Exhibit 10(iii)(a)
As Amended and restated effective 1/1/98
HSB GROUP, INC.
LONG-TERM INCENTIVE PLAN
1. Purposes of Plan
The purposes of this Plan are: (a) to provide an additional incentive
for Senior Officers and other selected key employees to increase the
earnings of the Company on a long-term basis; (b) to attract and
retain in the employ of the Company persons of outstanding abilities;
and (c) to more closely align the interests of the Senior Officers and
other selected key employees with those of the shareholders of the
Company.
2. Definitions
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(b) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall
have occurred:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any
securities acquired directly from the Company or its
affiliates) representing 25% or more of the combined voting
power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (A) of
paragraph (iii) below; or
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors then serving:
individuals who, on December 23, 1996, constitute the Board
and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board
or nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors on December 23, 1996 or whose appointment,
election or nomination for election was previously so
approved or recommended; or
(iii)there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
any subsidiary of the Company, at least 60% of the combined
voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including
in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its
Affiliates) representing 25% or more of the combined voting
power of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at
least 60% of the combined voting power of the voting
securities of which are owned by shareholders of the Company
in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall
not be deemed to have occurred by virtue of the consummation
of any transaction or series of integrated transactions
immediately following which the record holders of the common
stock of the Company immediately prior to such transaction
or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Human Resource Committee of the Board
or any future committee of the Board performing similar
functions.
(g) "Company" shall mean HSB Group, Inc. and, except in determining
under this Plan whether or not any Change in Control of the
Company has occurred, shall include any successor to its business
and/or assets which assumes this Plan by operation of law, or
otherwise.
(h) "Disability" shall mean any condition which would entitle an
employee of the Company to receive benefits under the Company's
Long-Term Disability Plan.
(i) "Dividend Equivalent" shall mean an amount equal to the cash
dividends that would have been paid with respect to an award of
Performance Contingent Units paid hereunder if the award
constituted Stock, duly issued and outstanding on the date on
which a dividend is payable on the Shares.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Shares as reported by the New
York Stock Exchange Composite Transaction Reporting System (NYSE)
on the date for which the Fair Market Value is being determined,
or if no quotations are available for the Company's Shares, for
the next preceding date for which such a quotation is available.
If Company Shares are not then listed on the NYSE, Fair Market
Value shall be reasonably determined by the Committee in its sole
discretion.
(l) "Participant" shall mean an employee of the Company to whom an
award has been made under the Plan.
(m) "Performance Contingent Award" shall mean an award of Performance
Contingent Units.
(n) "Performance Contingent Unit" shall mean the right to receive up
to 100% of the value of Shares, which value may be paid in cash
or a Stock Grant, as determined by the Committee, contingent upon
the achievement of Performance Goals established by the
Committee.
(o) "Performance Goals" shall mean specific levels of one or more
Performance Measures at a corporate and/or business unit level
established in writing by the Committee for a particular
Performance Period.
(p) "Performance Measures" shall mean any of the following:
- Insurance Combined Ratio
- Expense Ratio
- Net Income Per Share
- Return on Equity
- Total Shareholder Return
- Return on Assets
- Revenues
- Operating Margin
- Increase in Book Value
- Market Share
(q) "Performance Period" shall mean a three-year period, or such
other period established by the Committee during which any
Performance Goals set by the Committee with respect to a
Performance Contingent Award are to be measured.
(r) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(s) "Plan" shall mean the HSB Group, Inc. Long-Term Incentive Plan.
(t) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan.
(u) "Shares" shall mean the Common Stock of the Company.
(v) "Stock Grant" shall mean a grant of Shares or of a right to
receive Shares (or their cash equivalent or a combination of
both) in the future subject to such conditions and restrictions
as the Committee shall determine at the time of grant.
3. Administration of the Plan
The Plan shall be administered by the Committee as defined herein.
Each member of the Committee shall be a "disinterested director"
within the meaning of Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act and an "outside director" within
the meaning of Section 162(m) of the Code. The Committee is authorized
to interpret the Plan and shall adopt guidelines for carrying out the
Plan as it may deem appropriate. Such guidelines shall be consistent
with the Plan and may include, but need not be limited to, the size
and terms of awards to be made and the conditions for payment of such
awards. Decisions of the Committee shall be final, conclusive and
binding upon all parties concerned, unless otherwise determined by a
vote of a majority of the disinterested members of the Board of
Directors.
4. Shares Subject To the Plan
Subject to Section 9 of the Plan the maximum number of Shares that may
be delivered to Participants and their beneficiaries under the Plan
shall be 250,000. Any Shares covered by a Stock Grant which are
subsequently forfeited, withheld to cover tax withholding or settled
in cash shall be deemed to have not been delivered for purposes of
determining the maximum number of Shares available for delivery under
the Plan.
5. Eligibility
(a) All Senior Officers of the Company (presently defined as Chief
Executive Officer, President, Executive Vice President, Senior
Vice President, Corporate Secretary, Treasurer, General Counsel
and Chief Financial Officer) other than any individual expressly
excluded by the Committee, are eligible to participate in this
Plan. An individual who is elected by the Board as a Senior
Officer following the commencement of a Performance Period shall,
unless otherwise determined by the Committee, be eligible for an
award for such Performance Period(s) based on such individual's
Base Salary in effect at the time of such election, and prorated
for the number of full months within such Performance Period that
such individual was a Senior Officer.
(b) The Committee, in its sole discretion, may designate from time to
time certain other officers or key employees of the Company, its
affiliates and subsidiaries who may participate in this Plan.
6. Establishment of Performance Goals and Performance Contingent Awards
(a) Prior to or within ninety days (or such shorter period as is
required under Section 162(m) of the Code) following the
commencement of each Performance Period, the Committee shall
establish in writing for each Participant, or all Participants as
a group, specific Performance Goals based on one or more
Performance Measures. For each Performance Goal an award schedule
of Performance Contingent Units shall be established for minimum,
target and maximum attainment of such goal. The actual
Performance Contingent Award to be paid to a Participant at the
conclusion of the Performance Period shall be based on the level
of attainment of the Performance Goals established for such
period. The Committee may designate that Performance Contingent
Awards shall be credited with Dividend Equivalents during the
Performance Period which shall be paid when and if such awards
are paid.
(b) After Performance Goals have been established, they shall not be
modified in respect to the Performance Period to which they
relate.
7. Payment of Performance Contingent Awards and Dividend Equivalents
(a) Following the end of a Performance Period, the Committee shall
ascertain and certify in writing whether and the degree to which
the Performance Goals for such period have been met. A
Participant shall be entitled to receive payment of an amount not
exceeding the Fair Market Value of the maximum award of
Performance Contingent Units established by the Committee
pursuant to Section 6 hereof based upon the level of attainment
of the Performance Goals determined by the Committee. The
Committee shall have the authority to reduce the award of any
Participant even if the Performance Goals attributable to such
award have been met. The Committee shall have no authority
hereunder to increase any award calculated under this Plan,
except in accordance with Section 16.
(b) As soon as practicable following certification by the Committee
pursuant to Section 7(a), payment of awards to Participants shall
be made. Payments shall be made in cash, a Stock Grant or a
combination of the foregoing as prescribed by the Committee and
shall be subject to such other conditions and restrictions as the
Committee shall establish.
(c) Payment of any award of Dividend Equivalents shall be made at the
same time as payment of the Performance Contingent Award to which
it relates and shall be made in cash or a Stock Grant as
prescribed by the Committee.
(d) The maximum aggregate Fair Market Value of Performance Contingent
Units (determined as of the first trading day of the Performance
Period) and Dividend Equivalents which may be awarded to any
Participant for any Performance Period shall not exceed $2
million.
8. Deferral of Payment
(a) A Participant may, with permission of the Committee elect to
defer receipt of all or a specified part of any Performance
Contingent Award and related Dividend Equivalents. Such an
election shall be subject to such terms and conditions as are
prescribed by the Committee. Deferral elections are irrevocable
and must be made during the time period and in the manner
prescribed by the Committee.
(b) To the extent that the Committee, in its discretion, determines
that the payment of a Performance Contingent Award would not be
deductible by the Company pursuant to Section 162(m) of the Code,
the Committee may defer payment of all or the non-deductible
portion of such award until such time as such amount would be
deductible. The terms and conditions of any such deferral shall
be prescribed by the Committee.
(c) The right of a Participant to receive any unpaid portion of any
amount deferred hereunder shall be an unsecured claim against the
general assets of the Company.
9. Adjustments in the Event of Change in Common Stock of the Company
In the event of any change in the Shares of the Company by reason of
any stock dividend, stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination, or exchange of shares,
or rights offering to purchase Shares at a price substantially below
Fair Market Value, or of any similar change affecting the Shares, the
number of Performance Contingent Units awarded which have not been
paid and the number of Shares covered by a Stock Grant which have not
been delivered, and the number of Shares which may be delivered
hereunder, shall be appropriately adjusted consistent with such change
in such manner as the Board in its discretion may deem equitable to
prevent substantial dilution or enlargement of the awards and rights
granted to, or available for Participants hereunder. Any fractional
shares resulting from such adjustments shall be eliminated.
10. No Right to an Award or Continued Employment
(a) Nothing contained in this Plan or in any resolution adopted or to
be adopted by the Board of Directors will constitute the granting
of an award hereunder. The granting of an award pursuant to the
Plan will take place only when authorized by the Committee. No
award and no rights of ownership thereunder will be transferable
otherwise than pursuant to Section 12. There is no obligation
imposed on the Committee for uniformity of treatment of
Participants under the Plan.
(b) Nothing in the Plan shall interfere with or limit in any way the
right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue
in the employ of the Company.
11. Rights on Termination of Employment
(a) If a Participant in this Plan shall terminate employment with the
Company on account of Retirement or Disability or otherwise
terminate employment with the written consent of the Company
prior to the expiration of any Performance Period(s) in respect
of which such Participant may be eligible for an award, or if a
subsidiary at which a Participant is employed shall cease to be a
subsidiary of the Company prior to the expiration of any
Performance Period(s), the award(s) paid to such Participant
shall be prorated according to the number of months of employment
in each such Performance Period.
(b) A Participant whose employment terminates by dismissal with or
without cause, or who voluntarily terminates employment without
consent prior to the expiration of a Performance Period, shall
lose any right to receive payment of such award.
(c) In no event shall an award or a portion thereof the payment of
which has been deferred pursuant to Section 8 be subject to
forfeiture.
12. Death of a Participant
(a) A Participant may file with the Corporate Secretary of the
Company a designation of a beneficiary or beneficiaries on the
appropriate form, which designation may be changed or revoked by
the Participant's sole action, provided that the change or
revocation is filed with the Corporate Secretary. In case of the
death of the Participant, before or after termination of
employment, any earned but unpaid portion of an award to which he
or she is entitled and any deferred portions of a deceased
Participant's award shall be delivered to the beneficiary or
beneficiaries so designated or, if no beneficiary has been
designated or survives such Participant, shall be delivered to,
or in accordance with the directions of, the executor or
administrator of such Participant's estate.
(b) If a Participant shall die during a Performance Period, such
Participant's beneficiary shall only be entitled to receive the
award declared for the Performance Period ending in the year of
the Participant's death.
13. Tax Withholding
The Company shall have the right to require Participants to remit to
the Company an amount sufficient to satisfy any tax withholding
requirements or to deduct from any payments made pursuant to the Plan
amounts sufficient to satisfy tax withholding requirements.
14. Modification or Termination
(a) The Committee may at any time terminate or from time to time
modify or suspend, and if suspended, may reinstate any or all of
the provisions of this Plan, subject to any requirement for
shareholder approval imposed by applicable law, except that no
modification of this Plan may be made which will adversely affect
any rights or obligations with respect to any awards theretofore
made under the Plan.
(b) The Corporate Secretary of the Company shall be authorized to
make minor or administrative changes in the Plan or changes
required by or made desirable by law or government regulation.
15. Change in Control
(a) In the event of a Change in Control of the Company, this Plan
shall continue to be binding upon the Company, any successor in
interest to the Company and all persons in control of the Company
or any successor thereto, and no transaction or series of
transactions shall have the effect of reducing or canceling the
award of a Participant that has been declared but not paid unless
consented to in writing by such affected Participant.
(b) As soon as practicable following a Change in Control, a
Participant shall be paid a lump sum amount in cash equal to the
aggregate value of the Performance Contingent Awards payable to
the Participant for each of the Performance Periods within which
the date of the Change in Control occurs, calculated as to each
such Performance Period by multiplying the award that the
Participant would have earned on the last day of such Performance
Period, assuming the achievement of each of the Performance Goals
at the target level established for such Performance Period, by
the fraction obtained by dividing the number of full months and
any fractional portion of a month during such Performance Period
prior to the Change in Control by the total number of months
contained in such Performance Period. For purposes of the
preceding sentence, the amount of cash delivered in payment of
the value of the Performance Contingent Awards shall equal the
number of Performance Contingent Units constituting such each
such award multiplied by the greater of (i) the highest Fair
Market Value per share of Stock at any time during the 60-day
period preceding the Change in Control and (ii) if applicable,
the price of a Share which is paid or offered to be paid, by any
person or entity, in connection with the transaction constituting
the Change in Control. The amount paid hereunder shall be in lieu
of any other awards payable under this Plan for the Performance
Periods within which the Change in Control occurs.
(c) Upon a Change in Control, the restrictions and deferral
limitations applicable to any Stock Grant made pursuant to
Section 7 hereunder shall lapse as of the date of such Change in
Control.
(d) As soon as practicable following a Change in Control, any awards
or Dividend Equivalents previously deferred in accordance with
Section 8 hereof, plus interest accrued thereon up until the date
of payment, shall be paid in full.
16. Other Plans and Special Awards
(a) Nothing contained in this Plan shall prohibit the Committee or
the Board from granting other awards or establishing other
incentive compensation plans providing for the payment of
incentive compensation to employees, including Participants.
(b) Notwithstanding Section 6 and the intention of the Committee to
maintain tax deductibility of awards granted hereunder pursuant
to Section 162(m) of the Code, the Committee reserves the right
to grant awards which do not meet the requirements of Section
162(m) as to deductibility (for example, awards based on measures
other than Performance Measures or not established in accordance
with Section 6 ) in order to recognize unanticipated business
conditions or events which have, or are expected to have, a
significant effect on the Company.
17. Unfunded Obligations; Trust Agreement
(a) The Company will pay from its general assets all awards to be
made hereunder. However, the Company may in its discretion,
establish a trust, escrow agreement or similar arrangement in
order to aid the Company in meeting its obligations hereunder.
(b) Any assets transferred by the Company into any such arrangement
shall remain at all times assets of the Company and subject to
the claims of the Company's general creditors in the event of
bankruptcy or insolvency of the Company. No security interest in
such assets shall be created in a Participant's favor and a
Participant's rights under this Plan and under any such
arrangement shall be those of a general unsecured creditor of the
Company.
18. Assignment and Alienation
Benefits under this Plan may not be anticipated, assigned (either at
law or in equity), alienated, or subjected to attachment, garnishment,
levy, execution or other legal or equitable process. If any
Participant or beneficiary under this Plan becomes bankrupt or
attempts to anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge any benefit under this Plan, such benefit shall, in
the discretion of the Committee, cease and terminate, in which event
the Committee may hold or apply the same or any part thereof for the
benefit of such Participant, his or her beneficiary, spouse, children,
other dependents or any of such individuals, in such manner and in
such proportion as the Committee may deem proper.
19. Effective Date and Termination of the Plan
This Plan, as amended, shall become effective as of January 1, 1998
subject to the approval of the shareholders at their annual meeting in
1998. Unless earlier terminated by the Committee subject to Section
14, the Plan shall terminate on December 31, 2003. No Performance
Contingent Award shall be made pursuant to this Plan after the
termination date, but awards made prior to its termination date may
extend beyond that date.