========================
SCHEDULE 14A INFORMATION
========================
(Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or
sec.240.14a-12
- - -----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Selective Insurance Group, Inc.
======================================================================
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2) or Item 22(a)(2) of Schedule A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
__________________________________________________________________
2) Aggregate number of securities to which transaction applies:
__________________________________________________________________
3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________________________________________________
4) Proposed maximum aggregate value of transaction:
__________________________________________________________________
5) Total fee paid:
__________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________________________________
2) Form, Schedule or Registration Statement No.:
__________________________________________________________________
3) Filing Party:
__________________________________________________________________
4) Date Filed:
__________________________________________________________________
PAGE
SELECTIVE INSURANCE GROUP, INC.
[ L O G O ] 40 Wantage Avenue
Branchville, New Jersey 07890
201-948-3000
James W. Entringer
Chairman, President and
Chief Executive Officer
April 1, 1997
Dear Stockholder of Selective Insurance Group, Inc.:
It is a pleasure to invite you to your Company's 1997 Annual Meeting of
Stockholders to be held on Friday, May 2, 1997, at 11:00 a.m. in the
auditorium at the headquarters of the Company at 40 Wantage Avenue,
Branchville, New Jersey. The Annual Report, as well as formal Notice of the
Annual Meeting, together with the Proxy Statement and proxy, are enclosed
with this letter.
Whether you own a few or many shares of stock and whether you plan to attend
the meeting in person, it is important that your shares be represented and
voted. Please complete, date, sign, and return the enclosed proxy as soon as
possible.
Your continued support is appreciated. We look forward to seeing you at the
meeting.
Warmest regards,
/s/James W. Entringer
------------------
James W. Entringer
PAGE
SELECTIVE INSURANCE GROUP, INC.
[ L O G O ] 40 Wantage Avenue
Branchville, New Jersey 07890
201-948-3000
===================================
NOTICE OF ANNUAL MEETING TO BE HELD
===================================
May 2, 1997
===========
TO OUR STOCKHOLDERS:
- - -------------------
Notice is hereby given that the Annual Meeting of Stockholders of Selective
Insurance Group, Inc. (the "Company") will be held on Friday, May 2, 1997,
at 11:00 a.m. in the auditorium at the headquarters of the Company at 40
Wantage Avenue, Branchville, New Jersey, for the following purposes:
1. To elect five directors for a term of three years each.
2. To consider and vote upon a proposal to amend the Selective Stock
Option Plan II to increase the number of shares of the Company's
Common Stock available under that plan.
3. To transact such other and further business, if any, as properly may
be brought before the meeting.
Only stockholders of record on the books of the Company at the close of
business on March 14, 1997, shall be entitled to vote at the meeting.
If you do not expect to be present at the meeting, please complete, date,
and sign the enclosed proxy and return it in the accompanying postage-paid
envelope.
The giving of the proxy will not affect your right to vote in person,
should you attend the meeting.
By order of the Board of Directors,
/s/Susan R. Perretta
-----------------
Susan R. Perretta
Secretary
Dated: April 1, 1997
PAGE
============
COVER LETTER
============
April 1, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Selective Insurance Group, Inc.
Definitive Proxy Statement
Ladies and Gentlemen:
Accompanying this letter for filing pursuant to the Securities Act of 1934,
is Selective Insurance Group, Inc.'s definitive proxy statement including an
appendix for The Selective Insurance Group, Inc. Stock Option Plan II .
If approved by the shareholders on May 2, 1997, the one million additional
shares for Selective Stock Option Plan II will be registered in the near
future.
Very truly yours,
/s/ Susan R. Perretta
-----------------
Susan R. Perretta
PAGE
Selective Insurance Group, Inc.
40 Wantage Avenue
Branchville, New Jersey 07890
March 27, 1997
===============
PROXY STATEMENT
===============
===============
General Matters
===============
This Proxy Statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Selective Insurance Group, Inc. (the
"Company") for use at the Annual Meeting of Stockholders to be held on
Friday, May 2, 1997, at 11:00 a.m. in the auditorium at the headquarters of
the Company at 40 Wantage Avenue, Branchville, New Jersey, and at any
adjournment thereof.
The Company has retained Corporate Investor Communications, Inc. for a fee of
$4,500 to aid in solicitation of proxies by mail, telephone, and personal
contact. The costs of the solicitation will be borne by the Company.
In addition to solicitation by mail and by certain employees of the Company
(without additional compensation), arrangements have been made with brokerage
houses and other custodians, nominees, and fiduciaries to send proxy material
to their principals.
On March 14, 1997, which is the record date for stockholders entitled to
notice of and to vote at the Annual Meeting, there were outstanding and
entitled to vote 14,686,431 shares of common stock, $2.00 par value ("Common
Stock"). This is the Company's only issued and outstanding class of stock.
This Proxy Statement and the accompanying proxy are being mailed beginning on
or about April 1, 1997, to all stockholders of record on the record date.
Under New Jersey law and the Company's Bylaws, each share of Common Stock
outstanding on the record date is entitled to one vote at the Annual Meeting
of Stockholders, and the presence in person or by proxy of the holders of
shares of Common Stock entitled to cast a majority of the votes constitutes a
quorum. Under New Jersey law, proxies submitted with votes withheld for the
election of directors and broker nonvotes are included in determining whether
a quorum is present. Under New Jersey law, directors are elected by a
plurality of votes cast. Votes withheld for the election of any or all of the
nominees have no impact on the election of directors except to reduce the
number of votes for the nominee(s) for which votes are withheld. Approval of
the amendment to the Selective Stock Option Plan II requires the affirmative
vote of the holders of a majority of the shares of Common Stock present or
represented at the Annual Meeting. The affirmative votes of a majority of
votes cast by stockholders entitled to vote at the Annual Meeting is required
to decide any other item of business which may properly be brought before the
Annual Meeting. Abstentions have the effect of votes against the approval to
amend the Selective Stock Option Plan II, and broker nonvotes are not counted
in tabulating the number of votes with respect to said proposal. Abstentions
and broker nonvotes are not counted in tabulating the number of votes cast on
other items of business that may properly be brought before the meeting.
There is no person or group known by the Company as of March 14, 1997, to be
the beneficial owner of more than 5% of the Company's outstanding Common
Stock.
-1-
PAGE
As of the date hereof, the Board of Directors knows of no other business that
will be presented for consideration at the meeting, except those matters set
forth in the Notice of Annual Meeting. If any such other business shall
properly come before the meeting, it is intended that votes will be cast,
pursuant to proxies solicited, in respect of any such other business in the
discretion of the persons acting under said proxies. Proxies that contain no
instructions to the contrary will be voted for the election as directors of
the five nominees named herein.
The Annual Report to Stockholders for the fiscal year ending December 31,
1996, has been provided to all stockholders of record as of the close of
business on March 14, 1997.
=====================
REVOCABILITY OF PROXY
=====================
Any stockholder giving a proxy may revoke it by notifying the Secretary of
the Company, in writing, of such revocation at any time prior to its exercise
or by filing another proxy dated subsequent to the date thereof with the
Secretary of the Company.
========================
I. ELECTION OF DIRECTORS
========================
(Item 1 on Proxy)
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate") and the Bylaws provide that the number of directors of the
Company shall not be less than seven nor more than twenty, such number within
the minimum and maximum limitations to be fixed from time to time by a
resolution approved by a majority of the whole Board of Directors. The
Certificate and Bylaws also provide for the Board of Directors to be divided
into three classes, equal or nearly as equal as possible, so that all
directors serve staggered three-year terms.
The Board has nominated A. David Brown, William M. Kearns, Jr., S. Griffin
McClellan III, Russell R. Moffett, and J. Brian Thebault for reelection as
directors for three-year terms expiring at the Annual Meeting of Stockholders
in 2000. All such persons are currently directors and were previously elected
by stockholders.
In the event any nominee shall be unable to serve as a director at the time
of the Annual Meeting of Stockholders, the proxies in favor of such
unavailable nominee will be voted for a consenting nominee selected by the
Board of Directors. None of the nominees for director is related to any
executive officer or director of the Company or another nominee by blood,
marriage or adoption.
Directors shall be elected by a plurality of the votes cast.
-2-
PAGE
==========
CANDIDATES
==========
The following information is set forth with respect to the five nominees for
election as directors at the Annual Meeting of Stockholders to serve three-
year terms expiring at the Annual Meeting of Stockholders in 2000:
Shares of
Common Stock
Beneficially
Names Positions and Offices Owned as of
of in Company and February 14,
Directors Business Experience 1997(1)
=============================================================================
A. David Brown Managing Vice President, Korn/Ferry 1,706 (2)
Age: 54 International, executive recruiting
Director since: 1996 since 1994; served in various executive
Term to expire: 2000 positions with R.H. Macy & Co., Inc.,
1969 to 1994 and was Senior Vice President,
Human Resources, 1983 to 1994 and Director,
1987-1992; Director, Zale Corporation since
1997; Committees of the Company: member,
Audit and Salary and Employee Benefits.
- - -----------------------------------------------------------------------------
William M. Kearns, Jr. President, W.M. Kearns & Co., Inc., 36,718(3)
Age: 61 a private investment company since
Director since: 1975 1995; Director, Kuhlman Corporation,
Term to expire: 2000 Mountasia Entertainment International,
Inc. and Consolidated Delivery & Logistics,
Inc.; Trustee of EQ Advisors Trust
(Equitable Life Assurance Society of the
U.S.) since 1997; Managing Director, Lehman
Brothers, Inc. and predecessor firms,
1969 to 1992; Advisory Director, Lehman
Brothers Inc., 1992 to 1994; Committees
of the Company: member, Finance and Salary
and Employee Benefits.
- - -----------------------------------------------------------------------------
S.Griffin McClellan III Consultant since 1994; Chairman and 15,723(4)(5)
Age: 59 Chief Executive Officer, Crestmont
Director since: 1980 Savings and Loan Association, 1991 to
Term to expire: 2000 1994; President, Chief Executive Officer
and Director, Crestmont Federal Savings
and Loan Association, 1989 to 1991;
Committees of the Company: Chairman,
Audit; member, Executive and Salary and
Employee Benefits.
- - -----------------------------------------------------------------------------
Russell R. Moffett Retired; Formerly President of the 19,258(6)
Age: 70 Company; Director, Newton Financial
Director since: 1981 Corp. since 1984 and Newton Trust
Term to expire: 2000 Company since 1982; Committees of the
Company: member, Audit and Conflict
of Interest.
- - -----------------------------------------------------------------------------
J. Brian Thebault President and Chief Executive Officer, 3,681(2)
Age: 45 L.P. Thebault Company, graphic
Director since: 1996 communications, since 1985. Committees
Term to expire: 2000 of the Company: member, Audit and
Finance.
- - -----------------------------------------------------------------------------
-3-
PAGE
====================
CONTINUING DIRECTORS
====================
The following information is set forth with respect to the directors whose
terms of office will continue after the Annual Meeting.
Shares of
Common Stock
Beneficially
Names Positions and Offices Owned as of
of in Company and February 14,
Directors Business Experience 1997(1)
=============================================================================
William A. Dolan, II Of Counsel, Kelly, Gaus & Holub law 18,125(3)(7)
Age: 65 firm since 1994; Partner, Kelly, Gaus,
Director since: 1988 Holub & Dolan, 1994; President, Dolan
Term to expire: 1999 and Dolan, P.A., law firm, 1988 to 1993;
Director since 1982 and Chairman of the
Board since 1988, High Point Financial
Corporation; Committees of the Company:
Chairman, Conflict of Interest; member,
Audit.
- - -----------------------------------------------------------------------------
James W. Entringer Chairman, President and Chief 172,313(8)(9)
Age: 56 Executive Officer of the Company
Director since: 1992 since 1993; President and Chief
Term to expire: 1998 Operating Officer of the Company,
1992 to 1993; Senior Resident Vice
President, Merrill Lynch, Pierce,
Fenner & Smith, Inc. ("Merrill Lynch"),
1991 to 1992; President, Chief Executive
Officer and Director, Family Life Insurance
Company, a subsidiary of Merrill Lynch,
1988 to 1991; Branch Manager, Merrill Lynch,
1967 to 1992; Committees of the Company:
Chairman, Executive and member, Finance.
- - -----------------------------------------------------------------------------
William C. Gray, D.V.M. Veterinarian and President, Newton 21,596(10)
Age: 67 Veterinary Hospital since 1960;
Director since: 1992 Director, Newton Financial Corp. and
Term to expire: 1999 Newton Trust Company; Committees of the
Company: member, Audit and Conflict of
Interest.
- - -----------------------------------------------------------------------------
C. Edward Herder President, Chester H. Herder & Son, 42,797(3)
Age: 61 Inc. since 1996; Chairman, Herder
Director since: 1978 Tarricone Associates, 1994 to 1996,
Term to expire: 1998 general insurance agencies; Committees
of the Company: Chairman, Committee on
Directors; member, Executive.
- - -----------------------------------------------------------------------------
Frederick H. Jarvis Retired; Chairman and Chief Executive 17,176(11)
Age: 69 Officer of the Company, 1987 to 1993;
Director since: 1984 President of the Company, 1987 to 1992;
Term to expire: 1999 Committees of the Company: Chairman,
Finance; member, Executive and Committee
on Directors.
- - -----------------------------------------------------------------------------
Joan M. Lamm-Tennant, Professor of Finance, Villanova 6,806(11)
Ph.D. University since 1995; Vice President,
Age: 44 General Reinsurance/New England Asset
Director since: 1993 Management since 1996; Associate Professor
Term to expire: 1999 of Finance, 1992 to 1994; Assistant
Professor, 1989 to 1991; Chief Executive
Officer, Cornerstone Associates Technology
Services, Inc., software, since 1994;
Director, Focus Trust Fund, a mutual fund;
Committees of the Company: member, Finance,
and Salary and Employee Benefits.
- - -----------------------------------------------------------------------------
William M. Rue President, Chas. E. Rue & Son, Inc. 125,204(3)
Age: 49 T/A Rue Insurance since 1985; Director,
Director since: 1977 First Constitution Bank; Committees of
Term to expire: 1998 the Company: member, Executive, Finance
and Committee on Directors.
- - -----------------------------------------------------------------------------
Thomas D. Sayles, Jr. Retired; Director, Summit Bancorp.; 20,786(3)
Age: 65 Chairman, The Summit Bancorporation,
Director since: 1988 1995-1996; Chairman and Chief Executive
Term to expire: 1998 Officer, The Summit Bancorporation,
1974 to 1994; Committees of the Company:
Chairman, Salary and Employee Benefits;
member, Executive and Committee on
Directors.
- - -----------------------------------------------------------------------------
-4-
PAGE
=====================================================
NOTES TO TABLE OF CANDIDATES AND CONTINUING DIRECTORS
=====================================================
(1) The amount of shares beneficially owned by each of the above-named
directors, except Mr. Entringer is less than 1% of the Common Stock
outstanding.
(2) Includes 1,500 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
(3) Includes 10,500 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
(4) Includes 6,000 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
(5) Includes 1,000 shares held by Mr. McClellan's wife, of which Mr.
McClellan disclaims beneficial ownership.
(6) Includes 9,000 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
(7) Includes 1,050 shares held by Mr. Dolan's wife, of which Mr. Dolan
disclaims beneficial ownership.
(8) Includes 96,015 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's stock option
plans.
(9) The number of shares beneficially owned by Mr. Entringer is equal to
1.2% of the Common Stock outstanding.
(10) Includes 7,500 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
(11) Includes 4,500 shares that may be acquired upon the exercise of options
granted and presently exercisable under the Company's Stock Option Plan
for Directors.
The number of shares of Common Stock beneficially owned by Mr. Entringer, as
of February 14, 1997, is set forth in the table on page 4. The number of
shares of Common Stock beneficially owned as of February 14, 1997, by the
other executive officers named in the Summary Compensation Table set forth on
page 9 are as follows: Mr. Addesso, 104,999 (including 69,000 shares that may
be acquired upon the exercise of stock options granted and presently
exercisable under the Company's stock option plans); Mr. Land, 92,024
(including 47,500 shares that may be acquired upon the exercise of stock
options granted and presently exercisable under the Company's stock option
plans); Mr. Murphy, 53,889 (including 31,400 shares that may be acquired upon
the exercise of stock options granted and presently exercisable under the
Company's stock option plans); and Mr. Ochiltree, 44,033 (including 24,000
shares that may be acquired upon the exercise of stock options granted and
presently exercisable under the Company's stock option plans). The number of
shares beneficially owned by each of the above-named executive officers is
less than 1% of the Common Stock outstanding. The number of shares of Common
Stock beneficially owned by all current directors and executive officers of
the Company as a group as of February 14, 1997, was 888,299, representing
5.9% of the outstanding shares of Common Stock on that date. Such number
includes shares that may be acquired within 60 days of such date upon the
exercise of outstanding stock options granted under the Company's stock
option plans.
=========================
COMPENSATION OF DIRECTORS
=========================
The directors of the Company who are not employees received an annual
retainer of $20,000 in 1996. In addition, directors of the Company who are
not employees received in 1996 a fee of $1,000 for each Board meeting and
$1,000 for each Committee meeting attended. Committee Chairmen received
$1,200 for each Committee meeting attended. Prior to 1997, each nonemployee
director was eligible to participate in the directors' Deferred Compensation
Plan which allowed the deferral of the annual retainer and fees payable for
services as a director. Deferred compensation of directors participating in
this Plan accrues interest at an annual rate equal to the average one-year
United States Treasury Bill rate from the beginning of the year to the date
of payment. A participant may elect to defer payment of compensation under
the Plan until a specified year in the future, the attainment of age 70 or
termination of services as a director of the Company. A participant may elect
to receive payment of the compensation deferred under the Plan in either a
lump sum or up to five equal annual installments. In 1996, the Board amended
the Deferred Compensation Plan to permit participants to make a one-time
election to convert the deferred cash amounts held in their deferred
compensation accounts to shares of Common Stock based on the fair market
value (as defined in the Deferred Compensation Plan) of a share of Common
Stock as of the date of such election. As a result of such amendment, Mr.
Sayles and Mr. McClellan elected to convert 100% of their deferred
compensation to Common Stock. Mr. Dolan elected to convert $31,500 of his
deferred compensation to Common Stock.
-5-
PAGE
Effective January 1, 1997, nonemployee directors are paid only in Common
Stock pursuant to the Stock Compensation Plan for Nonemployee Directors,
approved by the stockholders on May 3, 1996. Under this Plan, each director
who is not an employee of the Company will annually receive Common Stock
equal to a cash amount fixed annually by the Board of Directors. Shares are
issued quarterly on January 1, April 1, July 1, and October 1 of each year.
For 1997, annual compensation was fixed at $31,000, and on January 2, 1997,
206 shares of Common Stock were issued to each nonemployee director except
those who elected to defer their 1997 compensation pursuant to a deferred
compensation provision in the Plan. Under the deferred compensation
provision, each participating director may irrevocably elect on or before
December 20 of each year to defer receipt of shares and any dividends with
interest to a specified future year, the attainment of age 70 or termination
of services as a director. Messrs. McClellan, Sayles, Thebault and Ms. Lamm-
Tennant have elected to defer their 1997 compensation under the Plan.
The Company's Directors' Plan provides retirement benefits for those
directors who have never been employees of the Company or its subsidiaries
and who have been members of the Board for at least five calendar years. An
eligible participant receives annual retirement or disability benefits equal
to 100% of the annual director's retainer fee. For 1997, such annual 1996
amount has been limited to $20,000 by resolution of the Board of Directors.
This benefit is payable in monthly installments for a period equal to the
participant's years of service as a Board member, calculated in completed
years and months, up to a maximum of 15 years. If a participant dies prior to
the commencement of benefits, no benefit is payable from the Plan except to a
surviving spouse. The surviving spouse is entitled to receive the same
monthly benefit that the participant would have received had such participant
retired on the day prior to the date of death. Such benefits cease if the
surviving spouse dies before accrued benefits have been paid. If, after
benefits commence, a participant dies leaving a surviving spouse, the
participant's monthly benefit payments shall continue to be paid to such
surviving spouse with the same frequency until all benefits have been paid or
until the spouse's death. In the event of the total and permanent disability
of a participant, benefits equal to those upon retirement are payable
immediately.
The Directors' Plan provides for accelerated payment of accrued and unpaid
benefits under certain circumstances. Such benefits are payable if the
directors nominated by management of the Company and constituting a majority
of the Board cease to be directors after any of the following events
constituting a Change of Control: (a) acquisition of a controlling interest
in the Company's voting securities; (b) an election contest; (c) a successful
tender or exchange offer by a person other than the Company or an affiliate
of the Company; (d) a merger; and (e) a consolidation or other business
combination. The benefit under the Directors' Plan becomes payable in monthly
installments, commencing on the first day of the month coincident with or
next following a "Change of Control" and the termination of the participant's
service as a Board member.
The Company maintains a Stock Option Plan for Directors for those directors
who are not full-time employees of the Company or its subsidiaries unless any
of such eligible directors elects not to participate. Under such plan, each
eligible director participating in the plan automatically receives an option
to purchase 1,500 shares of Common Stock on March 1 of each year. Subject to
certain adjustments, the maximum number of shares of Common Stock that may be
issued under options granted is 200,000, which may be authorized but unissued
shares or treasury shares. The exercise price for each share of Common Stock
subject to an option granted is the Fair Market Value (as defined in the
plan) of a share of Common Stock on the date such option is granted and is
payable in cash. Any option granted under the plan becomes exercisable on the
first anniversary of the date it was granted. No option is exercisable after
the tenth anniversary of the grant. Options granted under the plan are
nontransferable, except by will or by laws of descent and distribution. In
the event of an optionee's death or disability, an option may be exercised,
in whole or in part, by the optionee's executor, administrator, guardian, or
legal representative in accordance with the terms of such option. On March 1,
1996, options to purchase 1,500 shares of Common Stock were granted to each
eligible director at an exercise price of $36.625 per share.
====================================
COMMITTEES OF THE BOARD OF DIRECTORS
====================================
The Company's Audit Committee, the membership of which is the same as the
Audit Committee of the Company's subsidiaries, Selective Insurance Company of
America, Selective Way Insurance Company, Selective Insurance Company of the
Southeast and Selective Insurance Company of South Carolina, is comprised of
S. Griffin McClellan III, Chairman, A. David Brown, William A. Dolan, II,
William C. Gray, Russell R. Moffett and J. Brian Thebault. In 1996, the
Committee met four times. The functions of the Committee are to receive and
examine the Auditors' Report, meet with the auditors, access the books and
vouchers of the Company, as necessary, consider the adequacy of internal
controls, confer with the officers of the Company, and report to the Board on
its findings.
The Company's Salary and Employee Benefits Committee, the membership of which
is the same as the Salary and Employee Benefits Committee of the Company's
subsidiaries, Selective Insurance Company of America, Selective Way Insurance
-6-
PAGE
Company, Selective Insurance Company of the Southeast and Selective Insurance
Company of South Carolina, is comprised of Thomas D. Sayles, Jr., Chairman,
A. David Brown, William M. Kearns, Jr., Joan M. Lamm-Tennant, Ph.D, and S.
Griffin McClellan III. In 1996, the Committee met four times. The functions
of the Committee are to evaluate the performance of certain officers of the
Company and its subsidiaries and to make recommendations to the Board as to
salary adjustments. This Committee also continuously evaluates employee
benefits and makes recommendations to the Board in connection therewith. This
Committee also functions as the Compensation Committee, which administers the
Company's stock option plans, and as the Trustees of the Retirement Savings
Plan and the Retirement Income Plan.
The Company's Committee on Directors, the membership of which is the same as
the Committee on Directors of the Company's subsidiaries, Selective Insurance
Company of America, Selective Way Insurance Company, Selective Insurance
Company of the Southeast and Selective Insurance Company of South Carolina,
is comprised of C. Edward Herder, Chairman, Frederick H. Jarvis, William M.
Rue and Thomas D. Sayles, Jr. In 1996, the Committee met one time. The
primary function of the Committee is to seek and review qualified candidates
for directorships and to make recommendations to the Board as to nominees for
election as directors. This Committee will consider nominees recommended by
stockholders for election as directors at an Annual Meeting of Stockholders
but does not solicit such recommendations. In order to receive consideration,
all such recommendations must be in writing addressed to the Chairman of the
Committee on Directors, c/o the Secretary of the Company, 40 Wantage Avenue,
Branchville, New Jersey 07890. Such recommendations must include a reasonable
amount of biographical information about the person recommended, contain a
statement as to why the stockholder believes such person to be well qualified
to serve as a director, contain the written consent of the proposed nominee
to the submission of such information and such recommendation, and be
received by the Secretary no later than January 1 preceding the Annual
Meeting of Stockholders for which such person's election is recommended.
=======================================
ATTENDANCE OF BOARD MEMBERS AT MEETINGS
=======================================
During the past year, there were four meetings of the Board. No Board member
attended fewer than 75% of the aggregate number of meetings of the Board and
of the meetings of Committees on which he or she served.
===========================================================
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
===========================================================
The members of the Company's Salary and Employee Benefits Committee are
Thomas D. Sayles, Jr., A. David Brown, William M. Kearns, Jr., Joan M. Lamm-
Tennant, Ph.D. and S. Griffin McClellan III, each of whom is a director but
not a current or former employee of the Company, or any of its subsidiaries.
During the last fiscal year, no executive officer of the Company served on
the compensation committee of another entity or as a director of another
entity, one of whose executive officers served on the Salary and Employee
Benefits Committee.
=======================================================
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
=======================================================
Based on the Company's review of Forms 3, 4 and 5 during and with respect to
the fiscal year ended December 31, 1996, all statements of beneficial
ownership required to be filed with the Securities and Exchange Commission
were timely filed.
-7-
PAGE
============================================
EXECUTIVE COMPENSATION AND OTHER INFORMATION
============================================
EXECUTIVE OFFICERS OF THE COMPANY
=================================
As of March 14, 1997, the executive officers of the Company were:
=============================================================================
James W. Entringer age 56 Chairman of the Board, President and Chief
Executive Officer since April 1, 1993;
President and Chief Operating Officer from
March 1992 to April 1993; Director since May
1992. *
- - -----------------------------------------------------------------------------
Dominic J. Addesso age 43 Executive Vice President, Strategy and Systems
Integration since May 1996; Executive Vice
President, Strategic Business Units, May 1993
to May 1996; Executive Vice President and Chief
Financial Officer from 1989 to May 1993.
- - -----------------------------------------------------------------------------
James W. Coleman, age 38 Senior Vice President, Strategic Business Units
Jr. since May 1996; Vice President, Personal Lines
Strategic Business Unit, May 1994 to May 1996;
Assistant Vice President, Claims, Field
Operations, May 1993 to May 1994.
- - -----------------------------------------------------------------------------
Thornton R. Land age 56 Executive Vice President, Administration, and
General Counsel, responsible for corporate
legal, staff claims counsel, government
affairs, administrative services and human
resources, since May 1993; Senior Vice
President and General Counsel from 1988 to
1993.
- - -----------------------------------------------------------------------------
Gregory E. Murphy age 41 Senior Vice President and Chief Financial
Officer, since January 1994; Vice President,
Finance, from 1993 to January 1994; Chief
Accounting Officer since 1992; Vice President
from 1987 to January 1994.
- - -----------------------------------------------------------------------------
Jamie Ochiltree, age 44 Senior Vice President, Branch and Field
III Operations, since September 1994; Vice
President, Market Development from April 1994
to September 1994; Vice President, Sales and
Marketing, Cincinnati Financial Corp., May 1988
to December 1993.
- - -----------------------------------------------------------------------------
Robert P. Rank age 55 Senior Vice President, Investments since
December 1993; Senior Vice President,
Investments, American Express Company, 1987 to
1993.
- - -----------------------------------------------------------------------------
Donald E. Williams age 52 Senior Vice President, Information Systems
since 1992; Vice President 1989 to 1992.
- - -----------------------------------------------------------------------------
All terms of office are for a one-year period.
*See additional information about Mr. Entringer on page 4.
-8-
PAGE
==========================
SUMMARY COMPENSATION TABLE
==========================
The following table shows, for the fiscal years ending December 31, 1996,
1995, and 1994, the compensation, paid or accrued for those years, to the
Chairman, President and Chief Executive Officer, and each of the four most
highly compensated executive officers of the Company who served as executive
officers during fiscal year 1996. (See footnote 1.)
Long-Term Compensation
|----------Awards----------|
Annual Compensation
Securities All
Name Restricted Underlying Other
and Stock Options/ Compen-
Principal Salary Bonus Awards SARs sation
Position Year ($)(1) ($)(2) ($)(3) (#) ($)(4)
=============================================================================
James W. 1996 426,923 225,000 302,000 - 4,750
Entringer(5,6) 1995 410,000 300,000 657,145 40,000 9,000
Chairman, 1994 388,269 200,000 - 70,000 9,000
President and
Chief Executive
Officer
- - -----------------------------------------------------------------------------
Dominic J. 1996 188,334 50,000 169,875 7,500 18,526
Addesso(5,6) 1995 191,714 100,000 78,188 7,500 20,096
Executive Vice 1994 185,191 66,708 - 39,500 9,525
President
- - -----------------------------------------------------------------------------
Thornton R. 1996 193,896 60,000 169,875 - 4,750
Land (5,6) 1995 187,824 90,000 78,188 - 9,000
Executive Vice 1994 176,366 62,242 - 54,500 9,000
President and
General Counsel
- - -----------------------------------------------------------------------------
Gregory E. 1996 139,552 60,000 169,875 7,500 10,204
Murphy (5,6) 1995 130,000 85,000 52,125 7,500 12,518
Senior Vice 1994 124,023 43,280 - 14,780 7,667
President and
Chief Financial
Officer
- - -----------------------------------------------------------------------------
Jamie 1996 157,319 60,000 169,875 7,500 15,669
Ochiltree, III 1995 150,000 90,000 52,125 7,500 14,762
(5,6,7) 1994 80,098 - - 17,000 420
Senior Vice
President
- - -----------------------------------------------------------------------------
=======================================
FOOTNOTES TO SUMMARY COMPENSATION TABLE
=======================================
1. The executive officers received cash compensation only from the
Company's subsidiary, Selective Insurance Company of America ("SICA"),
which company also provides the employee benefit plans in which such
executive officers participate.
2. Effective for the fiscal year 1994, the Company adopted a Rewards
Program by which employees may receive a stated percentage of salary as
Annual Cash Incentive Payments if they achieve specified personal goals
and the Company achieves stated corporate performance goals. The "Bonus"
amounts for 1994, 1995 and 1996 indicate the amounts awarded to the
named executive officers as Annual Cash Incentive Payments. See the
Report of the Company's Salary and Employee Benefits Committee set forth
in this Proxy Statement.
3. The value of restricted stock awards at the end of 1996 was $757,416 for
Mr. Entringer, $285,000 for each of Messrs. Addesso and Land and
$247,000 for each of Messrs. Murphy and Ochiltree. As of the end of
1996, the number of restricted shares held by Mr. Entringer was 19,932;
by each of Messrs. Addesso and Land, 7,500; and by each of Messrs.
Murphy and Ochiltree, 6,500. The awards to Messrs. Addesso, Land, Murphy
and Ochiltree and awards of 13,000 shares of Mr. Entringer's restricted
stock were made under the Company's Stock Option Plan II under which
such shares and accrued dividends vest after four years from the date of
grant depending upon the achievement of predetermined performance goals.
Pursuant to an award Mr. Entringer received outside of the plan, on
November 1, 1995, 3,466 shares vested to Mr. Entringer on November 1,
1995 and on November 1, 1996. An equal number will vest on November 1,
1997 and on November 1, 1998. Mr. Entringer has received dividends on
all shares from this grant since November 1, 1995. The value of the
restricted stock awards shown in this footnote is based on the closing
market price of Common Stock on December 31, 1996.
-9-
PAGE
4. The amounts in "All Other Compensation" include Company contributions
under the Company's Retirement Savings Plan (formerly Thrift Plan) for
the fiscal years ended December 31, 1996, December 31, 1995, and
December 31, 1994. This Plan is a defined contribution plan available to
substantially all employees. Company contributions are 30% vested after
two years of service and become 100% vested after six years of service.
The Company contributions reflected in the table above are $4,750 for
Messrs. Entringer, Addesso, Land and Ochiltree and $4,362 for Mr.
Murphy. In addition, for Messrs. Addesso, Murphy and Ochiltree, the
amounts for 1996 in the "All Other Compensation" column also include
$13,776, $5,842 and $10,919, respectively, representing the difference
between the market rate of interest and the actual rate of interest on
indebtedness of such executive officer to the Company. For additional
information relating to such indebtedness, see "Interest of Management
and Others in Certain Transactions."
5. Under employment agreements with SICA effective September 1996 to
September 1999, Messrs. Entringer, Addesso, and Land receive annual base
salaries of not less than the following amounts: Mr. Entringer,
$430,000; Mr. Addesso, $204,000; and Mr. Land, $195,000. Mr. Entringer
will also serve as a director of the Company so long as he continues to
serve as Chairman, President and Chief Executive Officer of SICA. Under
an employment agreement with SICA effective August 1, 1995, Mr. Murphy
receives an annual base salary of not less than $130,000 through August
1, 1998. Under an employment agreement with SICA effective October 31,
1995, Mr. Ochiltree receives an annual base salary of not less than
$150,000 through October 31, 1998. If any of these executive officers is
not reelected to his current position, or if he is terminated without
cause, he will be entitled to receive severance pay equal to his salary
and certain benefits in effect at the time of his termination of
employment for a period of two years after the date of such termination,
payable in monthly installments. If he is terminated for cause, he is
entitled to receive that portion of his salary earned to the date of his
termination and the benefits accrued to him under certain employee
benefit plans to the date of such termination, to the extent that such
benefits may be payable to him under the provisions of such plans in
effect on the date of the termination of his employment. The Company has
guaranteed SICA's performance of all its obligations under the
employment agreements.
6. Messrs. Entringer, Addesso, Land, Murphy and Ochiltree have termination
agreements with SICA pursuant to which payments will be made under
certain circumstances following a Change in Control of the Company, as
defined in the agreements. The agreements for Messrs. Entringer, Addesso
and Land are automatically renewable for successive one-year terms each
September 1 unless prior written notice of nonrenewal is given. Mr.
Murphy's agreement is effective from August 1, 1995 through August 1,
1998 and is automatically renewable for successive one-year terms each
August 1 unless prior written notice of nonrenewal is given. Mr.
Ochiltree's agreement is effective from October 31, 1995 through October
31, 1998 and is automatically renewable for successive one-year terms
each October 31 unless prior written notice of nonrenewal is given. Each
agreement provides that, in the event of a Change in Control of the
Company, SICA shall continue to employ the executive officer in the
capacities in which he was serving immediately prior to the Change in
Control for a period of three years, commencing on the date on which the
Change in Control shall have occurred, which term will be automatically
renewed for successive one-year periods unless prior written notice is
given. Each agreement provides that if the executive officer's
employment is terminated (as defined in the agreement) after a Change in
Control occurs, other than (i) due to the executive officer's death or
retirement, (ii) by SICA for Cause or Disability, or (iii) by the
executive officer other than for Good Reason (as such foregoing
capitalized terms are defined in the agreement), the executive officer
will be entitled to receive earned but unpaid base salary through the
date of termination, as well as any incentive compensation benefits or
awards that have been accrued, earned, or become payable but which have
not been paid, and as severance pay in lieu of any further salary for
periods subsequent to the date of termination, an amount in cash equal
to his "annualized includible compensation for the base period" (as
defined in Section 280G(d)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), multiplied by a factor of 2.99, provided that if
any of the payments or benefits provided for in the agreement, together
with any other payments or benefits that the executive officer has the
right to receive, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), the payments and benefits due to the
executive officer will be reduced in the order of priority and amount as
the executive officer shall elect, to the largest amount as will result
in no portion of such payments being subject to the excise tax imposed
by Section 4999 of the Code. The Company has guaranteed SICA's
performance of all its obligations under the termination agreements.
7. Mr. Ochiltree joined the Company in April 1994.
-10-
PAGE
===========================================
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
===========================================
The following table contains information concerning the grant of stock
options and tandem stock appreciation rights ("SARs") under the Company's
Stock Option Plan II ("Plan") to the Chairman, President and Chief Executive
Officer, and each of the other executive officers named in the Summary
Compensation Table.
=====================================
OPTION/SAR GRANTS IN LAST FISCAL YEAR
=====================================
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
|----------Individual Grants------------| for Option Term
% of
Number of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted(1)(3) in Fiscal Price tion
Name (#) Year ($/Sh) Date 5%($)(2) 10%($)(2)
=============================================================================
James W. - - - - - -
Entringer
Dominic J. 7,500 4.32% 35.25 10/29/06 166,264 421,346
Addesso
Thornton R. - - - - - -
Land
Gregory E. 7,500 4.32% 35.25 10/29/06 166,264 421,346
Murphy
Jamie 7,500 4.32% 35.25 10/29/06 166,264 421,346
Ochiltree, III
- - -----------------------------------------------------------------------------
1. The Plan permits the granting of options to all employees and permits
the granting of SARs in tandem with any or all stock options. If an SAR
is exercised, the employee must surrender the related stock option or
portion thereof. Upon exercise of an SAR, payment will be made by the
Company in stock, cash, or some combination thereof, as a committee
appointed by the Board of Directors shall determine at the time of
exercise. None of the options granted to the named executive officers in
1996 has SARs attached. Under the terms of the Plan, options or any
related SARs, may be granted at no less than fair market value as of the
date of grant. They must be exercised within ten years from the date of
grant. In the event of any change in the number of outstanding shares of
the Common Stock of the Company as a result of a stock dividend, stock
split, or other readjustments, the committee appointed by the Board of
Directors shall make an appropriate adjustment in the aggregate number
of shares which may be subject to stock options granted under the Plan
and in the number of shares subject to and the option price of each then
outstanding option.
2. The dollar amounts under these columns are based on the assumed
appreciation rates of 5% and 10% prescribed by the Securities and
Exchange Commission. These amounts are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
3. Options granted in 1996 were exercisable immediately.
-11-
PAGE
=====================================
OPTION AND SAR EXERCISES AND HOLDINGS
=====================================
The following table sets forth information with respect to the Chairman,
President and Chief Executive Officer, and each of the other executive
officers named in the Summary Compensation Table concerning the exercise of
options and/or SARs during the last fiscal year and unexercised options and
SARS held as of the end of the last fiscal year:
===================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
===================================================
Value of
Number of Unexercised
Securities Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at at Fiscal
Shares Fiscal Year-End(#)(1); Year-End($)(2);
Acquired ******************** **************
on Value Exercisable/ Exercisable/
Name Exercise(#) realized($) Unexercisable Unexercisable
=============================================================================
James W. 6,124 $76,398 96,015/ $628,965/
Entringer 13,200 176,550
Dominic J. - - 69,000/ 758,874/
Addesso 0 0
Thornton R. - - 47,500/ 497,313/
Land 15,000 200,625
Gregory E. - - 31,400/ 281,813/
Murphy 0 0
Jamie - - 24,000/ 145,125/
Ochiltree, III 0 0
- - -----------------------------------------------------------------------------
1. The number of securities underlying unexercised options at the end of
1996 included options with tandem SARs granted under the Company's
former stock option plan for employees which expired November 5, 1992.
This plan had 600,000 shares reserved for issuance and was, for the most
part, identical to the Company's Stock Option Plan II.
2. The value of unexercised in-the-money options is based on the closing
market price per share of Common Stock on December 31, 1996 of $38.00,
less the option exercise price per share.
-12-
PAGE
=============
PENSION PLANS
=============
The following table illustrates annual pension benefits, including
supplemental benefits, at normal retirement (age 65) for various years of
credited service in the form of a single life annuity and prior to any offset
for Social Security benefits. As of December 31, 1996 the Chairman, President
and Chief Executive Officer and the other executive officers named in the
Summary Compensation Table had the following credited years of service under
the pension plans: Mr. Entringer, 3 years; Mr. Addesso, 17 years; Mr. Land,
10 years; Mr. Murphy, 15 years and Mr. Ochiltree, 1 year.
====================
PENSION PLAN TABLE(1)
====================
=============================================================================
Years of Service
----------------------------------------------------------
Remuneration 5 15 20 25 30 35
=============================================================================
125,000 12,500 37,500 50,000 62,500 75,000 87,500
150,000 15,000 45,000 60,000 75,000 90,000 105,000
175,000 17,500 52,500 70,000 87,500 105,000 122,500
200,000 20,000 60,000 80,000 100,000 120,000 140,000
225,000 22,500 67,500 90,000 112,500 135,000 157,500
250,000 25,000 75,000 100,000 125,000 150,000 175,000
300,000 30,000 90,000 120,000 150,000 180,000 210,000
400,000 40,000 120,000 160,000 200,000 240,000 280,000
450,000 45,000 135,000 180,000 225,000 270,000 315,000
500,000 50,000 150,000 200,000 250,000 300,000 350,000
- - -----------------------------------------------------------------------------
1. The Company maintains a noncontributory Retirement Income Plan
integrated with Social Security benefits. This pension plan covers
substantially all employees, including officers. Compensation covered
under the plan consists only of basic wages and salaries, not including
overtime and bonuses, i.e. only the "Salary" column of the Summary
Compensation Table. Monthly plan benefits are computed at the rate of 2%
of average monthly compensation for the 60 months out of the most recent
120 months of employment for which the employee's compensation is the
highest multiplied by the number of years of credited service, less an
offset for Social Security benefits, calculated as 1 3/7% of the
participant's Social Security income in effect on January 1 of the year
of retirement multiplied by the number of years of credited service. If
the employee is married, the normal form of benefit is a joint and
survivor annuity for the employee and spouse. If the employee elects
against such annuity with the spouse's consent, a single life annuity
may be paid. The Company has a nonqualified supplemental pension plan to
provide benefits that would have been paid by the qualified plan, but
for the limitations imposed by the Internal Revenue Code on the maximum
benefits payable and the compensation upon which qualified plan benefits
may be calculated.
-13-
PAGE
============================================
REPORT OF THE SELECTIVE INSURANCE GROUP, INC.
SALARY AND EMPLOYEE BENEFITS COMMITTEE
============================================
The Salary and Employee Benefits Committee (the "Committee") of the Board of
Directors is responsible for setting the executive compensation policies of
the Company and evaluating the level of compensation of the executive
officers of the Company and its subsidiaries relative to the positions and
performances of the executive officers. The Committee's decisions on
executive compensation are subject to the approval of the Board of Directors,
except for grants under certain of the Company's employee benefit plans,
which are made solely by the Committee in order for such plans to satisfy the
administration requirements of Rule 16b-3 under the Securities Exchange Act
of 1934, and 162(m) of the Internal Revenue Code. The Committee consists of
Messrs. Sayles (Chairman), Brown, Kearns, McClellan and Ms. Lamm-Tennant,
all of whom are nonemployee directors, within the meaning of Rule 16b-3 and
"outside directors" within the meaning of Section 162(m). For purposes of
this report, the term "Company" means Selective Insurance Group, Inc. and its
subsidiaries unless the context otherwise requires.
The Committee's executive compensation policies are intended to enable the
Company to attract and retain qualified executives by combining a base salary
component with annual bonus and long-term incentive components. The levels
of annual total compensation for executive officers (including the executive
officers named in the foregoing tables) are generally intended to be
comparable to the levels of annual total compensation paid to executives with
comparable responsibilities in a group of other companies in the insurance
industry, identified by the Company using external surveys as being similar
in size and scope to the Company, while providing for annual and long-term
incentives which are subject to the achievement of performance-related goals.
This comparison group of companies in the insurance industry is smaller and
more diverse than the group comprising the Company's peer group for purposes
of the performance graph set forth on page 16 in this Proxy Statement.
After determining the level of compensation for each executive officer as
compared with his counterparts in the identified industry group, the
Committee weighs the executive officer's performance and level of
responsibility and considers such executive officer's contribution to the
financial and other goals of the Company. The goals and objectives are
established in advance and may relate to the executive officer's performance,
the Company's performance, or both. Among the criteria used in determining
base salaries are: (i) the Company's financial performance compared to its
performance in the prior year, including the Company's combined ratio (both
overall and by lines of insurance), return on equity, results of operations
and overall financial condition; (ii) the managerial ability of such
executive officer as evaluated by the Committee, taking into account the
evaluation of such person by the Chairman; and (iii) such officer's ability
to develop personnel within the areas of his responsibility for the future
operation of the Company. These criteria are the more significant factors
used by the Committee in reaching its decisions on executive compensation. As
a result of the individual evaluations, for any particular year the
compensation level of each executive officer may be higher or lower than that
of comparable executives in the comparison group and may vary each year
depending upon the achievement of the individual.
The Committee meets approximately four times a year. Changes in the base
salary component of executive compensation do not necessarily occur annually,
but may occur after a longer period of time.
In addition to the base salary component of executive officers' compensation,
cash payments under the Company's Annual Cash Incentive Plan may be earned.
Specific performance-related goals are established for each executive officer
at the beginning of the fiscal year after discussions between such executive
officer and the Chairman (and with respect to the Chairman between the
Chairman and the Committee) to determine the nature and extent of such goals.
These individual goals relate to specific business, departmental or
management objectives that support specific corporate goals established for
the fiscal year. In 1996, corporate goals included improving the combined
ratio and increasing diversification of geographic premium distribution. If
individual and corporate goals are achieved for the year, the executive
officer may earn the percentage of salary specified in the Annual Cash
Incentive Plan for such officer's position as an annual incentive.
In January 1997, the Committee reviewed each executive officer's performance
evaluation, the recommendations of the Chairman as to the achievement of the
individual performance-related goals and the Company's performance for 1996
using the criteria described above. Based upon such criteria and the Annual
Cash Incentive Plan percentage guidelines, the Committee determined the
annual cash incentives to be awarded to the Company's executive officers for
the year ended December 31, 1996.
-14-
PAGE
The two forms of executive officers' long-term incentive compensation are
stock options (with or without tandem stock appreciation rights) and stock
grants under the Company's Stock Option Plan II (the "Plan"). The Committee
believes that stock ownership by management encourages management to enhance
stockholder value. Stock options (with or without tandem stock appreciation
rights) granted to executive officers and other employees give optionees the
right to purchase shares of the Company's Common Stock over a ten-year period
at the fair market value per share on the date of grant. Generally, the
Committee grants options to executive officers based on individual merit,
taking into account, among other things, the performance evaluations of such
executive officers by the Chairman. The number of options granted at any
given time is also determined, in part, by the executive officer's level of
responsibility, i.e., more options are given to employees and executives in
positions of greater responsibility, and the date of the last option grant to
such person. In recent years, the Company has generally granted options on
an annual basis, but options will not necessarily be granted annually to each
executive officer. Stock options (and any tandem stock appreciation rights)
that have been granted to executive officers have generally been exercisable
immediately upon grant. However, the Committee has the discretion to
establish a vesting schedule for option grants and has at times granted
options that vest over a period of time. Grants of stock also provide
incentive to the executive officers to enhance stockholder value. Under the
Plan, the Committee, in its discretion, may make restricted or unrestricted
grants of Common Stock, or grant rights to receive Common Stock, to executive
officers and other employees in addition to or in substitution for options or
stock appreciation rights. Each such grant is subject to the attainment of
one or more performance-related objectives and other terms and conditions as
may be determined by the Committee in its discretion. Grants of restricted
stock under the Plan were made to all executive officers in 1996. All
restricted stock grants to date are subject to a four-year vesting period and
the attainment of various predetermined corporate financial goals, such as
return on equity or cumulative earnings, during the vesting period.
The Company intends, to the extent practicable, to preserve deductibility
under the Internal Revenue Code for compensation paid to its executive
officers while maintaining compensation programs to attract and retain highly
qualified executives in a competitive environment.
The Committee's bases for determining the compensation of Mr. Entringer have
been substantially the same as those referred to above with respect to the
Company's executive officers. The Committee seeks to maintain the base salary
of the Chief Executive Officer at a level competitive with the mid-range of
the base salaries of the chief executive officers of other insurance
companies in the Company's identified comparison group, but Mr. Entringer's
base salary and incentive compensation for 1996 were significantly affected
by his performance and the Company's performance as compared to the peer
group, as described below. Mr. Entringer is eligible to participate in the
same employee benefit plans available to the other executive officers of the
Company.
In February 1996, the Committee granted Mr. Entringer 8,000 restricted shares
of the Company's Common Stock under Stock Option Plan II. The grant is
subject to a four-year vesting period and the achievement of predetermined
corporate performance goals, including fiscal year return on average equity
during the vesting period.
In determining Mr. Entringer's award under the Annual Cash Incentive Plan for
1996, the Committee considered the extent to which Mr. Entringer had met
certain predetermined financial and operational goals, and how well he had
implemented initiatives scheduled for 1996, including increased earnings and
positioning the Company for future growth. The Committee also considered the
increase in the market value of the Company's Common Stock. In considering
the Annual Cash Incentive award and the stock grant, the Committee also
reviewed the Company's combined ratio, expense reduction, and capital
strategies and Mr. Entringer's achievements in productivity, premium
diversification, employee development, corporate restructuring and
technological development, in addition to those factors used in determining
the awards of the other executive officers.
Submitted by the Salary and Employee Benefits Committee of the Company's
Board of Directors: Thomas D. Sayles, Jr. (Chairman), A. David Brown,
William M. Kearns, Jr., Joan M. Lamm-Tennant, Ph.D and S. Griffin McClellan
III.
No Compensation Committee interlocks or insider participation in compensation
decisions occurred during the fiscal year ended December 31, 1996.
-15-
PAGE
================================================
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
================================================
The following graph demonstrates a five-year comparison of cumulative total
returns for the Company, the Nasdaq Stock Market (U.S. companies), and the
Fire, Marine and Casualty insurers (Nasdaq Market).
=============================
(CORPORATE PERFORMANCE GRAPH)
=============================
=============================================================================
|-------------------As of---------------------|
INDEX 12/31 12/31 12/31 12/30 12/29 12/31
DESCRIPTION 1991 1992 1993 1994 1995 1996
- - -----------------------------------------------------------------------------
Selective Insurance Group, 100.0 138.7 200.8 173.3 252.5 279.3
Inc.
Nasdaq Stock Market (US 100.0 116.4 133.6 130.6 184.7 227.2
Companies)
NASDAQ Stocks (SIC 6330- 100.0 134.5 139.0 134.0 187.7 205.6
6339 US + Foreign Fire,
Marine, and Casualty
Insurance Peer Group(1))
- - -----------------------------------------------------------------------------
1. The members of the Peer Group include Fire, Marine and Casualty insurers
that are traded on the Nasdaq Stock Market and have the same Standard
Industry Classification (SIC) number as the Company. The Peer Group
members are as follows: 20th Century Industries CA; Allied Group, Inc.;
Allmerica Property & Casualty Companies, Inc; American Bankers Insurance
Group, Inc.; American Indemnity Financial Corporation; American
Integrity Corporation; Argonaut Group, Inc.; Baldwin & Lyons, Inc.;
Bancinsurance Corporation; W. R. Berkley Corporation; Chandler Insurance
Company, Ltd.; Cincinnati Financial Corporation; Citizens Security
Group, Inc.; Condor Services, Inc.; Donegal Group, Inc.; Employers
Casualty Company; Equitable of Iowa Companies; Exstar Financial
Corporation; Financial Institutions Insurance Group, Ltd.; Florida
Employers Insurance Company; Foremost Corporation America; Fremont
General Corporation; Goran Capital, Inc.; Gryphon Holdings, Inc.; HCC
Insurance Holdings, Inc.; Hanover Insurance Company; Harleysville Group
Inc.; Home State Holdings, Inc.; Intercargo Corporation; Kaye Group,
Inc.; MAIC Holdings, Inc.; Markel Corp.; Mercury General Corporation;
Meridian Insurance Group, Inc.; Mid Ocean, Ltd.; Midland Financial
Group, Inc.; Milwaukee Insurance Group Inc.; Mobile America Corporation;
Motor Club of America; Mutual Assurance, Inc.; NAC Re Corporation;
NYMAGIC Inc.; Navigators Group, Inc.; Nobel Insurance, Ltd.; North East
Insurance Company; Occupational Urgent Care Health; Ohio Casualty
Corporation; Old Lyme Holding Corp.; Omni Insurance Group, Inc.; PXRE
Corp.; PAC RIM Holding Corporation; PAN Atlantic Inc.; Phoenix Re
Corporation; Piedmont Management, Inc.; Professionals Insurance Company
Management; RTW, Inc.; Rathbone King & Seeley Inc.; Rescorp, Inc.; Risk
Capital Holdings, Inc.; SAFECO Corporation; Selective Insurance Group,
Inc.; St. Paul Companies, Inc.; State Auto Financial Corporation; Symons
International Corporation; Titan Holdings, Inc.; Tokio Marine & Fire
Insurance, Ltd.; Trenwick Group, Inc.; U.S. Capital Group, Inc.; Unico
American Corporation; United Coasts Corporation; United Fire & Casualty
Company; United States Facilities Corporation; Walshire Assurance
Company.
-16-
PAGE
=========================================================
II. PROPOSAL TO AMEND THE SELECTIVE STOCK OPTION PLAN II
=========================================================
(Item 2 on Proxy Card)
The Board of Directors has approved and is unanimously recommending that the
stockholders approve an amendment to the Selective Stock Option Plan II (the
"Plan") to increase by 1,000,000 the number of shares of Common Stock
reserved for issuance under the Plan to an aggregate of 2,100,000 shares. The
amendment and the Plan are summarized below. A copy of the Plan is available
upon a stockholder's written request to the Company, 40 Wantage Avenue,
Branchville, New Jersey 07890, Attention: Corporate Secretary.
Description of the Amendment
- - ----------------------------
The amendment increases by 1,000,000 the number of shares of Common Stock
reserved for issuance under the Plan to an aggregate of 2,100,000 shares. If
approved by the stockholders, the amendment shall be effective on May 2,
1997.
Reasons for the Amendment
- - -------------------------
The Board of Directors believes that grants of stock options and awards of
Common Stock are important incentives for attracting and retaining employees
and encouraging employees to realize the Company's business objectives. As of
December 31, 1996, only 155,956 shares of Common Stock remained available for
the granting of stock options and stock awards under the Plan. The amendment
to the Plan to increase the number of shares reserved for issuance is
intended to enable the Company to continue the purposes of the Plan.
Description of the Plan
- - -----------------------
The Plan was originally approved in 1992. Pursuant to amendments to the Plan
in 1994, all employees of the Company and its subsidiaries are eligible to
participate in the Plan, and a total of 1,100,000 shares are reserved for
issuance under the Plan. If any option granted under the Plan expires or
terminates for any reason or any shares of Common Stock awarded under the
Plan are forfeited because of the failure of any condition or restriction of
an award, the shares allocable to such expired or terminated option or
forfeited award again become available for the granting of options or stock
awards.
The Plan is administered by the Compensation Committee (the "Committee"). The
Plan requires that the Committee consist of two (2) or more directors of the
Company, all of whom are both "Non-Employee Directors" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and
"Outside Directors" as defined for the purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to the terms
and conditions of the Plan, the Committee has the exclusive authority to
determine the terms and conditions of options granted to an employee. In
addition, the Committee may, in its discretion, make restricted or
unrestricted grants of Common Stock or grant rights to receive Common Stock
to eligible participants in the Plan in addition to or in substitution for
options and/or Stock Appreciation Rights ("SARs") thereunder subject to
certain terms and conditions as set forth in the Plan. No member of the
Committee is eligible to participate in the Plan while serving on the
Committee.
An option granted under the Plan may be granted as a stock option which
qualifies as an incentive stock option (a "Qualified Option") under Section
422 of the Code or as a stock option which does not qualify under the Code (a
"Non-Qualified Option"). The terms and conditions of individual option grants
may vary, subject to the following: (i) options to purchase no more than
40,000 shares of Common Stock may be granted (together with related SARs) to
any eligible participant during any twelve-month period; (ii) the exercise
price per share may not be less than its fair market value on the date of
such grant; and (iii) the term of the option may not be more than ten (10)
years from the date such option is granted. No Qualified Option may be
granted to any employee who, at the time the option is granted, owns stock
representing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the option exercise price is at least 110% of
the fair market value of the Common Stock at the time the option is granted
and the option is not exercisable more than five (5) years from the date it
is granted. The purchase price of any shares of Common Stock sold to an
optionee pursuant to a stock option is payable upon the exercise of the
option in cash or in shares of Common Stock of the Company. Any option
granted under the Plan may be exercised by an optionee any time after the
date of grant and before its date of expiration, except as such exercise
right is limited by the terms of the Plan with respect to the death,
disability or termination of employment of the optionee.
An SAR may be granted in conjunction with any Qualified Option or any Non-
Qualified Option under the Plan. If an SAR is exercised, the optionee shall
surrender the related stock option or portion thereof.
-17-
PAGE
The SAR is subject to the same terms and conditions as the option granted in
conjunction with the SAR. Upon exercise of the SAR, the optionee will receive
payment of the amount equal to (a) the difference between the fair market
value per share of Common Stock on the exercise date and the option exercise
price per share multiplied by (b) the number of SARs being exercised. Payment
of such amounts are made in stock, cash or partly in stock and partly in cash
as the Committee shall determine in its absolute discretion at the time of
exercise.
Options granted under the Plan are nontransferable, except by will or by the
laws of descent and distribution, and, during the lifetime of the optionee,
are exercisable only by the optionee.
An optionee has none of the rights or privileges of a stockholder of the
Company including, without limitation, the right to vote and receive
dividends with respect to shares of Common Stock subject to an option, until
the exercise of the option and the issuance to such optionee of a stock
certificate representing such shares.
The Committee may, in its discretion, make restricted or unrestricted grants
of Common Stock, or grant rights to receive Common Stock, to eligible
participants in the Plan in addition to or in substitution for options and/or
SARs granted under the Plan. The right to receive no more than 40,000 shares
of Common Stock may be granted to any participant in the Plan during any
twelve-month period during the term of the Plan. Each such grant is expressly
subject to the attainment of one or more performance-related objectives of
the Company, or a subsidiary or subsidiaries thereof, and such vesting
periods or other terms, conditions, restrictions and limitations as
determined by the Committee. The number of shares of Common Stock awarded
pursuant to such grant reduces the number of shares of Common Stock available
for options and/or SARs. The Committee, in its discretion, may accelerate the
time at which any award may vest.
The Plan may be amended from time to time by recommendation of the Committee
and approval by the Board of Directors to the extent permitted by law. In no
event may the Committee amend the Plan to (a) change the purchase price of
the stock, (b) extend any option date, or (c) extend the termination date of
the Plan. The Plan shall terminate on September 1, 2002, and no option or
stock award shall be granted pursuant to the Plan thereafter.
As of December 31, 1996, the total number of shares of Common Stock
underlying stock options, and the number of restricted stock awards of Common
Stock granted under the Plan to each of the executive officers named in the
Summary Compensation Table appearing on page 9 of this Proxy Statement is as
follows:
Stock Options Restricted Stock
------------- ----------------
James W. Entringer 134,839 13,000
Dominic J. Addesso 62,500 7,500
Thornton R. Land 62,500 7,500
Gregory E. Murphy 29,780 6,500
Jamie Ochiltree, III 32,000 6,500
As of December 31, 1996, options to purchase a total of 382,619 shares of
Common Stock and 47,000 restricted stock awards of Common Stock were awarded
under the Plan to all current executive officers as a group. No grants of
stock options or restricted stock awards under the Plan have been made to any
current nonemployee director or to any nonemployee nominee for election as a
director. As of December 31, 1996, options to purchase a total of 833,244
shares of Common Stock and 110,800 restricted stock awards of Common Stock
have been granted to all employees under the Plan. No SARs have been granted
under the Plan.
Future grants of stock options and stock awards are in the discretion of the
Committee and, thus, the amount of such grants, if any, are not presently
determinable.
The market value of the Common Stock as of March 14, 1997, as reflected by
the closing price of the Common Stock on the Nasdaq National Market, was
$41.75 per share.
Federal Income Tax Consequences
- - -------------------------------
The tax consequences of stock options, stock awards, and stock appreciation
rights are complex. Therefore, the description of tax consequences set forth
below is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
-18-
PAGE
The tax consequences under applicable state and local income tax laws may not
be the same as under the Federal income tax laws.
Qualified Options granted pursuant to the Plan are intended to qualify as
"Incentive Stock Options" within the meaning of Section 422 of the Code. The
optionee of an incentive stock option will not recognize taxable income
either at the date of grant or the date of exercise. If the optionee makes no
disposition of the shares acquired pursuant to exercise of an incentive stock
option within one year after the transfer of shares to such optionee and
within two years from grant of the option (the "Holding Period"), such
optionee will recognize long term capital gain income at the date of sale of
such shares to the extent the proceeds of the sale exceed the exercise price.
The Company will not be entitled to a deduction for Federal income tax
purposes with respect to either the issuance of such incentive stock options
or the issuance of shares upon their exercise. Additionally, the Company will
receive no deduction as a result of the sale of the stock after expiration of
the Holding Period.
If the shares acquired pursuant to exercise of an incentive stock option are
sold before expiration of the Holding Period, the optionee will recognize
ordinary income in the year of the disposition equal to the excess of the
fair market value of the stock at the time of exercise over the exercise
price. The Company will be entitled to a deduction for Federal income tax
purposes in that same amount, provided it satisfies certain Federal income
tax reporting requirements. In addition, the optionee will recognize capital
gains to the extent the proceeds on the sale of stock exceeds the optionee's
basis in the stock. For this purpose, the optionee's basis in the stock is
the sum of the exercise price of the option plus the amount recognized by the
optionee as ordinary income.
Options that are not incentive stock options, referred to as Non-Qualified
Options, may also be granted under the Plan. Upon exercise of a Non-Qualified
Option, an optionee will recognize ordinary income at the date of exercise
equal to the excess of the fair market value of the stock at the date of
exercise over the exercise price. The Company will be entitled to a Federal
income tax deduction at the date of exercise in the same amount as the income
recognized by the optionee, provided the Company satisfies applicable Federal
income tax withholding requirements.
Under the Plan, SARs may be granted in conjunction with Qualified Options or
Non-Qualified Options. An SAR is a right to receive, either in cash or
employer stock, the appreciation in the value of a share of employer stock.
Upon exercise of an SAR, the employee must surrender the related stock
option. An employee will recognize income on the date the SAR is exercised
equal to the excess of the fair market value of the stock on the exercise
date over the exercise price of the related option. The Company will be
entitled to a Federal income tax deduction at the date of exercise in the
same amount as the income recognized by the employee, provided the Company
satisfies applicable Federal income tax withholding requirements.
The Plan also provides for awards of stock, subject to the attainment of one
or more performance-related objectives of the Company, or a subsidiary or
subsidiaries thereof, and such vesting periods or other terms, conditions,
restrictions and limitations as determined by the Committee. With respect to
stock awards subject to such restrictions, the employee will generally not
recognize income until the earlier of the date on which the stock is (i)
transferable or (ii) not subject to a substantial risk of forfeiture, unless
the employee makes a timely election under Section 83(b) of the Code. The
amount of such income will be equal to the excess of the fair market value of
the shares at the time over the purchase price, if any, paid for such shares.
If, on the other hand, the employee does make a Section 83(b) election, then
he or she will recognize ordinary income at the time of receipt of the stock
equal to the excess of the fair market value of the shares at that time
(determined without regard to any transfer restrictions imposed on the
shares, the vesting provisions or any restrictions imposed by the securities
laws) over the purchase price paid for such shares, if any. In either case,
the Company should be entitled to a deduction in an amount equal to the
amount of ordinary income recognized by the employee in the same year that
the employee recognizes such ordinary income, provided that the Company
satisfies certain Federal income tax withholding requirements that may be
applicable.
The discussion above pertaining to deductions for the Company is qualified by
the application of Section 162(m). Pursuant to Section 162(m), the maximum
allowable deduction for compensation paid or accrued by the Company with
respect to the chief executive officer of the Company or any of the four most
highly compensated officers of the Company (other than the chief executive
officer) is limited to $1 million per year. However, compensation is tax
deductible without regard to such limitations if the compensation satisfies
the "performance-based" requirements of the rules and regulations under
Section 162(m). The Plan is intended to meet the requirements of Section
162(m); and the Company expects that deductions will not be limited thereby.
-19-
PAGE
Vote Required for Approval
- - --------------------------
The affirmative vote of the holders of a majority of shares of Common Stock
represented and entitled to vote at the Annual Meeting is necessary for the
adoption of the amendment to the Plan. Unless a contrary specification is
indicated, Proxies will be voted "FOR" the adoption of the amendment to the
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF
==========================================================================
THE ADDITIONAL SHARES.
======================
=========================================================
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
=========================================================
Until December 31, 1996, C. Edward Herder, a director of the Company, was
Chairman and owner of more than a 5% equity interest in Herder Tarricone
Associates, a general insurance agency, which received $606,008 in
commissions during 1996 for insurance policies placed with the Company's
subsidiaries. During 1996, the Company's insurance subsidiaries purchased
insurance coverages with premiums of $29,853 through the agency. William M.
Rue, a director of the Company, is President and owner of more than a 5%
equity interest in Rue Insurance, a general insurance agency, which received
$953,202 in commissions during 1996 for insurance policies placed with the
Company's subsidiaries. During 1996, the Company's insurance subsidiaries
purchased insurance coverages with premiums of $859,288 through the agency.
J. Brian Thebault, a director of the Company, is President and Chief
Executive Officer of L.P. Thebault Company, Inc., graphic communications,
which received $70,969 during 1996 for services performed for the Company and
its subsidiaries. The foregoing relationships have existed during the past
fiscal year, and the Company intends to continue its relationship with Rue
Insurance and L.P. Thebault Company, Inc. in the current year. Mr. Herder is
now retired and has relinquished his interest in Herder Tarricone Associates.
On December 16, 1994, Messrs. Addesso, Murphy and Ochiltree, each of whom is
an executive officer of the Company, incurred certain indebtedness to the
Company in connection with their respective exercises of nonqualified stock
options granted on such date under the Company's Stock Option Plan II. Such
loans were made by the Company to such officers and certain other employees
in order to encourage such employees to exercise their options and thus to
align further their interests with those of the stockholders through greater
stock ownership. The principal amounts of such loans to Messrs. Addesso,
Murphy and Ochiltree were $246,250, $105,395 and $197,000, respectively.
These loans bear no interest and are due in 2005. Principal amounts
outstanding as of March 3, 1997 were $208,989, $83,261; and $155,630 for
Messrs. Addesso, Murphy, and Ochiltree, respectively.
========================
DATE FOR SUBMISSION
OF STOCKHOLDER PROPOSALS
========================
Any stockholder desiring to submit a proposal for inclusion in the Proxy
Statement relating to the 1997 Annual Meeting of Stockholders (to be held on
or about May 1, 1998) must submit the same in time to be received at the
Company's head-quarters at Branchville, New Jersey, on or before December 1,
1997, for determination of eligibility in accordance with law.
====================
FINANCIAL STATEMENTS
AND OTHER INFORMATION
=====================
Consolidated financial statements for the Company and its subsidiaries and
the report thereon of KPMG Peat Marwick LLP are included in the 1996 Annual
Report to Stockholders. A copy of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, as filed with the Securities and
Exchange Commission, excluding exhibits, will be provided without charge to
stockholders upon written request to the Senior Vice President, and Chief
Financial Officer, Selective Insurance Group, Inc., 40 Wantage Avenue,
Branchville, New Jersey 07890. The Form 10-K provided to stockholders will
include only a list of exhibits to the Form 10-K. Exhibits will be furnished
to stockholders upon request and upon payment of reproduction and mailing
expenses.
===========
ACCOUNTANTS
===========
For many years, the Company has engaged the services of KPMG Peat Marwick LLP
as its principal accountants. The Company anticipates making no change in its
selection and a representative of that firm is expected to be available at
the Annual Meeting of Stockholders to respond to appropriate questions and to
make a statement if such representative so desires.
-20-
PAGE
========
APPENDIX
========
========================================
SELECTIVE INSURANCE STOCK OPTION PLAN II
========================================
I. PURPOSE
- - ------------
This Selective Insurance Stock Option Plan II (the "Plan") is intended to
encourage employees of Selective Insurance Group, Inc. (the "Company") and
its subsidiaries to own stock in the Company and to provide incentive to
further the success of the Company.
II. SHARES SUBJECT TO THE PLAN
- - -------------------------------
There will be reserved for issuance upon the exercise of Options granted
under the Plan 2,100,000 shares of the Company's Common Stock which may be
unissued or reacquired shares. If any option granted expires or terminates
for any reason without having been exercised in full, the unpurchased
shares shall again become available for the purposes of the Plan.
III. ADMINISTRATION
- - -------------------
The Plan shall be administered by a Compensation Committee (the
"Committee") appointed by the Board of Directors of the Company. The
Committee shall consist of two (2) or more directors of the Company, all
of whom shall be both "Non-Employee Directors" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and "Outside Directors" as defined for the purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Subject to the terms and conditions of the Plan, the Committee shall have
the exclusive authority to select the terms and conditions of Option
Agreements (as hereinafter defined) and whether an option will be granted
to an employee as a stock option which qualifies as
PAGE
an incentive Stock Option under Section 422 of the Code (hereinafter
referred to as a "Qualified Option") or a Stock Option which does not
qualify under the Code (hereinafter referred to as a "Non-Qualified
Option"). The Committee shall determine the number of shares of Common
Stock to be acquired by the exercise of Qualified Options and Non-
Qualified Options, the term during which the Qualified Options and Non-
Qualified Options may be exercised and the application or withdrawal of
any restrictions which may be deemed appropriate in its discretion.
(Qualified Options and Non-Qualified Options are sometimes collectively
hereinafter referred to as "Options" or "Stock Options.")
IV. ELIGIBLE PARTICIPANTS
- - --------------------------
All employees of the Company and its subsidiaries shall be eligible to
participate in the Plan. No member of the Committee shall be eligible to
participate in this Plan. The Committee shall:
(a) determine the employees of the Company and its subsidiaries to
whom Qualified Options and Non Qualified Options may be granted; and
(b) grant Options, from time to time, to such eligible participants
as it may select.
V. TERMS AND CONDITIONS OF OPTIONS
- - ------------------------------------
Qualified Options and Non-Qualified Options shall be in such form and on
such terms and conditions as the Committee shall, from time to time,
approve subject to the following terms and conditions:
(a) The aggregate fair market value (determined at the time the
option is granted) of the shares with respect to which Qualified Options
are exercisable for the first time by a participant during any calendar
year shall not exceed $100,000. To the extent permitted by the Code,
Qualified Options granted in excess of such amount may be deemed or
amended to be Non-Qualified
PAGE
Options.
(b) The option price per share shall not be less than its fair
market value on the date of such grant.
(c) The term of the option shall not be more than ten (10) years
from the date such option is granted.
(d) An option shall not be transferable, except by will or by the
laws of descent and distribution, during the life-time of the person to
whom the option is granted; he/she alone may exercise it.
(e) No Qualified Option shall be granted to an employee who, at the
time the option is granted, owns stock representing more than 10 percent
of the total combined voting power of all classes of stock of the
employer. This stock ownership limitation will not apply if the option
price is at least 110 percent of the fair market value (at the time the
option is granted) of the stock subject to the option and the option by
its terms is not exercisable more than five (5) years from the date it is
granted.
(f) Options to purchase no more than 40,000 shares of Common Stock
may be granted (together with related Stock Appreciation Rights under
Article XIII hereof) to any eligible participant during any twelve-month
period during the term of the Plan.
VI. GRANTS OF COMMON STOCK
- - ---------------------------
The Committee may, in its discretion, at any time or from time to time,
make restricted or unrestricted grants of Common Stock, or grant rights to
receive Common Stock, to eligible participants in the Plan in addition to
or in substitution for Options and/or SARs granted hereunder. The right to
receive no more than 40,000 shares of Common Stock shall be granted to
PAGE
any participant in the Plan during any twelve-month period during the term
of the Plan. Each such grant shall be expressly subject to the attainment
of one or more performance-related objectives based on return on equity,
per share earnings, reduction of costs, increase in premiums written or
earned, total return to stockholders, combined ratio or loss and loss
expense ratio of the Company, or a subsidiary or subsidiaries of the
Company, as shall be determined by the Committee at or prior to the date
of grant and set forth in an award agreement. Each such grant also shall
be subject to such vesting period or other terms, conditions, restrictions
and limitations as shall be determined by the Committee in its discretion
and set forth in an award agreement. The number of shares of Common Stock
available for such grants shall be included in the total number of shares
of Common Stock reserved for issuance under the Plan, and the number of
shares of Common Stock awarded pursuant to such grants shall reduce the
number of shares of Common Stock available for the purposes of the Plan as
set forth in Section II hereof, provided that any such shares of Common
Stock that shall be forfeited because of the failure of any condition or
restriction of an award shall again be available for the purposes of the
Plan. Notwithstanding the terms and conditions set forth in an award
agreement, the Committee, in its discretion, may accelerate the time at
which any award may vest. In case the number of outstanding shares of
Common Stock of the Company is changed as a result of a stock dividend,
stock split or other readjustments or if the outstanding shares of Common
Stock shall be exchanged for securities of the Company or another Company
by reason of any merger, consolidation or other similar corporate change,
the Committee shall make an appropriate adjustment in the number of shares
subject to each then outstanding grant of Common Stock. No award agreement
shall impose any obligation on the Company to continue to employ any
employee.
VII. TERMINATION OF EMPLOYMENT
- - ------------------------------
PAGE
If an employee shall cease to be employed by the Company for any reason
other than disability or death, then any outstanding Qualified Option
granted to such employee shall terminate three (3) months after the date
of termination of employment, and any outstanding Non-Qualified Option
granted to such employee shall terminate twelve (12) months after the date
of termination.
VIII. DISABILITY
- - ----------------
If an employee shall cease to be employed by the Company as a result of
disability, then any Options that are exercisable by the employee at the
time employment ceases may be exercised within twelve (12) months after
the date that such employee's employment ceases.
IX. DEATH
- - ----------
If an employee's death occurs while employed by the Company, his/her
estate, representative or beneficiary shall have the right to exercise
those Options granted to the employee which were exercisable by him/her at
the time of his/her death at any time within twelve (12) months after the
date of his/her death.
X. CHANGES IN CAPITAL STOCK
- - -----------------------------
In case the number of outstanding shares of Common Stock of the Company is
changed as a result of a stock dividend, stock split or other
readjustments or if the outstanding shares of Common Stock of the Company
shall be exchanged for securities of the Company or another company by
reason of any merger, consolidation or other similar corporate change, the
Committee shall make an appropriate adjustment in the aggregate number of
shares which may be subject to Stock Options granted under the Plan and in
the number of shares subject to and the option price of each then
outstanding option.
PAGE
XI. EXERCISE OF OPTIONS
- - ------------------------
An employee electing to exercise an option shall give written notice to
the Company of such election and the number of shares of Common Stock that
he/she has elected to acquire. An employee will have no rights of a
stockholder with respect to shares of Common Stock to be acquired upon the
exercise of an option until the issuance to him/her of a certificate
representing said shares.
XII. OPTION AGREEMENTS
- - ----------------------
Agreements granting Options under the Plan ("Option Agreements") shall be
in writing duly executed and delivered by or on behalf of the Company and
the optionee and shall contain such terms and conditions as the Committee
deems advisable. If there is any conflict between the terms and conditions
of any Option Agreements and of the Plan, the terms and conditions of the
Plan shall control. Option Agreements shall clearly specify whether
Options granted pursuant to the Plan are either Qualified Options or Non-
Qualified Options.
XIII. PAYMENT
- - -------------
The option price shall be payable upon the exercise of the option and
shall be paid in cash or in shares of Common Stock of the Company. If
shares of Common Stock are tendered as payment of the option price, the
value of any such stock shall be the fair market value per share of Common
Stock as of the date of exercise.
XIV. STOCK APPRECIATION RIGHTS
- - ------------------------------
A Stock Appreciation Right ( 'SAR") may be granted in conjunction with any
Qualified Option or
PAGE
any Non-Qualified Option under the Plan. If an SAR is exercised, the
employee shall surrender the related Qualified Option or Non-Qualified
Option or portion thereof.
The SAR shall be subject to the same terms and conditions as the Qualified
Option or Non-Qualified Option in connection with which the SAR was
granted. Upon exercise of the SAR, the employee will receive payment of
the amount determined by subtracting the option exercise price per share
of Common Stock from the fair market value per share of Common Stock on
the exercise date and multiplying this amount by the number of SARs being
exercised. Payment of the amount determined above shall be made in stock,
cash or partly in stock and partly in cash as the Committee shall
determine in its absolute discretion at the time of exercise. The number
of SARs granted an employee will be determined by the Committee in its
sole discretion, subject to the limitations set forth in Article V,
Section (f) of the Plan.
XV. TERM OF PLAN
- - ------------------
The Plan shall terminate ten (10) years after the effective date of the
Plan, and no option shall be granted pursuant to the Plan after
termination of the Plan.
XVI. CONTINUANCE OF EMPLOYMENT
- - ------------------------------
Neither the Plan nor any Option Agreements shall impose any obligation on
the Company to continue to employ any employee.
XVII. EFFECTIVE DATE
- - --------------------
The Plan shall become effective as of September 1, 1992, subject to the
approval no later than September 1, 1993, by the holders of a majority of the
outstanding shares of Common Stock represented at a duly held meeting of
stockholders.
PAGE
XVIII. AMENDMENTS
- - -----------------
This Plan may be amended by recommendation of the Committee and approval of
the Board of Directors to the extent permitted by law. In no event shall the
Committee amend the Plan to: (a) change the purchase price of the stock, (b)
extend any option date, or (c) extend the termination date of the Plan.
