SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Selective Insurance Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
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[SELECTIVE LOGO]
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
973-948-3000
http://www.selective.com
Gregory E. Murphy
Chairman, President
and Chief Executive Office
April 1, 2002
Dear Stockholder of Selective Insurance Group, Inc.:
It is a pleasure to invite you to your Company's 2002 Annual Meeting of
Stockholders to be held on Wednesday, May 8, 2002, at 11:00 a.m. in the
auditorium at the headquarters of the Company at 40 Wantage Avenue, Branchville,
New Jersey. The Annual Report, as well as formal Notice of the Annual Meeting,
together with the Proxy Statement and proxy, are enclosed with this letter.
Whether you own a few or many shares of stock and whether you plan to attend the
meeting in person, it is important that your shares be represented and voted.
Please complete and file your proxy either by mail, electronically or by
telephone as soon as possible.
Your continued support is appreciated. We look forward to seeing you at the
meeting.
Warmest regards,
/s/ Gregory E. Murphy
Gregory E. Murphy
[SELECTIVE LOGO]
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
973-948-3000
http://www.selective.com
NOTICE OF ANNUAL MEETING TO BE HELD
May 8, 2002
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders of Selective Insurance Group, Inc. (the
"Company") will be held on Wednesday, May 8, 2002, at 11:00 a.m. in the
auditorium at the headquarters of the Company at 40 Wantage Avenue, Branchville,
New Jersey, for the following purposes:
1. To elect three directors for a term of three years each.
2. To approve Selective Insurance Stock Option Plan III.
3. To approve the conversion of units previously issued in connection with the
termination of the Directors' Plan to shares of common stock of the
Company.
4. To transact such other and further business, if any, as properly may be
brought before the meeting.
The Board of Directors has fixed the close of business on March 15, 2002, as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting.
Once again, you may choose to vote your shares by using a toll-free telephone
number or the Internet, as described on the proxy card. You may also mark, sign,
date, and mail your proxy in the envelope provided, which requires no postage if
mailed in the United States. We encourage you to complete and file your proxy by
accessing the World Wide Web or by using a touch-tone telephone if these options
are available to you. The method by which you decide to vote will not limit your
right to revoke your proxy or to vote in person at the Annual Meeting should you
later decide to attend the Annual Meeting in person.
By order of the Board of Directors,
/s/ Michele Nieroda Schumacher
Michele Nieroda Schumacher
Assistant Vice President,
Corporate Secretary
and Corporate Counsel
Dated: April 1, 2002
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
April 1, 2002
PROXY STATEMENT
General Matters
This Proxy Statement is furnished in connection with a solicitation of proxies
by the Board of Directors of Selective Insurance Group, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held on Wednesday, May 8, 2002,
at 11:00 a.m. in the auditorium at the headquarters of the Company at 40 Wantage
Avenue, Branchville, New Jersey, and at any adjournment thereof.
The Company has retained Georgeson Shareholder Communications, Inc. for a fee of
$7,500, plus expenses, to aid in solicitation of proxies by mail, telephone, and
personal contact. In addition to solicitation by mail and by certain employees
of the Company (without additional compensation), arrangements have been made
with brokerage houses and other custodians, nominees, and fiduciaries to send
proxy material to their principals. The costs of the solicitation will be borne
by the Company.
On March 15, 2002, which is the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding and entitled to vote 25,781,611 shares of common stock, $2.00 par
value ("Common Stock"). This is the Company's only issued and outstanding class
of voting stock. This Proxy Statement and the accompanying proxy are being
mailed beginning on or about April 1, 2002, to all stockholders of record as of
the record date. Under New Jersey law and the Company's By-Laws, each share of
Common Stock outstanding as of the record date is entitled to one vote at the
Annual Meeting of Stockholders. The presence in person or by proxy of the
holders of a majority of the shares of Common Stock entitled to vote constitutes
a quorum. Under New Jersey law, proxies submitted with votes withheld for the
election of directors, abstentions and broker nonvotes are included in
determining whether a quorum is present. Under New Jersey law, directors are
elected by a plurality of votes cast. Votes withheld for the election of any or
all of the nominees have no impact on the election of directors except to reduce
the number of votes for the nominee(s) for which votes are withheld. Approval of
the Selective Insurance Stock Option Plan III and the conversion of units
previously issued in connection with the termination of the Directors' Plan to
shares requires the affirmative vote of the holders of a majority of the common
stock present or represented at the meeting. Abstentions have the effect of
votes against the approval of the Selective Insurance Stock Option Plan III and
the conversion of units previously issued in connection with the termination of
the Directors' Plan to shares, and broker nonvotes are counted in tabulating the
number of votes with respect to such proposals. Abstentions and broker nonvotes
are not counted in tabulating the number of votes cast on other matters
submitted by the stockholders.
The only persons or groups which were known by the Company as of March 15, 2002
to be the beneficial owners of more than 5% of the Company's outstanding Common
Stock are listed below:
Name and Address of Beneficial Owner Amount of Nature of Beneficial Ownership Percent of Class
Dimensional Fund Advisors, Inc.(1) 1,761,000 6.8%
1299 Ocean Avenue, 11th floor
Santa Monica, CA 90401
Commerce Insurance Company(2) 1,782,500 6.9%
211 Main Street
Webster, MA 01570
Systematic Management L.P.(3) 1,294,659 5.0%
Glen Pointe East, 7th floor
300 Frank W. Burr Blvd.
Teaneck, NJ 07666
(1) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor and a Delaware corporation, filed a Schedule 13G dated December 31,
2001, with the Securities and Exchange Commission. The Schedule 13G states that
Dimensional is a registered investment advisor and furnishes investment advice
to four registered investment companies and that it serves as investment manager
to certain other commingled group trusts and separate accounts; and that in its
capacity as investment advisor or manager that, at December 31, 2001, it had the
power to vote and/or investment power over 1,761,000 shares. The Schedule 13G
also indicates that Dimensional disclaims beneficial ownership of all such
securities.
(2) Commerce Insurance Company, a Massachusetts property and casualty insurance
company, filed a Schedule 13G dated January 24, 2001, with the Securities and
Exchange Commission which states that at December 31, 2000, it had the power to
vote 1,782,500 shares.
(3) Systematic Financial Management L.P., a registered investment adviser and a
New Jersey corporation, filed a Schedule 13G dated December 31, 2001, with the
Securities and Exchange Commission which states that it is a registered
investement adviser and in this capacity at December 31, 2001, it had shared
power to vote and full power to dispose of 1,294,659 shares.
1
As of the date hereof, the Board of Directors knows of no other business that
will be presented for consideration at the meeting, except the matters set forth
in the Notice of Annual Meeting. If any such other business shall properly come
before the meeting, it is intended that votes will be cast, pursuant to proxies
solicited, in respect of any such other business in the discretion of the
persons acting under said proxies. Duly executed proxies that contain no
instructions to the contrary will be voted FOR the election of the three
nominees named herein as directors of the Company, FOR the approval of Selective
Insurance Stock Option Plan III and FOR the approval of the conversion of units
previously issued in connection with the termination of the Directors' Plan to
shares of common stock of the Company.
The Annual Report to Stockholders for the fiscal year ending December 31, 2001,
is being provided to all stockholders of record as of the close of business on
March 15, 2002 together with this Proxy Statement.
HOW TO VOTE
Stockholders of record (that is, stockholders who hold their shares in their own
name) can vote any one of three ways:
(1) By Mail: Sign, date and return your proxy card in the enclosed
postage-paid envelope. If you sign and return your proxy card but do not
give voting instructions, the shares represented by that proxy will be
voted as recommended by the Board of Directors.
(2) By Telephone: Call the toll-free number on your proxy card to vote by
phone. You will need to follow the instructions on your proxy card and the
voice prompts.
(3) By Internet: Go to the web site listed on your proxy card to vote through
the Internet. You will need to follow the instructions on your proxy card
and the web site. If you vote through the Internet, you may incur
telephone and/or Internet access charges from your service providers.
If you vote by telephone or the Internet, your electronic vote authorizes the
named proxies to vote on your behalf in the same manner as if you signed, dated
and returned your proxy card. IF YOU VOTE BY TELEPHONE OR THE INTERNET, YOU DO
NOT NEED TO RETURN YOUR PROXY CARD.
If your shares are held in the name of a bank, broker or other holder of record
(that is, "street name"), you will receive instructions from the holder of
record that you must follow in order for your shares to be voted. Telephone and
Internet voting may be offered to stockholders whose shares are held by banks
and brokers.
CHANGING OR REVOKING YOUR VOTE
You may revoke your proxy by giving proper written notice of revocation to the
Secretary of the Company before your proxy is exercised. You may change your
vote at any time before the proxy is exercised. Any subsequent vote by any means
will change your prior vote. For example, if you voted by telephone, a
subsequent Internet vote will change your vote. The last vote received before
midnight eastern time, May 7, 2002 will be the one counted. You may also change
your vote by voting in person at the annual meeting.
I. ELECTION OF DIRECTORS
(Item 1 on Proxy)
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate"), and the By-Laws provide that the number of directors of the
Company shall not be less than seven nor more than twenty, such number within
the minimum and maximum limitations shall be fixed from time to time by a
resolution approved by a majority of the whole Board of Directors. As provided
in the Certificate, the Board of Directors is divided into three classes, equal
or nearly as equal as possible, so that directors serve staggered three-year
terms.
The Board has nominated Paul D. Bauer, William A. Dolan, II, and Joan M.
Lamm-Tennant for reelection as directors for three-year terms expiring at the
Annual Meeting of Stockholders in 2005. All such persons are currently directors
and were previously elected by stockholders. Dr. William C. Gray, who has been a
director since 1992, will retire as director effective immediately after the
date of the Annual Meeting. The board has reduced the number of directors from
twelve to eleven effective upon Dr. Gray's retirement.
In the event any nominee shall be unable to serve as a director at the time of
the Annual Meeting of Stockholders, which the Board of Directors does not
presently expect, the proxies in favor of such unavailable nominee will be voted
for a consenting nominee selected by the Board of Directors. None of the
nominees for director is related to any executive officer or director of the
Company or another nominee by blood, marriage or adoption.
Directors shall be elected by a plurality of the votes cast.
2
NOMINEES
The following information is set forth with respect to the three nominees for
election as directors at the Annual Meeting of Stockholders to serve three-year
terms expiring at the Annual Meeting of Stockholders in 2005.
Names
of
Directors Positions and Offices in Company and Business Experience
--------- --------------------------------------------------------
Paul D. Bauer Retired; Formerly Executive Vice President and Chief
Age: 58 Financial Officer of Tops Markets, Inc.; Director, R P
Director since: 1998 Adams Co., since 1996; Director, IMC, Inc., 1995 to 2000;
Term to expire: 2005 Vice-Chairman, Catholic Health Systems of Western New
York, since 1998; Chairman of the Board, D'Youville
College; Board Member of the Buffalo Intercity Scholarship
Opportunity Network.
William A. Dolan, II Attorney, Of Counsel to Lucas and Gaus, Esq. since 2001;
Age: 70 Attorney, Of Counsel to Michael C. Gaus, Esq., 1998 to
Director since: 1988 2001; Of Counsel, Kelly, Gaus & Holub, 1994 to 1998;
Term to expire: 2005 Director, since 1982 and Chairman of the Board, 1988 to
1996, High Point Financial Corporation.
Joan M. Lamm-Tennant, Ph.D. Senior Vice President, General Reinsurance Corporation,
Age: 49 since 1996; formerly Professor of Finance, Villanova
Director since: 1993 University, 1988 to 2001; Thomas G. Labreque Endowed Chair
Term to expire: 2005 in Business, Villanova University 1999 to 2001.
CONTINUING DIRECTORS
The following information is set forth with respect to the directors whose terms
of office will continue after the Annual Meeting.
Names
of
Directors Positions and Offices in Company and Business Experience
--------- --------------------------------------------------------
A. David Brown Managing Director, Whitehead Mann East Tower, executive
Age: 59 recruiting, since 1997; Managing Vice President,
Director since: 1996 Korn/Ferry International, executive recruiting, 1994 to
Term to expire: 2003 1997; served in various executive positions with R.H. Macy
& Co., Inc., 1968 to 1994; Director, the Zale Corporation;
Director, The Sports Authority, Inc.
C. Edward Herder, CPCU President, Chester H. Herder & Son, Inc., since 1959;
Age: 66 Chairman, Herder Tarricone Associates, 1994 to 1996,
Director since: 1978 general insurance agencies.
Term to expire: 2004
William M. Kearns, Jr. President, W.M. Kearns & Co., Inc., a private investment
Age: 66 company, since 1994; Vice Chairman, Keefe Managers, Inc.,
Director since: 1975 money management since 1998; Director, Transitor Devices,
Term to expire: 2003 Inc., since 1991; Director, Malibu Entertainment
Worldwide, Inc., since 1995; Senior Advisor to Proudfoot
Consulting, PLC, since 1996; Trustee of EQ Advisors Trust
(Equitable Life Assurance Society of the U.S.), since
1997; Director, Gridley and Company LLC, since 2001,
Executive Vice President, Greater New York Council of Boy
Scouts of America since 1985; Trustee, Morristown Memorial
Health Foundation since 1999; Trustee, Tri-County
Scholarship Foundation since 1982; Member Executive
Advisory Committee, William E. Simon School of Business
Administration, University of Rochester, since 1986.
3
Names
of
Directors Positions and Offices in Company and Business Experience
--------- --------------------------------------------------------
S. Griffin McClellan III Retired, formerly Chairman of Crestmont Federal Savings
Age: 64 and Loan Association.
Director since: 1980
Term to expire: 2003
Gregory E. Murphy Chairman, President and Chief Executive Officer of the
Age: 46 Company, since May 2000; President and Chief Executive
Director since: 1997 Officer of the Company, May 1999 to May 2000; President
Term to expire: 2004 and Chief Operating Officer of the Company, 1997 to May
1999; Senior Vice President and Chief Financial Officer of
the Company, 1995 to 1997; Senior Vice President, Finance
of the Company, 1994 to 1995; Director, Newton Memorial
Hospital Foundation, Inc., since September 1999.
William M. Rue, CPCU President, Chas. E. Rue & Son, Inc. T/A Rue Insurance,
Age: 54 general insurance agency, since 1987; Director, 1st
Director since: 1977 Constitution Bank; Director, Robert Wood Johnson
Term to expire: 2004 University Hospital at Hamilton since 1993; Trustee, Rider
University, since 1993; Director, Robert Wood Johnson
University Hospital Foundation, since 1999.
Thomas D. Sayles, Jr. Retired; Trustee, Drew University, since 1984; Chairman,
Age: 70 The Summit Bancorporation, 1994 to 1996; Chairman and
Director since: 1988 Chief Executive Officer, The Summit Bancorporation, 1974
Term to expire: 2004 to 1994.
J. Brian Thebault Chairman and Chief Executive Officer, L.P. Thebault
Age: 50 Company, graphic communications, since 1998; President and
Director since: 1996 Chief Executive Officer, L.P. Thebault Company, 1985 to
Term to expire: 2003 1998.
4
EXECUTIVE OFFICERS OF THE COMPANY
As of March 15, 2002, the executive officers of the Company were:
Gregory E. Murphy age 46 Chairman, President and Chief Executive
Officer.*
James W. Coleman, Jr. age 43 Executive Vice President, Diversified
Insurance Services, since July 1999; Senior
Vice President, Strategic Business Units,
May 1996 to July 1999; Vice President,
Personal Lines Strategic Business Unit, May
1994 to May 1996.
Richard F. Connell age 56 Executive Vice President and Chief
Information Officer since August 2000; From
1996 to August 2000 Vice President and
Chief Information Officer, Liberty Mutual
Insurance Company.
Kerry A. Guthrie age 44 Vice President and Senior Investment
Officer since February 2002; Vice
President, Investments, December 1987 to
February 2002.
Thornton R. Land age 61 Executive Vice President, Administration,
and General Counsel, since May 1993.
Jamie Ochiltree, III age 49 Executive Vice President, Insurance
Operations, since July 1999; Executive Vice
President, Branch and Field Operations,
1997 to July 1999; Senior Vice President,
Branch and Field Operations, 1994 to 1996.
Dale A. Thatcher age 40 Senior Vice President, Chief Financial
Officer and Treasurer since April 2000;
From May 1989 to April 2000 Chief
Accounting Officer and Assistant
Controller, Ohio Casualty Insurance Group.
Ronald J. Zaleski, Sr. age 47 Senior Vice President and Chief Actuary,
since February 2000; Vice President and
Chief Actuary, September 1999 to February
2000. From June 1998 to September 1999,
Vice President and Chief Actuary, TIG
Insurance Company; From June 1976 to March
1997, Senior Vice President and Chief
Actuary, Zurich Personal Insurance.
All terms of office are for a one-year period.
*See additional information about Mr. Murphy on page 4.
5
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth, as of February 19, 2002, certain information
with respect to shares of Common Stock beneficially owned by (i) each director;
(ii) each of the executive officers named in the Summary Compensation Table
below; and (iii) all of the Company's directors and executive officers as a
group:
Number of Shares
Beneficially Owned Options Total shares
Name (excluding options) Exercisable(1) Beneficially Owned*
- -------------------------------------------------------------------------------------------------------------------------
Paul D. Bauer 9,097 9,000 18,097
- -------------------------------------------------------------------------------------------------------------------------
A. David Brown 8,919 18,000 26,919
- -------------------------------------------------------------------------------------------------------------------------
James W. Coleman, Jr. 48,573 64,513 113,086
- -------------------------------------------------------------------------------------------------------------------------
Richard F. Connell 12,000 12,000 24,000
- -------------------------------------------------------------------------------------------------------------------------
William A. Dolan, II 30,699(2) 18,000 48,699
- -------------------------------------------------------------------------------------------------------------------------
William C. Gray, D.V.M 35,695 30,000 65,695
- -------------------------------------------------------------------------------------------------------------------------
C. Edward Herder, CPCU 74,751(3) 27,000 101,751
- -------------------------------------------------------------------------------------------------------------------------
William M. Kearns, Jr. 65,474 27,000 92,474
- -------------------------------------------------------------------------------------------------------------------------
Joan M. Lamm-Tennant, Ph.D 12,329 24,000 36,329
- -------------------------------------------------------------------------------------------------------------------------
Thornton R. Land 112,060 21,000 133,060
- -------------------------------------------------------------------------------------------------------------------------
S. Griffin McClellan III 19,983(4) 27,000 46,983
- -------------------------------------------------------------------------------------------------------------------------
Gregory E. Murphy 129,186(5) 103,420 232,606
- -------------------------------------------------------------------------------------------------------------------------
Jamie Ochiltree, III 78,632 77,876 156,508
- -------------------------------------------------------------------------------------------------------------------------
William M. Rue, CPCU 267,770(6) 27,000 294,770**
- -------------------------------------------------------------------------------------------------------------------------
Thomas D. Sayles, Jr. 43,743 27,000 70,743
- -------------------------------------------------------------------------------------------------------------------------
J. Brian Thebault 13,141(7) 18,000 31,141
- -------------------------------------------------------------------------------------------------------------------------
All directors and executive officers
as a group (19 persons) 1,008,718 584,359 1,593,077***
- -------------------------------------------------------------------------------------------------------------------------
* The amount of shares beneficially owned by each of the above-named
directors and officers, except Mr. Rue, is less than 1% of the Common Stock
outstanding.
** The total number of shares of beneficially owned by Mr. Rue is equal to
1.1% of the Common Stock outstanding.
*** The total number of shares of Common Stock beneficially owned by the
directors and executive officers as a group represents 6.2% of the Common
Stock outstanding.
(1) Includes shares under options exercisable on February 19, 2002 and options
which become exercisable within 60 days thereafter.
(2) Includes 2,100 shares held by wife of which Mr. Dolan disclaims beneficial
ownership.
(3) Includes the following:
(a) 13,939 shares held by wife.
(b) 4,800 shares held by The Hand Income Trust. Mr. Herder and his wife
are the co-trustees of the Trust and disclaim beneficial ownership of
these shares.
(4) Includes 2,000 shares held by wife of which Mr. McClellan disclaims
beneficial ownership.
(5) Includes 1,333 and 878 shares held in custody for daughter and in custody
for son, respectively.
(6) Includes the following:
(a) 16,292 shares held by Chas. E. Rue & Sons, Inc., a general insurance
agency of which Mr. Rue is President and owner of more than a 5%
equity interest (See page 23 of this statement).
(b) 13,465 shares held by daughter, of which Mr. Rue disclaims beneficial
ownership.
(c) 11,944 shares held by son, of which Mr. Rue disclaims beneficial
ownership.
(d) 12,490 and 12,619 shares held in trust for son and trust for daughter,
respectively.
(e) 990 shares held by wife, of which Mr. Rue disclaims beneficial
ownership.
(f) 36,000 shares held by a trust for the benefit of son and daughter, of
which Mr. Rue is a co-trustee.
(7) Includes 100 shares held in custody for son.
6
COMPENSATION OF DIRECTORS
During 2001, nonemployee directors, consisting of all directors other than Mr.
Murphy, received Directors' fees in accordance with the terms of the Stock
Compensation Plan for Nonemployee Directors (the "Stock Plan"). Under the Stock
Plan, each nonemployee Director receives his or her annual compensation for
services as a Director in (i) shares of Common Stock or (ii) in cash and shares
of Common Stock, at the election of the Director, provided that no more than 50%
of the compensation is paid in cash. The compensation is fixed annually by the
Board of Directors and is paid quarterly on January 1, April 1, July 1 and
October 1 of each year. The number of shares of Common Stock to be issued to
each Director on each payment date is determined by dividing one-fourth of the
amount of compensation to be paid in Common Stock by the fair market value (the
average of the high and low sale price of a share of Common Stock as reported on
the NASDAQ National Market) of a share of Common Stock on such payment date. For
2001 and 2002, the annual compensation was fixed at $38,000.
The directors must elect on or before December 20 of each year whether or not to
receive up to 50% of their annual compensation in cash. Messrs. Gray, Herder and
McClellan and Ms. Lamm-Tennant elected to receive 50% of their compensation for
the year 2001 in cash. In addition, each nonemployee director may also elect on
before December 20 of each year to defer the receipt of their compensation under
the Stock Plan, and any dividends accrued with interest thereon, to a specified
future year, the attainment of age 70 or termination of services as a director.
Messrs. Bauer, Brown, Dolan, Sayles, Thebault and Ms. Lamm-Tennant elected to
defer their 2001 compensation under the Stock Plan. Of the directors who did not
defer their compensation, 792 shares were issued to each of Messrs. Gray, Herder
and McClellan and 1,582 shares were issued to each of Messrs. Kearns and Rue.
Mr. McClellan also received 1,387 shares which he had previously deferred
receipt of during 1996, 1997, and 1998.
The Board of Directors terminated the Directors' Plan (the retirement plan for
directors) on December 31, 1997. In connection therewith, the present value of
the future benefits of each eligible nonemployee director was determined to be
fully vested as of December 31, 1997. The Company converted those benefits into
units, with each such unit having a value equal to the fair market value of a
share of Common Stock on December 31, 1997. Each unit accrues an amount equal to
the dividends declared and paid on a share of Common Stock. Dividends accrued on
units are reinvested in additional units in the same manner as dividends are
reinvested in shares of Common Stock under the Company's dividend reinvestment
plan for stockholders. The value of each unit fluctuates with the value of the
Company's Common Stock. Each participating director will become entitled to
receive the value of his or her units in cash upon termination of his or her
service as a director, either in a lump sum or in installments over 15 years. In
the event of a director's termination of service as a director following a
"change in control" of the Company, (as defined in Board resolutions terminating
the Directors' Plan) the director will be immediately entitled to receive the
value of his or her units in cash, either in a lump sum or in installments over
a period of five years. Any units which are unpaid at the time of the director's
death shall be payable in cash to a surviving spouse or estate, as the case may
be. Retired Directors or their surviving spouses who were receiving benefits
under the Directors' Plan at the time of its termination will continue to
receive benefits in accordance with the terms of the Directors' Plan as in
effect at the time the benefits commenced. The Company is proposing to convert
the units into a fixed number of shares of Common Stock in order to prevent the
fluctuation of the stock price from affecting the Company's financial results.
See Proposal No. III on page 21.
The Company also has a Stock Option Plan for Directors (the "Option Plan") for
nonemployee directors. Under such plan, each eligible director automatically
receives an option to purchase 3,000 shares of Common Stock on March 1 of each
year. Subject to certain adjustments, the maximum number of shares of Common
Stock that may be issued under options granted pursuant to the Option Plan is
850,000, which may be authorized but unissued shares or treasury shares. The
exercise price for each share of Common Stock subject to an option granted is
the fair market value of a share of Common Stock on the date such option is
granted. The exercise price is payable in cash or in Common Stock of the
Company. Any option granted under the Plan becomes exercisable on the first
anniversary of the date it was granted. No option is exercisable after the tenth
anniversary of the grant. Options granted under the plan are nontransferable,
except by will or by laws of descent and distribution. In the event of an
optionee's death or disability, an option may be exercised, in whole or in part,
by the optionee's executor, administrator, guardian, or legal representative in
accordance with the terms of such option. On March 1, 2001, options to purchase
3,000 shares of Common Stock were granted to each eligible director at an
exercise price of $21.656 per share, the fair market value on that date.
7
COMMITTEES OF THE BOARD OF DIRECTORS
Salary & Conflict of
Board Member Audit Directors Employee Benefits Finance Executive Interest
- ------------ ----- --------- ----------------- ------- --------- ----------
Paul D. Bauer X X
- --------------------------------------------------------------------------------------------------------------------------------
A. David Brown X C X
- --------------------------------------------------------------------------------------------------------------------------------
William A. Dolan, II X X
- --------------------------------------------------------------------------------------------------------------------------------
William C. Gray, D.V.M. X X
- --------------------------------------------------------------------------------------------------------------------------------
C. Edward Herder, CPCU X X C
- --------------------------------------------------------------------------------------------------------------------------------
William M. Kearns, Jr. X X
- --------------------------------------------------------------------------------------------------------------------------------
Joan M. Lamm-Tennant, Ph.D X X
- --------------------------------------------------------------------------------------------------------------------------------
S. Griffin McClellan III X C X
- --------------------------------------------------------------------------------------------------------------------------------
Gregory E. Murphy * X C
- --------------------------------------------------------------------------------------------------------------------------------
William M. Rue, CPCU C X X
- --------------------------------------------------------------------------------------------------------------------------------
Thomas D. Sayles, Jr. C X X X
- --------------------------------------------------------------------------------------------------------------------------------
J. Brian Thebault X X
- --------------------------------------------------------------------------------------------------------------------------------
Total meetings held in 2001 4 3 4 4 0 1
Total number of Board meetings during 2001: 4
* Chairman of the Board C= Chairperson X= Member
- --------------------------------------------------------------------------------------------------------------------------------
Audit Committee: Receives and examines the Auditors' Report, meets with the
auditors, and accesses the books and vouchers of the Company, as necessary.
Considers the adequacy of internal controls, confers with the officers of the
Company, and reports to the Board on its findings. See also the Report of the
Audit Committee on page 16.
Committee on Directors: Seeks and reviews qualified candidates for directorships
and makes recommendations to the Board as to nominees for election as directors.
This committee will consider nominees recommended by stockholders for election
as directors at an Annual Meeting of Stockholders but does not solicit such
recommendations. In order to receive consideration, all such recommendations
must be in writing addressed to the Chairman of the Committee on Directors, c/o
the Secretary of the Company, 40 Wantage Avenue, Branchville, New Jersey 07890.
Such recommendations must include a reasonable amount of biographical
information about the person recommended, contain a statement as to why the
stockholder believes such person to be well qualified to serve as a director,
contain the written consent of the proposed nominee to the submission of such
information and such recommendation, and be received by the Corporate Secretary
no later than January 1 preceding the Annual Meeting of Stockholders for which
such person's election is recommended.
Salary and Employee Benefits Committee: Evaluates the performance of certain
officers of the Company and its subsidiaries and makes recommendations to the
Board as to salary adjustments. Continuously evaluates employee benefits and
makes recommendations to the Board in connection with these benefits. Functions
as the Compensation Committee, which administers the Company's stock option
plans, and as the Trustees of the Retirement Savings Plan and the Retirement
Income Plan.
Finance Committee: Establishes overall investment policies and guidelines of the
Company and reviews and approves investments made by the Company.
Conflict of Interest Committee: Responsible for investigating and reporting to
the Board matters that might be considered conflicts of interest under the
Company's Conflict of Interest Policy.
Executive Committee: Meets, as may be required, when the Board of Directors is
not in session and has the right and authority to exercise all the powers of the
Board of Directors on all matters brought before it, except matters concerning
the Company's investments.
ATTENDANCE OF BOARD MEMBERS AT MEETINGS
During 2001, all Board members attended 75% or more of the aggregate number of
meetings of the Board and of the meetings of Committees on which they served.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of Forms 3, 4, and 5 and written representations
submitted to the Company during and with respect to the fiscal year ended
December 31, 2001, all statements of transactions of beneficial ownership
required to be filed by directors and officers of the Company with the
Securities and Exchange Commission were timely filed.
8
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 2001, 2000
and 1999, the compensation, paid or accrued for those years, to the Chairman,
President and Chief Executive Officer, and each of the four most highly
compensated executive officers of the Company who served as executive officers
during fiscal year 2001. (See footnote 1.)
Long-Term Compensation
----------------------
Annual Compensation Awards
-----------------------------------------------------------------------------
Name Other Securities All Other
and Annual Restricted Underlying Compen-
Principal Compen- Stock Options/ sation
Position Year Salary ($)(1) Bonus ($)(2) sation Awards($)(3) SARs (#) ($)(4)
- --------- ----- ------------- ------------- ------ ------------ ---------- ----------
Gregory E. Murphy (5,6) 2001 544,231 66,000 -- 567,188 15,000 12,510
Chairman, President and 2000 471,154 -- -- 229,688 10,000 13,569
Chief Executive Officer 1999 331,731 -- -- 164,250 12,000 11,825
Jamie Ochiltree, III (5,6) 2001 288,077 35,000 -- 158,813 7,000 13,577
Executive Vice President 2000 262,346 -- -- 114,844 7,500 14,649
1999 215,469 -- -- 109,500 -- 13,346
Richard F. Connell (5,6) 2001 263,846 35,000 47,145(7) 90,750 2,000 5,250
Executive Vice President 2000 100,961(8) 50,000 61,025(9) 53,063 5,000 2,019
and Chief Information Officer 1999 -- -- -- -- -- --
James W. Coleman, Jr. (5,6) 2001 257,692 35,000 -- 158,813 7,000 7,455
Executive Vice President 2000 227,923 -- -- 114,844 7,500 7,643
1999 185,185 -- -- 109,500 -- 6,791
Thornton R. Land (5,6) 2001 253,846 25,000 -- 158,813 7,000 5,250
Executive Vice President 2000 238,739 -- -- 91,875 6,000 5,250
and General Counsel 1999 222,938 -- -- 109,500 (10) -- 5,000
FOOTNOTES TO SUMMARY COMPENSATION TABLE
1. The executive officers received cash compensation only from the Company's
subsidiary, Selective Insurance Company of America ("SICA"), which company
also provides the employee benefit plans in which such executive officers
participate.
2. Effective for the fiscal year 1994, the Company adopted a Rewards Program
by which employees may receive a stated percentage of salary as Annual Cash
Incentive Payments if they achieve specified personal goals and the Company
achieves stated corporate performance goals. The amounts for 2001 indicate
the amounts for 2001 awarded to Messrs. Murphy, Ochiltree, Connell,
Coleman, and Land. There were no Annual Cash Incentive Payments made for
1999 and 2000. See the "Report of the Company's Salary and Employee
Benefits Committee" set forth in this Proxy Statement. The amount for 2000
for Mr. Connell indicates the amount paid to him as a condition of
accepting employment with the Company.
3. The aggregate value of restricted stock awards at the end of 2001 was
$1,282,070 for Mr. Murphy, $619,305 for Mr. Ochiltree, $152,110 for Mr.
Connell, $619,305 for Mr. Coleman, and $282,490 for Mr. Land, excluding
Phantom Stock awards granted to Mr. Land. See footnote 10 below. At the end
of 2001, the aggregate number of restricted shares held by Mr. Murphy,
59,000; by Mr. Ochiltree, 28,500; by Mr. Connell, 7,000; by Mr. Coleman,
28,500; and by Mr. Land 13,000. The restricted stock awards were made under
the Company's Stock Option Plan II under which such shares and accrued
dividends vest after four years from the date of grant depending upon the
achievement of predetermined performance goals. The value of the restricted
stock awards shown in this footnote is based on the closing market price
per share of Common Stock on December 31, 2001 of $21.73. The values set
forth in the table for Messrs. Murphy, Ochiltree, Coleman, and Land are
based on the closing price on the date of each of the grants, which were
$18.25, $15.3125 and $22.6875 on February 2, 1999, February 3, 2000, and
February 6, 2001, respectively. The values set forth in the table for Mr.
Connell are based on the closing price on the date of each of the grants,
which were $17.6875 and $22.6875 on August 8, 2000 and February 6, 2001,
respectively.
4. The amounts in "All Other Compensation" include Company contributions under
the Company's Retirement Savings Plan for the fiscal years ended December
31, 2001, December 31, 2000 and December 31, 1999. This Plan is a defined
contribution plan available to substantially all employees. Company
contributions are 30% vested after two years of service and become 100%
vested after six years of service. The Company contributions reflected in
the table above for 2001 are $5,250 for Messrs. Murphy, Ochiltree, Connell,
Coleman, and Land. In addition, for Messrs. Murphy, Ochiltree, and Coleman
the amounts for 2001 in the "All Other Compensation" column also include
$7,260, $8,327, and $2,205 respectively, representing the difference
between the market rate of interest and the actual rate of interest on
indebtedness of such executive officer to the Company. For additional
information relating to such indebtedness, see "Interest of Management and
Others in Certain Transactions" set forth in this Proxy Statement.
9
5. Messrs. Murphy, Ochiltree, Connell, Coleman and Land, have termination
agreements with SICA pursuant to which payments will be made under certain
circumstances following a Change in Control of the Company, as defined in
the agreements. The agreement for Mr. Murphy is automatically renewable for
successive one-year terms each August unless prior written notice of
nonrenewal is given. Mr. Ochiltree's agreement is automatically renewable
for successive one-year terms each October unless prior written notice of
nonrenewal is given. Mr. Connell's agreement is effective August 8, 2000
through August 8, 2003, and is thereafter automatically renewable for
successive one-year terms each August unless prior written notice of
nonrenewal is given. Mr. Coleman's agreement is automatically renewable for
successive one-year terms each May unless prior written notice of
nonrenewal is given. The agreement for Mr. Land is automatically renewable
for successive one-year terms each September unless prior written notice of
nonrenewal is given. Each agreement provides that, in the event of a Change
in Control of the Company, SICA shall continue to employ the executive
officer in the capacities in which he was serving immediately prior to the
Change in Control for a period of three years, commencing on the date on
which the Change in Control shall have occurred, which term will be
automatically renewed for successive one-year periods unless prior written
notice is given. Each agreement provides that if the executive officer's
employment is terminated (as defined in the agreement) after a Change in
Control occurs, other than (i) due to the executive officer's death or
retirement, (ii) by SICA for Cause or Disability, or (iii) by the executive
officer other than for Good Reason (as such foregoing capitalized terms are
defined in the agreement), the executive officer will be entitled to
receive earned but unpaid base salary through the date of termination, as
well as any incentive compensation benefits or awards that have been
accrued, earned, or become payable but which have not been paid, and as
severance pay in lieu of any further salary for periods subsequent to the
date of termination, an amount in cash equal to his "annualized includible
compensation for the base period" (as defined in Section 280G(d)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"), multiplied by a
factor of 2.99, provided that if any of the payments or benefits provided
for in the agreement, together with any other payments or benefits that the
executive officer has the right to receive would constitute a "parachute
payment" (as defined in Section 280G(b) of the Code), the Company shall pay
to the executive officer on a net after-tax basis the greater of (1) the
payments and benefits due to the executive officer reduced in order of
priority and amount as executive officer shall elect, to the largest amount
as will result in no portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code or (2) payments and benefits due to
the executive officer, plus an amount in cash equal to (x) the amount of
such "excess parachute payments" multiplied by (y) twenty (20%) percent.
The Company has guaranteed SICA's performance of all its obligations under
the termination agreements.
6. Under an employment agreement with SICA effective August 1, 1995, amended
May 1, 1998, May 2, 2000, and August 1, 2001 and in effect through August
1, 2004, Mr. Murphy receives an annual base salary of not less than
$550,000 through August 1, 2004. Under an employment agreement with SICA
effective October 31, 1995, amended October 31, 1998, May 2, 2000 and
October 31,2001, and in effect through October 31, 2004, Mr. Ochiltree
receives an annual base salary of not less than $290,000 through October
31, 2004. Under an employment agreement with SICA effective August 8, 2000,
through August 8, 2003, Mr. Connell receives an annual base salary of not
less than $250,000 through August 8, 2003. Under an employment agreement
with SICA dated May 2, 1997, amended May 2, 2000, and in effect through May
2, 2003, Mr. Coleman receives an annual base salary of not less than
$230,000 through May 2, 2003. Under an employment agreement with SICA
effective September 1, 1993, amended January 31, 1994, June 6, 1994,
September 1, 1999 and September 1, 2001 and in effect through September 1,
2004, Mr. Land receives an annual base salary of not less than $255,000
through September 1, 2004.
7. Mr. Connell received this amount for the tax gross up for relocation
expenses reimbursed in 2000, and included in his taxable income for 2000.
8. This amount represents Mr. Connell's compensation from August 7, 2000,
which is the date he commenced employment with the Company, through the end
of 2000.
9. Mr. Connell received this amount from the Company for relocation expenses.
10. Mr. Land was granted 6,000 units of Phantom Stock on February 2, 1999 in
lieu of a grant of restricted stock. The Phantom Stock Units are valued
with reference to the fair market value of Selective Common Stock and
accrue amounts equivalent to dividends which are converted into Phantom
Stock Units based on the fair market value of Selective Common Stock on the
applicable dividend reinvestment dates. The accumulated value of the
Phantom Stock Units will be paid to Mr. Land in cash upon retirement, based
on the value of Selective's Common Stock on the last day of his employment.
The value of Phantom Stock Units set forth in the table on page 9 is based
on the closing market price per share of Common Stock on February 2, 1999
of $18.25.
10
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock options
and tandem stock appreciation rights ("SARs") under the Company's Stock Option
Plan II ("Plan") to the Chairman, President and Chief Executive Officer, and
each of the other executive officers named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
Individual Grants Grant Date Value
- ---------------------------------------------------------------------------------------------------- -------------------
Number of % of
Securities Total Options/
Underlying SARs Granted Exercise
Options/SARs to Employees or Base Grant Date
Name Granted(1)(#) in Fiscal Year Price ($/Sh)(2) Expiration Date Present Value($)(3)
- ---- ------------- -------------- --------------- --------------- -------------------
Gregory E. Murphy 15,000 9.70 22.375 02/06/11 91,427
Jamie Ochiltree, III 7,000 4.53 22.375 02/06/11 42,666
Richard F. Connell 2,000 1.29 22.375 02/06/11 12,190
James W. Coleman, Jr. 7,000 4.53 22.375 02/06/11 42,666
Thornton R. Land 7,000 4.53 22.375 02/06/11 42,666
1. The Plan permits the granting of options to all employees and permits the
granting of SARs in tandem with any or all stock options. If a SAR is
exercised, the employee must surrender the related stock option or portion
thereof. Upon exercise of a SAR, payment will be made by the Company in
stock, cash, or some combination thereof, as a committee appointed by the
Board of Directors shall determine at the time of exercise. None of the
options granted to the named executive officers in 2001 has SARs attached.
Under the terms of the Plan, options or any related SARs, may be granted at
no less than fair market value as of the date of grant. They must be
exercised within ten years from the date of grant. In the event of any
change in the number of outstanding shares of the Common Stock of the
Company as a result of a stock dividend, stock split, or other
readjustments, the committee appointed by the Board of Directors shall make
an appropriate adjustment in the aggregate number of shares which may be
subject to stock options granted under the Plan and in the number of shares
subject to and the option price of each then outstanding option.
2. The options set forth in the table above were granted on February 6, 2001
at an exercise price equal to the fair market value of a share of Common
Stock at such date and were immediately exercisable.
3. The Black-Scholes option pricing method has been used to calculate the
present value as of the date of grant and it is not intended to forecast
appreciation, if any, of the Company's stock price. The present value as of
the date of the grant, calculated using the Black-Scholes method, is based
on assumptions about future interest rates, expected life of the options,
dividend yield and stock price volatility. The risk free interest rate is
based on a zero coupon US Government Issue with the same terms and issue
date as the specified option grant. The volatility is based on an estimate
of the future price variability of Selective Insurance Group, Inc. (SIGI)
stock for a term commensurate with the expected life of the option. There
is no assurance that these assumptions will prove to be true in the future.
Listed below are the various assumptions that were made with regard to the
grants:
------------------------------------------
Exercise Price $22.375
------------------------------------------
Risk Free Interest Rate 5.1%
------------------------------------------
Expected Life of Option 7 Years
------------------------------------------
Dividend Yield 2.5%
------------------------------------------
Expected Volatility 24%
------------------------------------------
11
OPTION AND SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Chairman,
President and Chief Executive Officer, and each of the other executive officers
named in the Summary Compensation Table concerning the exercise of options
and/or SARs during the last fiscal year and unexercised options and SARs held as
of the end of the last fiscal year:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Value of
Number of Unexercised
Securities Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at at Fiscal
Fiscal Year-End (#) Year-End ($)*;
* * * * * * * * * * * * * * * * * *
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value realized ($) Unexercisable Unexercisable
- ---- --------------- ------------------ ------------- -------------
Gregory E. Murphy 11,780 $167,070 93,420/ 341,810/
0 0
Jamie Ochiltree, III -- -- 72,876/ 288,077/
0 0
Richard F. Connell -- -- 7,000/ 20,055/
0 0
James W. Coleman, Jr. 6,787 $95,535 59,513/ 212,359/
0 0
Thornton R. Land 113,076 $976,993 18,000/ 39,252/
0 0
* The value of unexercised in-the-money options is based on the closing market
price per share of Common Stock on December 31, 2001 of $21.73, less the option
exercise price per share.
12
PENSION PLANS
The following table illustrates annual pension benefits, including supplemental
benefits, at normal retirement (age 65) for various years of credited service in
the form of a single life annuity and prior to any offset for Social Security
benefits. As of December 31, 2001 the Chairman, President and Chief Executive
Officer and the other executive officers named in the Summary Compensation Table
had the following credited years of service under the pension plans: Mr. Murphy,
20 years; Mr. Connell, no credited service; Mr. Coleman, 18 years; Mr. Land, 15
years; and Mr. Ochiltree, 6 years.
PENSION PLAN TABLE(1)
Years of Service
Remuneration 5 15 20 25 30 35
- ------------ -----------------------------------------------------------------------
125,000 12,500 37,500 50,000 62,500 75,000 87,500
150,000 15,000 45,000 60,000 75,000 90,000 105,000
175,000 17,500 52,500 70,000 87,500 105,000 122,500
200,000 20,000 60,000 80,000 100,000 120,000 140,000
225,000 22,500 67,500 90,000 112,500 135,000 157,500
250,000 25,000 75,000 100,000 125,000 150,000 175,000
300,000 30,000 90,000 120,000 150,000 180,000 210,000
400,000 40,000 120,000 160,000 200,000 240,000 280,000
450,000 45,000 135,000 180,000 225,000 270,000 315,000
500,000 50,000 150,000 200,000 250,000 300,000 350,000
1.The Company maintains a noncontributory Retirement Income Plan integrated with
Social Security benefits. This pension plan covers substantially all employees,
including officers. Compensation covered under the plan consists only of basic
wages and salaries, not including overtime and bonuses, i.e. only the "Salary"
column of the Summary Compensation Table. Monthly plan benefits are computed at
the rate of 2% of average monthly compensation for the 60 months out of the most
recent 120 months of employment for which the employee's compensation is the
highest multiplied by the number of years of credited service, less an offset
for Social Security benefits, calculated as 1 3/7% of the participant's Social
Security income in effect on January 1 of the year of retirement multiplied by
the number of years of credited service. If the employee is married, the normal
form of benefit is a joint and survivor annuity for the employee and spouse. If
the employee elects against such annuity with the spouse's consent, a single
life annuity may be paid. The Company has a nonqualified supplemental pension
plan to provide benefits that would have been paid by the qualified plan, but
for the limitations imposed by the Internal Revenue Code on the maximum benefits
payable and the compensation upon which qualified plan benefits may be
calculated.
13
REPORT OF THE SELECTIVE INSURANCE GROUP, INC.
SALARY AND EMPLOYEE BENEFITS COMMITTEE
The Salary and Employee Benefits Committee (the "Committee") of the Board of
Directors is responsible for setting the executive compensation policies of the
Company and evaluating the level of compensation of the executive officers of
the Company and its subsidiaries relative to the position and performance of the
executive officers. The Committee's decisions on executive compensation are
subject to the approval of the Board of Directors, except for grants under
certain of the Company's employee benefit plans, which are made solely by the
Committee in order for such plans to satisfy the administration requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, and Section 162(m) of the
Internal Revenue Code. The Committee consists of Messrs. Brown (Chairman),
Dolan, Herder and McClellan, all of whom are nonemployee directors, within the
meaning of Rule 16b-3 and "outside directors" within the meaning of Section
162(m). For purposes of this report, the term "Company" means Selective
Insurance Group, Inc. and its subsidiaries unless the context otherwise
requires.
The Committee's executive compensation policies are intended to enable the
Company to attract and retain qualified executives by combining a base salary
component with annual bonus and long-term incentive components. The levels of
annual total compensation for executive officers (including the executive
officers named in the foregoing tables) are generally intended to be comparable
to the levels of annual total compensation paid to executives with comparable
responsibilities in a group of other companies in the insurance industry,
identified by the Company using external surveys as being similar in size and
scope to the Company, while providing for annual and long-term incentives which
are subject to the achievement of performance-related goals. This comparison
group of companies in the insurance industry is smaller and more diverse than
the group comprising the Company's peer group for purposes of the performance
graph set forth on page 17 in this Proxy Statement.
After determining the level of compensation for each executive officer as
compared with his or her counterparts in the identified industry group, the
Committee weighs the executive officer's performance and level of responsibility
and considers such executive officer's contribution to the financial and other
goals of the Company. These goals are established in advance and may relate to
the executive officer's performance, the Company's performance, or both. Among
the criteria used in determining base salaries are: (i) the Company's financial
performance compared to its performance in the prior year, including the
Company's combined ratio (both overall and by lines of insurance), return on
equity, results of operations and overall financial condition; (ii) the
managerial ability of such executive officer as evaluated by the Committee,
taking into account the evaluation of such person by the Chief Executive
Officer; and (iii) such officer's ability to develop personnel within the areas
of his or her responsibility for the future operation of the Company. These
criteria are the more significant factors used by the Committee in reaching its
decisions on executive compensation. As a result of the individual evaluations,
for any particular year the compensation level of each executive officer may be
higher or lower than that of comparable executives in the comparison group and
may vary each year depending upon the achievement of the individual.
The Committee meets a minimum of four times a year. Changes in the base salary
component of executive compensation do not necessarily occur annually, but may
occur after a longer period of time.
In addition to the base salary component of executive officers' compensation,
cash payments under the Company's Annual Cash Incentive Plan (the "ACIP Plan")
may be earned. Prior to 2001, the ACIP Plan required specific
performance-related goals be established for all employees, including each
executive officer, at the beginning of the fiscal year after discussions between
such executive officer and the Chief Executive Officer (and with respect to the
Chief Executive Officer between the Chief Executive Officer and the Committee)
to determine the nature and extent of such goals. These individual goals related
to specific business, departmental or management objectives that support
specific corporate goals established for the fiscal year. If both individual and
corporate goals were achieved for the year, the executive officer could earn the
percentage of salary specified in the ACIP Plan for such officer's position as
an annual incentive. In 2001, the ACIP Plan was revised, to make the payment of
individual incentive cash awards subject to two separate and distinct criteria
related to the Company's performance as established by the Committee at the
beginning of the year. First, if the Company met certain predetermined strategic
initiatives which were related to profitable premium growth, introduction of new
technology, and the expansion of business growth opportunities of the Company's
DIS businesses through the integration of the core insurance products and
diversified insurance services, then the executive officers could earn a portion
of his target incentive percentage as specified in the ACIP Plan. Second, if the
Company also achieved financial targets related to operating income and combined
ratio, then such executive officer could earn an additional portion of his
target incentive percentage as specified in the ACIP Plan.
In February 2002, the Committee reviewed each executive officer's performance
evaluation, the recommendations of the Chief Executive Officer as to the
executive's achievement and the Company's achievement of the strategic
initiatives and financial targets for 2001 using the criteria described above.
Based upon the Company's performance for 2001 and the ACIP Plan percentage
guidelines, the Committee determined that the Company did not achieve the
financial targets, but did achieve the strategic initiatives, and that a portion
of annual cash incentives attributable to the achievement of such initiatives
would be awarded to the Company's employees, including executive
14
REPORT OF THE SELECTIVE INSURANCE GROUP, INC.
SALARY AND EMPLOYEE BENEFITS COMMITTEE (continued)
officers for the year ended December 31, 2001, in accordance with the ACIP Plan.
The two forms of long-term incentive compensation for executive officers are
stock options (with or without tandem stock appreciation rights) and stock
grants under the Company's Stock Option Plan II (the "Plan"). The Committee
believes that stock ownership by management encourages management to enhance
stockholder value. Under the current plan, stock options (with or without tandem
stock appreciation rights) granted to executive officers and other employees
give optionees the right to purchase shares of the Company's Common Stock over a
ten-year period at the fair market value per share on the date of grant.
Generally, the Committee grants options to executive officers based on
individual merit, taking into account, among other things, the performance
evaluations of such executive officers by the Chief Executive Officer. The
number of options granted at any given time is also determined, in part, by the
executive officer's level of responsibility (i.e., more options are given to
employees and executives in positions of greater responsibility), and the date
of the last option grant to such person. In recent years, the Company has
generally granted options on an annual basis, but options are not necessarily
granted annually to each executive officer. Grants of stock also provide
incentive to the executive officers to enhance stockholder value. Under the
Plan, the Committee, in its discretion, may make restricted or unrestricted
grants of Common Stock, or grant rights to receive Common Stock, to executive
officers and other employees, in addition to or in substitution for options or
stock appreciation rights. Grants made to executive officers are subject to the
attainment of one or more performance-related objectives and other terms and
conditions as may be determined by the Committee in its discretion. In 2001,
grants of restricted stock under the Plan were made to all executive officers.
All restricted stock grants to executive officers are subject to a four-year
vesting period and the attainment of various predetermined corporate financial
goals, such as return on equity or cumulative earnings, during the vesting
period.
On February 6, 2001, the Committee granted Mr. Murphy 25,000 restricted shares
of the Company's Common Stock under Stock Option Plan II. The shares vest four
years after the grant and are subject to the achievement of predetermined
corporate performance goals, including fiscal year return on average equity,
during the vesting period. On the same date, the Committee granted Mr. Murphy a
non-qualified stock option to purchase 10,531 shares of the Company's common
stock at an exercise price of $22.375 per share, and an incentive stock option
to purchase 4,469 shares of the Company's common stock at an exercise price of
$22.375 per share, which was the fair market value on the date of the grant.
The Company intends, to the extent practicable, to preserve deductibility under
the Internal Revenue Code for compensation paid to its executive officers while
maintaining compensation programs to attract and retain highly qualified
executives in a competitive environment.
The Committee's basis for determining the compensation of the Chief Executive
Officer is substantially the same as those referred to above with respect to the
Company's other executive officers. The Committee seeks to maintain the base
salary of the Chief Executive Officer at a level competitive with the mid-range
of the base salaries of the chief executive officers of other insurance
companies in the Company's identified comparison group, but Mr. Murphy's base
salary for 2001 was affected by his performance in the prior year and the
Company's performance in the prior year, as compared to the peer group as
described on page 17. Mr. Murphy is also eligible to participate in the same
employee benefit plans available to the other executive officers of the Company.
No Compensation Committee interlocks or insider participation in compensation
decisions occurred during the fiscal year ended December 31, 2001.
Submitted by the Salary and Employee Benefits Committee of the Company's Board
of Directors: A. David Brown (Chairman), William A. Dolan, II, C. Edward Herder
and S. Griffin McClellan III.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2001, the Salary and Employee Benefits Committee was composed of A. David
Brown, William A. Dolan, II, C. Edward Herder, and S. Griffin McClellan III.
None of these individuals were employed as officers or employees of the Company.
No executive officer of the Company served on the compensation committee of
another entity or as a director of another entity, one of whose executive
officers served on the Salary and Employee Benefits Committee.
15
REPORT OF THE SELECTIVE INSURANCE GROUP, INC.
AUDIT COMMITTEE
The Audit Committee (the "Committee") is comprised of four independent directors
and acts under a written charter adopted by the Board of Directors. The members
of the Committee are Messrs. Sayles (Chairman), Bauer and Dolan and Ms.
Lamm-Tennant, each of whom is independent as defined by the National Association
of Securities Dealers, Inc. independent director and audit committee listing
standards.
Management has primary responsibility for the Company's internal controls and
the financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America and to issue a report thereon. The Audit Committee
oversees the Company's financial reporting process on behalf of the Board of
Directors.
In fulfilling its responsibilities, the Committee has met and held discussions
with management and the independent auditors. Management represented to the
Committee that the Company's consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States of
America, and the Committee has reviewed and discussed the consolidated financial
statements with management and the independent auditors. The Committee discussed
with the independent auditors matters required to be discussed by the Statement
on Auditing Standards No. 61 (Communication with Audit Committees).
In addition, the Committee has also received and reviewed the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and have discussed with the independent auditors their
independence.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited consolidated financial statements be included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, filed with the
Securities and Exchange Commission.
Submitted by the Audit Committee of the Company's Board of Directors: Thomas D.
Sayles, Jr. (Chairman), Paul D. Bauer, William A. Dolan, II and Joan M.
Lamm-Tennant
AUDIT FEES
The following table shows the aggregate fees billed to the Company for the year
ended December 31, 2001, by the Company's independent auditors, KPMG LLP:
Audit Fees,
excluding audit related $ 345,000
Financial information systems
design and implementation fees none
All other fees:
Audit related (1) $ 50,000
Other non audit fees (2) $ 33,000
---------
Total all other fees $ 83,000
(1) Audit related fees consisted primarily of audits on the
financial statements of the Company's insurance subsidiaries
and certain employee benefit plans.
(2) Other non-audit fees consisted of an actuarial reserve review.
The Audit Committee has considered whether the provision of these services is
compatible with maintaining the principal auditor's independence.
16
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The following graph demonstrates a five-year comparison of cumulative total
returns for the Company, the Nasdaq Stock Market (U.S. companies), and the Fire,
Marine and Casualty insurers (Nasdaq Market).
[GRAPHIC OMITTED]
[LINE GRAPH]
Company Market Peer
Date Index Index Index
---- ------------ -------- -----------
12/31/1996 100.000 100.000 100.000
01/31/1997 107.895 107.094 98.662
02/28/1997 111.263 101.168 104.887
03/31/1997 109.939 94.570 102.903
04/30/1997 106.627 97.518 103.372
05/30/1997 117.972 108.561 112.050
06/30/1997 129.136 111.899 118.829
07/31/1997 141.966 123.689 124.030
08/29/1997 131.989 123.505 124.233
09/30/1997 138.019 130.824 131.287
10/31/1997 145.054 124.008 130.525
11/28/1997 135.688 124.663 135.437
12/31/1997 145.452 122.477 151.880
01/30/1998 140.065 126.359 147.726
02/27/1998 148.572 138.232 155.095
03/31/1998 145.526 143.342 155.709
04/30/1998 148.911 145.766 152.617
05/29/1998 143.563 137.668 147.168
06/30/1998 121.960 147.283 138.639
07/31/1998 105.461 145.558 132.734
08/31/1998 97.494 116.697 120.446
09/30/1998 104.862 132.887 119.115
10/30/1998 100.407 138.725 127.595
11/30/1998 104.175 152.826 130.084
12/31/1998 111.074 172.681 129.561
01/29/1999 100.726 197.743 118.760
02/26/1999 101.322 180.035 121.426
03/31/1999 98.020 193.655 120.818
04/30/1999 107.752 199.893 125.432
05/28/1999 105.759 194.354 131.400
06/30/1999 106.809 211.833 127.475
07/30/1999 110.662 208.014 120.715
08/31/1999 100.612 216.809 117.040
09/30/1999 106.614 217.106 106.985
10/29/1999 105.554 234.509 106.384
11/30/1999 99.688 263.036 98.954
12/31/1999 97.908 320.894 97.487
01/31/2000 85.803 309.045 91.140
02/29/2000 88.819 367.842 88.573
03/31/2000 98.168 360.251 106.379
04/28/2000 108.956 303.006 103.106
05/31/2000 106.919 266.454 103.265
06/30/2000 110.181 313.241 89.756
07/31/2000 106.919 296.262 98.552
08/31/2000 104.896 331.282 104.257
09/29/2000 104.530 288.245 103.977
10/31/2000 100.875 264.572 104.938
11/30/2000 118.568 203.838 110.580
12/29/2000 142.870 193.012 126.598
01/31/2001 129.982 216.423 112.691
02/28/2001 128.940 167.556 111.837
03/30/2001 137.740 144.076 116.909
04/30/2001 146.132 165.571 118.046
05/31/2001 149.154 165.371 125.128
06/29/2001 159.178 169.811 128.215
07/31/2001 158.104 159.009 130.060
08/31/2001 150.743 141.685 127.251
09/28/2001 140.001 117.812 128.009
10/31/2001 128.900 132.925 125.221
11/30/2001 140.264 151.849 129.913
12/31/2001 131.264 153.153 130.303
- -----------------------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
- ------ ----------------------------- ------- ------- ------- ------- ------- -------
- ----------- Selective Insurance Group, Inc. 100.0 145.5 111.1 97.9 142.9 131.3
- -- -- -- -- Nasdaq Stock Market (US Companies) 100.0 122.5 172.7 320.9 193.0 153.2
- - - - - - - NASDAQ Stocks (SIC 6330-6339 US Companies) 100.0 151.9 129.6 97.5 126.6 130.3
Fire, Marine, and Casualty Insurance
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/21/1996.
- -----------------------------------------------------------------------------------------------------------------------------------
1. The graph was prepared by the Center for Research in Security Prices
("CRSP"). The NASDAQ Stock Market index includes all U.S. Companies in
NASDAQ and the published industry index includes 68 NASDAQ Company stocks
in SIC Major Group 633 (SIC 6330-6339 U.S. fire, marine and casualty
insurance). A complete list of these companies may be obtained from CRSP at
the University of Chicago Graduate School of Business, 725 South Wells
Street, Suite 800, Chicago, Illinois, 60637; (773) 834-4606. CRSP reweights
the indices daily, using the market capitalization on the previous trading
day.
17
II. APPROVAL OF SELECTIVE INSURANCE STOCK OPTION PLAN III
(Item 2 On Proxy)
The Board of Directors proposes and recommends that stockholders approve the
Selective Insurance Stock Option Plan III (the "Plan"), which provides for the
granting of incentive stock options ("ISOs"), as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options ("NQSOs"), stock appreciation rights, and restricted stock to employees
of the Company.
On February 5, 2002, the Board of Directors adopted the Plan, subject to
stockholder approval. The purpose of the Plan is to assist the Company and any
subsidiary (as such terms are defined in the Plan, each of which is hereinafter
referred to as a "Related Corporation") in attracting and retaining capable
officers and other employees, and to motivate them to exercise their best
efforts on behalf of the Company. The Plan is intended to replace the Selective
Insurance Stock Option Plan II (the "Prior Plan") which expires on September 1,
2002. If the Plan is approved by stockholders, no further awards will be made
under the Prior Plan.
Description of the Plan
The following is a summary of the Plan. The summary is qualified in its entirety
by reference to the Plan, a copy of which is attached as Exhibit A to this Proxy
Statement. Stockholders may also obtain a copy of the Plan by submitting a
written request to the Corporate Secretary, Selective Insurance Group, Inc., 40
Wantage Avenue, Branchville, New Jersey, 07890.
Shares Subject to the Plan. The Plan authorizes for issuance an aggregate of
2,000,000 shares of Common Stock, subject to adjustments to reflect any stock
splits, stock dividends, share combinations or similar changes in the capital
stock of the Company. This authorization includes 551,872 shares of Common Stock
which are presently available for future grants under the Prior Plan. If any
award under the Plan that requires the participant to exercise it in order for
shares to be delivered expires or terminates without having been exercised in
full, or if any shares awarded under the Plan are forfeited or cancelled, or if
any award is satisfied in cash rather than in shares, the number of shares as to
which such award was not exercised or was forfeited or cancelled or for which
cash was substituted will again become available for future awards granted under
the Plan. Shares issuable under the Plan may be authorized but unissued shares
or reacquired shares, and the Company may purchase shares for this purpose.
Shares subject to awards which have already been granted under the Prior Plan
and which are terminated, forfeited, cancelled or settled in cash will not
become available for grant under the Plan.
The market value of a share of Common Stock as of March 15, 2002, as reflected
by the closing price of the Common Stock on Nasdaq National Market, was $24.68.
Administration. The Plan will be administered by the Salary and Employee
Benefits Committee (the "Committee") of the Board of Directors consisting of not
fewer than two nonemployee, outside directors appointed by the Company's Board
of Directors. The Committee members will have full authority and discretion,
subject to the terms of the Plan, to select participants, determine the number,
terms and conditions of awards, and administer the Plan. All employees,
including directors who are employees, are eligible to receive awards under the
Plan. There are approximately 2,400 persons eligible to receive awards. No
member of the Committee is eligible to participate in the Plan while serving on
the Committee. In any calendar year, the number of shares of Common Stock
represented by stock options (together with stock appreciation rights) granted
to any one participant may not exceed 40,000 and the number of shares
represented by restricted stock awards granted to any one participant may not
exceed 40,000. Grants of awards are at the discreton of the Committee and, thus,
the amount of such awards, if any, are presently not determinable. To date, no
awards have been granted under the Plan.
Terms and Conditions of Awards
Nonqualified Stock Options. NQSOs may be granted for terms of not more than 10
years at an exercise price per share not less than the fair market value of the
underlying shares of Common Stock on the date of grant. NQSOs are exercisable in
such installments as the Committee may determine. The Committee may accelerate
the exercise date of NQSOs in the event of certain corporate transactions (see
"Adjustments upon Mergers and Other Events" below). Any NQSO held by a
participant who dies or is disabled while employed by the Company or a Related
Corporation or whose employment with the Company and all Related Corporations is
terminated prior to the expiration date of such option will remain exercisable
by the participant, or his personal representative, for a period of time
following the termination of employment or death or disability, as provided in
the Plan and the applicable option agreement. The purchase price of the shares
as to which an option is exercised is payable upon the exercise of the option:
(i) in cash (or its equivalent), (ii) by delivering irrevocable instructions to
a broker to deliver to the Company the amount of sale proceeds necessary to pay
the exercise price, (iii) in shares of Common Stock already owned; or (iv) in
any combination of the above.
Incentive Stock Options. ISOs are subject to the same terms and conditions under
the Plan as are described above for NQSOs. Such options have some additional
terms and conditions required by the Code. Under the Plan: (i) the exercise
price per share of ISOs which
18
are granted to a person who owns more than 10% of the voting stock of the
Company, must be not less than 110% of the fair market value of the underlying
shares on the date of the grant; (ii) the term of ISOs cannot be more than five
years for any participant who owns more than 10% of the voting stock of the
Company, (iii) the aggregate fair market value (determined at the time the
option is granted) of the shares of Common Stock with respect to which ISOs are
exercisable for the first time by any participant during any calendar year
(under the Plan and under any other plan of the Company or a Related
Corporation) may not exceed $100,000; and (iv) ISOs are not assignable or
transferable by a participant other than by will or the laws of descent and
distribution. There are also certain other requirements, such as specified
holding periods for shares of common stock received upon exercise of an ISO and
limitations on exercisability following termination of employment, which must be
satisfied in order for an option to remain an ISO under the Code.
Stock Appreciation Rights. A stock appreciation right is the right to receive,
upon exercise, the increase in the fair market value of a specified number of
shares of Common Stock from the date of grant to the date of exercise. The
payment upon exercise of a stock appreciation right shall be made in cash,
shares of Common Stock, or a combination of both, as determined by the
Committee. Stock appreciation rights may be granted in tandem with stock options
(in which case the exercise of the related stock option or stock appreciation
right will cause the other award to be surrendered) or independently. Stock
appreciation rights granted in tandem with stock options are transferable to the
extent the related stock option is transferable.
Restricted Stock. An award of restricted stock is a grant of a specified number
of shares of common stock that are subject to forfeiture upon specified events
(including termination of employment) and that are held by the Company during
the restriction period. A restricted stock award agreement will specify the
duration of the restriction period and the performance, employment or other
conditions under which the restricted stock award may be forfeited to the
Company. Each such award to an executive officer of the Company shall be
expressly subject to the attainment of one or more performance related goals.
These performance goals may include one or more of the following criteria:
return on equity, total stockholder return, earnings per share, reduction of
costs, increase in premiums written or earned, or combined ratio or loss and
loss expense ratio of the Company or one of its Related Corporations. During the
restriction period, a participant has the right to vote the shares of restricted
stock, and to receive dividends, which will be held in escrow until such time as
the restrictions lapse. The Committee may at any time accelerate the time at
which the restrictions on all or any part of the shares will lapse.
Adjustments upon Mergers and Other Events. In the event of a merger,
consolidation, or other corporate transaction, each outstanding award will be
assumed by the surviving or successor corporation, if any. However, the
Committee may terminate outstanding awards in the event of such a proposed
corporate transaction, effective upon the closing of the transaction. If the
Committee decides to terminate outstanding awards, it must give participants at
least seven days notice of such a termination and permit participants to
exercise their options or stock appreciation rights during that
seven-day-or-longer period. Furthermore, the Committee may accelerate the
exercise date of any outstanding options or stock appreciation rights or remove
the restrictions from any shares of restricted stock.
In the event of a change in control, as defined in the Plan, all outstanding
options and stock appreciation rights become fully vested and all restrictions
are removed from outstanding shares of restricted stock.
Amendment and Termination of the Plan Awards; Duration. The Board of Directors
of the Company may suspend, discontinue, or amend the Plan at any time in any
respect whatsoever, provided, however, that, without stockholder approval, the
Plan may not be amended if such amendment would: (i) change the class of
employees eligible to participate in the Plan with respect to ISOs; (ii)
increase the maximum number of shares with respect to which ISOs may be granted;
(iii) modify the terms of any "performance goal" within the meaning of Treas.
Reg. ss.1.162-27(e)(4)(vi); or (iv) extend the term of the Plan. No such
suspension, discontinuance, or amendment shall materially impair the rights of
any holder of an outstanding award without the consent of such holder. The plan
will terminate as of February 4, 2012 and no awards may be granted under the
plan thereafter. However, awards granted on or before February 4, 2012 will
remain operative in accordance with their terms.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of stock
options, stock appreciation rights and restricted stock. The description is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations and
their application may vary in individual circumstances. The summary does not
consider the effects of state and local tax laws, which laws may be different
than federal income tax laws.
(a) Incentive Stock Options. To the extent options issued under the Plan
qualify as ISOs under Section 422 of the Code, the principal Federal
income tax consequences to each participant receiving the options and to
the Company should generally be as follows:
(1) The participant generally will not recognize taxable income and the
Company will not be entitled to a deduction upon the grant of an
ISO. Moreover, the participant will not recognize taxable income and
the Company will not be entitled to a deduction upon the exercise by
the participant of an ISO, provided that the participant was an
employee of the Company or any of
19
its subsidiary corporations, as defined in Section 424(f) of the
Code, during the entire period from the date of grant of the ISO
until three months before the date of exercise (increased to 12
months if employment ceased due to total and permanent disability).
The employment requirement is waived if the participant dies. Of
course, in all of these situations, the ISO itself may provide a
shorter exercise period after employment ceases than the allowable
period under the Code. For those participants, however, that are
subject to the alternative minimum tax, an amount generally equal to
the excess of the fair market value of the shares of Common Stock at
the time of exercise over the exercise price will be treated as an
item of adjustment and ordinarily be included in the participant's
alternative minimum taxable income in the year of exercise. If the
employment requirements described above are not met, the tax
consequences relating to NQSOs (discussed below) will apply.
(2) If the participant disposes of the shares of Common Stock acquired
upon exercise of an ISO within two years after the date of grant or
within one year after the date the shares are transferred to the
participant, the participant will generally recognize ordinary
income, and the Company will be entitled to a deduction, in an
amount equal to the difference between the exercise price and the
lesser of (i) the fair market value of the Shares at the date of
exercise or (ii) the amount realized upon disposition. Such
dispositions may also result in long-term or short-term capital gain
or loss, assuming the shares were held as capital assets. If the
participant disposes of the shares after at least two years
following the date of grant and at least one year following the date
the shares are transferred, the participant will recognize a
long-term capital gain or loss equal to the difference between the
amount realized upon the disposition and the exercise price,
assuming the shares were held as capital assets.
(b) Nonqualified Stock Options. To the extent options, when granted, are
NQSOs, or to the extent options, when granted, are intended to be ISOs
but fail to qualify as such, the principal Federal income tax
consequences to each participant and to the Company should generally be
as follows:
(1) The participant will not recognize taxable income and the Company
will not be entitled to a deduction upon the grant of an NQSO.
(2) Generally, the participant will recognize ordinary income at the
time of the exercise of the NQSO, in an amount equal to the excess
of the fair market value of the shares of Common Stock at the time
of exercise over the exercise price.
(3) The Company will be entitled to a deduction to the extent of the
ordinary income recognized by the participant in accordance with the
rules of Section 83 of the Code (and Section 162(m) of the Code, to
the extent applicable) and the regulations thereunder.
(4) Gain or loss recognized by the participant upon a subsequent
disposition of the shares will be short- or long-term capital gain
or loss, if the shares were held as capital assets.
(c) Stock Appreciation Rights. The participant will recognize income on the
date the stock appreciation right is exercised equal to the excess of
the fair market value of the underlying shares of Common Stock on the
exercise date over the fair market value of the underlying shares on the
date of the grant (or the exercise price of the related option). The
Company will be entitled to a Federal income tax deduction on the date
of exercise in the same amount as the income recognized by the employee,
provided the Company satisfies applicable Federal income tax withholding
requirements.
(d) Restricted Stock. The participant will generally not recognize income on
restricted stock awards until the date on which all of the restrictions
lapse and the participant is entitled to receive the stock. The amount
of such income will be equal to the excess of the fair market value of
the shares at the time the restrictions lapse. If, on the other hand,
the participant makes a timely election under Section 83(b) of the Code,
then he or she will recognize ordinary income at the time of receipt of
the stock equal to the excess of the fair market value of the shares at
the time (determined without regard to any transfer restrictions imposed
on the shares, the vesting provisions or any restrictions imposed by the
securities laws). In either case, the Company should be entitled to a
deduction in an amount equal to the amount of ordinary income recognized
by the participant in the same year that the participant recognizes such
ordinary income, provided that the Company satisfies certain applicable
reporting requirements.
Section 162(m)
Section 162(m) of the Code generally disallows a tax deduction to companies for
compensation paid in any year to a company's chief executive officer or any of
the other four most highly compensated officers (collectively, the "Covered
Employees") in excess of $1 million. However, such compensation will be
deductible without regard to such limitations if the compensation satisfies the
"performance-based" requirements of Section 162(m) of the Code. Compensation for
purposes of Section 162(m) includes cash compensation and noncash benefits
(including the amount of ordinary income Covered Employees recognize pursuant to
the exercise of, or lapse of restrictions on, awards granted under the Plan).
The Plan is intended to meet the requirements of Section 162(m) and approval by
the Company's stockholders will mean that if any individual who is a Covered
Employee on the date of grant has annual compensation in
20
excess of $1,000,000 in the future, the Company will genereally be able to
deduct the excess amount. If stockholder approval is not obtained, no awards may
be granted under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PLAN.
III. PROPOSAL TO APPROVE THE CONVERSION OF UNITS
PREVIOUSLY ISSUED IN CONNECTION WITH THE TERMINATION OF THE
DIRECTORS' PLAN INTO SHARES OF COMMON STOCK
(Item 3 On Proxy)
The Board of Directors has approved and is unanimously recommending that the
stockholders approve the conversion of units previously issued upon the
termination of the Directors' Plan (the Company's former retirement plan for
nonemployee directors) into shares of Common Stock, as described below. A copy
of the plan of conversion is attached as Exhibit B to this proxy statement. The
Board of Directors approved the conversion on November 6, 2001.
Description of the Units
Effective December 31, 1997, the Company terminated the Directors' Plan. The
Directors' Plan was a retirement plan for directors. Under the Directors' Plan,
directors who were never employees of the Company or its subsidiaries and who
were members of the Board of Directors for at least five years were entitled to
annual retirement benefits payable for a period equal to the participant's years
of service on the Board, up to a maximum of 15 years.
Upon the termination of the Directors' Plan, the Company converted the present
dollar value of the participants' future benefits into units, with each unit
having an initial value equal to the fair market value of a share of Common
Stock on December 31, 1997. Each unit accrues dividends equal to the dividends
declared and paid on a share of Common Stock. Dividends accrued on units are
converted into additional units in the same manner as dividends are reinvested
in shares of Common Stock under the Company's dividend reinvestment plan for
stockholders. Each participant is entitled to receive the value of his or her
units in cash upon termination of his or her service as a director, either in a
lump sum or in installments of up to 15 years. The amount of the cash
distributed to each such participant is determined by multiplying the number of
units being distributed on the termination date or installment payment date, as
the case may be, by the market price of the Common Stock on such date, as the
case may be. In the event of a director's termination of service as a director
following a "change in control" of the Company, the director is immediately
entitled to receive the value of his or her units in cash, either in a lump sum
or in installments over a period of five years.
Reasons for the Conversion
The value of the units, which are settled in cash, is based on the market price
of the Common Stock, which fluctuates. Consequently, under accounting principles
generally accepted in the United States, if the market price of the Common Stock
rises in a particular quarter, the Company must record as operating expense on
its financial statements the potential additional cash obligations to the
holders of the units. Conversely, if the market price of the Common Stock
declines in a particular quarter, the Company records as operating gain on its
financial statements the decrease in its potential obligations to the holders of
the units.
The Company believes that having to record noncash gains and losses each
quarterly period has an effect on its financial performance that does not
directly reflect the results of the Company's operations. To eliminate this
effect, the Company has proposed to convert the units to a fixed number of
shares of Common Stock. Since the future payouts would be a fixed number of
shares of Common Stock, fluctuations in the market price of the Common Stock
would have no impact on the Company's obligations to the directors, and the
Company would not have to record such operating expense or gain each quarterly
period.
Description of the Conversion
Subject to approval by the stockholders, the number of each participating
director's units accrued through the date of the 2002 Annual Meeting will be
converted to an identical number of shares of Common Stock as of that date. Any
fractional share will be rounded up to the next whole share.
Each participant has made an irrevocable election to defer receipt of the shares
of Common Stock and dividends accrued with interest therein, and either receive
all of the shares and dividends upon termination of service as a director or
receive the shares in equal installments over not more than a five year period
beginning as of the January 1 following termination of service as a director.
Deferred shares of Common Stock will be held in an account maintained on behalf
of the Director. Cash dividends which are declared and paid on the shares of
Common Stock from and after the Annual Meeting until the date of distribution of
the shares to the director will be credited
21
to the director's account. That cash portion of the account will be credited
with interest at the end of each year at the annual rate equal to the average
two-year United States Treasury Bill rate for that year. If distributions are
made prior to the end of the year, interest will be paid on the cash portion
being distributed at an annual rate equal to the average two-year United States
Treasury Bill rate from the begining of that year to the date of distribution.
The cash portion of the account will be distributed to the director on the
date(s) the shares are distributed.
In the event of a "Change in Control" of the Company which results in the
termination of a director's service as a director of the Company, the shares of
Common Stock and cash in the director's account will be distributed to the
director on the first day of the month following the termination of service as a
director. For purposes of that distribution, "Change of Control" means: (i) an
acquisition of a controlling interest in the Company's voting securities, (ii)
an election contest, (iii) a successful tender or exchange offer by a person
other than the Company or an affiliate of the Company, (iv) a merger, or (v) a
consolidation or other business combination, any of which result in directors
constituting a majority of the Board nominated by management of the Company
immediately prior to such event ceasing to be directors after the event.
Based on the number of units accrued to the participating directors as of March
15, 2002, the total number of shares of Common Stock to which each participating
director named below would be entitled, assuming stockholder approval of the
conversion, is as follows:
Director Shares of Common Stock
- -------- ----------------------
A. David Brown 1,419
S. Griffin McClellan III 7,872
William A. Dolan, II 5,967
C. Edward Herder 7,872
William M. Kearns, Jr. 7,872
Joan M. Lamm - Tennant 2,997
William M. Rue 7,872
Thomas D. Sayles, Jr. 5,967
J. Brian Thebault 1,419
Total 49,257
The market value of a share of Common Stock as of March 15, 2002, as reflected
by the closing price of the Common Stock on the Nasdaq National Market, was
$24.68.
Federal Income Tax Consequences
A director will recognize ordinary taxable income at the time he or she receives
the distributions of Common Stock and cash in an amount equal to the cash and
the fair market value of shares of Common Stock received. The Company generally
will be entitled to an income tax deduction in the same amount as the income
recognized by the director.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
CONVERSION OF DIRECTORS' UNITS INTO SHARES OF COMMON STOCK.
22
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
William M. Rue, a director of the Company, is President and owner of more than a
5% equity interest in Chas. E. Rue & Sons, Inc., a general insurance agency,
which received $1,223,994 in commissions during 2001 for insurance policies
placed with the Company's subsidiaries. During 2001, the Company's insurance
subsidiaries purchased insurance coverages with premiums of $1,050,423 through
the agency. The foregoing relationship has existed during the past fiscal year,
and the Company intends to continue its relationship with Chas. E. Rue & Sons,
Inc.
On December 16, 1994, Messrs. Murphy and Ochiltree, each of whom is an
executive officer of the Company, incurred certain indebtedness to the Company
in connection with their respective exercises of nonqualified stock options
granted on such date under the Company's Stock Option Plan II. Such loans were
made by the Company to such officers and certain other employees in order to
encourage such employees to exercise their options and thus to align further
their interests with those of the stockholders through greater stock ownership.
The principal amounts of such loans to Messrs. Murphy and Ochiltree were
$105,395 and $197,000, respectively. These loans bear no interest and are due in
2005. Principal amounts outstanding as of February 19, 2002 were $46,371 and
$86,680, for Messrs. Murphy and Ochiltree, respectively.
On August 7, 1998, Messrs. Murphy, Coleman and Ochiltree incurred certain
indebtedness to the Company in connection with the purchase of Common Stock on
the open market. Loans were made by the Company to senior management and certain
other officers in order to encourage greater ownership of Common Stock. The
principal amounts of such loans to Messrs. Murphy, Coleman and Ochiltree were
$162,495, $83,196 and $98,799, respectively. These loans bear an annual interest
rate of 2.5% and are due in 2009. Principal amounts outstanding as of February
19, 2002 were $116,996, $59,901 and $71,135 for Messrs. Murphy, Coleman and
Ochiltree, respectively.
DATE FOR SUBMISSION
OF STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for inclusion in the Proxy
Statement relating to the 2003 Annual Meeting of Stockholders (to be held on or
about May 7, 2003) must submit the same in time to be received at the Company's
headquarters at Branchville, New Jersey, Attention: Corporate Secretary, on or
before December 1, 2002, for determination of eligibility in accordance with
law.
DISCRETIONARY AUTHORITY
A duly executed proxy given in connection with the Company's 2003 Annual Meeting
of Stockholders will confer discretionary authority on the proxies named
therein, or any of them, to vote at such meeting on any matter of which the
Company does not have written notice on or before February 15, 2003, without
advice in the Company's Proxy Statement as to the nature of such matter.
FINANCIAL STATEMENTS
AND OTHER INFORMATION
Consolidated financial statements for the Company and its subsidiaries and the
report thereon of KPMG LLP are included in the 2001 Annual Report to
Stockholders. A copy of the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, as filed with the Securities and Exchange Commission,
excluding exhibits, will be provided without charge to stockholders upon written
request to the Senior Vice President and Chief Financial Officer, Selective
Insurance Group, Inc., 40 Wantage Avenue, Branchville, New Jersey 07890. The
Form 10-K provided to stockholders will include only a list of exhibits to the
Form 10-K. Exhibits will be furnished to stockholders upon request and upon
payment of reproduction and mailing expenses.
ACCOUNTANTS
The Company has engaged the services of KPMG LLP as its principal accountants.
The Company anticipates making no change in its selection and a representative
of that firm is expected to be available at the Annual Meeting of Stockholders
to respond to appropriate questions and to make a statement if such
representative so desires.
23
Exhibit A
SELECTIVE INSURANCE
STOCK OPTION PLAN III
TABLE OF CONTENTS
Page
1. Purpose ..........................................................................................................A-1
2. Definitions ......................................................................................................A-1
3. Administration ...................................................................................................A-3
4. Effective Date and Term of Plan ..................................................................................A-3
5. Shares Subject to the Plan .......................................................................................A-3
6. Eligibility ......................................................................................................A-3
7. Types of Awards ..................................................................................................A-4
7.1 Options ....................................................................................................A-4
7.2 Stock Appreciation Rights ..................................................................................A-4
7.3 Restricted Stock ...........................................................................................A-5
7.4 Notice of Tax Election .....................................................................................A-5
8. Events Affecting Outstanding Awards ..............................................................................A-5
8.1 Termination of Employment
(Other Than by Death, Disability, or With Respect to Restricted Stock Only - Retirement) ...................A-5
8.2 Death or Disability or (With Respect to Restricted Stock Only - Retirement) ................................A-6
8.3 Capital Adjustments ........................................................................................A-6
8.4 Certain Corporate Transactions .............................................................................A-6
8.5 Exercise Upon Change in Control ............................................................................A-7
9. Amendment or Termination of the Plan .............................................................................A-7
10. Miscellaneous ....................................................................................................A-7
10.1 Documentation of Awards ....................................................................................A-7
10.2 Rights as a Stockholder ....................................................................................A-7
10.3 Conditions on Delivery of Shares ...........................................................................A-7
10.4 Registration and Listing of Shares .........................................................................A-7
10.5 Compliance with Rule 16b-3 .................................................................................A-7
10.6 Tax Withholding ............................................................................................A-7
10.7 Transferability of Awards ..................................................................................A-8
10.8 Registration ...............................................................................................A-8
10.9 Acquisitions ...............................................................................................A-8
10.10 Employment Rights ..........................................................................................A-8
10.11 Indemnification of Board and Committee .....................................................................A-8
10.12 Application of Funds .......................................................................................A-9
10.13 Governing Law ..............................................................................................A-9
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SELECTIVE INSURANCE STOCK OPTION PLAN III
WHEREAS, Selective Insurance Group, Inc. (the "Company") desires to have the
ability to award certain equity-based benefits to certain of the officers and
other employees of the Company and its affiliates;
WHEREAS, the Company had adopted the Selective Insurance Stock Option Plan II
("Plan II") to encourage its employees to own stock in the Company;
WHEREAS, of the 4,200,000 shares of the Company's common stock reserved for
issuance upon the exercise of options under Plan II, only 551,872 remain
unissued as of the date hereof; and
WHEREAS, the 551,872 unissued shares, which shall no longer be available for
issuance under Plan II, are hereby (i) made available for issuance under this
Selective Insurance Stock Option Plan III ("Plan III") with respect to awards of
options and restricted stock and (ii) included in the aggregate number of shares
subject to Plan III under Section 5;
NOW, THEREFORE, the Selective Insurance Stock Option Plan III is hereby adopted
under the following terms and conditions:
1. Purpose. The Plan is intended to provide a means whereby the Company may
grant ISOs, NQSOs, Stock Appreciation Rights, and/or Restricted Stock to
Employees of the Company and certain of its Related Corporations.
Thereby, the Company expects to attract and retain such Employees and to
motivate them to exercise their best efforts on behalf of the Company
and its Related Corporations.
2. Definitions
(a) "Award" shall mean ISOs, NQSOs, Stock Appreciation Rights, and/or
Restricted Stock awarded by the Committee to a Participant.
(b)"Award Agreement" shall mean a written document evidencing the grant of
an Award, as described in Section 10.1.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Change in Control" shall mean the occurrence of an event of a nature
that would be required to be reported in response to Item 1(a) of a
Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Sections 13 or 15(d) of the Exchange Act; provided, however, that a
Change in Control shall, in any event, conclusively be deemed to have
occurred upon the first to occur of any one of the following events:
(i) The acquisition by any person or group, including, without
limitation, any current stockholder or stockholders of the Company, of
securities of the Company resulting in such person or group owning, of
record or beneficially, 25 percent or more of any class of voting
securities of the Company;
(ii) The acquisition by any person or group, including, without
limitation, any current stockholder or stockholders of the Company, of
securities of the Company resulting in such persons or groups owning, of
record or beneficially, 20 percent or more, but less than 25 percent, of
any class of voting securities of the Company, if the Board adopts a
resolution that such acquisition constitutes a Change in Control;
(iii) The sale or disposition of all or substantially all of the assets
of the Company;
(iv) The reorganization, recapitalization, merger, consolidation or
other business combination involving the Company, the result of which is
the ownership by the stockholders of the Company of less than 80 percent
of those voting securities of the resulting or acquired entity having
the power to elect a majority of the board of directors of such entity;
or
(v) A change in the membership of the Board, which taken in conjunction
with any other prior or concurrent changes, results in 20 percent or
more of the membership of the Board being persons not nominated by the
Board as set forth in the Company's then most recent proxy statement,
excluding changes resulting from substitutions by the Board because of
retirement or death of a director or directors, removal of a director or
directors by the Board or resignation of a director or directors due to
demonstrated disability or incapacity.
Notwithstanding anything in this definition to the contrary, no Change in
Control shall be deemed to have occurred for the purpose of an Employee's Award
Agreement by virtue of any transaction which results in the Employee, or a group
of persons which includes the Employee, acquiring, directly or indirectly,
voting securities of the Company.
For the purpose of this subsection (d), the following definitions shall apply:
(I) the terms "person" and "beneficial owner" shall have the
meanings set forth in Regulation 13D under the Exchange Act,
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as such Regulation exists on the date hereof;
(II) The term "voting security" shall include any security that
has, or may have upon an event of default or in respect any
transaction, a right to vote on any matter on which the holder
of any class of common stock of the Company would have a right
to vote;
(III) the term "group" shall have the meaning set forth in Section
13(d) of the Exchange Act; and
(IV) the term "substantially all of the assets of the Company"
shall mean more than 50 percent of the Company's assets on a
consolidated basis, as shown in the Company's most recent
audited balance sheet.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Company's Salary and Employee Benefits
Committee, which shall consist solely of not fewer than two directors of
the Company who shall be appointed by, and serve at the pleasure of, the
Board (taking into consideration the rules under section 16(b) of the
Exchange Act and the requirements of section 162(m) of the Code).
(g) "Company" shall mean Selective Insurance Group, Inc., a New Jersey
corporation.
(h) "Disability" shall mean separation from service as a result of a
Participant's "permanent and total disability," as defined in section
22(e)(3) of the Code.
(i) "Employee" shall mean an officer or any other employee of the Company or
one of its Related Corporations.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" shall mean the mean between the highest and lowest
quoted selling price on the date of grant (or on such other date as
value must be determined) on the NASDAQ National Market (or on a
national securities exchange if Shares subsequently trade on such an
exchange).
(l) "ISO" shall mean an Option which, at the time such Option is granted
under the Plan, qualifies as an incentive stock option within the
meaning of section 422 of the Code, unless the Award Agreement states
that the Option will not be treated as an ISO.
(m) "More-Than-10-Percent Shareholder" shall mean any person who at the time
of grant owns, directly or indirectly, or is deemed to own by reason of
the attribution rules of section 424(d) of the Code, Shares possessing
more than 10 percent of the total combined voting power of all classes
of Shares of the Company or of a Related Corporation.
(n) "NQSO" shall mean an Option that, at the time such Option is granted to
a Participant does not meet the definition of an ISO, whether or not it
is designated as a nonqualified stock option in the Award Agreement.
(o) "Option" is an Award entitling the Participant on exercise thereof to
purchase Shares at a specified exercise price.
(p) "Participant" shall mean an Employee who has been granted an Award under
the Plan.
(q) "Performance Goals" shall mean goals deemed by the Committee to be
important to the success of the Company or any of its Related
Corporations. If the Committee decides to subject a particular Award to
Performance Goals, the Committee shall establish the specific measures
for each such Performance Goal at the time the Award is granted. In
creating these measures, the Committee shall include one or more of the
following business criteria: return on equity, total stockholder return,
earnings per share, reduction of costs, increase in premiums written or
earned, combined ratio or loss and loss expense ratio of the Company or
one of its Related Corporations. The business criteria may be expressed
in absolute terms or relative to the performance of other companies or
an index.
(r) "Plan" shall mean the Selective Insurance Stock Option Plan III, as set
forth herein and as it may be amended from time to time.
(s) "Plan Administrator" shall mean the individual appointed by the
Committee under Section 3(b) to administer the Plan on a day-to-day
basis.
(t) "Related Corporation" shall mean either a "subsidiary corporation" of
the Company (if any), as defined in section 424(f) of the Code, or the
"parent corporation" of the Company (if any), as defined in section
424(e) of the Code.
(u) "Restricted Stock" shall mean an Award that grants the recipient at no
cost Shares subject to whatever restrictions are determined by the
Committee.
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(v) "Securities Act" shall mean the Securities Act of 1933, as amended
(w) "Shares" shall mean shares of common stock of the Company, par value
$2.00 per share.
(x) "Stock Appreciation Right" shall mean an Award entitling the recipient
on exercise to receive an amount, in cash or Shares or a combination
thereof (such form to be determined by the Committee), determined in
whole or in part by reference to appreciation in Share value.
3. Administration
(a) The Plan shall be administered by the Committee. Each member of the
Committee, while serving as such, shall be deemed to be acting in
his or her capacity as a director of the Company. Acts approved by a
majority of the members of the Committee at which a quorum is
present, or acts without a meeting reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid
acts of the Committee. Any authority of the Committee (except for
the authority described in subsection (b)(i)-(v) below) may be
delegated to the Plan Administrator.
(b) The Committee shall have the authority:
(i) to select the Employees to be granted Awards under the Plan
and to grant such Awards at such time or times as it may
choose;
(ii) to determine the type and size of each Award, including the
number of Shares subject to the Award;
(iii) to determine the terms and conditions of each Award;
(iv) to amend an existing Award in whole or in part (including the
extension of the exercise period for any NQSO), except that
the Committee may not (A) lower the exercise price of any
Option or the purchase price of any Restricted Stock, or (B)
without the consent of the Participant holding the Award, take
any action under this clause if such action would adversely
affect the rights of such Participant;
(v) to appoint the Plan Administrator;
(vi) to adopt, amend, and rescind rules and regulations for the
administration of the Plan; and
(vii) to interpret the Plan and decide any questions and settle any
controversies that may arise in connection with it. Such
determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken
under authority granted by any provision of the Plan, shall be
conclusive and shall bind all parties. Nothing in this
subsection (b) shall be construed as limiting the power of the
Board or the Committee to make the adjustments described in
Sections 8.3 and 8.4.
4. Effective Date and Term of Plan
(a) Effective Date. The Plan, having been adopted by the Board on
February 5, 2002, shall become effective on the date the
stockholders of the Company approve the Plan. Awards may not be
granted under the Plan unless and until such stockholder approval is
obtained.
(b) Term of Plan. No Awards may be granted under the Plan after February
4, 2012, but Awards previously granted may extend beyond that date.
5. Shares Subject to the Plan. The aggregate number of Shares that may be
delivered under the Plan is 2,000,000. Of the aggregate 2,000,000 Shares
that may be delivered under the Plan, 551,872 Shares previously reserved
under Plan II are now available for delivery hereunder. Further, (i) no
Employee shall receive Awards of Options and related Stock Appreciation
Rights under the Plan for more than 40,000 Shares during any calendar
year, and (ii) no Employee shall receive Awards of Restricted Stock
under the Plan for more than 40,000 Shares during any calendar year.
However, the limits in the first and third sentences of this Section
shall be subject to the adjustment described in Section 8.3. Shares
delivered under the Plan may be authorized but unissued Shares or
reacquired Shares, and the Company may purchase Shares required for this
purpose, from time to time, if it deems such purchase to be advisable.
If any Award that requires the Participant to exercise it in order for
Shares to be delivered terminates without having been exercised in full,
if any Shares are forfeited by the Participant because of a failure to
meet a condition(s) set forth in an Award Agreement, or if any Award
that is payable in Shares or cash is satisfied in cash rather than in
Shares, the number of Shares as to which such Award was not exercised,
the number of Shares that were forfeited, and the number of Shares for
which cash was substituted shall again become available for Awards to be
granted under the Plan.
6. Eligibility. The class of employees who shall be eligible to receive
Awards under the Plan shall be all Employees (including any directors of
the Company who are also Employees). More than one Award may be granted
to an Employee under the Plan. No
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member of the Committee shall be eligible to receive an Award.
7. Types of Awards
7.1 Options
(a) Kinds of Options. Both ISOs and NQSOs may be granted by the
Committee under the Plan. Once an ISO has been granted, no
action by the Committee that would cause the Option to lose its
status as an ISO under the Code will be effective without the
consent of the Participant holding the Option.
(b) $100,000 Limit. The aggregate Fair Market Value of the Shares
with respect to which ISOs are exercisable for the first time by
an Employee during any calendar year (counting ISOs under this
Plan and under any other stock option plan of the Company or a
Related Corporation) shall not exceed $100,000. If an Option
intended as an ISO is granted to an Employee and the Option may
not be treated in whole or in part as an ISO pursuant to the
$100,000 limit, the Option shall be treated as an ISO to the
extent it may be so treated under the limit and as an NQSO as to
the remainder. For purposes of determining whether an ISO would
cause the limit to be exceeded, ISOs shall be taken into account
in the order granted. The annual limits set forth above for ISOs
shall not apply to NQSOs.
(c) Exercise Price. The exercise price of an Option shall be
determined by the Committee, subject to the following:
(i) The exercise price of an ISO shall not be less than 100
percent (110 percent in the case of an ISO granted to a
More-Than-10-Percent Shareholder) of the Fair Market Value
of the Shares subject to the Option, determined as of the
time the Option is granted.
(ii) The exercise price of an NQSO shall not be less than 100
percent of the Fair Market Value of the Shares subject to
the Option, determined as of the time the Option is
granted.
(d) Term of Options. The term of each Option may not be more than 10
years (five years, in the case of an ISO granted to a
More-Than-10-Percent Shareholder), from the date the Option was
granted, or such earlier date as may be specified in the Award
Agreement.
(e) Exercise of Options. An Option shall become exercisable at such
time or times, and on such conditions, as the Committee may
specify. The Committee may at any time and from time to time
accelerate the time at which all or any part of the Option may
be exercised. Any exercise of an Option must be in writing,
signed by the proper person, and delivered or mailed to the
Company, accompanied by (i) any other documents required by the
Committee and (ii) payment in full in accordance with subsection
(f) below for the number of Shares for which the Option is
exercised (except that, in the case of an exercise arrangement
approved by the Committee and described in subsection (f)(iii)
below, payment may be made as soon as practicable after the
exercise). Only full shares shall be issued under the Plan, and
any fractional share that might otherwise be issuable upon
exercise of an Option granted hereunder shall be forfeited.
(f) Payment for Shares. Shares purchased on the exercise of an
Option shall be paid for as follows:
(i) in cash or by check (acceptable to the Committee), bank
draft, or money order payable to the order of the
Company;
(ii) in Shares previously acquired by the Participant;
(iii) by delivering a properly executed notice of exercise of
the Option to the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the
Company the amount of sale or loan proceeds necessary to
pay the exercise price of the Option; or
(iv) by any combination of the above-listed forms of payment.
In the event the Option price is paid, in whole or in
part, with Shares, the portion of the Option price so
paid shall be equal to the Fair Market Value on the date
of exercise of the Option of the Shares surrendered in
payment of such Option price.
7.2 Stock Appreciation Rights
(a) Grant of Stock Appreciation Rights. Stock Appreciation Rights
may be granted to an Employee by the Committee under the Plan.
Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan. A Stock
Appreciation Right granted in tandem with an Option that is not
an ISO may be granted either at or after the time the Option is
granted. A Stock Appreciation Right granted in tandem with an
ISO may be granted only at the time the ISO is granted.
(b) Nature of Stock Appreciation Rights. A Stock Appreciation Right
entitles the Participant to receive, with respect to each
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Share as to which the Stock Appreciation Right is exercised, the
excess of the Share's Fair Market Value on the date of exercise
over its Fair Market Value on the date the Stock Appreciation
Right was granted. Such excess shall be paid in cash, Shares, or
a combination thereof, as determined by the Committee.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation
Rights are granted in tandem with Options, the number of Stock
Appreciation Rights granted to a Participant that shall be
exercisable during a specified period shall not exceed the
number of Shares that the Participant may purchase upon the
exercise of the related Option during such period. Upon the
exercise of an Option, the Stock Appreciation Right relating to
the Shares covered by such Option will terminate. Upon the
exercise of a Stock Appreciation Right, the related Option will
terminate to the extent of an equal number of Shares. The Stock
Appreciation Right will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable
and will be exercisable in accordance with the procedure
required for exercise of the related Option. The Stock
Appreciation Right will be transferable only when the related
Option is transferable, and under the same conditions. A Stock
Appreciation Right granted in tandem with an ISO may be
exercised only when the Fair Market Value of the Shares subject
to the ISO exceeds the exercise price of such ISO.
(d) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option shall
become exercisable at such time or times, and on such
conditions, as the Committee may specify in the Award Agreement.
The Committee may at any time accelerate the time at which all
or any part of the Stock Appreciation Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be
in writing, signed by the proper person, and delivered or mailed
to the Company, accompanied by any other documents required by
the Committee.
7.3 Restricted Stock
(a) Grant. Restricted Stock may be granted to an Employee by the
Committee under the Plan.
(b) Rights as a Stockholder. Unless the Committee determines
otherwise, an Employee who receives Restricted Stock shall be
entitled to vote the Restricted Stock. The Company shall
reinvest any dividends paid on such Restricted Stock and hold
such Shares in escrow on behalf of the Participant. The Company
shall also maintain a record showing the amount of cash
dividends that would have been paid had the dividends not been
reinvested. At the time the restrictions lapse, the Participant
may elect whether to receive such dividends in cash or the
Shares themselves.
(c) Restrictions. Except as otherwise specifically provided by the
Plan, Restricted Stock may not be sold, assigned, transferred,
pledged, or otherwise encumbered or disposed of, and, if the
Participant ceases to be an employee of any of the Company and
its Related Corporations for any reason, shall be forfeited to
the Company. These restrictions will lapse at such time or
times, and on such conditions, as the Committee may specify in
the Award Agreement. Each such award to an executive officer of
the Company shall be expressly subject to the attainment of one
or more performance related goals. Upon the lapse of all
restrictions, the Shares will cease to be Restricted Stock for
purposes of the Plan. The Committee may at any time accelerate
the time at which the restrictions on all or any part of the
Shares will lapse.
7.4 Notice of Tax Election. Any Participant making an election under
section 83(b) of the Code for the immediate recognition of income
attributable to an Award of Restricted Stock must provide a copy
thereof to the Company within 10 days of the filing of such election
with the Internal Revenue Service.
8. Events Affecting Outstanding Awards
8.1 Termination of Employment
(Other Than by Death, Disability, or - With Respect to Restricted
Stock Only - Retirement)
(a) Except as otherwise determined by the Committee, if a
Participant ceases to be an Employee of any of the Company and
its Related Corporations for any reason other than death or
Disability; all Options and Stock Appreciation Rights held by
the Participant that were not exercisable immediately prior to
the Participant's termination of employment shall terminate at
that time. Any ISOs or Stock Appreciation Rights issued in
tandem with any ISOs that were exercisable immediately prior to
the termination of employment will continue to be exercisable
for three months (or for such longer period as the Committee may
determine), and shall thereupon terminate, unless the Award
Agreement provides by its terms for immediate termination or for
termination in less than three months in the event of
termination of employment in specific circumstances. Any NQSOs
or Stock Appreciation Rights issued in tandem with any NQSOs or
issued independently that were exercisable immediately prior to
the termination of employment will continue to be exercisable
for 12 months (or for such longer period as the Committee may
determine), and shall thereupon terminate, unless the Award
Agreement provides by its terms for immediate termination or for
termination in less than 12 months in the event of termination
of employment in specific
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circumstances. In no event, however, shall an Option or Stock
Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this
Section. For purposes of this subsection (a), a termination of
employment shall not be deemed to have resulted by reason of a
sick leave or other bona fide leave of absence approved for
purposes of the Plan by the Committee.
(b) Except as otherwise determined by the Committee, if a
Participant ceases to be an Employee of any of the Company and
its Related Corporations for any reason other than death,
Disability, or "Retirement" (as defined in the Participant's
Award Agreement), all Restricted Stock held by the Participant
at the time of termination of employment shall be automatically
forfeited and shall again become available under the Plan
pursuant to Section 5.
8.2 Death or Disability or (With Respect to Restricted Stock Only -
Retirement)
(a) Except as otherwise determined by the Committee, if a
Participant dies or incurs a Disability, all Options and Stock
Appreciation Rights held by the Participant immediately prior to
the Participant's death or Disability, as the case may be, to
the extent then exercisable, may be exercised by the Participant
or by the Participant's legal representative (in the case of
Disability), or by the Participant's executor or administrator
or by the person or persons to whom the Option or Stock
Appreciation Right is transferred by will or the laws of descent
and distribution, at any time within the one-year period ending
with the first anniversary of the Participant's death or
Disability (or such shorter or longer period as the Committee
may determine), and shall thereupon terminate. In no event,
however, shall an Option or Stock Appreciation Right remain
exercisable beyond the latest date on which it could have been
exercised without regard to this Section. Except as otherwise
determined by the Committee, all Options and Stock Appreciation
Rights held by a Participant immediately prior to death or
Disability that are not then exercisable shall terminate at the
date of death or Disability.
(b) Except as otherwise determined by the Committee, if a
Participant dies, incurs a Disability, or attains "Retirement"
(as defined in the Participant's Award Agreement), the
Participant or his executor, administrator, personal
representative, heirs or beneficiaries, as the case may be,
shall be entitled to receive, upon vesting, all of the Shares of
Restricted Stock subject to this Award Agreement, together with
any and all accumulated Shares, dividends, and distributions
with respect thereto.
8.3 Capital Adjustments. The number of Shares that may be delivered
under the Plan, the maximum number of Shares that may be made
subject to ISOs, and the maximum number of Shares with respect to
which Options, Stock Appreciation Rights or Restricted Stock may be
granted to any Employee under the Plan, all as stated in Section 5,
and the number of Shares issuable upon the exercise or vesting of
outstanding Awards under the Plan (as well as the exercise price per
Share under outstanding Options and the purchase price, if any, per
Share of Restricted Stock) shall be proportionately adjusted, as may
be deemed appropriate by the Committee, to reflect any increase or
decrease in the number of issued Shares resulting from a subdivision
(share-split), consolidation (reverse split), stock dividend, or
similar change in the capitalization of the Company.
8.4 Certain Corporate Transactions
(a) In the event of a corporate transaction (as, for example, a
merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding
Award shall be assumed by the surviving or successor entity;
provided, however, that in the event of a proposed corporate
transaction, the Committee may terminate all or a portion of any
outstanding Award, effective upon the closing of the corporate
transaction, if it determines that such termination is in the
best interests of the Company. If the Committee decides to
terminate outstanding Options or Stock Appreciation Rights, the
Committee shall give each participant holding an Option or Stock
Appreciation Right to be terminated not less than seven days'
notice prior to any such termination, and any Option or Stock
Appreciation Right that is to be so terminated may be exercised
(if and only to the extent that it is then exercisable) up to,
and including the date immediately preceding such termination.
Further, the Committee, in its discretion, may (i) accelerate,
in whole or in part, the date on which any or all Options and
Stock Appreciation Rights become exercisable and/or (ii) remove
the restrictions from the outstanding Shares of Restricted
Stock. The Committee also may, in its discretion, change the
terms of any outstanding Award to reflect any such corporate
transaction, provided that, in the case of ISOs, such change
would not constitute a "modification" under section 424(h) of
the Code unless the Participant consents to the change.
(b) With respect to an outstanding Award held by a Participant who,
following the corporate transaction, will be employed by or
otherwise providing services to an entity which is a surviving
or acquiring entity in such transaction or an affiliate of such
an entity, the Committee may, in lieu of the action described in
subsection (a) above, arrange to have such surviving or
acquiring entity or affiliate grant to the Participant a
replacement award which, in the judgment of the Committee, is
substantially equivalent to the Award.
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8.5 Exercise Upon Change in Control.
Notwithstanding any other provision of this Plan, all outstanding
Options and all Stock Appreciation Rights shall immediately become
fully vested and exercisable and all restrictions shall be removed
from any outstanding Shares of Restricted Stock, upon a Change in
Control.
9. Amendment or Termination of the Plan. The Board, pursuant to a written
resolution, may from time to time suspend or terminate the Plan or
amend it and, except as provided in Sections 3(b)(iv), 7.1(a), and
8.4(a), the Committee may amend any outstanding Awards in any respect
whatsoever; except that, without the approval of the shareholders:
(a) no amendment to the Plan may be made that would:
(i) change the class of employees eligible to participate in
the Plan with respect to ISOs; or
(ii) except as permitted under Section 8.3, increase the maximum
number of Shares with respect to which ISOs may be granted
under the Plan; and
(b) no amendment to the Plan may be made that would constitute a
modification of the material terms of the "performance goal"
within the meaning of Treas. Reg.ss. 1.162-27(e)(4)(vi) or
any successor thereto (to the extent compliance with Section
162(m) of the Code is desired).
Notwithstanding the foregoing, no such suspension, termination, or
amendment shall materially impair the rights of any Participant holding
an outstanding Award without the consent of such Participant. Finally,
no amendment may extend the duration of the Plan under Section 4(b).
10. Miscellaneous
10.1 Documentation of Awards. Awards shall be evidenced by such written
Award Agreements, if any, as may be prescribed by the Committee
from time to time. Such instruments shall be in the form of
certificates, letters, or similar instruments which need not be
executed by the Participant but acceptance of which will evidence
agreement to the terms thereof.
10.2 Rights as a Stockholder. Except as specifically provided by the
Plan or an Award Agreement, the receipt of an Award shall not give
a Participant rights as a stockholder; instead, the Participant
shall obtain such rights, subject to any limitations imposed by
the Plan or the Award Agreement, upon the actual receipt of
Shares.
10.3 Conditions on Delivery of Shares. The Company shall not deliver
any Shares pursuant to the Plan or remove restrictions from Shares
previously delivered under the Plan (i) until all conditions of
the Award have been satisfied or removed, (ii) until all
applicable Federal and state laws and regulations have been
complied with, and (iii) if the outstanding Shares are at the time
of such delivery listed on any stock exchange, until the Shares to
be delivered have been listed or authorized to be listed on such
exchange. If an Award is exercised by the Participant's legal
representative, the Company will be under no obligation to deliver
Shares pursuant to such exercise until the Company is satisfied as
to the authority of such representative.
10.4 Registration and Listing of Shares. If the Company shall deem it
necessary to register under the Securities Act or any other
applicable statute any Shares purchased under this Plan, or to
qualify any such Shares for an exemption from any such statutes,
the Company shall take such action at its own expense. If Shares
are listed on the NASDAQ National Market or any national
securities exchange at the time any Shares are purchased
hereunder, the Company shall make prompt application for the
listing of such Shares, at its own expense. Purchases and grants
of Shares hereunder shall be postponed as necessary pending any
such action.
10.5 Compliance with Rule 16b-3. All elections and transactions under
this Plan by persons subject to Rule 16b-3, promulgated under
section 16(b) of the Exchange Act, or any successor to such Rule,
are intended to comply with at least one of the exemptive
conditions under such Rule. The Committee shall establish such
administrative guidelines to facilitate compliance with at least
one such exemptive condition under Rule 16b-3 as the Committee may
deem necessary or appropriate.
10.6 Tax Withholding
(a) Obligation to Withhold. The Company may withhold from any cash
payment made pursuant to an Award an amount sufficient to satisfy
all Federal, state, and local withholding tax requirements (the
"withholding requirements"). In the case of an Award pursuant to
which Shares may be delivered, the Committee may require that the
Participant or other appropriate person remit to the Company an
amount sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Committee with regard to
such requirements, prior to the delivery of any Shares.
(b) Election to Withhold Shares. The Committee, in its discretion,
may permit or require the Participant to satisfy the
A-7
witholding requirements, in whole or in part, by electing to have
the Company withhold Shares (or by returning previously acquired
Shares to the Company); provided, however, that the Company may
limit the number of Shares withheld to satisfy the tax withholding
requirements to the extent necessary to avoid adverse accounting
consequences. Shares shall be valued, for purposes of this
subsection (b), at their Fair Market Value (determined as of the
date an amount is includible in income by the Participant (the
"Determination Date"), rather than the date of grant). If Shares
acquired by the exercise of an ISO are used to satisfy the
withholding requirement described above, such Shares must have
been held by the Participant for a period of not less than the
holding period described in section 422(a)(1) of the Code as of
the Determination Date. The Committee may adopt such withholding
rules as it deems necessary to carry out the provisions of this
Section.
10.7 Transferability of Awards. No ISO may be transferred other than by
will or by the laws of descent and distribution. Any other Award
may be transferred, in whole or in part, by will or by the laws of
descent and distribution, and, except to the extent the Committee
prohibits or limits such transferability in the applicable Award
Agreement, may be transferred to (i) any spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law including adoptive relationships,
or any other family member of the Participant to whom the Company
may lawfully offer and sell Shares from time to time pursuant to
the exercise of NQSOs by the use of a Registration Statement on
Form S-3 or Form S-8 under the Securities Act (collectively,
"Immediate Family Members"), (ii) any trust or trusts for the
exclusive benefit of any Immediate Family Members, and/or (iii)
any entity or entities owned solely by any Immediate Family
Members, provided that (I) there may be no consideration for any
such transfer, (II) the Award Agreement or amendment to the Award
Agreement pursuant to which such transferable Options are granted
or are otherwise made transferable must be approved by the
Committee and provide for such transferability only in a manner
consistent with the provisions of this Section, and (III)
subsequent transfers of transferred Options shall be prohibited
except in accordance with this Section. The Committee may in its
discretion, impose as a condition of transferability of any
Options such additional restrictions and limitations on such
Options and Shares acquired pursuant to the exercise thereof,
including, without limitation, restrictions or limitations on the
resale of such Shares, as the Committee shall deem appropriate.
Following the transfer of any Options, the transferred Options
shall continue to be subject to the same terms and conditions as
were applicable immediately prior to such transfer together with
any such additional restrictions and limitations as shall be
imposed by the Committee, and the Plan shall continue to apply to
such transferred Options. During a Participant's lifetime, an
Award requiring exercise may be exercised only by the Participant
(or in the event of the Participant's incapacity, by the person or
persons legally appointed to act on the Participant's behalf).
10.8 Registration. If the Participant is married at the time Shares are
delivered and if the Participant so requests at such time, the
certificate or certificates for such Shares shall be registered in
the name of the Participant and the Participant's spouse, jointly,
with right of survivorship.
10.9 Acquisitions. Notwithstanding any other provision of this Plan,
Awards may be granted hereunder in substitution for awards held by
directors and employees of other corporations who are about to, or
have, become Employees as a result of a merger, consolidation,
acquisition of assets, or similar transaction by the Company or
ated Corporation. The terms of the substitute Awards so granted
may vary from the terms set forth in this Plan to such extent as
the Committee may deem appropriate to conform, in whole or in
part, to the provisions of the awards in substitution for which
they are granted.
10.10 Employment Rights. Neither the adoption of the Plan nor the grant
of Awards will confer on any person any right to continued
employment by the Company or any of its Related Corporations or
affect in any way the right of any of the foregoing to terminate
an employment relationship at any time.
10.11 Indemnification of Board and Committee. Without limiting any other
rights of indemnification that they may have from the Company or
any of its Related Corporations, the members of the Board, the
members of the Committee, and the Plan Administrator shall be
indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any claim, action,
suit, or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under, or in
connection with, the Plan or any Award granted thereunder, and
against all amounts paid by them in settlement thereof (provided
such settlement is approved by legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such
action, suit, or proceeding, except a judgment based upon a
finding of willful misconduct or recklessness on their part. Upon
the making or institution of any such claim, action, suit, or
proceeding, the Board member, Committee member, or Plan
Administrator shall notify the Company in writing, giving the
Company an opportunity, at its own expense, to handle and defend
the same before such Board member, Committee member, or Plan
Administrator undertakes to handle it on his or her own behalf.
The provisions of this Section shall not give members of the
Board, member of the Committee , or the Plan Administrator greater
rights than they would have under the Company's
A-8
by-laws or New Jersey law.
10.12 Application of Funds. Any cash proceeds received by the Company
from the sale of Shares pursuant to Awards granted under the Plan
shall be added to the general funds of the Company. Any Shares
received in payment for additional Shares upon exercise of an
Option shall become treasury stock.
10.13 Governing Law. The Plan shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of
the State of New Jersey (without reference to the principles of
conflict of laws) shall govern the operation of, and the rights of
Employees under, the Plan and Awards granted hereunder.
A-9
Exhibit B
SELECTIVE INSURANCE GROUP, INC.
PLAN TO CONVERT UNITS PREVIOUSLY ISSUED
IN CONNECTION WITH THE TERMINATION OF
THE DIRECTORS' PLAN TO SHARES
OF COMMON STOCK
SELECTIVE INSURANCE GROUP, INC.
PLAN TO CONVERT UNITS PREVIOUSLY ISSUED IN CONNECTION
WITH THE DIRECTORS' PLAN TO SHARES OF COMMON STOCK
I. Purpose Effective December 31, 1997, Selective Insurance Group, Inc. (the
"Company") terminated the Directors' Plan (the former retirement plan for
nonemployee directors) and converted the present dollar value of the
future benefits of each nonemployee director participant (a "Participant")
into units, with each unit having an initial value equal to the fair
market value of a share of Company common stock ("Common Stock") on
December 31, 1997.
The Company has adopted this plan to convert the units previously issued
in connection with the Directors' Plan to shares of Common Stock of the
Company
II. Conversion Subject to approval by the Company's stockholders at the Annual
Meeting ("Annual Meeting") in May 2002, the number of each Participants'
units accrued through the date of the Annual Meeting will be converted
into an identical number of shares of Common Stock as of that date. Any
fractional shares resulting from the conversion will be rounded up to the
next whole share.
III. Deferral
a) Each Participant must make an irrevocable election to defer receipt of
the shares of Common Stock and either receive all of the shares of Common
Stock upon termination of the Participant's services as a director of the
Company or receive the shares in equal installments over not more than a
five year period beginning as of the January 1 following such termination
of service. If a Participant elects to receive all of the shares upon
termination of service as a director, the shares will be distributed to
the Participant within 60 days thereof.
b) In the event of a "Change of Control" (as hereinafter defined),
notwithstanding any Participant's election, and if such Change of Control
results in the termination of a Participant's service as a Director of the
Company, all shares of Common Stock deferred hereunder shall be issued on
the first day of the month following the termination of such Participant's
service. "Change of Control" means: (A) an acquisition of a controlling
interest in the Company's voting securities, (B) an election contest, (C)
a successful tender or exchange offer by a person other than the Company
or an affiliate of the Company, (D) a merger, or (E) a consolidation or
other business combination resulting in Directors constituting a majority
of the Board nominated by management of the Company immediately prior to
such Event ceasing to be Directors after such Event.
IV. Cash Dividends on Shares of Common Stock Cash dividends which are declared
and paid on the shares of Common Stock from and after the Annual Meeting
until the date of distribution of the shares to the Participant will be
credited to the Participants' account. The cash portion of such account
shall be credited with interest on December 31 of each year (if on such
date there is a balance in the account) at the annual rate equal to the
average two-year United States Treasury Bill rate for the year. If
distributions to a Participant are made prior to any such December 31,
interest on the cash portion being distributed will be paid based on the
average two-year United States Treasury Bill rate from the beginning of
the year to the date of the distribution. The cash portion of the account
will be distributed to the Participant on the date(s) the shares are
distributed.
V. Nontransferability The right to receive the shares of Common Stock
deferred hereunder and amounts of cash dividends, and interest thereon, if
any, described herein shall not be transferable, except by will or the
laws of descent and distribution.
VI. Participant's Rights Unsecured; Title to Funds Nothing contained herein
shall be deemed to create a trust of any kind or create any fiduciary
relationship. Funds payable in respect of cash dividends on shares of
Common Stock, and interest thereon, if any, under this Section V shall
continue for all purposes to be a part of the general funds of the Company
and shall not be specifically set aside or otherwise segregated. The
obligation of the Company to issue and deliver shares of Common Stock here
under shall be a general contractual obligation of the Company. To the
extent that a Participant acquires a right to receive payments from the
Company and shares of Common Stock from the Company under the Plan, such
rights shall be no greater than the rights of any unsecured general
creditor of the Company and such rights shall be an unsecured claim
against the general assets of the Company.
VII. Statement of Account A statement will be furnished to each Participant on
or about March 1 of each year stating the number of shares of Common Stock
and the cash balance credited to such Participant's deferred compensation
account as of the preceding December 31.
B-1
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SELECTIVE INSURANCE GROUP, INC.
Proxy Solicited on Behalf of the Board of Directors of
Selective Insurance Group, Inc. for Annual Meeting of Stockholders, May 8, 2002
The undersigned, a stockholder of Selective Insurance Group, Inc. (the
P "Company") hereby constitutes and appoints A. David Brown, William M.
Kearns, Jr. and J. Brian Thebault, and/or any one or more of them (with
R full power of substitution and the full power to act without the others or
other), proxies to vote all the shares of the Common Stock of Selective
O Insurance Group, Inc. registered in the name of the undersigned at the
Annual Meeting of Stockholders of the Company to be held on Wednesday, May
X 8, 2002 at 11:00 a.m. in the auditorium at the headquarters of the Company
at 40 Wantage Avenue, Branchville, New Jersey, and at any adjournment
Y thereof, for the Election of Directors to be held at said meeting, for the
proposal to approve Selective Insurance Stock Option Plan III, for the
proposal to approve the conversion of units previously issued in
connection with the termination of the Directors' Plan to shares of Common
Stock of the Company and upon such other matters as may properly come
before the meeting.
Election of Directors
Nominees for Terms Expiring 2005:
01. Paul D. Bauer
02. William A. Dolan, II
03. Joan M. Lamm-Tennant
Specify your choices by marking the appropriate box (SEE REVERSE SIDE),
but you need not mark any box if you wish to vote in accordance with the
Board of Directors' recommendations. The proxies cannot vote your shares
unless you sign and return this Proxy, submit a proxy by telephone or
through the Internet, or attend the meeting and vote by ballot.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
[X] Please mark your
votes as in this
example.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR Election of Directors, FOR
the approval of Selective Insurance Stock Option Plan III, and FOR the approval
of the conversion of units previously issued in connection with the termination
of the Directors' Plan to Shares of Common Stock of the Company.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Election of FOR WITHHELD 2. To approve Selective FOR AGAINST ABSTAIN 3. To approve the conversion FOR AGAINST ABSTAIN
Directors. Insurance Stock of units previously issued
(see reverse) [ ] [ ] Option Plan III [ ] [ ] [ ] in connection with the [ ] [ ] [ ]
For, except vote withheld from termination of the
the following nominee(s): Directors' Plan to shares
of common stock of the
Company.
4. In their discretion upon
such other matters as may
- ------------------------------- properly come before the
meeting.
- -----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------
SIGNATURE(S) DATE Please mark, sign, date and return this
-------------------------------------------------------- ------------ Proxy promptly using the enclosed
NOTE: Please sign exactly as name appears hereon. Joint owners envelope.
should each sign. In signing as attorney, executor, administrator, trustee ---------------------------------------
or guardian, please give full title as such.
- ------------------------------------------------------------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call TOLL-FREE using a Access the WEBSITE Return your proxy in the
Touch Tone phone and cast your POSTAGE-PAID
1-877-PRX-VOTE http://www.eproxyvote.com/sigi envelope provided
1-877-779-8683
Your telephone or Internet vote must be received by midnight eastern time on May
7, 2002 to be counted in the final tabulation.
VOTE BY TELEPHONE
Have your proxy card available when you call the Toll-Free number 1-877-779-8683
using a Touch-Tone phone. You will be prompted to enter your voter control
number and then you can follow the prompts that will be presented to you to
record your vote.
VOTE BY INTERNET
Have your proxy card available when you access the website
http://www.eproxyvote.com/sigi. You will be prompted to enter your voter control
number and then you can follow the prompts that will be presented to you to
record you vote.
VOTE BY MAIL
Please mark, sign and date your proxy card and return it in the postage paid
envelope provided or return it to: Selective Insurance Group, Inc., c/o
EquiServe Trust Company, N.A., P.O. Box 8079, Edison NJ 08818-9353.
TO CHANGE YOUR VOTE
You may revoke your proxy by giving proper written notice of revocation to the
Secretary of the Company before your proxy is exercised. Any subsequent vote
by any means will change your prior vote. For example, if you voted by
telephone, a subsequent Internet vote will change your vote. The last vote
received before midnight eastern time, May 7, 2002 will be the one counted.
You may also change your vote by voting in person at the annual meeting.