contribution to the Corporation's results and directly
relates to the financial interests of Shareholders, management and employees.
Total compensation reported for Mr. O'Hare for 1995, including payment of
performance shares for the two year cycle ended December 31, 1995, was
$2,514,947 which is 40% more than his corresponding 1994 total compensation of
$1,799,225.
17
21
The foregoing report has been furnished by the following members of the
Board of Directors of the Corporation who comprised the Organization &
Compensation Committee, including Mr. Cohen who resigned from the Committee as
of March 1, 1996:
Robert V. Lindsay (Chairman) Joel J. Cohen
G. G. Michelson Lawrence M. Small
Richard D. Wood
PENSION PROGRAM
Eligible employees of the Corporation and certain of its subsidiaries
participate in The Pension Plan of The Chubb Corporation, Chubb & Son Inc. and
Participating Affiliates (the "Pension Plan"). As in effect during 1995, the
Pension Plan provides to each such employee annual retirement income beginning
at age 65 equal to the product of (x) the total number of years of participation
in the Pension Plan (but not more than 35 years) and (y) the difference between
(i) 1 3/4% of average compensation for the five years in the last ten years of
participation prior to retirement during which the employee was most highly paid
("final average earnings") and (ii) an amount related to the employee's primary
Social Security benefit.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended (the "Code"), impose maximum
limitations on the annual amount of a pension which may be paid under a funded
defined benefit plan such as the Pension Plan. The Pension Plan complies with
these limitations. The Board of Directors adopted, effective as of January 1,
1976, an unfunded benefit equalization plan of the type permitted by ERISA which
will provide annual payments to persons who are participants under the Pension
Plan and their beneficiaries. Such payments will be equal to the difference
between (a) the benefits which would be payable to such persons under the
Pension Plan, without taking into consideration the limitations imposed by ERISA
and the Code, and (b) the maximum annual benefits to which such persons are
entitled under the Pension Plan by reason of such limitations.
The table which follows shows the estimated annual benefits payable upon
retirement to persons in specified remuneration and years-of-service
classifications under the Pension Plan and the unfunded benefit equalization
plan (referred to collectively as the "Pension Program"). The retirement
benefits shown are based upon retirement at the age of 65 and computed on the
basis of straight life annuity benefits. Such benefits, as shown in the
following table, are subject to an offset of an amount related to the primary
Social Security benefits in an amount approved by the Internal Revenue Service
in effect at the time of retirement.
18
22
ESTIMATED ANNUAL RETIREMENT BENEFITS PAYABLE AT AGE 65
STRAIGHT LIFE ANNUITY BASIS
TO AN EMPLOYEE RETIRING IN 1996
YEARS OF CREDITED SERVICE
FINAL -------------------------------------------------------------------
AVERAGE 35 OR
EARNINGS 15 20 25 30 MORE
- -----------
$ 100,000 .................... $ 26,250 $ 35,000 $ 43,750 $ 52,500 $ 61,250
200,000 .................... 52,500 70,000 87,500 105,000 122,500
300,000 .................... 78,750 105,000 131,250 157,500 183,750
400,000 .................... 105,000 140,000 175,000 210,000 245,000
500,000 .................... 131,250 175,000 218,750 262,500 306,250
600,000 .................... 157,500 210,000 262,500 315,000 367,500
700,000 .................... 183,750 245,000 306,250 367,500 428,750
800,000 .................... 210,000 280,000 350,000 420,000 490,000
900,000 .................... 236,250 315,000 393,750 472,500 551,250
1,000,000 .................... 262,500 350,000 437,500 525,000 612,500
1,100,000 .................... 288,750 385,000 481,250 577,500 673,750
1,300,000 .................... 341,250 455,000 568,750 682,500 796,250
1,500,000 .................... 393,750 525,000 656,250 787,500 918,750
1,600,000 .................... 420,000 560,000 700,000 840,000 980,000
1,700,000 .................... 446,250 595,000 743,750 892,500 1,041,250
Remuneration covered by the Pension Program includes salary (including
salary contributed to the Capital Accumulation Plan of The Chubb Corporation,
Chubb & Son Inc. and Participating Affiliates), overtime and awards under the
Annual Incentive Plan (1984), the Annual Incentive Compensation Plan (1994), the
Bellemead Incentive Plan, the Chubb Life Incentive Plan, the Investment
Department Incentive Plan and the Profit Sharing Plan (1987) in the year paid
rather than the year earned and, effective January 1, 1992, includes awards
under the Bellemead Profit Sharing Plan and the Chubb Life Profit Sharing Plan.
With respect to the individuals named in the Summary Compensation Table on
page ten, Messrs. Chubb, Crawford, Degnan, Dunlop and O'Hare have 35, 29, 4,
29 1/2 and 28 1/2 years of credited service, respectively, and their 1995
remuneration for purposes of the Pension Program was $595,510, $563,101,
$435,751, $407,707 and $1,359,458, respectively.
EXECUTIVE SEVERANCE AGREEMENTS
Pursuant to a recommendation by the Organization & Compensation Committee
and authorization by the Board of Directors, the Corporation has in force
severance agreements with six executive officers of the Corporation. Each
agreement becomes operative only upon a "Change in Control" that occurs when the
officer is in the employ of the Corporation. Under the agreements, a "Change in
Control" occurs if (a) following a tender or exchange offer for voting
securities of the Corporation, a proxy contest for election of the directors, or
a merger or consolidation or sale of all or substantially all of its business or
assets, its directors immediately prior to such event cease to constitute a
majority of the Board of Directors when such event occurs or within one year
thereafter or (b) any person or group acquires 25% or more of the outstanding
voting securities of the Corporation without prior approval by a majority of the
Directors then in office. Such agreements have an initial term of two years and
are automatically extended for successive two year periods unless the
Corporation gives one year's prior notice that it is terminating an agreement at
the end of the then current two year period.
If a change in control occurs and the officer's employment with the
Corporation terminates within two years thereafter (other than by reason of
death, disability, retirement at normal retirement age, discharge for cause, or
voluntary termination by the officer except for Good Reason), the officer
becomes entitled to the severance benefits described below. Termination for
"Good Reason" means termination because of, among other things, the involuntary
assignment of such officer to duties inconsistent with the officer's position
prior to such change in control; reduction of the officer's base salary or
bonus; the Corporation acting with adverse
19
23
effect upon the officer's benefits under any benefit plans in which the officer
is participating at the time of such change in control; or a determination made
by the officer in good faith that as a result of such change in control the
officer cannot discharge the officer's duties effectively.
Upon such termination, the officer's severance benefits shall equal a
multiple of the sum of (i) one year's salary at the annual rate in effect at the
time of the change in control and (ii) the average of the officer's annual
awards under the Corporation's, Bellemead's and Chubb Life's incentive
compensation plans for the three years preceding such change in control. The
multiple is four in the case of Mr. O'Hare and two in the case of the other
officers. Also, the Corporation must maintain in force the insurance and
disability benefits available to the officer immediately prior to the change in
control, or their equivalents, for two years after such termination or until the
earlier commencement of new, full-time employment by the officer. The officer is
not required to mitigate the amount of any payments by seeking other employment.
The Corporation must pay all legal fees and expenses incurred by the officer as
a result of such termination, including any incurred in seeking to enforce the
severance agreement.
As of March 4, 1996, payments to the officers with whom the Corporation has
severance agreements would have been as follows: Mr. Percy Chubb, III,
$1,316,402; Mr. Robert P. Crawford, Jr., $1,182,068; Mr. John J. Degnan,
$964,068; Mr. Donn H. Norton, $766,667; Mr. Dean R. O'Hare, $6,006,670 and Ms.
Theresa M. Stone, $800,668. The Corporation does not believe that payment of
these amounts would have a material adverse effect on the financial or operating
condition of the Corporation. The Long-Term Stock Incentive Plans provide for
the accelerated payment or vesting of awards granted under such plans in the
event of a Change in Control of the Corporation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Organization & Compensation Committee is composed of Messrs. Lindsay
(Chairman), Small and Wood and Mrs. Michelson. No current or former officers or
employees of the Corporation or any of its subsidiaries serves on the
Organization & Compensation Committee and no executive officer of the
Corporation has served on the compensation committee of another corporation.
Mr. Joel J. Cohen was a member of the Organization & Compensation Committee
until his resignation from the Committee as of March 1, 1996. Mr. Cohen is a
Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), which firm provides securities brokerage services to the Corporation
and its subsidiaries. In addition, certain subsidiaries of the Corporation
participate as limited partners in an investment partnership of which DLJ
Merchant Banking Inc. is the managing general partner.
Mr. Lawrence M. Small is President and Chief Operating Officer of Fannie
Mae. The Corporation and its subsidiaries purchase, in the ordinary course of
business, debt securities guaranteed by Fannie Mae.
The Corporation believes that the above transactions were effected on terms
as favorable to the Corporation and its subsidiaries as could have been obtained
from other sources in view of the nature of the services rendered.
TRANSACTIONS WITH DIRECTORS AND THEIR ASSOCIATES
Messrs. Cohen and Small are affiliated with organizations that did business
with the Corporation and its subsidiaries during 1995. See "Compensation
Committee Interlocks and Insider Participation."
Senator Rudman is a Partner of Paul, Weiss, Rifkind, Wharton & Garrison,
which firm has acted as counsel to a subsidiary of the Corporation.
Sir David G. Scholey is former Chairman and Chief Executive Officer of SBC
Warburg Group plc, an investment banking firm, which through its affiliate
companies during 1995 provided certain securities transaction services to the
Corporation and its subsidiaries.
Ambassador Raymond G. H. Seitz is a Senior Managing Director of Lehman
Bros. International (Europe), which firm provides securities transaction
services to the Corporation and its subsidiaries.
The Corporation believes that the above transactions were effected on terms
as favorable to the Corporation and its subsidiaries as could have been obtained
from other sources in view of the nature of the services rendered.
20
24
In 1995, various subsidiaries of the Corporation had transactions in the
ordinary course of their business with certain Directors and officers of the
Corporation and their associates in connection with policies of insurance issued
to them by such subsidiaries. All employees of the Corporation and certain of
its subsidiaries are offered the opportunity to obtain property and casualty and
life and health personal insurance from various subsidiaries of the Corporation
at a price representing a maximum discount of 10% from the regular price.
TRANSACTIONS WITH CERTAIN SHAREHOLDERS
The Corporation has relationships with insurance companies which are
subsidiaries of Sun Alliance, an insurance holding company organized under the
laws of England (collectively, the "Sun Group"). As reported, the Sun Group as
of March 4, 1996 was the beneficial owner of approximately 5.16% of the
Corporation's Common Stock, acquired solely for the purpose of investment.
The Corporation's property and casualty insurance subsidiaries reinsure a
portion of their United States insurance business on a quota share basis with
one of the Sun Group companies. In 1995, this Sun Group company's premiums
earned arising from such reinsurance were $520,528,000. Pursuant to the contract
which governs the relationship, this Sun Group company pays to the Corporation's
property and casualty insurance subsidiaries an override commission and a profit
commission, the latter determined by the prior year's results of that business.
Such payments were $8,463,000 and $1,110,000, respectively, in 1995. Pursuant to
an agreement effective January 1, 1992, Chubb & Son Inc. provides staff for
several of the Sun Group companies on a cost reimbursement basis. The amount of
the cost reimbursement for 1995 under this agreement was approximately $162,000.
A wholly-owned subsidiary of the Corporation assumes reinsurance on a quota
share basis from members of the Sun Group with respect to certain of the Sun
Group's property and casualty insurance business. Assumed reinsurance premiums
earned from this business amounted to $340,767,000 for the year 1995. Members of
the Sun Group receive profit commissions which are determined by the results of
that business. In 1995, commission payments of approximately $2,043,000 were
made.
Effective January 1, 1996, the agreements pertaining to the exchange of
reinsurance between the Corporation's property and casualty insurance
subsidiaries and members of the Sun Group referred to above were amended to
reduce the portion of each company's business that is reinsured with the other.
As a result, the Corporation's property and casualty insurance subsidiaries will
retain a greater portion of the business they write directly and will reduce the
amount of reinsurance they assume from the Sun Group.
The Corporation's property and casualty insurance subsidiaries entered into
a stop loss reinsurance agreement with a subsidiary of the Sun Group, effective
year end 1985, relating to medical malpractice loss reserves. In 1995, the
property and casualty subsidiaries recovered $11,623,000 of loss and loss
adjustment expenses from the Sun Group under this agreement. The agreement
provided for contingent profit sharing payments to the property and casualty
insurance subsidiaries computed as of December 31, 1990, December 31, 1992 and
December 31, 1994. Based on the profit sharing computation as of December 31,
1994, the property and casualty insurance subsidiaries received $20,062,000 in
January 1995. The agreement also included a commutation provision under which
the property and casualty insurance subsidiaries had an option to reassume the
remaining liability of the Sun Group as of December 31, 1995. The property and
casualty subsidiaries exercised this option, which resulted in an amount due
from the Sun Group to the property and casualty insurance subsidiaries of
$191,194,000 and a reduction in reinsurance recoverable from the Sun Group of
$66,194,000. The difference of $125,000,000 represents a return premium to the
property and casualty insurance subsidiaries and was recognized as such in 1993.
The amount due from the Sun Group was received in January 1996.
Wholly-owned subsidiaries of the Corporation have entered into two joint
ventures with Sun Group companies to market homeowners insurance and surety
bonds, respectively.
Additionally, in the regular course of their international business, the
Corporation's property and casualty insurance subsidiaries may and do assume and
cede reinsurance to and from members of the Sun Group, as they do with other
insurers on similar terms and conditions.
The Corporation believes that such transactions are all on terms as
favorable to the Corporation as those available from unrelated third parties.
21
25
PROPOSAL TO APPROVE THE CHUBB CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN (1996)
INTRODUCTION
Pursuant to the Corporation's Annual Incentive Compensation Plan (1994)
(the "1994 Cash Incentive Plan"), key employees of the Corporation and its
subsidiaries are eligible to receive annual cash bonuses based on achievement by
the Corporation of target financial goals and management's assessment of each
participant's individual performance during that year. In order to enable the
Corporation to continue to attract, reward and retain employees whose efforts
are largely responsible for the Corporation's overall success and to qualify
annual cash bonus payments to certain executive officers for favorable tax
treatment under new tax rules, the Board of Directors adopted, and in April 1994
the Shareholders approved, the 1994 Cash Incentive Plan. The new tax rules are
contained in Section 162(m) of the Internal Revenue Code and require that
certain complying plans be approved by shareholders at least every five years
and that certain major amendments be approved by shareholders. After examining
the Corporation's overall compensation structure in consultation with a
nationally recognized independent compensation consulting firm, the Organization
and Compensation Committee of the Board of Directors (the "Committee") has
concluded that the maximum annual payment to a "covered employee" under Section
162(m) of the Internal Revenue Code under the 1994 Cash Incentive Plan should be
increased from $1,500,000 to $2,500,000 and that the prior limitation with
respect to individual awards of 150% of a salary grade midpoint should be
eliminated. Since the change in the maximum annual payment requires shareholder
approval it was also concluded to have the entire plan, as amended and renamed
the Annual Incentive Compensation Plan (1996) (the "1996 Cash Incentive Plan")
submitted for shareholder approval to comply with the periodic shareholder
approval requirement of Section 162(m) and the regulations thereunder. If the
1996 Cash Incentive Plan is not approved by Shareholders, the 1994 Cash
Incentive Plan will remain in effect as previously approved by Shareholders.
SUMMARY OF THE 1996 CASH INCENTIVE PLAN
The following summary of the 1996 Cash Incentive Plan is qualified in its
entirety by reference to the complete text of the 1996 Cash Incentive Plan,
which is attached to this Proxy Statement as Exhibit A.
The Committee is authorized to administer the 1996 Cash Incentive Plan in
accordance with its terms. Each year, the Committee selects participants from
the officers and key employees of the Corporation and its subsidiaries. The
Committee establishes target awards for the year by salary grade or other
standards and establishes a target award pool which is the sum of the target
awards for such year for all participants. The Committee also establishes target
financial goals for such year under which from 25% to 200% of the target award
pool can become available for payment.
Target awards are based on the Corporation's combined loss and expense
ratio ("combined ratio") and net income, which is investment income arising from
the property and casualty insurance business and underwriting profit or loss
from that business, and a comparison of the combined ratio and return on equity
with those of key competitors.
After the close of the fiscal year, the Committee determines what part of
the target award pool is available for payment based on the achievement of the
target financial goals. The Committee then, based on these results and upon
management's assessments of each participant's individual performance during the
year, determines what part, if any, of the participant's target award shall be
paid. The Committee is under no obligation to pay all of the available target
award pool for a year and in no event can the total amount paid under the 1996
Cash Incentive Plan for a year exceed 200% of the target award pool for such
year. In addition, no participant who is a "covered employee" under Section
162(m) of the Internal Revenue Code may receive an award under this Plan greater
than $2,500,000.
All payments under the 1996 Cash Incentive Plan are made in cash as soon as
practicable after the close of a fiscal year, except that under uniform rules
established by the Committee, participants may be given the opportunity to defer
such payments.
22
26
While the benefits to be paid for 1996 and future years have not yet been
determined by the Committee, the following table shows the amounts paid for 1995
under the existing 1994 Cash Incentive Plan:
NAME AND PRINCIPAL POSITION AMOUNT PAID
------------------------------------------------------------------------ -----------
Dean R. O'Hare.......................................................... $ 1,000,000
Chairman and Chief Executive Officer
Percy Chubb, III........................................................ 450,000
Vice Chairman
Robert P. Crawford...................................................... 430,000
Executive Vice President
John J. Degnan.......................................................... 304,000
Senior Vice President
Edward Dunlop........................................................... 250,000
Senior Vice President
All current executive officers as a group............................... 3,816,500
(18 persons including those named above)
All employees as a group................................................ 23,893,208
------------------------
The affirmative vote of a majority of the votes cast by shareholders
entitled to vote at the Annual Meeting is required for approval of the proposal
to adopt the 1996 Cash Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
THE 1996 CASH INCENTIVE PLAN.
23
27
PROPOSAL TO APPROVE THE CHUBB CORPORATION
LONG-TERM STOCK INCENTIVE PLAN (1996)
INTRODUCTION
For many years, the Corporation has had in effect stock based incentive
plans providing to management and key employees various types of awards,
including stock options, performance shares and restricted stock, among others.
These programs reflect the Board's continuing belief that stock ownership by
senior management and other key employees serves to attract, retain and motivate
such personnel and benefits the Corporation by giving such individuals a
personal financial interest in the Corporation's continued success. Authority to
grant awards under the Corporation's current Long-Term Stock Incentive Plan
(1992) (the "1992 Long-Term Incentive Plan") expires on December 31, 1996. After
consultation with a nationally recognized independent compensation consulting
firm, the Organization & Compensation Committee of the Board of Directors (the
"Committee") recommended, and in March 1996 the Board of Directors adopted,
subject to Shareholder approval, The Chubb Corporation Long-Term Stock Incentive
Plan (1996) (the "1996 Long-Term Incentive Plan"). The 1992 Long-Term Incentive
Plan will continue in effect until December 31, 1996 in accordance with its
terms.
The 1996 Long-Term Incentive Plan authorizes 4,365,000 new shares plus up
to an additional 2,635,000 shares to the extent shares are reacquired by the
Corporation after April 23, 1996.
The 1996 Long-Term Incentive Plan is essentially the same as the 1992
Long-Term Incentive Plan except for certain amendments, described below. First,
convertible debentures and stock unit awards, which were available for award
under the 1992 Long-Term Incentive Plan, are not included under the 1996 Long-
Term Incentive Plan. Second, the Committee has authority to permit stock options
to be transferred in limited circumstances and to permit an optionee to defer
receipt of shares upon exercise of a stock option. In addition, in order to
comply with new tax rules contained in Section 162(m) of the Internal Revenue
Code, the 1996 Long-Term Incentive Plan provides that no participant may receive
in any calendar year stock options and stock appreciation rights on more than
150,000 shares or performance shares, restricted stock and restricted stock unit
awards on more than 40,000 shares.
SUMMARY OF THE 1996 LONG-TERM INCENTIVE PLAN
The following summary of the 1996 Long-Term Incentive Plan is qualified in
its entirety by reference to the complete text of the 1996 Long-Term Incentive
Plan, which is attached to this Proxy Statement as Exhibit B.
The 1996 Long-Term Incentive Plan provides the Committee with the authority
to approve grants of stock options, stock appreciation rights, performance
shares, restricted stock, and restricted stock units. The maximum number of
shares of Common Stock in respect of which stock based awards may be granted
under the 1996 Long-Term Incentive Plan is 4,365,000, plus up to an additional
2,635,000 shares to the extent shares are reacquired by the Corporation after
April 23, 1996. Not more than 1,750,000 of the total shares authorized under the
Plan may be granted as restricted stock, restricted stock units or performance
shares. Subject to these limitations, the shares to be delivered under the 1996
Long-Term Incentive Plan may be made available from the authorized but unissued
shares of the Corporation or from shares reacquired by the Corporation. Certain
shares subject to lapsed or cancelled awards or options under the Stock Option
Plan (1984) and the 1989, 1992 or 1996 Long-Term Incentive Plans will be
available for new options and other awards under the 1996 Long-Term Incentive
Plan. Also, shares tendered to the Corporation in satisfaction or partial
satisfaction of the exercise price of any award or options under such plans will
increase the number of shares available for awards under the 1996 Long-Term
Incentive Plan.
The 1996 Long-Term Incentive Plan will be administered by the Committee.
The Committee shall have the sole and complete authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the
operation of the 1996 Long-Term Incentive Plan as it shall deem advisable, and
to interpret its terms and provisions. The Committee may delegate to one or more
executive officers the power to make awards to participants who are not
executive officers, provided that the Committee shall fix the maximum
24
28
amount of such awards for the group and for any one participant. All employees
of the Corporation and its subsidiaries who, in the opinion of the Committee,
have the capacity for contributing in a substantial manner to the successful
performance of the Corporation are eligible to participate in the 1996 Long-Term
Incentive Plan. It is anticipated that the determinations by the Committee of
which eligible individuals will be granted options and awards and the terms
thereof will be based on each individual's present and potential contribution to
the success of the Corporation and its subsidiaries. It is estimated that
approximately 1,000 employees may be eligible to participate in the 1996
Long-Term Incentive Plan, although it is not contemplated that every eligible
employee will receive all of the different types of awards available under the
1996 Long-Term Incentive Plan.
Stock options and/or stock appreciation rights may be granted under the
1996 Long-Term Incentive Plan at the discretion of the Committee, which also has
discretion to fix the exercise price of such options and stock appreciation
rights at a price not less than 100% of the Fair Market Value, as defined, of
the underlying shares at the time of grant. Options granted under the 1996
Long-Term Incentive Plan may be either nonstatutory options or incentive stock
options. Stock appreciation rights may be granted in tandem with or unrelated to
options granted under the 1996 Long-Term Incentive Plan and, if in tandem with
an option, may be granted at the time of such option grant or thereafter. The
Committee has broad discretion as to the terms and conditions upon which options
shall be exercisable, but under no circumstances may an option or stock
appreciation right have a term exceeding ten years from date of grant. The
option exercise price may be satisfied in cash or, at the discretion of the
Committee, by exchanging shares owned by the optionee for at least six months,
or by a combination of cash and shares.
In the event that a participant is permitted to and does exercise an option
granted under the 1996 Long-Term Incentive Plan by delivering shares, the
Committee is authorized to grant or provide for the automatic grant of a
Restoration Option to such optionee, subject to the satisfaction of such
conditions or criteria as the Committee shall establish from time to time. A
Restoration Option shall entitle the participant to purchase a number of shares
equal to the number surrendered in payment of the exercise price of the original
option, at a per share exercise price equal to not less than 100% of the per
share Fair Market Value on the date of grant of such Restoration Option.
Restoration Options shall have a term not longer than the term remaining on the
original option and shall contain such other terms and conditions as the
Committee shall determine.
Upon the exercise of a stock appreciation right with respect to a share,
the participant is entitled to receive the excess of the Fair Market Value of
such share over the grant price of such right. No stock appreciation right shall
be exercisable for six months after the grant. For administrative convenience,
the 1996 Long-Term Incentive Plan allows the Committee to provide that any
exercise of a stock appreciation right (other than such a right which is related
to an incentive stock option) for cash by a person subject to the rules of
Section 16(b) of the Act during the third through the twelfth day after the
release of the Corporation's quarterly financial results will be deemed to occur
on the day during such ten day period on which the price of the shares was the
highest. The Committee has the authority to determine whether the value of a
stock appreciation right is paid in cash or shares or a combination of both.
The Committee has the discretion to grant performance shares, the payment
of which is conditioned upon meeting a performance goal; to determine the value
of each performance share; to determine the number of such shares for each
performance cycle and the duration of each performance cycle; to establish
performance goals based on one or more of the following: operating earnings, net
earnings, return on equity, income, market share, shareholder return, combined
ratio, level of expenses or growth in revenue and to adjust such goals as it
deems equitable to reflect unusual or non-recurring events affecting the
Corporation or changes in tax law or accounting principles or other factors; and
to determine the number of performance shares which have been earned based on
performance relative to such performance goals. Payment values in respect of
earned performance shares may, at the discretion of the Committee, be
distributed in the form of cash or shares or a combination of both.
Awards of restricted stock or restricted stock units under the 1996
Long-Term Incentive Plan may be made at the discretion of the Committee and will
consist of shares or units representing such shares granted to a participant
which are subject to forfeiture and to restrictions on transfer. At the time of
an award of shares of
25
29
restricted stock, a participant will have the benefits of ownership in respect
of such shares, including the right to vote such shares and receive dividends
thereon and other distributions, subject to the restrictions set forth in the
1996 Long-Term Incentive Plan and in the instrument evidencing such award. The
shares of restricted stock may not be sold, assigned, transferred, pledged or
otherwise encumbered until the restrictions have lapsed. The Committee has
authority to determine the duration of the restricted period, which shall
generally be not less than one year, the conditions under which restricted stock
and restricted stock units may be forfeited, as well as the other terms and
conditions of such awards, including the establishment of performance goals for
the grant of restricted stock based on one or more of the performance criteria
described above. Restricted stock units may be paid, at the discretion of the
Committee, in cash or shares or a combination of both.
Awards under the 1996 Long-Term Incentive Plan may provide that the
participant has the right to receive currently or on a deferred basis dividends
or dividend equivalents and/or other cash payments in addition to or in lieu of
such award, all as the Committee shall determine.
If the Committee determines that any stock dividend, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase shares at a price substantially below fair market value, or other
similar corporate event affects the shares such that an adjustment is required
in order to preserve the benefits intended under the 1996 Long-Term Incentive
Plan, then the Committee has discretion to make equitable adjustments in the
number and kind of shares which thereafter may be awarded or optioned under the
1996 Long-Term Incentive Plan, the number and kind of shares subject to
outstanding options and awards, and the respective grant or exercise prices
and/or, if appropriate, to provide for the payment of cash to a participant who
has an outstanding option or award.
The Committee has broad discretion as to the specific terms and conditions
of each award and any rules applicable thereto, including but not limited to the
effect thereon of the death, retirement or other termination of employment of
the participant and the effect, if any, of a change in control of the
Corporation. The terms of each award are to be evidenced in writing and
delivered to the participant. The awards authorized under the 1996 Long-Term
Incentive Plan are subject to applicable tax withholding requirements and may
not be assigned or transferred, except by will or the laws of descent and
distribution, pursuant to a qualified domestic relations order, or to the
optionee's immediate family under rules established by the Committee.
No option or award may be granted under the 1996 Long-Term Incentive Plan
after December 31, 2001 except for Restoration Options, which shall continue to
be granted as long as options granted under the 1996 Long-Term Incentive Plan
are outstanding. The 1996 Long-Term Incentive Plan may be amended or terminated
at any time by the Board of Directors, except that no amendment may be made
without Shareholder approval if such approval is necessary to comply with any
tax or regulatory requirement, including any approval requirement which is a
prerequisite for exemptive relief from Section 16(b) of the Act, with which the
Committee determines it is advisable for the Corporation to comply.
FEDERAL INCOME TAX CONSEQUENCES
(1) With respect to nonstatutory options: When an optionee exercises an
option, the difference between the option price and any higher fair market value
of the shares on the date of exercise will be ordinary income to the optionee
and will be allowed as a deduction for Federal income tax purposes to the
employer. When an optionee disposes of shares acquired by the exercise of the
option, any amount received in excess of the market value of the shares on the
date of exercise will be treated as long or short term capital gain, depending
upon the holding period of the shares. If the amount received is less than the
market value of the shares on the date of exercise, the loss will be treated as
long or short term capital loss, depending upon the holding period of the
shares.
(2) With respect to incentive stock options: When an optionee exercises an
incentive stock option while employed by the Corporation or a subsidiary or
within the three month (one year for disability) period after termination of
employment by reason of retirement or death, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the shares acquired upon such
26
30
exercise over the option price will be an adjustment to taxable income for
purposes of the Federal alternative minimum tax applicable to individuals. If
the shares acquired upon exercise are not disposed of prior to the expiration of
one year after the date of transfer and two years after the date of grant of the
option, the excess (if any) of the sales proceeds over the aggregate option
price of such shares will be long term capital gain, but the employer will not
be entitled to any tax deduction with respect to such gain. If the shares are
disposed of prior to the expiration of such periods (a "disqualifying
disposition"), the excess of the fair market value of such shares at the time of
exercise over the aggregate option price (but not more than the gain on the
disposition if the disposition is a transaction on which a loss, if realized,
would be recognized) will be ordinary income at the time of such disqualifying
disposition and the employer will be entitled to a Federal tax deduction in a
like amount. If an incentive stock option is exercised by the optionee more than
three months (one year for disability) after termination of employment, the tax
consequences are the same as described above in (1) for nonstatutory stock
options.
(3) With respect to restricted stock: In the absence of an election by a
participant, as explained below, the grant of restricted stock will not result
in taxable income to the participant or a deduction to the employer in the year
of grant. The value of such restricted stock will be taxed to a participant in
the year in which the restrictions lapse. Alternatively, a participant may elect
to treat as income in the year of grant the fair market value of the restricted
stock on the date of grant, provided the participant makes the election within
30 days after the date of such grant. If such an election were made, a
participant would not be allowed to deduct at a later date the amount included
as taxable income if he should forfeit the shares of restricted stock to the
Corporation. The amount of ordinary income recognized by a participant is
deductible by the employer in the year such income is recognized by the
participant, provided such amount constitutes reasonable compensation to the
participant. If the election described above is not made, then prior to the
lapse of restrictions, dividends paid on the shares subject to such restrictions
will be taxable to the participant as additional compensation in the year
received free of restrictions, and the employer will be allowed a corresponding
deduction.
(4) With respect to stock appreciation rights and restricted stock units:
Generally, when a participant exercises stock appreciation rights granted to him
under the 1996 Long-Term Incentive Plan or receives payment with respect to
restricted stock units granted to him under the 1996 Long-Term Incentive Plan,
the amount of cash and the fair market value of the shares received will be
ordinary income to such participant and will be allowed as a deduction for
Federal income tax purposes to the employer.
(5) Certain additional special rules apply if the exercise price for an
option is paid for in shares previously owned by the optionee rather than in
cash.
The foregoing discussion summarizes the Federal income tax consequences of
the 1996 Long-Term Incentive Plan based on current provisions of the Code, which
are subject to change. The summary does not cover any state or local tax
consequences of participation in the 1996 Long-Term Incentive Plan.
------------------------
The affirmative vote of a majority of the shares of Common Stock of the
Corporation represented and voting at the Annual Meeting is required for
approval of the proposal to adopt the 1996 Long-Term Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
THE 1996 LONG-TERM INCENTIVE PLAN.
27
31
PROPOSAL TO APPROVE THE CHUBB CORPORATION STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS (1996)
INTRODUCTION
Pursuant to the Corporation's Stock Option Plan for Non-Employee Directors
(1992) (the "1992 Non-Employee Directors Plan"), which was approved by
Shareholders at their Annual Meeting in 1992, each non-employee Director of the
Corporation is granted each year, in connection with his or her election or
re-election to the Board, an option to purchase 2,000 shares of Common Stock.
The Corporation believes that the 1992 Non-Employee Directors Plan has
encouraged stock ownership by non-employee Directors, thus benefiting
Shareholders by giving such Directors a proprietary interest in the Corporation.
Further, the 1992 Non-Employee Directors Plan has enhanced the Corporation's
ability to attract, retain and suitably reward Directors of exceptional ability,
upon whose leadership and management skill the Corporation's future rests in
large part. Accordingly, the Board of Directors has unanimously recommended
extension by Shareholders of the 1992 Non-Employee Directors Plan and its
adoption, as amended and described below, as The Chubb Corporation Stock Option
Plan for Non-Employee Directors (1996) (the "1996 Non-Employee Directors Plan").
If the 1996 Non-Employee Directors Plan is approved by Shareholders, the 1992
Non-Employee Directors Plan will terminate the day after the 1996 Annual
Meeting.
SUMMARY OF THE 1996 NON-EMPLOYEE DIRECTORS PLAN
The following summary of the 1996 Non-Employee Directors Plan is qualified
in its entirety by reference to the complete text of the 1996 Non-Employee
Directors Plan, which is attached to this Proxy Statement as Exhibit C.
Administration. The Board of Directors is authorized to administer the
1996 Non-Employee Directors Plan in accordance with its terms; however, the
Board shall have no discretion with respect to the selection of Directors to
receive options, the number of shares of Common Stock subject to any such
options or the exercise price thereunder.
Eligibility. Only Eligible Directors, as defined in the 1996 Non-Employee
Directors Plan, may receive options under the 1996 Non-Employee Directors Plan.
The 1996 Non-Employee Directors Plan defines Eligible Director as a Director of
the Corporation who is not an employee of the Corporation or its subsidiaries
and has not within one year immediately preceding the date of eligibility
received any award under any plan of the Corporation providing for the
discretionary issuance of stock, stock options or stock appreciation rights.
There are currently twelve Eligible Directors.
Shares Subject to the 1996 Non-Employee Directors Plan. An aggregate of
200,000 shares of Common Stock shall be available for issuance upon the exercise
of options granted under the 1996 Non-Employee Directors Plan. If the 1996
Non-Employee Directors Plan is approved, the 1992 Non-Employee Directors Plan
will terminate with 200,000 shares remaining which were previously approved by
Shareholders for grants. Thus, approval of the 1996 Non-Employee Directors Plan
will not increase the number of shares available for stock options to Directors.
Grant, Term and Conditions of Options. As of the date of the first Annual
Shareholders Meeting at which Directors are elected following the Annual
Shareholders Meeting at which Shareholders first approve the 1996 Non-Employee
Directors Plan, and as of the date of each of the subsequent four Annual
Shareholders Meetings at which Directors are elected, each individual who is
then an eligible Director will be granted an option to purchase 2,000 shares of
Common Stock. The options will be nonstatutory stock options not intended to
qualify under Section 422 of the Code. The purchase price per share of the
Common Stock deliverable upon exercise of the option shall be 100% of the fair
market value per share of Common Stock, determined as provided in the 1996
Non-Employee Directors Plan, on the day the option is granted. Eligible
Directors shall pay the exercise price of the options in either cash or in
Common Stock owned by the Eligible Director for at least six months. Except as
set forth below, options shall be exercisable in whole or in part at all times
after the date of grant.
28
32
In the event of a stock split, stock dividend, subdivision or combination
of the Common Stock or other change in corporate structure affecting the Common
Stock, the number of shares available for issuance upon exercise of options, the
number of shares subject to outstanding options and the exercise prices of
outstanding options shall be appropriately adjusted.
All outstanding options held by an optionee shall automatically be
cancelled upon such optionee's termination of service as an Eligible Director
except when such termination occurs by reason of voluntary mid-term resignation,
declining to stand for re-election (whether as a result of reaching mandatory
retirement age or otherwise), or becoming an employee of the Corporation or a
subsidiary, all outstanding options held by such optionee on the date of such
termination shall continue to be fully exercisable for five years following the
date of such termination. In the event of the death of an optionee (whether
before or after termination of service as an Eligible Director), all outstanding
options held by such optionee and not previously cancelled or expired on the
date of death shall be fully exercisable by such optionee's legal representative
within one year after the date of death (without regard to the expiration date
of the option specified in accordance with the preceding sentence). No option
shall be transferable by an optionee other than by will or the laws of descent
and distribution, except that options may be transferred pursuant to a qualified
domestic relations order, and during the lifetime of the individual to whom an
option is granted it may be exercised only by such individual or such
individual's guardian or legal representative.
Restoration Options. Any Eligible Director who exercises an option granted
under the 1996 Non-Employee Directors Plan within seven years of the option's
grant by delivering shares of Common Stock in satisfaction or partial
satisfaction of the exercise price shall be automatically granted a Restoration
Option under the 1996 Non-Employee Directors Plan, subject to certain
conditions. The Restoration Option shall entitle the holder to purchase a number
of shares of Common Stock equal to the number so surrendered at a purchase price
of 100% of the per share fair market value on the date the Restoration Option is
granted, and shall otherwise have the terms and conditions of options granted
under the 1996 Non-Employee Directors Plan as described above. No Restoration
Option shall be granted if (i) the per share fair market value on the date of
exercise is not at least 125% of the exercise price of the original option, (ii)
the exercising optionee is not an Eligible Director on the date of exercise of
the original option or (iii) the original option is itself a Restoration Option.
Mergers, Sales and Change of Control. In the case of certain mergers,
consolidations or combinations of the Corporation with or into other
corporations, or in the event of a Change of Control of the Corporation, as
defined in the 1996 Non-Employee Directors Plan, the holder of each option
(including a Restoration Option) then outstanding shall (unless the Board
determines otherwise) have the right to receive on the date or effective date of
such event a payment in an amount calculated as set forth in the 1996
Non-Employee Directors Plan in exchange for such option.
Plan Amendments. The 1996 Non-Employee Directors Plan may be amended by
the Board as it shall deem advisable. Without the authorization and approval of
Shareholders, however, the Board may not increase the number of shares which may
be purchased pursuant to options granted under the 1996 Non-Employee Directors
Plan, change the requirement that option and Restoration Option grants be priced
at 100% of fair market value on the date of grant, modify in any respect the
class of individuals who constitute Eligible Directors or materially increase
the benefits accruing to optionees under the 1996 Non-Employee Directors Plan.
Plan provisions relating to the class of Directors eligible to receive options
under the 1996 Non-Employee Directors Plan and to the price, amount and timing
of option and Restoration Option grants under the 1996 Non-Employee Directors
Plan may not be amended more than once every six months, other than to comport
with changes in applicable law.
Term of Plan. The adoption of the 1996 Non-Employee Directors Plan has
been approved by the Board and shall become effective upon its approval by the
Shareholders. The 1996 Non-Employee Directors Plan shall terminate on the day
following the Annual Shareholders Meeting at which Directors are elected in the
year 2001 (except for the automatic grant of Restoration Options which shall
continue until the seventh anniversary of such Annual Shareholders Meeting)
unless the 1996 Non-Employee Directors Plan is extended or terminated at an
earlier date by Shareholders.
29
33
FEDERAL INCOME TAX CONSEQUENCES
Under present Federal income tax laws, options (including Restoration
Options) granted under the 1996 Non-Employee Directors Plan would have the
following tax consequences.
1. When an optionee exercises an option, the difference between the option
price and any higher market value of the stock on the date of exercise will be
ordinary income to the optionee and will be allowed as a deduction for Federal
income tax purposes to the Corporation. When an optionee disposes of shares
acquired by the exercise of the option, any amount received in excess of the
market value of the shares on the date of exercise will be treated as long or
short term capital gain, depending upon the holding period of the shares. If the
amount received is less than the market value of the shares on the date of
exercise, the loss will be treated as long or short term capital loss, depending
upon the holding period of the shares.
2. To the extent that an optionee pays all or part of the option price of
a nonstatutory option by tendering shares of Common Stock owned by the optionee,
the rules described in paragraph 1 above apply, except that the number of shares
received upon such exercise which is equal to the number of shares surrendered
as payment of the option price shall have the same tax basis and tax holding
period as the shares surrendered. Generally, the additional shares received upon
such exercise have a tax basis equal to the amount of ordinary income recognized
on such exercise and a holding period which commences on the date of exercise.
3. Special rules may apply if the option is exercised within six months of
its grant by an optionee who is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Act").
The foregoing discussion summarizes the Federal income tax consequences of
the 1996 Non-Employee Directors Plan based on current provisions of the Code,
which are subject to change. The summary does not cover any state or local tax
consequences of participation in the 1996 Non-Employee Directors Plan.
------------------------
The affirmative vote of a majority of the shares of Common Stock of the
Corporation represented and voting at the Annual Meeting is required for
approval of the proposal to adopt the 1996 Non-Employee Directors Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF
THE 1996 NON-EMPLOYEE DIRECTORS PLAN.
30
34
APPROVAL OF SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors, acting upon the recommendation of the Audit
Committee, recommends for approval by the Shareholders the selection of Ernst &
Young LLP ("Ernst & Young") as the independent auditors of the Corporation for
the year 1996. Ernst & Young has acted as such auditors for the Corporation for
many years.
In addition to its principal service of auditing the financial statements
of the Corporation and its subsidiaries, Ernst & Young provided certain
non-audit services for the Corporation and its subsidiaries during 1995, and
such services were approved by the Audit Committee. In approving such services,
the Audit Committee determined that the nature of the services and the estimated
fees to be charged would have no adverse effect on the independence of the
auditors.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting and to have the opportunity to make a statement should they desire to do
so and to be available to respond to appropriate questions.
VOTING, SOLICITATION OF PROXIES AND SHAREHOLDER PROPOSALS
The Proxy, if returned properly executed and not subsequently revoked by
written notice delivered to the Secretary of the Corporation, will be voted in
accordance with the choice made by the Shareholder with respect to the proposals
listed thereon. If a choice is not made with respect to such proposals and
authority to vote for Directors is not withheld, the Proxy will be voted in
favor of such proposals and will be voted for the election of Directors as
described under "Election of Directors" above.
Under New Jersey law and the Corporation's By-Laws, each share of Common
Stock outstanding on the record date is entitled to one vote at the Annual
Meeting of Shareholders, and the presence in person or by proxy of the holders
of shares entitled to cast a majority of the votes constitutes a quorum. Votes
are tabulated by the Corporation's transfer agent using the transfer agent's
automated system. Under New Jersey law, Directors are elected by a plurality of
the votes cast at the meeting. Approval of the 1996 Cash Incentive Plan and
approval of the selection of independent auditors requires the affirmative vote
of a majority of the votes cast by Shareholders entitled to vote at the Annual
Meeting. Approval of the 1996 Long-Term Incentive Plan and the 1996 Non-Employee
Directors Plan requires the affirmative vote of the holders of a majority of the
shares of the Corporation's Common Stock present or represented at the Annual
Meeting. Proxies submitted with abstentions and broker non-votes are included in
determining whether or not a quorum is present. Votes withheld for the election
of Directors have no impact on the election of Directors, except that votes
withheld may result in another individual receiving a higher number of votes.
Abstentions will not be counted in tabulating the votes with respect to approval
of the 1996 Cash Incentive Plan or the approval of selection of independent
auditors, but will have the effect of votes against approval of the 1996
Long-Term Incentive Plan and the 1996 Non-Employee Directors Plan. Broker
non-votes will not be counted in tabulating the votes with respect to the
proposals presented to Shareholders.
The Board of Directors is aware of no matters other than those specifically
stated in the Notice of Annual Meeting which are to be presented for action at
the meeting. However, should any further matter requiring a vote of the
Shareholders arise, it is the intention of the persons named in the Proxy to
vote the Proxy in accordance with their judgment.
The cost of this solicitation of proxies is being borne by the Corporation.
In addition to the solicitation of proxies by use of the mails, the Corporation
may use the services of one or more Directors, officers or other regular
employees of the Corporation (who will receive no additional compensation for
their services in such solicitation) to solicit proxies personally and by
telephone. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of the shares held of record by such persons and the Corporation will
reimburse them for reasonable expenses actually incurred by them in so doing. In
addition, the Corporation has retained Georgeson & Company Inc.,
31
35
New York, New York, to aid in the solicitation of proxies by mail, in person and
by telephone for a fee which is estimated not to exceed $12,500 plus
out-of-pocket expenses.
Proposals by Shareholders intended to be presented at the 1997 Annual
Meeting must be received by the Corporation no later than November 12, 1996 in
order to be qualified for inclusion in the Corporation's Proxy Statement and
form of proxy for such meeting.
By order of the Board of Directors,
HENRY G. GULICK
Vice President and Secretary
March 12, 1996
32
36
EXHIBIT A
THE CHUBB CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN (1996)
1. PURPOSE. The purpose of The Chubb Corporation Annual Incentive
Compensation Plan (the "Plan") is to provide The Chubb Corporation (the
"Company") and its subsidiaries with an effective means of attracting, retaining
and motivating officers and other key employees and to provide them with
incentives to enhance the growth and profitability of the Company.
2. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective as of
January 1, 1996, subject to approval by the Shareholders of the Corporation.
3. ADMINISTRATION. The Plan shall be administered by the Organization &
Compensation Committee (the "Committee") of the Board of Directors of the
Company. Subject to the provisions of the Plan, the Committee shall be
authorized to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the administration of the Plan. The determination of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive.
4. ELIGIBILITY. Incentive Compensation awards under the Plan for any
fiscal year of the Company ("Fiscal Year") may be granted to those key employees
and officers (including officers who are directors) of the Company and its
subsidiaries ("Participants"), who shall be selected by the Committee after
consideration of management's recommendations. Subsidiaries shall mean any
business entity in which the Company owns, directly or indirectly, 50% or more
of the total combined voting power of all classes of stock.
5. ANNUAL INCENTIVE POOL DETERMINATION. As soon as practicable either
before or after the beginning of each Fiscal Year, the Committee shall designate
a list of Participants for such Fiscal Year, designate target awards by salary
grade or such other standard determined by the Committee and establish a target
award pool, which shall be the sum of target awards for all Participants. The
Committee shall also determine target financial goals for the year which shall
be based on the Company's combined loss and expense ratio ("combined ratio") and
net income, which is investment income arising from the property and casualty
insurance business and underwriting profit or loss from that business, and a
comparison of the combined ratio and return on equity with those of key
competitors and construct a schedule around such goals that would result in the
earning of from 25% to 200% of the target award pool depending upon what
percentage or percentages of the financial goal or goals were achieved. As soon
as practicable after the end of the Fiscal Year, the Committee shall determine
the percentage of the target award pool available for payment based upon such
schedule and after considering management's recommendations, if any, that the
effect of unusual items on the financial results for such Fiscal Year be
excluded from the calculations, provided, however, that no such adjustment in
the calculations shall be applied to any participant determined by the Committee
(i) to be a covered employee as defined in Section 162(m) of the Internal
Revenue Code for the preceding Fiscal Year or (ii) likely to be such a covered
employee for the current or next following Fiscal Year (hereafter referred to as
a "covered employee").
6. AWARD DETERMINATION. As soon as practicable after the end of the
Fiscal Year, the Committee shall approve incentive award payments to
Participants which are based both on the size of the target award pool available
and upon management's assessment of the Participant's individual performance
during the Fiscal Year but in no event may the Committee increase an award to a
participant deemed to be a covered employee over such amounts payable based on
the objective criteria established at the outset of the Fiscal Year for which
the award is made, nor shall the maximum award payable to any such covered
employee exceed $2,500,000. The Committee shall have no obligation to pay out
all of the award pool for a Fiscal Year, but in no event can the total amount
paid exceed 200% of the target award pool for such Fiscal Year. Except as
provided in Section 8 with respect to deferred awards, Participants must be
employed by the Company or one of its subsidiaries as of the payment date under
Section 7 to be eligible for award payments, provided, that
A-1
37
if the Participant's employment is terminated prior to the payment date by
reason of death, retirement on or after the Participant's Normal Retirement Date
under the Company's Pension Plan, disability (as defined in such Pension Plan),
or any other reason with the consent of the Committee, the Committee, in its
sole discretion, may provide for an award payment to that Participant or the
Participant's Designated Beneficiary, if applicable.
7. FORM OF PAYMENT. All awards approved by the Committee for payment,
unless deferred under Section 8, shall be paid in cash as soon as practicable
after the end of the Fiscal Year.
8. DEFERRALS. (a) From time to time, Participants may be offered the
opportunity to defer receipt of all or a portion of their award, if any. Whether
a deferral opportunity shall be offered for awards granted hereunder for a
Fiscal Year shall be determined by the Committee in its sole discretion provided
that any such opportunity, if made available with respect to awards for a Fiscal
Year, shall be offered under uniform rules applicable to all Participants. Any
election to defer shall be made prior to the beginning of the award year except
for the first year the Plan is in effect. Deferrals must be for increments of
10% of the potential award which may be granted to a Participant.
(b) Deferred awards are not forfeitable and will be paid after termination
of employment. Deferred awards payable under this Plan shall not be funded but
will constitute the general obligations of the Company.
(c) At the same time the Participant elects to defer all or a portion of an
award, the Participant shall also elect whether the deferred funds shall be
credited with an interest equivalent amount or shall be allocated to an insured
income benefit program. Deferred awards not allocated to an insured income
benefit program shall receive a quarterly interest equivalent up to the time of
final payment at a rate set from time to time by the Committee. The sum of the
award plus all interest equivalents shall be paid out in a lump sum or in up to
fifteen installments as specified by the Participant at the same time the
deferral election was filed.
(d) The Committee may approve for early payment all or a portion of a
Participant's deferred awards in case of financial hardship, as determined by
the Committee.
(e) If a Participant's employment is terminated by reason of death,
retirement on or after the Participant's Normal Retirement Date under the
Company's Pension Plan, disability (as defined in such Pension Plan), or any
other reason with the consent of the Committee, deferred awards will be paid out
in a lump sum or in installments as designated by the Participant on the
deferral election form, provided, however, the Committee shall have the ability
to accelerate installments in the event of disability and provided further, that
in the event of the Participant's death, the Designated Beneficiary may request
that the Committee approve that payments due hereunder with respect to such
Participant shall be made under a method different than the method designated by
the Participant. If employment is terminated for any other reason, the
Participant shall receive a lump sum distribution of such Participant's deferred
awards.
(f) The Committee shall have the right to terminate or limit the right of
Participants to continue the previously elected deferral of an award for any
Fiscal Year if the Committee in its sole discretion shall determine at any time
that such continued deferral has become inadvisable because of changes in the
Federal tax laws or any other circumstances which, in the judgment of the
Committee, jeopardize the ability of the Company to appropriately finance the
deferral of such award. In such event, all affected amounts, including such
amounts previously credited as interest equivalents (or, if such affected amount
had previously been deferred and allocated to an insured income benefit program,
the amount deferred plus the interest equivalent amount that would have been
credited on such deferred amount had it not been allocated to an insured income
benefit program) shall be paid to the Participant as soon as practicable after
the Committee's determination.
9. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
applicable to this Plan:
(a) Except in the event of the death of a Participant, the rights and
interests of a Participant under the Plan may not be assigned, encumbered
or transferred.
(b) No employee or other person shall have any claim or right to be
granted an award under the Plan. Neither the Plan nor any action taken
thereunder shall be construed as giving any employee or other person any
right to be retained in the employ of the Company.
A-2
38
(c) The Company shall have the right to deduct from all payments made
under the Plan any taxes required by law to be withheld with respect to
such payments.
(d) The Plan shall be construed in accordance with and governed by the
laws of the State of New York.
(e) Each Participant shall designate in a manner determined by the
Committee a beneficiary (the "Designated Beneficiary") to receive payments
due hereunder in the event of such Participant's death. If no Designated
Beneficiary survives the Participant, it shall be the surviving spouse of
the Participant or, if there is no surviving spouse, it shall be the estate
of the Participant.
10. TERMINATION. The Board of Directors of the Company may amend,
suspend, or terminate any or all provisions of the Plan at any time, provided
that no such amendment, suspension or termination shall adversely affect,
without the Participants' consent, any awards previously granted to them.
11. OTHER PLANS OR PAYMENTS. Nothing in this Plan shall be construed as
limiting the authority of the Committee, the Board of Directors, the Company or
any subsidiary, to establish any other deferred compensation plan or as in any
way limiting their authority to pay bonuses or other supplemental compensation
to any persons employed by the Company or a subsidiary, whether or not such
person is a Participant in this Plan and regardless of how the amount of such
compensation or bonus is determined.
A-3
39
EXHIBIT B
THE CHUBB CORPORATION
LONG-TERM STOCK INCENTIVE PLAN (1996)
SECTION 1. Purpose
The purposes of The Chubb Corporation Long-Term Stock Incentive Plan (1996)
(the "Plan") are to promote the interests of The Chubb Corporation and its
shareholders by (i) attracting and retaining executive personnel and other key
employees of outstanding ability; (ii) motivating executive personnel and other
key employees, by means of performance-related incentives, to achieve
longer-range performance goals; and (iii) enabling such employees to participate
in the long-term growth and financial success of The Chubb Corporation.
SECTION 2. Definitions.
"Affiliate" shall mean any corporation or other entity which is not a
Subsidiary but as to which the Corporation possesses a direct or indirect
ownership interest and has representation on the board of directors or any
similar governing body.
"Award" shall mean a grant or award under Sections 6 through 9, inclusive,
of the Plan, as evidenced in a written document delivered to a Participant as
provided in Section 10(b).
"Board of Directors" shall mean the Board of Directors of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Organization & Compensation Committee of the
Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, $1.00 par value, of
the Corporation.
"Corporation" shall mean The Chubb Corporation.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due the
Participant in the event of the Participant's death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean the
Participant's estate.
"Employee" shall mean any key employee of the Employer.
"Employer" shall mean the Corporation and any Subsidiary or Affiliate.
"Fair Market Value" shall mean the average of the highest and lowest sales
prices reported for consolidated trading of issues listed on the New York Stock
Exchange on the date in question, or, if the Stock shall not have been traded on
such date, the average of such highest and lowest sales prices on the first day
prior thereto on which the Stock was so traded.
"Fiscal Year" shall mean the fiscal year of the Corporation.
"Incentive Stock Option" shall mean a stock option granted under Section 6
which is intended to meet the requirements of Section 422 of the Code.
"Nonstatutory Stock Option" shall mean a stock option granted under Section
6 which is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonstatutory Stock
Option and shall include a Restoration Option.
"Participant" shall mean an Employee who is selected by the Committee to
receive an Award under the Plan.
B-1
40
"Payment Value" shall mean the dollar amount assigned to a Performance
Share which shall be equal to the Fair Market Value of the Common Stock on the
day of the Committee's determination under Section 8(c)(1) with respect to the
applicable Performance Cycle.
"Performance Cycle" or "Cycle" shall mean the period of years selected by
the Committee during which the performance is measured for the purpose of
determining the extent to which an award of Performance Shares has been earned.
"Performance Goals" shall mean the objectives established by the Committee
for a Performance Cycle, for the purpose of determining the extent to which
Performance Shares which have been contingently awarded for such Cycle are
earned.
"Performance Share" shall mean an award granted pursuant to Section 8 of
the Plan expressed as a share of Common Stock.
"Prior Plans" shall mean The Chubb Corporation Long-Term Stock Incentive
Plan (1992), Long-Term Stock Incentive Plan (1989) and the Stock Option Plan
(1984).
"Restoration Option" shall mean a stock option granted pursuant to Section
6(d).
"Restricted Period" shall mean the period of years selected by the
Committee during which a grant of Restricted Stock or Restricted Stock Units may
be forfeited to the Corporation.
"Restricted Stock" shall mean shares of Common Stock contingently granted
to a Participant under Section 9 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar denominated
unit contingently awarded under Section 9 of the Plan.
"Stock Appreciation Right" shall mean a right granted under Section 7.
"Subsidiary" shall mean any business entity in which the Corporation
possesses directly or indirectly fifty percent (50%) or more of the total
combined voting power.
SECTION 3. Administration
The Plan shall be administered by the Committee. The Committee shall have
sole and complete authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the operation of the Plan as it shall
from time to time deem advisable, and to interpret the terms and provisions of
the Plan. The Committee may delegate to one or more executive officers of the
Corporation the power to make Awards to Participants who are not executive
officers or directors of the Corporation provided the Committee shall fix the
maximum amount of such Awards for the group and a maximum for any one
Participant. The Committee's decisions shall be binding upon all persons,
including the Corporation, stockholders, an Employer, Employees, Participants
and Designated Beneficiaries.
SECTION 4. Eligibility
All Employees who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Corporation are eligible to be Participants in the Plan.
SECTION 5. Maximum Amount Available for Awards
(a) The maximum number of shares of Stock in respect of which Awards may be
made under the Plan shall be 4,365,000 shares of Common Stock plus up to an
additional 2,635,000 shares of Common Stock to the extent shares of Common Stock
are reacquired by the Corporation, including shares purchased in the open
market, after April 23, 1996. Not more than 1,750,000 shares may be awarded as
Restricted Stock, Restricted Stock Units or Performance Shares and not more than
4,365,000 shares may be awarded as incentive stock options. Subject to the
foregoing, Shares of Common Stock may be made available from the authorized but
unissued shares of the Corporation or from shares reacquired by the Corporation,
including shares purchased in the open market. In the event that (i) an Option
or Stock Appreciation Right under the Plan or the Prior Plans is settled for
cash or expires or is terminated unexercised as to any shares of Common Stock
covered
B-2
41
thereby, or (ii) any Award under the Plan or the Prior Plans in respect of
shares is cancelled or forfeited for any reason without the delivery of shares
of Common Stock, such shares shall thereafter be again available for award
pursuant to the Plan. In the event that any Option or other Award granted is
exercised through the delivery of shares of Common Stock, the number of shares
of Common Stock available for Awards under the Plan shall be increased by the
number of shares so surrendered.
(b) No Employee may be granted under the Plan in any calendar year Options
or Stock Appreciation Rights on more than 150,000 shares of Common Stock and no
Employee may be granted in any calendar year more than 40,000 Performance Shares
or 40,000 shares of Restricted Stock or Restricted Stock Units.
(c) In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below fair
market value, or other similar corporate event affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under this Plan, then the Committee
shall, in its sole discretion, and in such manner as the Committee may deem
equitable, adjust any or all of (1) the number and kind of shares which
thereafter may be awarded or optioned and sold or made the subject of Stock
Appreciation Rights under the Plan, (2) the number and kind of shares subject to
outstanding Options and other Awards, and (3) the grant, exercise or conversion
price with respect to any of the foregoing and/or, if deemed appropriate, make
provision for a cash payment to a Participant or a person who has an outstanding
Option or other Award provided, however, that the number of shares subject to
any Option or other Award shall always be a whole number.
SECTION 6. Stock Options
(a) Grants. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom Options
shall be granted, the number of shares to be covered by each Option, the option
price therefor and the conditions and limitations applicable to the exercise of
the Option including but not limited to, whether, and to what extent and under
what circumstances amounts payable upon exercise of an Option shall be deferred
at the election of the holder of such Option. The Committee shall have the
authority to grant Incentive Stock Options, or to grant Nonstatutory Stock
Options, or to grant both types of options. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and comply
with such rules as may be prescribed by Section 422 of the Code, as from time to
time amended, and any implementing regulations.
(b) Option Price. The Committee shall establish the option price at the
time each Option is granted, which price shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of grant.
(c) Exercise. (1) Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award or thereafter, provided, however,
that in no event may any Option granted hereunder be exercisable after the
expiration of ten years from the date of such grant. The Committee may impose
such conditions with respect to the exercise of Options, including without
limitation, any relating to the application of federal or state securities laws,
as it may deem necessary or advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the
Corporation. Such payment may be made in cash, or its equivalent, or, if and to
the extent permitted by the Committee, by exchanging shares of Common Stock
owned for at least six months by the optionee (which are not the subject of any
pledge or other security interest), or by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents and the Fair
Market Value of any such Common Stock so tendered to the Corporation, valued as
of the date of such tender, is at least equal to such option price.
(d) Restoration Options. In the event that any Participant delivers shares
of Common Stock in payment of the exercise price of any Option granted hereunder
in accordance with Section 6(c)(2), the Committee shall have the authority to
grant or provide for the automatic grant of a Restoration Option to such
B-3
42
Participant. The grant of a Restoration Option shall be subject to the
satisfaction of such conditions or criteria as the Committee in its sole
discretion shall establish from time to time. A Restoration Option shall entitle
the holder thereof to purchase a number of shares of Common Stock equal to the
number of such shares so delivered upon exercise of the original Option and, in
the discretion of the Committee, the number of shares, if any, tendered to the
Corporation to satisfy any withholding tax liability arising in connection with
the exercise of the original Option. A Restoration Option shall have a per share
exercise price of not less than 100% of the per share Fair Market Value of the
Common Stock on the date of grant of such Restoration Option, a term not longer
than the remaining term of the original Option at the time of exercise thereof,
and such other terms and conditions as the Committee in its sole discretion
shall determine.
SECTION 7. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant Stock
Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Stock Appreciation Rights granted in
tandem with or in addition to an Option may be granted either at the same time
as the Option or at a later time. Stock Appreciation Rights shall not be
exercisable earlier than six months after grant, shall not be exercisable after
the expiration of ten years from the date of grant and shall have an exercise
price of not less than 100% of the Fair Market Value of the Common Stock on the
date of grant.
(b) A Stock Appreciation Right shall entitle the Participant to receive
from the Corporation an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the exercise of the Stock Appreciation Right over the
grant price thereof, provided that the Committee may for administrative
convenience determine that, for any Stock Appreciation Right which is not
related to an Incentive Stock Option which Stock Appreciation Right can only be
exercised during limited periods of time in order to satisfy the conditions of
certain rules of the Securities and Exchange Commission, the exercise of any
such Stock Appreciation Right for cash during such limited period shall be
deemed to occur for all purposes hereunder on the day during such limited period
on which the Fair Market Value of the Stock is the highest. Any such
determination by the Committee may be changed by the Committee from time to time
and may govern the exercise of Stock Appreciation Rights granted prior to such
determination as well as Stock Appreciation Rights thereafter granted. The
Committee shall determine upon the exercise of a Stock Appreciation Right
whether such Stock Appreciation Right shall be settled in cash, shares of Common
Stock or a combination of cash and shares of Common Stock.
SECTION 8. Performance Shares
(a) The Committee shall have sole and complete authority to determine the
Employees who shall receive Performance Shares and the number of such shares for
each Performance Cycle, and to determine the duration of each Performance Cycle
and the value of each Performance Share. There may be more than one Performance
Cycle in existence at any one time, and the duration of Performance Cycles may
differ from each other.
(b) The Committee shall establish Performance Goals for each Cycle based on
any one or more of the following: the operating earnings, net earnings, return
on equity, income, market share, shareholder return, combined ratio, level of
expenses or growth in revenue. During any Cycle, the Committee may adjust the
Performance Goals for such Cycle as it deems equitable in recognition of unusual
or non-recurring events affecting the Corporation, changes in applicable tax
laws or accounting principles, or such other factors as the Committee may
determine, provided, however, that no such adjustment shall be applicable to the
extent such adjustment would result in a disallowance of a tax deduction
pursuant to Section 162(m) of the Code.
(c)(1) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares which have been
earned on the basis of performance in relation to the established Performance
Goals.
(2) Payment Values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable after the expiration of
B-4
43
the Performance Cycle and the Committee's determination under paragraph (1),
above. The Committee shall determine whether Payment Values are to be
distributed in the form of cash and/or shares of Common Stock.
SECTION 9. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall have sole
and complete authority to determine the Employees to whom shares of Restricted
Stock and Restricted Stock Units shall be granted, the number of shares of
Restricted Stock and the number of Restricted Stock Units to be granted to each
Participant, the duration of the Restricted Period during which, and the
conditions under which, the Restricted Stock and Restricted Stock Units may be
forfeited to the Corporation, and the other terms and conditions of such Awards.
The Restricted Period shall consist of at least one year (which may be shortened
or waived by the Committee at any time in its discretion) with respect to one or
more Participants or Awards outstanding. In its discretion, the Committee may
establish performance conditions with respect to awards of Restricted Stock and
Restricted Stock Units based on one or more of the same items listed in Section
8(b) in respect of Performance Shares during a performance period selected by
the Committee.
(b) Shares of Restricted Stock and Restricted Stock Units may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as herein
provided, during the Restricted Period. Certificates issued in respect of shares
of Restricted Stock shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in blank,
with the Corporation. At the expiration of the Restricted Period, the
Corporation shall deliver such certificates to the Participant or the
Participant's legal representative. Payment for Restricted Stock Units shall be
made to the Corporation in cash and/or shares of Common Stock, as determined at
the sole discretion of the Committee.
SECTION 10. General Provisions
(a) Withholding. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of payments of Awards in the form of Common Stock, at the Committee's
discretion the Participant may be required to pay to the Employer the amount of
any taxes required to be withheld with respect to such Common Stock, or, in lieu
thereof, the Employer shall have the right to retain (or the Participant may be
offered the opportunity to elect to tender) the number of shares of Common Stock
whose Fair Market Value equals the amount required to be withheld.
(b) Awards. Each Award hereunder shall be evidenced in writing, delivered
to the Participant and shall specify the terms and conditions thereof and any
rules applicable thereto, including but not limited to the effect on such Award
of the death, retirement or other termination of employment of the Participant
and the effect thereon, if any, of a change in control of the Corporation.
(c) Non-transferability. (i) Except as provided in (ii) below, no Award
shall be assignable or transferable, and no right or interest of any Participant
shall be subject to any lien, obligation or liability of the Participant, except
by will or the laws of descent and distribution.
(ii) Notwithstanding subparagraph (i) above, the Committee may determine
that an Award may be transferred pursuant to a qualified domestic relations
order, as determined by the Committee or its designee or that an Option may be
transferred by an Employee to one or more members of the Employee's immediate
family, to a partnership of which the only partners are members of the
Employee's immediate family, or to a trust established by the Employee for the
benefit of one or more members of the Employee's immediate family. For this
purpose immediate family means the Employee's spouse, parents, children,
grandchildren and the spouses of such parents, children and grandchildren. A
transferee described in this subparagraph may not further transfer an Option. An
Option transferred pursuant to this subparagraph shall remain subject to all of
the applicable provisions of the Plan and the written option agreement.
(d) No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Employer. Further, the
Employer expressly reserves the right at any time to dismiss a Participant free
from
B-5
44
any liability, or any claim under the Plan, except as provided herein or in any
agreement entered into with respect to an Award.
(e) No Rights as Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she has become the holder thereof. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(f) Construction of the Plan. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of New York.
(g) Effective Date. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on April 23, 1996. No Options or Awards
may be granted under the Plan after December 31, 2001; provided, however, that
the authority for grant of Restoration Options hereunder in accordance with
Section 6(d) shall continue, subject to the provisions of Section 5, as long as
any Option granted hereunder remains outstanding.
(h) Amendment of Plan. The Board of Directors may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for these
purposes any approval requirement which is a prerequisite for exemptive relief
under Section 16(b) of the Securities Exchange Act of 1934 with which the
Committee has determined it is necessary or desirable to have the Corporation
comply. Notwithstanding anything to the contrary contained herein, the Committee
may amend the Plan in such manner as may be necessary so as to have the Plan
conform with local rules and regulations.
(i) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award with the Participant's consent at any time prior to payment or
exercise in any manner not inconsistent with the terms of the Plan, including
without limitation, (i) to change the date or dates as of which (A) an Option or
Stock Appreciation Right becomes exercisable; (B) a Performance Share is deemed
earned; (C) Restricted Stock becomes nonforfeitable; or (ii) to cancel and
reissue an Award under such different terms and conditions as it determines
appropriate.
B-6
45
EXHIBIT C
THE CHUBB CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (1996)
1. PURPOSE
The purpose of The Chubb Corporation Stock Option Plan for Non-Employee
Directors (1996) (the "Plan") is to increase the proprietary and vested interest
of the non-employee directors of The Chubb Corporation (the "Corporation") in
the growth and performance of the Corporation by granting such directors options
to purchase shares of Common Stock, $1.00 par value per share (the "Stock"), of
the Corporation.
2. ADMINISTRATION
The Plan shall be administered by the Corporation's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be authorized
to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the administration of the Plan; provided, however, that the
Board shall have no discretion with respect to the selection of directors to
receive options under the Plan, the number of shares of Stock subject to any
such options, the purchase price thereunder or the timing of grants of options
under the Plan. The determinations of the Board in the administration of the
Plan, as described herein, shall be final and conclusive. The Secretary of the
Corporation shall be authorized to implement the Plan in accordance with its
terms and to take such actions of a ministerial nature as shall be necessary to
effectuate the intent and purposes thereof. The validity, construction and
effect of the Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of New York.
3. ELIGIBILITY
The class of individuals eligible for grant of options and Restoration
Options under the Plan shall be Eligible Directors, as defined below. Eligible
Director shall mean a director of the Corporation who is not an employee of the
Corporation or its subsidiaries and has not, within one year immediately
preceding the determination of such director's eligibility, received any award
under any plan of the Corporation or its subsidiaries that entitles the
participants therein to acquire stock, stock options or stock appreciation
rights of the Corporation or its subsidiaries (other than any other plan under
which participants' entitlements are governed by provisions meeting the
requirements of Rule 16b-3(c)(2)(ii) promulgated under the Securities Exchange
Act of 1934.). Any holder of an option granted hereunder shall hereinafter be
referred to as a "Participant".
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7, an aggregate of 200,000
shares of Stock shall be available for issuance upon the exercise of options and
Restoration Options, as described in Section 6, granted under the Plan. The
shares of Stock deliverable upon the exercise of options and Restoration Options
may be made available from authorized but unissued shares or shares reacquired
by the Corporation, including shares purchased in the open market or in private
transactions. If any option or Restoration Option granted under the Plan shall
terminate for any reason without having been exercised, the shares subject to,
but not delivered under, such option shall be available for other options and
Restoration Options.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
Each individual who is an Eligible Director will be granted an option to
purchase 2,000 shares of Stock as of the date of each Annual Shareholders
Meeting following the effectiveness of the Plan at which such individual is
elected or reelected to the office of director. The options granted will be
nonstatutory stock
C-1
46
options not intended to qualify under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") and shall have the following terms and
conditions:
(a) Price. The purchase price per share of Stock deliverable upon the
exercise of each option shall be 100% of the Fair Market Value per share of
the Stock on the date the option is granted. For purposes of this Plan,
Fair Market Value shall be the average of the highest and lowest per share
sales prices as reported for consolidated trading of issues listed on the
New York Stock Exchange on the date in question, or, if the Stock shall not
have traded on such date, the average of the highest and lowest per share
sales prices on the first date prior thereto on which the Stock was so
traded.
(b) Payment. Options may be exercised only upon payment of the
purchase price thereof in full. Such payment shall be made in cash or in
Stock owned for at least six months by the Eligible Director, which shall
have a Fair Market Value (determined in accordance with the rules of
paragraph (a), above) at least equal to the aggregate exercise price of the
shares being purchased, or a combination of cash and Stock.
(c) Exercisability and Term of Options. Options shall be exercisable
in whole or in part at all times during the period beginning on the date of
grant until terminated, as provided in paragraph (d), below.
(d) Termination of Service as Eligible Director.
(i) Except as provided in subparagraph (ii) of this paragraph (d),
all outstanding options held by a Participant shall be automatically
cancelled upon such Participant's termination of service as an Eligible
Director.
(ii) Upon termination of a Participant's service as an Eligible
Director by reason of such Participant's voluntary mid-term resignation,
declining to stand for reelection (whether as a result of the
Corporation's mandatory retirement program or otherwise), becoming an
employee of the Corporation or a subsidiary thereof or becoming disabled
(as defined in the Corporation's pension plan), all outstanding options
held by such Participant on the date of such termination shall expire
five years from the date upon which the Participant ceases to be an
Eligible Director. In the event of the death of a Participant (whether
before or after termination of service as an Eligible Director), all
outstanding options held by such Participant (and not previously
cancelled or expired) on the date of such death shall be fully
exercisable by the Participant's legal representative within one year
after the date of death (without regard to the expiration date of the
option specified in accordance with the preceding sentence).
(e) Non-transferability of Options. No option shall be transferable
by a Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Participant to whom an option
is granted it may be exercised only by the Participant or by the
Participant's guardian or legal representative. Notwithstanding the above,
options may be transferred pursuant to a qualified domestic relations
order.
(f) Listing and Registration. Each option and Restoration Option
shall be subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or
qualification of the Stock subject to such option upon any securities
exchange or under any state or federal law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the granting of such option or the issue or
purchase of shares thereunder, no such option may be exercised in whole or
in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any condition not
acceptable to the Board.
(g) Option Agreement. Each option and Restoration Option granted
hereunder shall be evidenced by an agreement with the Corporation which
shall contain the terms and provisions set forth herein and shall otherwise
be consistent with the provisions of the Plan.
C-2
47
6. GRANT, TERMS AND CONDITIONS OF RESTORATION OPTIONS
In the event that, within seven years of the date of grant of an option
granted hereunder (the "original option"), an Eligible Director delivers shares
of the Stock in payment of the exercise price of the original option in
accordance with Section 5(b), such Eligible Director shall be granted a
Restoration Option, subject to the satisfaction of the conditions and criteria
set forth below. Restoration Options will be nonstatutory options not intended
to qualify under Section 422 of the Code and shall have the following terms and
provisions:
(a) Number of Shares. A Restoration Option shall entitle the holder
thereof to purchase a number of shares of Stock equal to the number of such
shares delivered upon exercise of the original option.
(b) Price. A Restoration Option shall have a per share exercise price
of 100% of the per share Fair Market Value, determined in accordance with
Section 5(a), of the Stock on the date of grant of such Restoration Option.
(c) Conditions. Notwithstanding any other provision of this Section
6, no Restoration Option shall be granted if (i) the per share Fair Market
Value of the Stock is not at least 125% of the exercise price of the
original option, (ii) the original option is a Restoration Option or (iii)
the exercising Participant is not an Eligible Director on the date of
exercise.
(d) Other Provisions. Restoration Options shall be subject to all the
other terms and conditions set forth in Section 5, except as expressly set
forth and as modified in this Section 6.
7. ADJUSTMENT OF AND CHANGES IN STOCK
In the event of a stock split, stock dividend, subdivision or combination
of the Stock or other change in corporate structure affecting the Stock, the
number of shares of Stock authorized by the Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares of Stock subject
to any outstanding option or Restoration Option shall be increased or decreased
proportionately, as the case may be, with appropriate corresponding adjustment
in the purchase price per share of Stock thereunder.
8. MERGERS, SALES AND CHANGE OF CONTROL
In the case of (i) any merger, consolidation or combination of the
Corporation with or into another corporation (other than a merger, consolidation
or combination in which the Corporation is the continuing corporation and which
does not result in its outstanding Stock being converted into or exchanged for
different securities, cash or other property, or any combination thereof) or a
sale of all or substantially all of the assets of the Corporation or (ii) a
Change in Control (as defined below) of the Corporation, the holder of each
option (including for purposes of this Section any Restoration Option) then
outstanding immediately prior to such Change in Control shall (unless the Board
determines otherwise) have the right to receive on the date or effective date of
such event an amount in exchange for such options equal to the excess of the
Fair Market Value on such date of (a) the securities, cash or other property, or
combination thereof, receivable upon such merger, consolidation or combination
in respect of a share of Stock, in the cases covered by clause (i) above, or in
the case of a sale of assets referred to in such clause (i), a share of Stock,
or (b) the final tender offer price in the case of a tender offer resulting in a
Change in Control or (c) the value of the Stock covered by the option as
determined by the Board, in the case of Change in Control by reason of any other
event, over the exercise price of such option, multiplied by the number of
shares of Stock subject to such option. Unless otherwise determined by the
Board, such amount will be payable fully in cash.
Any determination by the Board made pursuant to this Section 8 will be made
as to all outstanding options and shall be made (a) in cases covered by clause
(i) above, prior to the occurrence of such event, (b) in the event of a tender
or exchange offer, prior to the purchase of any Stock pursuant thereto by the
offeror and (c) in the case of a Change in Control by reason of any other event,
just prior to or as soon as practicable after such Change in Control.
C-3
48
A "Change in Control" shall be deemed to have occurred if (a) any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, shall own beneficially 25% or more of the Stock outstanding, or (b)
if following (i) a tender or exchange offer for voting securities of the
Corporation (other than any such offer made by the Corporation), or (ii) a proxy
contest for the election of directors of the Corporation, the persons who were
directors of the Corporation immediately before the initiation of such event (or
directors who were appointed by such directors) cease to constitute a majority
of the Board of Directors of the Corporation upon the completion of such tender
or exchange offer or proxy contest or within one year after such completion.
9. NO RIGHTS OF SHAREHOLDERS
Neither a Participant nor a Participant's legal representative shall be, or
have any of the rights and privileges of, a shareholder of the Corporation in
respect of any shares purchasable upon the exercise of any option or Restoration
Option, in whole or in part, unless and until certificates for such shares shall
have been issued.
10. PLAN AMENDMENTS
The Plan may be amended by the Board, as it shall deem advisable or to
conform to any change in any law or regulation thereto; provided, that the Board
may not, without the authorization and approval of shareholders: (i) increase
the number of shares which may be purchased pursuant to options or Restoration
Options hereunder, either individually or in the aggregate, except as permitted
by Section 7, (ii) change the requirements of Sections 5(a) and 6(b) that option
grants be priced at Fair Market Value, except as permitted by Section 7, (iii)
modify in any respect the class of individuals who constitute Eligible
Directors; or (iv) materially increase the benefits accruing to Participants
hereunder. The provisions of Sections 3, 5 and 6 may not be amended more often
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules under either such statute.
11. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the day after the Corporation's Annual
Shareholders Meeting at which the Plan is approved by Shareholders. The Plan
shall terminate on the day following the Annual Shareholders Meeting at which
Directors are elected in the year 2001, unless the Plan is extended or
terminated at an earlier date by Shareholders; provided, however, that grants of
Restoration Options pursuant to Section 6 shall continue until the seventh
anniversary of such Annual Shareholders' meeting.
C-4
49
PROXY
THE CHUBB CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE CORPORATION FOR ANNUAL MEETING APRIL 23, 1996
The undersigned shareholder of THE CHUBB CORPORATION (the "Corporation")
acknowledges receipt of the Notice of the Annual Meeting of Shareholders and
Proxy Statement each dated March 12, 1996 and the undersigned revokes all prior
proxies and appoints DEAN R. O'HARE, HENRY G. GULICK and PHILIP J. SEMPIER, and
each of them, proxies for the undersigned to vote all shares of Common Stock of
the Corporation, which the undersigned would be entitled to vote at the Annual
Meeting of Shareholders to be held at 15 Mountain View Road, Warren, New Jersey
at 11:00 a.m. on April 23, 1996 and any adjournment or postponement thereof, on
all matters coming properly before said meeting.
Election of Directors, Nominees:
John C. Beck, James I. Cash, Jr., Percy Chubb, III, Joel J. Cohen,
David H. Hoag, Robert V. Lindsay, Thomas C. MacAvoy,
Gertrude G. Michelson, Dean R. O'Hare, Warren B. Rudman,
Sir David G. Scholey, CBE, Raymond G. H. Seitz, Lawrence M. Small,
and Richard D. Wood.
PLEASE MARK, SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SEE REVERSE SIDE
/ X / PLEASE MARK YOUR VOTES AS THIS EXAMPLE 7668
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4 and 5.
THE BOARD OF DIRECTORS OF THE CHUBB CORPORATION RECOMMENDS A VOTE FOR:
1. Election of Directors (see reverse)
FOR WITHHELD
/ / / /
For, except vote withheld from the following nominee(s):
- ----------------------------------------------------------------------------
2. Approval of Annual Incentive Compensation Plan (1996).
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of Long-Term Stock Incentive Plan (1996).
FOR AGAINST ABSTAIN
/ / / / / /
4. Approval of Stock Option Plan for Non-Employee Directors (1996).
FOR AGAINST ABSTAIN
/ / / / / /
5. Approval of Ernst & Young LLP as the independent auditors of the
Corporation.
FOR AGAINST ABSTAIN
/ / / / / /
SIGNATURE(S)________________________________________________ DATE______________
NOTE: Please sign name exactly as printed hereon. Joint owners should each
sign. When signing as attorney, administrator, executor, guardian or
trustee, please give title as such.