SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Filed by a Party other than the Registrant [ ]
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[ ] 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 Section 240.14a-11(c) or Section 240.14a-12
HSB Group, Inc.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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[X] No fee required
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
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[ ] 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:
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- ---------
LOGO
- ---------
HSB GROUP, INC.
NOTICE OF ANNUAL MEETING
March 5, 1999
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of HSB
Group, Inc. will be held on Tuesday, April 20, 1999, at 2:00 P.M., at the office
of the Company, One State Street, Hartford, Connecticut, for the following
purposes:
1. To elect four directors for three-year terms;
2. To consider and act upon a proposal to approve the amended 1995
Stock Option Plan;
3. To appoint independent public accountants for the ensuing year;
and
4. To transact any other business proper to come before the meeting.
A Proxy Statement to assist you in the consideration of the foregoing
matters is attached.
The Board of Directors has fixed February 16, 1999, at the close of
business, as the record date and time for the determination of the shareholders
entitled to notice of and to vote at said Annual Meeting and any adjournment
thereof.
It is hoped that you will be able to attend this meeting. If you cannot,
please vote your shares by following the instructions on the enclosed proxy
card.
By order of the Board of Directors.
/s/ R. K. Price
R. K. PRICE
Corporate Secretary
HSB Group, Inc.
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
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PROXY STATEMENT
GENERAL
The enclosed proxy is solicited by the Board of Directors of HSB Group,
Inc. for use at the Annual Meeting of Shareholders to be held April 20, 1999,
and at any and all adjournments thereof. The Company is a Connecticut
corporation and its principal office is located at One State Street, P.O. Box
5024, Hartford, Connecticut 06102-5024, (860) 722-1866.
You are urged to read this Proxy Statement and to fill in, date, sign
and return the enclosed form of proxy as promptly as possible in the envelope
provided or vote your shares by telephone or the Internet by following the
instructions for telephonic or Internet voting on your proxy card. The giving of
a proxy does not affect your right to vote should you attend the meeting and the
proxy may be revoked at any time before it is voted. Properly executed proxies
that have not been revoked will be voted as specified.
Arrangements will be made with brokers, nominees and fiduciaries to
distribute proxy material to their principals, and their postage and clerical
expenses in so doing will be paid by the Company. The entire cost of soliciting
proxies on behalf of management will be borne by the Company. Directors,
officers and regular employees of the Company may solicit proxies personally if
proxies are not received promptly. The Company has retained Corporate Investor
Communications, Inc. ("CIC") to aid in the solicitation of proxies. CIC's fee is
not expected to exceed $4,000 in addition to out-of-pocket expenditures.
Only holders of Company common stock of record at the close of business
on February 16, 1999 are entitled to notice of, and to vote at, the meeting.
Each shareholder of record on said date is being mailed the Annual Report of the
Company for the fiscal year ended December 31, 1998 with the Notice, Proxy
Statement and Proxy card on or about March 5, 1999. On February 16, 1999, there
were 28,948,775 outstanding shares of Company common stock, each entitled to one
vote.
Abstentions and broker non-votes are included in the total number of
shares represented for matters to be voted upon at the meeting for quorum
purposes. Abstentions and broker non-votes will not be counted as either FOR or
AGAINST a nominee or matter and will have no effect upon the voting results for
any of the proposals.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the number of
directors will be determined from time to time by a resolution of a majority of
the Board of Directors. The directors are divided into three classes consisting,
as nearly as possible, of one third of the total number of directors
constituting the entire Board. Each class is elected for a three-year term at
successive annual meetings. At the Annual Meeting, the number of directorships
will be ten.
Four directors are to be elected for terms of three years and until
their successors are elected and qualified. Unless otherwise instructed, the
shares represented by the enclosed proxy will be voted for Joel B. Alvord,
Richard G. Dooley, Gordon W. Kreh and Lois D. Rice. In the event any nominee is
unable to serve as a director on the date of the Annual Meeting, the proxies may
be voted for a substitute nominee recommended by the Board of Directors. A
plurality of the votes cast by the shares entitled to vote is required for the
election of each director.
The nominees for election to the Board of Directors were elected to
their present terms at the 1996 Annual Meeting.
Stated below are the names and ages of the nominees and directors
continuing in office, the principal occupation of each during at least the last
five years, the date on which each individual was first elected as a director of
the Company, and other directorships and business and civic affiliations of such
persons. The information set forth on the following pages with respect to each
nominee's and director's principal occupation, other directorships and
affiliations and beneficial ownership of Company common stock has been furnished
by the nominee or director.
On June 24, 1997, all of the outstanding shares of common stock of The
Hartford Steam Boiler Inspection and Insurance Company were exchanged for shares
of common stock of the Company; therefore, references to the Company herein with
dates prior to June 24, 1997 are references to The Hartford Steam Boiler
Inspection and Insurance Company.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Term Expiring in 2002
Joel B. Alvord
Mr. Alvord, 60, has been President and Managing Director of
Shawmut Capital Management, Inc. since 1996. Mr. Alvord also
serves as Chairman of the Executive Committee and a Director of
Fleet Financial Group. He became Chairman and Chief Executive
------- Officer of Shawmut National Corporation in 1988 and was elected
PHOTO to Chairman of Fleet Financial Group in November 1995 following
------- the merger of Shawmut National Corporation with Fleet Financial
Group, a position he held until 1997. Mr. Alvord is a director of
CUNO Incorporated, the American Skiing Company, the Harvard
Eating Disorders Center and the American Repertory Theater, a
trustee of The Wang Center for the Performing Arts, Boston, and
an overseer of the Museum of Fine Arts, Boston and The Boston
Symphony Orchestra.
Mr. Alvord has served as a director of the Company since December
1971.
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Richard G. Dooley
Mr. Dooley, 69, has served as a consultant to Massachusetts
Mutual Life Insurance Company since 1993. Mr. Dooley joined
Massachusetts Mutual in 1955 and served in a variety of positions
------- before being named Executive Vice President and Chief Investment
PHOTO Officer in 1978, a position he held until his retirement in 1993.
------- Mr. Dooley is a director of Advest Group, Inc., Jefferies Group,
Inc., Kimco Realty Corp., Investment Technology Group, Inc. and
certain Massachusetts Mutual-sponsored investment companies. He
is a trustee of Saint Anselm College.
Mr. Dooley has served as a director of the Company since May
1984.
Gordon W. Kreh
Mr. Kreh, 51, is Chairman, President, Chief Executive Officer and
a director of the Company. He joined The Boiler Inspection and
Insurance Company of Canada, a subsidiary of the Company, in
1971, before moving to the Company's home office in 1975. He
became an officer of the Company in 1980 and was elected Vice
- ------- President in 1984. In 1988, he was named Senior Vice President of
PHOTO Engineering Insurance Group, an affiliate of the Company, and
- ------- became its President in 1989. He became Senior Vice President of
the Company in 1992, President in 1993, Chief Executive Officer
in 1994 and was elected Chairman of the Board in 1998. Mr. Kreh
is a board member of the American Insurance Association, and a
director of The Hartford Steam Boiler Inspection and Insurance
Company, The Boiler Inspection and Insurance Company of Canada
and HSB Engineering Insurance Limited, affiliates of the Company.
He is also a director of Orion Capital Corporation, HSB
Industrial Risk Insurers and president of the board of directors
of the Greater Hartford Arts Council and a trustee of the
Wadsworth Atheneum.
Mr. Kreh has served as a director of the Company since September
1993.
Lois D. Rice
Mrs. Rice, 66, is a Guest Scholar, Program in Economic Studies,
at the Brookings Institution, a position she has held since
October 1991. From 1981 until 1991, she served as Senior Vice
President, Government Affairs and a director of Control Data
Corporation. Mrs. Rice is a director of McGraw-Hill Companies,
- ------- International Multifoods, Fleet Financial Group and UNUM Corp.
PHOTO She is a trustee of the Center for Naval Analysis, the Public
- ------- Agenda Foundation, Reading is Fundamental and a life trustee of
the Urban Institute. She is also co-chair of the Board of
Management Leadership for Tomorrow. Mrs. Rice also serves as a
member of the President's Foreign Intelligence Advisory Board.
Mrs. Rice has served as a director of the Company since April
1990.
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MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Term Expiring in 2000
William B. Ellis
Mr. Ellis, 58, is Senior Fellow at the Yale University School of
Forestry and Environmental Studies, a position he has held since
September 1995. In August 1995, he retired from his position as
Chairman of the Board of Northeast Utilities and its principal
- ------- subsidiaries, as well as from Connecticut Yankee Atomic Power
PHOTO Company, after serving as Chief Executive Officer of those
- ------- companies from 1983 to 1993. Mr. Ellis is a director of Advest
Group, Inc., Catalytica Combustion Systems, Inc., Massachusetts
Mutual Life Insurance Company and The Greater Hartford Chamber of
Commerce. He is also a member of the Board of The Smithsonian
Museum of Natural History, a member of the Board of the Pew
Center on Global Climate Change, and a member of the Conservation
Science Advisory Board of The Nature Conservancy.
Mr. Ellis has served as a director of the Company since April
1991.
E. James Ferland
Mr. Ferland, 56, is Chairman, President and Chief Executive
Officer of Public Service Enterprise Group Incorporated and
Chairman and Chief Executive Officer of its principal subsidiary,
- ------- Public Service Electric and Gas Company, a position he has held
PHOTO since 1986. Mr. Ferland is a director of Foster Wheeler
- ------- Corporation, the New Jersey Performing Arts Center and the United
Way of Tri-State.
Mr. Ferland has served as a director of the Company since
November 1986.
Henrietta Holsman Fore
Ms. Fore, 50, has served since 1993 as Chairman and Chief
Executive Officer of the Holsman Companies, a management and
investment company with manufacturing, real estate and
international businesses. She is also President of Stockton
- ------- Products, which manufactures and distributes steel and wire
PHOTO products for the U.S. and European construction industry, a
- ------- position she has held since 1993. Ms. Fore is a director of The
Dexter Corporation and National Public Radio Foundation and a
board member of The Institute of the Americas, The CEO
Roundtable, Pan American Development Foundation, Organization of
American States, and the Committee of 200. She is Senior
Associate at the Center for Strategic and International Studies
(CSIS) and Mentor and Moderator at the Aspen Institute. She is
also on the Advisory Board of the College of Arts and Science,
University of Nevada, and Vice Chair, International Advisory
Board, University of San Diego Graduate School of International
Relations and Pacific Studies.
Ms. Fore has served as a director of the Company since July 1998.
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Term Expiring in 2001
Richard H. Booth
Mr. Booth, 51, is Executive Vice President of Phoenix Home Life
Mutual Insurance Company, a position he has held since October of
1994. Prior to joining Phoenix, Mr. Booth served as President,
Chief Operating Officer and a director of The Travelers
Corporation from 1991 to 1994. Mr. Booth is a director of Phoenix
- ------- Home Life, Phoenix Investment Partners, Ltd., Aberdeen Trust PLC,
PHOTO MECH Financial, Inc., and CuraGen Corporation. He is a member of
- ------- the Board of Trustees and Treasurer of the Wadsworth Atheneum. He
is also a member of the Corporate Associates Advisory Board of
The Nature Conservancy, the Board of Fellows of Trinity College
and a board member of the World Affairs Council. Mr. Booth serves
on the Board of Trustees of the Old State House and on the Barney
School's Board of Visitors, is Vice Chair of the Greater Hartford
Arts Council, and a member of the Community Advisory Board of the
Claude Pepper Older American Independence Center of the
University of Connecticut Health Center.
Mr. Booth has served as a director of the Company since July
1996.
Colin G. Campbell
Mr. Campbell, 63, is President of Rockefeller Brothers Fund, a
position he has held since 1988. Mr. Campbell is a director of
- ------- Pitney Bowes, SYSCO Corporation, Rockefeller Financial Services
PHOTO and HSB Engineering Insurance Limited, an affiliate of the
- ------- Company. He is Chairman of the Colonial Williamsburg Foundation,
Public Broadcasting Services and Winrock International Institute
for Agricultural Development.
Mr. Campbell has served as a director of the Company since
September 1983.
Simon W. Leathes
Mr. Leathes, 51, served as Chief Executive Officer and Group
Finance Director of Hambros PLC in the United Kingdom from 1997
- ------- through July 1998. He was appointed Group Finance Director of
PHOTO Hambros in 1996. Prior to joining Hambros PLC in 1996, he served
- ------- as Chief Financial Officer of Caspian Securities Ltd. in the
United Kingdom from 1995 to 1996. From 1980 through 1995, Mr.
Leathes was with S.G. Warburg Group PLC in the United Kingdom,
most recently serving as Chief Financial Officer/Group Finance
Director from 1992 to 1995. Mr. Leathes is a director of HSB
Engineering Insurance Limited, an affiliate of the Company.
Mr. Leathes has served as a director of the Company since
February 1997.
Meetings and Remuneration of the Directors
During 1998, the Board of Directors held seven meetings and eighteen
committee meetings. Each director attended at least 75% of the meetings of the
Board and committees on which he or she served combined.
The Governance Committee of the Board of Directors has adopted a formal
policy for the compensation of directors in order to further link director
compensation with the long-term interests of shareholders. According to the
policy, director compensation should: a) enable the Company to attract and
retain the talent needed to fulfill the responsibilities of the Board of
Directors in a superior and independent fashion; b) align the interests of the
directors with the long-term interests of shareholders through stock ownership;
c) compensate directors for their time, efforts and capacity to assist the
Company in the achievement of its long-term goals; and d) be validated in its
efficacy through review by an independent compensation consultant.
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The annual retainer for each non-employee director of the Company
is $17,500. Each non-employee director is paid a fee of $1,200 for attendance at
a Board or a committee meeting and an additional $350 for each committee meeting
chaired. Directors who are employees of the Company or do not receive
compensation for service on the Board or its committees and are not eligible to
participate in the plans described below for non-employee directors.
Non-employee directors are not eligible to participate in any of the plans
discussed in the Human Resources Committee Report on Executive Compensation.
Directors may be reimbursed for reasonable travel expenses incurred in attending
Board and committee meetings.
Each non-employee director received an award of 825 "deferred shares"
under the Directors Stock and Deferred Compensation Plan (the "Directors Plan")
for the 1998 plan year, prorated for partial year's service, if applicable. A
deferred share is defined in the plan as the right to receive the fair market
value of a share of Company common stock.
Under the Directors Plan, a director may elect to defer payment of all
or a portion of his or her cash compensation (annual retainer and meeting fees)
to a future date specified by the director. A participating director may elect
to have amounts held in his or her deferred account (i) credited annually with
interest (accrued at a fixed rate of 8.5% on the average daily balance held in
such accounts for the preceding plan year); or (ii) converted into deferred
shares equal to the amount of deferred cash compensation divided by the fair
market value of Company common stock on the date such compensation would
otherwise have been paid.
Deferred share and cash account balances held under the Directors Plan
are paid out in the form of shares of Company common stock, and cash,
respectively, and may be paid out either in a lump sum or in installments, at
the director's election, upon the director's termination of board service.
Dividend equivalents, in an amount equal to the amount of dividends that would
have been payable had each deferred share credited to a director constituted a
share of Company common stock, are payable in cash or converted into additional
deferred shares following the end of the plan year.
The Board of Directors has established a Charitable Endowment Program
for members of the Board of Directors who have at least one year of service as a
director. A portion of the program is currently funded by life insurance. The
Company intends to make tax deductible charitable contributions of $1 million to
charities recommended by each director, paid out over a period of ten years
following the death of the director. Directors derive no financial benefit from
the program since any insurance proceeds and charitable deductions accrue solely
to the Company.
The Company's Board of Directors annually appoints certain directors to
serve on standing committees of the Board of Directors, which currently include
the Audit, Human Resources, Governance, Finance and Executive Committees.
The Audit Committee's primary responsibility is to review and report to the
Board on the Company's accounting policies, the adequacy of its financial and
internal auditing controls, and the reliability of financial information
reported to the public. The Committee has the authority to approve the scope of
the annual audit and to authorize the release of annual financial statements.
The Audit Committee held four meetings during 1998. Mr. Ferland (Chairman), Mr.
Booth, Mr. Leathes and Ms. Fore, none of whom is an employee of the Company or a
subsidiary, presently serve on the Audit Committee.
The Human Resources Committee reviews remuneration for the Company's
executives as described in the Human Resources Committee Report on Executive
Compensation located on page 9. The Committee reviews the Company's benefit
plans and policies and practices with respect to employee relations. The
Committee acts as Plan Administrator for the 1985 Stock Option Plan, the 1995
Stock Option Plan, the Directors Stock and Deferred Compensation Plan, and the
Long-Term and Short-Term Incentive Plans. The Human Resources Committee held
five meetings during 1998. Mr. Ellis (Chairman), Mr. Campbell, Ms. Fore and Mrs.
Rice, none of whom is an employee of the Company or a subsidiary, presently
serve on the Human Resources Committee.
The Governance Committee reviews the organization and performance of the
Board of Directors and reviews and recommends director compensation. The
Committee also reviews the Company's policies and practices with respect to
community relations and recruits and nominates candidates for Board membership
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in conjunction with the Chief Executive Officer. In accordance with the
Company's Bylaws, any nomination by a shareholder must have been made by proper
written notice given to the Corporate Secretary not later than February 20, 1999
in order to be considered for the 1999 Annual Meeting. The Governance Committee
held four meetings during 1998. Mr. Campbell (Chairman), Mr. Alvord, Mr. Dooley,
Mr. Ellis, Mr. Kreh and Mrs. Rice presently serve on the Governance Committee.
Other committees of the Board of Directors are the Finance Committee and
the Executive Committee. The Finance Committee reviews the investment plan of
the Company, investor relation activities, and other matters involving the
Company's financial resources. Mr. Dooley (Chairman), Mr. Alvord, Mr. Booth, Mr.
Ferland, Mr. Kreh and Mr. Leathes presently serve on the Finance Committee,
which held six meetings in 1998. The Executive Committee acts on behalf of the
Board of Directors in the interim between meetings of the Board when prompt,
formal action is necessary. Mr. Kreh (Chairman), Mr. Alvord, Mr. Campbell, Mr.
Dooley, Mr. Ellis and Mr. Ferland presently serve on the Executive Committee,
which did not meet in 1998.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is unaware of any shareholder who on February 16, 1999 was
the beneficial owner of 5 percent or more of Company common stock outstanding
except as noted in the following table.
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF
CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
- --------------------------------------------------------------------------------
Common Employers Reinsurance (1) (1)
Stock Corporation
5200 Metcalf
Overland Park, Kansas
Common Trimark Financial Corporation 2,066,550(2) 7.14%
Stock One First Canadian Place
Suite 5600
P.O. Box 487
Toronto, Ontario Canada
(1) On December 31, 1997, the Company and Employers Reinsurance Corporation
("ERC") entered into a Purchase Agreement pursuant to which a business
trust formed by the Company sold $300 million of 7% convertible
subordinated capital securities to ERC. The securities are convertible into
the common stock of HSB Group, Inc. at $56.67 a share at any time, subject
to regulatory approval, or approximately 5,294,118 shares of common stock
of the Company, which on a fully diluted basis would constitute 15.5% of
the Company's outstanding shares. Pursuant to the Purchase Agreement, ERC
has agreed to vote any shares acquired upon conversion with respect to
certain matters in accordance with the recommendations of the Company's
Board of Directors, or, in the event such agreement is held invalid or in
violation of any law, in the same proportion as the Company's other holders
of voting securities.
(2) Information provided as of 2/16/99 by Trimark Financial Corporation
indicates that Trimark Financial Corporation has sole voting and
dispositive power with respect to these shares.
The number of shares of Company common stock beneficially owned as of
February 16, 1999 by each nominee and director, by each executive officer named
in the Summary Compensation Table, which in each case, other than Mr. Kreh,
represents less than 1% of the Company common stock outstanding as of such date,
and by all current directors and executive officers as a group, is shown in the
table below. Assuming the exercise of all currently exercisable options, Mr.
Kreh would beneficially own 2.16% of Company common stock as of February 16,
1999. For non-employee members of the Board of Directors participating in the
Directors Stock and Deferred Compensation Plan, the number of shares shown as
held directly also includes the number of deferred shares credited to their
accounts. The Directors Plan is explained in detail on page 6. Individuals are
fully at risk as to the value of deferred shares held in their deferred
accounts, which will be converted to an equal number of shares of Company common
stock upon each director's termination of board service.
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Unless otherwise indicated, each officer, nominee and director has sole
voting and investment power (or shares such powers with a family member) with
respect to Company common stock shown as held directly (other than deferred
shares, which cannot be voted). All shares shown as held indirectly reflect sole
voting and investment power exercised by the individual specified unless
otherwise indicated.
Beneficial Owner Directly Held(1) Indirectly Held Total
Joel B. Alvord 9,664 9,664
Saul L. Basch 159,014(2) 159,014
Richard H. Booth 3,725 500(3) 4,225
Colin G. Campbell 6,384 2,151(4) 8,535
Richard G. Dooley 22,178 22,178
Michael L. Downs 284,833(5) 284,833
William B. Ellis 7,693 7,693
E. James Ferland 8,215 3,000(3) 11,215
Henrietta H. Fore 2,586 2,586
John J. Kelley 295,860(6) 295,860
Gordon W. Kreh 533,788(7) 135,225(8) 669,013
Simon W. Leathes 2,547 2,547
Lois D. Rice 8,453 300(9) 8,753
Robert C. Walker 191,262(10) 191,262
All Current Directors and Executive Officers
as a Group (eighteen in number): 2,209,703 (11)
(1)Includes deferred shares held in the Directors Stock and Deferred
Compensation Plan for the following non-employee directors: Mr. Alvord,
7,166; Mr. Booth, 1,650; Mr. Campbell, 5,256; Mr. Dooley, 11,992; Mr.
Ellis, 6,193; Mr. Ferland, 6,715; Ms. Fore, 586; Mr. Leathes, 1,572; and
Mrs. Rice, 7,325.
(2) Includes 142,500 shares subject to options to purchase shares of Company
common stock that are exercisable on or before April 16, 1999.
(3) Shares held by spouse.
(4) 600 shares held in trusts for benefit of children over which Mr. Campbell
exercises shared voting and investment power. 1,551 held by spouse.
(5) Includes 240,000 shares subject to options to purchase shares of Company
common stock that are exercisable on or before April 16, 1999.
(6) Includes 268,800 shares subject to options to purchase shares of Company
common stock that are exercisable on or before April 16, 1999.
(7) Includes 500,625 shares subject to options to purchase shares of Company
common stock that are exercisable on or before April 16, 1999.
(8) 3,450 shares held by spouse; 6,150 shares and 125,625 options exercisable
on or before April 16, 1999 transferred by Mr. Kreh held by children.
(9) As trustee.
(10) Includes 172,500 shares subject to options to purchase shares of Company
common stock that are exercisable on or before April 16, 1999.
(11) Includes 1,935,300 shares subject to options to purchase shares of Company
common stock that are exercisable on or before April 16, 1999. Assuming the
exercise of all such options, the percentage of Company common stock owned
by directors and executive officers as a group would be 7.15% of the
Company common stock outstanding.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in Company stock by executive officers and
directors of the Company are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934. To the Company's knowledge, based solely on a review of the copies of
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reports that were furnished to the Company and written representations that no
other reports were required, all required reports were made in a timely manner
with respect to the fiscal year ended December 31, 1998.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive compensation programs for the Senior Vice Presidents and Chief
Executive Officer of the Company (the "executives") are administered by the
Human Resources Committee of the Board of Directors (the "Committee"). A
nationally recognized compensation consultant reviews and analyzes the Company's
executive compensation policies and practices in order to advise the Committee
as more fully described below. The Committee believes that the structure of the
Company's compensation programs provides a direct link between Company
performance and executive compensation.
Under the direction of the Committee, executive compensation programs
are structured to provide performance-based incentives to achieve the Company's
short and long-term goals, and to enable the Company to attract and retain key
individuals. In 1998, the Committee determined competitive compensation levels
and practices by reference to three comparator groups. The primary comparator
group consisted of fifteen leading property/casualty insurance companies
(including three of the eight insurance companies in the S&P 500
Property/Casualty Insurance Index used in the Performance Graph located on page
18) determined by the Committee to be highly representative of the executive
labor markets within which the Company competes. The alternate comparator group,
used by the Committee to provide additional perspective, consisted of twelve
smaller property/casualty and specialty insurance companies (none of which are
included in the S&P 500 Property/Casualty Insurance Index). The Committee also
reviewed the compensation practices and mix of compensation components of the
top companies on Fortune's list of most admired companies (none of which are
included in the S&P 500 Property/Casualty Insurance Index). Compensation
practices analyzed included the mix of compensation components, actual and
targeted stock ownership levels and the design of short and long-term
incentives. In assessing competitive compensation practices, the Committee
believes that it is appropriate to review compensation practices at
high-performing, well-run companies.
Base salary and variable compensation paid under the Company's incentive
plans (Short-Term and Long-Term Incentive Plans and the 1995 Stock Option Plan)
in 1998 to executives as a group, and for Mr. Kreh individually, were below the
median paid to executives by the companies in the primary comparator group
according to information compiled by the Company's compensation consultant.
Base salary adjustments are made for executives based upon an analysis
of individual performance, changes in responsibilities, and comparative data for
base salaries paid to executives with similar responsibilities in the primary
comparator group. Annual salary adjustments for executives are recommended by
the Chief Executive Officer and approved by the Human Resources Committee in its
discretion. The Committee determines adjustments for the Chief Executive Officer
in its discretion. For 1998, base salary adjustments for executives other than
Mr. Kreh were made for competitive reasons based upon comparisons with the
primary comparator group. Mr. Kreh received a 24% base salary increase based on
the Committee's analysis of the comparative data for base salaries paid to
executives with similar responsibilities in the primary comparator group.
The Company's Short-Term Incentive Plan provides for annual incentive
awards to officers of the Company, including the executives, and any other
employees designated by the Committee, based upon the Company's attainment of
certain results. Under the plan, at the beginning of each year, the Committee
establishes target awards based on the Company achieving a certain level of Net
Income Per Share ("formula awards"). Net income is defined as after-tax income
per share, consolidating all subsidiaries, inclusive of realized capital gains
and losses. The Committee has the authority to exercise discretion to reduce
(but not increase) the final amount of any formula awards to the executives
based on criteria such as individual and Company performance. Formula awards
made to covered employees are designed to meet the requirements of Section
162(m) of the Internal Revenue Code regarding performance-based compensation and
will therefore be deductible by the Company. The Committee also has the ability
to make discretionary non-formula awards to participants under the plan that
will not meet Section 162(m) requirements, in order for the Board to
9
<PAGE>
preserve flexibility to reward individuals for extraordinary achievements not
contemplated at the time a schedule was established for formula awards. The
maximum formula award payable under the plan to a participant for a plan year is
$2 million. Payment of awards may be made in the form of stock (which may be
restricted), stock units or cash.
Awards made to executives under the plan for 1998, including Mr. Kreh's
award of $630,000, were calculated under the formula established by the
Committee based on net income per share achieved for 1998. Some individual
awards, other than Mr. Kreh's, were reduced by the Committee based on an
assessment of individual contributions to 1998 results. Shareholders approved
revisions to the plan in 1998 as explained in more detail below.
Long-term incentives are provided to executives through awards made
under the Company's Long-Term Incentive Plan. Under the plan, the Committee
establishes specific Performance Goals for each participant (or all participants
as a group) at the beginning of each Performance Period based on one or more of
the following Performance Measures: insurance combined ratio; expense ratio; net
income per share; return on equity; total shareholder return; return on assets;
revenues; operating margin; increase in book value; and market share.
Performance Periods are defined as periods of three consecutive years beginning
each January 1 or such other period as the Committee may specify. For each
Performance Goal, an award schedule of Performance Contingent Units is
established for minimum, target and maximum attainment of such goal, based on a
percentage of a participant's base salary rate at the beginning of the period
(adjusted for any promotional increases during the Performance Period) divided
by the average of the high and low trading prices of Company common stock on the
first trading date of the Performance Period.
The actual Performance Contingent Award to be paid to a participant
under the schedule described above at the conclusion of the Performance Period
is based on the level of attainment of the Performance Goals established for
such period. If the minimum level of achievement is not reached for any of the
Performance Goals, no Performance Contingent Award is payable. The maximum
amount payable to a participant with respect to Performance Contingent Awards
for a Performance Period is $2 million. Performance Contingent Awards are
prorated for actual length of service as an eligible executive during the
Performance Period. Any payments are made in cash or in shares of Company common
stock (which may be restricted shares), as determined by the Committee. At the
discretion of the Committee, dividend equivalents may be paid in conjunction
with award payouts made under the plan, equal to the amount of cash dividends
that would have been paid during the Performance Period with respect to an award
of Performance Contingent Units if the award had been made in Company common
stock. Performance Contingent Awards made pursuant to the schedule described
above are designed to meet the requirements of Section 162(m) of the Internal
Revenue Code regarding performance-based compensation. The Committee also has
the ability to make discretionary awards to participants under the plan that do
not meet 162(m) requirements, as the Board has determined that it is in the best
interests of the Company to preserve flexibility to reward executives for
achievements related to extraordinary events not contemplated at the time the
schedule is established for Performance Contingent Awards.
Shareholders approved revisions to the Long-Term Incentive Plan in 1998.
Based on significant transactions entered into by the Company in 1997, including
changes to its capital structure, the Board determined that previously
established schedules for Performance Periods ending in 1998 and 1999 were no
longer relevant or appropriate. In order to gradually phase in the new program,
the revised plan, as approved by shareholders, was implemented with two shorter
initial Performance Periods of one and two years for 1998 and 1998-1999.
For the Performance Period ending in 1998, the Committee established
specific Performance Goals at the beginning of the Performance Period based on
the following Performance Measures: net income per share, insurance combined
ratio and return on equity. For each Performance Goal, an award schedule of
Performance Contingent Units was established for minimum, target and maximum
attainment of such goals, based on a percentage of the participant's base salary
rate at the beginning of the period (adjusted for any promotional increases
during the period), divided by the average of the high and low trading prices of
Company common stock on the first day of the Performance Period. For the
Performance Period ending in
10
<PAGE>
1998, the targets for net income per share, combined ratio and return on equity
were exceeded. Awards made to executives under the plan for the Performance
Period ending in 1998, including Mr. Kreh's award of 31,458 shares of restricted
stock, were calculated under the award schedule established by the Committee
based on these results.
During 1998, the Committee determined it was appropriate to grant
additional shares of restricted stock to executives outside of Company plans in
recognition of extraordinary performance associated with the sale of the
Company's interests in Radian International LLC and Industrial Risk Insurers.
Mr. Kreh's award of 1,693 additional restricted shares as reflected in the
Summary Compensation Table was based on these results.
Shares of restricted stock awarded to executives as described above and
shown in the Summary Compensation Table cannot be sold or transferred and will
be forfeited if the executive leaves the Company within a period of five years
for reasons other than death, disability, retirement, involuntary termination
other than for cause, or resignation with the consent of the Human Resources
Committee of the Board of Directors of the Company.
During 1998, executive officers were eligible for awards under the
Company's 1995 Stock Option Plan. Plan awards provide executives with long-term
incentives and serve to further align executives' long-term interests with those
of shareholders. Stock options are awarded based upon the market price of
Company common stock on the date of the grant and provide a vehicle to reward
executives only if the price of Company common stock increases above the grant
price.
Awards to be made to specific participants are determined by the
Committee in its discretion. The Company's outside compensation consultant
reviews each executive's award in comparison to awards made to individuals
employed by companies in the primary comparator group and makes recommendations
as to whether the awards made to Company executives should be adjusted. Several
factors were considered in determining the size of stock option grants to
executive officers in 1998, including competitive practices at companies in the
primary comparator group, the Committee's perception of the recipient's ability
to affect the results of the Company over time and individual levels of
responsibility. Awards made to executives in 1998, including Mr. Kreh's award of
150,000 stock options, were determined by the Committee in its discretion based
on its evaluation of these criteria.
The Committee and management have also agreed to the establishment of
stock ownership guidelines for executives. Shares owned directly or
beneficially, restricted shares and shares held in the Company's 401(k) and
employee stock ownership plan accounts are counted for purposes of the
guidelines, while unexercised stock options are not. Mr. Kreh has achieved his
ownership goal of 45,000 shares. The goal for other executives is ownership of
9,000 shares within five years of their becoming executives of the Company.
Seven executives have reached this goal and the others are expected to achieve
it within the stated time frame.
Under Section 162(m) of the Internal Revenue Code, publicly held
corporations may not deduct certain types of compensation paid to the Chief
Executive Officer and the next four most highly compensated individuals to the
extent such compensation exceeds $1 million. Certain types of compensation are
excluded from this limitation, including performance-based compensation paid
under plans that are approved by shareholders and administered by outside
directors.
Compensation derived from the exercise of stock options under the
Company's plans and awards made pursuant to objective formulas under the current
provisions of the Long-Term and Short-Term Incentive Plans are exempt from the
limit on the corporate tax deduction. The Long-Term and Short-Term Incentive
Plans both provide the Committee with the ability to make discretionary awards
which may not be deductible under Section 162(m), as the Board has determined
that it is in the best interests of the Company to retain some flexibility for
extraordinary situations. For 1998, a portion of Mr. Kreh's compensation was not
deductible as a result of the award paid to him under the Short-Term Incentive
Plan in 1998 for superior
11
<PAGE>
performance in 1997. (Shareholders approved amendments to the Short-Term
Incentive Plan in 1998 and future formula awards under that plan will be
deductible.)
Respectfully submitted by the
Human Resources Committee of the
Board of Directors of the Company
William B. Ellis (Chairman)
Colin G. Campbell
Henrietta H. Fore
(a member of the Committee since July, 1998)
Simon W. Leathes
(a member of the Committee until July, 1998)
Lois D. Rice
12
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth cash compensation for the five most
highly compensated executive officers of the Company serving as executive
officers on December 31, 1998 for services rendered in all capacities to the
Company and its subsidiaries during the last three fiscal years.
<TABLE>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
------
Securities
Restricted Underlying All Other
Stock Options Compen-
Name and Principal Position Year Salary Bonus Award(s)(1) (Number sation(2)
of shares)
- --------------------------- ---- ------ ----- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Gordon W. Kreh, Chairman, 1998 $710,385 $630,000 $1,244,339 150,000 $ 5,000
President and Chief 1997 $568,654 $700,000 $ 186,817 112,500 $ 4,750
Executive Officer 1996 $527,692 $135,000 $ 121,636 112,500 $ 4,750
Saul L. Basch, Senior 1998 $400,000 $240,000 $ 428,014 52,500 $ 5,000
Vice President, Treasurer 1997 $325,962 $330,000 $ 62,272 30,000 $ 4,750
and Chief Financial Officer 1996 $310,385 $ 60,000 $ 22,539 30,000 $ 4,500
Michael L. Downs 1998 $400,000 $160,000 $ 608,373 67,500 $ 5,000
Senior Vice President 1997 $325,962 $330,000 $ 74,762 45,000 $ 4,750
1996 $301,154 $ 30,000 $ 47,313 45,000 $ 4,500
John J. Kelley 1998 $400,000 $240,000 $ 435,314 67,500 $ 5,000
Senior Vice President 1997 $325,962 $310,000 $ 76,098 45,000 $ 2,553
1996 $302,692 $ 60,000 $ 49,549 45,000 $ 2,250
Robert C. Walker, Senior 1998 $360,000 $215,000 $ 392,134 52,500 $ 5,000
Vice President and 1997 $283,039 $230,000 $ 69,185 30,000 $ 4,750
General Counsel 1996 $267,308 $ 50,000 $ 42,522 30,000 $ 4,500
</TABLE>
(1) For 1998, represents Long-Term Incentive Plan awards paid out in shares of
Restricted Stock for the Performance Period ending in 1998 plus
discretionary restricted stock awards determined by the Committee outside
of any Company plan. All such shares have a five-year vesting period as
explained in more detail in the Human Resources Committee Report on
Executive Compensation located on page 9. The value of the discretionary
portion of the totals shown was as follows: Mr. Kreh, $98,088; Mr. Basch,
$32,677; Mr. Downs, $213,036; Mr. Kelley, $39,977; and Mr. Walker, $36,327.
(The award for Mr. Downs reflects in particular his contributions with
respect to the Industrial Risk Insurers transaction.) The value of
restricted stock shown in this column is calculated by multiplying the
closing price of Company common stock on the date the restricted shares
were granted by the number of shares awarded. Recipients are entitled to
receive dividends on restricted stock to the extent paid on Company common
stock generally. The total number of restricted shares held on 12/31/98 by
each of the named executive officers, and the aggregate value of such
shares, calculated by multiplying them by the closing price of Company
common stock on such date is as follows: Mr. Kreh, 11,362 shares, $466,552
aggregate value; Mr. Basch, 3,195 shares, $131,195 aggregate value; Mr.
Downs, 9,001 shares, $369,604 aggregate value; Mr. Kelley, 4,629 shares,
$190,078 aggregate value; and Mr. Walker, 4,125 shares, $169,383 aggregate
value. Additional information concerning Long-Term Incentive Plan awards is
located in the table on page 15.
(2) For 1998, reflects Company contributions under the Company's Thrift
Incentive Plan.
13
<PAGE>
STOCK OPTION AND LONG-TERM INCENTIVE PLAN TABLES
The following tables show information with respect to stock options and
potential awards under the Company's Long-Term Incentive Plan for the
individuals named in the Summary Compensation Table.
Option Grants in Last Fiscal Year (ended 12/31/98)
Individual Grants
-----------------
<TABLE>
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base Expira-
Name Granted in Fiscal Price tion Grant Date
(1) Year ($/Share) Date Present Value (2)
- ---- ---------- ---------- --------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Gordon W. Kreh 150,000 18.42% $42.02 2/23/2008 $844,500
Saul L. Basch 52,500 6.45% $38.73 1/25/2008 $272,475
Michael L. Downs 67,500 8.29% $38.73 1/25/2008 $350,325
John J. Kelley 67,500 8.29% $38.73 1/25/2008 $350,325
Robert C. Walker 52,500 6.45% $38.73 1/25/2008 $272,475
</TABLE>
(1) Options granted are nonstatutory stock options. The exercise price of the
option is equal to the fair market value of the stock on the date of the
grant. Payment for the shares as to which an option is exercised may be
made in cash or in shares of Company common stock or a combination of cash
and stock. These options may not be exercised any earlier than one year or
any later than ten years from the date of the grant. Participants will be
permitted to satisfy any federal, state or local tax requirements due upon
exercise of a stock option by delivering to the Company already-owned
Company common stock or by directing the Company to retain stock otherwise
issuable upon such exercise to the participant, having a fair market value
equal to the amount of the tax. Options and stock appreciation rights will
generally be nontransferrable during the lifetime of the participant,
except that the Human Resources Committee may, in its discretion, grant
nonqualified stock options that may be transferred pursuant to a qualified
domestic relations order, or to an immediate family member or a trust for
the benefit of an immediate family member.
(2) The estimated grant date present value shown was determined by using the
Black-Scholes stock option pricing model. The model uses the following
assumptions: (i) stock price volatility of 15.7%; (ii) dividend yield of
4.7%; (iii) a risk-free interest rate of 5.1%; and (iv) an option term of
ten years. These figures are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
14
<PAGE>
Aggregated Option Exercises in Last Fiscal Year (ended 12/31/98) and FY-End
Option Values
<TABLE>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-money
Shares Options at Options at
Acquired on Value Fiscal Year-end Fiscal Year-end
Name Exercise Realized (#) ($)
Exercisable/
Unexercisable
--------------- ---------------
(#) ($) Exercisable/ Exercisable/
Unexercisable Unexercisable
----------- --------- --------------- -------------
<S> <C> <C> <C> <C>
Gordon W. Kreh 0 $0 476,250(1)/150,000 $4,509,660/0
Saul L. Basch 0 $0 90,000/52,500 $811,353/$121,364
Michael L. Downs 0 $0 172,500/67,500 $1,778,691/$156,039
John J. Kelley 0 $0 201,300/67,500 $1,922,514/$156,039
Robert C. Walker 0 $0 120,000/52,500 $1,236,653/$121,364
</TABLE>
(1) Of which 125,625 have been transferred to children.
Long-Term Incentive Plan -- Awards in Last Fiscal Year (ended 12/31/98)(1)
<TABLE>
Number of Performance Estimated Future Payouts under
Shares, or Other Non-stock Price-based Plans
Units or Period until ------------------------------
Other Maturation or
Name Rights Payout Threshold Target Maximum
- ---- ------ ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Gordon W. Kreh (1) 1998-2000 11,371 18,951 37,902
Saul L. Basch (1) 1998-2000 3,249 6,497 12,995
Michael L. Downs (1) 1998-2000 3,249 6,497 12,995
John J. Kelley (1) 1998-2000 3,249 6,497 12,995
Robert C. Walker (1) 1998-2000 2,924 6,497 12,995
</TABLE>
(1) This table reflects the schedule of awards established by the Human
Resources Committee and represents the potential number of Performance
Contingent Units that may be awarded to participants for the Performance
Periods and levels of performance shown. The actual number of performance
units awarded at the end of a Performance Period, if any, is not yet
determinable because the number of units earned is based on Company
performance during the Performance Period.
Shareholders approved revisions to the Long-Term Incentive Plan in 1998.
Based on significant transactions entered into by the Company in 1997,
including changes to its capital structure, the Board determined that
previously established schedules for Performance Periods ending in 1998 and
1999 were no longer relevant or appropriate. In order to gradually phase in
the new program, the revised plan was implemented with two shorter initial
Performance Periods ending in 1998 and 1999. Participants forfeited any
right to awards determined under the schedules previously established for
Performance Periods ending in 1998 and 1999.
The schedule shown above is applicable to the Performance Period ending in
1999 as well.
If threshold, target or maximum goals are reached, payouts of Performance
Contingent Unit Awards under the plan will be made in shares of Company
common stock (which may be restricted shares) or their corresponding cash
value at the end of a Performance Period. Performance Contingent Unit
Awards are prorated for length of service during a Performance Period, and
for varying degrees of performance between the threshold and maximum levels
of performance. (For the Performance Period that ended on December 31,
1998, payouts were made in shares of restricted stock as indicated in the
Summary Compensation Table located on page 13).
15
<PAGE>
Retirement Plans
The following table shows the estimated annual amounts payable on a life annuity
basis to a participant retiring on 12/31/98 at age 65 under the Company's
qualified defined benefit pension plan based on compensation that is covered
under the plan and years of service with the Company. The table also includes
amounts payable under nonqualified supplemental pension plans that provide
benefits that would otherwise be denied participants by reason of certain
Internal Revenue Code limitations on qualified plan benefits. All of the
executives named in the Summary Compensation Table participate in these plans.
(A small portion of Mr. Kreh's annual retirement benefit shown in the table will
be paid from The Boiler Inspection and Insurance Company of Canada's retirement
plan based on Mr. Kreh's initial service and earnings with that affiliate.)
<TABLE>
Final Years of Service
Average
Earnings 5 10 15 20 25 30 35
- -------- - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
500,000 39,221 78,443 117,665 156,887 196,109 211,109 226,109
600,000 47,221 94,443 141,665 188,887 236,109 254,109 272,109
700,000 55,221 110,443 165,665 220,887 276,109 297,109 318,109
800,000 63,221 126,443 189,665 252,887 316,109 340,109 364,109
900,000 71,221 142,443 213,665 284,887 356,109 383,109 410,109
1,000,000 79,221 158,443 237,665 316,887 396,109 426,109 456,109
1,100,000 87,221 174,443 261,665 348,887 436,109 469,109 502,109
1,200,000 95,221 190,443 285,665 380,887 476,109 512,109 548,109
1,300,000 103,221 206,443 309,665 412,887 516,109 555,109 594,109
1,400,000 111,221 222,443 333,665 444,887 556,109 598,109 640,109
1,500,000 119,221 238,443 357,665 476,887 596,109 641,109 686,109
1,600,000 127,221 254,443 381,665 508,887 636,109 684,109 732,109
1,700,000 135,221 270,443 405,665 540,887 676,109 727,109 778,109
1,800,000 143,221 286,443 429,665 572,887 716,109 770,109 824,109
1,900,000 151,221 302,443 453,665 604,887 756,109 813,109 870,109
2,000,000 159,221 318,443 477,665 636,887 796,109 856,109 916,109
</TABLE>
Benefits payable under the Company's Retirement Plan are based on the average of
the participant's highest three consecutive years of earnings in the 5-year
period before retirement, and on years of service. Earnings covered under the
plan include compensation listed in the Summary Compensation Table under the
"Salary" and "Bonus" columns, and restricted stock awarded under the Long-Term
Incentive Plan shown in the "Restricted Stock Awards" column, valued as of the
award date. (Restricted stock awarded outside of Company plans is not included
as earnings under the plan.) Credited years of service as of December 31, 1998
for the individuals named in the Summary Compensation Table are as follows: Mr.
Kreh, 28 years; Mr. Basch, three years; Mr. Downs, 26 years; Mr.
Kelley, 27 years; and Mr. Walker, five years.
In addition, the executive officers named in the Summary Compensation
Table are covered under a supplemental retirement/death benefit program. Under
this program, if the executive officer should die prior to his retirement, his
beneficiary will be entitled to an annual death benefit equal to 50% of the
executive's base salary for fifteen years. At retirement, the executive is
entitled to an annual retirement supplement equal to 35% of his base salary for
fifteen years. An executive's right to this benefit vests over a five-year
period, beginning on the date he is appointed an executive officer.
Employment Arrangements
The members of the Board of Directors believe that it is in the best
interests of the shareholders for the Company to have employment agreements with
each of the executive officers named in the Summary Compensation Table (and
certain other key employees) to (i) encourage them to remain in the Company's
employ during the uncertain times which attend a threatened or actual change in
control of the Company; and (ii) provide specified benefits in the event of
certain terminations unrelated to a change in control event.
16
<PAGE>
Under the terms of the agreements, generally, a change in control shall be
deemed to have occurred if (i) any person acquires securities of the Company
representing 25% or more of the Company's then outstanding securities; (ii)
current directors and those replacement or additional members of the Board
subsequently approved by a vote of at least two-thirds of the Board, cease to
make up at least two-thirds of the Board; (iii) a merger or consolidation of the
Company occurs such that the shareholders of the Company prior to such merger
own less than 60% of the surviving corporation; or (iv) a complete liquidation
or dissolution of the Company or disposition of all or substantially all of the
assets of the Company occurs. A threatened change in control shall be deemed to
have occurred if (i) the Company enters an agreement, which if consummated would
result in a change in control; (ii) the Company or any person announces an
intention to take actions which if consummated would constitute a change in
control; (iii) any person acquires securities of the Company representing 10% or
more of the Company's then outstanding securities; or (iv) the Board determines
that a threatened change in control has occurred.
Upon a change in control, the following will occur: (i) under the
Company's Long-Term Incentive Plan, the fair market value of Performance
Contingent Units allocated to the executive for each three-year Performance
Period within which the date of the change in control falls, prorated for actual
service within each Performance Period prior to such date, will be paid, and the
restrictions on any shares of restricted stock awarded will lapse and any
amounts deferred will be paid; (ii) under the Company's Short-Term Incentive
Plan, an award will be paid calculated as though target performance were
achieved for the year within which the change in control occurs; and (iii) under
the Company's Stock Option Plan, all stock options outstanding on the date of
the change in control will become immediately exercisable and the restrictions
on any restricted stock previously awarded will lapse.
If an executive's employment with the Company is terminated within the
term of the agreement following a change in control or, under certain
circumstances, a threatened change in control, other than for cause or
resignation (other than for good reason, which means termination as a result of,
among other things, the involuntary assignment of such executive to duties
inconsistent with the executive's position prior to such event or a reduction of
the executive's current compensation or benefits), the executive becomes
entitled to the following: (i) three times the sum of the executive's base
salary in effect at the time of such event and the three-year average of sums
paid to the executive under the Company's Short-Term and Long-Term Incentive
Plans; (ii) a fully vested supplemental retirement benefit, as described above
under Retirement Plans; (iii) credit for an additional three years of service
under the Company's retirement plans; (iv) three years of welfare benefits
provided at the Company's then current subsidy rate; (v) reimbursement of any
costs incurred by the executive to enforce the agreement; (vi) outplacement
services; and (vii) payment to the executive equal to the amount of any excise
tax imposed upon the executive with respect to the foregoing payments as a
result of the occurrence of such event.
The agreements also provide certain severance benefits in the event that
the Company terminates the employment of the executive other than for cause or
in connection with a change in control. In such event, the executive would be
entitled to receive severance payments in installments over a period of two
years equal to two times the executive's base salary, outplacement services and
reimbursement of any costs incurred to enforce the agreement if the executive is
successful in such effort.
The Company has established a trust (which would be funded upon a
threatened change in control) pursuant to which payments under these agreements
and certain other benefit plans will be paid in the event of a threatened or
actual change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are none.
17
<PAGE>
TRANSACTIONS WITH MANAGEMENT
Fleet Financial Group, of which Mr. Alvord served during 1998 as a
director, performed various services for the Company in 1998, among which were
acting as the trustee for the Company's Retirement Plan and Employee Stock
Ownership Plan. The Company and certain of its subsidiaries also maintained
various accounts with Fleet Financial Group during 1998. In the opinion of the
Company, the fees for these services were comparable to those charged by other
financial institutions. The Company and its subsidiaries maintain banking
relationships with various other financial institutions.
The Company has invested $2 million as a limited partner in a private
equity limited partnership which invests principally in targeted businesses in
the financial services industry. Mr. Alvord is a major equity owner of the
limited liability company which serves as the general partner of the
partnership.
PERFORMANCE GRAPH
The following line-graph compares cumulative, five-year total
shareholder returns on Company common stock on an indexed basis with the S&P 500
Stock Index and the S&P 500 Property/Casualty Insurance Index, based on an
initial investment on December 31, 1993 of $100, assuming that all dividends, if
any, were reinvested.
Company/Index 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
HSB GROUP, INC. 100 93.81 123.64 120.40 149.97 173.72
S&P 500 100 101.32 139.40 171.40 228.59 293.91
INSURANCE
(PROPERTY-
CASUALTY)-500 100 104.90 142.02 172.58 251.04 233.59
18
<PAGE>
PROPOSAL 2
PROPOSAL TO AMEND THE 1995 STOCK OPTION PLAN
The Board of Directors believes that the Company's 1995 Stock Option
Plan has been of substantial value in facilitating the efforts of the Company to
attract and retain key employees of outstanding ability by providing them an
opportunity to acquire a proprietary interest in the Company and giving them an
additional incentive to remain with the Company and to use their best efforts on
its behalf.
The Board of Directors of the Company adopted, subject to shareholder
approval, several amendments to the plan, including the following significant
changes, to be effective January 1, 1999: an increase in the number of shares
available for delivery under the plan to 4,200,000; a modification to the manner
in which shares reserved under the plan are utilized for awards; a change to the
eligibility provision of the plan to expand eligibility; and an increase in the
per person annual grant limitation to 250,000.
The plan currently provides that a maximum of 2,775,000 shares of
Company common stock may be issued pursuant to grants made under the plan and
that the plan will terminate on April 17, 2005. The Board of Directors believes
that the grants made pursuant to the plan are an important component of the
Company's overall compensation program and are necessary to attract and retain
outstanding executives and other key individuals. On January 1, 1999, 589,172
shares remained available for future grants to be made pursuant to the plan. The
Board granted options in January and February 1999, contingent upon obtaining
shareholder approval for the increased amount of shares. The number of shares
presently available for the grant of awards under the plan is insufficient for
the number of awards the Board of Directors has approved for 1999 plus any
awards to be made in the future. The Board therefore adopted, subject to the
approval of the shareholders, an amendment to the plan that would increase the
number of shares available for delivery under the plan to 4,200,000 and an
amendment to modify the manner in which shares reserved under the plan are
counted in order to maximize the number of shares available for awards under the
plan. If the proposed amendment is approved, any shares tendered or withheld in
satisfaction of tax withholding obligations, any shares forfeited, cancelled or
expired in accordance with the terms of an award and any shares tendered in
satisfaction of payment of an option exercise price will be available for
issuance under the plan.
The following is a summary of the material features of the amended 1995
Stock Option Plan. This summary is qualified in its entirety by reference to the
complete text of the plan which has been filed electronically with the
Securities and Exchange Commission as an appendix to this Proxy Statement. If
approved by shareholders at the 1999 Annual Meeting, the amended 1995 Stock
Option Plan will become effective as of January 1, 1999.
The closing price of Company common stock on February 16, 1999 as
reported in The Wall Street Journal was $35 15/16.
Material Features of the Plan
General
Executive and middle management employees of the Company or its
subsidiaries are currently eligible to participate in the plan. If the proposed
amendment is approved, eligibility will be expanded to include all employees of
the Company, consultants or other persons providing key services, and employees
of entities that are at least fifty percent owned by the Company. The Board
estimates that approximately two hundred persons currently participate in the
plan. Participants are recommended by management. Under the plan, the Human
Resources Committee of the Board of Directors, as plan administrator (the
"Committee"), is authorized to grant incentive and nonstatutory stock options,
stock appreciation rights in tandem with such options and restricted stock
awards to eligible individuals.
As approved by shareholders at the 1997 Annual Meeting, a maximum of
2,775,000 shares of Company common stock has been reserved for issuance under
the plan. (If the proposed amendment is approved, the maximum number of shares
reserved for issuance will be 4,200,000.) No single participant may currently be
granted awards pursuant to the plan in excess of 150,000 shares of Company
common stock in any calendar
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year. If the proposed amendment is approved, this limitation will be increased
to 250,000. The plan permits adjustments, in the Board of Directors' discretion,
in the number of shares of Company common stock authorized to be issued in the
event of stock splits, stock dividends and other changes in the capitalization
of the Company. The plan provides that preferred stock may be issued in lieu of
common stock. The Company has no present intention to issue preferred stock
pursuant to the plan. Shares of Company common stock issued under the plan may
be newly issued or shares previously repurchased by the Company.
The Committee is responsible for determining the type and particular
provisions of awards for eligible employees and is responsible for interpreting
the plan and for issuing such rules as are necessary for its administration. The
Committee is composed of directors who are ineligible to participate in the
plan.
Under the terms of the plan, the Board of Directors is permitted to
amend, suspend or discontinue the plan except that no amendment may be made
without the approval of shareholders that increases the number of shares
reserved for options and restricted stock awards under the plan, changes the
class of persons eligible to participate, permits an option grant at a price
less than fair market value or extends the term of the plan or the term during
which an option may be granted or exercised.
Option Grants
The plan provides that the option price of both incentive and
nonstatutory stock option grants will not be less than the fair market value of
Company common stock on the date an option is granted. The fair market value is
defined as the average of the high and low prices per share of Company common
stock as quoted by the New York Stock Exchange Composite Transaction Reporting
System.
The specific terms of an option grant to a plan participant are
determined by the Committee. However, in no event may an option be exercised
within one year of, or beyond ten years from, the date of the grant. In
addition, no option or associated stock appreciation right may be exercised more
than two years after termination of the participant's employment, if such
termination occurred following the death, disability or retirement of the
participant or a change in control of the Company, as such terms are defined in
the plan. If termination of employment occurs for any other reason (other than
termination for cause) no option or associated stock appreciation right may be
exercised more than three months following the date of termination. However, if
the participant dies within this three-month period, the participant's
beneficiary will be permitted to exercise the option or stock appreciation right
within one year of the date of termination of employment. No option may be
exercised by a participant or a beneficiary beyond the term specified in the
option grant. Options and stock appreciation rights will generally be
nontransferable during the lifetime of the participant, except that the
Committee may, in its discretion, grant nonqualified stock options that may be
transferred pursuant to a qualified domestic relations order, or to an immediate
family member or a trust for the benefit of an immediate family member. Payment
for the shares as to which an option is exercised will be made in cash, or if
permitted by the Committee, in shares of Company common stock that have been
held by the participant for at least six months, or a combination of cash and
stock. The Committee may permit participants to satisfy, in whole or in part,
any federal, state, or local tax requirements due upon exercise of a stock
option by delivering to the Company already owned Company common stock or by
directing the Company to retain stock otherwise issuable upon such exercise to
the participant, having a fair market value equal to the amount of the tax.
Under the terms of the plan, an option grant may, in the discretion of
the Committee, also include a stock appreciation right which will entitle a
participant to surrender the option, in whole or in part, and receive in
exchange an amount equal to the excess of the fair market value, on the date of
surrender, of the shares covered by the option over the option price of such
shares. This excess may be paid in shares of Company common stock, cash or a
combination of both, at the discretion of the Committee.
Restricted Stock Awards
A restricted stock award is an award of common shares that may not be
sold, assigned, transferred, or otherwise encumbered, except by will or the laws
of descent and distribution, for a period (the "restricted period") of five
years, or such shorter period as the Committee shall determine, from the date on
which the
20
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award is granted. The Committee may provide that the foregoing restrictions
shall lapse with respect to specified percentages of the awarded shares on
successive anniversaries of the date of the award. In addition, the Committee
has the authority to cancel all or any portion of any outstanding restrictions
prior to the expiration of the restricted period.
During the restricted period, the participant is the registered owner
of the shares and is entitled to receive dividends with respect to such stock
and to vote such shares, but participants do not receive stock certificates. If
during the restricted period the participant's continuous employment terminates
for any reason (other than by reason of death, disability, retirement or
pursuant to a change in control as such terms are defined under the plan), any
shares remaining subject to restrictions are forfeited by the participant and
transferred at no cost to the Company, provided however, that as noted above,
the Committee has the authority to cancel any or all outstanding restrictions
prior to the end of the restricted period, including cancellation of
restrictions in connection with certain types of termination of employment. When
the restricted period ends, the restrictions on shares lapse and stock
certificates are delivered to the participant. The Committee may permit
participants to satisfy, in whole or in part, any federal, state, or local tax
requirements due upon the lapse of such restrictions by delivering already-owned
Company common stock or by directing the Company to retain Company common stock
otherwise issuable to the participant upon the lapse of such restrictions,
having a fair market value equal to the amount of the tax.
Federal Income Tax Consequences
A participant is not taxed upon the grant of a Nonstatutory Stock
Option (NSO). Upon the exercise of an NSO, the participant is taxed at ordinary
income rates on the difference between the fair market value of the shares on
the date of exercise and the option price. The Company is entitled to a tax
deduction equal in amount to ordinary income recognized by the participant. The
participant's basis in the Company common stock acquired upon exercise of an NSO
is equal to the option price plus the amount of ordinary income recognized.
A participant does not recognize any income for federal income tax
purposes upon either the grant or timely exercise of an Incentive Stock Option
(ISO). However, the spread at exercise will constitute an item includible in
alternative minimum taxable income, and thereby may subject the optionee to the
alternative minimum tax.
If the participant holds the shares purchased through the exercise of
the ISO for two years from the date of the grant of the option and one year from
the exercise date, the participant will be eligible for long-term capital gains
treatment on the sale of the shares equal to the difference between the amount
realized on the sale and the option price. The Company is not entitled to a tax
deduction in this event. If the participant disposes of the shares within two
years from the date of the grant or within one year from the exercise date (a
"disqualifying disposition"), the participant will be subject to ordinary income
tax treatment on the difference between the option price and the lesser of the
fair market value of the shares on the date of exercise or the amount realized
on disposition. The Company will be entitled to a tax deduction in the same
amount as the ordinary income recognized by the participant.
The Committee may, in its discretion permit a participant to deliver
previously acquired shares in payment for the option price of an NSO or ISO. If
the participant uses shares of Company common stock to pay the option price of
an NSO, gain or loss is not recognized on the exchange to the extent that the
number of shares received does not exceed the number turned in as payment. The
shares received in the exchange have the same basis and holding periods as the
shares used for payment. Any additional shares received upon the exercise of an
NSO have a tax basis equal to the amount of ordinary income realized by the
participant and holding period beginning on the date of exercise.
If the participant uses shares of Company common stock to pay the
option price of an ISO, gain or loss is not generally recognized on the
exchange. The equivalent number of shares received in exchange for the shares
turned in have the basis and holding period of the shares turned in for capital
gain or loss purposes. Any additional shares received have a zero basis with a
holding period beginning on the exercise date. However, if Company common stock
acquired upon a prior exercise of an ISO is transferred in payment for
subsequent
21
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exercise of an ISO or NSO, before the requisite holding periods for the
surrendered shares have been met, the optionee will recognize ordinary income on
the gain resulting from the disposition of such shares. "Gain" for this purpose
is defined as the lesser of i) the difference between the fair market value of
the stock on the date of exercise of the first option and the option price of
the first option, or ii) the difference between the fair market value of the
stock on the date of exercise of the second option and the option price of the
first option.
Upon the exercise of a Stock Appreciation Right (SAR) a participant
will be subject to ordinary income tax treatment on the cash plus the fair
market value of shares of Company common stock received. The Company will be
entitled to a tax deduction in the same amount as the ordinary income realized
by the participant. A participant's basis in any stock acquired upon the
exercise of an SAR is equal to the amount of ordinary income recognized
excluding any cash received.
In the case of a restricted stock award, a participant is not taxed
upon the grant of any such award, but rather, the participant realizes ordinary
income in an amount equal to the fair market value of Company common stock at
the time the shares are no longer subject to a substantial risk of forfeiture
(as defined in the Internal Revenue Code). The Company is entitled to a
deduction at the time and in the amount that the participant realizes ordinary
income, unless such amount exceeds the limit on compensation payable to
executives pursuant to Section 162(m) of the Code. A participant may elect under
Section 83(b) of the Code (not later than 30 days after acquiring such
restricted shares) to realize ordinary income at the time the restricted shares
are awarded in an amount equal to their fair market value at that time,
notwithstanding the fact that such shares are subject to restrictions and a
substantial risk of forfeiture. If such an election is made, no additional
taxable income will be recognized by such participant at the time the
restrictions lapse. However, if shares in respect of which such election was
made are later forfeited, no tax deduction is allowable to the participant for
the forfeited shares, and the Company will be deemed to realize ordinary income
equal to the amount of the deduction allowed to the Company at the time of the
election in respect of such forfeited shares.
New Plan Benefits
If the proposed amendment is approved, options awarded in January and
February 1999 that are contingent upon shareholder approval will be awarded as
indicated in the following table. It cannot be determined at this time what
benefits or amounts, if any, will be received by or allocated to any person or
group of persons under the plan in the future if the amendment is adopted
because such awards are made at the discretion of the Human Resources Committee
of the Board.
Name and Position Number of units
- ----------------- ---------------
Gordon W. Kreh, Chairman, President
and Chief Executive Officer 60,000
Saul L. Basch, Senior Vice President,
Treasurer and Chief Financial Officer 27,000
Michael L. Downs, Senior Vice President 27,000
John J. Kelley, Senior Vice President 27,000
Robert C. Walker, Senior Vice President
and General Counsel 21,000
All Current Executive Officers as a Group 246,000
Non-Executive Officer Director Group 0
Non-Executive Officer Employee Group 98,800
Shareholder Vote Required for Approval
Approval of Proposal 2 requires that the number of votes cast in favor
of the proposal exceed the number of votes cast opposing the proposal. The Board
of Directors unanimously recommends a vote FOR Proposal 2.
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PROPOSAL 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors recommends that the firm of
PricewaterhouseCoopers L.L.P. be appointed as independent public accountants for
the Company for the year ending December 31, 1999. Coopers & Lybrand (the
predecessor of PricewaterhouseCoopers) has served as the Company's independent
public accountants since 1965.
Representatives of PricewaterhouseCoopers will be present at the meeting
to make a statement if they wish to do so, and will be available to respond to
appropriate questions raised by shareholders.
Unless otherwise directed, the shares represented by the enclosed proxy
card will be voted for the appointment of PricewaterhouseCoopers as independent
public accountants for 1999. Approval of Proposal 3 requires that the number of
votes cast in favor of the proposal exceed the number of votes cast opposing the
proposal.
The Board of Directors unanimously recommends a vote FOR Proposal 3.
DEADLINES FOR SHAREHOLDER PROPOSALS
Shareholders who wish to submit written proposals for possible inclusion
in next year's proxy statement must make certain that they are received no later
than November 5, 1999. Proposals should be sent to the Corporate Secretary, HSB
Group, Inc., One State Street, P.O. Box 5024, Hartford, Connecticut 06102-5024.
If the Company receives notice of a shareholder proposal for the 1999 Annual
Meeting after February 20, 1999, the persons named in the proxies solicited by
the Board of Directors of the Company for the 1999 Annual Meeting may exercise
discretionary voting power with respect to such proposal.
OTHER BUSINESS TO COME BEFORE THE MEETING
The management does not know of any matters to be presented for
consideration at the meeting other than the matters described in the Notice of
Annual Meeting; but if other matters are properly presented, it is the intention
of the persons named in the accompanying proxy to vote on such matters in
accordance with their judgment. Shareholders desiring to nominate persons for
election as directors or to bring other business before shareholders at an
annual meeting must provide the appropriate written notice required by the
Company's Bylaws, copies of which are available upon request to the Corporate
Secretary of the Company.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION. SHAREHOLDERS MAY RECEIVE A COPY OF THE 10-K BY SENDING A
WRITTEN REQUEST TO THE OFFICE OF THE TREASURER, HSB GROUP, INC., ONE STATE
STREET, P.O. BOX 5024, HARTFORD, CONNECTICUT 06102-5024.
By Order of the Board of Directors,
R. K. PRICE
Corporate Secretary
Printed on recycled paper 750-PS-99
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Appendix A
As amended and restated
effective 4/20/99
HSB GROUP, INC.
---------------------
1995 STOCK OPTION PLAN
----------------------
ARTICLE I - PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose of Plan
---------------
The purpose of the 1995 Stock Option Plan is to attract and retain
persons eligible to participate in the Plan and to motivate such
individuals to exert their best efforts to contribute to the long-term
growth of the Company by encouraging ownership in the Company. The Plan
is further designed to promote a closer identity of interest between
Participants and the Company's shareholders.
1.2 Definitions
-----------
(a) "Appreciation" shall mean the excess of the Fair Market Value of
a share over the specified option price per share multiplied by
the number of shares subject to the option or portion thereof
which is surrendered.
(b) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(c) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(d) "Beneficiary" shall mean the legal representative of the estate
of a deceased Optionee or the person or persons who shall acquire
the right to exercise an option or Stock Appreciation Right by
bequest or inheritance or by reason of the death of the Optionee.
In the case where a Participant's right to shares of Restricted
Stock vest as provided in Section 2.5(d) on or prior to the
Participant's date of death, the term "Beneficiary" shall also
mean the legal representative of the estate of the Participant or
the person or persons who shall acquire the right to such vested
shares of Stock by bequest or inheritance or by reason of the
death of such Participant.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates)
representing 25% or more of the combined voting power of the
Company's then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a transaction
described in clause (i) of paragraph (III) below; or
(II) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals
who, on December 23, 1996, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election
by the Company's shareholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on December 23, 1996 or whose
appointment, election or nomination for election was previously
so approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with
any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or
any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the Company, at
least 60% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 60% of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions
as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately
following which the record holders of the common stock of the
Company immediately prior to such transaction or series of
transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall mean the Human Resources Committee of the Board
or any future committee of the Board performing similar
functions.
(i) "Company" shall mean HSB Group,Inc. and, except in determining
under Section 1.2(f) hereof whether or not any Change in Control
of the Company has occurred, shall include any successor to its
business and/or assets which assumes this Plan by operation of
law, or otherwise.
(j) "Disability" shall mean any condition which meets the definition
of Long-Term Disability under the Company's Long-Term Disability
Plan.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock as reported by the New
York Stock Exchange Composite Transaction Reporting System (NYSE)
on the date for which the Fair Market Value is being determined,
or if no quotations are available for the Company's Stock, for
the next preceding date for which such a quotation is available.
If shares of Company Stock are not then listed on the NYSE, Fair
Market Value shall be reasonably determined by the Committee, in
its sole discretion.
(m) "Incentive Stock Option" shall mean an option described in
Section 422 of the Code.
(n) "Nonstatutory Stock Option" shall mean an option which does not
qualify as an Incentive Stock Option under Section 422 of the
Code.
(o) "Optionee" shall mean an individual to whom an option is granted
under the Plan.
(p) "Participant" shall mean an individual to whom an option is
granted or to whom Restricted Stock is awarded under the Plan.
(q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(r) "Plan" shall mean the HSB Group, Inc. 1995 Stock Option Plan, as
amended.
(s) "Related Company" shall mean any corporation, partnership, joint
venture or other entity during any period in which at least a
fifty percent voting or profits interest is owned, directly or
indirectly, by the Company.
(t) "Restricted Stock" shall mean one or more shares of Stock awarded
to an eligible Participant under Section 2.5 of the Plan and
subject to the terms and conditions set forth in Section 2.5.
(u) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan.
(v) "Stock" shall mean the Common Stock of the Company.
(w) "Stock Appreciation Right" shall mean a right to surrender to the
Company all or any portion of an option and, as determined by the
Committee, to receive in exchange therefor cash or whole shares
of Stock (valued at current Fair Market Value) or a combination
thereof having an aggregate value equal to the excess of the
current Fair Market Value of one (1) share over the option price
of one (1) share specified in such option grant multiplied by the
number of shares subject to such option or the portion thereof
which is surrendered.
1.3 Administration
--------------
The Plan shall be administered by the Committee as defined herein. No
member of the Committee shall be eligible to be granted an award under the
Plan. Each member of the Committee shall be a "disinterested director"
within the meaning of Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act and an "outside director" within the
meaning of Section 162(m) of the Code. The Committee shall have the
responsibility of interpreting the Plan and establishing and amending such
rules and regulations necessary or appropriate for the administration of
the Plan or for the continued qualification of any Incentive Stock Options
granted hereunder. In addition, the Committee shall have the authority to
designate the individuals who shall be granted options and awarded
Restricted Stock under the Plan and the amount and nature of the options,
related rights and awards to be granted to each such individual. All
interpretations of the Plan or of any options, related rights or awards
issued under it made by the Committee shall be final and binding upon all
persons having an interest in the Plan. No member of the Committee shall be
liable for any action or determination taken or made in good faith with
respect to this Plan or any option granted hereunder.
1.4 Eligibility
-----------
All employees of the Company or a Related Employer and any consultant or
other person providing key services to the Company or a Related Employer
shall be eligible to receive grants of stock options and awards of
Restricted Stock under the Plan.
1.5 Stock Subject to the Plan
-------------------------
(a) The maximum number of shares of Stock that may be delivered to
Participants and their beneficiaries under the Plan shall be equal to
the sum of (i) 4,200,000 shares of Stock; and (ii) any shares of Stock
that are represented by awards granted under the Company's 1985 Stock
Option Plan which are forfeited, expire or are canceled without
delivery of shares of Stock or which result in the forfeiture of
shares of Stock back to the Company. Preferred Stock may be used in
lieu of grants of Stock under the Plan subject to further
authorization of the Board of the Company. Notwithstanding the
foregoing, in no event shall the Committee grant any Participant
Incentive Stock Options, Nonstatutory Options, Nonstatutory Stock
Options, Stock Appreciation Rights or Restricted Stock in any single
calendar year for more than 250,000 shares of Stock. The limitation on
the number of shares which may be delivered under the Plan or granted
to an individual Participant shall be subject to adjustment under
Section 3.2 of this Plan.
(b) Any shares of Stock granted under the Plan that are forfeited back to
the Company because of the failure to meet an award contingency or
condition shall again be available for delivery pursuant to new awards
granted under the Plan. To the extent any shares of Stock covered by
an award are not delivered to a Participant because the award is
forfeited, canceled or expired, such shares shall not be deemed to
have been delivered for purposes of determining the maximum number of
shares of Stock available for delivery under the Plan.
(c) If the exercise price of any stock option granted under the Plan or
the Company's 1985 Stock Option Plan is satisfied by tendering shares
of Stock to the Company (by either actual delivery or by attestation),
only the number of shares of Stock issued net of the shares of Stock
tendered shall be deemed delivered for purposes of determining the
maximum number of shares of Stock available for delivery under the
Plan.
(d) Upon the exercise of an option or a Stock Appreciation Right, or
payment of a Restricted Stock award, the Company may distribute newly
issued shares or shares previously repurchased on behalf of the
Company through a broker or other independent agent designated by the
Committee. Such repurchases shall be subject to such rules and
procedures as the Committee may establish hereunder and shall be
consistent with such conditions as may be prescribed from time to time
by law or by the Securities and Exchange Commission ("SEC") in any
rule or regulation or in any exemptive order or no-action letter
issued by the SEC to the Company or the broker with respect to the
making of such purchase or otherwise.
ARTICLE II - OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK
2.1 Granting of Options
-------------------
The Committee may grant Incentive Stock Options (ISOs), Nonstatutory Stock
Options or any combination thereof, provided that the aggregate Fair Market
Value (determined at the time the option is granted) of the shares of Stock
with respect to which ISOs are exercisable for the first time by an
individual during any calendar year (under this Plan and any other option
plan of the Company) shall not exceed $100,000. No such maximum limitation
shall apply to Nonstatutory Stock Options.
2.2 Terms and Conditions of Options
-------------------------------
Each option granted under the Plan shall be authorized by the Committee and
shall be evidenced by an instrument delivered to the Participant, in a form
approved by the Committee, containing the following terms and conditions
and such other terms and conditions as the Committee may deem appropriate.
(a) Option Term - Each option shall specify the term for which the option
-----------
thereunder is granted and shall provide that the option shall expire
at the end of such term. In no event shall any option be exercisable
any earlier than one year after the date of such grant. The Committee
shall have authority to grant options exercisable in cumulative or
non-cumulative installments. No option shall be exercisable after the
expiration of ten years from the date upon which such option is
granted. Notwithstanding anything to the contrary contained herein, in
the event of a Change in Control, all outstanding options shall
immediately become exercisable.
(b) Option Price - The option price per share shall be determined by the
------------
Committee at the time an option is granted, and shall not be less than
the Fair Market Value of one share of Stock on the date the option is
granted.
(c) Exercise of Option -
------------------
(1) Options may be exercised only by proper written notice to the
Company or its duly authorized agent accompanied by the proper
amount of payment for the shares, as provided under Section
2.2(d) hereunder.
(2) The Committee may postpone any exercise of an option or a Stock
Appreciation Right or the delivery of Stock following the lapse
of certain restrictions with respect to awards of Restricted
Stock for such time as the Committee in its discretion may deem
necessary, in order to permit the Company with reasonable
diligence (i) to effect or maintain registration of the Plan or
the shares issuable upon the exercise of the option or the Stock
Appreciation Right or the lapse of certain restrictions
respecting awards of Restricted Stock under the Securities Act of
1933, as amended, or the securities laws of any applicable
jurisdiction, or (ii) to determine that such shares and Plan are
exempt from such registration; the Company shall not be obligated
by virtue of any option or any provision of the Plan to recognize
the exercise of an option or the exercise of a Stock Appreciation
Right or the lapse of certain restrictions respecting awards of
Restricted Stock to sell or issue shares in violation of said Act
or of the law of the government having jurisdiction thereof. Any
such postponement shall not extend the term of an option; neither
the Company nor its directors or officers shall have any
obligation or liability to the Optionee of an option or Stock
Appreciation Right, or to the Optionee's Beneficiary with respect
to any shares as to which the option or Stock Appreciation Right
shall lapse because of such postponement.
(3) To the extent an option is not exercised for the total number of
shares with respect to which such options become exercisable, the
number of unexercised shares shall accumulate and the option
shall be exercisable, to such extent, at any time thereafter, but
in no event later than ten years from the date the option was
granted or after the expiration of such shorter period (if any)
which the Committee may have established with respect to such
option pursuant to Subsection (a) of this Section 2.2.
(d) Payment of Purchase Upon Exercise - Payment for the shares as to which
---------------------------------
an option is exercised shall be made in one of the following ways:
(1) payment in cash or if permitted by the Committee, by tendering
shares of Stock of the Company (by either actual delivery of
shares or by attestation, with such shares valued at Fair Market
Value as of the day of exercise) held by the purchaser for at
least six months; or in any combination thereof, as determined by
the Committee; or
(2) if permitted by the Committee, a Participant may elect to
authorize a third party to sell shares of Stock (or a sufficient
portion of the shares) acquired upon exercise of the option and
remit to the Company a sufficient portion of the sales proceeds
to pay the entire exercise price and any tax withholding
resulting from such exercise.
(e) Nontransferability - No option granted under the Plan shall be
------------------
transferable other than by will or by the laws of descent and
distribution subject to Section 2.4 hereunder, unless the Committee
shall permit (on such terms and conditions as it shall establish) such
option to be transferred to a member of the Participant's immediate
family or to a trust or similar vehicle for the benefit of such
immediate family members, or to an "alternate participant" pursuant to
a Qualified Domestic Relations Order as defined in the Code. During
the lifetime of an Optionee, an option shall be exercisable only by
such Optionee, or if applicable, a transferee. For purposes of Section
2.4 hereunder, a transferred option may be exercised by the transferee
to the extent that the Participant would have been entitled had the
option not been transferred.
(f) Laws and Regulations - The Committee shall have the right to condition
--------------------
any issuance of shares to any Optionee or Participant hereunder upon
such Optionee's or Participant's undertaking in writing to comply with
such restrictions on the subsequent disposition of such shares as the
Committee shall deem necessary or advisable as a result of any
applicable law or regulation. In the case of Stock issued or cash paid
upon exercise of options or associated Stock Appreciation Rights, or
the lapse of restrictions with respect to Restricted Stock awarded to
a Participant under the Plan, the Optionee, Participant or other
person receiving such Stock or cash shall be required to pay to the
Company or Related Company the amount of any taxes which the Company
or Related Company is required to withhold with respect to such Stock
or cash. The Company or Related Company may, in its sole discretion,
permit an Optionee or Participant or other person receiving such Stock
or cash to satisfy any Federal, state or local (if any) tax
withholding requirements, in whole or in part by (i) delivering to the
Company or Related Company shares of Stock held by such Optionee,
Participant or other person having a Fair Market Value equal to the
amount of the tax or (ii) directing the Company or Related Company to
retain Stock otherwise issuable to the Optionee, Participant or other
person under the Plan having a Fair Market Value equal to the amount
of the tax. If Stock is used to satisfy tax withholding, such Stock
shall be valued based on the Fair Market Value when the tax
withholding is required to be made.
(g) Modification - The Committee shall have authority to modify an option
------------
without the consent of the Optionee, provided that such modification
does not affect the exercise price or otherwise materially diminish
the value of such option to the Optionee, and provided further, that
except in connection with an amendment to the Plan, the Committee
shall not have authority to make any modification to any particular
option that materially increases the value of the option to the
Optionee.
2.3 Stock Appreciation Rights
-------------------------
(a) The Committee may, but shall not be required to, grant a Stock
Appreciation Right to the Optionee either at the time an option is
granted or by amending the option at any time during the term of such
option. A Stock Appreciation Right shall be exercisable only during
the term of the option with which it is associated. The Stock
Appreciation Right shall be an integral part of the option with which
it is associated and shall have no existence apart therefrom. The
conditions and limitations of the Stock Appreciation Right shall be
determined by the Committee and shall be set forth in the option or
amendment thereto. An amendment granting a Stock Appreciation Right
shall not be deemed to be a grant of a new option for purposes of the
Plan.
(b) A Stock Appreciation Right may be exercised by:
(1) filing with the Secretary of the Company a written election,
which election shall be delivered by the Secretary to the
Committee specifying:
(i) the option or portion thereof to be surrendered; and
(ii) the percentage of the Appreciation which the Optionee
desires to receive in cash, if any; and
(2) surrendering such option for cancellation or partial
cancellation, as the case may be, provided, however, that any
election to receive any portion of the Appreciation in cash shall
be of no force or effect unless and until the Committee shall
have consented to such election.
(c) No election to receive any portion of the Appreciation in cash shall
be filed with the Secretary and no Stock Appreciation Right shall be
exercised to receive any cash unless such election and exercise shall
occur during the period (hereinafter referred to as the "Cash Window
Period") beginning on the third business day following the date of
release for publication by the Company of a regular quarterly or
annual statement of sales and earnings and ending on the twelfth
business day following such date. The Committee may consent to the
election of a holder to receive any portion of the Appreciation in
cash at any time after such election has been made. If such election
is consented to, the Stock Appreciation Right shall be deemed to have
been exercised during the Cash Window Period in which, or next
occurring after which, the Optionee completed all acts required of
such Optionee under the preceding paragraphs to exercise the Stock
Appreciation Right. Any Stock Appreciation Right exercised during said
Cash Window Period shall be valued and deemed exercised as of the date
during such Cash Window Period when the average of the high and low
prices for the shares of Stock as reported by the NYSE is the highest.
2.4 Exercise of Option or Stock Appreciation Right in the Event of Termination
---------------------------------------------------------------------------
of Employment or Death
----------------------
(a) Options and associated Stock Appreciation Rights shall terminate
immediately upon the termination of the Optionee's employment (or
cessation of the provision of services) with the Company or a Related
Company unless the written option instrument of such Optionee provides
otherwise. The conditions established by the Committee in the
instrument for exercising options and Stock Appreciation Rights
following termination of employment (or cessation of the provision of
services) are limited by the following restrictions.
(1) If termination of employment (or cessation of the provision of
services) is by reason of the death of the Optionee, no exercise
by the Optionee's Beneficiary may occur more than two years after
the Optionee's death.
(2) If termination of employment (or cessation of the provision of
services) is the result of Disability or Retirement, no exercise
by the Optionee or his Beneficiary may occur more than two years
following such termination of employment (or cessation of the
provision of services).
(3) If termination of employment (or cessation of the provision of
services) is for a reason other than death, Disability,
Retirement or "involuntary termination for cause", no exercise by
the Optionee may occur more than three months following such
termination of employment (or cessation of the provision of
services). As used herein "involuntary termination for cause"
shall mean termination of employment (or cessation of the
provision of services) by reason of the Optionee's commission of
a felony, fraud or willful misconduct which has resulted, or is
likely to result, in substantial and material damage to the
Company or a Related Company. Whether an involuntary termination
is for "cause" will be determined in the sole discretion of the
Committee.
(b) If the Optionee should die after termination of employment (or
cessation of provision of services), such termination (or cessation of
provision of services) being for a reason other than Disability,
Retirement or involuntary termination for cause, but while the option
is still exercisable, the option or associated Stock Appreciation
Right, if any, may be exercised by the Beneficiary of the Optionee no
later than one year from the date of termination of employment (or
cessation of provision of services) of the Optionee.
(c) Under no circumstances may an option or Stock Appreciation Right be
exercised by an Optionee or Beneficiary after the expiration of the
term specified for the option.
2.5 Awarding of Restricted Stock
----------------------------
(a) The Committee shall from time to time in its absolute discretion
select the Participants to whom awards of Restricted Stock shall be
granted and the number of shares subject to such awards. Each award of
Restricted Stock under the Plan shall be evidenced by an instrument
delivered to the Participant in such form as the Committee shall
prescribe from time to time in accordance with the Plan. The
Restricted Stock subject to such award shall be registered in the name
of the Participant and held in escrow by the Committee during the
Restricted Period (as defined herein).
(b) Upon the award to a Participant of shares of Restricted Stock pursuant
to Section 2.5(a), the Participant shall, subject to Subsection (c) of
this Section 2.5, possess all incidents of ownership of such shares,
including the right to receive dividends with respect to such shares
and to vote such shares.
(c) Shares of Restricted Stock awarded to a Participant may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, for a period
of five years, or such shorter period as the Committee shall
determine, from the date on which the award is granted (the
"Restricted Period"). The Committee may also impose such other
restrictions and conditions on the shares as it deems appropriate and
any attempt to dispose of any such shares of Restricted Stock in
contravention of such restrictions shall be null and void and without
effect. In determining the Restricted Period of an award, the
Committee may provide that the foregoing restrictions shall lapse with
respect to specified percentages of the awarded shares on successive
anniversaries of the date of such award. In no event shall the
Restricted Period end with respect to awarded shares prior to the
satisfaction by the Participant of any liability arising under Section
2.2(f).
(d) The restrictions described in Section 2.5(c) shall lapse upon the
completion of the Restricted Period with respect to specific shares of
Restricted Stock and the Participant's right to such shares shall vest
on such date or, if earlier, on the date of the Participant's
termination of employment (or cessation of the provision of services)
on account of the death, Disability or Retirement of the Participant.
The Company shall deliver to the Participant, or the Beneficiary of
such Participant, if applicable, within 30 days of the termination of
the Restricted Period, the number of shares of Stock that were awarded
to the Participant as Restricted Stock and with respect to which the
restrictions imposed under Section 2.5(c) have lapsed, less any stock
returned by the Company to satisfy tax withholding pursuant to Section
2.2(f), if applicable.
(e) Except as provided in Sections 2.5(d) and (f), if the Participant's
continuous employment (or other provision of services) with the
Company or a Related Employer shall terminate for any reason prior to
the expiration of the Restricted Period of an award, any shares
remaining subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, the Company at no
cost to the Company.
(f) The Committee shall have the authority (and the instrument evidencing
an award of Restricted Stock may so provide) to cancel all or any
portion of any outstanding restrictions prior to the expiration of the
Restricted Period with respect to any or all of the shares of
Restricted Stock awarded to a Participant hereunder on such terms and
conditions as the Committee may deem appropriate.
(g) In the event of a Change in Control, all restrictions on any
outstanding shares of Restricted Stock shall lapse as of the date of
such Change in Control.
ARTICLE III - GENERAL PROVISIONS
3.1 Authority
---------
Appropriate officers of the Company designated by the Committee are
authorized to execute and deliver written instruments evidencing awards
hereunder, and amendments thereto, in the name of the Company, as directed
from time to time by the Committee.
3.2 Adjustments in the Event of Change in Common Stock of the Company
-----------------------------------------------------------------
In the event of any change in the Stock of the Company by reason of any
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Stock at a price substantially below Fair Market
Value, or of any similar change affecting the Stock, the number and kind of
shares which thereafter may be obtained and sold under the Plan and the
number and kind of shares subject to options in outstanding option
instruments and the purchase price per share thereof and the number of
shares of Restricted Stock awarded pursuant to Section 2.5(a) with respect
to which all restrictions have not lapsed, shall be appropriately adjusted
consistent with such change in such manner as the Board in its discretion
may deem equitable to prevent substantial dilution or enlargement of the
rights granted to, or available for, Participants in the Plan. Any
fractional shares resulting from such adjustments shall be eliminated.
However, without the consent of the Optionee, no adjustment shall be made
in the terms of an ISO which would disqualify it from treatment under
Section 421(a) of the Code or would be considered a modification, extension
or renewal of an option under Section 425(h) of the Code.
3.3 Rights of Participants
----------------------
The Plan and any option or award granted under the Plan shall not confer
upon any Optionee or Participant any right with respect to continuance of
employment (or other provision of services) by the Company or any Related
Employer nor shall they interfere in any way with the right of the Company
or Related Employer by which an Optionee or Participant is employed to
terminate his employment (or other provision of services) at any time. The
Company shall not be obligated to issue Stock pursuant to an option or an
award of Restricted Stock for which the restrictions hereunder have lapsed
if such issuance would constitute a violation of any applicable law. No
Optionee shall have any rights as a shareholder with respect to any shares
subject to option prior to the date of issuance to such Optionee of a
certificate or certificates for such shares. Except as provided herein, no
Participant shall have any rights as a shareholder with respect to any
shares of Restricted Stock awarded to such Participant.
3.4 Amendment, Suspension and Discontinuance of the Plan
----------------------------------------------------
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without shareholder approval, take any of
the following actions unless such actions fall within the provisions of
Section 3.2 herein:
(a) increase the number of shares reserved for options pursuant to Section
1.5;
(b) alter in any way the class of persons eligible to participate in the
Plan;
(c) permit the granting of any option at an option price less than that
provided under Section 2.2(b) hereof; or
(d) extend the term of the Plan or the term during which any option may be
granted or exercised.
No amendment, suspension or discontinuance of the Plan shall impair an
Optionee's rights under an option previously granted to an Optionee without
the Optionee's consent.
3.5 Governing Law
-------------
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Connecticut.
3.6 Effective Date of the Plan
--------------------------
The Plan shall be effective on April 18, 1995, subject to the requisite
approval of shareholders. No option shall be granted pursuant to this Plan
later than April 17, 2005, but options granted before such date may extend
beyond it in accordance with their terms and the terms of the Plan.
<PAGE>
EDGAR APPENDIX
The following is the text of the Company's 1999 form of proxy and memo to
employees participating in Company plans:
PROXY
HSB GROUP, INC.
ONE STATE STREET, P.O. BOX 5024, HARTFORD, CONNECTICUT 06102-5024
ANNUAL MEETING OF STOCKHOLDERS - APRIL 20, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard H. Booth, Colin G. Campbell and
Simon W. Leathes each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side, all
the shares of common stock of the Company held of record by the undersigned on
February 16, 1999 at the Annual Meeting of Stockholders to be held on April 20,
1999 or any adjournment thereof, upon all matters properly coming before said
Annual Meeting, including but not limited to the matters set forth on the
reverse side, hereby revoking any proxy heretofore given.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1,2, AND 3.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
Vote by Telephone
It's fast, convenient and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps:
1. Read the accompanying Proxy Statement
and Proxy Card.
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683)
3. Enter your 14-digit Control Number located
on your Proxy Card above your name.
4. Follow the recorded instructions.
Your vote is important!
Call 1-877-PRX-VOTE anytime!
Vote by Internet
It's fast, convenient, and your vote is immediately
confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement
and Proxy Card.
2. Go to the Website
http://www.eproxyvote.com/hsb
3. Enter your 14-digit Control Number located on
your Proxy Card above your name.
4. Follow the instructions provided.
Your vote is important!
Go to http://www.eproxyvote.com/hsb anytime!
Do not return your Proxy Card if you are voting by Telephone or Internet
DETACH HERE
/X/ Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR proposals 1,2 and 3.
1. Election of Directors
Nominees: (01) Joel B. Alvord, (02) Richard G. Dooley
(03) Gordon W. Kreh, (04) Lois D. Rice
FOR WITHHELD
ALL / / / / FROM ALL
NOMINEES NOMINEES
/ / ______________________________________
For all nominees except as noted above
2. Approval of proposal to amend the FOR AGAINST ABSTAIN
1995 Stock Option Plan / / / / / /
3. Appintment of independent public FOR AGAINST ABSTAIN
accountants. / / / / / /
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
MARK HERE IF YOU HAVE MADE COMMENTS / /
Please sign exactly as your name appears. If acting as attorney, executor,
trustee or in other representative capacity, sign name and print title. Please
date proxy and return in the enclosed post-paid return envelope.
Signature: _______________________ Date: ______________
Signature: _______________________ Date: ______________
<PAGE>
To: All Employees
From: R. K. Price, Senior Vice President and Corporate Secretary
Date: March 15, 1999
If you are a participant in any of the Company's stock plans (Payroll Investment
Plan, Thrift Incentive Plan - HSB Stock Fund, the Long-Term Incentive Plan or
the Stock Option and Restricted Stock Plan), you should receive proxy materials
for this year's Annual Meeting to be held on April 20, 1999 through the U.S.
mail shortly.
Annual reports and proxy materials were distributed beginning on March 5, 1999
via bulk mail in order to save on postage expenses. As many of you know, HSB has
used bulk mail for several years for this reason, and, although cost effective,
it can result in some delays in delivery.
If you hold shares registered other than in your name alone (e.g., jointly with
another individual or as custodian for a minor's account) you may receive
additional copies of the materials. You are encouraged to return any excess
copies of the Annual Report to your department or Branch Office, and extra
copies of the proxy statement to Jean Cohn, Law Department, Home Office.
Included with the proxy materials is a card upon which you may register your
vote in connection with actions proposed to be taken at the Annual Meeting. This
year, you may choose to vote your shares by telephone or the Internet by
following the instructions for telephonic or Internet voting on your proxy card.
The proxy card lists the number of shares allocated to your account under each
of the plans in which you participate, as well as any shares you hold directly.
The following abbreviations are used to identify your holdings:
COM - Shares held directly or through the Payroll Investment Plan
RST - Restricted Stock held in the Company's plans
401 - Shares allocated to your account under the Thrift Incentive Plan if you
participate in the HSB Stock Fund
Whether you own one share or a thousand, it is very important that your shares
be represented at the Annual Meeting. As a shareholder, you have the right and
an obligation to have your vote count at the Annual Meeting. Please vote your
shares by following the instructions on your proxy card.
If you do not receive your materials by April 9, 1999, or if you misplace your
card, please contact Jean Cohn, Home Office, Ext. 5724.
