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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HARTFORD LIFE, INC.
--------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[_] Fee paid previously with preliminary materials
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
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HARTFORD LIFE, INC.
1998
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
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March 31, 1998
Dear Shareholder:
I am pleased to invite you to attend the 1998 annual meeting of shareholders
of Hartford Life, Inc. ("Hartford Life") to be held at 2:00 p.m. on Thursday,
May 21, 1998 at the Sheraton Chicago Hotel & Towers in Chicago, Illinois. This
is Hartford Life's first annual meeting of public shareholders since Hartford
Life completed its initial public stock offering in May 1997. We hope that you
will participate in the annual meeting either by attending and voting in
person or by completing and returning the enclosed proxy as promptly as
possible. Your vote is important.
The accompanying notice of annual meeting and proxy statement provide
information about the matters to be acted upon by Hartford Life's
shareholders. The proxy statement also contains information about the role and
responsibilities of the Board of Directors and the committees of the Board and
provides important information about each nominee for election as a director.
Sincerely yours,
Ramani Ayer
Chairman of the Board
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HARTFORD LIFE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders (the "Annual Meeting") of Hartford
Life, Inc. (the "Company") will be held on Thursday, May 21, 1998 at 2:00 p.m.
at the Sheraton Chicago Hotel & Towers, 301 East North Water Street, Chicago,
Illinois, for the following purposes:
1. to elect three nominees to the Board of Directors to hold office until
the 2001 annual meeting of shareholders and until their successors are
elected and qualified;
2. to ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998;
and
3. to act upon such other matters as may properly come before the Annual
Meeting.
Only shareholders of record at the close of business on March 24, 1998 are
entitled to notice of, and to vote at, the Annual Meeting.
Michael O'Halloran
Vice President and Secretary
March 31, 1998
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HARTFORD LIFE, INC.
200 HOPMEADOW STREET
SIMSBURY, CT 06089
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
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GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of Hartford
Life, Inc. (the "Company" or "Hartford Life") in connection with the annual
meeting of shareholders of the Company to be held on Thursday, May 21, 1998 at
2:00 p.m. at the Sheraton Chicago Hotel & Towers, 301 East North Water Street,
Chicago, Illinois, and at any adjournment or postponement thereof (the "Annual
Meeting"). This Proxy Statement and the accompanying proxy card are first
being sent to shareholders on or about March 31, 1998.
VOTING RIGHTS
Only shareholders of record as of March 24, 1998 (the "Record Date") are
entitled to notice of, and to vote at, the Annual Meeting. As of March 2,
1998, there were 25,990,382 shares of class A common stock ("Class A Common
Stock") outstanding and 114,000,000 shares of class B common stock ("Class B
Common Stock") outstanding (the Class A Common Stock and the Class B Common
Stock are collectively referred to as the "Common Stock"). All of the
outstanding shares of Class B Common Stock are held by Hartford Accident &
Indemnity Company ("Hartford A&I"), an indirect wholly-owned subsidiary of The
Hartford Financial Services Group, Inc. ("The Hartford"). Each shareholder of
the Class A Common Stock is entitled to one vote per share, and each
shareholder of the Class B Common Stock is entitled to five votes per share,
on all matters voted upon at the Annual Meeting. Shareholders of the Class A
Common Stock and the Class B Common Stock vote together as a single class on
all matters, except as otherwise required by law.
VOTING BY PROXY
When you return a proxy card that is properly signed, the shares of Class A
Common Stock represented by the proxy will be voted as you specify on the
proxy card. As to the election of directors, by marking the appropriate box
you may (a) vote for all of the director nominees as a group except those
nominees whose names you specify on the card, or (b) withhold your vote from
all nominees as a group. As to the other item, you may vote "for" or "against"
the item or "abstain" from voting by marking the appropriate box.
If you properly sign and return your proxy card but do not specify any
choices you will thereby confer authority upon the persons named as proxies to
vote your shares in their discretion. The proxy also confers discretionary
authority on these individuals to vote your shares of Class A Common Stock on
(1) any matter that was not known on the date of this Proxy Statement but is
presented at the Annual Meeting, including voting on the nomination or
election of any person not identified in this Proxy Statement as a nominee for
election as a director; and (2) any shareholder proposal that has been omitted
from this Proxy Statement pursuant to the proxy regulations of the Securities
and Exchange Commission ("SEC") but is presented at the Annual Meeting.
Your vote is important and the Board of Directors urges you to exercise your
right to vote. Whether or not you plan to attend the Annual Meeting, you can
assure that your shares are voted by properly completing, signing, dating and
returning the enclosed proxy card. You may revoke your proxy at any time
before it is exercised by giving written notice thereof to the Secretary of
the Company, by submitting a subsequently dated and properly signed proxy, or
by attending the Annual Meeting and revoking the proxy. Your attendance at the
Annual Meeting will not by itself revoke your proxy.
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Shares of Class A Common Stock held in the Hartford Investment and Savings
Plan ("ISP") and in the Company's Deferred Restricted Stock Unit Plan ("Stock
Unit Plan") are held of record and are voted by the trustees of the ISP and
the Stock Unit Plan, respectively. Shares of Class A Common Stock held in the
Company's Employee Stock Purchase Plan ("ESPP") are held of record by the
ESPP's administrator, Dean Witter Trust Company ("Dean Witter"), and are voted
by Dean Witter. Participants in the ISP, the Stock Unit Plan and the ESPP may
direct the trustees and Dean Witter as to how to vote shares allocated to
their ISP, Stock Unit Plan and ESPP accounts by properly signing, completing
and returning the enclosed proxy card. The ISP and Stock Unit Plan trustees
will vote shares as to which they have not received direction in accordance
with the terms of the ISP and the Stock Unit Plan.
ITEM 1
ELECTION OF DIRECTORS
The Company's restated certificate of incorporation provides for a
classified Board of Directors whose members are divided into three classes,
with each class being as nearly equal in number as possible. At each annual
meeting of shareholders, nominees are elected as directors to a class with a
term of office that expires at the annual meeting of shareholders held three
years thereafter, and until their successors are elected and qualified. The
Board of Directors currently consists of ten members, classified as set forth
below.
The terms of office of Paul G. Kirk, Jr., Gordon I. Ulmer and David K.
Zwiener expire at the Annual Meeting, and each of such persons has been
nominated for reelection as a director to the class whose term of office will
expire at the annual meeting to be held in 2001, and until their successors
are elected and qualified. Gail Deegan, Lowndes A. Smith and DeRoy C. Thomas
are members of the class of directors whose terms will expire at the annual
meeting to be held in 1999, and Ramani Ayer, Donald R. Frahm, H. Patrick
Swygert and Robert E. Patricelli are members of the class of directors whose
terms expire at the annual meeting to be held in 2000.
Unless there is a contrary indication, shares of Class A Common Stock
represented by valid proxies will be voted for the election of all nominees.
The Board has no reason to believe that any nominee will be unable to serve as
a director. If for any reason a nominee should become unable to serve, the
shares represented by valid proxies will be voted for the election of such
other person as the Board may recommend, or the Board may reduce the number of
directors to eliminate the vacancy.
Set forth below is certain information about each director and nominee for
election as a director, including information regarding his or her background
for at least the past five years.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
[PHOTO APPEARS HERE]
PAUL G. KIRK, JR.
Mr. Kirk, 60, has served on the Board of Directors since 1997.
He became a partner in the law firm of Sullivan & Worcester in
1977 and is presently of counsel to the firm. Mr. Kirk served as
Chairman of the Democratic Party of the United States from 1985 to
1989 and as Treasurer from 1983 to 1985. Following his resignation
in 1989 as Chairman of the Democratic Party of the United States,
he returned to Sullivan & Worcester as a partner in general
corporate practice at the firm's Boston and Washington offices.
Mr. Kirk is a director of The Hartford and Kirk & Associates,
Inc., of which he also is Chairman and Treasurer. He is also a
director of Bradley Real Estate, Inc. and Rayonier, Inc. Mr. Kirk
is Co-chairman of the Commission on Presidential Debates, Chairman
of the John F. Kennedy Library Foundation Board of Directors,
Chairman of the Board of Directors of the National Democratic
Institute for International Affairs, and a trustee of Stonehill
College and St. Sebastian's School. He is a graduate of Harvard
College and Harvard Law School.
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[PHOTO APPEARS HERE]
GORDON I. ULMER
Mr. Ulmer, 65, has been a director since 1997. He is former
Chairman and Chief Executive Officer of the former Connecticut
Bank and Trust Company ("CBT") and retired President of the former
Bank of New England Corporation, the former holding company of CBT
("BNEC"). He joined CBT in 1957 and held numerous positions before
being elected President and a director in 1980 and Chairman and
Chief Executive Officer in 1985. In 1988 he was elected President
of BNEC, and retired as President in December 1990. Mr. Ulmer also
serves as a director of The Hartford, Rayonier, Inc., and the Old
State House Association. He is a graduate of Middlebury College,
the American Institute of Banking and Harvard Business School
Advanced Management Program and attended New York University's
Graduate School of Engineering.
[PHOTO APPEARS HERE]
DAVID K. ZWIENER
Mr. Zwiener, 43, has been a director since 1997. He has been
Executive Vice President and Chief Financial Officer of The
Hartford since August 1995, and has also served on The Hartford's
Board of Directors since 1997. He previously served as Executive
Vice President and Chief Financial Officer of ITT Financial
Corporation since March 1993. From November 1987 to February 1993,
Mr. Zwiener served as Senior Vice President and Treasurer, and
Executive Vice President--Capital Markets Division, of Heller
International Corporation.
DIRECTORS IN CLASSES CONTINUING IN OFFICE
[PHOTO APPEARS HERE]
RAMANI AYER
Mr. Ayer, 50, has been Chairman of the Company since 1997, and
became Chairman, President and Chief Executive Officer of The
Hartford on February 1, 1997. Prior to that, he served as an
Executive Vice President of The Hartford since the ITT Corporation
Spin-Off in December 1995, a transaction in which The Hartford
became a separate public company from ITT Corporation (the "ITT
Spin-Off"). Mr. Ayer has been President and Chief Operating
Officer of Hartford Fire Insurance Company ("Hartford Fire"), The
Hartford's principal property and casualty insurance subsidiary,
since 1991 and previously served as Executive Vice President of
Hartford Fire from 1990 to April 1991 and Senior Vice President
from 1989 to 1990. Mr. Ayer joined The Hartford in 1973 as a
member of the operations research department. During his career,
he has been Director of corporate reinsurance, Vice President of
HartRe, The Hartford's reinsurance subsidiary, and President of
Hartford Specialty Company. He is Vice Chairman of the American
Insurance Association, a member of the Listed Company Advisory
Committee to the New York Stock Exchange Board of Directors, and
serves on the Boards of the American Institute for CPCU/IIA, and
the Insurance Information Institute. Mr. Ayer is a director of
Hartford Hospital, the Greater Hartford Chamber of Commerce, and
is a trustee of the Mark Twain House in Hartford, Connecticut. He
is also a member of the Business Roundtable.
[PHOTO APPEARS HERE]
GAIL DEEGAN
Ms. Deegan, 51, has served as a director since 1997. She has
been Executive Vice President, Treasurer and Chief Financial
Officer of Houghton Mifflin Company, a publishing company, since
1996. Prior to that, Ms. Deegan was Senior Vice President--
Regulatory and Government Affairs of NYNEX. From 1991 to 1994, she
was Vice President and Chief Financial Officer of New England
Telephone Company. From 1978 to 1988, Ms. Deegan held various
positions of increasing responsibility at Eastern Gas & Fuel
Company, located in Western Massachusetts, where she served as
Senior Vice President, Chief Financial Officer and Treasurer from
1988 to 1990.
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[PHOTO APPEARS HERE]
DONALD R. FRAHM
Mr. Frahm, 66, has served as a director of the Company since
1997, and served as Chairman, President and Chief Executive
Officer of The Hartford from April 1988 until his retirement on
January 31, 1997. He has been a director of The Hartford since
1985. Mr. Frahm is a director of Hartford Hospital, University of
Hartford and the Greater Hartford Chamber of Commerce. He is also
a corporator of Connecticut Children's Medical Center.
[PHOTO APPEARS HERE]
ROBERT E. PATRICELLI
Mr. Patricelli, 58, has been a director of the Company since
1997. Since 1997 he has been Chairman and Chief Executive Officer
of Women's Health USA, Inc., a health care services company. Prior
to that, he was the founder, and Chairman, President and Chief
Executive Officer of Value Health, Inc., a provider of specialty
managed care and health care consulting services, from 1987 to
1997. From 1983 to 1987, Mr. Patricelli was Executive Vice
President of Cigna Corp. and President of its affiliated business
group. He is a director of Northeast Utilities, Curagen
Corporation, the Connecticut Business and Industry Association,
Wesleyan University and The Bushnell. Mr. Patricelli also held
various positions in the federal government, starting as a White
House Fellow in 1965, and serving as a minority counsel to a U. S.
Senate subcommittee, Deputy Undersecretary of the Department of
Health, Education and Welfare, and Administrator of the Urban Mass
Transportation Administration. He is a graduate of Wesleyan
University and Harvard Law School, and was a Fulbright Scholar at
the University of Paris.
[PHOTO APPEARS HERE]
LOWNDES A. SMITH
Mr. Smith, 58, became President and Chief Executive Officer of
the Company in connection with the Company's initial public
offering of Class A Common Stock that was completed in May 1997
(the "Hartford Life IPO"), and became Vice Chairman of The
Hartford on February 1, 1997. He also served as an Executive Vice
President of The Hartford since the ITT Spin-Off in December 1995
until his appointment as Vice Chairman and served as President and
Chief Operating Officer of The Hartford's life insurance companies
since 1989. Prior to that time, he served as Senior Vice President
and Group Controller for all companies owned or operated by The
Hartford. Mr. Smith joined The Hartford in 1968 as a member of the
corporate accounting department. In 1972 he was appointed the
Secretary and Director of corporate accounting. He was elected
Assistant Vice President in 1974, and he was named Controller in
1977. Mr. Smith is a director of the Connecticut Children's
Medical Center.
[PHOTO APPEARS HERE]
H. PATRICK SWYGERT
Mr. Swygert, 55, has been a director since 1997. He has been
President of Howard University, Washington, D.C., since August
1995. Prior to that, he was President of the University at Albany,
State University of New York, since 1990. Mr. Swygert received his
undergraduate and law degrees from Howard University, has been a
visiting professor and lecturer abroad and is the author of
numerous articles and publications on higher education and the
law. He is a member of the Board of Directors of The Hartford and
The Victory Funds, Cleveland, Ohio. Mr. Swygert is Chairman of the
Washington, D.C. Area Consortium of Colleges and Universities, a
trustee of the Institute of Public Administration and a member of
the Commission on Women in Higher Education and the Capital
District Martin Luther King, Jr. Commission.
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[PHOTO APPEARS HERE]
DEROY C. THOMAS
Mr. Thomas, 72, has been a director of the Company since 1997.
He was a partner of LeBoeuf, Lamb, Greene & MacRae, a law firm in
New York, New York, from 1991 through December 31, 1994. He was
President, Chief Operating Officer and a director of ITT
Corporation from 1988 to 1991, and from 1983 to 1988 he was Vice
Chairman and Chief Operating Officer, ITT Diversified Services,
and Chairman and Chief Executive Officer of The Hartford. He is a
director of The Hartford, Houghton Mifflin Company, Connecticut
Health Services and MedSpan, Inc. He is also a former trustee of
Fordham University, Wheelock College, University of Hartford,
Hartford Hospital and CT Health System. Mr. Thomas is President of
Goodspeed Opera House and the former Chairman of the Old State
House Association.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is responsible for establishing broad corporate
policies and for overseeing the overall performance of the Company. The Board
reviews significant developments affecting the Company and acts on matters
requiring Board approval. During 1997, the Board held three meetings. The
standing committees of the Board are the Audit, Compensation and Personnel and
Nominating committees. Each committee is comprised solely of directors who are
not officers of, or otherwise employed by, the Company or any of its
subsidiaries, except for the Nominating Committee which is comprised of all
directors. Set forth below is a description of the duties of each committee
and its members.
The Audit Committee recommends the selection of independent auditors for the
Company, confirms the scope of audits to be performed by such auditors,
reviews audit results and internal accounting and control procedures and
policies, and reviews the fees paid to the Company's independent auditors. The
Committee reviews and recommends approval of the audited financial statements
of the Company and the annual report on Form 10-K that is filed with the SEC.
It also reviews the expense accounts of senior executives. The members of the
Audit Committee are Messrs. Kirk, Thomas (Chairman) and Patricelli, and Ms.
Deegan. During 1997, the Committee held four meetings.
The Compensation and Personnel Committee evaluates senior management
performance and establishes executive compensation policies. Messrs. Frahm,
Swygert and Ulmer (Chairman) are the members of the Committee. The Committee
held two meetings during 1997.
The Nominating Committee makes recommendations concerning the organization,
size, and composition of the Board and its committees, proposes nominees for
election to the Board and its committees and considers the qualifications,
compensation, and retirement of directors. All members of the Board of
Directors serve on the Nominating Committee. During 1997, the Committee held
one meeting. The Nominating Committee will consider nominations of persons for
election as directors that are submitted by shareholders in writing in
accordance with certain requirements set forth in the Company's bylaws.
In 1997, no director failed to attend at least seventy-five percent of all
meetings of the Board of Directors and of the committees of which he or she
was a member.
DIRECTORS' COMPENSATION
STANDARD FEES. Members of the Board of Directors who are employees of the
Company or its subsidiaries or The Hartford or its subsidiaries are not
compensated for service on the Board or any of its committees. Compensation
for non-employee directors currently consists of an annual retainer fee of
$20,000 payable solely in restricted shares of Class A Common Stock pursuant
to the 1997 Hartford Life Restricted Stock Plan for Non-Employee Directors
(the "Non-Employee Directors Plan") described below, a $1,000 fee for each
meeting of the Board attended and a $1,000 fee for each committee meeting
attended. Directors are also reimbursed for travel and related expenses
incurred on behalf of the Company.
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RESTRICTED STOCK PLAN. Under the Non-Employee Directors Plan, non-employee
directors receive grants of shares of restricted Class A Common Stock as
payment for their annual retainer fee. Restricted stock grants are made
automatically on the date of each annual meeting of shareholders to each non-
employee director elected at, or continuing in office following, the annual
meeting. The number of shares of restricted stock is determined by dividing
the annual retainer for the year of the award by the fair market value of the
Class A Common Stock as reported on the New York Stock Exchange (the "NYSE")
as of the date of the award.
Non-employee directors receiving restricted stock may not sell, assign or
otherwise dispose of the stock until the restriction period ends. The
restriction period ends upon the earliest to occur of: (i) five years after
the grant date, (ii) retirement at age seventy-two, (iii) a "change of
control" (as defined in the plan) of the Company or The Hartford, (iv) death,
(v) disability, or (vi) resignation under certain circumstances, as set forth
in the plan. If a non-employee director resigns other than under such
circumstances before the restriction period ends, he or she will forfeit his
or her restricted shares.
INSURANCE. The Company provides non-employee directors with $100,000 of
group life insurance coverage and $750,000 of accidental death and
dismemberment and permanent total disability coverage while they are serving
on the Board. Non-employee directors may purchase additional benefits under
these policies.
REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
On May 22, 1997, the Hartford Life IPO was completed and the Company became
a public company that is majority-owned by The Hartford. Prior to the Hartford
Life IPO, all compensation matters that pertained to the senior executives of
the Company were considered by The Hartford's Compensation and Personnel
Committee (the "Hartford Committee") and, where required, by the full Board of
Directors of The Hartford. As a result, until May 22, 1997, compensation
decisions affecting Company senior executives were made in the context of the
compensation policies followed by The Hartford.
The current Board of Directors of the Company was elected in connection with
the Hartford Life IPO, and the current members of the Company's Compensation
and Personnel Committee (the "Committee") were appointed effective July 17,
1997. Since its inception, the Committee has reviewed and approved certain
compensation actions relating to the Company's 1997 fiscal period, which
actions are described in this report. The Committee also considered and
approved a philosophy for executive compensation, the details of which also
are discussed herein. Following this report is a Summary Compensation Table
that sets forth all 1997 compensation earned by, and awarded or paid to,
Lowndes A. Smith, who served as President and Chief Executive Officer during
1997, and the other Named Executives (defined below) included in that table.
Other tables following this report provide information on stock option and
other long-term performance grants, and a performance graph compares the
cumulative total return on the Class A Common Stock to the cumulative total
returns of the S&P 500 Index and an index consisting of peer insurance
companies.
COMMITTEE ROLE IN OVERSEEING EXECUTIVE COMPENSATION POLICY
A primary role of the Committee is to determine and oversee the
administration of compensation for the Company's executives, including its
senior executive officers ("Senior Executives"). In this capacity, the
Committee is dedicated to ensuring that the Company's compensation policies
and practices are used effectively to support the achievement of the Company's
short-term and long-term business objectives.
There are several principles that guide the Committee in its decision-making
capacity. The Committee:
. Adheres to a pay-for-performance philosophy, ensuring that aggregate
compensation levels paid to Senior Executives reflect the extent to which
the Company's key operating goals are fulfilled.
. Reinforces the central importance of shareholder value creation by
relying heavily on compensation programs that deliver value to Senior
Executives only when shareholders realize corresponding gains.
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. Encourages the acquisition of Company stock by Senior Executives with the
objective of strengthening the common interests of management and
shareholders, thereby promoting the maximization of shareholder value.
. Establishes Senior Executive compensation levels in relation to the pay
rates that are offered at companies with which the Company competes for
senior management talent.
. Maintains a total compensation perspective on Senior Executive pay in
judging the appropriateness of rewards for the Company's Senior
Executives.
DESCRIPTION OF EXECUTIVE COMPENSATION POLICIES
The compensation program of the Company's Senior Executives is characterized
by base salary levels that are targeted somewhat below market rates, a heavy
emphasis on performance-based, variable compensation, which when combined with
base salary, provides above market total compensation for successful
performance, a strong connection between pay and the Company's stock price,
and commitment to promote enhanced share ownership among Senior Executives.
Consistent with the shareholder value orientation of this program, the
Committee has authorized guidelines for Senior Executive share ownership which
should serve to further align the interests of management and investors. The
guidelines provide that within a five-year period from the year of hire Senior
Executives should attain an investment position in the Company's stock that is
equal to two or three times their base salary, depending on the position of
the Senior Executive. The Committee believes that this compensation program
will effectively catalyze Senior Executive activities in support of the
Company's goal achievement and appropriately recognize the contributions of
every Senior Executive.
It is the Company's policy to target Senior Executive compensation levels in
relation to pay rates that are typical at organizations with which the Company
competes for senior management talent. For corporate Senior Executives, the
competitive market generally includes other leading insurance companies,
although general industry practices are also considered when reviewing pay for
certain Senior Executives whose functional responsibilities are not
exclusively insurance related. For line of business Senior Executives, pay is
in line with practices that are common at leading insurance companies, as well
as other financial institutions that offer competing insurance and financial
products.
Consistent with the Company's pay-for-performance orientation, Senior
Executive base salaries are targeted at levels that represent ninety percent
of prevailing market rates. Total compensation is designed to reach 120
percent of market norms, but only when the Company's challenging performance
goals are fully achieved. Actual compensation levels may lead or lag these
goals, but the terms of the compensation program ensure such variances depend
principally on the Company's stock price appreciation and demonstrated
operating success.
The principal elements of the compensation program are: a base salary tied
to individual value added; an annual incentive opportunity dependent on
operating results and promoting Senior Executive share ownership; and stock
options and long-term compensation tied to earnings growth and stock price
appreciation. Each of these elements is discussed below.
1997 COMPENSATION
1997 BASE SALARY
The Company's compensation policy is to pay base salaries for Senior
Executives at levels that represent ninety percent of the median salaries paid
by organizations with which the Company competes for senior executive talent.
Total compensation, comprised of base and variable pay, can achieve 120
percent of the market norm when performance goals are fully met. In assessing
a Senior Executive's salary level each year, the Committee's principal
consideration is the Senior Executive's performance on the job, including his
or her demonstrated contributions to the Company's goal achievement. In
considering salary actions, the Committee also reviews internal compensation
equity and the Senior Executive's level of responsibility, experience, and
expertise.
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Prior to the Hartford Life IPO, the Hartford Committee approved salary
increases of $75,000, and $25,000 for Messrs. Smith and Marra, respectively,
effective on February 1, 1997. Effective June 1, 1997, the Committee approved
an interim salary increase of $18,000 for Mr. Boyko, reflecting his
appointment as Chief Financial Officer. These increases were driven by a
combination of the aforementioned policies and considerations. In addition,
Mr. Smith has an employment agreement with the Company and The Hartford that
provides for a minimum annual base salary of $600,000, as described below
under the heading "Employment Agreements."
1997 VARIABLE COMPENSATION
Variable compensation reinforces the Company's pay-for-performance
philosophy and is a key element to the overall compensation program. Variable
compensation includes annual and long-term incentive compensation
opportunities. Annual incentive compensation is designed to deliver about
twenty-five percent of variable compensation, while long-term incentives are
designed to deliver the remaining seventy-five percent. All variable
compensation programs also facilitate Senior Executives' acquisition of the
Company's stock thereby promoting a coordination of interest between
management and shareholders.
ANNUAL INCENTIVES
Each year, the Committee will review management's suggestions for
performance goals, the achievement of which will enhance the Company's value.
The Committee will also review and approve with respect to each Senior
Executive, annual incentive payment levels payable in the event performance
goals are fully achieved. Actual annual incentive payments vary with
performance relative to such goals. Better performance generates larger
awards; lesser results yield smaller awards.
Ordinarily, corporate or staff Senior Executives earn annual incentives
based on corporate and individual performance. Incentives for line of business
Senior Executives may relate to corporate, line of business, and individual
performance. On occasion, the Committee may approve management's
recommendation for customized annual incentive arrangements where they are
appropriate to address competitive market requirements or business needs.
For 1997, the amounts of annual incentive awards were based on financial
performance for the year compared to annual performance goals established by
the Hartford Committee at the beginning of the year. For 1997, the performance
goals for Messrs. Smith and Boyko were life core earnings compared to budget
and life return on equity compared to budget. The performance goals for
Messrs. Ginnetti, Marra and Welnicki included life core earnings, division net
income, return on equity, and sales and growth compared to budget.
For 1997, based on these goals, the Committee awarded an annual incentive of
$418,400, $303,750, $643,125, $90,000 and $138,040 to Messrs. Smith, Ginnetti,
Marra, Boyko and Welnicki, respectively.
Consistent with the Company's interest in promoting a strong alignment
between management and shareholder interests, Senior Executives may elect to
forego receiving up to half their annual incentives in exchange for the right
to receive shares of Class A Common Stock ("Stock Units"). Receipt of actual
shares of Class A Common Stock is deferred during a three-year restriction
period applicable to the Stock Units. Senior Executives who elect to convert a
portion of their annual incentive payments to Stock Units are rewarded with
additional Stock Units equal to ten percent of the amount converted, and
actual shares relating to these incremental Stock Units also will be deferred
as to receipt and restricted for a period of three years.
STOCK OPTIONS
For 1997, the Hartford Committee provided eligibility to all executives for
grants of stock options. Stock options provide executives with the opportunity
to acquire an equity interest in the Company and to participate in the
creation of shareholder value as reflected in growth in the price of the
Company's stock. The option exercise price equals 100 percent of the fair
market value of the Class A Common Stock on the date of option grant, thereby
ensuring that plan participants will derive benefits only as shareholders
realize corresponding gains. To ensure a long-term perspective, options have a
maximum ten-year and two day term.
The Committee believes that the practice of granting stock options annually
reinforces the Company's policy of encouraging stock ownership by executives
in support of building shareholder value. Furthermore,
8
<PAGE>
options provide value to Senior Executives only when shareholders realize
positive returns on their investment in the Company. In this way, stock option
grants reward Senior Executives only in conjunction with value creation for
shareholders.
On January 24, 1997, options to purchase an aggregate of 77,705 shares of
common stock of The Hartford ("Hartford Common Stock") were granted under The
Hartford 1995 Incentive Stock Plan to Messrs. Smith, Ginnetti, Marra, Boyko
and Welnicki at an exercise price of $72.25 per share (the closing price of a
share of Hartford Common Stock on the NYSE on January 24, 1997). After the
Hartford Life IPO, each of the executives, except for Mr. Smith, converted all
of these options for options to purchase the Company's Class A Common Stock
under the 1997 Hartford Life, Inc. Incentive Stock Plan (the "Incentive Stock
Plan") pursuant to a formula approved by the Hartford Committee to preserve
the economic value of the options to purchase Hartford Common Stock. Mr. Smith
converted sixty percent of his option grant.
To further align the interests of Senior Executives and shareholders, the
options granted to Messrs. Smith, Ginnetti, Marra, Boyko and Welnicki included
a performance-based provision that would allow the options to become
exercisable upon the earlier to occur of (i) the closing price of Hartford
Common Stock on the NYSE equaling or exceeding 125 percent of the option
exercise price for a period of at least ten consecutive trading days, or (ii)
seven years from the date of option grant. These options became exercisable on
December 12, 1997 when the closing price of the Class A Common Stock on the
NYSE remained at or above $38.925 per share (being 125% of the $31.14 grant
price after the conversion) for at least ten consecutive trading days. The
portion of Mr. Smith's option to purchase Hartford Common Stock that was not
converted became exercisable on February 20, 1998, when the closing price of
Hartford Common Stock remained at or above $90.3125 per share (being 125% of
the $72.25 grant price) for at least ten consecutive trading days. Options for
other executives become exercisable at the cumulative rate of one-third per
year for the first three years from the date of grant.
Effective July 17, 1997, an option to purchase an additional 7,956 shares of
Class A Common Stock was granted to Mr. Boyko to reflect his appointment as
Chief Financial Officer. The exercise price of the option was $39.13 per share
and becomes exercisable when the closing price of the Class A Common Stock on
the NYSE remains at or above $48.91 per share (125% of the grant price) for at
least ten consecutive trading days.
Further information regarding option grants for the named Senior Executives
during 1997 is included in the option tables following this report.
1997 LONG-TERM PERFORMANCE PROGRAM
Senior Executives and other executives received the opportunity to earn
shares of Class A Common Stock contingent on the Company achieving certain
performance objectives over a three-year period. Under the terms of these
awards made in 1997, there are two equally weighted performance objectives
measured over the 1997-1999 period: (i) cumulative core earnings per share and
(ii) total shareholder return (stock price appreciation and dividends
reinvested) relative to the returns generated by an index of the Company's
competitors. Target level core earnings per share coupled with a total
shareholder return equal to the average of the peer group will result in the
awarding of a target number of shares. Better performance (up to a maximum of
150 percent) will yield a larger payout; poorer performance (to a minimum of
75 percent) will mean proportionally smaller payments. If the minimum
threshold is not achieved, no shares will ultimately be awarded.
On January 24, 1997, the Hartford Committee granted to Mr. Smith a
performance share award of 4,444 shares of Hartford Common Stock, and approved
dollar values for future performance share awards for Messrs. Smith, Ginnetti,
Marra, Boyko and Welnicki. On May 22, 1997, after the Hartford Life IPO,
Messrs. Smith, Ginnetti, Marra, Boyko and Welnicki were granted performance
share awards relating to the Class A Common Stock of 15,411 shares, 4,281
shares, 6,849 shares, 1,215 shares, and 4,281 shares, respectively, based on
the dollar values previously approved by the Hartford Committee. On July 17,
1997, Mr. Boyko was granted an additional performance share award of 1,867
shares of Class A Common Stock to reflect his appointment as Chief Financial
Officer.
9
<PAGE>
SPECIAL RESTRICTED STOCK AND STOCK OPTION GRANTS
In order to provide an additional long-term incentive to Mr. Smith, on
February 1, 1997, the Hartford Committee granted to him 20,000 shares of
restricted Hartford Common Stock. The restricted stock may not be sold or
otherwise transferred until three years after the grant date. On May 22, 1997,
after the Hartford Life IPO, 10,000 of these restricted shares were converted
into 23,205 restricted shares of Class A Common Stock pursuant to a formula
approved by the Hartford Committee to preserve the economic value of Mr.
Smith's restricted shares of Hartford Common Stock.
In order to provide an additional long-term incentive to Mr. Marra, on
February 1, 1997, the Hartford Committee approved an award of equivalent
economic value to 15,000 shares of Hartford Common Stock, contingent on
completion of the Hartford Life IPO. On May 22, 1997, after the Hartford Life
IPO, and pursuant to a formula approved by the Hartford Committee, the
Committee granted to Mr. Marra 34,808 restricted shares of Class A Common
Stock. One-third of the restricted stock may not be sold or otherwise
transferred until three years after the grant date. The balance of the
restricted stock may not be sold or otherwise transferred until seven years
after the grant date.
In order to motivate achievement of aggressive long term goals, a special
performance-oriented award of stock options to purchase Hartford Common Stock
was granted by the Hartford Committee on December 17, 1997. Messrs. Smith,
Ginnetti, Marra and Welnicki were each granted an option to purchase 100,000,
30,000, 37,500 and 30,000 shares of Hartford Common Stock, respectively. As
part of this program, 10,000 shares of restricted Hartford Common Stock were
also granted to Mr. Smith. The stock options were granted with an exercise
price of $88.9375, which was the fair market value of Hartford Common Stock on
the date of the grants, and carry a maximum ten-year and two-day term. Special
performance and vesting requirements were attached to both the stock options
and restricted stock grants. The options may not be exercised, and the
restrictions on the restricted shares will not lapse, until March 1, 2001. In
addition, in order for fifty percent of each grant to vest, the closing price
of Hartford Common Stock on the NYSE must be $123 per share or more for at
least ten consecutive trading days by March 1, 2001. An additional twenty-five
percent and the remaining twenty-five percent will vest only if the closing
price of Hartford Common Stock on the NYSE is $126 and $130 per share or more,
respectively, for at least ten consecutive trading days by March 1, 2001. If
the price and vesting requirements are met, the options become exercisable and
the restricted stock becomes unrestricted on March 1, 2001. If either the
price or the vesting requirements are not met, the options and the restricted
stock (or the portion thereof) are forfeited.
COMPLIANCE WITH SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly-traded company a Federal income tax deduction for
compensation in excess of $1 million paid to certain of its executive officers
unless the amount of such excess is payable based solely upon the attainment
of objective performance criteria. The Committee believes that tax
deductibility of compensation is an important factor, but not the sole factor,
to be considered in setting executive compensation policy. Accordingly, the
Committee generally intends to take such reasonable steps as are required to
avoid the loss of a tax deduction due to Section 162(m), but reserves the
right to pay amounts which are not deductible in appropriate circumstances.
SUMMARY
The Committee is responsible for reviewing, monitoring, and approving all
compensation decisions affecting Company Senior Executives. The Committee
expects that all compensation paid to Senior Executives will be consistent
with the Company's interest in providing market competitive compensation
opportunities, within the context of a pay-for-performance environment, and in
a manner that is supportive of the Company's business mission. The Committee
will continue to actively monitor the effectiveness of the Company's Senior
Executive compensation plans and assess the appropriateness of Senior
Executive pay levels to assure prudent use of Company resources.
THE COMPENSATION AND PERSONNEL COMMITTEE:
Gordon I. Ulmer, Chairman
Donald R. Frahm
H. Patrick Swygert
10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Donald R. Frahm, a member of the Compensation and Personnel Committee of the
Board of Directors, served as the Chairman, President and Chief Executive
Officer of The Hartford, and was an officer of various subsidiaries of The
Hartford and the Company, until his retirement on January 31, 1997.
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides information regarding the cash and other
compensation of those persons who, during 1997, (i) served as the Company's
Chief Executive Officer and (ii) were the four other most highly compensated
executive officers (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------- -------
SECURITIES
NAME AND RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR(1) SALARY ($) BONUS ($) ($) (#) ($) ($)(8)
--------- ------- ---------- --------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lowndes A. Smith........ 1997 593,750 418,400 745,461(2) 65,675(6) -- 24,505
President and Chief
Executive 733,750(3) 118,868(7)
Officer 889,375(4)
15,500(5)
1996 525,000 310,000 -- 37,200(7) -- 21,260
John P. Ginnetti........ 1997 375,000 303,750 16,750(5) 18,244(6) -- 16,010
Executive Vice
President, 30,000(7)
Asset Management 1996 375,000 335,000 -- 11,500(7) -- 16,802
Thomas M. Marra......... 1997 372,917 643,125 1,118,207(2) 29,190(6) -- 16,855
Executive Vice
President, 21,350(5) 37,500(7)
Individual Life and
Annuities 1996 350,000 610,000 -- 16,300(7) -- 16,355
Gregory A. Boyko........ 1997 222,500 90,000 2,250(5) 13,135(6) -- 10,673
Senior Vice President,
Chief 1996 201,000 90,000 -- 1,650(7) -- 9,096
Financial Officer and
Treasurer
Raymond P. Welnicki..... 1997 238,000 138,040 4,238(5) 18,244(6) -- 11,636
Senior Vice President, 30,000(7)
Employee Benefits 1996 238,000 169,500 -- 11,500(7) -- 11,911
</TABLE>
- --------
(1) Compensation information is provided for 1997 and 1996 only, as the
Company has been a SEC reporting company only since the Hartford Life IPO
in May 1997 and previously disclosed 1996 compensation in the Hartford
Life IPO prospectus.
(2) Represents the market value of 23,205 and 34,808 shares of restricted
Class A Common Stock granted to Messrs. Smith and Marra, respectively, on
May 22, 1997 based on the closing price of the Class A Common Stock on the
NYSE of $32.125 per share on that date. The market value of such shares
was $1,051,477 and $1,577,237 for Messrs. Smith and Marra, respectively,
on December 31, 1997 based on the NYSE closing price of $45.3125 per share
on that date. Dividends are paid on the shares of restricted Class A
Common Stock in the same amount and to the same extent as dividends are
paid on shares of Class A Common Stock held by all shareholders.
(3) Represents the market value of 10,000 shares of restricted Hartford Common
Stock granted to Mr. Smith on February 1, 1997 based on the closing price
of Hartford Common Stock on the NYSE of $73.375 per
11
<PAGE>
share on that day. The market value of these shares was $935,625 on
December 31, 1997 based on the NYSE closing price of $93.5625 per share on
that day. Dividends are paid on the shares of restricted Hartford Common
Stock in the same amount and to the same extent as dividends are paid on
shares of Hartford Common Stock held by all shareholders of The Hartford.
(4) Represents the market value of 10,000 shares of restricted Hartford Common
Stock granted to Mr. Smith on December 17, 1997 based on the closing price
of Hartford Common Stock on the NYSE of $88.9375 per share on that day.
The market value of these shares was $935,625 on December 31, 1997 based
on the NYSE closing price of $93.5625 per share on that day. This
restricted stock grant is subject to the following performance-based
vesting: the restrictions on 50% of the shares will lapse on March 1, 2001
only if the closing price of Hartford Common Stock on the NYSE is $123 per
share or more for at least ten consecutive trading days prior to such
date; the restrictions on an additional 25% of such shares will lapse on
March 1, 2001 only if the closing price of Hartford Common Stock on the
NYSE is $126 per share or more for at least ten consecutive trading days
prior to such date; and the restrictions on the remaining 25% of such
shares will lapse on March 1, 2001 only if the closing price of Hartford
Common Stock on the NYSE is $130 per share or more for at least ten
consecutive trading days prior to such date. Any restricted shares not
vested by March 1, 2001 shall be forfeited. Dividends are paid on the
restricted shares in the same amount and to the same extent as dividends
are paid on shares of Hartford Common Stock held by all shareholders of
The Hartford.
(5) Pursuant to The Hartford 1996 Deferred Restricted Stock Unit Plan, certain
executives of the Company elected to forego a certain percentage of 1996
bonus payments that were ultimately awarded in 1997 in exchange for the
right to receive shares of Hartford Common Stock ("Stock Units"). The
number of Stock Units granted to an executive is equal to the amount of
the bonus forgone divided by the closing price of Hartford Common Stock on
the NYSE on the date of grant of the Stock Units. As an incentive for
foregoing the percentage of bonus, participating executives were also
granted additional Stock Units equal to 10% of the Stock Units ("Premium
Stock Units"). Shares of Hartford Common Stock underlying Stock Units and
Premium Stock Units may not be received until three years from the date of
grant but are fully vested, except that shares underlying Premium Stock
Units may be forfeited if employment with the Company is terminated under
certain circumstances before three years from the date of grant. Dividends
are paid (and automatically reinvested) on the shares underlying the Stock
Units and Premium Stock Units in the same amount and to the same extent as
dividends are paid on shares of Common Stock held by all shareholders. The
amounts identified in this column represent the value of the Premium Stock
Units awarded on March 10, 1997 when the closing price of Hartford Common
Stock on the NYSE was $78.375 per share. On December 31, 1997, the values
of such Premium Stock Units for Messrs. Smith, Ginnetti, Marra, Boyko and
Welnicki were $18,504, $19,996, $25,487, $2,686 and $5,059, respectively,
based on the closing price of Hartford Common Stock on the NYSE of
$93.5625 per share on that date
(6) Each of the Named Executives had been granted options to purchase shares
of Hartford Common Stock (the "Hartford Options") prior to the Hartford
Life IPO. After the Hartford Life IPO, each Named Executive elected to
substitute certain of his Hartford Options for options to purchase shares
of the Company's Class A Common Stock (the "Substituted Options"). The
options identified in this column are the Substituted Options, except for
7,956 shares underlying options granted to Mr. Boyko.
(7) Represents shares underlying stock options to purchase Hartford Common
Stock granted pursuant to The Hartford 1995 Incentive Stock Plan.
(8) Amounts shown in this column represent company contributions under The
Hartford's Investment and Savings Plan and The Hartford's Excess Savings
Plan, which are defined contribution plans. Under these plans, the Company
makes a matching contribution in an amount equal to 50% of an employee's
contribution, such matching contribution not to exceed three percent (3%)
of such employee's salary. The Company also makes a non-matching
contribution equal to one-half of one percent ( 1/2 of 1%) of an
employee's salary. Company contributions under these plans for 1997 were
$21,620, $13,125, $13,052, $7,788 and $8,330 for Messrs. Smith, Ginnetti,
Marra, Boyko and Welnicki, respectively. The Company's flexible benefit
programs allow for the sale back to the Company of up to one week of
vacation time
12
<PAGE>
capped at a 1997 limit of $2,885. Amounts of $2,885 are included in this
column for Messrs. Smith, Ginnetti, Marra and Boyko. The Company also
provides certain group term life insurance coverage to employees, and
employees may purchase additional amounts of coverage. For federal tax
purposes, income will be imputed to an employee who purchases more than
$50,000 of coverage to the extent that the value of the coverage is greater
than the premium paid. For 1997, $918 and $3,306 of income was imputed to
Messrs. Marra and Welnicki, respectively, and such amounts are included in
this column.
STOCK OPTIONS
Under the 1997 Hartford Life, Inc. Incentive Stock Plan (the "Incentive
Stock Plan"), the Compensation and Personnel Committee of the Board of
Directors selects key employees to receive various awards, including stock
options, stock appreciation rights, shares of restricted Class A Common Stock
and performance shares. The table below provides information regarding grants
of stock options to the Named Executives during 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(7)
------------------------------------------------------ --------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (#) 1997(5) ($/SHARE)(6) DATE 5% 10%
---- ----------- --------------- -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lowndes A. Smith........ 65,675(1) 14.58 31.14 01/26/07 1,285,916 3,259,450
18,868(2) 1.21 72.25 01/26/07 857,362 2,172,650
100,000(3) 6.42 88.94 12/19/07 5,593,000 14,175,000
John P. Ginnetti........ 18,244(1) 4.05 31.14 1/26/07 357,218 905,450
30,000(3) 1.93 88.94 12/19/07 1,677,900 4,252,500
Thomas M. Marra......... 29,190(1) 6.48 31.14 1/26/07 571,540 1,448,700
37,500(3) 2.41 88.94 12/19/07 2,097,375 5,315,625
Gregory A. Boyko........ 5,179(1) 1.15 31.14 1/26/07 101,405 257,034
7,956(4) 1.77 39.13 7/19/07 195,797 496,136
Raymond P. Welnicki..... 18,244(1) 4.05 31.14 1/26/07 357,218 905,450
30,000(3) 1.93 88.94 12/19/07 1,677,900 4,252,500
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1997
- --------
(1) Represents shares of Class A Common Stock underlying Substituted Options
that were exchanged for options to purchase shares of Hartford Common
Stock. The Hartford Options were exchanged for Substituted Options based
on a formula intended to maintain the economic value of each unexercised
Hartford Option. Accordingly, the number of shares underlying each
Hartford Option was adjusted, and the option exercise price was adjusted
based on a formula related to the market price of Hartford Common Stock
before the Hartford Life IPO and the market price of the Company's Class A
Common Stock after the Hartford Life IPO. The amounts set forth in the
table above reflect these adjustments. The other terms and conditions of
the Substituted Options, including exercise dates and expiration dates,
remained the same as the Hartford Options. The Substituted Options became
fully exercisable on December 12, 1997, when the closing price of the
Class A Common Stock on the NYSE was equal to or greater than $38.925 per
share for at least ten consecutive trading days. The exercisability,
payment or vesting of options shown in the table related to the Class A
Common Stock may be accelerated upon the occurrence of a change in control
(as defined in the Incentive Stock Plan) of the Company or The Hartford.
(2) Represents shares of Hartford Common Stock underlying a stock option
granted to Mr. Smith pursuant to The Hartford 1995 Incentive Stock Plan.
The option became fully exercisable on February 20, 1998, when the closing
price of the Common Stock on the NYSE had been $90.3125 per share or more
for at least ten consecutive trading days. The exercisability, payment or
vesting of options shown in the table related to Hartford Common Stock may
be accelerated upon the occurrence of a change in control (as defined in
The Hartford 1995 Incentive Stock Plan) of The Hartford.
(3) Represents shares of Hartford Common Stock underlying stock options
granted pursuant to The Hartford 1995 Incentive Stock Plan. Each of these
option grants is subject to the following performance-based
13
<PAGE>
vesting: 50% of each option becomes exercisable on March 1, 2001 only if the
closing price of Hartford Common Stock on the NYSE is $123 per share or more
for at least ten consecutive trading days prior to such date; an additional
25% of each option becomes exercisable on March 1, 2001 only if the closing
price of Hartford Common Stock on the NYSE is $126 per share or more for at
least ten consecutive trading days prior to such date; and the remaining 25%
of each option becomes exercisable on March 1, 2001 only if the closing
price of Hartford Common Stock on the NYSE is $130 per share or more for at
least ten consecutive trading days prior to such date. Any portion of these
options not vested by March 1, 2001 shall be forfeited.
(4) The option granted to Mr. Boyko will become fully exercisable on the
earlier of the seventh anniversary date of the grant or when the closing
price of the Class A Common Stock on the NYSE is equal to or greater than
$48.9125 for at least ten consecutive trading days.
(5) For options to purchase shares of Class A Common Stock, percentages
indicated are based on options to purchase a total of 450,377 shares of
Class A Common Stock granted to 153 employees of the Company during 1997.
For options to purchase shares of Hartford Common Stock, percentages are
based on options to purchase a total of 1,557,603 shares of Hartford
Common Stock granted to 812 employees of The Hartford during 1997.
(6) Stock options granted by the Company were granted at exercise prices that
were 100% of the fair market value of the Class A Common Stock on the date
of grant, or as otherwise determined pursuant to the Substituted Options
formula, and stock options granted by The Hartford were granted at
exercise prices that were 100% of the fair market value of Hartford Common
Stock on the date of grant.
(7) At the end of the term of the Substituted Options granted on January 24,
1997 (see note 1 above), the projected price of a share of the Class A
Common Stock would be $50.72 and $80.77 at assumed annual appreciation
rates of 5% and 10%, respectively. At the end of the term of the option
granted to Mr. Boyko on July 17, 1997, (see note 4 above) the projected
price of a share of the Class A Common Stock would be $63.74 and $101.49
at assumed annual appreciation rates of 5% and 10%, respectively. At the
end of the term of the option granted to Mr. Smith on January 24, 1997
(see note 2 above), the projected price of a share of Hartford Common
Stock would be $117.69 and $187.40 at assumed annual appreciation rates of
5% and 10%, respectively. At the end of the term of the options granted on
December 17, 1997 (see note 3 above), the projected price of a share of
Hartford Common Stock would be $144.87 and $230.69 at assumed annual
appreciation rates of 5% and 10%, respectively.
14
<PAGE>
1997 OPTION EXERCISES AND 1997 YEAR-END OPTION VALUES
The following table provides information on stock options that were
exercised, if any, and the value of unexercised stock options held at December
31, 1997 by the Named Executives:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS HELD
SHARES YEAR-END (#) AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lowndes A. Smith........ 10,000(1) 616,025 65,675(3) 118,868(1) 930,779(4) 864,374(5)
231,216(1) 12,762,777(5)
John P. Ginnetti........ -- -- 18,244(3) 41,021(1) 258,563(4) 626,192(5)
47,396(1) 2,722,487(5)
Thomas M. Marra......... -- -- 29,190(3) 53,399(1) 413,695(4) 878,336(5)
58,574(1) 3,246,449(5)
Gregory A. Boyko........ -- -- 5,179(3) 7,956(3) 73,399(4) 49,188(4)
550(1) 1,100(1) 22,859(5) 45,719(5)
Raymond P. Welnicki..... -- -- 18,244(3) 40,182(1) 258,563(4) 583,955(5)
15,759(1) 827,409(5)
</TABLE>
- --------
(1) Represents shares of Hartford Common Stock.
(2) Value realized upon the exercise of an option represents the difference
between the fair market value of the stock on the date of exercise and the
exercise price of the option.
(3) Represents shares of Class A Common Stock.
(4) Values are calculated for options "in-the-money" by subtracting the
exercise price per share of the options from the per share NYSE closing
price of $45.3125 of the Class A Common Stock on December 31, 1997.
(5) Values of "in-the-money" options to purchase shares of Hartford Common
Stock are calculated by subtracting the exercise price per share of the
options from the per share NYSE closing price of Hartford Common Stock of
$93.5625 on December 31, 1997.
1997 LONG-TERM INCENTIVE PLAN AWARDS
On May 22, 1997, the Compensation and Personnel Committee of the Board made
awards of performance shares to certain key employees of the Company,
including the Named Executives. The awards are contingent upon the Company
achieving certain performance objectives described below. To the extent that
the performance objectives are achieved, cash and shares of Class A Common
Stock will be granted to each key employee pursuant to the performance share
provisions of the Incentive Stock Plan. These performance shares awarded to
key employees of the Company will not be subject to cancellation and
substitution, but rather will become payable after the performance period to
the extent described below. In addition, Mr. Smith was awarded performance
shares of Hartford Common Stock as described in note 2 following the table
below.
Under the terms of the awards, there are two equally weighted performance
objectives measured over the 1997-1999 three-year performance period: core
earnings per share of the Company ("Core Earnings") and total shareholder
return ("TSR"). Core Earnings is defined as the Company's net income minus:
(i) net realized capital gains or losses, except for items related to certain
discontinued business; (ii) income or losses due to changes in methods of
accounting; (iii) the amount of any individual non-catastrophe loss associated
with any non-recurring charge that exceeds $100 million; and (iv) the income
or loss associated with allocations resulting
15
<PAGE>
from the liability sharing agreement entered into in connection with the ITT
Spin-Off. TSR is measured by the difference between the price of the Class A
Common Stock at the beginning of the 1997-1999 performance period and the
price at the end of the performance period (assuming the reinvestment of
dividends paid), compared with the TSR of the stock of a group of peer
insurance companies.
The Compensation and Personnel Committee established a target Core Earnings
and a TSR to be achieved in connection with the awards. If the target is
achieved, a key employee will receive 100% of the performance shares awarded
(payable one-third in cash and two-thirds in Class A Common Stock). The
Compensation and Personnel Committee also established a threshold (minimum)
Core Earnings and TSR to be achieved. If the threshold amounts are not
achieved, the key employees will not receive any of the performance shares
awarded. If the Core Earnings and TSR achieved exceeds the thresholds but
falls below the targets, the key employees will receive awards adjusted
downward by interpolation to reflect falling short of the targets. If the
targets are exceeded, the key employees will receive awards adjusted upward by
interpolation subject to a cap established by the Compensation and Personnel
Committee.
The following table provides information on these long-term performance
share awards made to the Named Executives during 1997:
<TABLE>
<CAPTION>
AWARDS OF PERFORMANCE
SHARES RELATING TO CLASS ESTIMATED FUTURE PAYOUTS
A COMMON STOCK IN UNDER NON-STOCK
LAST FISCAL YEAR PRICE-BASED PLANS (#)(1)
------------------------- ------------------------------------
PERIOD UNTIL
NAME # OF SHARES PAYOUT(1) THRESHOLD (#) TARGET (#) MAXIMUM (#)
---- ----------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Lowndes A. Smith........ 15,411 3 years 7,706 15,411 30,822
4,444(2) 3 years 2,222 4,444 8,888
John P. Ginnetti........ 4,281 3 years 2,141 4,281 8,562
Thomas M. Marra......... 6,849 3 years 3,425 6,849 13,698
Gregory A. Boyko........ 3,082 3 years 1,541 3,082 6,164
Raymond P. Welnicki..... 4,281 3 years 2,141 4,281 8,562
</TABLE>
- --------
(1) Each of the Named Executives was granted the number of performance shares
relating to the Class A Common Stock set forth above. The grants are
contingent upon the Company achieving two general performance objectives
over a three-year period ending on December 31, 1999. The performance
objectives and the extent to which a Named Executive may be entitled to a
future payout are described above. The threshold, target and maximum
number of shares that may be awarded as set forth in the table above are
based on the Company equally achieving 75%, 100% and 150% or more,
respectively, of each of the two performance objectives.
(2) Represents a performance share grant to Mr. Smith relating to Hartford
Common Stock pursuant to the performance share provisions of The Hartford
1995 Incentive Stock Plan. The terms of The Hartford performance share
grant are substantially the same as those described above for Company
performance share grants except for certain differences in the Core
Earnings factor and the TSR performance objective.
THE HARTFORD RETIREMENT PROGRAM
The Hartford Fire Insurance Company Retirement Plan (the "Retirement Plan")
is a defined benefit plan that covers substantially all eligible U.S. salaried
employees of The Hartford and its subsidiaries, including the Company and its
subsidiaries. An employee's annual pension will equal two percent of his or
her average final compensation for each of the first thirty years of benefit
service, reduced by one and two-thirds percent of the employee's primary
Social Security benefit for each year of benefit service to a maximum of
thirty years; provided that no more than one-half of an employee's primary
Social Security benefit is used for such reduction. An employee's average
final compensation is defined under the Retirement Plan as the total of (i) an
employee's
16
<PAGE>
average annual base salary for the five calendar years of the last 120
consecutive calendar months of eligibility service affording the highest such
average plus (ii) an employee's average annual compensation not including base
salary for the five calendar years of his or her last 120 consecutive calendar
months of eligibility service affording the highest such average. The
Retirement Plan also provides for undiscounted early retirement pensions for
employees who retire at or after age sixty following completion of fifteen
years of eligibility service. An employee will be vested in benefits accrued
under the Retirement Plan upon completion of five years of eligibility
service.
Applicable Federal law limits the amount of benefits that can be paid and
compensation which may be recognized under a tax-qualified retirement plan.
Therefore, the Hartford Fire Insurance Company has a non-qualified unfunded
retirement plan (the "Hartford Excess Benefit Plan") for payment of those
benefits at retirement that cannot be paid from the qualified Retirement Plan.
Such plan also covers eligible employees of The Hartford and its subsidiaries,
including the Company and its subsidiaries. The practical effect of the
Hartford Excess Benefit Plan is to continue calculation of retirement benefits
to all employees on a uniform basis. Hartford Fire also maintains an excess
plan trust under which excess benefits under the Hartford Excess Benefit Plan
for certain officers of the Company are funded. Any such employee may indicate
a preference, subject to certain conditions, to receive any excess benefit in
the form of a single discounted lump sum payment. Any "excess" benefit accrued
to any such employee will be immediately payable in the form of a single
discounted lump sum payment upon the occurrence of a change in corporate
control (as defined in the Hartford Excess Benefit Plan).
Based on various assumptions as to remuneration and years of service, before
Social Security reductions, the following table illustrates the estimated
annual benefits payable from the Retirement Plan at retirement at age 65 that
are paid for by the Company.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
FINAL ------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 50,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000
100,000 30,000 40,000 50,000 60,000
300,000 90,000 120,000 150,000 180,000
500,000 150,000 200,000 250,000 300,000
750,000 225,000 300,000 375,000 450,000
1,000,000 300,000 400,000 500,000 600,000
1,500,000 450,000 600,000 750,000 900,000
</TABLE>
The amounts shown under "Salary" and "Bonus" opposite the names of the Named
Executives in the Summary Compensation Table comprise the compensation that is
used for purposes of determining "average final compensation" under the
Retirement Plan. The years of service with the Company of each of the Named
Executives for eligibility and benefits purposes as of December 31, 1997, were
as follows: Lowndes A. Smith, 29.75 years; John P. Ginnetti, 15.50 years;
Thomas M. Marra, 17.58 years; Gregory A. Boyko, 2.08 years; and Raymond P.
Welnicki, 5.17 years.
EMPLOYMENT AGREEMENTS
Lowndes A. Smith has an employment agreement with the Company and The
Hartford pursuant to which he is employed as President and Chief Executive
Officer of the Company and Vice Chairman of The Hartford (the "Employment
Agreement"). The initial term of the Employment Agreement began on July 1,
1997 and continues for three years, unless terminated earlier in accordance
with the agreement. However, when the original term of the Employment
Agreement or any renewal term ends, the Employment Agreement will be
automatically extended for successive one-year periods unless either party
gives the other its written notice of its intention not to renew the
Employment Agreement at least fifteen months prior to any renewal date. In
addition, upon the
17
<PAGE>
occurrence of a change-in-control (as defined in the Employment Agreement) of
the Company, or of The Hartford, the terms of the Employment Agreement will be
automatically extended for three years after the change-in-control occurs.
The Employment Agreement provides, among other things, for a base salary for
Mr. Smith of $600,000 per year which may be increased from time to time by the
Board of Directors, and his participation in the Company's and/or The
Hartford's benefit plans and awards under executive incentive bonus and other
programs. In addition, Mr. Smith is entitled to certain payments and benefits
if his employment terminates for certain reasons, including a termination
without "cause" (as defined in the Employment Agreement). If a termination
without cause occurs, Mr. Smith is entitled to a severance payment equal to
two times (a) his base salary, and (b) a target bonus amount, each for the
year in which the termination occurs, and the vesting of stock options and
restricted stock awards. In addition, if a change in control (as defined in
the Employment Agreements) of the Company or The Hartford occurs and Mr.
Smith's employment is terminated for certain reasons within certain time
periods (generally, within three years after a change-in-control), then he is
entitled to receive certain payments and benefits. Specifically, if after a
change-in-control, Mr. Smith's employment is terminated without cause, or he
voluntarily terminates his employment for any reason within six months
following a change in control, or voluntarily terminates his employment for
"good reason" (as defined in the Employment Agreement) within the remaining
two years and six months following a change in control, then he is generally
entitled to receive (i) a severance payment equal to three times the sum of
his base salary then in effect and his target bonus for the year, and (ii)
certain other benefits, including those that would otherwise be payable under
the Company's and/or The Hartford's various employee benefit plans. While Mr.
Smith is employed, and for one year after any voluntary termination of his
employment (other than after a change-in-control), he is subject to a
noncompetition agreement in favor of the Company.
In addition, John P. Ginnetti, Thomas M. Marra and Raymond P. Welnicki have
agreements with the Company that entitle them to certain benefits upon a
"change-in-control" of the Company or The Hartford (as defined in such
agreements). The agreements, dated October 1, 1997, provide, among other
things, that the Company shall employ each executive for three years (the
"Employment Period") after a "change-in-control" of the Company or The
Hartford occurs, if the executive was employed on the date the change-in-
control occurs. During the Employment Period, each executive is entitled to
(i) a base salary of not less than his base salary in effect prior to a
change-in-control or potential change-in-control, and such salary may be
increased from time to time; (ii) an opportunity to earn an annual bonus in
accordance with the Company's bonus policies; and (iii) participate in long-
term compensation programs and stock incentive plans, and to receive the
benefits under the Company's and/or The Hartford's various benefit programs.
If the executive's employment terminates during the Employment Period for
certain specified reasons, including termination for "cause," "without cause,"
for "good reason," voluntarily or due to retirement, death or disability (all
as defined in such agreements), then the executive is entitled to certain
payments and/or benefits, depending on the reason for termination.
Specifically, if the executive's employment is terminated without cause, or he
terminates his employment for good reason, he is entitled to receive, among
other things, (i) a lump sum severance payment equal to two times his base
salary and target bonus in effect in the year in which his employment
terminated, and (ii) certain other benefits, including those that would
otherwise be payable under the Company's and/or The Hartford's various benefit
plans.
18
<PAGE>
PERFORMANCE OF THE CLASS A COMMON STOCK
The graph below compares the yearly percentage change in cumulative
shareholder return on the Class A Common Stock for the period of May 22, 1997
through December 31, 1997 with (i) the cumulative total return of the Standard
& Poors' 500 Index(R) and (ii) the Merrill Lynch Life Index(R). The figures
presented below assume the reinvestment of all dividends into shares of Class
A Common Stock on any given dividend payment date and that $100 was invested
in Class A Common Stock, in the Standard & Poors' 500 Index(R), and in the
Merrill Lynch Life Index(R). Class A Common Stock performance information is
provided only since May 22, 1997 as that is the date that the Hartford Life
IPO was completed, the Company became a public company and trading of the
Class A Common Stock began on the NYSE.
CUMULATIVE TOTAL RETURN
[LINE GRAPH APPEARS HERE]
- -----------------------------------------------------------------
May-97 Dec-97
- -----------------------------------------------------------------
Hartford Life $100 $161
- -----------------------------------------------------------------
S&P 500(R) $100 $123
- -----------------------------------------------------------------
Merrill Lynch Index(R) $100 $136
- -----------------------------------------------------------------
19
<PAGE>
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN SHAREHOLDERS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as of March 2, 1998 the number of shares of
Class A Common Stock beneficially owned by each director and nominee for
election as a director, by each of the Named Executives, and by the directors
and all executive officers as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND
BENEFICIAL NATURE OF BENEFICIAL
OWNER OWNERSHIP(1)(2)
---------- --------------------
<S> <C>
Ramani Ayer............................................... 10,000
Gregory A. Boyko.......................................... 10,598
Gail Deegan............................................... 502
Donald R. Frahm........................................... 6,603
John P. Ginnetti.......................................... 24,679
Paul G. Kirk, Jr. ........................................ 2,603
Thomas M. Marra........................................... 66,087
Robert E. Patricelli...................................... 1,307
Lowndes A. Smith.......................................... 94,186
H. Patrick Swygert........................................ 1,603
DeRoy C. Thomas........................................... 10,603
Gordon I. Ulmer........................................... 3,603
Raymond P. Welnicki....................................... 20,375
David K. Zwiener.......................................... 4,000
All directors and executive officers as a group (15
persons)................................................. 258,930
</TABLE>
- --------
(1) All shares of Class A Common Stock are owned directly except as otherwise
indicated below. Pursuant to regulations of the SEC, shares (i) that may
be acquired by directors and executive officers upon exercise of stock
options exercisable within sixty days after March 2, 1998, (ii) allocated
to the accounts of certain directors and executive officers under The
Hartford's Investment and Savings Plan based on a valuation of plan
accounts as of December 31, 1997, (iii) acquired by directors and
executive officers under the Company's Dividend Reinvestment and Cash
Payment Plan through March 2, 1998, (iv) owned by a director's or
executive officer's spouse or minor child, or (v) that have been granted
under the Company's Incentive Stock Plan or the Non-Employee Directors
Restricted Stock Plan and are restricted, but as to which the directors or
executive officers have the right to vote, are deemed to be beneficially
owned by such directors and executive officers as of such date and are
included in the number of shares of Class A Common Stock listed in the
table above.
Of the number of shares of Class A Common Stock shown above, the following
represent shares that may be acquired upon exercise of stock options that
are exercisable within sixty days after March 2, 1998 by: Mr. Boyko, 5,179
shares; Mr. Ginnetti, 18,244 shares; Mr. Marra, 29,190 shares; Mr. Smith,
65,675 shares; Mr. Welnicki, 18,244 shares; Mr. Zwiener, 0 shares; and all
present directors and executive officers as a group, 137,642 shares.
(2) The shares of Class A Common Stock beneficially owned by each person named
above and by the group of directors and executive officers do not exceed
one percent of the outstanding shares of Class A Common Stock.
20
<PAGE>
CERTAIN SHAREHOLDERS
The following table sets forth those persons known to the Company as of
March 2, 1998 to be the beneficial owners of more than five percent of the
Company's Common Stock. In furnishing the information below, the Company has
relied on information filed by the beneficial owners with the SEC, and in some
cases, information provided by such owners.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNER CLASS
-------------- ------------------- ----------------- ----------
<C> <S> <C> <C>
Class B Common Stock The Hartford Financial 114,000,000(1) 100%
Services Group, Inc.......
690 Asylum Avenue
Hartford, CT 06115
</TABLE>
- --------
(1) The shares of Class B Common Stock are held of record by Hartford A&I. The
114,000,000 shares of Class B Common Stock represent approximately 95.6%
of the combined voting power of all shares of the Class A Common Stock and
Class B Common Stock outstanding as of March 2, 1998. Each share of Class
B Common Stock may, at the option of the holder thereof, be converted into
one share of Class A Common Stock, subject to certain limitations set
forth in the Company's restated certificate of incorporation.
CERTAIN RELATIONSHIPS WITH THE HARTFORD
INTERCOMPANY ARRANGEMENTS
On May 22, 1997, the Company completed the Hartford Life IPO and became a
public company that is majority-owned by The Hartford. The Hartford owns all
of the outstanding shares of Class B Common Stock of the Company, representing
approximately 81.4% of the total equity interest in the Company, and
approximately 95.6% of the combined voting power of the outstanding Class A
and Class B Common Stock.
In connection with the Hartford Life IPO, The Hartford and the Company
entered into various agreements including a master intercompany agreement, an
investment management agreement, a tax sharing agreement and a sublease, the
general terms of which are summarized below. The agreements are intended to
generally maintain the relationship between The Hartford and the Company in a
manner consistent in all material respects with past practice prior to the
Hartford Life IPO. The descriptions set forth below are intended to be
summaries and are qualified in their entirety by reference to the relevant
agreement or form thereof filed with the SEC in connection with the Hartford
Life IPO.
MASTER INTERCOMPANY AGREEMENT
Services. The Hartford and the Company entered into a master intercompany
agreement (the "Master Intercompany Agreement"), which provides for those
services that The Hartford provides to the Company and that the Company
provides to The Hartford. The costs of such services are allocated according
to established methodologies determined on an annual basis by The Hartford.
These services include, among others, certain corporate relations, executive,
government affairs, human resources, legal, investment, finance, real estate,
information management, internal audit, cash management, tax and treasury
services.
Approval of Corporate Activities. The Master Intercompany Agreement requires
that prior to the date on which The Hartford ceases to beneficially own 50% or
more of the combined voting power of the Company's Class A and Class B common
stock, neither the Company nor any of its subsidiaries may undertake or agree
to undertake certain fundamental corporate actions without the prior written
consent of The Hartford. Such actions include material mergers or
consolidations or other acquisitions, and certain other transactions.
21
<PAGE>
REGISTRATION RIGHTS. The Master Intercompany Agreement also provides that,
upon the request of The Hartford, the Company will use its best efforts to
effect the registration for sale under the applicable federal and state
securities laws of any of the shares of the Company's Common Stock
beneficially owned by The Hartford subject to certain limitations. The
Hartford also has the right, subject to certain limitations, to "piggy back
registration" to include shares of the Company's Common Stock beneficially
owned by The Hartford in certain other registrations of such securities
initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company is, subject to the provisions of the Master
Intercompany Agreement, generally obligated to pay all out-of-pocket costs and
expenses in connection with each such registration that The Hartford requests
or in which The Hartford participates.
INDEMNIFICATION. The Master Intercompany Agreement further provides for the
assumption of liabilities and cross-indemnities allocating liability in
respect of the Company's businesses to the Company and in respect of The
Hartford's businesses (other than the businesses of the Company and its
subsidiaries) to The Hartford. In addition, for those liabilities not
specifically arising out of or allocable to either of their respective former
or present businesses, the parties will share such liabilities, allocating 30%
of the cost of such liabilities to the Company and 70% of the cost of such
liabilities to The Hartford. In addition, the Company is responsible for 30%
of certain shared liabilities under certain agreements executed in connection
with the ITT Spin-Off and for which The Hartford has responsibility
thereunder, including tax sharing liabilities.
LICENSE AND SUBLICENSE. Hartford Fire Insurance Company, a principal
subsidiary of The Hartford ("Hartford Fire"), granted to the Company (i) a
license to use the "Hartford" name, the "Stag" logo and certain other
trademarks and service marks, and (ii) a personal, non-transferable sublicense
to use the "ITT" name and marks, including the logo, owned by ITT Sheraton
Corporation which was previously licensed to Hartford Fire under a license
agreement entered into in connection with the ITT Spin-Off, each such license
is subject to customary usage restrictions. Subject to certain limitations,
each of the licenses is perpetual, except that if The Hartford reduces its
beneficial ownership below 50% of the combined voting power of the outstanding
voting stock of the Company, Hartford Fire may revoke its license to the
Company upon the later of the fifth anniversary of the date of consummation of
the Hartford Life IPO or one year after receipt by the Company of written
notice of Hartford Fire's intention to revoke the license.
TAX SHARING AGREEMENT AND TAX CONSOLIDATION
The Hartford and the Company entered into a tax sharing agreement (the "Tax
Sharing Agreement") pursuant to which they agreed to allocate federal, state
and local tax liabilities between them. So long as The Hartford continues to
beneficially own, directly or indirectly, at least 80% of the combined voting
power and the value of the outstanding capital stock of the Company, the
Company will be included for federal income tax purposes in the consolidated
group of which The Hartford is the common parent. However, under the Tax
Sharing Agreement, The Hartford and the Company make payments between them
such that, with respect to any period, the amount of taxes to be paid by the
Company, subject to certain adjustments, generally will be determined as
though the Company were to file separate federal, state and local income tax
returns. With respect to certain tax items, however, such as foreign tax
credits, alternative minimum tax credits, net operating losses and net capital
losses, the Company's right to reimbursement will be determined based on the
usage of such credits or losses by the consolidated group.
INVESTMENT MANAGEMENT AGREEMENTS
The Hartford and the Company also entered into investment management
agreements (the "Investment Management Agreements"). These agreements provide
that the investment staff of The Hartford will implement (e.g., selection,
purchase and sale of securities) the investment strategies determined by the
investment strategy group of the Company and act as advisor to certain of the
Company's non-guaranteed separate accounts and mutual funds. The investment
Management Agreements also provide that the Company pays a fee designed to
reflect the actual costs of providing such services. The Company paid
$20,170,000 in fees in 1997.
22
<PAGE>
SIMSBURY SUBLEASE
The Company's headquarters, located in Simsbury, Connecticut, is currently
leased from a third party by Hartford Fire pursuant to a sale-leaseback
arrangement. After the Hartford Life IPO, the Company subleased from Hartford
Fire the right to use the headquarters building pursuant to a sublease
agreement. Hartford Fire retained the right to purchase the facility and the
renewal option in respect of the sale-leaseback arrangement. In addition, a
subsidiary of The Hartford owns the land underlying and surrounding the
headquarters building. The sublease expires on January 1, 2010. Rental
payments are fixed (but not level) over the term of the lease. In 1997, the
Company paid rent of $12 million, and it is anticipated that it will pay rent
of $12 million in 1998 and 1999, $21 million in each of 2000 and 2001,
respectively, and $175 million thereafter in the aggregate over the remaining
term of the sublease.
ITEM 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
In accordance with the recommendation of the Audit Committee, the Board of
Directors has appointed Arthur Andersen LLP as independent auditors of the
Company for the fiscal year ending December 31, 1998. Although shareholders'
ratification of this appointment is not required, the Board requests
ratification by the shareholders. If the shareholders do not ratify the
appointment of Arthur Andersen LLP, the selection of other independent
auditors will be considered by the Audit Committee and the Board of Directors.
Arthur Andersen LLP has served as independent auditors of The Hartford and
its subsidiaries, including the Company, for many years, and Arthur Andersen
LLP's long-term knowledge of the Company has enabled Arthur Andersen LLP to
carry out its audits with effectiveness and efficiency. Representatives of
Arthur Andersen LLP will attend the Annual Meeting, will have the opportunity
to make a statement if they desire to do so, and will be available to respond
to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
OF THE COMPANY.
REQUIRED VOTES OF SHAREHOLDERS
The presence in person or by proxy of shareholders of a majority of shares
of both classes of Common Stock will constitute a quorum for the transaction
of business at the Annual Meeting. The nominees for election as directors
receiving the greatest number of votes, up to the number of directors to be
elected, shall be elected directors. Approval of the ratification of the
appointment of Arthur Andersen LLP will require the affirmative vote of the
holders of a majority of the total voting power of shares of Common Stock
present in person or represented by proxy. Abstentions and broker non-votes
will be included in the computation of the voting power of shares that are
present for purposes of determining the presence of a quorum but will not be
counted as votes cast for or against items submitted for a vote of
shareholders. Accordingly, abstentions and broker non-votes will have the same
effect as a vote against such items.
One or more persons will be appointed to act as the inspector of election at
the Annual Meeting. The bylaws of the Company provide that shareholders shall
be accorded privacy in voting and that the integrity of the balloting process
shall be assured. Among other duties, the inspector of election will certify
as to compliance with such confidentiality provisions.
Hartford A&I owns all outstanding shares of Class B Common Stock
representing approximately 95.6% of the total voting power of both classes of
Common Stock. As such, the affirmative vote of the shares of Class B Common
Stock held by Hartford A&I is sufficient to elect the nominees named herein to
the Board of Directors
23
<PAGE>
and to ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998. The Company
has been advised that Hartford A&I intends to vote all the shares of Class B
Common Stock for the election of the nominees as directors and for the
ratification of Arthur Andersen LLP as independent auditors.
PROPOSALS OF SHAREHOLDERS
Proposals submitted by shareholders for inclusion in next year's Proxy
Statement must be received by the Company no later than the close of business
on December 5, 1998. Address your proposals to Michael O'Halloran, Vice
President and Secretary, 690 Asylum Avenue, Hartford, CT 06115. Proposals must
comply with all of the requirements of SEC Rule 14a-8 under the Securities
Exchange Act of 1934 and certain requirements set forth in the Company's
bylaws. A copy of the bylaws may be obtained from the Secretary of the
Company.
OTHER INFORMATION
As of the date of this Proxy Statement, the Board of Directors has no
knowledge of any business that will be presented for consideration at the
Annual Meeting other than that described above. As to any other business, if
any, that may properly come before the Annual Meeting, the proxies will vote
in accordance with their judgment.
Present and former officers, directors and other employees of the Company
may solicit proxies by telephone, telegram or mail, or by meetings with
shareholders or their representatives. The Company will reimburse brokers,
banks or other custodians, nominees and fiduciaries for their charges and
expenses in forwarding proxy material to beneficial owners. The Company has
engaged Georgeson & Company, Inc. to solicit proxies for the Annual Meeting
for a fee of $12,500, plus the payment of its out-of-pocket expenses. All
expenses of solicitation of proxies will be borne by the Company.
A copy of the Company's Annual Report to Shareholders for 1997 is either
being sent with this Proxy Statement or was sent previously. If, upon
receiving this Proxy Statement, you have not received the Annual Report to
Shareholders, please write to the Corporate Secretary at the address below to
request a copy. IN ADDITION, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-
K (WITHOUT EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, AS FILED
WITH THE SEC, IS AVAILABLE WITHOUT CHARGE UPON REQUEST TO THE COMPANY'S
INVESTOR RELATIONS DEPARTMENT, P.O. BOX 2999, HARTFORD, CT 06104-2999, OR BY
CALLING (888)322-8454.
By Order of the Board of Directors.
Michael O'Halloran
Vice President and Secretary
Dated: March 31, 1998
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE SELF-ADDRESSED ENVELOPE WHETHER OR NOT THEY EXPECT TO
ATTEND THE MEETING. A SHAREHOLDER MAY NEVERTHELESS VOTE IN PERSON IF HE OR SHE
DOES ATTEND.
24
<PAGE>
PROXY
HARTFORD LIFE, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Lynda Godkin, Michael O'Halloran and
Michael S. Wilder, and each of them, as proxies of the undersigned, each
with power to appoint his or her substitute, and hereby authorizes each or
any of them to vote, as designated on the reverse side of this proxy, all
shares of the Class A Common Stock of Hartford Life, Inc. (the "Company"),
including all shares held in the Company's Dividend Reinvestment and Cash
Payment Plan, the Company's Employee Stock Purchase Plan, the Company's
Deferred Restricted Stock Unit Plan, and The Hartford Investment and
Savings Plan which the undersigned is entitled to vote if personally
present at the annual meeting of shareholders of the Company to be held at
2:00 P.M. on May 21, 1998 at the Sheraton Chicago Hotel & Towers, 301 East
North Water Street, Chicago, Illinois, and at any adjournments or
postponements thereof, and confers discretionary authority upon each such
proxy to vote upon any other matter properly brought before the meeting.
Please specify your choices by marking the appropriate boxes on the reverse side
of this Proxy. The shares represented by this Proxy will be voted as you
designate on the reverse side. If no designation is made, the shares will be
voted for the election as directors of the nominees named in Item 1 and for Item
2. The shares of Class A Common Stock represented by this Proxy cannot be voted
unless you sign and return this Proxy.
SEE REVERSE SIDE
<PAGE>
ITEM 1. Election of Directors
FOR all nominees WITHHOLD AUTHORITY *EXCEPTIONS [_]
listed below [_] for all nominees listed below [_]
Director Nominees: Paul G. Kirk, Jr., Gordon I. Ulmer and David K. Zwiener.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "EXCEPTIONS" box and write that nominee's name in the space provided below.)
*EXCEPTIONS:
--------------------------------------------------------------------
ITEM 2. Ratification of the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
MARK THIS BOX IF YOU PLAN TO ATTEND THE ANNUAL MEETING [_]
CHANGE OF ADDRESS AND COMMENTS MARK HERE [_]
- ---------------------------------------- -----------------------------,1998
Signature Date
Note: Please add your title if you are signing for a corporation or other
business entity, or as attorney, administrator, executor, guardian, trustee or
in any other representative capacity.
Votes MUST be indicated by (X) in black or blue ink.
