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 Section 240.14a-11(c)
or Section 240.14a-12
The Hartford Steam Boiler Inspection and Insurance Company
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $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 14A.
[] $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:
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2) Form, Schedule or Registration Statement No.
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3) Filing Party:
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4) Date Filed:
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</page>
<PAGE>
NOTICE OF ANNUAL MEETING
February 28, 1995
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of
Stockholders of The Hartford Steam Boiler Inspection and
Insurance Company will be held on Tuesday, April 18, 1995,
at 2:00 o'clock P.M., at the office of the Company, One
State Street, Hartford, Connecticut, for the following
purposes:
1. To elect three directors for three-year terms;
2. To consider and act upon a proposal to adopt the
1995 Stock Option Plan;
3. To consider and act upon a proposal to amend and
restate the Long-Term Incentive Plan;
4. To appoint independent public accountants for the
ensuing year;
5. To consider and act upon, if properly presented,
a stockholder proposal; and
6. To transact any other business proper to come
before the meeting.
A proxy statement to assist you in the consideration of
the foregoing matters is attached.
The Board of Directors has fixed February 7, 1995, at
4:00 o'clock P.M., as the record date and time for the
determination of the stockholders entitled to notice of and
to vote at said Annual Meeting and any adjournment thereof.
It is hoped that you will be able to attend this
meeting. If you cannot, you are urgently requested to sign
and return the enclosed proxy card in the envelope provided.
By order of the
Board of Directors.
R. K. PRICE
Corporate Secretary
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
</page>
<PAGE>
PROXY STATEMENT
GENERAL
The enclosed proxy is solicited by the Board of
Directors of The Hartford Steam Boiler Inspection and
Insurance Company for use at the Annual Meeting of
Stockholders to be held April 18, 1995, and at any and all
adjournments thereof. The Company is a Connecticut
corporation and its principal office is located at One State
Street, P.O. Box 5024, Hartford, Connecticut 06102-5024,
(203) 722-1866.
You are urged to read this proxy statement and to fill
in, date, sign and return the enclosed form of proxy. The
giving of a proxy does not affect your right to vote should
you attend the meeting, and the proxy may be revoked at any
time before it is voted. Properly executed proxies not
revoked will be voted as specified.
Arrangements will be made with brokers, nominees and
fiduciaries to distribute proxy material to their
principals, and their postage and clerical expenses in so
doing will be paid by the Company. The entire cost of
soliciting proxies on behalf of management will be borne by
the Company. Directors, officers and regular employees of
the Company may solicit proxies personally if proxies are
not received promptly. The Company has retained Corporate
Investor Communications, Inc. ("CIC") to aid in the
solicitation of proxies. CIC's fee is not expected to
exceed $3,500 in addition to out-of-pocket expenditures.
Only holders of common stock of record at the close of
business on February 7, 1995 are entitled to notice of, and
to vote at, the meeting. Each stockholder of record on said
date is first being mailed the Annual Report of the Company
for the fiscal year ended December 31, 1994 with the Notice,
Proxy Statement and Proxy card on or about February 28,
1995. On February 7, 1995, there were 20,416,532
outstanding shares of common stock, each entitled to one
vote. Abstentions and broker non-votes are included in the
total number of shares represented for matters to be voted
upon at the meeting, but are not counted as either
affirmative or negative votes.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Charter provides for a Board of not less
than nine nor more than fourteen directors, the exact number
of directorships to be determined from time to time by
resolution adopted by the affirmative vote of a majority of
the Board. The directors are divided into three classes
consisting, as nearly as possible, of one third of the total
number of directors constituting the entire Board. Each
class is elected for a three-year term at successive annual
meetings. The Board of Directors has fixed the number of
directorships at eleven.
Three directors are to be elected for terms of three
years and until their successors are elected and qualified.
Unless otherwise instructed, the shares represented by the
enclosed
</page>
<PAGE>
proxy will be voted for Colin G. Campbell, John A.
Powers and John M. Washburn, Jr. In the event any nominee
is unable to serve as a director on the date of the Annual
Meeting, the proxies may be voted for a substitute nominee
recommended by the Board of Directors. The affirmative vote
of a majority of the votes represented is required for
election of each director.
The nominees for election to the Board of Directors
were elected to their present term at the 1992 Annual
Meeting.
Stated below are the names and ages of the nominees and
directors continuing in office, the principal occupation of
each during at least the last five years, the date on which
each individual was first elected as a director of the
Company, and other directorships and business and civic
affiliations of such persons. The information set forth on
the following pages with respect to each nominee's and
director's principal occupation, other directorships and
affiliations and beneficial ownership of Company common
stock has been furnished by the nominee or director.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Term Expiring In 1998
Colin G. Campbell
- ---------- Mr. Campbell, 59, is President of Rockefeller
Brothers Fund. Prior to joining Rockefeller
Brothers Fund in 1988, Mr. Campbell served as
PHOTO President of Wesleyan University from 1970 to 1988.
Mr. Campbell is a director of Pitney Bowes, SYSCO
Corporation, Rockefeller Financial Services, the
- ---------- Charles E. Culpeper Foundation, and the University
of Cape Town Fund, and Chairman of the Board of
Winrock International Institute for Agricultural
Development. He is a trustee of the Colonial
Williamsburg Foundation and Pomona College, and
Chairman of the Board of Trustees of the Institute
for the Future.
Mr. Campbell has served as a director of the
Company since September 1983.
2
</page>
<PAGE>
John A. Powers
- -------- Mr. Powers, 68, is Chairman Emeritus of Heublein
Inc. (a subsidiary of Grand Metropolitan PLC), a
producer and marketer of alcoholic beverage
PHOTO products. He had served as Chairman of the Board
of Heublein from 1986 until his retirement in 1992.
Mr. Powers is a director of Connecticut Business
- -------- and Industry Association and The Advest Group, Inc.
He is a trustee of Hartford Hospital.
Mr. Powers has served as a director of the Company
since September 1986.
John M. Washburn, Jr.
- -------- Mr. Washburn, 67, is President and a director of
The Merrow Machine Company, a manufacturer of
industrial sewing machines. He joined Merrow in
PHOTO 1953 and became Secretary in 1960 and Treasurer in
1963. He has served in his present position since
1978. Mr. Washburn is a director of Walton Company
- -------- and a trustee of the YMCA of Greater Hartford.
Mr. Washburn has served as a director of the
Company since March 1973.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Term Expiring in 1996
Joel B. Alvord
- -------- Mr. Alvord, 56, is Chairman, Chief Executive
Officer and a director of Shawmut National
Corporation. He joined the Hartford National Bank
PHOTO and Trust Company in 1963 and served in a variety
of positions before being named to his present
position in 1988 following the merger of Hartford
- -------- National Corporation with Shawmut Corporation. Mr.
Alvord is a director of The Institute of Living and
Jobs for Massachusetts, a trustee of the Wadsworth
Atheneum and The Wang Center for the Performing
Arts, Boston, and a member of the Massachusetts
Business Roundtable, The Bankers Roundtable, the
Boston Symphony Orchestra and the Museum of Fine
Arts, Boston.
Mr. Alvord has served as a director of the Company
since December 1971.
3
</page>
<PAGE>
Richard G. Dooley
- -------- Mr. Dooley, 65, is a consultant to Massachusetts
Mutual Life Insurance Company. Mr. Dooley joined
Massachusetts Mutual in 1955 and served in a
PHOTO variety of positions before being named Executive
Vice President and Chief Investment Officer in
1978, a position he held until his retirement in
- -------- 1993. Mr. Dooley is a director of Advest Group,
Inc., Jefferies Group, Inc., Kimco Realty Corp.,
and certain Massachusetts Mutual-sponsored
investment companies. He is a trustee of Saint
Anselm College.
Mr. Dooley has served as a director of the Company
since May 1984.
Gordon W. Kreh
- -------- Mr. Kreh, 47, is President, Chief Executive Officer
and a director of the Company. He joined The
Boiler Inspection and Insurance Company of Canada,
PHOTO a subsidiary of the Company, in 1971, before moving
to the Company's home office in 1975. He became an
officer of the Company in 1980 and was elected Vice
- -------- President in 1984. In 1988, he was named Senior
Vice President of Engineering Insurance Group, a
subsidiary of the Company, and became its President
in 1989. Mr. Kreh was elected Senior Vice
President of the Company in 1992 and President in
September of 1993. He assumed his present position
in April of 1994. Mr. Kreh is a board member of
the American Insurance Association and a director
of Radian Corporation and The Boiler Inspection and
Insurance Company of Canada.
Mr. Kreh has served as a director of the Company
since September 1993.
Lois Dickson Rice
- -------- Mrs. Rice, 62, is a Guest Scholar, Program in
Economic Studies, at the Brookings Institution, a
position she has held since October 1991. From
PHOTO 1981 until 1991, she served as Senior Vice
President, Government Affairs and a director of
Control Data Corporation. Mrs. Rice is a director
- -------- of Bell Atlantic-Washington, D.C., Inc., McGraw-
Hill Inc., International Multifoods, Shawmut
National Corporation and UNUM Corp. She is a
trustee of The Urban Institute and the Center for
Naval Analysis. Mrs. Rice also serves as a member
of the President's Foreign Intelligence Advisory
Board.
Mrs. Rice has served as a director of the Company
since April 1990.
4
</PAGE>
<PAGE>
Term Expiring In 1997
Donald M. Carlton
- -------- Dr. Carlton, 57, is an Executive Vice President and
a director of the Company and President, Chairman
of the Board and a director of Radian Corporation,
PHOTO the Company's wholly-owned subsidiary specializing
in environmental, energy, mechanical and materials
technology services. He and several associates
- -------- founded Radian Corporation in 1969, and he has
served as its President since that time. Dr.
Carlton is a director of Medical Polymers
Technologies, Inc., American Capital Common Sense
Trust, National Instruments, American Capital Bond
Fund, Inc., Central and South West Corporation and
American Capital Convertible Securities, Inc. He
is a trustee of American Capital Income Trust.
Dr. Carlton has served as a director of the Company
since July 1975.
William B. Ellis
- -------- Mr. Ellis, 54, is Chairman of the Board of
Northeast Utilities, and Chairman and a director of
its principal subsidiaries and of Connecticut
PHOTO Yankee Atomic Power Company. He had also served as
Chief Executive Officer of these companies from
1983 to 1993. Mr. Ellis is Chairman and a director
- -------- of Connecticut Capitol Region Growth Council, Inc.
and a director of Nuclear Electric Insurance
Limited, Connecticut Mutual Life Insurance Company,
Radian Corporation and The Greater Hartford Chamber
of Commerce. He is also a member of the Board of
the Smithsonian Museum of Natural History and a
member of The Conservancy Science Advisory Board of
the Nature Conservancy.
Mr. Ellis has served as a director of the Company
since April 1991.
E. James Ferland
- -------- Mr. Ferland, 52, is Chairman, President and Chief
Executive Officer of Public Service Enterprise
Group Incorporated and Chairman and Chief Executive
PHOTO Officer of its principal subsidiary, Public Service
Electric and Gas Company, a position he has held
since 1986. Mr. Ferland is a director of First
- -------- Fidelity Bancorporation, First Fidelity Bank, N.A.,
N.J., Foster Wheeler Corporation, the Electric
Power Research Institute, the Edison Electric
Institute and Public Affairs Research Institute of
New Jersey. He is Chairman of the New Jersey State
Chamber of Commerce.
Mr. Ferland has served as a director of the Company
since November 1986.
5
</PAGE>
<PAGE>
Wilson Wilde
- -------- Mr. Wilde, 67, retired in April of 1994 from his
position as Chairman and Chief Executive Officer of
the Company, which he had held since September of
PHOTO 1993. He joined the Company in 1953 and was
elected President in 1971. He is a director of
Shawmut National Corporation, Phoenix Home Life
- -------- Mutual Insurance Company and PXRE Corporation. Mr.
Wilde is also a director of Radian Corporation and
The Boiler Inspection and Insurance Company of
Canada, subsidiaries of the Company. In addition,
he is Chairman of the Board of Trustees of The
Loomis Chaffee School.
Mr. Wilde has served as a director of the Company
since March 1967.
Meetings and Remuneration of the Directors
During 1994, the Board of Directors held ten meetings
and eighteen committee meetings. Each director attended at
least 75% of the meetings of the Board and committees on
which he or she served combined.
The annual retainer for each director who is neither a
present or retired employee of the Company nor of a
subsidiary is $20,000. Under the 1989 Restricted Stock Plan
for Non-Employee Directors, approved by stockholders at
their 1989 Annual Meeting, one-half of the annual retainer
is paid in restricted stock of the Company and one-half is
paid in cash. The restricted stock is forfeitable until
such time as the director retires, dies, becomes disabled,
resigns with the consent of a majority of the other
directors or upon a change in control of the Company,
whichever event occurs earliest. Each non-employee director
also is paid a fee of $1,200 for attendance at a Board or a
committee meeting and an additional $350 for each committee
meeting chaired. Directors who are present or retired
employees of the Company or a subsidiary do not receive such
compensation for service on the Board or committees thereof
and are not eligible for awards of restricted stock under
the 1989 Restricted Stock Plan for Non-Employee Directors.
Non-employee directors are not eligible to participate in
any of the plans discussed in the Human Resources Committee
Report on Executive Compensation. Directors may be
reimbursed for reasonable travel expenses incurred in
attending Board and committee meetings.
In addition, the Company has established a Retirement
Plan for non-employee directors. A director who retires
after ten years of service on the Board is entitled to
receive an annual retirement benefit equal to the annual
retainer paid to such director immediately prior to
retirement. (A director who has served on the Board for at
least one year but less than ten years receives a prorated
amount.) The retirement benefits may be adjusted
periodically and are payable for life. In the event of a
director's death while serving as a member of the Board, his
or her spouse is entitled to receive an annual death benefit
equal to 50% of the annual retainer in effect at the time of
such director's death. During 1994, a total of $100,000 was
paid to former directors under the plan. The Company has
estab-
6
</PAGE>
<PAGE>
lished a trust fund pursuant to which the retirement
benefits are to be paid for directors retiring after 1989.
In 1992, as part of the Company's policy of providing
support for charitable institutions and in order to retain
and attract qualified directors, the Board of Directors
established a Charitable Endowment Program for members of
the Board of Directors who have at least one year of service
as a director. The program is currently funded by life
insurance on the lives of eligible directors. The Company
intends to make charitable contributions of $1 million per
director, paid out over a period of ten years following the
death of the director. Each director is able to recommend
up to three charities to receive contributions from the
Company. Beneficiary organizations designated under this
program must be tax-exempt, and donations ultimately paid by
the Company will be deductible against federal and other
income taxes payable by the Company in accordance with the
tax laws applicable at the time. Directors derive no
financial benefit from the program since all insurance
proceeds and charitable deductions accrue solely to the
Company. Because of such deductions and use of insurance,
the long-term cost to the Company is expected to be low.
During 1994, Dr. Paul A. Vatter, who will retire from
the Board of Directors effective with the 1995 Annual
Meeting, was retained by the Company to perform consultation
services in the area of management development programs.
Dr. Vatter received $30,000 for these services.
The Company's Board of Directors annually appoints
certain directors to serve on standing committees of the
Board of Directors, which currently include the Audit, Human
Resources (formerly Compensation), Corporate Governance,
Finance and Executive Committees. The Board reviewed all
standing committees during 1994 and adjustments and
additions were made to the functions performed by the
various committees and Board members' committee assignments,
which are reflected below.
The Audit Committee's primary responsibility is to
review and report to the Board on the Company's accounting
policies, the adequacy of its financial and internal
auditing controls, and the reliability of financial
information reported to the public. The Committee has the
authority to approve the scope of the annual audit and to
authorize the release of annual financial statements. The
Audit Committee held four meetings during 1994. Dr. Vatter
(Chairman), Mr. Dooley, Mr. Ferland, Mr. Powers and Mr.
Washburn, none of whom is an employee of the Company or a
subsidiary, presently serve on the Audit Committee. Upon
Dr. Vatter's retirement, Mr. Ferland will serve as Chairman
of the Audit Committee.
The Human Resources Committee's primary function is to
recommend and approve remuneration for the Company's
officers and to recommend changes to the Company's benefit
plans, as described in the Human Resources Committee Report
on Executive Compensation located on page 10. The Committee
acts as Plan Administrator for the 1985 Stock Option Plan,
the proposed 1995 Stock Option Plan, the Directors'
Retirement Plan,
7
</PAGE>
<PAGE>
the 1989 Restricted Stock Plan for Non-Employee Directors,
and the Long-Term and Short-Term Incentive Plans. The
Committee also reviews the Company's policies and practices
with respect to employee relations. The Human Resources
Committee held four meetings during 1994. Mr. Ellis
(Chairman), Mr. Campbell, Mr. Powers and Mrs. Rice,
none of whom is an employee of the Company or a
subsidiary, presently serve on the Human Resources
Committee. (Mr. Alvord and Mr. Ferland served on the
Committee during 1994 until November 9, 1994 when Mr. Ellis
and Mrs. Rice became members of the Committee.)
The Corporate Governance Committee reviews the
organization and performance of the Board of Directors and
reviews and recommends Director compensation. The Committee
also reviews the Company's policies and practices with
respect to community relations and recruits and nominates
candidates for Board membership in conjunction with the
Chief Executive Officer. (Stockholder recommendations must
be in writing addressed to the Corporate Secretary of the
Company, and should include a statement setting forth the
qualifications and experience of the proposed candidate and
basis for nomination.) The Corporate Governance Committee
is a new standing committee of the Board which was formed
late in 1994 and did not meet during the year. Mr. Campbell
(Chairman), Mr. Alvord, Mr. Ellis, Mrs. Rice and Dr. Vatter
presently serve on the Corporate Governance Committee.
Other committees of the Board of Directors are the
Finance Committee and the Executive Committee. The Finance
Committee reviews the investment plan of the Company,
investor relation activities, and other matters involving
the Company's financial resources. Mr. Dooley (Chairman),
Mr. Alvord, Mr. Ferland and Mr. Washburn presently serve on
the Finance Committee, which held four meetings in 1994.
The Executive Committee acts on behalf of the Board of
Directors in the interim between meetings of the Board when
prompt, formal action is necessary. Mr. Wilde (Chairman),
Mr. Alvord, Mr. Campbell, Mr. Dooley, Mr. Ellis and Mr.
Ferland presently serve on the Executive Committee, which
did not meet in 1994.
8
</PAGE>
<PAGE>
<TABLE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is unaware of any stockholder who on
February 1, 1995 was the beneficial owner of 5 percent or
more of the Company's outstanding common stock, except as
noted in the following table.
<CAPTION>
Name of Beneficial Owner Amount of Shares Percent of Class
<S> <C> <C>
The Hartford Steam Boiler 1,049,306 (1) 5.14%
Inspection and Insurance Company
Leveraged Employee Stock Ownership
Trust
c/o Shawmut Bank Connecticut
777 Main Street
Hartford, Connecticut 06115
Cooke & Bieler, Inc. 1,215,219 (2) 5.95%
1700 Market Street
Philadelphia, Pennsylvania 19103
</TABLE>
(1) Shares held by the trust are voted in accordance with the
instructions of participants.
(2) Information provided as of 12/31/94 by Cooke & Bieler, Inc.
indicates that Cooke & Bieler, Inc. has sole voting power with
respect to 967,100 shares and sole dispositive power with respect to
1,127,719 shares.
<TABLE>
The number of shares of Company common stock beneficially owned
as of February 1, 1995 by each nominee and director, by each
executive officer named in the Summary Compensation Table, which in
each case represents less than 1% of the common stock outstanding as
of such date, and by all current directors and executive officers as
a group, is shown in the table below. Unless otherwise indicated,
each officer, nominee and director has sole voting and investment
power (or shares such powers with a family member) with respect to
common stock shown as held directly. All shares shown as held
indirectly reflect sole voting and investment power exercised by the
individual specified unless otherwise indicated.
<CAPTION>
Beneficial Owner Directly Held Indirectly Held Total
<S> <C> <C> <C>
Joel B. Alvord 1,181 1,181
Colin G. Campbell 1,834 2,400 (1) 4,234
Donald M. Carlton 94,022 (2) 94,022
Richard G. Dooley 7,346 7,346
Michael L. Downs 14,337 (3) 14,337
William B. Ellis 790 790
E. James Ferland 2,034 2,000 (4) 4,034
John J. Kelley 38,047 (5) 38,047
Gordon W. Kreh 80,391 (6) 700 (7) 81,091
T. Skipwith Lewis 69,393 (8) 69,393
John A. Powers 2,584 2,584
</TABLE>
9
</page>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Lois Dickson Rice 1,040 200 (9) 1,240
Robert W. Trainer 61,828 (10) 500 (11) 62,328
Paul A. Vatter 2,364 100 (11) 2,464
John M. Washburn, Jr. 11,234 2,000 (12) 13,234
Wilson Wilde 163,066 (13) 25,066 (14) 188,132
</TABLE>
All Current Directors and Executive Officers
as a Group (17 in number) 537,429 (15)
(1) 800 shares held in trusts for benefit of children and
1,600 shares held as trustee of trusts for benefit of
nieces and nephews, over which Mr. Campbell exercises
shared voting and investment power.
(2) Includes 63,400 shares subject to options to purchase
shares of Company common stock which are exercisable on
or before April 1, 1995.
(3) Includes 2,300 shares subject to options to purchase
shares of Company common stock which are exercisable on
or before April 1, 1995.
(4) Shares held by spouse.
(5) Includes 30,000 shares subject to options to purchase
shares of Company common stock which are exercisable on
or before April 1, 1995.
(6) Includes 70,000 shares subject to options to purchase
shares of Company common stock which are exercisable on
or before April 1, 1995.
(7) 300 shares held by spouse, 200 shares held by daughter
and 200 shares held by son.
(8) Includes 41,500 shares subject to options to purchase
shares of Company common stock which are exercisable on
or before April 1, 1995.
(9) Shares held as executrix of spouse's estate.
(10) Includes 47,600 shares subject to options to purchase
shares of Company common stock which are exercisable
on or before April 1, 1995.
(11) Shares held by daughter.
(12) Shares held by spouse.
(13) Includes 124,000 shares subject to options to
purchase shares of Company common stock which are
exercisable on or before April 1, 1995.
(14) 160 shares held by spouse. 24,906 shares held in a
charitable foundation, over which Mr. and Mrs. Wilde
exercise shared voting and investment power.
(15) Includes 341,500 shares subject to options to
purchase shares of Company common stock which are
exercisable on or before April 1, 1995. Assuming the
exercise of all such options, the percentage of common
stock owned by directors and executive officers as a
group would be 2.58% of the common stock outstanding.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive compensation programs for the senior officers
of the Company (the "executives") are administered by the
Human Resources Committee of the Board of Directors (the
"Committee"). A nationally recognized compensation
consultant also reviews and analyzes the Company's executive
compensation policies and practices in order to advise the
Committee as more fully described below. The Committee
believes that the structure of the Company's compensation
programs provides a direct link between Company performance
and executive compensation.
10
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<PAGE>
Under the direction of the Committee, executive
compensation programs are structured to provide performance-
based incentives to achieve the Company's short and long-
term goals, and to be competitive with peer companies in
order to attract and retain key individuals. The peer
companies used for this analysis are selected based on their
size and specific lines of business. For 1994, this
compensation assessment peer group was composed of seventeen
leading property/casualty insurance and engineering services
companies (including four of the six insurance companies in
the S&P 500 Property/Casualty Insurance Index used in the
Performance Graph located on page 23). Base salary and
variable compensation paid under the Company's incentive
plans (Short-Term and Long-Term Incentive Plans and the 1985
Stock Option Plan) in 1994 to executives as a group, and for
Mr. Wilde and Mr. Kreh individually, were below the median
range of that paid to executives by the companies in this
compensation assessment peer group according to information
compiled by the Company's compensation consultant.
Base salary adjustments are made for executives upon an
analysis of individual performance, changes in
responsibilities, and comparative data for base salaries
paid to executives with similar responsibilities in the
Company's compensation assessment peer group. Annual salary
adjustments for executives are recommended by the Chief
Executive Officer and approved by the Human Resources
Committee. The Committee determines adjustments for the
Chief Executive Officer. For 1994, executives' base salary
adjustments were made as a result of increases in
responsibilities and for competitive reasons based upon
comparisons with the compensation assessment peer group.
Mr. Kreh received a 28.6% base salary increase upon his
promotion to Chief Executive Officer of the Company in April
of 1994.
The Company's Short-Term Incentive Plan provides for
the annual award of bonuses to key employees (presently
limited to the officer group of the Company, including
executive officers other than Dr. Carlton) at the end of the
fiscal year provided certain performance measures are
achieved. Under a schedule defined by the plan, the
Committee establishes a pool of incentive award dollars
based on the actual percentage of Annual Budgeted Net Income
Per Share (cited in the Business Plan of the Company)
achieved for the year and the performance of the Company as
compared to the performance of the insurance industry and/or
other appropriate industries with reference to such
performance measures as the Committee deems appropriate. In
evaluating Company performance, the Committee considers such
factors as (listed in order of importance, from highest to
lowest): growth in operating income, combined ratio, return
on equity and engineering services' margin. For 1994, the
Committee evaluated Company results achieved for these
measures, as compared, where appropriate, to published
results achieved or anticipated for the property/casualty
insurance industry as a whole. In 1994, the Actual
Percentage of Budgeted Net Income Per Share achieved reached
the threshold level set under the plan for establishment of
the bonus pool; the Company outperformed the
property/casualty insurance industry for both return on
equity and combined ratio; and the Committee determined that
results achieved for growth in operating income and
engineering services' margin were superior.
11
</page>
<PAGE>
Once the pool is established, individual awards are
then determined by the President, based on the participant's
performance during the plan year. The awards can range from
0 to 60% of the participant's base salary. The Committee
determines the award for the Chief Executive Officer and has
final approval of all awards made under the plan. The total
award payable to the Chief Executive Officer under the
Short-Term and Long-Term Incentive Plans is limited to 100%
of his base salary. Mr. Kreh was awarded $157,500 based on
the Committee's evaluation of the Company's 1994 performance
as described above.
Long-term incentives are provided to executives through
awards made under the Company's Long-Term Incentive Plan.
(Executives other than Dr. Carlton are eligible for awards
under the plan.) An amendment and restatement of the Long-
Term Incentive Plan is being proposed for stockholder
approval at this year's Annual Meeting to denominate awards
in shares of Company common stock in order to further align
the interest of executives with stockholders, as described
starting on page 28.
The following description applies to payouts made for
the Performance Period that ended on December 31, 1994, and
to potential payouts to be made for the Performance Period
ending on December 31, 1995. Payouts for these periods will
be determined in accordance with the terms of the plan prior
to amendment. Payouts made are based upon the Company's
achievement of specified performance objectives
("Performance Measures") established by the Committee at the
beginning of the three-year Performance Period. For the
performance period that ended on December 31, 1994, these
measures were net income per share, expense ratio and return
on equity. The payout made is the sum of the percentages
payable for each Performance Measure multiplied by the
participant's base salary rate in effect at the end of the
Performance Period. There is a threshold amount payable for
a minimum level of achievement for the Performance Measures,
which is set along with the Performance Measures at the
beginning of the Performance Period. If the threshold
amount is not reached, the payout will be zero. If the
target for each of the Performance Measures is met for a
Performance Period, the payout percentage is 25%. If actual
performance exceeds the Performance Measures, the payout
percentage is increased, up to a maximum of 40%. Awards are
prorated for length of service during the Performance
Period, and for varying degrees of performance between the
threshold and maximum levels of performance. With the
approval of the non-employee members of the Board of
Directors, the Committee is permitted to modify the payout
schedule should unusual circumstances warrant a change. The
payout percentage for the Chief Executive Officer is one and
one-half times the payout percentage for all other
participants. For the Performance Period ending in 1994,
the targets set for the three Performance Measures were not
met, but threshold amounts were achieved for Performance
Measures set for expense ratio and return on equity. The
Committee awarded $94,380 to Mr. Kreh under the Long-Term
Incentive Plan for the Performance Period ending in 1994
based on these results.
If stockholders approve the proposed amendment and
restatement of the Long-Term Incentive Plan, payouts
beginning with the one for the 1994-1996 Performance Period
will
12
</page>
<PAGE>
be made under the terms of the plan as amended. Under
the amended plan, the Committee will establish specific
Performance Goals for each participant (or all participants
as a group) at the beginning of each Performance Period
based on one or more of the following Performance Measures:
combined ratio; expense ratio; net income per share; return
on equity; total stockholder return; return on assets;
revenues; operating margin; increase in book value; and
market share. For each Performance Goal, an award schedule
of Performance Contingent Units shall be established for
minimum, target and maximum attainment of such goal, based
on a percentage of a participant's base salary rate at the
beginning of the period (adjusted for any promotional
increases during the Performance Period) divided by the
average of the high and low trading prices of Company common
stock on the first trading date of the Performance Period.
If the minimum level of achievement is not reached for the
Performance Measures, the payout will be zero.
The actual Performance Contingent Award to be paid to a
participant at the conclusion of the Performance Period
shall be based on the level of attainment of the Performance
Goals established for such period. The maximum award of
Performance Contingent Units for any participant for a
Performance Period cannot exceed 60% of the participant's
base salary divided by the fair market value of Company
common stock on the first trading day of the Performance
Period. Awards are prorated for actual length of service
during the Performance Period. Any payments shall be made
in cash or in shares of Company common stock (which may be
restricted shares), as determined by the Committee. At the
discretion of the Committee, Dividend Equivalents may be
paid in conjunction with award payouts made under the plan,
equal to the amount of cash dividends that would have been
paid during the Performance Period with respect to an award
of Performance Contingent Units if the award had been made
in Company common stock. For the three-year Performance
Period which runs January 1, 1994 through December 31, 1996,
the Performance Measures are net income per share, expense
ratio and return on equity.
During 1994, executive officers were eligible for
awards under the Company's 1985 Stock Option Plan. (The
1985 plan expires in April 1995, and a successor plan, the
1995 Stock Option Plan, is being proposed for stockholder
approval at this year's Annual Meeting and is described
starting on page 23. The method for determining awards, as
described herein, is identical for both the 1985 plan and
the proposed 1995 plan.) Awards made under the plan provide
executives with long-term incentives and align executives'
long-term interests with those of stockholders. Stock
options are awarded based upon the market price of the
Company's common stock on the date of the grant and provide
a vehicle to reward executives only if the price of Company
common stock increases above the grant price.
Awards to be made to specific participants are
determined by the Committee. The Company's outside
compensation consultant reviews each executive's award in
comparison to awards made to individuals employed by
companies in the compensation assessment peer group
described above and makes recommendations as to whether the
awards made to Company executives should be adjusted.
Several factors were considered in determining
13
</page>
<PAGE>
the size of stock option grants to executive officers in 1994,
including competitive practices at companies in the compensation
assessment peer group, the Committee's perception of the
recipient's ability to affect the results of the Company
over time and individual levels of responsibility.
Executives were not awarded restricted stock in 1994 because
the Committee felt that stock options would provide a more
appropriate incentive and because they are more closely
linked to stockholders' long-term interests. Mr. Kreh was
awarded 50,000 stock options in 1994 based on his new
position as Chief Executive Officer.
Donald M. Carlton, Executive Vice President and a
director of the Company, is also President, Chairman of the
Board and a director of Radian Corporation, a subsidiary of
the Company. As a Radian Corporation executive, Dr.
Carlton's base salary, annual and long-term bonuses are
determined by the Compensation Committee of the Board of
Directors of Radian Corporation. The calculation of 1994
adjustments to Dr. Carlton's base salary, and annual and
long-term bonuses payable for 1994, was made in the same
manner as described above for other executives of the
Company but using performance measures established for
Radian Corporation by the Compensation Committee of the
Board of Directors of Radian Corporation rather than the
Human Resources Committee of the Board of Directors of the
Company. Any such adjustments or awards were then subject
to final approval of the Human Resources Committee of the
Company's Board of Directors.
The Company's outside compensation consultant also
conducts an annual review of each executive's compensation
package in its entirety in comparison with the total
compensation package for executives in the Company's
compensation assessment peer group and makes recommendations
to the Committee as to any appropriate adjustments that
should be made.
Wilson Wilde was Chairman and Chief Executive Officer
of the Company in 1994 until Mr. Kreh was elected Chief
Executive Officer in April of 1994. Mr. Wilde retired from
the Company on May 1, 1994. Mr. Wilde received one-fourth
of his annual salary (which had not been increased since
1992) for this time period. He also received $88,978 for
the Performance Period ending in 1994 under the Company's
Long-Term Incentive Plan based on results achieved as
described above for other executives. His award was
prorated based on his actual service during the Performance
Period. As a result of his retirement, Mr. Wilde did not
receive awards under the 1985 Stock Option Plan or the
Short-Term Incentive Plan for 1994.
Effective for fiscal years beginning on or after
January 1, 1994, publicly held corporations may not deduct
certain types of compensation paid to the Chief Executive
Officer and the next four most highly compensated
individuals to the extent such compensation exceeds $1
million. Certain types of compensation are excluded from
this limitation, including performance-based compensation
paid under plans that are approved by stockholders and
administered by outside directors.
Based on the current provisions of this law, any
compensation derived from the exercise of stock options or
stock appreciation rights previously granted under the 1985
14
</page>
<PAGE>
Stock Option Plan will be exempt from the limit on the
corporate tax deduction. The proposed 1995 Stock Option
Plan and the proposed amendment to the Long-Term Incentive
Plan, both being presented for stockholder approval at the
1995 Annual Meeting, have been designed to meet the current
provisions of the new law so that stock options and stock
appreciation rights awarded under the 1995 Stock Option Plan
and payouts made under the amended Long-Term Incentive Plan
will also be excluded from the deduction limit. Under the
current provisions of the law, compensation paid to
executives during 1994 was fully deductible and the Company
believes that all compensation paid to executives during
1995 will also be fully deductible.
Respectfully submitted by the Human Resources Committee of
the Board of Directors of the Company
William B. Ellis (Chairman)
Colin G. Campbell
John A. Powers
Lois Dickson Rice
Joel B. Alvord (Committee member and Chairman during 1994
until November 9, 1994)
E. James Ferland (Committee member during 1994 until
November 9, 1994)
15
</page>
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth cash compensation for
the five most highly compensated executive officers who are
current executive officers, and two former executive
officers of the Company for services rendered in all
capacities to the Company and its subsidiaries during the
last three fiscal years.
<CAPTION>
Annual Compensation Long-Term Compensation
- ----------------------------------------------------------------------------------------------------------------
Awards Payouts
--------------------------
Securities
Other Restricted Underlying All Other
Annual Stock Options LTIP Compen-
Name and Principal Position Year Salary(1) Bonus Compensation(2) Award(s)(3) (Number Payouts(4) sation(5)
of shares)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gordon W. Kreh, President 1994 $419,231 $157,500 0 0 50,000 $ 94,380 $ 7,210
and Chief Executive Officer 1993 $246,731 0 0 $ 45,800 59,000 $ 15,069 $ 6,416
1992 $196,475 $ 28,000 0 $ 63,816 11,000 $ 7,933 $ 3,027
Donald M. Carlton, 1994 $386,511 $160,000 0 0 0 0 $26,717
Executive Vice President 1993 $384,384 0 $29,369 $ 45,800 23,700 $ 56,135 $28,115
1992 $384,123 0 0 $102,500 17,700 $100,068 $29,019
T. Skipwith Lewis 1994 $252,923 $ 40,000 $17,355 0 25,000 $ 39,040 $ 7,782
Senior Vice President 1993 $242,923 0 0 $ 45,800 12,000 $ 19,065 $ 9,978
1992 $241,616 $ 24,000 0 $ 76,875 13,200 $ 42,126 $ 9,852
John J. Kelley 1994 $229,077 $ 75,000 0 0 25,000 $ 38,125 $ 6,737
Senior Vice President 1993 $173,308 0 0 $ 34,350 9,000 $ 14,105 $ 8,555
1992 $173,077 $ 28,000 0 $ 58,938 10,200 $ 30,345 $ 8,434
Michael L. Downs(6) 1994 $180,442 $ 60,000 0 0 25,000 $ 9,319 $ 7,160
Senior Vice President
Wilson Wilde, former 1994 $173,077 0 $26,522 0 0 $ 88,978 $28,798
Chairman and Chief 1993 $500,000 0 0 $143,125 43,000 $ 58,125 $36,180
Executive Officer 1992 $510,577 $100,000 0 $256,250 38,000 $133,900 $36,016
Robert W. Trainer 1994 $243,846 $ 40,000 $13,642 0 25,000 $ 38,125 $ 7,160
former Senior Vice 1993 $225,385 0 0 $ 45,800 11,000 $ 17,825 $ 8,555
President, Treasurer 1992 $218,077 $ 32,000 $49,517 $ 74,313 12,700 $ 38,378 $ 8,434
and Chief Financial
Officer
</TABLE>
(1) All employees of the Company (other than Dr. Carlton)
received one additional paycheck in 1992 of their regularly
scheduled bi-weekly salary amount due to the fact that there
were twenty-seven pay periods in 1992 rather than the usual
twenty-six. These amounts are reflected in the 1992
figures.
(2) The amounts shown in this column represent related tax
benefits received upon exercise of stock options.
(3) The value of restricted stock shown in this column is
calculated by multiplying the closing price of Company
common stock on the date the restricted shares were granted
by the number of shares awarded. Recipients are entitled to
receive dividends on restricted stock to the extent paid on
the Company's common stock generally. The total number of
restricted shares held on 12/30/94 by each
16
</page>
<PAGE>
of the named
executive officers, and the aggregate value of such shares,
calculated by multiplying them by the closing price of
Company common stock on such date, is as follows: Mr. Kreh:
2,000 shares, $79,750 aggregate value; Dr. Carlton: 2,800
shares, $111,650 aggregate value; Mr. Lewis: 2,300 shares,
$91,713 aggregate value; Mr. Kelley: 1,750 shares, $69,781
aggregate value; Mr. Downs: 0 shares; Mr. Wilde: 0 shares;
and Mr. Trainer: 2,250 shares, $89,719 aggregate value.
(4) The LTIP payouts column shows payouts made under the
Company's Long-Term Incentive Plan for all executives other
than Dr. Carlton. (Dr. Carlton's award is payable under
Radian Corporation's Long-Term Incentive Plan.) More
detailed information on the calculation of such awards is
located in the Human Resources Committee Report on Executive
Compensation located on page 10.
(5) The values listed in this column include the following
amounts for 1994: a) Company contributions of $2,660 under
the Company's Employee Stock Ownership Plan; b) Company
contributions under the Company's Thrift Incentive Plan and
interest accumulated on accounts in the Supplemental Thrift
Plan as follows (Dr. Carlton does not participate in these
plans): Mr. Kreh, $4,550; Mr. Lewis, $5,122; Mr. Kelley,
$4,077; Mr. Downs, $4,500; Mr. Wilde, $4,500; and Mr.
Trainer, $4,500; c) Company contributions of $6,750 for Dr.
Carlton under the Radian Corporation 401(k) Thrift Plan; d)
$21,638 and $14,652 in life insurance premiums paid in 1994
on behalf of Mr. Wilde and Dr. Carlton, respectively, in
order to fund the Company's prospective charitable
contribution under the Company's Charitable Endowment
Program, described on page 7. Mr. Wilde and Dr. Carlton
derive no financial benefit from the program since all
insurance proceeds and charitable deductions accrue solely
to the Company.
(6) Compensation for Mr. Downs is reported beginning in
1994, when he became an executive officer of the Company.
17
</page>
<PAGE>
STOCK OPTION AND LONG-TERM INCENTIVE PLAN TABLES
The following tables show information with respect to stock
options and potential awards under the Company's Long-Term
Incentive Plan for the individuals named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year (ended 12/31/94)
Potential Realizable
Individual Grants Value at Assumed Annual
Rates of Stock Price
Percent of Appreciation for
Number of Total Option Term(2)
Securities Options
Underlying Granted to Exercise
Options Employees or Base Expira-
Name Granted in Fiscal Price tion
(1) Year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gordon W. Kreh 50,000 16.4% $46.31 4/18/2001 $942,500 $2,197,000
Donald M. Carlton 0
T. Skipwith Lewis 25,000 8.2% $46.31 4/18/2001 $471,250 $1,098,500
John J. Kelley 25,000 8.2% $46.31 4/18/2001 $471,250 $1,098,500
Michael L. Downs 25,000 8.2% $46.31 4/18/2001 $471,250 $1,098,500
Wilson Wilde 0
Robert W. Trainer 25,000 8.2% $46.31 (3) (3) (3)
</TABLE>
(1) Options granted are nonstatutory stock options. The
exercise price of the option is equal to the fair market
value of the stock on the date of the grant. Payment for
the shares as to which an option is exercised may be made in
cash or in shares of Company common stock or a combination
of cash and stock. These options may not be exercised any
earlier than one year or any later than seven years from the
date of the grant. Participants will be permitted to
satisfy any federal, state or local tax requirements due
upon exercise of a stock option by delivering to the Company
already-owned Company common stock or by directing the
Company to retain stock otherwise issuable upon such
exercise to the participant, having a fair market value
equal to the amount of the tax.
(2) These figures are calculated pursuant to SEC rules by
multiplying the number of options granted by the difference
between the option exercise price and a future hypothetical
stock price, assuming the value of Company common stock
appreciates 5% or 10% each year, compounded annually, for a
period of seven years (the life of the options). These
figures are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
(3) These options expired upon Mr. Trainer's termination of
employment with the Company.
18
</page>
<PAGE>
<TABLE>
Aggregated Option Exercises in Last Fiscal Year (ended 12/31/94)
and FY-End Option Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-money
Shares Options at Options at
Acquired on Value Fiscal Year-end Fiscal Year-end
Name Exercise Realized (#) ($)
(#) ($) Exercisable/ Exercisable/
Unexercisable unexercisable
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gordon W. Kreh 0 $0 70,000/50,000 $0/$0
Donald M. Carlton 0 $0 63,400/0 $0/$0
T. Skipwith Lewis 3,900 $44,626 41,500/25,000 $0/$0
John J. Kelley 0 $0 30,000/25,000 $0/$0
Michael L. Downs 0 $0 2,300/25,000 $0/$0
Wilson Wilde 9,400 $68,197 124,000/0 $0/$0
Robert W. Trainer 3,000 $35,077 47,600/0 $0/$0
</TABLE>
<TABLE>
Long-Term Incentive Plan -- Awards in Last Fiscal Year (ended 12/31/94)
<CAPTION>
Estimated Future Payouts under Non-stock
Number of Performance Price-based Plans(2)
Shares, or Other
Units or Period Until
Other Maturation or
Name Rights (1) Payout Threshold(#) Target(#) Maximum(#)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gordon W. Kreh * 1994-1996 2,823 3,714 5,943
Donald M. Carlton n/a 1994-1996 $70,338 $92,550 $148,080
T. Skipwith Lewis * 1994-1996 1,055 1,388 2,221
John J. Kelley * 1994-1996 1,040 1,368 2,188
Michael L. Downs * 1994-1996 848 1,116 1,785
Wilson Wilde * 1994-1996 357 470 752
Robert W. Trainer * 1994-1996 329 433 692
</TABLE>
(1) The actual number of performance units awarded at the
end of each period, if any, is not yet determinable because
the number of units earned will be based on Company
performance during the Performance Period as described
below.
(2) For all individuals other than Dr. Carlton (whose award
would be payable in cash under Radian Corporation's Long-
Term Incentive Plan), represents the potential number of
Performance Contingent Units that may be awarded to
participants for the 1994-1996 Performance Period for the
indicated levels of performance under the terms of the Long-
Term Incentive Plan, as amended subject to stockholder
approval, a detailed description of which is contained in
the Human Resources Committee Report on Executive
Compensation on page 10. If the threshold, target or
maximum goals are reached, payouts under the plan will be
made in shares of Company common stock (which may be
restricted shares) at the end of the Performance Period, or
its corresponding cash value at that time. Awards are
prorated for length of service during the Performance
Period, and for varying degrees of performance between the
threshold and maximum levels of performance. (For the
Performance
19
</page>
<PAGE>
Period that ended on December 31, 1994, payouts
were made as indicated in the Summary Compensation Table
located on page 16).
Retirement Plans
The following table shows the estimated annual amounts
payable on a life annuity basis to a participant retiring on
12/31/94 at age 65 under the Company's qualified defined
benefit pension plan, as well as nonqualified supplemental
pension plans that provide benefits that would otherwise be
denied participants by reason of certain Internal Revenue
Code limitations on qualified plan benefits, based on
compensation that is covered under the plans and years of
service with the Company. All executives, other than Dr.
Carlton, participate in these plans. Dr. Carlton is a
participant in the Radian Corporation plans described below.
(A small portion of Mr. Kreh's annual retirement benefit as
calculated pursuant to the table shown below will be paid
from The Boiler Inspection and Insurance Company of Canada's
retirement plan due to Mr. Kreh's initial service and
earnings with that affiliate.)
<TABLE>
<CAPTION>
Final Years of Service
Average ----------------
Earnings 15 20 25 30 35 40
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
100,000 22,176 29,569 36,961 39,961 42,961 45,961
200,000 46,176 61,569 76,961 82,961 88,961 94,961
300,000 70,176 93,569 116,961 125,961 134,961 143,961
400,000 94,176 125,569 156,961 168,961 180,961 192,961
500,000 118,176 157,569 196,961 211,961 226,961 241,961
600,000 142,176 189,569 236,961 254,961 272,961 290,961
700,000 166,176 221,569 276,961 297,961 318,961 339,961
800,000 190,176 253,569 316,961 340,961 364,961 388,961
900,000 214,176 285,569 356,961 383,961 410,961 437,961
1,000,000 238,176 317,569 396,961 426,961 456,961 486,961
1,100,000 262,176 349,569 436,961 469,961 502,961 535,961
1,200,000 286,176 381,569 476,961 512,961 548,961 584,961
1,300,000 310,176 413,569 516,961 555,961 594,961 633,961
1,400,000 334,176 445,569 556,961 598,961 640,961 682,961
1,500,000 358,176 477,569 596,961 641,961 686,961 731,961
1,600,000 382,176 509,569 636,961 684,961 732,961 780,961
1,700,000 406,176 541,569 676,961 727,961 778,961 829,961
1,800,000 430,176 573,569 716,961 770,961 824,961 878,961
1,900,000 454,176 605,569 756,961 813,961 870,961 927,961
</TABLE>
Benefits payable under the Company's Retirement Plan are
based on the average of the participant's highest three
consecutive years of earnings in the 5-year period before
retirement, and on years of service. Earnings covered under
the plan include compensation
20
</page>
<PAGE>
listed in the Summary
Compensation Table under the "Salary", "Bonus", "Restricted
Stock Awards" and "LTIP Payouts" columns. (Restricted stock
awards are included in the year the shares vest due to the
expiration of the restricted period of time, based on the
fair market value of the shares on the vesting date, as
opposed to the grant date values listed in the Summary
Compensation Table. Restricted stock awarded after January
1, 1994 is not included in the definition of earnings under
the plan.) Covered compensation and credited years of
service as of December 31, 1994 for the individuals named in
the Summary Compensation Table (other than Dr. Carlton, who
does not participate in these plans) are as follows: Mr.
Kreh: $324,480, 24 years; Mr. Lewis: $472,033, 14 years; Mr.
Kelley: $332,989, 23 years; Mr. Downs: $191,665, 22 years;
Mr. Wilde: $1,565,416, 40 years; and Mr. Trainer: $415,084,
24 years.
In addition, executive officers (other than Dr.
Carlton) are covered under a supplemental retirement/death
benefit program. The program is currently funded, in part,
by insurance contracts on each covered officer's life. The
Company owns the cash values and is a beneficiary under the
policies. Under the terms of the program, if an executive
officer should die prior to his retirement, his beneficiary
will be entitled to one of the following two options that
has been selected by the officer: 1) an annual death
benefit equal to 50% of the officer's base salary for
fifteen years; or 2) three times the officer's base salary
at the time of his death. At retirement the officer is
entitled to an annual retirement supplement equal to 35% of
the officer's base salary for fifteen years. Participants
who entered the program prior to January 1, 1994 are
entitled to choose one of the following benefits in lieu of
the 35% annual retirement supplement: 1) a paid-up insurance
policy equal to three times the officer's base salary; or 2)
the cash value of the insurance contract used to fund the
benefit. Premiums paid for 1994 on behalf of the
individuals named in the Summary Compensation Table (other
than Dr. Carlton, who does not participate in this program)
were as follows: Mr. Kreh, $10,301; Mr. Wilde, $102,946;
Mr. Lewis, $32,021; Mr. Kelley, $13,000; and Mr. Trainer,
$20,000.
Dr. Carlton is covered under two supplemental executive
retirement programs with Radian Corporation. Under the
first program, he will receive, if he remains employed by
Radian Corporation until his retirement at age 65, the total
sum of $400,000 paid out over a period of ten years.
Premiums paid in 1994 on Dr. Carlton's behalf for life
insurance to fund this benefit were $9,087. Under the
second program, Dr. Carlton will receive a target annual
benefit of $159,569 if he retires on or after age 65. The
benefit will be reduced if he retires prior to age 65.
Employment Arrangements
The members of the Board of Directors believe that it
is in the best interests of the stockholders for the Company
to have employment agreements with each of the executive
officers (and certain other key employees) to encourage them
to remain in the Company's employ during the uncertain times
which attend a change in control of the Company. Each of
the executive officers of the Company has entered into such
an agreement. The
21
</page>
<PAGE>
agreements obligate the officer to remain
in the employment of the Company for six months following a
change in control of the Company. Under the agreements, a
change in control shall be deemed to have occurred if (i)
any "person" is or becomes the "beneficial owner" (as such
terms are defined in the Securities Exchange Act of 1934)
directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors
of the Company cease for any reason to constitute at least a
majority thereof unless the nomination for election or
election of each director, who was not a director at the
beginning of the period, was approved by a vote of at least
two-thirds of the directors then still in office who were
directors at the beginning of the period. If an officer is
dismissed from the Company for any reason other than
retirement, disability or defalcation within the six-month
period, or if an officer leaves voluntarily or is dismissed
from the Company for any reason other than retirement, dis-
ability or defalcation after the six-month period, he is
entitled to receive 299% of his average annualized base
salary and bonuses for the five years preceding the change
in control. The Company has established a trust (presently
unfunded) pursuant to which payments under these agreements
and certain other benefit plans will be paid in the event of
a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Alvord, Mr. Campbell, Mr. Ellis, Mr. Powers, Dr.
Vatter, Mrs. Rice and Mr. Ferland, none of whom is an
employee of the Company or a subsidiary, served on the Human
Resources (formerly Compensation) Committee of the Board of
Directors of the Company in 1994. Mr. Alvord, Chairman,
Chief Executive Officer and a director of Shawmut National
Corporation, was Chairman of the Committee until November
1994 when he was replaced by Mr. Ellis. Mr. Wilde, Chairman
and Chief Executive Officer of the Company until April 1994,
serves on the Board of Shawmut National Corporation.
Shawmut Bank, a subsidiary of Shawmut National Corporation,
performed various services for the Company in 1994, among
which were acting as the trustee for the Company's Thrift
Incentive Plan, the Retirement Plan and the Employee Stock
Ownership Plan. The Company and certain of its subsidiaries
also maintained various accounts with Shawmut Bank during
1994. In the opinion of the Company, the fees for these
services were comparable to those charged by other financial
institutions. The Company and its subsidiaries maintain
banking relationships with various other financial
institutions.
In 1985 the trustee for the Employee Stock Ownership
Plan (ESOP) borrowed $5,000,000 from Shawmut Bank to
purchase stock from the Company to fund the trust
established under the plan. The ESOP trustee also borrowed
$10,000,000 from Massachusetts Mutual Life Insurance Company
for this purpose. Mr. Dooley is a consultant to
Massachusetts Mutual Life Insurance Company and was, until
his retirement in 1993, Executive Vice President and Chief
Investment Officer of that company. Both loans were for
ten-year terms and were guaranteed by the Company. The
Company believes that such
22
</page>
<PAGE>
loans were made on substantially
the same terms and interest rates as those prevailing at
other lending institutions for comparable transactions.
PERFORMANCE GRAPH
The following line-graph compares cumulative, five-year
shareholder returns on Company common stock on an indexed
basis with the S&P 500 Stock Index and the S&P 500
Property/Casualty Insurance Index, based on an initial
investment on December 31, 1989 of $100.
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hartford Steam Boiler 100 94.24 115 121.3 96.28 90.33
S&P 500 100 96.89 126.42 136.05 149.76 151.74
S&P Property/Casualty 100 97.71 122.33 143.26 140.73 147.62
</TABLE>
PROPOSAL 2
PROPOSAL TO ADOPT THE 1995 STOCK OPTION PLAN
On January 23, 1995 the Board of Directors voted in
favor of the 1995 Stock Option Plan subject to the approval
of stockholders at their 1995 Annual Meeting.
The Company's 1985 Stock Option Plan will expire on
April 15, 1995. The Board of Directors approved the new
1995 Stock Option Plan because it believes that the 1985
Stock Option Plan has been of substantial value in
facilitating the efforts of the Company to attract and
retain key employees of outstanding ability by providing
them an opportunity
23
</page>
<PAGE>
to acquire a proprietary interest in the
Company and by giving them an additional incentive to remain
with the Company and to use their best efforts on its
behalf. The structure of the proposed 1995 Stock Option
Plan is similar to that of the 1985 Stock Option Plan, with
modifications made primarily to incorporate changes in tax
and accounting laws enacted since stockholders approved the
most recent amendment to the 1985 Stock Option Plan in April
of 1992.
The following is a summary of the material features of
the 1995 Stock Option Plan (the "plan"). This summary is
qualified in its entirety by reference to the complete text
of the plan which is attached hereto as Exhibit A. If
approved by stockholders at the 1995 Annual Meeting, the
1995 Stock Option Plan will become effective immediately and
will expire on April 17, 2005.
The closing price of Company common stock on the New
York Stock Exchange on February 1, 1995 was $42.125.
General
Executive and middle management employees of the
Company or its subsidiaries will be eligible to participate
in the plan. The Board estimates that approximately two
hundred persons will participate in the plan. Participants
will be recommended by their management. Under the proposed
plan, the Human Resources Committee of the Board of
Directors, as Plan Administrator (the "Committee"), will be
authorized to grant incentive and nonstatutory stock
options, stock appreciation rights in tandem with such
options and restricted stock awards to eligible employees.
A maximum of 850,000 shares of common stock of the
Company have been reserved for issuance under the plan. No
single participant may be granted awards pursuant to the
plan covering in excess of 100,000 shares of the Company's
common stock in any calendar year. The plan will permit
adjustments, in the Board of Directors' discretion, in the
number of shares of common stock authorized to be issued in
the event of stock splits, stock dividends and other changes
in the capitalization of the Company. The plan provides
that preferred stock may be issued in lieu of common stock.
The Company has no present intention to issue preferred
stock pursuant to the plan. Shares of common stock issued
under the plan may be authorized but unissued shares,
treasury shares or shares previously purchased on behalf of
the Company.
The Committee will be responsible for determining the
type and particular provisions of awards for eligible
employees and will be responsible for interpreting the plan
and for issuing such rules as are necessary for its
administration. The Committee is composed of directors who
are ineligible to participate in the plan.
Under the terms of the plan, the Board of Directors
will be permitted to amend, suspend or discontinue the plan
except that no amendment may be made without the approval of
stockholders which will increase the number of shares
reserved for options and restricted stock awards under the
plan, change the class of persons eligible to
24
</page>
<PAGE>
participate, permit an option grant at a price less than fair market
value or extend the term of the plan or the term during
which an option may be granted or exercised.
Option Grants
The plan provides that the option price of both
incentive and nonstatutory stock option grants will not be
less than the fair market value of the Company's common
stock on the date an option is granted. The fair market
value is defined as the average of the high and low prices
per share of the Company's common stock as quoted by the New
York Stock Exchange Composite Transaction Reporting System.
The specific terms of an option grant to a plan
participant will be determined by the Committee. However,
in no event may an option be exercised within one year of,
or beyond ten years from, the date of the grant. In
addition, no option or associated stock appreciation right
may be exercised more than two years after termination of
the participant's employment, if such termination occurred
by reason of the death, disability or retirement of the
participant. If termination of employment occurs for any
other reason (other than termination for cause) no option or
associated stock appreciation right may be exercised more
than three months following the date of termination.
However, if the participant dies within this three-month
period, the participant's beneficiary will be permitted to
exercise the option or stock appreciation right within one
year of the date of termination of employment. No option
may be exercised by a participant or a beneficiary beyond
the term specified in the option grant. Options and stock
appreciation rights will generally be nontransferable during
the lifetime of the participant, except that the Committee
may, in its discretion, grant nonqualified stock options
that may be transferred pursuant to a qualified domestic
relations order, or to an immediate family member or a trust
for the benefit of an immediate family member. Payment for
the shares as to which an option is exercised will be made
in cash, or if permitted by the Committee, in shares of
Company common stock that have been held by the participant
for at least six months, or a combination of cash and stock.
The Committee may permit participants to satisfy, in whole
or in part, any federal, state, or local tax requirements
due upon exercise of a stock option by delivering to the
Company already-owned Company common stock or by directing
the Company to retain stock otherwise issuable upon such
exercise to the participant, having a fair market value
equal to the amount of the tax.
Under the terms of the plan, an option grant may, in
the discretion of the Committee, also include a stock
appreciation right which will entitle a participant to
surrender the option, in whole or in part, and receive in
exchange an amount equal to the excess of the fair market
value, on the date of surrender, of the shares covered by
the option over the option price of such shares. This
excess may be paid in shares of Company common stock, cash
or a combination of both, in the discretion of the
Committee.
25
</page>
<PAGE>
Restricted Stock Awards
A restricted stock award is an award of common shares
that may not be sold, assigned, transferred, or otherwise
encumbered, except by will or the laws of descent and
distribution, for a period (the "restricted period") of five
years, or such shorter period as the Committee shall
determine, from the date on which the award is granted. The
Committee may provide that the foregoing restrictions shall
lapse with respect to specified percentages of the awarded
shares on successive anniversaries of the date of the award.
In addition, the Committee has the authority to cancel all
or any portion of any outstanding restrictions prior to the
expiration of the restricted period.
During the restricted period, the participant is the
registered owner of the shares and is entitled to receive
dividends with respect to such stock and to vote such
shares, but participants do not receive stock certificates.
If during the restricted period the participant's continuous
employment terminates for any reason (other than by reason
of death, disability or retirement), any shares remaining
subject to restrictions are forfeited by the participant and
transferred at no cost to the Company, provided however,
that as noted above, the Committee has the authority to
cancel any or all outstanding restrictions prior to the end
of the restricted period, including cancellation of
restrictions in connection with certain types of termination
of employment. When the restricted period ends, the
restrictions on the shares lapse and the stock certificates
are delivered to the participant. The Committee may permit
participants to satisfy, in whole or in part, any federal,
state, or local tax requirements due upon the lapse of such
restrictions by delivering already-owned Company common
stock or by directing the Company to retain common stock
otherwise issuable to the participant upon the lapse of such
restrictions, having a fair market value equal to the amount
of the tax.
Federal Income Tax Consequences
A participant is not taxed upon the grant of a
Nonstatutory Stock Option (NSO). Upon the exercise of an
NSO, the participant is taxed at ordinary income rates on
the difference between the fair market value of the shares
on the date of exercise and the option price. The Company
is entitled to a tax deduction equal in amount to the
ordinary income recognized by the participant. The
participant's basis in the common stock acquired upon
exercise of an NSO is equal to the option price plus the
amount of ordinary income recognized.
A participant does not recognize any income for Federal
income tax purposes upon either the grant or timely exercise
of an Incentive Stock Option (ISO). However, the spread at
exercise will constitute an item includible in alternative
minimum taxable income, and thereby may subject the optionee
to the alternative minimum tax.
If the participant holds the shares purchased through
the exercise of the ISO for two years from the date of the
grant of the option and one year from the exercise date, the
participant will be eligible for long-term capital gains
treatment on the sale of the shares
26
</page>
<PAGE>
equal to the difference
between the amount realized on the sale and the option
price. The Company is not entitled to a tax deduction in
this event. If the participant disposes of the shares
within two years from the date of grant or within one year
from the exercise date (a "disqualifying disposition"), the
participant will be subject to ordinary income tax treatment
on the difference between the option price and the lesser of
the fair market value of the shares on the date of exercise
or the amount realized on disposition. The Company will be
entitled to a tax deduction in the same amount as the
ordinary income recognized by the participant.
The Committee may, in its discretion permit a
participant to deliver previously acquired shares in payment
for the option price of an NSO or ISO. If the participant
uses shares of common stock to pay the option price of an
NSO, gain or loss is not recognized on the exchange to the
extent that the number of shares received does not exceed
the number turned in as payment. The shares received in the
exchange have the same basis and holding periods as the
shares used for payment. Any additional shares received
upon the exercise of an NSO have a tax basis equal to the
amount of ordinary income realized by the participant and
holding period beginning on the date of exercise.
If the participant uses shares of common stock to pay
the option price of an ISO, gain or loss is not generally
recognized on the exchange. The equivalent number of shares
received in exchange for the shares turned in have the basis
and holding period of the shares turned in for capital gain
or loss purposes. Any additional shares received have a
zero basis with a holding period beginning on the exercise
date. However, if common stock acquired upon a prior
exercise of an ISO is transferred in payment for the
subsequent exercise of an ISO or NSO, before the requisite
holding periods for the surrendered shares have been met,
the optionee will recognize ordinary income on the gain
resulting from the disposition of such shares. "Gain" for
this purpose is defined as the lesser of 1) the difference
between the fair market value of the stock on the date of
exercise of the first option and the option price of the
first option, or 2) the fair market value of the stock on
the date of exercise of the second option and the option
price of the first option.
Upon the exercise of a Stock Appreciation Right (SAR) a
participant will be subject to ordinary income tax treatment
on the cash plus the fair market value of shares of Company
common stock received. The Company will be entitled to a
tax deduction in the same amount as the ordinary income
realized by the participant. A participant's basis in any
stock acquired upon the exercise of an SAR is equal to the
amount of ordinary income recognized excluding any cash
received.
In the case of a restricted stock award, a participant
is not taxed upon the grant of any such award, but rather,
the participant realizes ordinary income in an amount equal
to the fair market value of the Company's common stock at
the time the shares are no longer subject to a substantial
risk of forfeiture (as defined in the Internal Revenue
Code). The Company is entitled to a deduction at the time
and in the amount that the participant realizes ordinary
income, unless such amount exceeds the limit on compensation
payable to executives pursuant to Section 162(m) of the
Code. A participant may elect under
27
</page>
<PAGE>
Section 83(b) of the
Internal Revenue Code (not later than 30 days after
acquiring such restricted shares) to realize ordinary income
at the time the restricted shares are awarded in an amount
equal to their fair market value at that time,
notwithstanding the fact that such shares are subject to
restrictions and a substantial risk of forfeiture. If such
an election is made, no additional taxable income will be
recognized by such participant at the time the restrictions
lapse. However, if shares in respect of which such election
was made are later forfeited, no tax deduction is allowable
to the participant for the forfeited shares, and the Company
will be deemed to realize ordinary income equal to the
amount of the deduction allowed to the Company at the time
of the election in respect of such forfeited shares.
New Plan Benefits
It cannot be determined at this time what benefits or
amounts, if any will be received by or allocated to any
person or group of persons under the plan if the plan is
adopted or what benefits or amounts would have been received
by or allocated to any person or group of persons for the
last fiscal year if the plan had been in effect.
Stockholder Vote Required for Approval
Approval of Proposal 2 requires the affirmative vote of
the majority of the votes represented at the meeting.
The Board of Directors unanimously recommends a vote
FOR Proposal 2.
PROPOSAL 3
PROPOSAL TO AMEND AND RESTATE THE LONG-TERM INCENTIVE PLAN
On January 23, 1995, the Board of Directors of the
Company adopted, subject to stockholder approval, amendments
to the Long-Term Incentive Plan (the "plan") effective for
the plan year beginning January 1, 1994. The Board adopted
the amended and restated plan in an effort to further link
Company performance, including stockholder return, with
compensation paid to executives, by making payouts partially
based on the performance of Company common stock over the
measurement period. In addition, the plan has been designed
to comply with recent tax law changes which impose limits on
the ability of a public company to claim tax deductions paid
to the chief executive officer and the next four most highly
compensated individuals to the extent such compensation
exceeds $1 million. By approving the amended and restated
Long-Term Incentive Plan, stockholders will be approving,
among other things, the performance measures, eligibility
requirements and limits on various stock awards contained
therein. If the proposed amendment is approved, a maximum
of 150,000 shares of common stock of the Company will be
reserved for issuance under the plan. The affirmative vote
of a majority of the votes represented at the meeting is
required to approve the amended Long-Term Incentive Plan.
28
</page>
<PAGE>
The following is a summary of the material features of
the Long-Term Incentive Plan, as amended and restated. This
summary is qualified in its entirety by reference to the
complete text of the plan which is attached hereto as
Exhibit B. If approved by stockholders at the 1995 Annual
Meeting, the amended and restated Long-Term Incentive Plan
will become effective as of January 1, 1994 and will expire
on December 31, 1998.
Administration
The Plan will be administered by the Human Resources
Committee of the Board. Under the proposed plan as amended,
the Committee shall have the authority to designate officers
and employees to whom awards may be granted, and to
determine the terms and conditions of any such awards. The
Committee shall also have the authority to adopt guidelines
for carrying out the plan as it may deem appropriate, and is
authorized to interpret the terms of the plan.
Eligibility
All Senior Officers of the Company (presently defined
as Chief Executive Officer, President, Executive Vice
President, Senior Vice President, Corporate Secretary and
Treasurer) other than any individual expressly excluded by
the Committee, will be eligible under the plan. (Dr.
Carlton, an Executive Vice President of the Company, has
been expressly excluded from eligibility by the Committee
due to the fact that he is eligible for long term
compensation under Radian Corporation's Long-Term Incentive
Plan.) The Committee also has the authority to designate
certain other officers or key employees of the Company as
participants in the plan. The number of individuals
currently eligible to participate in the plan is ten.
Plan Features
Prior to or within ninety days (or such shorter period
as is required under Section 162(m) of the Internal Revenue
Code) following the commencement of each three-year
Performance Period, the Committee shall establish in
writing, for each participant (or for all participants as a
group), specific Performance Goals based on one or more of
the following Performance Measures: combined ratio; expense
ratio; net income per share; return on equity; total
stockholder return; return on assets; revenues; operating
margin; increase in book value; and market share. For each
Performance Goal, an award schedule of Performance
Contingent Units shall be established for minimum, target
and maximum attainment of such goal, based on a percentage
of a participant's base salary rate (adjusted for any
promotional increases during the Performance Period) divided
by the average of the high and low trading prices of Company
common stock on the first trading date of the Performance
Period. Performance Contingent Units are defined as the
right to receive up to 100% of the value of shares of common
stock of the Company, which value may be paid in cash or
shares (including restricted shares) of common stock of the
Company as determined by the Committee.
29
</page>
<PAGE>
The actual Performance Contingent Award to be paid to a
participant at the conclusion of the Performance Period
shall be based on the level of attainment of the Performance
Goals established for such period. The maximum award of
Performance Contingent Units for any participant for a
Performance Period cannot exceed 60% of the participant's
base salary divided by the fair market value of Company
common stock on the first trading day of the Performance
Period. Awards are prorated for actual length of service
during the Performance Period. Payments made under the plan
relating to any Performance Period for a participant shall
not exceed $1 million. Following the end of a Performance
Period, the Committee shall ascertain and certify in writing
whether and the degree to which the Performance Goals for
such period have been met. Any payments shall be made in
cash, in shares of Company common stock (which may either be
restricted or not), as determined by the Committee. At the
discretion of the Committee, Dividend Equivalents may be
paid in conjunction with payouts made under the plan, equal
to the amount of cash dividends that would have been paid
during the Performance Period with respect to an award of
Performance Contingent Units if the award had been made in
Company common stock. The Committee shall have the
authority to reduce awards otherwise payable to participants
but shall not have the authority to increase any award
calculated under the terms of the plan.
Amendment of Plan
Under the terms of the plan, the Committee will be
permitted to amend, suspend or discontinue the plan except
that no amendment may be made without the approval of
stockholders to the extent such approval is required under
Rule 16b-3 of the Securities Exchange Act or Section 162(m)
of the Internal Revenue Code in order for the plan to
continue to meet the requirements of such provisions.
New Plan Benefits
The actual Performance Contingent Award to be paid to a
participant at the conclusion of the Performance Period will
be based on the level of attainment of the Performance Goals
established for such period. No awards have yet been earned
by any participant since the requisite Performance Period
has not yet passed. The table below represents the
Performance Contingent Award that would have been earned by
the individuals and groups indicated by using the
performance criteria established for the plan and based upon
the performance of the Company for the Performance Period
ending in 1994. Thus the "awards" shown below were not
actually made to, or earned by any participant, but are
based partially on results achieved in 1994 and on the
Performance Contingent Award that may be earned for the
1994-1996 Performance Period as shown in the Long-Term
Incentive Plan table on page 19.
30
</page>
<PAGE>
<TABLE>
<CAPTION>
Name and Position Number of Units
- ----------------------------------------------------
<S> <C>
Gordon W. Kreh, President and 2,266
Chief Executive Officer
Donald M. Carlton, Executive 0
Vice President
T. Skipwith Lewis, Senior Vice 847
President
John J. Kelley, Senior Vice 834
President
Michael L. Downs, Senior Vice 681
President
Wilson Wilde, former Chairman and 287
Chief Executive Officer
Robert W. Trainer, former Senior 264
Vice President, Treasurer and
Chief Financial Officer
All Current Executive Officers
as a Group 6,104
Non-Executive Director Group 0
Non-Executive Officer Employee Group 0
</TABLE>
Stockholder Vote Required for Approval
Approval of Proposal 3 requires the affirmative vote of
the majority of the votes represented at the meeting.
The Board of Directors unanimously recommends a vote
FOR Proposal 3.
PROPOSAL 4
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors recommends that the firm of
Coopers & Lybrand be appointed as independent public
accountants for the Company for the year ending December 31,
1995. Coopers & Lybrand has served as the Company's
independent public accountants since 1965.
Representatives of Coopers & Lybrand will be present at
the meeting to make a statement if they wish to do so, and
will be available to respond to appropriate questions raised
by stockholders.
Unless otherwise directed, the shares represented by
the enclosed proxy card will be voted for the appointment of
Coopers & Lybrand as independent public accountants for
1995. The affirmative vote of a majority of the votes
represented at the meeting is required for approval of their
appointment.
The Board of Directors unanimously recommends a vote
FOR Proposal 4.
31
</page>
<PAGE>
PROPOSAL 5
STOCKHOLDER PROPOSAL
Ms. Linda Koza, holder of 14,180 shares of Company
common stock, advises that she intends to present for
consideration and action at the 1995 Annual Meeting the
following resolution:
RESOLVED: That the shareholders of Hartford Steam
Boiler Inspection and Insurance Co. recommend that the Board
of Directors take the steps necessary to provide the
election of directors ANNUALLY instead of the stagger system
which exists.
Proponent's Supporting Statement
Reasons: A great majority of New York Stock Exchange
listed corporations elect all their directors each year.
This insures greater accountability by ALL Directors to
ALL shareholders each year. This insures that the Board
serves shareholder interests and does not seek to preserve
the status quo and its self perpetuation.
If you AGREE, please mark FOR on your proxy for
Proposal 5.
Statement in Opposition to Proposal
The current classified structure of the Board has been
in existence since the Company was incorporated in 1866.
The Board believes that the classified structure is in the
best interests of the Company and its stockholders because
of the important benefits it provides to both the Company
and its stockholders. Continuity and stability in the
management of Company affairs is enhanced by having
directors who serve three-year rather than one-year terms.
In addition, as a classified board, the Board can represent
more effectively the interests of the Company's stockholders
in a variety of circumstances, including responding to
situations created by demands or actions by a minority
stockholder or group, proponents of a takeover or
restructuring or other extraordinary corporate actions.
It should be noted that adoption of this proposal would
not in itself eliminate Board classification, which would
require that an amendment to the Charter of the Company be
presented to stockholders for action at a future
stockholders' meeting. Approval of that amendment by not
less than 80% of the outstanding shares entitled to vote
would be required for the current system to be eliminated,
unless the Board of Directors were to recommend such an
amendment, in which case approval of not less than 50% of
the outstanding shares entitled to vote would be required in
order for the change to be made.
The affirmative vote of a majority of the votes
represented at the meeting is required for approval of this
proposal.
The Board of Directors unanimously recommends a vote
AGAINST Proposal 5.
32
</page>
<PAGE>
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholders who wish to submit written proposals for
possible inclusion in next year's proxy statement must make
certain that they are received no later than October 31,
1995. Proposals should be sent to the Corporate Secretary,
The Hartford Steam Boiler Inspection and Insurance Company,
One State Street, P.O. Box 5024, Hartford, Connecticut
06102-5024.
OTHER BUSINESS TO COME BEFORE THE MEETING
The management does not know of any matters to be
presented for consideration at the meeting other than the
matters described in the Notice of Annual Meeting; but if
other matters are presented, it is the intention of the
persons named in the accompanying proxy to vote on such
matters in accordance with their judgment.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10-K WITH
THE SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS MAY
RECEIVE A COPY OF THE 10-K BY SENDING A WRITTEN REQUEST TO
THE OFFICE OF THE TREASURER, THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY, ONE STATE STREET, P.O. BOX
5024, HARTFORD, CONNECTICUT 06102-5024.
By Order of the Board of Directors,
R. K. PRICE
Corporate Secretary
33
</page>
<PAGE>
Exhibit A
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
1995 STOCK OPTION PLAN
ARTICLE I - PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose of Plan
The purpose of the 1995 Stock Option Plan is to attract
and retain persons of ability as employees of the
Company and its Subsidiaries and to motivate such
employees to exert their best efforts to contribute to
the long-term growth of the Company by encouraging
ownership in the Company. The Plan is further designed
to promote a closer identity of interest between key
employees and the Company's shareholders.
1.2 Definitions
a. "Appreciation" shall mean the excess of the Fair
Market Value of a share over the specified option
price per share multiplied by the number of shares
subject to the option or portion thereof which is
surrendered.
b. "Beneficiary" shall mean the legal representative
of the estate of a deceased Optionee or the person
or persons who shall acquire the right to exercise
an option or Stock Appreciation Right by bequest or
inheritance or by reason of the death of the
Optionee. In the case where a Participant's right
to shares of Restricted Stock vest as provided in
Section 2.5(d) on or prior to the Participant's
date of death, the term "Beneficiary" shall also
mean the legal representative of the estate of the
Participant or the person or persons who shall
acquire the right to such vested shares of Stock by
bequest or inheritance or by reason of the death of
such Participant.
c. "Board" shall mean the Board of Directors of the
Company.
d. "Code" shall mean the Internal Revenue Code of
1986, as amended.
e. "Committee" shall mean the Human Resources
Committee of the Board or any future committee of
the Board performing similar functions.
f. "Company" shall mean The Hartford Steam Boiler
Inspection and Insurance Company.
g. "Disability" shall mean any condition which would
entitle an employee of the Company or a Subsidiary
to receive benefits under the Company's Long-Term
Disability Plan or any long-term disability plan
maintained by the Subsidiary.
h. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
34
</page>
<PAGE>
i. "Fair Market Value" shall mean the average of the
high and low prices per share of the Company's
Stock as reported by the New York Stock Exchange
Composite Transaction Reporting System (NYSE) on
the date for which the Fair Market Value is being
determined, or if no quotations are available for
the Company's Stock, for the next preceding date
for which such a quotation is available. If shares
of Company Stock are not then listed on the NYSE,
Fair Market Value shall be reasonably determined by
the Committee, in its sole discretion.
j. "Incentive Stock Option" shall mean an option
described in Section 422 of the Code.
k. "Nonstatutory Stock Option" shall mean an option
which does not qualify as an Incentive Stock Option
under Section 422 of the Code.
l. "Optionee" shall mean an employee of the Company or
a Subsidiary to whom an option is granted.
m. "Participant" shall mean an employee of the Company
or a Subsidiary to whom an option is granted or to
whom Restricted Stock is awarded.
n. "Plan" shall mean The Hartford Steam Boiler
Inspection and Insurance Company 1995 Stock Option
Plan, as amended.
o. "Restricted Stock" shall mean one or more shares of
Stock awarded to an eligible employee under Section
2.5 of the Plan and subject to the terms and
conditions set forth in Section 2.5.
p. "Retirement" shall mean the termination of
employment under circumstances which entitle an
employee to receive retirement benefits under the
Company's Employees' Retirement Plan or any
Subsidiary's retirement plan.
q. "Stock" shall mean the Common Stock of the Company.
r. "Stock Appreciation Right" shall mean a right to
surrender to the Company all or any portion of an
option and, as determined by the Committee, to
receive in exchange therefor cash or whole shares
of Stock (valued at current Fair Market Value) or a
combination thereof having an aggregate value equal
to the excess of the current Fair Market Value of
one (1) share over the option price of one (1)
share specified in such option grant multiplied by
the number of shares subject to such option or the
portion thereof which is surrendered.
s. "Subsidiary" shall mean any corporation of which at
least 50% of the voting stock is owned by the
Company and/or one or more of the Company's other
Subsidiaries.
1.3 Administration
The Plan shall be administered by the Committee as
defined herein. No member of the Committee shall be
eligible to be granted an option under the Plan. Each
member of the Committee shall be a "disinterested
director" within the meaning of Rule 16b-3 of the
General Rules and Regulations promulgated under the
Exchange Act and an "outside
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<PAGE>
director" within the
meaning of Section 162(m) of the Code. The Committee
shall have the responsibility of interpreting the Plan
and establishing and amending such rules and
regulations necessary or appropriate for the
administration of the Plan or for the continued
qualification of any Incentive Stock Options granted
hereunder. In addition, the Committee shall have the
authority to designate the employees who shall be
granted options and awarded Restricted Stock under the
Plan and the amount and nature of the options, related
rights and awards to be granted to each such employee.
All interpretations of the Plan or of any options,
related rights or awards issued under it made by the
Committee shall be final and binding upon all persons
having an interest in the Plan. No member of the
Committee shall be liable for any action or
determination taken or made in good faith with respect
to this Plan or any option granted hereunder.
1.4 Eligibility
Executive and middle management employees of the
Company or its Subsidiaries shall be eligible to
receive grants of stock options and awards of
Restricted Stock under the Plan.
1.5 Stock Subject to the Plan
a. The maximum number of shares which may be optioned
or awarded under the Plan shall be 850,000 shares
of Stock. Preferred Stock may be used in lieu of
grants of Stock under the Plan subject to further
authorization of the Board of the Company.
Notwithstanding the foregoing, in no event shall
the Committee grant any Participant Incentive Stock
Options, Nonstatutory Stock Options, Stock
Appreciation Rights or Restricted Stock in any
single calendar year for more than 100,000 shares
of Stock. The limitation on the number of shares
which may be optioned or awarded under the Plan or
to an individual Participant shall be subject to
adjustment under Section 3.2 of this Plan.
b. If any outstanding option under the Plan for any
reason expires, lapses or is terminated, the shares
of the Stock which were subject to such option
shall be restored to the total number of shares
available for grant pursuant to the Plan. Shares
as to which there is a surrender in whole or in
part of an option upon the exercise of a Stock
Appreciation Right shall not again be available for
grant pursuant to the Plan. Stock delivered upon
the exercise of a Stock Appreciation Right shall
not be charged against the number of shares of
Stock available for the grant of options.
c. Upon the exercise of an option or a Stock
Appreciation Right, or payment of a Restricted
Stock award, the Company may distribute authorized
but unissued shares, treasury shares or shares
previously repurchased on behalf of the Company
through a broker or other independent agent
designated by the Committee. Such repurchases
shall be subject to such rules and procedures as
the Committee may establish hereunder and shall be
consistent with such conditions as may be
prescribed from time to time by law or by the
Securities and Exchange Commission
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<PAGE>
("SEC") in any
rule or regulation or in any exemptive order or
no-action letter issued by the SEC to the Company
or the broker with respect to the making of such
purchase or otherwise.
ARTICLE II - OPTIONS, STOCK APPRECIATION RIGHTS AND
RESTRICTED STOCK
2.1 Granting of Options
The Committee may grant Incentive Stock Options (ISOs),
Nonstatutory Stock Options or any combination thereof,
provided that the aggregate Fair Market Value
(determined at the time the option is granted) of the
shares of Stock with respect to which ISOs are
exercisable for the first time by an employee during
any calendar year (under this Plan and any other option
plan of the Company or its Subsidiaries) shall not
exceed $100,000. No such maximum limitation shall
apply to Nonstatutory Stock Options.
2.2 Terms and Conditions of Options
Each option granted under the Plan shall be authorized
by the Committee and shall be evidenced by an
instrument delivered to the participant, in a form
approved by the Committee, containing the following
terms and conditions and such other terms and
conditions as the Committee may deem appropriate.
a. Option Term - Each option shall specify the term
for which the option thereunder is granted and
shall provide that the option shall expire at the
end of such term. In no event shall any option be
exercisable any earlier than one year after the
date of such grant. The Committee shall have
authority to grant options exercisable in
cumulative or non-cumulative installments. No
option shall be exercisable after the expiration of
ten years from the date upon which such option is
granted.
b. Option Price - The option price per share shall be
determined by the Committee at the time an option
is granted, and shall not be less than the Fair
Market Value of one share of Stock on the date the
option is granted.
c. Exercise of Option -
1) Options may be exercised only by written notice
to the Company accompanied by the proper amount
of payment for the shares.
2) The Committee may postpone any exercise of an
option or a Stock Appreciation Right or the
delivery of Stock following the lapse of
certain restrictions with respect to awards of
Restricted Stock for such time as the Committee
in its discretion may deem necessary, in order
to permit the Company with reasonable diligence
(i) to effect or maintain registration of the
Plan or the shares issuable upon the exercise
of the option or the Stock Appreciation Right
or the
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<PAGE>
lapse of certain restrictions respecting
awards of Restricted Stock under the Securities
Act of 1933, as amended, or the securities laws
of any applicable jurisdiction, or (ii) to
determine that such shares and Plan are exempt
from such registration; the Company shall not
be obligated by virtue of any option or any
provision of the Plan to recognize the exercise
of an option or the exercise of a Stock
Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted
Stock to sell or issue shares in violation of
said Act or of the law of the government having
jurisdiction thereof. Any such postponement
shall not extend the term of an option; neither
the Company nor its directors or officers shall
have any obligation or liability to the
Optionee of an option or Stock Appreciation
Right, or to the Optionee's Beneficiary with
respect to any shares as to which the option or
Stock Appreciation Right shall lapse because of
such postponement.
3) To the extent an option is not exercised for
the total number of shares with respect to
which such options become exercisable, the
number of unexercised shares shall accumulate
and the option shall be exercisable, to such
extent, at any time thereafter, but in no event
later than ten years from the date the option
was granted or after the expiration of such
shorter period (if any) which the Committee may
have established with respect to such option
pursuant to Subsection (a) of this Section 2.2.
d. Payment of Purchase Upon Exercise - Payment for the
shares as to which an option is exercised shall be
made in one of the following ways:
1) payment in cash of the full option price of the
shares purchased;
2) if permitted by the Committee, the delivery of
Stock of the Company held by the purchaser for
at least six months accompanied by the
certificates therefor registered in the name of
such purchaser and properly endorsed for
transfer, having a Fair Market Value (as of the
date of exercise) equal to the full option
price; or
3) if permitted by the Committee, a combination of
cash and Stock (as described in (2) above) such
that the sum of the amount of cash and the Fair
Market Value of the Stock (as of the date of
exercise) is equal to the full option price.
e. Nontransferability - No option granted under the
Plan shall be transferable other than by will or by
the laws of descent and distribution subject to
Section 2.4 hereunder, unless the Committee shall
permit (on such terms and conditions as it shall
establish) such option to be transferred to a
member of the Participant's immediate family or to
a trust or similar vehicle for the benefit of such
immediate family members, or to an "alternate
participant" pursuant to a Qualified Domestic
Relations Order as defined in the Code. During the
lifetime of an Optionee, an option shall be
exercisable only by such Optionee, or if
applicable, a transferee. For purposes of Section
2.4 hereunder, a transferred option may be
exercised by the
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<PAGE>
transferee to the extent that the
Participant would have been entitled had the option
not been transferred.
f. Laws and Regulations - The Committee shall have the
right to condition any issuance of shares to any
Optionee or Participant hereunder upon such
Optionee's or Participant's undertaking in writing
to comply with such restrictions on the subsequent
disposition of such shares as the Committee shall
deem necessary or advisable as a result of any
applicable law or regulation. In the case of Stock
issued or cash paid upon exercise of options or
associated Stock Appreciation Rights, or the lapse
of restrictions with respect to Restricted Stock
awarded to a Participant under the Plan, the
Optionee, Participant or other person receiving
such Stock or cash shall be required to pay to the
Company or a Subsidiary the amount of any taxes
which the Company or Subsidiary is required to
withhold with respect to such Stock or cash. The
Company or a Subsidiary may, in its sole
discretion, permit an Optionee or Participant or
other person receiving such Stock or cash to
satisfy any Federal, state or local (if any) tax
withholding requirements, in whole or in part by
(i) delivering to the Company or subsidiary shares
of Stock held by such Optionee, Participant or
other person having a Fair Market Value equal to
the amount of the tax or (ii) directing the Company
or Subsidiary to retain Stock otherwise issuable to
the Optionee, Participant or other person under the
Plan having a Fair Market Value equal to the amount
of the tax. If Stock is used to satisfy tax
withholding, such Stock shall be valued based on
the Fair Market Value when the tax withholding is
required to be made.
g. Modification - The Committee shall have authority
to modify an option without the consent of the
Optionee, provided that such modification does not
affect the exercise price or otherwise materially
diminish the value of such option to the Optionee,
and provided further, that except in connection
with an amendment to the Plan, the Committee shall
not have authority to make any modification to any
particular option that materially increases the
value of the option to the Optionee.
2.3 Stock Appreciation Rights
a. The Committee may, but shall not be required to,
grant a Stock Appreciation Right to the Optionee
either at the time an option is granted or by
amending the option at any time during the term of
such option. A Stock Appreciation Right shall be
exercisable only during the term of the option with
which it is associated. The Stock Appreciation
Right shall be an integral part of the option with
which it is associated and shall have no existence
apart therefrom. The conditions and limitations of
the Stock Appreciation Right shall be determined by
the Committee and shall be set forth in the option
or amendment thereto. An amendment granting a
Stock Appreciation Right shall not be deemed to be
a grant of a new option for purposes of the Plan.
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<PAGE>
b. A Stock Appreciation Right may be exercised by:
1) filing with the Secretary of the Company a
written election, which election shall be
delivered by the Secretary to the Committee
specifying:
i) the option or portion thereof to be
surrendered; and
ii) the percentage of the Appreciation
which the Optionee desires to receive
in cash, if any; and
2) surrendering such option for cancellation or
partial cancellation, as the case may be,
provided, however, that any election to receive
any portion of the Appreciation in cash shall
be of no force or effect unless and until the
Committee shall have consented to such
election.
c. No election to receive any portion of the
Appreciation in cash shall be filed with the
Secretary and no Stock Appreciation Right shall be
exercised to receive any cash unless such election
and exercise shall occur during the period
(hereinafter referred to as the "Cash Window
Period") beginning on the third business day
following the date of release for publication by
the Company of a regular quarterly or annual
statement of sales and earnings and ending on the
twelfth business day following such date. The
Committee may consent to the election of a holder
to receive any portion of the Appreciation in cash
at any time after such election has been made. If
such election is consented to, the Stock
Appreciation Right shall be deemed to have been
exercised during the Cash Window Period in which,
or next occurring after which, the Optionee
completed all acts required of such Optionee under
the preceding paragraphs to exercise the Stock
Appreciation Right. Any Stock Appreciation Right
exercised during said Cash Window Period shall be
valued and deemed exercised as of the date during
such Cash Window Period when the average of the
high and low prices for the shares of Stock as
reported by the NYSE is the highest.
2.4 Exercise of Option or Stock Appreciation Right in
the Event of Termination of Employment or Death
a. Options and associated Stock Appreciation Rights
shall terminate immediately upon the termination of
the Optionee's employment with the Company or a
Subsidiary unless the written option instrument of
such Optionee provides otherwise. The conditions
established by the Committee in the instrument for
exercising options and Stock Appreciation Rights
following termination of employment are limited by
the following restrictions.
1) If termination of employment is by reason of
the death of the Optionee, no exercise by the
Optionee's Beneficiary may occur more than two
years after the Optionee's death.
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<PAGE>
2) If termination of employment is the result of
Disability or Retirement, no exercise by the
Optionee or his Beneficiary may occur more than
two years following such termination of
employment.
3) If termination of employment is for a reason
other than death, Disability, Retirement or
"involuntary termination for cause", no
exercise by the Optionee may occur more than
three months following such termination of
employment. As used herein "involuntary
termination for cause" shall mean termination
of employment by reason of the Optionee's
commission of a felony, fraud or willful
misconduct which has resulted, or is likely to
result, in substantial and material damage to
the Company or its Subsidiaries. Whether an
involuntary termination is for "cause" will be
determined in the sole discretion of the
Committee.
b. If the Optionee should die after termination of
employment, such termination being for a reason
other than Disability, Retirement or involuntary
termination for cause, but while the option is
still exercisable, the option or associated Stock
Appreciation Right, if any, may be exercised by the
Beneficiary of the Optionee no later than one year
from the date of termination of employment of the
Optionee.
c. Under no circumstances may an option or Stock
Appreciation Right be exercised by an Optionee or
Beneficiary after the expiration of the term
specified for the option.
2.5 Awarding of Restricted Stock
a. The Committee shall from time to time in its
absolute discretion select from among the eligible
employees the Participants to whom awards of
Restricted Stock shall be granted and the number of
shares subject to such awards. Each award of
Restricted Stock under the Plan shall be evidenced
by an instrument delivered to the Participant in
such form as the Committee shall prescribe from
time to time in accordance with the Plan. The
Restricted Stock subject to such award shall be
registered in the name of the Participant and held
in escrow by the Committee during the Restricted
Period (as defined herein).
b. Upon the award to a Participant of shares of
Restricted Stock pursuant to Section 2.5(a), the
Participant shall, subject to Subsection (c) of
this Section 2.5, possess all incidents of
ownership of such shares, including the right to
receive dividends with respect to such shares and
to vote such shares.
c. Shares of Restricted Stock awarded to a Participant
may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by
will or the laws of descent and distribution, for a
period of five years, or such shorter period as the
Committee shall determine, from the date on which
the award is granted (the "Restricted Period").
The Committee may also impose such other
restrictions and conditions on the shares as it
deems appropriate and any attempt to dispose of
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<PAGE>
any such shares of Restricted Stock in contravention of
such restrictions shall be null and void and
without effect. In determining the Restricted
Period of an award, the Committee may provide that
the foregoing restrictions shall lapse with respect
to specified percentages of the awarded shares on
successive anniversaries of the date of such award.
In no event shall the Restricted Period end with
respect to awarded shares prior to the satisfaction
by the Participant of any liability arising under
Section 2.2(f).
d. The restrictions described in Section 2.5(c) shall
lapse upon the completion of the Restricted Period
with respect to specific shares of Restricted Stock
and the Participant's right to such shares shall
vest on such date or, if earlier, on the date that
the Participant's employment terminates on account
of the death, Disability or Retirement of the
Participant. The Company shall deliver to the
Participant, or the Beneficiary of such
Participant, if applicable, within 30 days of the
termination of the Restricted Period, the number of
shares of Stock that were awarded to the
Participant as Restricted Stock and with respect to
which the restrictions imposed under Section 2.5(c)
have lapsed, less any stock returned to the Company
to satisfy tax withholding pursuant to Section
2.2(f), if applicable.
e. Except as provided in Sections 2.5(d) and (f), if
the Participant's continuous employment with the
Company or a Subsidiary shall terminate for any
reason prior to the expiration of the Restricted
Period of an award, any shares remaining subject to
restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by,
the Company or a Subsidiary at no cost to the
Company or Subsidiary.
f. The Committee shall have the authority (and the
instrument evidencing an award of Restricted Stock
may so provide) to cancel all or any portion of any
outstanding restrictions prior to the expiration of
the Restricted Period with respect to any or all of
the shares of Restricted Stock awarded to an
employee hereunder on such terms and conditions as
the Committee may deem appropriate.
ARTICLE III - GENERAL PROVISIONS
3.1 Authority
Appropriate officers of the Company designated by the
Committee are authorized to execute and deliver written
instruments evidencing awards hereunder, and amendments
thereto, in the name of the Company, as directed from
time to time by the Committee.
3.2 Adjustments in the Event of Change in Common Stock
of the Company
In the event of any change in the Stock of the Company
by reason of any stock dividend, stock split,
recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of
shares, or rights offering to purchase Stock at a price
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<PAGE>
substantially below Fair Market Value, or of any
similar change affecting the Stock, the number and kind
of shares which thereafter may be obtained and sold
under the Plan and the number and kind of shares
subject to options in outstanding option instruments
and the purchase price per share thereof and the number
of shares of Restricted Stock awarded pursuant to
Section 2.5(a) with respect to which all restrictions
have not lapsed, shall be appropriately adjusted
consistent with such change in such manner as the Board
in its discretion may deem equitable to prevent
substantial dilution or enlargement of the rights
granted to, or available for, Participants in the Plan.
Any fractional shares resulting from such adjustments
shall be eliminated. However, without the consent of
the Optionee, no adjustment shall be made in the terms
of an ISO which would disqualify it from treatment
under Section 421(a) of the Code or would be considered
a modification, extension or renewal of an option under
Section 425(h) of the Code.
3.3 Rights of Employees
The Plan and any option or award granted under the Plan
shall not confer upon any Optionee or Participant any
right with respect to continuance of employment by the
Company or any Subsidiary nor shall they interfere in
any way with the right of the Company or Subsidiary by
which an Optionee or Participant is employed to
terminate his employment at any time. The Company
shall not be obligated to issue Stock pursuant to an
option or an award of Restricted Stock for which the
restrictions hereunder have lapsed if such issuance
would constitute a violation of any applicable law. No
Optionee shall have any rights as a shareholder with
respect to any shares subject to option prior to the
date of issuance to such Optionee of a certificate or
certificates for such shares. Except as provided
herein, no Participant shall have any rights as a
shareholder with respect to any shares of Restricted
Stock awarded to such Participant.
3.4 Amendment, Suspension and Discontinuance of the Plan
The Board may from time to time amend, suspend or
discontinue the Plan, provided that the Board may not,
without shareholder approval, take any of the following
actions unless such actions fall within the provisions
of Section 3.2 herein:
a. increase the number of shares reserved for options
pursuant to Section 1.5;
b. alter in any way the class of persons eligible to
participate in the Plan;
c. permit the granting of any option at an option
price less than that provided under Section 2.2(b)
hereof; or
d. extend the term of the Plan or the term during
which any option may be granted or exercised.
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<PAGE>
No amendment, suspension or discontinuance of the Plan
shall impair an Optionee's rights under an option
previously granted to an Optionee without the
Optionee's consent.
3.5 Governing Law
This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the
State of Connecticut.
3.6 Effective Date of the Plan
The Plan as amended and restated shall be effective on
April 18, 1995, subject to the requisite approval of
shareholders. No option shall be granted pursuant to
this Plan later than April 17, 2005, but options
granted before such date may extend beyond it in
accordance with their terms and the terms of the Plan.
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<PAGE>
Exhibit B
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
LONG-TERM INCENTIVE PLAN
1. Purposes of Plan
The purposes of this Plan are: (a) to provide an
additional incentive for Senior Officers and other
selected key employees to increase the earnings of the
Company on a long-term basis; (b) to attract and retain
in the employ of the Company and its subsidiaries
persons of outstanding abilities; and (c) to more
closely align the interests of the Senior Officers and
other selected key employees with those of the
shareholders of the Company.
2. Definitions
a. "Base Salary" shall mean the annual base salary of
a Participant in effect as of the December 31 of
the year immediately preceding the Performance
Period for which a Performance Contingent Award is
made, unless otherwise determined pursuant to
Section 5(a) hereof.
b. "Board" shall mean the Board of Directors of the
Company.
c. "Change in Control" shall mean an event described
under Section 15 hereof.
d. "Code" shall mean the Internal Revenue Code of
1986, as amended.
e. "Committee" shall mean the Human Resource Committee
of the Board or any future committee of the Board
performing similar functions.
f. "Company" shall mean The Hartford Steam Boiler
Inspection and Insurance Company.
g. "Disability" shall mean any condition which would
entitle an employee of the Company to receive
benefits under the Company's Long-Term Disability
Plan.
h. "Dividend Equivalent" shall mean an amount equal to
the cash dividends that would have been paid with
respect to an award of Performance Contingent Units
paid hereunder if the award constituted Stock, duly
issued and outstanding on the date on which a
dividend is payable on the Stock.
i. "Fair Market Value" shall mean the average of the
high and low prices per share of the Company's
Stock as reported by the New York Stock Exchange
Composite Transaction Reporting System (NYSE) on
the date for which the Fair Market Value is being
determined, or if no quotations are available for
the Company's Stock, for the next preceding date
for which such a quotation is available. If shares
of
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<PAGE>
Company Stock are not then listed on the NYSE,
Fair Market Value shall be reasonably determined by
the Committee in its sole discretion.
j. "Participant" shall mean an employee of the Company
to whom an award has been made under the Plan.
k. "Performance Contingent Award" shall mean an award
of Performance Contingent Units.
l. "Performance Contingent Unit" shall mean the right
to receive up to 100% of the value of shares of
Stock, which value may be paid in cash or shares of
Stock, which may be Restricted Stock, as determined
by the Committee, contingent upon the achievement
of Performance Goals established by the Committee.
m. "Performance Goals" shall mean specific levels of
one or more Performance Measures at a corporate
and/or business unit level established in writing
by the Committee for a particular Performance
Period.
n. "Performance Measures" shall mean any of the
following:
- Combined Ratio
- Expense Ratio
- Net Income Per Share
- Return on Equity
- Total Shareholder Return
- Return on Assets
- Revenues
- Operating Margin
- Increase in Book Value
- Market Share
o. "Performance Period" shall mean a three consecutive
year period beginning each January 1st.
p. "Plan" shall mean the Long-Term Incentive Plan.
q. "Restricted Stock" shall mean one or more shares of
Stock issued in payment of a Performance Contingent
Award and subject to the terms and conditions
established by the Committee pursuant to Section 7.
r. "Retirement" shall mean the termination of
employment under circumstances which entitle an
employee to receive retirement benefits under the
Company's Employees' Retirement Plan.
s. "Stock" shall mean the Common Stock of the Company.
3. Administration of the Plan
The Plan shall be administered by the Committee as
defined herein. Each member of the Committee shall be
a "disinterested director" within the meaning of Rule
16b-3 of the
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<PAGE>
General Rules and Regulations promulgated
under the Securities Exchange Act of 1934 and an
"outside director" within the meaning of Section 162(m)
of the Code. The Committee is authorized to interpret
the Plan and shall adopt guidelines for carrying out
the Plan as it may deem appropriate. Such guidelines
shall be consistent with the Plan and may include, but
need not be limited to, the size and terms of awards to
be made and the conditions for payment of such awards.
Decisions of the Committee shall be final, conclusive
and binding upon all parties concerned, unless
otherwise determined by a vote of a majority of the
disinterested members of the Board of Directors.
4. Stock Subject To the Plan
Subject to the provisions of Section 9 of the Plan, the
maximum number of shares which may be issued under the
Plan shall be 150,000 shares of Stock.
5. Eligibility
a. All Senior Officers of the Company (presently
defined as Chief Executive Officer, President,
Executive Vice President, Senior Vice President,
Corporate Secretary and Treasurer) other than any
individual expressly excluded by the Committee, are
eligible to participate in this Plan. An
individual who is elected by the Board as a Senior
Officer following the commencement of a Performance
Period shall, unless otherwise determined by the
Committee, be eligible for an award for such
Performance Period(s) based on such individual's
Base Salary in effect at the time of such election,
and prorated for the number of full months within
such Performance Period that such individual was a
Senior Officer.
b. The Committee, in its sole discretion, may
designate from time to time certain other officers
or key employees of the Company, its affiliates and
subsidiaries who may participate in this Plan.
6. Establishment of Performance Goals and Performance
Contingent Awards
a. Prior to or within ninety days (or such shorter
period as is required under Section 162(m) of the
Code) following the commencement of each
Performance Period, the Committee shall establish
in writing for each Participant, or all
Participants as a group, specific Performance Goals
based on one or more Performance Measures. For
each Performance Goal an award schedule of
Performance Contingent Units shall be established
for minimum, target and maximum attainment of such
goal. The actual Performance Contingent Award to
be paid to a Participant at the conclusion of the
Performance Period shall be based on the level of
attainment of the Performance Goals established for
such period. The Committee may designate that
Performance Contingent Awards shall be credited
with Dividend Equivalents during the Performance
Period which shall be paid when and if such awards
are paid.
b. The maximum award of Performance Contingent Units
for any Participant for a Performance Period cannot
exceed 60% of such Participant's Base Salary
divided
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<PAGE>
by the Fair Market Value of the Stock on
the first trading date of the Performance Period.
c. After Performance Goals have been established, they
shall not be modified in respect to the Performance
Period to which they relate.
7. Payment of Performance Contingent Awards and Dividend
Equivalents
a. Following the end of a Performance Period, the
Committee shall ascertain and certify in writing
whether and the degree to which the Performance
Goals for such period have been met. A Participant
shall be entitled to receive payment of an amount
not exceeding the Fair Market Value of the maximum
award of Performance Contingent Units established
by the Committee pursuant to Section 6 hereof based
upon the level of attainment of the Performance
Goals determined by the Committee. The Committee
shall have the authority to reduce the award of any
Participant even if the Performance Goals
attributable to such award have been met. The
Committee shall have no authority hereunder to
increase any award calculated under this Plan.
b. As soon as practicable following certification by
the Committee pursuant to Section 7(a), payment of
awards to Participants shall be made. Payments
shall be made in cash, shares of Stock or in shares
of Restricted Stock as prescribed by the Committee
and shall be subject to such other terms and
conditions as the Committee shall establish.
c. Any Restricted Stock issued in payment of a
Performance Contingent Award may not be sold,
transferred, or otherwise disposed of by the
Participant, except by will or the laws of descent
and distribution, for such period established by
the Committee. The Committee shall have the
authority to cancel all or any portion of any
outstanding restrictions on such Restricted Stock
prior to the expiration of such period on such
terms and conditions as it may deem appropriate.
During the restricted period the shares of
Restricted Stock shall be registered in the name of
the Participant and deposited with the Company, and
the Participant shall be entitled to vote such
shares and receive any dividends with respect to
such shares.
d. Payment of any award of Dividend Equivalents shall
be made at the same time as payment of the
Performance Contingent Award to which it relates
and shall be made in cash or shares of Stock as
prescribed by the Committee.
e. The maximum aggregate dollar value of Performance
Contingent Units and Dividend Equivalents which may
be awarded to any Participant for any Performance
Period shall not exceed $1 million.
8. Election to Defer Payment
a. A Participant may, with permission of the Committee
elect to defer receipt of all or a specified part
of any Performance Contingent Award and related
Dividend
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Equivalents. Such an election shall be
subject to such terms and conditions as are
prescribed by the Committee. Deferral elections
are irrevocable and must be made during the time
period and in the manner prescribed by the
Committee.
b. The right of a Participant to receive any unpaid
portion of any amount deferred hereunder shall be
an unsecured claim against the general assets of
the Company.
9. Adjustments in the Event of Change in Common Stock of
the Company
In the event of any change in the Stock of the Company
by reason of any stock dividend, stock split,
recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of
shares, or rights offering to purchase Stock at a price
substantially below Fair Market Value, or of any
similar change affecting the Stock, the number of
Performance Contingent Units awarded which have not
been paid and the number of shares of Stock which may
be awarded hereunder shall be appropriately adjusted
consistent with such change in such manner as the Board
in its discretion may deem equitable to prevent
substantial dilution or enlargement of the awards and
rights granted to, or available for Participants
hereunder. Any fractional shares resulting from such
adjustments shall be eliminated.
10. No Right to an Award or Continued Employment
a. Nothing contained in this Plan or in any resolution
adopted or to be adopted by the Board of Directors
will constitute the granting of an award hereunder.
The granting of an award pursuant to the Plan will
take place only when authorized by the Committee.
No award and no rights of ownership thereunder will
be transferable otherwise than pursuant to Section
12.
b. Nothing in the Plan shall interfere with or limit
in any way the right of the Company to terminate
any Participant's employment at any time, nor
confer upon any Participant any right to continue
in the employ of the Company.
11. Rights on Termination of Employment
a. If a Participant in this Plan shall terminate
employment with the Company on account of
Retirement or Disability or otherwise terminate
employment with the written consent of the Company
prior to the expiration of any Performance
Period(s) in respect of which such Participant may
be eligible for an award, or if a subsidiary at
which a Participant is employed shall cease to be a
subsidiary of the Company prior to the expiration
of any Performance Period(s), the award(s) paid to
such Participant shall be prorated according to the
number of months of employment in each such
Performance Period.
b. A Participant whose employment terminates by
dismissal with or without cause, or who voluntarily
terminates employment without consent prior to the
expiration of a Performance Period, shall lose any
right to receive payment of such award.
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<PAGE>
c. A Participant whose employment terminates within
two years following the month within which a
"Change in Control" (as defined herein) occurs and
prior to the expiration of any Performance Period
(i) by dismissal (other than dismissal on account
of defalcation), or (ii) by voluntary termination
of employment with or without consent of the
Company, shall be entitled to receive an award
prorated according to the number of full months of
employment completed by the Participant in each
such Performance Period.
d. In no event shall an award or a portion thereof the
payment of which has been deferred pursuant to
Section 8 be subject to forfeiture.
12. Death of a Participant
a. A Participant may file with the Corporate Secretary
of the Company a designation of a beneficiary or
beneficiaries on a form to be provided by such
Participant, which designation may be changed or
revoked by the Participant's sole action, provided
that the change or revocation is filed with the
Corporate Secretary on a form provided by such
Participant. In case of the death of the
Participant, before or after termination of
employment, any earned but unpaid portion of an
award to which he or she is entitled and any
deferred portions of a deceased Participant's award
shall be delivered to the beneficiary or
beneficiaries so designated or, if no beneficiary
has been designated or survives such Participant,
shall be delivered to, or in accordance with the
directions of, the executor or administrator of
such Participant's estate.
b. If a Participant shall die during a Performance
Period, such Participant's beneficiary shall only
be entitled to receive the award declared for the
Performance Period ending in the year of the
Participant's death.
13. Tax Withholding
The Company shall have the right to require
Participants to remit to the Company an amount
sufficient to satisfy any tax withholding requirements
or to deduct from any payments made pursuant to the
Plan amounts sufficient to satisfy tax withholding
requirements.
14. Termination and Modification
a. The Committee may at any time terminate or from
time to time modify or suspend, and if suspended,
may reinstate any or all of the provisions of this
Plan except that no modification of this Plan may
be made which will adversely affect any rights or
obligations with respect to any awards theretofore
made under the Plan.
b. No amendment to the Plan shall be made without
shareholder approval if such approval is required
in order for the Plan to continue to meet the
requirements of Section 162(m) of the Code and/or
Rule 16b-3 of the General Rules and Regulations
promulgated under the Securities Exchange Act of
1934.
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<PAGE>
15. Change in Control
In the event of a Change in Control of the Company,
this Plan shall continue to be binding upon the
Company, any successor in interest to the Company and
all persons in control of the Company or any successor
thereto, and no transaction or series of transactions
shall have the effect of reducing or canceling the
award of a Participant that has been declared but not
paid unless consented to in writing by such affected
Participant. A "Change in Control" as referred to
under this Plan shall be deemed to have occurred if:
a. any "person" (as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than a trustee
or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five
percent (25%) or more of the combined voting power
of the Company's then outstanding securities;
b. during any period within two (2) consecutive years
there shall cease to be a majority of the Board of
Directors comprised as follows: individuals who at
the beginning of such period constitute the Board
of Directors and any new director(s) whose election
by the Board of Directors or nomination for
election by the Company's shareholders was approved
by a vote of at least two-thirds (2/3) of the
directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously
so approved; or
c. the shareholders of the Company approve a merger or
consolidation of the Company with any other
corporation, other than (i) a merger or
consolidation which would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) more
than 80% of the combined voting power of the voting
securities after such merger or consolidation or
(ii) a merger or consolidation effected to
implement a recapitalization of the Company (or
similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the
combined voting power of the Company's then
outstanding securities; or
d. the shareholders of the Company approve (i) a plan
of complete liquidation of the Company or (ii) the
sale or other disposition of all or substantially
all the Company assets.
16. Unfunded Obligations; Trust Agreement
a. The Company will pay from its general assets all
awards to be made hereunder. However, the Company
may in its discretion, establish a trust, escrow
agreement or similar arrangement in order to aid
the Company in meeting its obligations hereunder.
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<PAGE>
b. Any assets transferred by the Company into any such
arrangement shall remain at all times assets of the
Company and subject to the claims of the Company's
general creditors in the event of bankruptcy or
insolvency of the Company. No security interest in
such assets shall be created in a Participant's
favor and a Participant's rights under this Plan
and under any such arrangement shall be those of a
general unsecured creditor of the Company.
17. Assignment and Alienation
Benefits under this Plan may not be anticipated,
assigned (either at law or in equity), alienated, or
subjected to attachment, garnishment, levy, execution
or other legal or equitable process. If any
Participant or beneficiary under this Plan becomes
bankrupt or attempts to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any
benefit under this Plan, such benefit shall, in the
discretion of the Committee cease and terminate, in
which event the Committee may hold or apply the same or
any part thereof for the benefit of such Participant,
his or her beneficiary, spouse, children, other
dependents or any of such individuals, in such manner
and in such proportion as the Committee may deem
proper.
18. Effective Date and Termination of the Plan
This Plan shall become effective as of January 1, 1994
subject to the approval of the shareholders at their
annual meeting in 1995. Unless earlier terminated by
the Committee subject to Section 14, the Plan shall
terminate on December 31, 1998. No Performance
Contingent Award shall be made pursuant to this Plan
after the termination date, but awards made prior to
its termination date may extend beyond that date.
Printed on recycled paper
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EDGAR APPENDIX
The following is the text of the Company's 1995 form of proxy:
PROXY
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
ONE STATE STREET, P.O. BOX 5024, HARTFORD, CONNECTICUT 06102-5024
ANNUAL MEETING OF STOCKHOLDERS - APRIL 18, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joel B. Alvord, Richard G. Dooley,
Gordon W. Kreh and Lois Dickson Rice each with the power to appoint
his or her substitute, and hereby authorizes them to represent and
to vote, as designated on the reverse side, all the shares of common
stock of the Company held on record by the undersigned on February
7, 1995 at the Annual Meeting of Stockholders to be held on April 18, 1995
or any adjournment thereof, hereby revoking any proxy heretofore given.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS, 1, 2, 3
AND 4, AND AGAINST PROPOSAL 5.
(Important - To be signed and dated on reverse side) SEE REVERSE SIDE
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<PAGE>
- ------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1, 2, 3 and 4.
1. Election of Directors
Nominees:
Colin G. Campbell, John A. Powers and John M. Washburn, Jr.
FOR ALL NOMINEES []
WITHHELD FROM ALL NOMINEES []
[] -------------------------
For all nominees except as noted above
MARK HERE IF YOU HAVE MADE COMMENTS []
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW []
2. Approval of proposal to adopt the 1995 Stock Option Plan.
FOR [] AGAINST [] ABSTAIN []
3. Approval of proposal to amend and restate the Long-Term
Incentive Plan.
FOR [] AGAINST [] ABSTAIN []
4. Appointment of independent public accountants.
FOR [] AGAINST [] ABSTAIN []
The Board of Directors recommends a vote AGAINST stockholder
proposal 5.
5. Stockholder proposal to eliminate staggered board.
FOR [] AGAINST [] ABSTAIN []
Please sign exactly as your name appears. If acting as attorney,
executor, trustee or in other representative capacity, sign name
and title. Please date proxy and return in enclosed post-paid
return envelope.
Signature: ---------------------------- Date -------------
Signature: ---------------------------- Date -------------
