SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-13300
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0384680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 5024
One State Street
Hartford, Connecticut 06102-5024
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 722-1866
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common stock, without par value New York Stock Exchange, Inc.
Rights to Purchase Depositary Receipts New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant(1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes...X..., No.......
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.......
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 6, 1996 was $1,021,493,866.
Number of shares of common stock outstanding as of February 6, 1996:
20,288,661.
Documents Incorporated By Reference
Portions of the Proxy Statement dated February 27, 1996 for the Annual
Meeting of Shareholders to be held April 16, 1996 are incorporated by
reference in Parts III and IV herein.
PART I
Item 1. Business.
A. GENERAL DEVELOPMENT OF BUSINESS
The Hartford Steam Boiler Inspection and Insurance Company
(together with its subsidiaries referred to as "Registrant" or
the "Company" hereinafter) was chartered under the laws of the
State of Connecticut in 1866. The Company's operations are
divided into three industry segments - insurance, engineering
services and investments. The most significant business of the
Company is boiler and machinery insurance, which provides
insurance against losses from accidents to boilers, pressure
vessels, and a wide variety of mechanical and electrical
machinery and equipment along with a high level of inspection
services aimed at loss prevention. Earned premiums for boiler
and machinery insurance and the Company's other insurance
products were $389.1 million for 1995, which accounted for
approximately 58 percent of the Company's revenues. See Note 11
to the Consolidated Financial Statements located in Item 8 of
Part II herein for information on the Company's net written and
net earned premiums over the last three years.
The Company conducts its business in Canada through its
subsidiary, The Boiler Inspection and Insurance Company of
Canada. Insurance for risks located in countries other than the
United States and Canada is written by HSB Engineering Insurance
Limited (HSB EIL). In December 1994, the Company purchased the
remaining 50% interest in HSB EIL's parent company, Engineering
Insurance Group (EIG) from General Reinsurance Corporation.
Effective December 1, 1995 the Company increased its
membership participation in Industrial Risk Insurers (IRI) from
.5 percent to 14 percent. IRI is a voluntary joint underwriting
association funded by twenty-three members (each of which is a
property-casualty insurance company) which provides property
insurance for the class of business known as "highly protected
risks" -- larger manufacturing, processing, and industrial
businesses which have invested in protection against loss through
the use of sprinklers and other means. The Company increased its
share because it believes that it is important for the U.S.
property and casualty industry to maintain a high-quality, stock-
insurer-based, risk-sharing mechanism for underwriting coverage
on large risks. The Company's increased share will enable the
Company to have a more significant role in helping IRI be an
effective and profitable provider of essential property insurance
and loss prevention services to larger risks. IRI has a fiscal
year ending November 30, and provides reports to its members on a
quarterly basis. As a result, the Company's increased
participation will initially be reflected in the first quarter
financial results for 1996.
The Company also offers professional scientific and
technical consulting services for industry and government on a
world-wide basis through its Engineering Department and its
engineering subsidiaries, the largest of which is Radian
Corporation, acquired by Hartford Steam Boiler in 1975 and
headquartered in Austin, Texas. In 1995 net Engineering Services
revenues were $252.1 million, which accounted for approximately
38 percent of the Company's revenues.
In January 1996, the Company completed the formation of
Radian International LLC, a joint venture with The Dow Chemical
Company to provide environmental, engineering, information
technology, remediation and strategic chemical management
services to industries and governments world-wide. In connection
with the formation of the new company, the Registrant contributed
substantially all of the assets of Radian Corporation and The Dow
Chemical Company contributed the assets of Dow Environmental,
Inc., its wholly-owned subsidiary, as well as access to certain
of its technologies which are in support of the businesses
expected to be conducted by the new company. Radian
International LLC currently is 40 percent owned by Radian
Corporation and 60 percent owned by Dow Environmental Inc.
The Registrant is a multi-national company operating
primarily in North American, European, and Asian markets.
Currently, the Company's principal market for its insurance and
engineering services is the United States. However, the Company
does desire to become a stronger competitor in the international
machinery breakdown insurance and related engineering services
markets as it believes that there is significant opportunity for
profitable growth overseas. This was the primary reason for the
acquisition of the remaining 50% interest in EIG in late 1994.
In 1995 the revenues and pre-tax income associated with
operations outside of the United States were approximately 13.5
percent and 20.5 percent, respectively, an increase of
approximately 100 percent over the respective consolidated
amounts for 1994. Assets associated with operations outside of
the United States are approximately 22% of the consolidated
amount. The growth in the Company's non U.S. operations is
primarily attributable to the EIG acquisition and full
consolidation.
For additional information on the Company's business
segments, see Notes 1 and 7 to the Consolidated Financial
Statements located in Item 8 of Part II herein.
B. PRODUCTS AND SERVICES
Insurance
Boiler and machinery insurance provides for the
indemnification of the policyholder for financial loss resulting
from destruction or damage to an insured boiler, pressure vessel,
or other item of machinery or equipment caused by an accident.
This financial loss can include the cost to repair or replace the
damaged equipment (property damage), and product spoilage, lost
profits and expenses to avert lost profits (business
interruption) stemming from an accident.
The Company distinguishes itself from other insurance
suppliers by providing a high level of loss prevention,
failure analysis and other engineering services with the
insurance product. This heavy emphasis on loss prevention
historically has had the dual effect of increasing
underwriting and inspection expenses, while reducing loss and
loss adjustment expenses.
An important ancillary benefit for the policyholder is
that the inspection performed by the Company's inspector on a
boiler, pressure vessel, or other piece of equipment, as part
of the insurance process, is normally viewed by state and
other regulatory jurisdictions as acceptable for their
certification purposes. Without the issuance of a
certificate of inspection by the insurance carrier or another
inspection agency, policyholders cannot legally operate many
types of equipment.
The Company also writes other types of insurance,
primarily as an adjunct to its boiler and machinery
insurance. Such insurance accounted for approximately 19%
percent of net earned premium in 1995. By far the largest of
these other lines is the Company's all risk property
insurance product. The all risk line is marketed to
customers with equipment and machinery exposures, such as
electric utilities, where sophisticated engineering services
are important to loss prevention and control. These
customers are offered technical services such as computerized
evaluation of fire protection systems in addition to fire
inspections and boiler and machinery inspections. The
Company also writes all risk coverage specifically tailored
for data processing systems.
Engineering Services
Separate divisions of the Company's Engineering
Department provide quality assurance services, training for
nondestructive testing, inspections to code standards of the
American Society of Mechanical Engineers (ASME), ISO
certification services and other specialized consulting and
inspection services related to the design and applications of
boilers, pressure vessels, and many other types of equipment
for domestic and foreign equipment manufacturers and their
customers. Hartford Steam Boiler is the largest Authorized
Inspection Agency for ASME codes in the world. In addition,
the Company's Engineering Department, often in conjunction
with Radian, its engineering affiliate, focuses on
researching and developing potential new products and
services, and new markets for current services.
Radian is an international engineering and technical
services firm that provides a wide range of environmental
based consulting services to industries and governments
around the world. Its customer base is almost equally
divided between the government and private sector.
Industries served in the private sector include chemical and
petroleum producers, manufacturers and utilities. Radian's
areas of expertise include environmental engineering, health
and safety, materials and mechanical technologies, specialty
chemicals, electronic systems and services, and information
technologies. Its strategy is to provide its customers with
the full range of environmental technical services required
to conduct their businesses on a global basis. Radian
International LLC, the joint venture company formed with The
Dow Chemical Company described on page 2, was a significant
step in implementing this strategy, as the new company
integrates the environmental and engineering strengths of
Radian with Dow's access to chemical industry process
technology and environmental remediation capabilities.
Other engineering subsidiaries provide fire protection
consulting services, and computerized maintenance management
systems and services.
C. COMPETITION
Insurance
The Company is the largest writer of boiler and
machinery insurance in North America and is establishing a
presence in the engineering insurance market outside of North
America. Based on gross earned premium, the Company's U.S.
market share, at approximately 40%, has remained fairly
stable over the past ten years. Based on net premiums
written reported in the 1995 edition of Bests Aggregates and
Averages, no other single company has more than a 10% market
share. Members of an affiliated group of insurers, the Factory
Mutual System, have a market share of approximately 22%.
In general, the insurance market is influenced by the
total insurance capacity available based on policyholder
surplus which in turn is driven by the level of profits
experienced by the industry. In addition, competition in the
boiler and machinery insurance market is based on price and
service to the insured. Service includes maintaining
customer relationships, engineering and loss prevention
activities, and claims settlement. The Company prices its
product competitively in the marketplace, but competes by
offering a high level of service, not by offering the lowest-
priced product. Over the past few years, economic and
competitive pressures have caused insurance customers to
select programs with higher deductibles to offset price
increases. This, together with the Company's increased focus
on risk selectivity, has resulted in a slower premium growth
for the Company.
The Company is predominantly a writer of risks which
require engineering expertise, unlike its competitors which
write boiler and machinery insurance as an adjunct to their
primary lines of insurance for fire and extended perils.
Many of its competitors have more assets than the
Company. However, the Company's leading position in the
industry has allowed it to develop the largest force of
inspectors, engineers and scientists in the industry.
Engineering Services
The Company provides a wide range of engineering,
consulting and inspection services as described on pages 3-4.
For most of these services it has numerous competitors, some
of whom are much larger and have greater financial resources
than the Company.
Competition in these areas is based on price and on the
qualifications, experience and availability of the
individuals who perform the work. The Company's force of
inspectors, engineers, scientists and technicians is spread
throughout the world. Ongoing training programs ensure that
the Company's inspectors, engineers, scientists and
technicians are kept up-to-date on the latest engineering and
scientific developments.
D. MARKETING
Insurance
The Company's various functional operations are aligned
to focus on its two principal customer groups, commercial
risks and special risks. The Company believes that this
organizational structure allows it to service its customers
more effectively and efficiently and at the same time to be a
more aggressive and flexible competitor.
Currently, the Company's principal market for its
insurance business is the United States. In 1995 76% of its
net written premiums related to risks located in the U.S. Of
the direct premiums written in the United States in 1995
(gross premiums less return premiums and cancellations,
excluding reinsurance assumed and before deducting
reinsurance ceded), less than 10 percent was written in any
one state and with the exception of California, Florida,
Illinois, New York, Pennsylvania and Texas, no state
accounted for more than 5% of such premiums.
The Company has contracts with independent insurance
agencies in all fifty states, the District of Columbia,
Puerto Rico and Canada. These agencies market the Company's
direct insurance to its small and medium commercial accounts.
Personal contact with these independent insurance agents is
accomplished through the Company's field sales force which
operates out of 24 branch offices across the country and in
Canada. It is the Company's policy in appointing agents to
be selective, seeking to maintain and strengthen its existing
relationships and to develop relationships with new agents
whom the Company believes will become a continuing source of
profitable business. The Company periodically reviews its
agency contracts and selectively reduces them in order to
retain only those agents who consistently produce certain
levels of business for the Company.
Large, engineering-intensive U.S. and international
accounts are primarily marketed and serviced by account teams
comprised of underwriting, marketing, engineering and claims
staff who have specialized knowledge of particular customer
industries. U.S. customers are serviced primarily by
Hartford Steam Boiler. Canadian customers are serviced by
The Boiler Inspection and Insurance Company of Canada.
Overseas customers are serviced by HSB Engineering Insurance
Limited, based in London, with additional offices in Hong
Kong, Madrid, Miami and Kuala Lumpur. The Company's large,
engineering intensive accounts generate approximately 36% of
its net earned premium.
The Company's reinsurance assumed business (see page 11)
is marketed through the distribution channels of the
reinsured companies.
Engineering Services
The Company's engineering services are marketed in a
variety of ways. Customized services related to loss
prevention, failure analysis, and equipment testing are
generally sold in conjunction with the insurance contract but
are also available separately. Most other engineering
services, including those performed by Radian, are marketed
on a bid or proposal basis. While such business is usually
price sensitive, the exacting standards and requirements set
by industry and government for most of the services offered
by the Company tend to diminish that effect.
Engineering services are marketed and serviced primarily
by personnel located in the Company's various domestic and
international offices.
While the primary market for engineering services
continues to be the U.S., the Company has been focusing on
expanding its international business, primarily in Europe and
the Pacific Rim as demand for engineering services,
particularly environmental consulting services, is expected
to grow at a faster rate in these developing regions than in
the U.S.
In 1995 the Company derived approximately 13 percent of
its revenues from engineering contracts with various agencies
and departments of the U.S. government.
E. REGULATION
Insurance
The Company's insurance operations are subject to
regulation throughout the United States. Various aspects of
the insurance operations are regulated, including the type
and amount of business that can be written, the price that
can be charged for particular forms of coverage, policy
forms, trade and claim settlement practices, reserve
requirements and agency appointments. Regulations also
extend to the form and content of financial statements filed
with such regulatory authorities, the type and concentration
of permitted investments for insurers, and the extent and
nature of transactions between members of a holding company
system, including dividends involving insurers. In general,
such transactions must be on fair and reasonable terms, and
in some cases, prior regulatory approval is required. See
Note 8 to the Consolidated Financial Statements located in
Item 8 of Part II herein for additional information.
The nature and extent of regulations pertaining to the
business the Company writes outside of the U.S. varies
considerably. Regulations cover various financial and
operational areas, including such matters as amount and type
of reserves, currency, policy language, repatriation of
assets and compulsory cessions of reinsurance.
In December 1993, the National Association of Insurance
Commissioners (NAIC) adopted risk based capital (RBC)
requirements applicable to property and casualty insurers.
The RBC formula establishes a required statutory surplus
level for an insurer based on the risks inherent in its
overall operations which are identified as underwriting risk,
invested asset risk, credit risk and off-balance sheet risk.
The law provides for regulatory responses ranging from
requiring a plan of corrective action to placing the insurer
under regulatory control for insurers whose surplus is below
the prescribed RBC target. The Company's adjusted capital
significantly exceeded the authorized control level RBC for
1995 and 1994, the first year for which the requirements were
effective.
NAIC Insurance Regulatory Information System (IRIS)
Ratios are part of the solvency impairment early warning
system of the NAIC. They consist of twelve categories of
financial data with defined acceptable ranges for each.
Companies with ratios outside of the acceptable ranges are
selected for closer review by regulators. The Company's IRIS
ratios were within acceptable ranges for 1995.
The Company's operations are subject to examination by
insurance regulators at regular intervals. An insurance
financial examination is currently being concluded for the
year ending December 31, 1994 by the Connecticut Insurance
Department, the Company's domestic regulator. No material
findings are expected to be included in the final report of
the examination. Similar regulatory procedures govern the
Company's U.S. insurance subsidiaries and its foreign
subsidiaries.
Insurance guaranty fund laws exist in all states which
subject insurers to assessments up to prescribed limits for
certain obligations of insolvent insurers to their
policyholders and claimants. The increase in insolvencies in
recent years has resulted in higher assessments against the
Company. The Company is permitted to recover a portion of
these assessments through premium tax offsets and policy
surcharges. The Company has recorded its ultimate estimate
of assessments in its financial statements.
In the third quarter of 1994, the Company established a
reserve of $2.9 million for the rollback obligation plus
interest alleged to be payable to California policyholders
pursuant to Proposition 103 which had been passed by
California voters in 1988. The Company recently concluded an
administrative hearing with the California Insurance
Department on its rollback obligation, however, no decision
has been rendered to date. Given the amount the Company has
reserved for this matter, any adverse decision resulting from
such hearing is not expected to materially affect the
Company's future results.
The NAIC is currently working on a model investment law
which would provide guidelines for insurers in structuring
their investment portfolios. These guidelines are intended to
preserve principal, assure diversification as to investment,
issuer and credit quality, and promote prudent investment
management strategies to ensure companies are positioned to
cover reasonably foreseeable contingencies. While it is uncertain
at this time whether the model investment law will be adopted,
the Company does not expect such guidelines in their current
form to have a material effect on its investment practices.
Regulator concerns about the consistency and
comparability of statutory accounting practices (SAP) has
prompted the NAIC to undertake a codification project which
will replace prescribed or permitted SAP as the regulatory
basis of accounting for insurance companies. Conversion to
new statutory accounting standards is expected to be required
sometime after 1996.
As discussed earlier, the Company's insureds receive, in
addition to the insurance product, inspections which meet
state, county or municipally mandated requirements. In order
for the Company's inspectors to perform these mandated
inspections, they must be commissioned. Commissioning is
conducted by the National Board of Boiler and Pressure Vessel
Inspectors and the various state jurisdictional authorities.
The majority of the Company's inspectors are commissioned,
and the Company believes that it has an adequate number of
commissioned inspectors to conduct its business affairs.
Engineering Services
A portion of the Company's engineering services revenue
comes from certifying that boilers and pressure vessels are
being constructed according to standards adopted by the
American Society of Mechanical Engineers (ASME). The
commission that authorizes inspectors to conduct insurance
inspections also authorizes them to perform ASME Code
inspections.
Customers of the Company, and to a much lesser extent
the Company, are subject to various state and federal
environmental laws. Although the liabilities imposed by
these laws more directly relate to the business operations of
the Company's customers, in the course of providing services,
and in particular environmental consulting services, which
may involve the handling or disposal of hazardous materials
of the Company's customers, the Company could become subject
to liabilities under such laws. The Company believes that it
is unlikely that the nature of its operations will give rise
to liabilities under such laws and regulations which will
have a material adverse impact on its consolidated results of
operations or financial condition.
Other
The Company and members of its professional and
technical staff are subject to a variety of other state,
local and foreign licensing and permit requirements and other
laws generally applicable to corporations and businesses.
F. INSURANCE OPERATIONS
Rates
Rates for the Company's products are developed based
upon estimated claim costs, expenses related to the
acquisition and servicing of the business, engineering
expenses and a profit component. Traditionally, the Company
has used boiler and machinery rates that were established by
the Insurance Services Office (ISO) and filed in the various
jurisdictions within which the Company does business for its
direct insurance products. Due to the Company's large market
share in the boiler and machinery line of insurance, it has
provided the largest impact on the data used by ISO.
Consequently, ISO rates have been reflective of the Company's
experience. The Company has also developed its own rates,
based on ISO rates, for some of its boiler and machinery
products.
The Company also has utilized rates developed and filed
by ISO for its all risk product. The Company's loss
experience has been only a small factor in the all risk line,
and therefore its experience has not meaningfully affected
the industry ISO rates.
ISO no longer develops and files advisory rates for its
member companies, rather it compiles and files loss cost
information based upon loss data furnished by its members
which the Company and other insurers can then use to develop
their own rates and file with the states. The Company
currently is in the process of developing and filing boiler
and machinery rates in various states utilizing ISO's loss
cost filing.
Coverages for unique risks are judgment-rated, taking
into account deductibles, the condition of the insured's
equipment, loss prevention and maintenance programs of the
insured, and other factors.
Policies
Policies are normally written for a term of one year.
Most of the Company's policies provide coverage for property
damage and business interruption to insured property
(including buildings and structures under the Company's all
risk policy) resulting from covered perils. Property insured
under the Company's boiler and machinery policies includes
such equipment as steam boilers, hot water boilers, pressure
vessels, refrigerating and air conditioning systems, motors,
generators, compressors, pumps, engines, fans, blowers, gear
sets, turbines, transformers, electrical switch gear, data
processing and business equipment and a wide variety of
production and processing equipment.
Reinsurance Assumed
The predominant practice in the insurance industry is to
combine several types of insurance coverages into one policy
referred to as a package policy. In response to this, the
Company has negotiated reinsurance agreements with several
large and medium sized multi-line insurance companies to
reach the small to mid-size customers that purchase such
package policies. To date, more than 100 insurance companies
have signed reinsurance agreements with the Company. This
business primarily focuses on small and mid-sized commercial
customers. It has consistently been more profitable than the
Company's large accounts and offers more opportunity for
growth by the Company since boiler and machinery coverage has
historically been excluded from commercial package policies.
Under the reinsurance agreements, the Company's
reinsured companies may include boiler and machinery
exposures in their multi-peril policies, and such risks will
be assumed by the Company under the terms of the agreement.
These plans generally provide that the Company will assume
100% of each boiler and machinery risk, subject to the
capacity specified in the agreement, and will receive the
entire boiler and machinery premium except for a ceding
commission which will be retained by the reinsured company
for commissions to agents and brokers, premium taxes and
handling expenses.
Although the Company assumes the role of reinsurer, it
continues to have selling and underwriting responsibilities
as well as involvement in inspecting and claims adjusting.
In effect, the Company becomes the boiler and machinery
department of the reinsured company and provides all boiler
and machinery services as if it were part of that
organization. Traditionally, the Company retains the right
to decline or restrict coverage in the same manner as it does
for its own business, however, the Company does offer some
programs under which it agrees to underwrite an entire book
of business meeting specific underwriting guidelines and
occupancy parameters.
The written premium generated through reinsurance
assumed totaled $182.9 million in 1995, representing
approximately 45% of the Company's net written premium.
The insurance industry, in general is undergoing a
significant shakeout and consolidation. Considerable merger
and acquisition activity has occurred recently and more is
anticipated in the future. Depending on the specific
companies involved in these activities and other market
factors, the level of reinsured business the Company assumes
in the future could be affected.
Reinsurance Ceded
The Company participates in various facultative, quota
share and excess of loss reinsurance agreements to limit its
exposure, particularly to catastrophic losses, and to provide
additional capacity to write business. Under the Company's
current treaty reinsurance program, its retention on any one
risk is generally limited to $3 million, with potentially
higher per risk retentions dependent on aggregate losses
experienced by the Company during the reinsurance program
period. In addition, the Company uses facultative
reinsurance on certain high exposure risks and has
catastrophe reinsurance for aggregate losses greater than $15
million. The Company utilizes well-capitalized domestic and
international insurance companies and syndicates for its
reinsurance program and monitors their financial condition on
an ongoing basis. In the unlikely event that the Company's
reinsurers are unable to meet their obligations, the Company
would continue to have primary liability to policyholders for
losses incurred. Uncollectible reinsurance recoverables have
not had, and are not expected by management to have in the
future, a material adverse effect on the consolidated results
of operations or financial position of the Company. The
Company is not party to any contracts that do not comply with
the risk transfer provisions of SFAS 113.
As a result of the Company's acquisitions and global
expansion, combined with loss experience in prior years, the
Company has been incurring much higher ceded reinsurance costs in
recent years. The Company modestly increased its retention in
1995 to lessen the impact of higher reinsurance costs and also
structured its current program in such a way as to give the
Company flexibility and greater control over the program in
future years. In 1995 the Company's reinsurance ceded costs
increased $20.8 million (46%) over 1994 in part because of the
acquisition and full consolidation of Engineering Insurance
Group.
For additional information on reinsurance, see Note 11
to the Consolidated Financial Statements located in Item 8 of
Part II herein.
Pools and Joint Underwriting Associations
With the exception of Industrial Risk Insurers as
described on page 1, the Company does not participate to any
significant degree in voluntary reinsurance pools of other
insurance companies because the Company generally chooses to
insure only those risks which it has inspected or has the
right to inspect. The Company is required to participate in
certain joint underwriting associations which provide
insurance for particular classes of insureds when insurance
in the voluntary market is unavailable. The unprecedented
level of catastrophes in recent years has required the
Company to pay higher assessments to such associations.
Claims and Claim Adjustment
The overwhelming majority of claims are handled by the
Company's own claims adjusters. Management believes that
this is much more cost-efficient than the retention of
independent claims adjusters and that the Company's adjusters
are better able to make the connection between loss
prevention and loss control. The Company employs claims
adjusters in its various branch offices throughout the
country, Canada and the U.K. and also operates a claims
department in its home office in Hartford, Connecticut.
Adjusters in the various branch offices and the Company's
home office are assigned to particular customer groups in
order to apply specialized industry knowledge to the
adjustment of claims.
Claims and adjustment expense reserves comprise one of
the largest liabilities of the Company. Reserves are
established to reflect the Company's estimates of total
losses and loss adjustment expenses that will ultimately be
paid under direct and assumed insurance contracts. Loss
reserves include claims and adjustment expenses on claims
that have been reported but not settled and those that have
been incurred but not yet reported to the Company. The
Company's loss reserve estimates reflect such variables as
past loss experience and inflation. In addition, due to the
nature of much of the Company's coverages, complex
engineering judgments are involved. Subjective judgments are
an integral component of the loss reserving process, due to
the nature of the variables involved. Previously established
loss reserves are regularly adjusted as loss experience
develops and new information becomes available. Adjustments
to previously established reserves are reflected in the
financial statements in the period in which the estimates are
changed.
The normal turnaround time in paying small claims is
less than six months. The vast majority of claims are
settled within one year and very few remain unsettled two
years after the loss occurs. This pattern is skewed in terms
of claim dollars (as noted in the schedule on page 18) as it
is the larger claims that take longer to settle. Compared to
the property-casualty industry as a whole, the Company has a
very "short-tail". The Company's claims expenses are based
on estimates of the current costs of replacing productive
capacity. The Company does not employ discounting techniques
in establishing liabilities for claims and claim adjustment
expenses.
For those relatively few claims involving litigation,
the Company uses both its in-house law department and outside
counsel, depending on the issues, costs, and staffing
requirements.
The following table provides a reconciliation of the
beginning and ending reserves for net claims and claim
adjustment expenses for the years ended December 31, 1995,
1994 and 1993.
<TABLE>
RECONCILIATION OF NET LIABILITY FOR
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
<CAPTION>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Net liability for claims and claim
adjustment expenses at January 1 $161.3 $171.3 $132.8
------ ------ ------
Plus:
Provision for claims and claim adjustment
expenses occurring in the current year 152.2 141.7 172.2
Increase in estimated claims
and claim adjustment expenses arising
in prior years 2.7 1.5 26.9
------ ------ ------
Total incurred claims and
claim adjustment expenses 154.9 143.2 199.1
------ ------ ------
Less:
Payment for claims arising in:
Current year 58.9 63.5 60.9
Prior years 111.8 108.7 99.7
------ ------ ------
Total payments 170.7 172.2 160.6
------ ------ ------
Plus:
Full Consolidation of EIG Co. at
December 31, 1994 - 19.0 -
------ ------ ------
Net liability for claims and claim
adjustment expenses at December 31 $145.5 $161.3 $171.3
====== ====== ======
</TABLE>
The 1995 loss ratio was 39.8 percent compared to 42.5
percent and 57.1 percent for 1994 and 1993, respectively.
The continued improvement in 1995 is largely attributable to
the reunderwriting efforts which began in 1993. In 1993,
adverse development of prior year reserves was attributable
to the settlement of certain large losses for which the
Company initially determined it would not have liability; the
settlement of some outstanding claims for more than was
originally anticipated; unusually late notice of loss
provided by the insured for several large losses; and
reserves established for losses on which the coverage was
being contested. At December 31, 1995, the amount
recoverable from reinsurers on paid and unpaid claims and
adjustment expenses was $47.9 million compared to $44.9
million in 1994 and $44.5 million in 1993.
The following table shows a reconciliation of the net
liability to the gross liability for claims and claim
adjustment expenses based on reinsurance recoverable on
unpaid losses.
<TABLE>
RECONCILIATION OF NET LIABILITY TO GROSS LIABILITY
FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES
<CAPTION>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Net liability for claims and claim $145.5 $161.3 $171.3
adjustment expenses at December 31
Reinsurance recoverable
on unpaid losses 45.4 38.1 43.1
------ ------ ------
Gross liability for claims and claim
adjustment expenses at December 31 $190.9 $199.4 $214.4
====== ====== ======
</TABLE>
The claim and claim expense reserve runoff table on the
following pages shows the amounts of the net liability for
1985 through 1995 and the amounts of the gross liability for
1993 through 1995. The ten-year development table for gross
liabilities will be constructed progressively, with 1993 as
the base year. Within the tables for net and gross
liabilities, each column shows the reserve established at
each calendar year-end as well as cumulative totals for
claims payments and re-estimated liabilities for both that
accident year and all previous years that combined make up
that year-end reserve. The redundancy (deficiency) shown on
a gross and net basis is a cumulative number for that year
and all previous years.
The net deficiencies in 1990, 1991 and 1992 were
attributable to the same factors that contributed to the 1993
adverse development of prior year reserves described on the
previous page.
The redundancies shown for 1985 through 1988 were
attributed to the difficulty in estimating claims due to
inflationary impacts and business interruption, which became
a larger component of claims. The claim reserves established
in those years have been favorably settled, adjusted or
closed based on the results of claim audits, technical loss
analysis, subrogation, settlement with property carriers and
the latest available information. The net impact of those
favorable settlements was to decrease claims expenses as
reported by $10.2 million in 1990 and $28.0 million in 1989.
<TABLE>
RECONCILIATION OF BEGINNING AND ENDING CLAIMS RESERVES
AND EXHIBIT OF REDUNDANCIES (DEFICIENCIES)
(In Millions)
<CAPTION>
Net Reserves
YEAR ENDED 1985 1986 1987 1988 1989 1990* 1991* 1992* 1993* 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Liability for Unpaid
Claims and Claim $99.9 $126.1 $147.5 $157.4 $139.6 $118.2 $115.4 $141.3 $186.7 $161.3 $145.5
Adjustment Expenses
Cumulative Amount Paid as of:
End of Year - - - - - - - - - - -
One Year Later 51.1 54.9 57.4 78.8 85.6 89.6 93.7 103.5 115.9 111.7 -
Two Years Later 65.8 73.6 75.9 92.1 104.2 112.9 119.8 140.4 161.8 - -
Three Years Later 70.6 79.5 74.5 95.5 110.3 124.0 131.8 162.0 - - -
Four Years Later 73.3 79.7 75.4 95.4 112.5 131.1 142.5 - - - -
Five Years Later 74.3 80.4 74.5 93.6 118.9 136.2 - - - - -
Six Years Later 74.5 79.0 74.2 100.5 123.0 - - - - - -
Seven Years Later 74.2 78.8 80.4 101.5 - - - - - - -
Eight Years Later 74.0 84.1 80.4 - - - - - - - -
Nine Years Later 79.3 84.1 - - - - - - - - -
Ten Years Later 80.2 - - - - - - - - - -
Net Liability Reestimated as of:
End of Year 99.9 126.1 147.5 157.4 139.6 118.2 115.4 141.3 186.7 161.3 145.5
One Year Later 104.7 126.4 131.9 129.4 129.4 139.2 142.3 167.5 186.5 164.0 -
Two Years Later 101.1 115.8 100.4 108.7 127.4 141.6 145.1 174.3 186.4 - -
Three Years Later 94.7 96.1 86.0 106.8 127.8 140.5 146.4 173.4 - - -
Four Years Later 85.9 88.0 83.7 103.0 125.0 141.5 146.9 - - - -
Five Years Later 80.8 86.9 80.8 102.3 125.8 139.2 - - - - -
Six Years Later 80.9 83.6 82.0 104.0 125.5 - - - - - -
Seven Years Later 80.7 85.7 82.9 103.8 - - - - - - -
Eight Years Later 84.1 86.0 82.6 - - - - - - - -
Nine Years Later 84.5 86.4 - - - - - - - - -
Ten Years Later 82.4 - - - - - - - - - -
Cumulative Redundancy
(Deficiency) 17.5 39.7 64.9 53.6 14.1 (21.0) (31.5) (32.1) 0.3 (2.7) -
Gross Reserves
YEAR ENDED 1993* 1994 1995
Gross Liability for ---- ---- ----
Unpaid Claims and Claim
Adjustment Expenses $233.3 $199.4 $190.9
Cumulative Amount Paid as of:
End of Year - - -
One Year Later 153.5 135.2 -
Two Years Later 201.9
Gross Liability Reestimated as of:
End of year 233.3 199.4 190.9
One Year Later 242.6 212.0 -
Two Years Later 242.9 - -
Cumulative Redundancy
(Deficiency) (9.6) (12.6) -
</TABLE>
*Amounts for these years have been restated to include EIG Co. as though it
were 100% owned by the Company in those years.
G. INVESTMENTS
Income from the Company's investment portfolio
contributes significantly to operating income. Each year
there is a significant net inflow of cash from insurance,
engineering services and investment operations. In addition,
cash flow is affected by the normal maturity of fixed income
investments, and the purchase and sale of equity securities.
The Company's investment strategy continues to be to
maximize total return on the investment portfolio over the
long term through investment income and capital appreciation.
The mix of the portfolio is managed to respond to anticipated
claim pay-out patterns. The company also maintains a highly
liquid short-term portfolio to provide for immediate cash
needs. Investment strategies are developed based on many
factors including operational results, tax implications,
regulatory requirements, interest rates and market
conditions.
The Company's investment portfolio consists of high
quality equity securities and both domestic and foreign fixed
maturities. The Company held no derivative financial
instruments in its investment portfolio at December 31, 1995
and 1994. At year-end 1995 the Company had approximately 47
percent of its invested assets in fixed maturities as
compared to 41 percent at year-end 1994. See "Investment
Operations" in the Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations
located in Item 7 and Note 9 to Consolidated Financial
Statements in Item 8 of Part II herein for additional
information.
The following table summarizes the investment results of
the Company's investment portfolio:
<TABLE>
<CAPTION>
Net Invest- Annualized Rate
Cash and ment Income of Return (2) Investment
Invested Less Before After Gains (Losses) (3)
Assets, Less Interest Income Income Change in
Borrowed Money Expense (1) Taxes Taxes Realized Unrealized
-------------- ----------- ------ ------ -------- -----------
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
1995 $514.8 $26.7 5.8% 4.9% $2.8 $48.9
1994 438.2 24.6 5.6 4.6 8.7 (42.7)
1993 462.6 27.5 6.1 5.3 26.1 (10.3)
</TABLE>
(1) Net investment income excludes realized investment gains
and is reduced by investment expenses, but is before the
deduction for income taxes.
(2) The rates of return on investments shown above have been
determined in accordance with rules prescribed by the
National Association of Insurance Commissioners. These rates
have been determined by the following formula:
2I
---------
A + B - I
I is equal to net investment income, before taxes, earned on
investment assets.
A+B is equal to the sum of the beginning and end of the year
amounts shown under "Cash and Invested Assets, Less Borrowed
Money". The after tax rates of return are computed in the
same manner, but net investment income is reduced by income
taxes.
(3) Realized and unrealized investment gains (losses) are
before income taxes.
H. EMPLOYEES
At year-end 1995, the Company, including its
subsidiaries, employed 4,400 full and part-time employees.
Of this total, 2,385 were employed by Radian Corporation.
Management believes that its relations with its employees are
satisfactory.
Item 2. Properties.
The Hartford Steam Boiler Inspection and Insurance
Company leases approximately 233,145 square feet for its home
office at One State Street, Hartford, Connecticut under a
long-term capital lease with One State Street Limited
Partnership. In addition to its home office facility, the
Company leases facilities for its branch offices and
subsidiaries throughout the United States, and in a small
number of other foreign locations. The Company considers the
office facilities to be suitable and adequate for its current
and anticipated level of operations.
See Notes 13 and 15 to Consolidated Financial Statements
located in Item 8 of Part II herein for additional
information.
Item 3. Legal Proceedings.
The Company is involved in various legal proceedings as
defendant or co-defendant that have arisen in the normal
course of its business. In the judgment of management, after
consultation with counsel, it is improbable that any
liabilities which may arise from such litigation will have a
material adverse impact on the consolidated financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4(a). Executive Officers of the Registrant.
All officers are elected by the Board of Directors to
hold office until the next Annual Meeting of Shareholders.
An officer may be removed at any time by the Board of
Directors.
Gordon W. Kreh, 48, Chief Executive Officer since 4/94;
President and Director since 9/93; Senior Vice President -
Marketing 4/92 - 9/93; President - Engineering Insurance
Group 10/89 - 4/92; Vice President 11/84 - 10/89; Assistant
Vice President 4/81 - 11/84.
Donald M. Carlton, 58, Executive Vice President since 4/92;
Director since 7/75; President and Chief Executive Officer of
Radian International LLC since 1/96; President and Chairman
of the Board - Radian Corporation since 1969.
Saul L. Basch, 49, Senior Vice President, Treasurer and Chief
Financial Officer since 10/95; Partner, Coopers & Lybrand
LLP 9/73 - 10/95; most recently Partner-in-Charge of Coopers
& Lybrand's New York Insurance Industry Practice.
Michael L. Downs, 46, Senior Vice President - Special Risks
since 2/94; Managing Director - Engineering Insurance Co.,
Ltd. 1/91 - 2/94; Second Vice President 7/87 - 1/91;
Assistant Vice President 2/85 - 7/87; Assistant Secretary
4/80 - 2/85.
John J. Kelley, 50, Senior Vice President - Commercial Risks
since 2/94; Corporate Secretary and Special Assistant to the
President 5/87 - 2/94; Assistant Vice President and Special
Assistant to the President 9/83 - 5/87; Assistant Vice
President 9/79 - 9/83; Assistant Secretary 4/77 - 9/79.
William A. Kerr, 57, Senior Vice President - Engineering since
9/95; Vice President and General Manager, Pratt & Whitney Turbo
Power and Marine Division, United Technologies Corporation 8/95 -
9/95; Vice President of Aftermarket Operations, Pratt & Whitney
4/92 - 8/95; Vice President of Development Operations and
Materials Engineering, Pratt & Whitney 1989-4/92.
R. Kevin Price, 49, Senior Vice President and Corporate
Secretary since 2/94; Second Vice President 4/89 - 2/94;
Assistant Vice President 1/84 - 4/89.
William Stockdale, 50, Senior Vice President since 9/95; Managing
Director and Chief Executive Officer of HSB Engineering Insurance
Ltd., London, since 9/94; Director of Engineering, Engineering
Insurance Co., Ltd. 9/92-9/94; Managing Director Scottish Power
PLC, Glasgow, Scotland 1/89 - 8/92.
Robert C. Walker, 52, General Counsel since 1/95; Senior Vice
President - Claims since 3/94; Associate General Counsel and
head of Corporate Litigation Department of United
Technologies Corporation 5/89-3/94.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock is traded on the New York
Stock Exchange under the symbol HSB. As of February 6, 1996,
the Company had 5,854 holders of record.
Dividends paid by the Company are limited by state
insurance regulations. Regulatory approval was required and
received by the Company from the Connecticut Insurance
Commissioner for the payment of 1995 dividends. Approval
from the Insurance Commissioner is required for dividend
distributions within a twelve-month period which would exceed
the greater of (i) 10 percent of an insurer's statutory
surplus or (ii) net income (net investment income under the
prior standard) calculated as of the December 31st last
preceding. The Company does not expect to be required to
request regulatory approval for the payment of any dividends
in 1996. Under statutory accounting practices, $65.3 million
of statutory surplus is available for distribution to
shareholders in 1996 without prior regulatory approval.
Dividends declared for the 1995 and 1994 fiscal years were
as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Year
---------------------------------------------
<S> <C> <C> <C> <C> <C>
1995...........$.55 $.55 $.57 $.57 $2.24
1994...........$.53 $.53 $.55 $.55 $2.16
</TABLE>
Quarterly market prices for the registrant's common stock
were as follows for the two most recent fiscal years:
First Second Third Fourth Year
-----------------------------------------------
1995 High......$43 3/4 $45 7/8 $49 3/8 $50 3/8 $50 3/8
1995 Low.......$39 1/4 $41 5/8 $42 5/8 $45 3/8 $39 1/4
1994 High......$53 3/8 $49 1/8 $45 7/8 $44 3/8 $53 3/8
1994 Low.......$44 $43 3/4 $42 3/4 $36 1/8 $36 1/8
Item 6. Selected Financial Data.
The following selected consolidated financial data should be read
in conjunction with the consolidated financial statements and
notes included elsewhere herein.
<TABLE>
<CAPTION>
(In millions, except per share amounts)
- ------------------------------------------------------------------------------------------------
1995 1994(c) 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Summary of Statements of Operations
Revenues:
Insurance premiums $ 389.1 $ 336.6 $ 349.2 $ 342.9 $ 318.8
Net engineering services 252.1 232.1 231.5 231.0 210.3
Income from investment operations 31.0 34.9 55.4 62.8 70.4
Total revenues 672.2 603.6 636.1 636.7 599.5
Income before taxes and accounting changes 86.3 73.6 16.9 73.4 101.0
Income taxes 23.7 21.7 3.8 17.1 27.1
Income before accounting changes 62.6 51.9 13.1 56.3 73.9
Income per share before accounting changes 3.07 2.54 0.63 2.71 3.53
Dividends declared per share 2.24 2.16 2.12 2.06 1.90
Summary of Statements of Financial Position
Total assets $ 971.5 $ 905.7 $ 877.9 $ 886.4 $ 843.6
Long-term borrowings and
capital lease obligations 53.4 28.4 28.4 28.4 28.5
Shareholders' equity 341.1 299.5 324.7 374.3 402.8
Per share 16.81 14.67 15.80 18.05 19.16
Return on average equity before
accounting changes 19.5% 16.9% 3.7% 14.8% 19.5%
Stock price per share:
High $ 50.38 $ 53.38 $ 59.50 $ 59.25 $ 63.75
Low 39.25 36.13 43.25 45.13 46.25
Close 50.00 39.88 44.50 58.38 57.50
Common shares outstanding
at end of year (a) 20.3 20.4 20.5 20.7 21.0
Insurance
Operating gain (loss) $ 34.2 $ 20.7 $ (26.4) $ 1.8 $ 22.9
Loss ratio 39.8% 42.5% 57.1% 50.3% 43.6%
Expense ratio 50.9% 50.5% 50.5% 49.2% 49.2%
Combined ratio (b) 90.7% 93.0% 107.6% 99.5% 92.8%
Engineering Services
Gross revenues $ 280.9 $ 253.6 $ 256.1 $ 264.7 $ 232.1
Subcontract & equipment resale costs 28.8 21.5 24.6 33.7 21.8
Net revenues 252.1 232.1 231.5 231.0 210.3
Operating gain 22.6 18.2 11.8 14.7 14.0
Gross margin 8.0% 7.2% 4.6% 5.6% 6.0%
Net margin 8.9% 7.9% 5.1% 6.4% 6.7%
Investments
Net investment income $ 28.2 $ 26.2 $ 29.3 $ 32.0 $ 36.5
Realized investment gains 2.8 8.7 26.1 30.8 33.9
Income from investment operations 31.0 34.9 55.4 62.8 70.4
</TABLE>
(a) Reflects the repurchase of approximately .1 million shares in
1995, .1 million shares in 1994, .2 million shares in 1993 and .3
million shares in 1992.
(b) 1995 excludes minority interest and goodwill related to EIG,
Co. 1994 Combined ratio excludes charge for Proposition 103.
(c) See note 4 to Notes to Consolidated Financial Statements in Item 8
of Part II herein regarding EIG, Co. consolidation.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(Dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
SUMMARY OF RESULTS OF OPERATIONS
For the years ended December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues:
Insurance premium $389.1 $336.6 $349.2
Net engineering
services revenues 252.1 232.1 231.5
Net investment income 28.2 26.2 29.3
Realized investment gains 2.8 8.7 26.1
------- ------- -------
Total revenues $672.2 $603.6 $636.1
======= ======= =======
Income before cumulative
effect of change in
accounting $ 62.6 $ 51.9 $ 13.1
Cumulative effect of change
in accounting for post-
employment benefits - - (3.6)
------- ------- -------
Net income $ 62.6 $ 51.9 $ 9.5
======= ======= =======
Net income per share $ 3.07 $ 2.54 $ .46
======= ======= =======
</TABLE>
Net income in 1995 increased 21 percent from 1994 reflecting
continued improvement in underwriting results for the insurance
business and higher margins in engineering services operations,
which outpaced the planned reduction in realized capital gains.
Improvement in 1994 results relative to 1993 were driven by
higher margins in insurance operations, resulting in part from
the Company's program of reunderwriting its book of business and
focusing on more profitable contracts. Results in 1993 include a
$20 million restructuring charge, significant strengthening of
claims reserves and increased costs of reinsurance.
Consolidated revenues increased 11 percent in 1995 to $672.2
million, reflecting the impact of the acquisition and full
consolidation of EIG, Co. and growth in both the domestic and
global insurance markets. On December 30, 1994, the Company
acquired the remaining 50 percent interest in EIG from General
Reinsurance Corporation (Gen Re). EIG was the parent of
Engineering Insurance Company Limited, a London based insurer
which offers machinery breakdown coverage to business and
industry outside the United States and Canada. (See note 4 in Notes
to Consolidated Financial Statements in Item 8 of Part II herein.)
The consolidated revenues in 1994 were below 1993 as marginal growth in
gross premiums was offset by higher reinsurance costs and a decline in
realized investment gains.
In January 1996, The Hartford Steam Boiler Inspection and
Insurance Company (HSB) and The Dow Chemical Company (Dow) formed
a new company, Radian International LLC (Limited Liability
Company), which will provide environmental, information
technology, and strategic chemical management services to
industries and governments worldwide. According to the terms of
the agreement, the ownership of Radian International LLC will be
initially 60 percent Dow and 40 percent HSB, via the wholly owned
subsidiaries of each company. Income will be subject to a
preference return to HSB in the first two years. In 1996, HSB's
interest in Radian International LLC will be accounted for on the
consolidated financial statements under the equity method of
accounting. (See note 5 in Notes to Consolidated Financial Statements
in Item 8 of Part II herein.)
Effective December 1, 1995 the Company increased its
participation in Industrial Risk Insurers (IRI) from
approximately .5 percent to 14 percent. IRI is a voluntary joint
underwriting association providing property insurance for the
class of business known as Highly Protected Risks - larger
manufacturing, processing, and industrial businesses which have
invested in protection against loss through the use of sprinklers
and other means. IRI has a fiscal year ending November 30 and
provides quarterly reports to member companies of the
association. As a result, HSB's increased participation will
initially be reflected in the first quarter financial reports for
1996.
The effective tax rate for 1995 was 27 percent compared to 29 and
22 percent for 1994 and 1993, respectively. The change from 1994
is due primarily to the change in the mix of foreign and domestic
business and utilization of related credits. The difference from
1993 to 1994 is primarily due to the change in the mix between
fully taxable earnings and tax preferred investment income.
<TABLE>
<CAPTION>
INSURANCE OPERATIONS
For the years ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross earned premium $455.0 $381.7 $378.5
Ceded premium 65.9 45.1 29.3
------ ------ ------
Insurance premium $389.1 $336.6 $349.2
Claims and adjustment
expenses 154.9 143.2 199.1
Underwriting, acquisition
and other expenses 200.0 172.7 176.5
------ ------ ------
Underwriting gain (loss) $ 34.2 $ 20.7 $(26.4)
====== ====== ======
</TABLE>
Insurance operations include the insurance results of HSB, The
Boiler Inspection and Insurance Company of Canada (BI&I) and EIG,
Co.
Insurance premiums in 1995 increased 16 percent from 1994. The
EIG, Co. acquisition and full consolidation accounted for a
significant amount of this increase. Had EIG, Co. been 100
percent owned and fully consolidated throughout 1994, the growth
in gross earned premium would have been approximately 7 percent.
Global operations, which represent 19 percent of the 1995 total,
grew 24 percent with expansion into India, China and other Asian
markets representing our largest contributors to such growth. The
Company sees continued opportunities for growth, particularly in
those countries where infrastructure development is moving to the
private sector. At the same time, softening of the market has
occurred as the number of insurers offering capacity has
expanded.
In the domestic insurance markets a program of more disciplined
underwriting principles, arising from a major reunderwriting
effort begun in 1993, has resulted in improved risk selectivity
while at the same time slowing the growth in gross insurance
premiums. In addition, many customers responded to economic and
competitive pressures by selecting programs with higher
deductibles to offset the effective price increases. Higher
deductibles have contributed to slower premium growth over the
past few years. New business growth in the past several years has
been largely attributable to growth in the reinsurance assumed
book of business.
The insurance industry, in general, continues to undergo
significant shakeout and consolidation. Considerable merger and
acquisition activity has occurred recently and more is
anticipated in the future. Depending on the specific companies
involved in these activities and other market factors, the level
of reinsured business the Company assumes in the future could be
impacted. HSB is positioned to benefit from these changes over
the long term due to its strong market position and reinsurance
relationships with more than 100 multi-line carriers; while over
the shorter term there is both opportunity and challenge.
The Company participates in various facultative, quota share and
excess of loss reinsurance agreements to limit its exposure,
particularly to catastrophic losses and high risk lines, and to
provide additional capacity to write business. The Company's
reinsurance costs continue to be impacted by loss experience from
prior years. In 1995, the Company's reinsurance ceded costs
increased $20.8 million from 1994. Had EIG, Co. been 100 percent
owned and fully consolidated in 1994, the increase would have
been approximately $10 million. In 1995, the Company centralized
and consolidated its treaty reinsurance ceded program to cover
global operations. This strategy will enable HSB to more closely
manage its costs. In 1994 HSB increased its retention in order to
mitigate the rising cost of reinsurance. This change could result
in higher claim costs in future periods.
The increase in claims and adjustment expenses in 1995 compared
to 1994 is the result of the acquisition and full consolidation
of EIG, Co. Claims and adjustment expenses, exclusive of EIG,
Co., decreased $3.9 million in the current year compared with
1994. Claim costs in 1994 include $4.8 million of losses relating
to the California earthquake. The 1993 claims and adjustment
expenses include catastrophic losses of $5.3 million for winter
storms and $6.8 million for Midwest floods as well as the
previously noted reserve strengthening. In 1995, there were no
material catastrophic losses experienced by the Company. The
components of claims and adjustment expenses, net of reinsurance,
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Provision for clams and adjust-
ment expenses occurring
in the current year $152.2 $141.7 $172.2
Increase in estimated claims
and adjustment expenses
arising in prior years 2.7 1.5 26.9
------ ------ ------
Total incurred claims
and adjustment expenses $154.9 $143.2 $199.1
====== ====== ======
Loss ratio 39.8% 42.5% 57.1%
====== ====== ======
</TABLE>
The improvement in the loss ratios over both periods is
attributable to the reunderwriting efforts begun in 1993. In
1993, adverse development of prior year reserves was attributable
to the settlement of certain large losses for which the Company
initially determined it would not have liability; the settlement
of some outstanding claims for more than was originally
anticipated; unusually late notice of loss provided by the
insured for several large losses; and reserves established for
losses on which the coverage was being contested.
Claims and adjustment expense reserves comprise one of the
largest liabilities on the Company's Statements of Financial
Position. Reserves are established to reflect the Company's
estimates of total losses and loss adjustment expenses that will
ultimately be paid under direct and assumed insurance contracts.
Loss reserves include claims and adjustment expenses on claims
that have been reported but not settled and those that have been
incurred but not yet reported to the Company. The length of time
that reserves are carried on the Statements of Financial Position
is a function of the pay-out patterns associated with the types
of coverages involved. The majority of risks the Company insures
are short-tailed in nature, relative to the property/casualty
industry as a whole, meaning they generally settle shortly after
claims are reported. The Company's loss reserve estimates reflect
such variables as past loss experience and inflation. In
addition, due to the nature of much of the Company's coverages,
complex engineering judgments are involved. Previously
established loss reserves are regularly adjusted as loss
experience develops and new information becomes available.
Adjustments to previously established reserves are reflected in
the financial statements in the period in which the estimates are
changed.
Failures of some insurance companies, in recent years, have
caused increased interest and concern on the part of both the
public and regulators. Various state laws require the Company to
participate in guaranty associations, which pay policyholders'
claims in the event of an insurer's insolvency, and certain joint
underwriting associations, which provide insurance for particular
classes of insureds when insurance in the voluntary market is
unavailable. The increase in insurer insolvencies and the
unprecedented level of catastrophes in recent years have resulted
in higher assessments against the Company from the associations
in which it participates. The Company has recorded its ultimate
estimate of assessments in its financial statements.
<TABLE>
<CAPTION>
ENGINEERING SERVICES OPERATIONS
For the years ended December 31,
1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
Net engineering
services revenues $252.1 $232.1 $231.5
Net engineering
services expenses 229.5 213.9 219.7
------ ------ ------
Operating gain $ 22.6 $ 18.2 $ 11.8
====== ====== ======
Net margin 8.9% 7.9% 5.1%
====== ====== ======
</TABLE>
Engineering services operations includes the results of HSB's and
BI&I's engineering services, Radian Corporation, HSB Reliability
Technologies (HSBRT), HSB Professional Loss Control and HSB
International.
HSB presents both its engineering services revenues and expenses
net of revenue and expenses for subcontractors. Net engineering
services revenue increased 9 percent over 1994 with Radian
accounting for most of the increase. Radian increased revenues by
10 percent in the current year through increases in market share
in the defense, petroleum/chemical and general manufacturing
sectors.
HSB's consolidated engineering services pretax operating gain
increased 24 percent in 1995 to $22.6 million. The 1995 gain,
another record year for the Company, was achieved through growth
at Radian and improved margins at HSBRT. HSBRT's margin increased
$3.4 million in 1995 over 1994 as certain unprofitable operations
were disposed of in 1994. The increase in operating gain in 1994
over 1993 was achieved through improved margins at Radian as they
undertook cost control measures and improved staff utilization.
<TABLE>
<CAPTION>
INVESTMENT OPERATIONS
For the years ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net investment income $ 28.2 $ 26.2 $ 29.3
Realized investment gains 2.8 8.7 26.1
------ ------ ------
Income from
investment operations $ 31.0 $ 34.9 $ 55.4
====== ====== ======
Total cash and invested
assets, at fair value $553.8 $489.7* $506.0
Net unrealized
gains, pretax 65.4 16.5 59.2
</TABLE>
*Includes $63.1 million resulting from consolidation of EIG, Co.
The Company's investment strategy continues to be to maximize
total return on the investment portfolio over the long term
through investment income and capital appreciation. The
investment portfolio includes a wide variety of high quality
equity securities and both domestic and foreign fixed maturities.
The mix of the portfolio is managed to respond to anticipated
claim pay-out patterns. The Company also maintains a highly
liquid short-term portfolio to provide for immediate cash needs.
Investment strategies are developed based on many factors
including operational results, tax implications, regulatory
requirements, interest rates and market conditions.
Net investment income increased slightly in 1995. The 8 percent
growth was due to the full consolidation of EIG, Co. offset by
lower interest rates. The decrease in 1994 resulted from a lower
average investment portfolio, as equity holdings were liquidated
to meet cash flow requirements. Cash was used to pay dividends,
repay debt and to purchase fixed assets and treasury stock. The
effective tax rate on investment income was 14.0, 17.9 and 13.5
percent in 1995, 1994 and 1993, respectively. The decrease in
1995 resulted from a shift in the mix of the portfolio to more
holdings in tax preferred securities. In 1993, the portfolio was
heavily weighted to equity securities with the effective rate
reduced by lower taxes on dividend income.
The Company's investment portfolio continues to consist of high
grade domestic and foreign investments. At the end of 1995, the
Company's fixed maturities portfolio comprised 47 percent of the
value of the invested assets. The credit quality of the Company's
bond investments at December 31, 1995, averaged AA rating. The
Company's portfolio does not include any bonds in default as to
either principal or interest. Bonds held at December 31, 1995,
had a fair value of $183.9 million. Redeemable preferred stocks
averaged a BBB rating. Declining yields available on new fixed
maturities relative to higher yields on maturing investments over
the past few years have curtailed any significant investment
income growth.
The carrying value of the equity securities portfolio represented
40 percent of the investments at December 31, 1995. This included
$60.4 million of unrealized investment gains, which increased
$34.2 million from 1994 on a sharp upturn in the stock market in
1995. The Company recorded $8.6 million of dividends and $3.5
million of net pretax realized gains from this portfolio in 1995.
The Company's largest single holding accounted for less than 1
percent of total assets.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
Balances at December 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Total assets $971.5 $905.7* $877.9
Short-term investments 73.8 73.8** 53.8
Cash 9.3 12.1 7.3
Short-term borrowings 13.4 50.9*** 42.7
Shareholders' equity 341.1 299.5 324.7
</TABLE>
*Includes $100.9 million resulting from consolidation of EIG, Co.
**Includes $22.6 million resulting from consolidation of EIG, Co.
***Includes $24.1 million resulting from consolidation of EIG,Co.
Liquidity refers to the Company's ability to generate sufficient
funds to meet the cash requirements of its business operations.
The Company receives a regular inflow of cash from maturing
investments and its engineering and insurance operations, and
maintains a highly liquid investment portfolio. The Company
manages its cash and short-term investment position to meet its
operating expense and claim payment needs. In addition, the
Company has capacity to generate cash of up to $75 million
through its short-term commercial paper program. At December 31,
1995, $12.0 million was outstanding. Commercial paper outstanding
is primarily used to fund engineering services operations. In
1995, the company repaid $24.1 million of EIG, Co. short-term
debt and EIG, Co. subsequently issued $25.0 million of senior
notes due May, 15, 2000 at an interest rate of 6.83 percent. The
Company does not anticipate any significant capital commitment
associated with the Radian/Dow transaction and currently has no
significant capital commitments planned for 1996. However, the
Company will probably guaranty up to 40 percent of future Radian
International LLC borrowings. Based upon the business plan of
Radian International LLC, the Company's guarantee could range
from $20 to $50 million.
Cash provided from operations was $95.5 million in 1995 compared
to $40.3 million in 1994 and $53.3 million in 1993. In 1995, $17
million is attributable to the full consolidation of EIG, Co.
Additional improvement in 1995 is due to better underwriting and
engineering services results. Excluding the impact of EIG, Co.,
cash flow from insurance operations grew as premiums collected
increased by 6 percent while claim payments decreased by 5
percent from 1994. Engineering services revenue collected also
increased by 7 percent.
Cash provided by operating and investing activities was used to
pay dividends, repay short-term borrowings, and repurchase
Company stock. The Company repurchased 136,943; 147,486; and
229,992 shares of its common stock in 1995, 1994 and 1993,
respectively.
Dividends paid by the Company are limited by state insurance
regulations. The current restriction is the greater of 10 percent
of prior year's statutory surplus or net income as reported to
the regulatory agencies. Currently, the Company can pay $65.3
million in dividends in 1996 without requesting regulatory
approval. Due to the Company's strong financial position,
regulatory approval was received for the payment of 1995
dividends.
Pursuant to the terms of the acquisition agreement for EIG, HSB
has the option to exchange the EIG, Co. preferred stock, which
was issued to Gen Re at the time of the acquisition, for HSB
convertible preferred stock at the end of 1996.
As part of HSB's strategic planning process the Company
periodically assesses its capital structure to ensure that
appropriate capital is available to grow its core business.
DEVELOPMENTS IN INSURANCE REGULATIONS
In December 1993, the National Association of Insurance
Commissioners (NAIC) adopted the property and casualty risk based
capital (RBC) formula. RBC is used by regulators as an early
warning tool to identify insurers with weak or deteriorating
financial positions requiring further regulatory attention, or
the initiation of regulatory action. The RBC formula monitors
elements of risk defined as underwriting risk, invested asset
risk, credit risk and off balance sheet risk. Property and
casualty insurers were required to report the results of the
formula for the first time in their 1994 statutory filings. HSB
substantially exceeded the RBC requirements in 1995 and 1994.
The NAIC is currently working on a model investment law which
would provide guidelines for insurers in structuring their
investment portfolios. These guidelines are intended to preserve
principal, assure diversification as to investment, issuer and
credit quality, and promote prudent investment management
strategies to ensure companies are positioned to cover reasonably
foreseeable contingencies. The guidelines are expected to be
issued during 1996 for adoption by the states. The Company does
not expect such guidelines to have a material effect on its
investment practices.
Regulator concerns about the consistency and comparability of
statutory accounting practices (SAP) has prompted the NAIC to
undertake a codification project which will replace prescribed or
permitted SAP as the regulatory basis of accounting for insurance
companies. Conversion to new statutory accounting standards is
expected to be required sometime after 1996.
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page No.
Report of Independent Accountants
Financial Statements
Consolidated Statements of Operations
for the years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Financial
Position - December 31, 1995 and 1994.
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements
Schedule I - Summary of Investments-
Other than Investments in Related
Parties
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
No other schedules are required to be filed herewith pursuant to
Article 7 of Regulation S-X.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Hartford Steam Boiler Inspection and Insurance Company
We have audited the consolidated financial statements
and the financial statement schedules of The Hartford Steam Boiler
Inspection and Insurance Company and its subsidiaries listed in
item 8 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of The Hartford Steam Boiler
Inspection and Insurance Company and its subsidiaries as of
December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for
postemployment benefits during 1993.
Coopers & Lybrand
Hartford, Connecticut
January 22, 1996
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, (in millions, except per share amounts)
1995 1994 1993
----- ------ -----
<S> <C> <C> <C>
REVENUES:
Insurance premiums $389.1 $336.6 $349.2
Net engineering services 252.1 232.1 231.5
Net investment income 28.2 26.2 29.3
Realized investment gains 2.8 8.7 26.1
------ ------ -------
Total revenues 672.2 603.6 636.1
------ ------ -------
EXPENSES:
Claims and adjustment 154.9 143.2 199.1
Policy acquisition 78.1 64.7 64.2
Underwriting and inspection 121.9 105.1 112.3
Net engineering services 229.5 213.9 219.7
Interest 1.5 1.6 1.8
Restructuring - - 20.0
Charge for Proposition 103 - 2.9 -
------ ------ -------
Total expenses 585.9 531.4 617.1
Equity in operations of
insurance association - 1.4 (2.1)
INCOME BEFORE TAXES AND CUMULATIVE ------ ------ -------
EFFECT OF CHANGE IN ACCOUNTING 86.3 73.6 16.9
------ ------ -------
INCOME TAXES (BENEFIT):
Current 24.3 18.7 6.9
Deferred (.6) 3.0 (3.1)
------ ------ -------
Total income taxes 23.7 21.7 3.8
INCOME BEFORE CUMULATIVE EFFECT ------- ------ -------
OF CHANGE IN ACCOUNTING 62.6 51.9 13.1
Cumulative effect of change in
accounting for postemployment
benefits (net of income tax of $1.9) - - (3.6)
------- ------- -------
NET INCOME $ 62.6 $ 51.9 $ 9.5
======= ======= =======
PER COMMON SHARE:
Income before accounting change $ 3.07 $ 2.54 $ .63
Cumulative effect of change
in accounting - - (.17)
------- ------- -------
Net income $ 3.07 $ 2.54 $ .46
======= ======= =======
Average shares outstanding 20.4 20.5 20.7
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At December 31, (in millions, except per share amounts)
1995 1994
-------- --------
<S> <C> <C>
ASSETS:
Cash $ 9.3 $ 12.1
Short-term investments, at cost 73.8 73.8
Fixed maturities, at fair value (cost - $247.6; $205.2) 255.3 198.9
Equity securities, at fair value (cost - $155.0; $178.7) 215.4 204.9
------- -------
Total cash and invested assets 553.8 489.7
Insurance premiums receivable 87.2 83.1
Engineering services receivable 68.8 72.1
Fixed assets 62.3 64.2
Prepaid acquisition costs 34.1 35.5
Capital lease 16.8 17.5
Reinsurance recoverable 47.9 44.9
Other assets 100.6 98.7
------- -------
Total assets $971.5 $905.7
======= =======
LIABILITIES:
Unearned insurance premiums $216.2 $201.3
Claims and adjustment expenses 190.9 199.4
Short-term borrowings 13.4 50.9
Long-term borrowings 25.6 .6
Capital lease 27.8 27.8
Deferred income taxes 18.9 (4.6)
Dividends payable 11.6 11.2
Minority interest 20.0 20.0
Other liabilities 106.0 99.6
------- -------
Total liabilities 630.4 606.2
------- -------
SHAREHOLDERS' EQUITY:
Common stock (stated value; shares authorized 50.0;
shares issued 21.3; shares outstanding 20.3; 20.4) 10.0 10.0
Additional paid-in capital 33.9 34.0
Unrealized investment gains, net of tax 43.9 13.9
Retained earnings 305.1 288.1
Treasury stock, at cost (shares 1.0; .9) (47.7) (41.9)
Benefit plans (4.1) (4.6)
------- -------
Total shareholders' equity 341.1 299.5
------- -------
Total liabilities and shareholders' equity $971.5 $905.7
======= =======
Shareholders' equity per common share $ 16.81 $ 14.67
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (in millions) 1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 62.6 $ 51.9 $ 9.5
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 23.1 23.6 20.6
Deferred income taxes (.6) 3.0 (3.1)
Realized investment gains (2.8) (8.7) (26.1)
Change in:
Insurance premiums receivable (4.1) (4.3) (6.5)
Engineering services receivable 3.3 6.9 (7.8)
Prepaid acquisition costs 1.4 (2.0) -
Reinsurance recoverable (3.0) 3.8 (4.6)
Unearned insurance premiums 14.9 8.5 (1.7)
Claims and adjustment expenses (8.5) (37.2) 41.7
Other 9.2 (5.2) 31.3
------- ------- -------
Cash provided by operating activities 95.5 40.3 53.3
------- ------- -------
INVESTING ACTIVITIES:
Fixed asset additions (16.8) (16.8) (14.3)
Investments:
Sale (purchase) of short-term investments, net - 2.5 (7.2)
Purchase of fixed maturities (152.1) (52.3) (29.9)
Proceeds from sale of fixed maturities 91.5 13.5 7.1
Redemption of fixed maturities 17.0 20.5 27.5
Purchase of equity securities (95.0) (151.1) (488.5)
Proceeds from sale of equity securities 122.9 216.6 516.2
Cash acquired in connection with EIG acquisition - .3 -
------ ------- -------
Cash provided by (used in) investment activities (32.5) 33.2 10.9
------ ------- -------
FINANCING ACTIVITIES:
Decrease in short-term borrowings, net (37.5) (15.9) (9.5)
Repayment of long-term debt (.1) (.1) (.1)
Increase of long-term debt 25.1 - -
Dividends paid to shareholders (45.3) (43.9) (43.9)
Repayment of employee stock ownership plan debt (1.7) (2.1) (1.9)
Purchase of treasury stock (6.3) (6.7) (10.2)
------- ------- -------
Cash used in financing activities (65.8) (68.7) (65.6)
------- ------- -------
Net increase (decrease) in cash (2.8) 4.8 (1.4)
Cash at beginning of period 12.1 7.3 8.7
------- ------- -------
Cash at end of period $ 9.3 $ 12.1 $ 7.3
======= ======= =======
INTEREST PAID $ 1.5 $ 1.6 $ 1.8
------- ------- -------
FEDERAL INCOME TAX PAID $ 23.4 $ 8.2 $ 4.3
------- ------- -------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of EIG through issuance of EIG, Co. preferred stock of
$20 million in 1994.
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the years ended December 31, (in millions)
Net
Total Unrealized
Share- Additional Investment
holders' Common Paid-in Gains Retained Treasury Benefit
Equity Stock Capital (Losses) Earnings Stock Plans
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1992 $ 374.3 $ 10.0 $ 33.4 $ 51.9 $ 314.8 $ (26.9) $ (8.9)
- ----------------------------------------------------------------------------------------------------------------------
Net income 9.5 - - - 9.5 - -
Dividends declared (43.9) - - - (43.9) - -
Change in unrealized
investment gains, net of tax (13.0) - - (13.0) - - -
SFAS 115 accounting change 5.3 - - 5.3 - - -
Benefit plans 1.4 - .2 - - .4 .8
Exercise of stock options .9 - .3 - - .6 -
Purchase of treasury stock (9.8) - - - - (9.8) -
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 $ 324.7 $ 10.0 $ 33.9 $ 44.2 $ 280.4 $ (35.7) $ (8.1)
- ----------------------------------------------------------------------------------------------------------------------
Net income 51.9 - - - 51.9 - -
Dividends declared (44.2) - - - (44.2) - -
Change in unrealized
investment gains, net of tax (30.3) - - (30.3) - - -
Benefit plans 4.0 - - - - .5 3.5
Exercise of stock options .1 - .1 - - - -
Purchase of treasury stock (6.7) - - - - (6.7) -
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1994 $ 299.5 $ 10.0 $ 34.0 $ 13.9 $ 288.1 $ (41.9) $ (4.6)
- ----------------------------------------------------------------------------------------------------------------------
Net income 62.6 - - - 62.6 - -
Dividends declared (45.6) - - - (45.6) - -
Change in unrealized
investment gains, net of tax 30.0 - - 30.0 - - -
Benefit plans .9 - (.1) - - .5 .5
Purchase of treasury stock (6.3) - - - - (6.3) -
- ----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 $ 341.1 $ 10.0 $ 33.9 $ 43.9 $ 305.1 $ (47.7) $ (4.1)
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share amounts)
1. ACCOUNTING POLICIES
Consolidation
The accompanying financial statements present the consolidated
accounts of The Hartford Steam Boiler Inspection and Insurance
Company and its subsidiaries (collectively, the Company) and are
prepared in accordance with generally accepted accounting
principles (GAAP). Significant intercompany transactions and
balances have been eliminated in consolidation. The preparation
of financial statements in accordance with GAAP requires the use
of estimates in reporting certain assets and liabilities. Actual
results could differ from those estimates.
Insurance
Insurance premium revenues are net of reinsurance ceded and are
generally earned on a pro rata basis over the contract period.
The portion of gross insurance premiums not earned at the end of
the period is recorded as unearned insurance premiums on the
Consolidated Statements of Financial Position. Unearned ceded
premiums are included in other assets on the Consolidated
Statements of Financial Position.
Prepaid acquisition costs, consisting of commissions and premium
taxes, are amortized as the related insurance premiums are
earned. All other acquisition costs are charged to operations as
incurred.
Liabilities for claims and adjustment expenses for boiler and
machinery, property and other coverages represent estimated
reserves on claims and adjustment expenses reported but not yet
settled and the cost of claims and adjustment expenses incurred
but not yet reported. Reserves for claims and adjustment expenses
are undiscounted and are gross of amounts recoverable from
reinsurers. Reserves are reduced for estimated amounts of salvage
and subrogation and deductibles recoverable from customers. The
length of time that reserves for claims and adjustment expenses
are carried on the Consolidated Statements of Financial Position
is a function of the pay-out patterns associated with the types
of coverages involved. Estimates for these reserves
reflect such variables as past loss experience, changes in
judicial interpretation of legal liability, policy coverage and
inflation, and require complex engineering judgments. Due to the
nature of the variables involved in the reserving process,
subjective judgments are an integral component. Previously
estimated reserves are regularly adjusted as loss experience
develops and new information becomes available. Since reserves
are based on estimates, the ultimate liability may be more or
less than such reserves. The effects of changes in estimated
reserves are included in the results of operations in the period
in which the estimates are changed. (See note 12.) The Company
records subrogation when recoverability is probable, such as when
a judgment is returned, liability is admitted to or settlement is
reached.
Reinsurance recoverable represents amounts due from reinsurers
for paid and unpaid claims and adjustment expenses through ceded
reinsurance agreements.
Engineering Services
The Company recognizes the majority of its engineering services
revenues as the service is provided, net of related subcontract
costs of $28.8, $21.5 and $24.6 million in 1995, 1994 and 1993,
respectively. Generally, revenues from contracts are recognized
on the percentage-of-completion method; costs on such contracts
are included in operations as incurred. Provisions are made for
losses on contracts at the time such losses become known.
Investments
Short-term investments have a maturity of one year or less and
are carried at cost which approximates fair value. Fixed
maturities include bonds, notes and redeemable preferred stocks.
Equity securities include common and non-redeemable preferred
stocks. All fixed maturities and equity securities are classified
as available for sale. Accordingly, these investments are carried
at estimated fair value. Estimated fair values of securities
classified as available for sale are based principally upon
quoted market prices.
Investment income is net of investment expenses. Realized
investment gains and losses are determined on the basis of costs
related to those investments sold and are recorded on the trade
date. Also included in realized investment gains and losses are
losses arising from declines in the realizable value of
investments considered to be other than temporary. Unrealized
gains and losses on investments classified as available for sale
and foreign exchange gains and losses on certain investments in
foreign operations are included net of income tax in
Shareholders' equity.
The carrying values of short-term investments, investment income
accrued and securities transactions in the course of settlement
approximate their fair value because of the relatively short
period of time between origination of the instruments and their
expected realization.
Income Taxes
Deferred tax assets and liabilities are generally determined
based on the difference between financial statement and tax bases
for certain assets and liabilities using tax rates in effect for
the year in which the differences are expected to reverse.
Deferred tax assets are allowed if future realization is more
likely than not. Deferred income taxes are provided for
unrealized appreciation on fixed maturities and equity securities
available for sale, prepaid acquisition costs, unearned premiums,
certain employee benefit costs and other items which are the
result of temporary differences in the treatment of such items
for tax and financial statement purposes.
Fixed Assets
Fixed assets are carried at cost less accumulated depreciation.
Depreciation is calculated on the basis of estimated useful lives
using straight-line and accelerated methods. Upon retirement or
replacement, any gain or loss is included in operations.
Goodwill and Other Intangible Assets
Goodwill is generally amortized over 15 years and other
intangible assets over their estimated useful lives. These assets
are included in other assets on the Consolidated Statements of
Financial Position and amounted to $21.5 and $22.9 million at
December 31, 1995 and 1994, respectively. The Company evaluates
the realizability of goodwill based upon projections of
undiscounted cash flows.
2. CHANGE IN ACCOUNTING PRINCIPLE
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 112 (SFAS 112), "Employers' Accounting for
Postemployment Benefits," with retroactive application to January
1, 1993. The adoption of SFAS 112 resulted in a non-cash, after-
tax charge of $3.6 million or $.17 per share. This charge was
recognized as the cumulative effect of a change in accounting in
the Consolidated Statements of Operations.
3. FUTURE CHANGES IN ACCOUNTING PRINCIPLES
In March 1995, the Financial Accounting Standards Board (the
Board) issued Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," effective for
fiscal years beginning after December 31, 1995. SFAS 121 requires
that entities review long-lived assets, certain intangibles and
goodwill for possible impairment whenever circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS
121 also requires that long-lived assets and certain intangibles
to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. Implementation of SFAS 121 is not
expected to have a material impact on the Company's financial
results.
In October 1995, the Board issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," effective for fiscal years beginning after
December 15, 1995. SFAS 123 allows entities to adopt the fair
value based method of accounting for stock compensation or
continue under current accounting practice. Entities electing to
remain with current accounting must make pro forma disclosures of
net income and earnings per share as if the fair value based
method of accounting in this Statement had been applied. The
Company expects to make pro forma disclosure of awards granted in
1995 and future years and has not yet settled on a method of
valuation.
4. ACQUISITION
In December 1994, The Hartford Steam Boiler Inspection and
Insurance Company (HSB) acquired the remaining 50 percent
interest in Engineering Insurance Group (EIG), a partnership
which was jointly formed by the Company and General Reinsurance
Corporation (Gen Re) in 1988. The partnership was the parent of
Engineering Insurance Company Limited, a London based insurer
formed in 1989 principally to offer machinery breakdown coverage
to business and industry outside the United States and Canada.
Coincident with the December 1994 acquisition, the partnership
was incorporated with the Company acquiring all outstanding
common shares and Gen Re acquiring preferred shares of the new
company, EIG, Co. HSB has the option to exchange the EIG, Co.
preferred stock for HSB convertible preferred stock at the end of
1996. The Company has accounted for this transaction as a
purchase resulting in the recording of assets and liabilities
acquired at fair value, and goodwill of $15.9 million, which is
being amortized over 15 years. The Company's interest in EIG, Co.
has been fully consolidated in the Consolidated Statements of
Financial Position beginning December 31, 1994, reflecting the
preferred issuance as a minority interest. Prior to this
acquisition, the Company's 50 percent ownership in EIG had been
accounted for under the equity method. Accordingly, the results
of operations for 1994 and 1993 have been reflected under the
caption "Equity in operations of insurance association" in the
Consolidated Statements of Operations, while the 1995 results of
operations for EIG, Co. are fully consolidated.
5. SUBSEQUENT EVENTS
In January 1996, HSB and The Dow Chemical Company (Dow) formed a
new company, Radian International LLC (Limited Liability
Company), which will provide environmental, information
technology, and strategic chemical management services to
industries and governments worldwide. According to the terms of
the agreement, the ownership of Radian International LLC
initially will be 60 percent Dow and 40 percent HSB, via the
wholly owned subsidiaries of each company. Income will be subject
to a preference return to HSB in the first two years. As is
customary in joint ventures, the agreements between HSB and Dow
specify certain circumstances under which the business can be
sold, venture assets and liabilities can be distributed or
partners' interests can be sold subject to certain rights of
first refusal.
In 1996, HSB's interest in Radian International LLC will be
accounted for on the consolidated financial statements under the
equity method of accounting. Had the transaction occurred at the
beginning of 1995 total revenues and total expenses would have
been $470.7 and $399.7 million, respectively, and consolidated
assets and liabilities at December 31, 1995 would have been
$954.1 and $613.0, respectively.
6. RESTRUCTURING
In September of 1993, the Company recorded a $20 million charge
for the cost of restructuring its insurance and engineering
services businesses. Restructuring costs include severance and
other costs related to planned staff reductions and charges
related to a realignment of the Company's operations. At December
31, 1995, $.5 million of restructuring liability remains.
7. SEGMENT INFORMATION
HSB is a multi-national company operating primarily in North
American, European, and Asian markets. The most significant
business is boiler and machinery insurance, which provides
insurance against losses from accidents to boilers, pressure
vessels, and a wide variety of mechanical and electrical
machinery and equipment, along with a high level of inspection
services aimed at loss prevention. The Company also offers
professional scientific and technical consulting for industry and
government on a worldwide basis. While the principal market for
insurance and engineering services is the United States, the
Company continues to see growth opportunities in overseas
markets. The Company operates three principal businesses -
insurance, engineering services and investments. Revenues,
expenses and receivables are shown for these segments in the
Company's financial statements. The Company does not allocate
assets between business segments.
In 1995, the Company derived approximately 13 percent of its
total revenues from engineering services contracts with various
agencies and departments of the U.S. government.
The following presents financial data of the Company based on
geographic location:
<TABLE>
<CAPTION>
For the Years
Ended December 31,
---------------------
1995 1994 1993
---------------------
<S> <C> <C> <C>
REVENUES
U.S. $581.7 $561.6 $595.6
Non-U.S. 90.5 42.0 40.5
------ ------ ------
Total revenues $672.2 $603.6 $636.1
====== ====== ======
INCOME BEFORE TAXES AND
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING
U.S $ 68.6 $ 66.9 $ 13.5
Non-U.S. 17.7 6.7 3.4
------ ------- ------
Total income before taxes
and cumulative effect of
change in accounting $ 86.3 $ 73.6 $ 16.9
====== ======= ======
At December 31,
--------------------------
1995 1994 1993
--------------------------
IDENTIFIABLE ASSETS
U.S. $758.2 $744.0 $807.3
Non-U.S. 213.3 161.7* 70.6
------- ------ ------
Total assets $971.5 $905.7 $877.9
======= ====== ======
</TABLE>
*Includes $100.9 million resulting from consolidation of EIG, Co.
(See note 4.)
8. STATUTORY FINANCIAL INFORMATION
HSB is a Connecticut domiciled insurance company which is
licensed to conduct business in all 50 states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands. The annual
statements for state insurance regulatory authorities are
currently prepared using accounting methods prescribed or
permitted by such authorities (statutory basis). Statutory
accounting practices (SAP) differ in certain respects from GAAP.
With respect to the Company's financial statements, these
differences are primarily comprised of the accounting for prepaid
acquisition costs, deferred income taxes, fixed maturity
investments, valuation of certain non-insurance affiliates and
employee benefit plans. At year-end 1995 and 1994, policyholders'
surplus on a statutory basis was $280.6 and $238.0 million,
respectively. Statutory net income, adjusted to include the
earnings of all HSB domestic insurance subsidiaries for 1995,
1994 and 1993 was $66.7, $40.1 and $20.1 million, respectively.
The Company is currently subject to various regulations that
limit the maximum amount of dividends available to shareholders
without prior approval of insurance regulatory authorities. Under
SAP, $65.3 million of statutory surplus is available for
distribution to shareholders in 1996 without prior regulatory
approval.
In December 1993, the National Association of Insurance
Commissioners (NAIC) adopted the property and casualty risk based
capital (RBC) formula which allows regulators to more closely
monitor insurers with weak or deteriorating financial positions
and take regulatory action under certain conditions. The RBC
formula for property and casualty companies monitors elements of
risk defined as underwriting risk, invested asset risk, credit
risk and off-balance sheet risk. Property and casualty insurers
were required to report the results of the formula for the first
time in their 1994 statutory filings. HSB substantially exceeded
the RBC requirements in 1995 and 1994.
The NAIC is currently working on a model investment law that
would provide guidelines for insurers in structuring their
investment portfolios. These guidelines are intended to preserve
principal, assure diversification as to investment, issuer and
credit quality, and promote prudent investment management
strategies to ensure companies are positioned to cover reasonably
foreseeable contingencies. The guidelines are expected to be
issued during 1996 for adoption by the states.
Regulator concerns about the consistency and comparability of SAP
has prompted the NAIC to undertake a codification project that
will replace prescribed or permitted SAP as the regulatory basis
of accounting for insurance companies. Conversion to new
statutory accounting standards is expected to be effective
sometime after 1996.
9. INVESTMENTS
<TABLE>
<CAPTION>
1995 1994 1993
---------------------
<S> <C> <C> <C>
INCOME FROM INVESTMENT OPERATIONS
Net investment income:
Short-term interest $ 6.2 $ 2.0 $ 1.3
Fixed maturities:
Taxable interest 9.0 4.1 3.7
Tax exempt interest 1.9 2.5 2.1
Redeemable preferred dividends 6.3 6.4 6.9
Equity securities:
Common dividends 4.0 6.7 10.5
Non-redeemable preferred dividends 4.6 5.1 6.3
Other 1.2 2.3 1.0
----- ----- -----
Total investment income 33.2 29.1 31.8
Investment expenses (5.0) (2.9) (2.5)
----- ----- -----
Net investment income $28.2 $26.2 $29.3
===== ===== =====
Realized investment gains (losses):
Fixed maturities:
Bonds:
Gains $ .7 $ 1.2 $ 1.0
Losses (1.5) (.7) (.6)
----- ----- -----
Net gains (losses) (.8) .5 .4
Redeemable preferred stocks:
Gains .7 1.7 .6
Losses (.6) (.2) (.4)
----- ----- -----
Net gains .1 1.5 .2
Equity securities:
Common stocks:
Gains 11.4 19.3 37.3
Losses (7.4) (17.3) (16.0)
----- ----- -----
Net gains 4.0 2.0 21.3
Non-redeemable preferred stocks:
Gains .2 5.0 4.2
Losses (.7) (.3) -
----- ----- -----
Net gains (losses) (.5) 4.7 4.2
----- ----- -----
Realized investment gains $ 2.8 $ 8.7 $26.1
===== ===== =====
</TABLE>
Realized investment gains and losses for 1994 included $1.5
million of losses on common stocks arising from declines in the
realizable value of investments considered to be other than
temporary. There were no material declines in the realizable
value of investments considered to be other than temporary for
1995.
<TABLE>
<CAPTION>
UNREALIZED INVESTMENT GAINS, NET OF TAX
1995 1994 1993
--------------------
<S> <C> <C> <C>
Fixed maturities:
Gains $ 9.3 $ 2.4 $ 9.1
Losses (1.6) (8.7) (.9)
----- ----- -----
Net gains (losses) 7.7 (6.3) 8.2
Equity securities:
Gains 64.2 35.8 59.3
Losses (3.8) (9.6) (6.1)
----- ----- -----
Net gains 60.4 26.2 53.2
Foreign exchange (2.7) (3.4) (2.2)
----- ----- -----
Total unrealized
investment gains 65.4 16.5 59.2
Income taxes (21.5) (2.6) (15.0)
Unrealized investment ----- ----- -----
gains, net of tax $43.9 $13.9 $44.2
===== ===== =====
</TABLE>
FIXED MATURITIES
The amortized cost, estimated fair values (based principally upon
quoted market prices) and gross unrealized gains and losses of
fixed maturities at December 31, were as follows:
<TABLE>
<CAPTION>
1995
-------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Category Cost Value Gains Losses
- -------- -------------------------------------------
<S> <C> <C> <C> <C>
Redeemable preferred stocks $ 70.0 $ 71.4 $ 2.9 $ 1.5
States and municipalities 25.3 27.0 1.8 .1
Foreign governments 45.3 46.7 1.4 -
Corporate and other 106.9 110.1 3.2 -
U.S. Treasury and agencies .1 .1 - -
------ ------ ------ ------
Total fixed maturities $247.6 $255.3 $ 9.3 $ 1.6
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Category Cost Value Gains Losses
- --------- -------------------------------------------
<S> <C> <C> <C> <C>
Redeemable preferred stocks $ 67.0 $ 63.9 $ 1.6 $ 4.7
States and municipalities 49.5 47.8 .7 2.4
Foreign governments 27.5 26.4 .1 1.2
Corporate and other 61.0 60.6 - .4
U.S. Treasury and agencies .2 .2 - -
------ ------ ------ ------
Total fixed maturities $205.2 $198.9 $ 2.4 $ 8.7
====== ====== ====== ======
</TABLE>
The amortized cost and estimated fair value of fixed maturities
at December 31, by contractual years-to-maturity follow. Actual
maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations.
<TABLE>
<CAPTION>
1995
--------------------
Estimated
Amortized Fair
Maturity Cost Value
- -------- --------------------
<S> <C> <C>
One year or less $ 15.1 $ 15.4
Over one year through five years 108.4 111.8
Over five years through ten years 80.8 83.4
Over ten years 43.3 44.7
------ ---------
Total fixed maturities $247.6 $255.3
====== =========
</TABLE>
EQUITY SECURITIES
The cost, estimated fair values (based principally upon quoted
market prices) and gross unrealized gains and losses of equity
securities at December 31, were as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
--------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 98.2 $153.5 $ 56.7 $ 1.4
Non-redeemable preferred stocks 56.8 61.9 7.5 2.4
------ ------ ------ ------
Total equity securities $155.0 $215.4 $ 64.2 $ 3.8
====== ====== ====== ======
1994
---------------------------------------
Estimated Gross Gross
Cost Fair Unrealized Unrealized
Value Gains Losses
---------------------------------------
Common stocks $126.4 $153.7 $ 32.7 $ 5.4
Non-redeemable preferred stocks 52.3 51.2 3.1 4.2
------ ------ ------ ------
Total equity securities $178.7 $204.9 $ 35.8 $ 9.6
====== ====== ====== ======
</TABLE>
The Company held no derivative financial instruments in its
investment portfolio at December 31, 1995 and 1994. The Company
sells covered call options, at times, to protect against adverse
changes in market values. Premiums received on options written
are deferred and recognized as a component of gross realized
gains when the option contracts are exercised or expire. During
1995 and 1994, aggregate premiums received by the Company on
covered call options amounted to less than $.l and $.7 million,
respectively. Net gains recognized on sales of underlying
instruments amounted to less than $.l and $.4 million for 1995
and 1994, respectively. Generally the duration of covered call
options written by the Company does not exceed 30 days.
10. ENGINEERING SERVICES RECEIVABLE
Engineering services receivable is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Amounts billed $ 45.9 $ 41.0
Amounts unbilled 18.1 26.0
Amounts due upon completion of contracts 5.5 5.7
------ ------
69.5 72.7
Less allowance for bad debts (.7) (.6)
------ ------
Engineering services receivable $ 68.8 $ 72.1
====== ======
</TABLE>
11. REINSURANCE
The components of net written and net earned insurance premiums
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Written premiums:
Direct $285.3 $251.7 $246.1
Assumed 182.9 137.9 131.0
Ceded (59.9) (49.3) (32.6)
------ ------ ------
Net written insurance premiums $408.3 $340.3 $344.5
====== ====== ======
Earned Premiums:
Direct $279.7 $242.6 $246.9
Assumed 175.3 139.1 131.6
Ceded (65.9) (45.1) (29.3)
------ ------ ------
Net earned insurance premiums $389.1 $336.6 $349.2
====== ====== ======
</TABLE>
The Company writes direct business through agencies and brokerage
firms. In addition, the Company assumes boiler and machinery
business through treaty and facultative reinsurance with over 100
insurance companies and several insurance pools. A significant
amount of this assumed book is underwritten by the Company. The
insurance industry, in general, is undergoing a significant
shakeout and consolidation. Considerable merger and acquisition
activity has occurred recently and more is anticipated in the
future. Depending on the specific companies involved in these
activities and other market factors, the level of reinsured
business the Company assumes in the future could be impacted.
As a property insurer, the Company is subject to losses that may
arise from catastrophic events. The Company participates in
various facultative, quota share and excess of loss reinsurance
agreements to limit its exposure, particularly to catastrophic
losses, and to provide additional capacity to write business. In
the unlikely event that ceded reinsurers are unable to meet their
obligations, the Company would continue to have primary liability
to policyholders for losses incurred. Reinsurance recoverable on
unpaid claims and the unearned portion of ceded reinsurance
premiums are reported as assets, rather than netted against the
related liability accounts. The Company is not party to any
contracts that do not comply with the risk transfer provisions of
SFAS 113. The Company recorded $18.5 and $31.0 million of
reinsurance recoveries as a reduction of its claims and
adjustment expenses during the years 1995 and 1994, respectively.
Reinsurance recoverable on paid claims and adjustment expenses
was $2.5 and $6.8 million at December 31, 1995 and 1994,
respectively.
Effective December 1, 1995 the Company increased its
participation in Industrial Risk Insurers (IRI) from
approximately .5 percent to 14 percent. IRI is a voluntary joint
underwriting association providing property insurance for the
class of business known as Highly Protected Risks - larger
manufacturing, processing, and industrial businesses which have
invested in protection against loss through the use of sprinklers
and other means. IRI has a fiscal year ending November 30, and
provides quarterly reports to member companies of the
association. As a result, HSB's increased participation will
initially be reflected in the first quarter financial reports for
1996.
12. RECONCILIATION OF NET LIABILITY FOR CLAIMS AND ADJUSTMENT
EXPENSES
The following table provides a reconciliation of the beginning
and ending reserves for claims and adjustment expenses, net of
reinsurance recoverables.
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net liability for claims and adjustment
expenses at January 1, $161.3 $171.3 $132.8
------ ------ ------
Plus:
Provision for claims and adjustment
expenses occurring in the current year 152.2 141.7 172.2
Increase in estimated claims and
adjustment expenses arising in
prior years 2.7 1.5 26.9
------ ------ ------
Total incurred claims and adjustment
expenses 154.9 143.2 199.1
------ ------ ------
Less:
Payment for claims arising in:
Current year 58.9 63.5 60.9
Prior years 111.8 108.7 99.7
------ ------ ------
Total payments 170.7 172.2 160.6
------ ------ ------
Plus:
Full consolidation of EIG, Co.
at December 31, 1994 (See note 4) - 19.0 -
------ ------ ------
Net liability for claims and
adjustment expenses
at December 31 $145.5 $161.3 $171.3
====== ====== ======
</TABLE>
The 1993 claims and adjustment expenses included adverse
development of prior years' reserves. The adverse development of
the 1992 year-end reserves was attributable to the settlement of
certain large losses for which the Company initially determined
it would not have liability, the settlement of some outstanding
claims for more than was originally anticipated, unusually late
notice of loss provided by the insured for several large losses,
and reserves established for losses on which the coverage is
being contested.
In 1993 the Company enhanced the evaluation techniques used in
its reserving process. This process resulted in significant
reserve strengthening in that year. The re-estimation of the 1993
reserve at December 31, 1994 resulted in an increase in the
reserve estimate of less than 1 percent of the consolidated
reserve balance.
A reconciliation of the net liability to the gross liability for
claims and adjustment expenses is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------
<S> <C> <C> <C>
Net liability for claims and adjustment expenses
at December 31, $145.5 $161.3 $171.3
Reinsurance recoverable on unpaid claims and
adjustment expenses 45.4 38.1 43.1
------ ------ ------
Gross liability for claims and adjustment expenses
at December 31, $190.9 $199.4 $214.4
====== ====== ======
</TABLE>
13. FIXED ASSETS
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------
<S> <C> <C>
Land and buildings $ 7.4 $ 7.4
Furniture, equipment and other 129.9 123.1
------ ------
137.3 130.5
Less accumulated depreciation (75.0) (66.3)
------- ------
Fixed assets $ 62.3 $ 64.2
======= ======
</TABLE>
14. INCOME TAXES
Tax Provision
A reconciliation of income taxes (benefit) at U.S. statutory
rates to the income taxes (benefit) as reported is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------
% of % of % of
Pre-Tax Pre-Tax PreTax
Amount Income Amount Income Amount Income
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before taxes $86.3 100% $73.6 100% $16.9 100%
===== ===== ===== ==== ===== =====
Tax at statutory rates $30.2 35% $25.8 35% $ 5.9 35%
Income taxed at foreign rates .2 - .2 - .1 -
Dividends received deduction (3.9) (5) (4.3) (6) (5.7) (34)
Tax exempt interest (.7) (1) (.7) (1) (.7) (4)
Restructuring - - - - 3.5 21
Tax credits and others (2.1) (2) .7 1 .7 4
----- ----- ----- ---- ----- -----
Total income taxes and
effective tax rate $23.7 27% $21.7 29% $ 3.8 22%
===== ===== ===== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Income taxes (benefit) consisted of the following:
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Current provision:
U.S. $16.1 $15.6 $ 4.6
Foreign 8.2 3.1 2.3
------ ------ ------
Current provision 24.3 18.7 6.9
------ ------ ------
Deferred provision:
U.S. .8 2.8 (3.3)
Foreign (1.4) .2 .2
------ ------ ------
Deferred provision (.6) 3.0 (3.1)
------ ------ ------
Total income taxes $23.7 $21.7 $ 3.8
====== ====== ======
</TABLE>
Deferred Income Taxes
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Components of the Company's deferred tax
liabilities and assets as of December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
<S> <C> <C>
Deferred tax liabilities:
Prepaid acquisition costs $ (9.8) $(11.7)
Accelerated depreciation (3.8) (3.4)
Pension asset (11.5) (9.9)
Unrealized investment gains (21.5) (2.6)
Other (13.8) (6.6)
------ ------
Total deferred tax liabilities (60.4) (34.2)
------ ------
Deferred tax assets:
Benefit plans 10.8 11.2
Capital lease 3.6 3.8
Unearned insurance premiums 12.4 12.2
Loss reserve discounting 5.9 6.8
Other 8.8 4.8
------ ------
Total deferred tax assets 41.5 38.8
------ ------
Net deferred tax assets
(liabilities) $(18.9) $ 4.6
====== ======
</TABLE>
Other Information
Federal income tax returns for the years 1994, 1993 and 1992 are
open to examination by the Internal Revenue Service. If examined,
no significant tax adjustments are anticipated.
15. LEASES
The Company leases its home office facility at One State Street
under a long-term capital lease with the One State Street Limited
Partnership. The lease obligation of $26.1 million was recorded
at July 1, 1983 at an interest rate of 15 percent. Accumulated
amortization was $9.3 and $8.6 million at December 31, 1995 and
1994, respectively. Terms of the lease require annual payments of
approximately $4 million a year through June 30, 2018. In
addition, the Company is required to pay over the lease term a
proportional share of the facilities variable operating expenses.
This amounted to approximately $2.8, $2.8 and $2.9 million for
the years ended 1995, 1994 and 1993, respectively.
The Company owns the One State Street land and leases it to the
One State Street Limited Partnership. The Company receives a base
rental for the land and a participation in the cash flow of the
Partnership. The Company has a right of first refusal should the
Partnership decide to sell the facility. If the Company does not
exercise its right of first refusal, it will receive 65 percent
of the net sale proceeds.
In addition to its home office facility, the Company leases
facilities and certain equipment which are accounted for as
operating leases. Lease expenses amounted to $14.3, $15.1 and
$14.7 million in 1995, 1994 and 1993, respectively.
At December 31, 1995, future minimum rental commitments under
noncancelable leases accounted for as operating leases with
initial or remaining terms of more than one year were as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $15.0
1997 13.0
1998 11.1
1999 9.3
2000 5.9
2001 and thereafter 6.4
------
Total $60.7
======
</TABLE>
16. SHORT-TERM AND LONG-TERM BORROWINGS
During 1995, the Company borrowed on a short-term basis through
its commercial paper program which has a limit of $75 million.
Commercial paper outstanding at December 31, 1995 and 1994 was
$12.0 and $26.7 million, respectively. Commercial paper
outstanding at December 31, 1995 and 1994 had maturity dates
through January, 1996 and April, 1995, respectively. Short-term
borrowings at December 31, 1994 included $24.1 million recorded
as a result of The Company's acquisition of the remaining
interest in EIG. (See note 4.) This debt was repaid in 1995.
Long-term debt at December 31, 1995 included $25.0 million of
senior notes due May 15, 2000 at an interest rate of 6.83
percent. Long-term borrowings mature on or before December 31,
2001.
17. PENSION PLANS
The Company maintains various types of pension plans covering
employees of HSB and certain affiliates. The plans are non-
contributory and benefits are based upon an employee's years of
service and final average pay based upon the highest three out of
five years. Vesting occurs after five years of service in
compliance with the provisions of the Tax Reform Act of 1986. The
Company's funding policy is to contribute an amount necessary to
satisfy the minimum requirements under the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code, plus
such additional amounts as the Company determines appropriate.
Assets available for plan benefits include approximately $16.8
million of Company stock at December 31, 1995.
The pension expense for the U.S. pension plans was a net credit
to earnings for 1995, 1994 and 1993 due to the over funded status
of the primary plan. The components of the credit were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
Service costs $ 2.9 $ 3.6 $ 3.2
Interest costs 10.2 9.7 9.3
Return on assets (30.9) 6.6 (5.2)
Net amortization and deferral 15.3 (22.0) (11.0)
----- ------ ------
Net pension credit $(2.5) $(2.1) $(3.7)
===== ====== ======
</TABLE>
The following table represents a reconciliation of the U.S. plans
funded status and the amounts recognized in the Company's
Statements of Financial Position at December 31:
<TABLE>
<CAPTION>
Funded Unfunded
------------------------------
1995 1994 1995 1994
------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $95.8 $81.7 $24.0 $20.3
==============================
Accumulated benefit obligation $96.5 $82.4 $26.0 $21.6
==============================
Projected benefit obligation 113.8 97.0 $27.8 $23.0
Assets available for plan benefits (equity
securities and fixed income investments
at fair value) 164.8 135.5 - -
------------------------------
Assets in excess of (less than) projected
benefit obligation 51.0 38.5 (27.8) (23.0)
------------------------------
SFAS 87 unamortized net transition
asset (obligation) 12.6 14.7 (1.4) (1.6)
Unrecognized prior service costs (2.3) (2.7) (4.1) (3.7)
Unrecognized net loss (3.4) (11.6) (7.1) (4.1)
------------------------------
Unrecognized net asset (liability) 6.9 .4 (12.6) (9.4)
Additional liability - - (5.5) (3.2)
------------------------------
Net pension asset (liability) $44.1 $38.1 $(20.7) $(16.8)
==============================
</TABLE>
<TABLE>
<CAPTION>
Assumptions used for the primary U.S. plan at years ended were as follows:
1995 1994 1993
------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 8.5% 7.5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
Rate of increase in future compensation levels 5.0% 5.0% 5.5%
</TABLE>
18. POSTRETIREMENT PLANS
The Company makes available health care and life insurance
benefits for retired employees of HSB and certain subsidiaries.
The Company makes contributions to the plans as claims are
incurred. Contributions totaled $2.6, $2.3 and $1.8 million for
1995, 1994 and 1993, respectively. At December 31, 1995, 1994 and
1993 these plans were unfunded. Retirees' contributions to these
plans vary, based upon retiree's age, years of service and
coverage elected.
The Company periodically amends the plan, changing the
contribution rate of retirees and amounts of coverage.
Components of net periodic postretirement benefit cost were:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1994 1993
--------------------------
<S> <C> <C> <C>
Service cost $ .3 $ .3 $ .2
Interest cost 2.3 2.2 2.1
Amortization of unrecognized obligations - .2 -
--------------------------
Net periodic postretirement benefit cost $ 2.6 $ 2.7 $ 2.3
==========================
</TABLE>
The following table sets forth the amounts recognized in the
Consolidated Statements of Financial Position at December 31, in
accordance with SFAS 106:
<TABLE>
<CAPTION>
1995 1994
---------------------
<S> <C> <C>
Accumulated postretirement benefit obligations for:
Retirees $ 24.9 $ 23.6
Other fully eligible plan participants 1.5 1.2
Other active plan participants 4.7 4.3
----------------------
Total accumulated postretirement benefit
obligation 31.1 29.1
Unrecognized net loss (6.6) (4.8)
---------------------
Accrued postretirement benefit liability $ 24.5 $ 24.3
=====================
</TABLE>
The assumptions used to calculate the obligations at December 31,
were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
<S> <C> <C>
Weighted average discount rate 7.5% 8.5%
Current year health care cost trend rate 12.0% 14.0%
Ultimate health care cost trend rate 5.0% 5.5%
Number of years to reach ultimate 6 7
</TABLE>
The health care cost trend rate assumption has a significant
effect on the amount reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percent each year would
increase the accumulated postretirement benefit obligation as of
January 1, 1995 of $27.2 million by approximately $1.6 million
and the aggregate of the service and interest cost for the year
ended December 31, 1995 by $.l million.
19. STOCK OPTION PLANS
The Company has a Stock Option Plan under which key employees of
the Company and its subsidiaries may be granted restricted stock
and stock options.
The Company's restricted stock is an award of common shares that
may not be sold or transferred during the restriction period,
usually three years, from the date on which the award is granted.
During the restriction period, the employee is the registered
owner, receives dividends and may vote the restricted shares.
Compensation expense is based on the market value of the
Company's common stock at the date of grant and is recognized
over the period of the restriction. Compensation expense for this
plan in 1995, 1994, and 1993 was $1.1, $2.2 and $3.3 million,
respectively. The unamortized compensation expense related to
this plan is included in Benefit plans as a component of
Shareholders' equity. These amounts were $.7 and $1.4 million in
1995 and 1994, respectively.
A stock option award under the Company's stock option plan allows
for the purchase of the Company's common stock at no less than
the market price on the date of grant. Options granted to date
are exercisable no earlier than one year after the grant date and
expire no more than ten years from the date of grant.
Information with respect to restricted stock and stock options
follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------
Available Average
For Grant Shares Option Price
---------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1992 751,348 776,983 $ 55.58
---------- --------- ------------
Options granted (355,400) 355,400 55.39
Options forfeited (exercised,
expired or forfeited) 8,800 (37,283) 40.22
Restricted stock granted (29,220) - -
---------- --------- ------------
Balance, December 31, 1993 375,528 1,095,100 56.03
---------- --------- ------------
Options granted (305,250) 305,250 46.31
Options forfeited (exercised,
expired or forfeited) 84,600 (136,800) 49.21
Restricted stock granted (10,375) - -
---------- --------- ------------
Balance, December 31, 1994 144,503 1,263,550 54.42
---------- --------- ------------
Authorized 850,000 - -
Options granted (303,500) 303,500 42.54
Options forfeited (exercised,
expired or forfeited) 53,247 (272,550) 58.22
Restricted stock granted (9,350) - -
---------- --------- ------------
Balance, December 31, 1995 734,900 1,294,500 $50.86
========== ========= ============
</TABLE>
In 1989, the Company established a Restricted Stock Plan for non-
employee Directors of the Company. Stock awards are made on the
date of the annual meeting to each Director elected or continuing
in office. The maximum number of restricted shares which may be
granted under the Plan shall be 20,000 shares of common stock.
Under this plan, 2,336; 1,935; and 1,413 shares of restricted
stock were granted in 1995, 1994 and 1993, respectively.
20. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (ESOP) which is
administered through The Hartford Steam Boiler Inspection and
Insurance Company Leveraged Employee Stock Ownership Plan Trust.
The final allocation of approximately 86,000 shares will be
distributed to employees before January 31, 1996 in accordance
with the Plan. ESOP expense was $1.5, $1.9 and $1.6 million for
the years ended December 31, 1995, 1994 and 1993, respectively.
21. STOCK PURCHASE RIGHTS
On November 28, 1988, the Board of Directors created and
authorized 250,000 shares of Series A Junior Participating
Preferred Stock at no par value and declared a dividend
distribution of one right for each outstanding share of common
stock to shareholders of record on December 8, 1988.
The rights will separate from the common stock and become
exercisable if a person or group acquires ownership of 20 percent
or more of the outstanding common stock of the Company, commences
a tender or exchange offer to acquire 20 percent or more of the
outstanding shares, or if any person or group has become the
beneficial owner of an amount of common stock which the Board
determines to be substantial and not in the best interest of the
shareholders.
The rights entitle holders to purchase preferred shares at an
exercise price of $110 per share. If an acquirer obtains 20
percent or more of the Company's common stock and the Board of
Directors determines that such acquisition is not in the best
interest of the shareholders, the rights will entitle holders to
purchase common shares of the Company at a discount. If the
Company is involved in a merger or other transactions in which
shares are exchanged, the rights will entitle holders to purchase
common shares of the acquirer at a discount.
The rights expire on November 28, 1998 and may be redeemed by the
Company for $.01 per right any time until the tenth business day
following public announcement that a 20 percent position has been
acquired.
22. CONSOLIDATED QUARTERLY DATA (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Premiums $ 93.6 $ 98.1 $ 98.3 $ 99.1 $389.1
Net engineering services 61.0 63.4 65.9 61.8 252.1
Net investment income 6.8 7.2 6.5 7.8 28.2
Realized investment gains .2 1.2 1.0 .3 2.8
---------------------------------------------
Total revenues $161.6 $169.9 $171.7 $169.0 $672.2
=============================================
Income before taxes $ 19.9 $ 22.4 $ 23.1 $ 21.0 $ 86.3
Income taxes 5.9 6.7 6.8 4.4 23.7
---------------------------------------------
Net income $ 14.0 $ 15.7 $ 16.3 $ 16.6 $ 62.6
=============================================
Per common share:
Net income $ .69 $ .77 $ .80 $ .81 $ 3.07
=============================================
Dividends declared $ .55 $ .55 $ .57 $ .57 $ 2.24
Common stock price ranges:
High $43 3/4 $45 7/8 $49 3/8 $50 3/8 $50 3/8
Low 39 1/4 41 5/8 42 5/8 45 3/8 39 1/4
Close 43 44 3/8 48 3/8 50 50
Shareholders at December 31, 5,864
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------
Insurance premiums $ 83.3 $ 84.1 $ 84.3 $ 84.9 $336.6
Net engineering services 56.2 58.3 57.5 60.1 232.1
Net investment income 6.5 6.2 6.4 7.1 26.2
Realized investment gains 3.6 2.7 1.8 .6 8.7
---------------------------------------------
Total revenues $149.6 $151.3 $150.0 $152.7 $603.6
=============================================
Income before taxes $ 16.2 $ 20.0 $ 17.6 $ 19.8 $ 73.6
Income taxes 4.3 5.7 5.3 6.4 21.7
---------------------------------------------
Net income $ 11.9 $ 14.3 $ 12.3 $ 13.4 $ 51.9
=============================================
Per common share:
Net income $ .58 $ .70 $ .60 $ .66 $ 2.54
=============================================
Dividends declared $ .53 $ .53 $ .55 $ .55 $ 2.16
Common stock price ranges:
High $53 3/8 $49 1/8 $45 7/8 $44 3/8 $ 53 3/8
Low 44 43 3/4 42 3/4 36 1/8 36 1/8
Close 48 3/4 44 3/4 43 7/8 39 7/8 39 7/8
Shareholders at December 31, 5,782
</TABLE>
SCHEDULE I
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Summary of Investments - Other Than Investments in Related Parties
(in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
1995 1994
---------------------------------- ---------------------------------
Amount Amount
Shown Shown
In The In The
Market Balance Market Balance
Type of investment Cost Value Sheet Cost Value Sheet
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Goverment and Government
Agencies and Authorities $ 0.1 $ 0.1 $ 0.1 $ 0.2 $ 0.2 $ 0.2
States, Municipalities and
Political Subdivisions 25.3 27.0 27.0 49.5 47.8 47.8
Foreign Governments 45.3 46.7 46.7 27.5 26.4 26.4
Convertibles and Bonds with
Warrants Attached 0.0 0.0 0.0 0.0 0.0 0.0
All Other Bonds 95.8 99.0 99.0 49.9 49.5 49.5
Mortgage Receivable 11.1 11.1 11.1 11.1 11.1 11.1
Redeemable Preferred Stocks 70.0 71.4 71.4 67.0 63.9 63.9
---------------------------- --------------------------------
Total Fixed Maturities $247.6 $255.3 $255.3 $205.2 $198.9 $198.9
---------------------------- --------------------------------
Equity Securities:
Common Stocks:
Public Utilities $ 6.3 $ 7.0 $ 7.0 $ 16.3 $ 16.7 $ 16.7
Banks and Insurance 10.6 13.6 13.6 6.7 6.9 6.9
Industrial and Other 81.3 132.9 132.9 103.4 130.1 130.1
Non-Redeemable Preferred 56.8 61.9 61.9 52.3 51.2 51.2
Stocks
---------------------------- --------------------------------
Total Equity Securities $155.0 $215.4 $215.4 $178.7 $204.9 $204.9
---------------------------- --------------------------------
Short Term Investments and Cash: $ 83.1 $ 83.1 $ 83.1 $ 85.9 $ 85.9 $ 85.9
---------------------------- --------------------------------
Total Investments $485.7 $553.8 $553.8 $469.8 $489.7 $489.7
============================ ================================
</TABLE>
Schedule IV
The Hartford Steam Boiler Inspection and Insurance Company
Reinsurance
(in millions)
<TABLE>
Column A Column B Column C Column D Column E Column F
Insurance Gross Ceded to Assumed Net Percentage of
Premiums Amount Other From Other Amount Amount Assumed
Companies Companies to Net
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Property and
Liability
Insurance $279.7 $65.9 $175.3 $389.1 45.1%
1994
Property and
Liability
Insurance $242.6 $45.1 $139.1 $336.6 41.3%
1993
Property and
Liability
Insurance $246.9 $29.3 $131.6 $349.2 37.7%
</TABLE>
SCHEDULE V
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Valuation and Qualifying Accounts
(in millions)
<TABLE>
Column A Column B Column C Column D Column E Column F
- -------------------------------- ---------- ---------- ---------- ---------- ----------
Description Balance at Charged to Charged to Balance
Beginning of Costs and Other Deductions At End of
Period Expenses Account Describe (a) Period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Reserve for Accounts Receivable $3.1 $2.6 $0.0 $2.1 $3.6
1994
Reserve for Accounts Receivable $2.1 $2.2 $0.0 $1.2 $3.1
1993
Reserve for Accounts Receivable $2.4 $2.7 $0.0 $3.0 $2.1
</TABLE>
(a) Engineering Services and Insurance Premium Receivables written-off
as uncollectible.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
"Nominees for Election to the Board of Directors for
Three-Year Term Expiring in 1999" and "Members of the Board
of Directors Continuing in Office" on pages 2-6 of the
Company's Proxy Statement dated February 27, 1996 are
incorporated herein by reference. Also see pages 21-22
herein.
Item 11. Executive Compensation.
"Meetings and Remuneration of the Directors" on pages 6-
8, "Human Resources Committee Report on Executive
Compensation" on pages 10-14, "Summary Compensation Table" on
pages 15-16, "Stock Option and Long-Term Incentive Plan
Tables" on pages 16-17, "Retirement Plans" on pages 18-19,
"Employment Arrangements" on page 19, "Compensation Committee
Interlocks and Insider Participation" on page 20, and
"Performance Graph" on page 20 of the Company's Proxy
Statement dated February 27, 1996 are incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
"Security Ownership of Certain Beneficial Owners and
Management" on pages 8-9 of the Company's Proxy Statement
dated February 27, 1996 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
"Compensation Committee Interlocks and Insider
Participation" on page 20 of the Company's Proxy Statement
dated February 27, 1996 is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) The financial statements and schedules listed in the
Index to Financial Statements and Financial
Statement Schedules on page 34 herein are filed as
part of this report.
(b) Reports on Form 8-K - Form 8-K filed on October 23,
1995 to report Registrant's and The Dow Chemical
Company's announcement of plans for two of
their wholly-owned subsidiaries to form a new
company which will provide environmental,
information technology, and strategic chemical
management services to industries and government
worldwide.
(c) The exhibits listed in the accompanying Index to
Exhibits are filed as part of this report.
SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
(Registrant)
By: /s/ Gordon W. Kreh
President and Chief
Executive Officer
March 29, 1996
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
(Signature) (Title)
By:/s/ Gordon W. Kreh
Gordon W. Kreh President, Chief Executive
March 29, 1996 Officer and Director
/s/ Saul L. Basch Senior Vice President, Treasurer
Saul L. Basch and Chief Financial Officer
March 29, 1996 (Principal Financial Officer and
Principal Accounting Officer)
(Joel B Alvord)* Director
(Colin G. Campbell)* Director
(Richard G. Dooley)* Director
(William B. Ellis)* Director
(E. James Ferland)* Director
(John A. Powers)* Director
(Lois Dickson Rice)* Director
(John M. Washburn, Jr.)* Director
(Wilson Wilde)* Director
*By: /s/ Robert C. Walker
Robert C. Walker
(Attorney-in-Fact)
March 29, 1996
INDEX TO EXHIBITS
Exhibit
Number Description
(3)(i) Charter of The Hartford Steam Boiler Inspection and
Insurance Company, as restated effective April 17, 1990.
(3)(ii) By-laws of The Hartford Steam Boiler Inspection and
Insurance Company amended July 24, 1995; incorporated
by reference to Exhibit (3)(ii) to registrant's Form
10-Q for the quarter ended June 30, 1995.
(4)(i) Rights Agreement dated as of November 28, 1988 between
the registrant and The First National Bank of Boston,
as Rights Agent.
(4)(iii) Instruments defining the rights of holders of long-
term debt of the registrant are not being filed since
the total amount of securities authorized under each
such instrument does not exceed ten percent of the
total assets of the registrant and its subsidiaries on
a consolidated basis. The registrant shall furnish
copies of such instruments to the Securities and
Exchange Commission upon request.
(10)(i) (a) Lease Agreement with One State Street Limited
Partnership; incorporated by reference to Exhibit
(10)(i) to registrant's Form 10. File No. 0-13300,
filed March 18, 1985.
(b) Transaction Agreement between registrant and
General Reinsurance Corporation dated December 30,
1994; incorporated by reference to Exhibit 2 to
the registrant's Current Report on Form 8-K. File
No. 0-13300, filed January 17, 1995.
(c) Contribution Agreement among the registrant, The
Dow Chemical Company, Dow Environmental Inc. and
Radian Corporation dated January 30, 1996;
incorporated by reference to Exhibit 99.1 to the
registrant's Current Report on Form 8-K. File No.
0-13300, filed February 14, 1996.
(d) Limited Liability Company Agreement between Radian
Corporation and Dow Environmental Inc. dated
January 30, 1996; incorporated by reference to
Exhibit 99.2 to the registrant's Current Report on
Form 8-K. File No. 0-13300, filed February 14,
1996.
(10)(iii) (a) Employment Agreement dated February 28, 1988
between the registrant and various executive
officers; incorporated by reference to Exhibit
(10)(iii)(a) to registrant's Form 10-K for the
year ended December 31, 1992. *
(b) The Hartford Steam Boiler Inspection and
Insurance Company Long-Term Incentive Plan, as
amended and restated effective January 1,
1994; incorporated by reference to Exhibit
(10)(iii) to registrant's Form 10-Q for the
quarter ended June 30, 1995. *
(c) The Hartford Steam Boiler Inspection and
Insurance Company Short-Term Incentive Plan, as
amended and restated February 26, 1996. *
(d) The Hartford Steam Boiler Inspection and
Insurance Company 1985 Stock Option Plan, as
amended and restated April 21, 1992; incorporated
by reference to Exhibit (10)(iii)(d) to
registrant's Form 10-K for the year ended
December 31, 1992. *
(e) The Hartford Steam Boiler Inspection and
Insurance Company 1995 Stock Option Plan,
effective April 18, 1995; incorporated by
reference to Exhibit (10)(iii) to registrant's
Form 10-Q for the quarter ended June 30, 1995. *
(f) Pre-Retirement Death Benefit and Supplemental
Pension Agreement between the registrant and
various executive officers, as amended February
1, 1994; incorporated by reference to
registrant's Form 10-K for the year ended
December 31, 1994. *
(g) Pre-Retirement Death Benefit and Supplemental
Pension Agreement between the registrant and
William A. Kerr, dated September 18, 1995;
incorporated by reference to Exhibit (10)(iii) to
registrant's Form 10-Q for the quarter ended
September 30, 1995. *
(h) Employment Agreement between the registrant and Saul
L. Basch, dated October 2, 1996. *
(i) Retirement Plan for Outside Directors, as amended
and restated October 24, 1988; incorporated by
reference to Exhibit (10)(iii)(e) to registrant's
Form 10-K for the year ended December 31, 1993. *
(j) The Hartford Steam Boiler Inspection and
Insurance Company 1989 Restricted Stock Plan for
Non-Employee Directors; as amended and restated
November 1, 1991; incorporated by reference to
Exhibit (10)(iii)(f) to registrant's Form 10-K
for the year ended December 31, 1992. *
(k) The Radian Corporation Supplemental Executive
Retirement Plan effective January 1, 1991;
incorporated by reference to Exhibit (10)(iii)(h)
to registrant's Form 10-K for the year ended
December 31, 1994. *
(l) Salary Continuation Agreement between Radian
Corporation and Donald M. Carlton dated January
1, 1986; incorporated by reference to Exhibit
(10)(iii)(h) to registrant's Form 10-K for the
year ended December 31, 1992. *
(m) Salary Continuation Agreement between Radian
Corporation and Donald M. Carlton dated April 4,
1989; incorporated by reference to Exhibit
(10)(iii)(i) to registrant's Form 10-K for the
year ended December 31, 1992. *
(n) Executive Employment Bonus Agreement between
the registrant and Donald M. Carlton dated
January 1, 1996. *
(o) Executive Employment Agreement between Radian
International LLC and Donald M. Carlton dated
January 30, 1996. *
(p) Description of certain arrangements not set forth
in any formal documents, as described on pages
6 - 7 , with respect to directors' compensation,
and on pages 10 - 19, with respect to executive
officer's compensation, which pages are
incorporated by reference to registrant's Proxy
Statement dated February 27, 1996. *
(21) Subsidiaries of the registrant.
(23) Consent of experts and counsel -
consent of Coopers & Lybrand.
(24) Power of attorney.
(27) Financial Data Schedule.
P(28) Information from reports furnished to state insurance
regulatory authorities. Schedule P of the Consolidated
Annual Statement of The Hartford steam Boiler Inspection
and Insurance Company and its Affiliated Insurers for 1995.
(Filed under cover of Form SE.)
* Management contract, compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this
report.
Exhibit (3)(i)
CHARTER
of
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Hartford, Connecticut
as
RESTATED EFFECTIVE
APRIL, 1990
CHARTER
of
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Section 1. The Hartford Steam Boiler Inspection and Insurance
Company shall continue under that name, a body corporate, with
power to purchase or otherwise acquire, have, hold and enjoy
lands, rents, tenements, hereditaments, goods, monies, chattels,
choses in action and property and effects of every kind, and also
any or all of the shares or other securities or any interest in,
or obligation of, any insurance corporation or any other
corporation or governmental unit and the same to sell, grant and
convey and to loan, invest, reinvest, alienate and dispose of any
of such assets in any manner permitted on or after the effective
date of this act in the case of any other corporation chartered
on or after said date by Connecticut and empowered to do a class
of business referred to in Section 2 hereof, and to have and
enjoy all the rights, privileges, powers and immunities granted
on or after to said date to corporations under the general
statutes, including the power to amend this charter from time to
time.
Section 2. The Corporation shall have the power to write boiler
and machinery, fire, marine, casualty, liability, indemnity,
accident and health and fidelity insurance and any and all other
forms of insurance against hazards or risks of every kind and
description which on or after the effective date of this act may
lawfully be the subject of insurance except life and endowment
insurance and contracts for the payment of annuities; and the
Corporation is specifically empowered to accept and to cede
reinsurance of any such risks or hazards. The Corporation shall
have the power to make inspections and render inspection and
engineering services in connection with the design, construction,
maintenance or operation of boilers, machinery or any equipment
regardless of whether policies of insurance are issued in
connection therewith. The Corporation may exercise such powers
outside of Connecticut to the extent permitted by the laws of the
particular jurisdiction. Policies or other contracts may be
issued, stipulated to be with or without participation in
profits; and they may be with or without seal.
Section 3. The capital stock of the Corporation shall not be less
than one million dollars. The authorized number of shares, which
may be increased from time to time when and if authorized by the
stockholders shall consist of 50,000,000 shares of common stock
without par value and 500,000 shares of preferred stock without
par value. The Board of Directors is authorized to fix and
determine the terms, limitations and relative rights and
preferences of the preferred stock including, without limitation,
any voting rights thereof, to divide and issue the preferred
stock in series, to fix and determine the variations among series
to the extent permitted by law and to provide that shares of the
preferred stock, or any series thereof, may be convertible into
the same or a different number of shares of common stock. No
stockholder shall have any preemptive right to purchase or
subscribe to any shares of any class of stock of the Corporation,
whether authorized on or after the effective date of this act, or
to any securities convertible into shares of any class of stock
of the Corporation. The capital stock of the Corporation shall be
transferable in accordance with the bylaws, and one or more
transfer agents may be employed.
Section 4. The corporate office shall be in Hartford or in such
other town in Connecticut as the Board of Directors may deter-
mine. The annual meeting of the stockholders shall be held at
such time and place within the state and upon such notice as may
be determined from time to time either by or in accordance with
the bylaws. At all meetings of the stockholders and subject, in
the case of preferred stockholders, to such provisions concerning
voting rights as the Board of Directors may determine pursuant to
the authority granted in Section 3 hereof, each stockholder shall
be entitled to vote in person or by an attorney duly authorized
by a written proxy and each share of stock represented at the
meeting shall be entitled to one vote.
Section 5. The business property and affairs of the Corporation
shall be managed by or under the direction of a Board of
Directors consisting 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 entire Board of Directors. The directors
shall be divided into three classes, designated Class I, Class II
and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors
constituting the entire Board of Directors. The class of
directors that was elected by the stockholders at the 1984 annual
meeting of stockholders shall be assigned to Class I for a term
expiring in 1987; the current directors in the class expiring in
1986 shall be assigned to Class II for a term expiring in 1986;
the current directors in the class expiring in 1985 shall be
assigned to Class III for a term expiring in 1985. At each annual
meeting of stockholders, successors to the class of directors
whose term expires at the annual meeting shall be elected for a
three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining
term of that class, but in no case will a reduction of the number
of directors remove any director in office or shorten the term of
any incumbent director. A director shall hold office until the
annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, removal from office or
order of court that, by reason of incompetency or any other
lawful cause, he is no longer a director in office.
Any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by the
concurring vote of directors holding a majority of the
directorships, which number of directorships shall be the number
prior to the vote on the increase, and any other vacancy
occurring in the Board of Directors may be filled by concurring
vote of a majority of the remaining directors then in office,
although less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as
that of his predecessor.
Any director or the entire Board of Directors may be removed
only for cause by the affirmative vote of eighty percent (80%) of
the votes entitled to be cast by the holders of all then
outstanding shares of voting stock of the Corporation, voting
together as a single class. For the purposes of this Section 5,
"cause" shall be defined as (a) a final non-appealable order of
conviction of a felony involving moral turpitude by a court of
competent jurisdiction in the United States or (b) a final
non-appealable order of a court of competent jurisdiction in the
United States finding gross negligence in the performance of
duties as a director or officer of the Corporation.
Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of preferred stock issued by the
Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of this Charter applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this
Section 5 unless expressly provided by such term.
Notwithstanding any other provisions of this Charter or the
bylaws of the Corporation (and notwithstanding the fact that a
lesser percentage or separate class vote may be specified by law,
this Charter or the bylaws of the Corporation) the affirmative
vote of the holders of not less than eighty percent (80%) of the
votes entitled to be cast by the holders of all then outstanding
shares of voting stock of the Corporation, voting together as a
single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with this Section 5; provided, however,
that this paragraph shall not apply to, and such eighty percent
(80%) vote shall not be required for any amendment, repeal or
adoption recommended by three-quarters of the entire Board if all
of such directors are persons who were members of the Board at
the annual meeting of stockholders of the Corporation held prior
to the proposal of any such amendment, repeal or adoption or
persons nominated by such members.
Section 6. The directors of the Corporation shall choose from
among their number a president and shall elect one or more vice
presidents, a treasurer, a secretary and such other officers as
they may deem desirable. The officers shall be elected to hold
office until the next annual meeting and until their successors
have been chosen; they may be removed at any time at the pleasure
of the directors.
Section 7.
A. In addition to any affirmative vote required by law or this
Charter or the bylaws of the Corporation, and except as otherwise
expressly provided in Section B of this Section 7, a Business
Combination (as hereinafter defined) shall require the
affirmative vote of not less than eighty percent (80%) of the
votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock (as hereinafter defined), voting together
as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage or separate class vote may be specified, by law
or in any agreement with any national securities exchange or
otherwise.
B. The provisions of Section A of this Section 7 shall not be
applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote, if
any, as is required by law or by any other provision of this
Charter or the bylaws of the Corporation, or any agreement with
any national securities exchange, if all of the conditions
specified in either of the following Paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by
two-thirds (whether such approval is made prior to or subsequent
to the acquisition of beneficial ownership of the Voting Stock
that caused the Interested Stockholder, as hereinafter defined to
become an Interested Stockholder) of the Continuing Directors, as
hereinafter defined.
2. All of the following conditions shall have been met:
a. The aggregate amount of cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation
of the Business Combination of consideration other than cash
to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the highest
amount determined under clauses (i), (ii), (iii) and (iv)
below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Stockholder for any share of Common
Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of
shares of Common Stock within the two-year period
immediately prior to the first public announcement of
the proposed Business Combination (the "Announcement
Date");
(ii) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder
(the "Determination Date"), whichever is higher;
(iii) (if applicable) the price per share equal to the
Fair Market Value per share of Common Stock determined
pursuant to the immediately preceding clause (ii),
multiplied by the ratio of (x) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by or on
behalf of the Interested Stockholder for any share of
Common Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of
shares of Common Stock within the two-year period
immediately prior to the Announcement Date to (y) the
Fair Market Value per share of Common Stock on the
first day in such two-year period on which the
Interested Stockholder acquired beneficial ownership of
any share of Common Stock; and
(iv) The Corporation's net income per share of Common
Stock for the four full consecutive fiscal quarters
immediately preceding the Announcement Date, multiplied
by the higher of the then price/earnings multiple (if
any) with respect to common stock of such Interested
Stockholder or the highest price/earnings multiple with
respect to Common Stock within the two-year period
immediately preceding the Announcement Date (such
price/earnings multiples being determined as
customarily computed and reported in the financial
community);
b. The aggregate amount of cash and the Fair Market Value as
of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by
holders of shares of any class or series of outstanding
Capital Stock (as hereinafter defined), other than Common
Stock, shall be at least equal to the highest amount deter-
mined under clauses (i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Stockholder for any share of such class
or series of Capital Stock in connection with the
acquisition by the Interested Stockholder within the
two-year period immediately prior to the Announcement
Date;
(ii) the Fair Market Value per share of such class or
series of Capital Stock on the Announcement Date or on
the Determination Date, whichever is higher;
(iii) (if applicable) the price per share equal to the
Fair Market Value per share of such class or series of
Capital Stock determined pursuant to the immediately
preceding clause (ii), multiplied by the ratio of (x)
the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested
Stockholder for any share of such class or series of
the Capital Stock in connection with the acquisition by
the Interested Stockholder of beneficial ownership of
shares of such class or series of Capital Stock within
the two-year period immediately prior to the
Announcement Date to (y) the Fair Market Value per
share of such class or series of Capital Stock on the
first day in such two-year period on which the
Interested Stockholder acquired beneficial ownership of
any share of such class or series of Capital Stock; and
(iv) (if applicable) the highest preferential amount
per share to which the holders of shares of such class
or series of Capital Stock would be entitled in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation, regardless of whether the Business
Combination to be consummated constitutes such an
event.
The provision of this Paragraph 2.b shall be required to be
met with respect to every class or series of outstanding
Capital Stock, whether or not the Interested Stockholder has
previously acquired beneficial ownership of any shares of a
particular class or series of Capital Stock.
c. The consideration to be received by holders of a
particular class or series of outstanding Capital Stock
shall be in cash or in the same form as previously has been
paid by or on behalf of the Interested Stockholder in
connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of
Capital Stock. If the consideration so paid for shares of
any class or series of Capital Stock varied as to form, the
form of consideration for such class or series of Capital
Stock shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of such
class or series of Capital Stock previously acquired by the
Interested Stockholder.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (i) except as approved by two-thirds
of the Continuing Directors, there shall have been no
failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) payable
in accordance with the terms of any outstanding Capital
Stock; (ii) there shall have been no reduction in the annual
rate of dividends paid on the Common Stock (except as
necessary to reflect any stock split, stock dividend or
subdivision of the Common Stock), except as approved by
two-thirds of the Continuing Directors; (iii) there shall
have been an increase in the annual rate of dividends paid
on the Common Stock as necessary to reflect fully any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
that has the effect of reducing the number of outstanding
shares of Common Stock, unless the failure so to increase
such annual rate is approved by two-thirds of the Continuing
Directors; and (iv) such Interested Stockholder shall not
have become the beneficial owner of any additional shares of
Capital Stock except as part of the transaction that results
in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving
effect thereto, would not result in any increase in the
Interested Stockholder's percentage beneficial ownership of
any class or series of Capital Stock.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall
not have received the benefit, directly or indirectly
(except proportionately as a stockholder of this
Corporation), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by this Corporation, whether in
anticipation of or in connection with such Business
Combination or otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934 and the rules and
regulations thereunder (the "Act") (or any subsequent provi-
sions replacing such Act, rules and regulations) or the
insurance laws and regulations of the State of Connecticut,
if applicable, shall be mailed to all stockholders of the
Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or
information statement is required by law to be mailed). The
proxy or information statement shall contain on the first
page thereof, in a prominent place, any statement as to the
advisability (or inadvisability) of the Business Combination
that the Continuing Directors, or any of them, may choose to
make and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking
firm selected by a majority of the Continuing Directors as
to the fairness (or not) of the terms of the Business
Combination from a financial point of view to the holders of
the outstanding shares of Capital Stock other than the
Interested Stockholder and its Affiliates or Associates (as
hereinafter defined), such investment banking firm to be
paid a reasonable fee for its services by the Corporation.
C. For the purposes of this Section 7:
1. The term "Business Combination" shall mean:
a. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (i) any
Interested Stockholder or (ii) any other corporation
(whether or not itself an Interested Stockholder) which
is or after such merger or consolidation would be an
Affiliate or Associate of an Interested Stockholder; or
b. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of transactions) with any Interested Stockholder
or any Affiliate or Associate of any Interested
Stockholder involving any assets or securities of this
Corporation, any subsidiary or any Interested
Stockholder or any Affiliate or Associate of any
Interested Stockholder having an aggregate Fair Market
Value of $10,000,000 or more; or
c. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed
by or on behalf of an Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;
or
d. any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving
an Interested Stockholder) that has the effect,
directly or indirectly, of increasing the proportionate
share of any class or series of Capital Stock, or any
securities convertible into Capital Stock or into
equity securities of any Subsidiary, that is
beneficially owned by any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder:
or
e. any agreement, contract or other arrangement
providing for any one or more of the actions specified
in the foregoing clauses (a) to (d).
2. The term "Capital Stock" shall mean all stock of the
Corporation authorized to be issued from time to time under
Section 3 of this Charter, and the term "Voting Stock" shall
mean all Capital Stock which by its terms may be voted on
all matters submitted to stockholders of the Corporation
generally.
3. The term "person" shall mean any individual, firm,
corporation or other entity and shall include any group
comprised of any person and any other person with whom such
person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
4. The term "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than
any profit-sharing, employee stock ownership or other
employee benefit plan of the Corporation or any Subsidiary
or any trustee of or fiduciary with respect to any such plan
when acting in such capacity) who (a) is the beneficial
owner of Voting Stock representing ten percent (10%) or more
of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock or (b) is an Affiliate or
Associate of the Corporation and at any time within the
two-year period immediately prior to the date in question
was the beneficial owner of Voting Stock representing ten
percent (10%) or more of the votes entitled to be cast by
the holders of all then outstanding shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital
Stock (a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b)
which such person or any of its Affiliates or Associates
has, directly or indirectly, (i) the right to acquire
(whether such right is exercisable immediately or subject
only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, convertible securities, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, convertible
securities, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any
agreement, arrangement or understanding; or (c) which are
beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing
of any shares of Capital Stock. For the purposes of
determining whether a person is an Interested Stockholder
pursuant to Paragraph 4 of this Section C, the number of
shares of Capital Stock deemed to be outstanding shall
include shares deemed beneficially owned by such person
through application of Paragraph 5 of this Section C, but
shall not include any other shares of Capital Stock that may
be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
6. The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2
under the Act as in effect on March 1, 1984 (the term
"registrant" in said Rule 12b-2 meaning in this case the
Corporation).
7. The term "Subsidiary" means any corporation of which a
majority of any class of equity security is beneficially
owned by the Corporation; provided, however, that for the
purposes of the definition of Interested Stockholder set
forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is beneficially
owned by the Corporation.
8. The term "Continuing Director" means any member of the
board of directors of the Corporation (the "Board") while
such person is a member of the Board, who is not an
Affiliate or Associate or representative of the Interested
Stockholder and was a Member of the Board prior to the time
that the Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director,
while such successor is a member of the Board, who is not an
Affiliate or Associate or representative of the Interested
Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.
9. The term "Fair Market Value" means (a) in the case of
cash, the amount of such cash; (b) in the case of stock, the
highest closing sales price during the 30-day period
immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on
the Composite Tape, on the New York Stock Exchange, or if
such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Act
on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock as
determined by a majority of the Continuing Directors in good
faith; and (c) in the case of property other than cash or
stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the
Continuing Directors.
10. In the event of any Business Combination in which this
Corporation survives, the phrase "consideration other than
cash to be received" as used in Paragraphs 2.a and 2.b of
Section B of this Section 7 shall include the shares of
Common Stock and/or the shares of any other class or series
of Capital Stock retained by the holders of such shares.
D. The Board of Directors shall have the power and duty to
determine for the purposes of this Section 7 on the basis of
information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder, (b) the number of shares of
Capital Stock or other securities beneficially owned by any
person, (c) whether a person is an Affiliate or Associate of
another, and (d) whether the assets that are the subject of any
Business Combination have, or the consideration to be received
for the issuance or transfer of securities by this Corporation
have, or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of $10,000,000 or more. Any such
determination made in good faith shall be binding and conclusive
on all parties.
E. Nothing contained in this Section 7 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
F. The fact that any Business Combination complies with the
provisions of Section B of this Section 7 shall not be construed
to impose any fiduciary duty, obligation or responsibility on the
Board, or any member thereof, to approve such Business
Combination or recommend its adoption or approval to the
stockholders of this Corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board, or
any member thereof, with respect to evaluations of or actions and
responses taken with respect to such Business Combination.
G . Notwithstanding any other provisions of this Charter or the
Bylaws of the Corporation (and notwithstanding the fact that a
lesser percentage or separate class vote may be specified by law,
this Charter or the bylaws of the Corporation), the affirmative
vote of the holders of not less than eighty percent (80%) of the
votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock, voting together as a single class, shall
be required to amend or repeal, or adopt any provisions
inconsistent with, this Section 7; provided, however, that this
Section G shall not apply to, and such eighty percent (80%) vote
shall not be required for, any amendment, repeal or adoption
unanimously recommended by the Board if all of such directors are
persons who would be eligible to serve as Continuing Directors
within the meaning of Section C, Paragraph 8 of this Section 7.
Section 8. To the fullest extent permitted by the Connecticut
General Statutes as the same exists or may hereafter be amended,
the personal liability of a director to the Corporation or its
stockholders for monetary damages for breach of duty as a
director shall be limited to an amount that is not less than the
compensation received by such director for serving the
Corporation during the year of the violation. If the Connecticut
General Statutes are amended after approval by the stockholders
of this Section 8 to authorize corporate action further
eliminating or limiting the personal liability of directors, then
the liability of each director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the
Connecticut General Statutes, as so amended. Any repeal or
modification of this Section 8 by the stockholders of the
Corporation shall not adversely affect any right or protection of
a director of the Corporation existing at the time of such repeal
or modification.
Exhibit (4)(iii)
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
and
THE FIRST NATIONAL BANK OF BOSTON,
as Rights Agent
Rights Agreement
Dated as of November 28, 1988
TABLE OF CONTENTS
SECTION
1 Certain Definitions
2 Appointment of Rights Agent
3 Issue of Rights Certificates
4 Form of Rights Certificates
5 Countersignature and Registration
6 Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates
7 Exercise of Rights; Purchase Price; Expiration Date of
Rights
8 Cancellation and Destruction of Rights Certificates
9 Form of Depositary Receipts
10 Countersignature and Registration of Depositary Receipts
11 Deposit of Stock
12 Transfer, Split Up, Combination and Exchange of Depositary
Receipts; Mutilated, Destroyed, Lost or Stolen Depositary
Receipts
13 Exchange of Depositary Receipts for Preferred Stock
14 Limitations on Execution and Delivery, Transfer, Surrender
and Exchange of Depositary Receipts
15 Cancellation and Destruction of Surrendered Depositary
Receipts
16 Distributions
17 Notice of Dividends, Fixing of Record Date for Receipt
Holders
18 Voting Rights
19 Changes Affecting Deposited Securities and
Reclassifications, Recapitalizations, etc.
20 Reports
21 Lists of Depositary Receipt Holders
22 Reservation and Availability of Capital Stock
23 Preferred Stock Record Date
24 Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights
25 Certificate of Adjusted Purchase Price or Number of Shares
26 Consolidation, Merger or Sale or Transfer of Assets or
Earning Power
27 Fractional Rights and Fractional Shares
28 Rights of Action
29 Agreement of Rights Holders
30 Rights Certificate Holder Not Deemed a Shareholder
31 Concerning the Rights Agent
32 Merger or Consolidation or Change of Name of Rights Agent
33 Duties of Rights Agent
34 Change of Rights Agent
35 Issuance of New Rights Certificates
36 Redemption and Termination
37 Notice of Certain Events
38 Notices
39 Supplements and Amendments
40 Successors
41 Determinations and Actions by the Board of Directors, etc.
42 Benefits of this Agreement
43 Severability
44 Governing Law
45 Counterparts
46 Descriptive Headings
Exhibit A - Certificate of Designation, Preferences and
Rights
Exhibit B - Form of Depositary Receipt
Exhibit C - Form of Rights Certificate
Exhibit D - Form of Summary of Rights
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of November 28, 1988 (the
"Agreement"), between The Hartford Steam Boiler Inspection and
Insurance Company, a Connecticut corporation (the "Company"), and
The First National Bank of Boston a national banking association
(the "Rights Agent").
W I T N E S S E T H
WHEREAS, on November 28, 1988 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and
declared a dividend distribution of one Right for each share of
common stock, without par value, of the Company (the "Common
Stock") outstanding at the close of business on December 8, 1988
(the "Record Date"), and has authorized the issuance of one Right
(as such number may hereinafter be adjusted pursuant to the
provisions of Section 24(p) hereof) for each share of Common
Stock of the Company issued between the Record Date (whether
originally issued or delivered from the Company's treasury) and
the Distribution Date each Right initially representing the right
to purchase one Depositary Receipt which is exchangeable for one
two-hundredth of a share of Series A Junior Participating
Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designation,
Preferences and Rights attached hereto as Exhibit A, upon the
terms and subject to the conditions hereinafter set forth (the
"Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as
follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such
Person, shall be the Beneficial Owner of 20% or more of the
shares of Common Stock then outstanding, but shall not include
the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan.
(b) "Adverse Person" shall mean any Person declared to
be an Adverse Person by The Board of Directors upon determination
that the criteria set forth in Section 24(a)(ii)(B) apply to such
Person.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as amended and in effect on the date of this Agreement
(the "Exchange Act").
(d) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right
to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise
of conversion rights, exchange rights, rights, warrants or
options, or otherwise; provided, however, that a Person shall not
be deemed the "Beneficial Owner" of, or to "beneficially own,"
(A) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event,
or (C) securities issuable upon exercise of Rights from and after
the occurrence of a Triggering Event which Rights were acquired
by such Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section 3(a) or
Section 35 hereof (the "Original Rights") or pursuant to Section
24(i) hereof in connection with an adjustment made with respect
to any Original Rights;
(ii) which such person or any of such person's
Affiliates or Associates, directly or indirectly, has the right
to vote or dispose of or has "beneficial ownership" of (as
determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in
writing; Provided, however, that a person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a
revocable proxy given in response to a public proxy or consent
solicitation made pursuant to,, and in accordance with, the
applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not also then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy
as described in the proviso to subparagraph (ii) of this
paragraph (d)) or disposing of any voting securities of the
Company; provided, however, that nothing in this paragraph shall
cause a person engaged in business as an underwriter of
securities to be the "Beneficial Owner" of, or to "beneficially
own", any securities acquired through such person's
participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such
acquisition.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the
Commonwealth of Massachusetts or the State of New York are
authorized or obligated by law or executive order to close.
(f) "Close of business" on any given date shall mean
5:00 P.M., Boston time, on such date; provided, however, that if
such date is not a Business Day it shall mean 5:00 P.M., Boston
time, on the next succeeding Business Day.
(g) "Common Stock" shall mean the common stock, without
par value, of the Company, except that "Common Stock" when used
with reference to any Person other than the Company shall mean
the capital stock of such Person with the greatest voting power,
or the equity securities or other equity interest having power to
control or direct the management, of such Person.
(h) "Depositary Preferred Stock" shall mean the rights
represented by the Depositary Receipts issued hereunder and the
right to acquire Preferred Stock and all interests in respect
thereof represented thereby.
(i) "Depositary Receipts" shall mean the certificates
evidencing the Depositary Preferred Stock, which certificate
shall be substantially in the form of Exhibit B hereto.
(j) "Person" shall mean any individual, firm
corporation, partnership or other entity.
(k) "Preferred Stock" shall mean shares of Series A
Junior Participating Preferred Stock, without par value, of the
Company, and, to the extent that there are not a sufficient
number of shares of Series A Junior Participating Preferred Stock
authorized to permit the full exercise of the Rights, any other
series of Preferred Stock, without par value, of the Company
designated for such purpose containing terms substantially simi-
lar to the terms of the Series A Junior Participating Preferred
Stock.
(1) "Section 24(a)(ii) Event" shall mean any event
described in Section 24(a)(ii) (A) or (B) hereof.
(m) "Section 26 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 26(a) hereof.
(n) "Stock Acquisition Date" shall mean the first date
of public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) under the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.
(o) "Subsidiary" shall mean, with reference to any
Person, any corporation of which an amount of voting securities
sufficient to elect at least a majority of the directors of such
corporation is beneficially owned, directly or indirectly, by
such Person, or otherwise controlled by such Person.
(p) "Triggering Event" shall mean any Section
24(a)(ii) Event or any Section 26 Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints The Rights Agent to act as agent for the Company and the
holders of the Rights (who, in accordance with Section 3 hereof,
shall, prior to the Distribution Date, also be the holders of the
Common Stock) and as depositary with respect to the Preferred
Stock for the Company and the holders of Depositary Receipts, in
accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time
to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Rights Certificates.
(a) Until the earliest of (i) the close of business on
the tenth Business Day after the Stock Acquisition Date (or, if
the tenth day after the Stock Acquisition Date occurs before the
Record Date, (the close of business on the Record Date), or (ii)
the close of business on the tenth Business Day (or such later
date as may be determined by the Board of Directors) after the
date that a tender or exchange offer by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the
Company or any Subsidiary of the Company for or pursuant to the
terms of any such plan) is first published or sent or given
within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act if, upon consummation thereof,
such Person would be the Beneficial Owner of 20% or more of the
shares of Common Stock then outstanding, (iii) the close of
business on the tenth Business Day after the Board of Directors
determines, pursuant to the criteria set forth in Section
24(a)(ii B) hereof, that a Person is an Adverse Person (the
earliest of (i), (ii) and (iii) being herein referred to as the
"Distribution Date", (x) Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the names of the
holders of the Common Stock (which certificates for Common Stock
shall be deemed also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable
only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will
send by first-class, insured, postage prepaid mail, to each
record holder of the Common Stock as of the close of business on
the Distribution Date, at the address of such holder shown on the
records of the Company, one or more right certificates, in
substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common
Stock so held, subject to adjustment as provided herein. In the
event that an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 24(p) hereof, at
the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in
accordance with Section 27(a) hereof) so that Rights Certificates
representing only whole numbers of Rights are distributed and
cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by
such Rights Certificates.
(b) As promptly as practicable following the Record
Date, the Company will send a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit D (the "Summary
of Rights"), by first-class, postage prepaid mail, to each record
holder of the Common Stock as of the close of business on the
Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for the Common Stock
outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates for the Common
Stock and the registered holders of the Common Stock shall also
be the registered holders of the associated Rights. Until the
earlier of the Distribution Date or the Expiration Date (as such
term is defined in Section 7(a) hereof), the transfer of any
certificates representing shares of Common Stock in respect of
which Rights have been issued shall also constitute the transfer
of the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of
Common Stock which are issued (whether originally issued or from
the Company's treasury) after the Record Date but prior to the
earlier of the Distribution Date or the Expiration Date.
Certificates representing such shares of Common Stock shall also
be deemed to be certificates for Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Rights
Agreement between The Hartford Steam Boiler Inspection and
Insurance Company (the "Company") and The First National
Bank of Boston (the "Rights Agent") dated as of November 28,
1988 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on
file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Company will
mail to the holder of this certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without
charge, promptly after receipt of a written request
therefor. Under certain circumstances set forth in the
Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or an Adverse
Person or any Affiliate or Associate of either (as such
terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing
legend, until the earlier of (i) the Distribution Date or (ii)
the Expiration Date, the Rights associated with the Common Stock
represented by such certificates shall be evidenced by such
certificates alone and registered holders of Common Stock shall
also be the registered holders of the associated Rights, and the
transfer of any of such certificates shall also constitute the
transfer of the Rights associated with the Common Stock
represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment and related certificates to be printed
on the reverse thereof) shall each be substantially in the form
set forth in Exhibit C hereto and may have such marks of
identification or designation and such legends, summaries or en-
dorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable
law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject
to the provisions of Section 24 and Section 35 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the
Record Date and on their face shall entitle the holders thereof
to purchase such number of Depositary Receipts as shall be set
forth therein at the price set forth therein (such exercise price
per one one-hundredth of a share, the "Purchase Price"), but the
amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section
3(a) or Section 35 hereof that represents Rights beneficially
owned by: (i) an Acquiring Person, Adverse Person or any
Associate or Affiliate of an Acquiring Person or an Adverse
Person, (ii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person or the Adverse Person
becomes such, or (iii) a transferee of an Acquiring Person or an
Adverse Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring
Person or the Adverse Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or the Adverse Person to
holders of equity interests in such Acquiring Person or Adverse
Person or to any Person with whom such Acquiring Person or
Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is
part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 24
hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or
were beneficially owned by a Person who was or became an
Acquiring Person or an Adverse Person or an Affiliate or
Associate of an Acquiring Person or an Adverse Person (as
such terms are defined in the Rights Agreement).
Accordingly, this Rights Certificate and the Rights
represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Rights
Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf
of the Company by its Chairman of the Board, its President or any
Vice President, either manually or by facsimile signature, and
shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the person who
signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificates may be signed on
behalf of the Company by any person who, at the actual date of
the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although
at the date of the execution of this Rights Agreement any such
person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its principal office or offices
designated as the appropriate place for surrender of Rights
Certificates upon exercise or transfer, books for registration
and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights
evidenced on its face by each of the Rights Certificates and the
date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates. (a) Subject to the provisions of Section 4(b),
Section 7(e) and Section 27 hereof, at any time after the close
of business on the Distribution Date, and at or prior to the
close of business on the Expiration Date, any Rights Certificate
or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates,
entitling the registered holder to purchase a like number of one
one-hundredths of a share of Preferred Stock (or, following a
Triggering Event, Common Stock, other securities, cash or other
assets, as the case may be) as the Rights Certificate or
Certificates surrendered then entitled such holder (or former
holder in the case of a transfer) to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the
Rights Certificate or Certificates to be transferred, split up,
combined or exchanged, with the form of assignment and
certificate duly executed, at the office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and
signed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and shall have provided
such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof
as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 27
hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as
so requested. The Company may require payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange
of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Rights Certificate, and, in case
of loss, theft or destruction, of indemnity or security
reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation
of the Rights Certificate if mutilated, the Company will execute
and deliver a new Rights Certificate of like tenor to the Rights
Agent for countersignature and delivery to the registered owner
in lieu of the Rights Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered
holder of any Rights Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein including,
without limitation, the restrictions on exercisability set forth
in Section 22(c), Section 24(a)(iii) and Section 36(a) hereof) in
whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office or offices of the
Rights Agent designated for such purpose, together with payment
of the aggregate Purchase Price with respect to the total number
of Depositary Receipts (or other securities, cash or other as-
sets, as the case may be) as to which such surrendered Rights are
then exercisable, at or prior to the earlier of (i) the close of
business on November 28, 1988 (the "Final Expiration Date"), or
(ii) the time at which the Rights are redeemed as provided in
Section 36 hereof (the earlier of (i) and (ii) being herein
referred to as the "Expiration Date").
(b) The Purchase Price for each Depositary Receipt
pursuant to the exercise of a Right shall initially be $110.00,
and shall be subject to adjustment from time to time as provided
in Sections 24 and 26(a) hereof and shall be payable in
accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect
to each Right so exercised, of the Purchase Price per Depositary
Receipt (or other shares, securities, cash or other assets, as
the case may be) to be purchased as set forth below and an amount
equal to any applicable transfer tax, the Rights Agent shall,
subject to Section 33(k) hereof, thereupon promptly (i) make
available certificates for the total number of Depositary
Receipts to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests,
or (ii) requisition from the Company the amount of cash, if any,
to be paid in lieu of fractional Depositary Receipts in
accordance with Section 27 hereof, (iii) after receipt of such
Depositary Receipts, cause the same to be delivered to or upon
the order of the registered holder of such Rights Certificate,
registered in such name or names as may be designated by such
holder, and (iv) after receipt thereof, deliver such cash, if
any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount
may be reduced pursuant to Section 24(a)(iii) hereof) shall be
made in cash or by certified bank check or bank draft payable to
the order of the Company. In the event that the Company is
obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant
to Section 24(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if
and when appropriate.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced
thereby, a new Rights Certificate evidencing Rights equivalent to
the Rights remaining unexercised shall be issued by the Rights
Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, subject to the provi-
sions of Section 27 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary , from and after the first occurrence of a Section
24(a)(ii) Event, any Rights beneficially owned by (i) an
Acquiring Person, an Adverse Person or an Associate or Affiliate
of an Acquiring Person or an Adverse Person, (ii) a transferee of
an Acquiring Person or an Adverse Person (or of any such
Associate or Affiliate) who becomes a transferee after the
Acquiring Person or the Adverse Person becomes such, or (iii) a
transferee of an Acquiring Person or an Adverse Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person or the Adverse Person
becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring
Person or the Adverse Person to holders of equity interests in
such Acquiring Person or Adverse Person or to any Person with
whom the Acquiring Person or the Adverse Person has any
continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void
without any further action and no holder of such Rights shall
have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to insure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or
other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or an Adverse
Person or any of their respective Affiliates, Associates or
transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered
holder upon the occurrence of any purported exercise as set forth
in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as
the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the
purpose of exercise, transfer, split up, combination or exchange
shall, if surrendered to the Company or any of its agents, be
delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled
by it, and no Rights Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this
Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel
and retire, any other Rights Certificate purchased or acquired by
the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the
Company, or shall, at the written request of the Company, destroy
such cancelled Rights Certificates, and in such case shall deliv-
er a certificate of destruction thereof to the Company.
Section 9. Form of Depositary Receipts. The Depositary
Receipts (and the forms of election to exercise and of assignment
to be printed on the reverse thereof) shall each be substantially
in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable
law or with any rule or regulation make pursuant thereto or with
any rule or regulation of any stock exchange on which the
Depositary Receipts may from time to time be listed, or to
conform to usage. Subject to the provisions of this Agreement,
the Depositary Receipts, whenever issued, shall be dated as of
the date of issuance and on their face shall entitle the holders
thereof to exchange each Depositary Preferred Share for one
two-hundredth of a share of Preferred Stock, subject to
adjustment as provided herein.
Section 10. Countersignature and Registration of Depositary
Receipts.
(a) The Depositary Receipts shall be executed on behalf
of the Company by its Chairman of the Board, its President or any
Vice President, either manually or by facsimile signature, and
shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Corporate Secretary or an
Assistant Secretary of the Company, either manually or by
facsimile signature. The Depositary Receipts shall be manually
countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Depositary Receipts
shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by
the Company, such Depositary Receipts, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the person who
signed such Depositary Receipts had not ceased to be such officer
of the Company; and any Depositary Receipts may be signed on
behalf of the Company by any person who, at the actual date of
the execution of such Depositary Receipts, shall be a proper
officer of the Company to sign such Depositary Receipts, although
at the date of the execution of this Rights Agreement any such
person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its office or offices
designated as the appropriate place for surrender of Depositary
Receipts upon exercise or transfer, books for registration and
transfer of the Depositary Receipts issued hereunder. Such books
shall show the names and addresses of the respective holders of
the Depositary Receipts and the number of shares of Depositary
Preferred Stock evidenced on its face by each of the Depositary
Receipts. Depositary Receipts shall be in denominations of any
whole number of shares of Depositary Preferred Stock.
Section 11. Deposit of Stock.
(a) Subject to the terms and conditions of this
Agreement, no later than the Distribution Date, the Company shall
deposit by delivery to the Rights Agent a certificate or
certificates representing all the authorized shares of Preferred
Stock, properly endorsed or accompanied, if required by law, by a
duly executed instrument of transfer or endorsement, in form
satisfactory to the Rights Agent, together with all such
certifications as may be required by the Rights Agent in
accordance with the provisions of this Agreement.
(b) The Rights Agent shall hold shares of Preferred
Stock deposited by the Company in trust separate and apart from
its other assets, at the Rights Agent's office designated for
such purpose.
Section 12. Transfer, Split Up, Combination and Exchange of
Depositary Receipts; Mutilated, Lost or Stolen Depositary
Receipt..
(a) Subject to the provisions of this Agreement at any
time after the close of business on the Distribution Date, any
Depositary Receipt or Receipts may be transferred, split up,
combined or exchanged for another Depositary Receipt or Receipts
entitling the registered holder to exchange such Depositary
Receipt or Receipts for a like number of shares of Depositary
Preferred Stock as the Depositary Receipt or Receipts surrendered
then entitled such holder (or former holder in the case of a
transfer) to receive upon surrender for exchange. Any registered
holder desiring to transfer, split up, combine or exchange any
Depositary Receipt or Receipts shall make such request in writing
delivered to the Rights Agent, and shall surrender the Depositary
Receipt or Receipts to be transferred, split up, combined or
exchanged at the office or offices of the Rights Agent designated
for such purpose.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Depositary receipt, and, in the
case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental there-
to, and upon surrender to the Rights Agent and cancellation of
the Depositary Receipt if mutilated, the Company will execute and
deliver a new Depositary Receipt of like tenor to the Rights
Agent for countersignature and delivery to the registered owner
in lieu of the Depositary Receipt so lost, stolen, destroyed or
mutilated.
Section 13. Exchange of Depositary Receipts for Preferred
Stock.
(a) Subject to Section 27(b) hereof, at any time after
the Distribution Date, the registered holder of any Depositary
Receipt may exchange the Depositary Receipts evidenced thereby in
whole or in part for one two-hundredth of a share of Preferred
Stock and all money and other property represented thereby, if
any, by surrendering Depositary Receipts representing such shares
of Depositary Preferred Stock for such purpose, in an integral
multiple of one such share, at the Rights Agent's office
designated for such purpose. Thereafter, without unreasonable
delay, the Rights Agent shall deliver to such holder, or to the
person or persons designated by such holder as hereinafter
provided, the number of whole shares, if any, of Preferred Stock
and all money and other property represented by the Depositary
Preferred Shares so surrendered for withdrawal.
(b) In case the registered holder of any certificate
evidencing Depositary Receipts shall exercise less than all the
Depositary Receipts evidenced thereby, a new certificate
evidencing Depositary Receipts equivalent to the Depositary
Receipts remaining unexercised shall be issued by the Rights
Agent and delivered to, or upon the order of, the registered
holder of such Depositary Receipt, registered in the name or
names as may be designated by such holder, subject to the
provisions of Section 27 hereof.
(c) If the Preferred Stock and the money and other
property being withdrawn is to be delivered to a person or
persons other than the holder of the Depositary Receipts being
surrendered for withdrawal, such holder shall execute and deliver
to the Rights Agent a written order so directing the Rights Agent
and the Rights Agent may require that the Depositary Receipt
surrendered for withdrawal by such holder by properly endorsed in
blank or accompanied by a properly executed instrument of
transfer in blank.
(d) Delivery of the Preferred Stock and the money and
other property represented by Depositary Receipts surrendered for
exchange shall be made by the Rights Agent at its office
designated for such purpose, except that, at the written request,
risk and expense of the holder surrendering such shares, and for
the account of the holder thereof, such delivery may be made at
such other place as may be designated by such holder.
Section 14. Limitations on Execution and Delivery, Transfer,
Surrender and Exchange of Depositary Receipts.
(a) As a condition precedent to the execution and
delivery, transfer, split-up, combination, surrender or exchange
of any Depositary Receipt, the Rights Agent,
or any agent of the Rights Agent, may require payment to it of a
sum sufficient for reimbursement of any tax or other governmental
charge with respect thereto (including any such tax or charge
with respect to Preferred Stock being withdrawn), may require the
production of proof satisfactory to it as to the identity and
genuineness of any signature and may also require compliance with
such regulations, if any, as the Rights Agent may establish
consistent with the provisions of this Agreement.
(b) The transfer of Depositary Receipts may be refused,
or the transfer, surrender or exchange of outstanding Depositary
Receipts may be suspended during any period when the register of
stockholders of the Company is closed, or if any such action is
deemed necessary or advisable by the Rights Agent or the Company
at any time or from time to time because of any requirement of
law or of any government or governmental body or commission or
stock exchange, or under any provision of this Agreement.
Section 15. Cancellation and Destruction of Surrendered
Depositary Receipts. All Depositary Receipts surrendered for the
purpose of exercise, transfer, split up, combination or exchange
shall, if surrendered to the Company or any of its agents, be
delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled
by it and no Depositary Receipts shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this
Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel
and retire, any other Depositary Receipts purchased or acquired
by the Company otherwise than upon the exercise thereof. The
Rights Agent shall deliver all cancelled Depositary Receipts to
the Company.
Section 16. Distributions.
(a) Whenever the Rights Agent shall receive any case
dividend or other cash distribution on the Preferred Stock, the
Rights Agent shall distribute such amount to record holders of
Depositary Receipts on the record date fixed pursuant to Section
17 hereof in proportion to the number of Depository Receipts held
by them; provided, however, that in case the Company or the
Rights Agent shall be required to withhold and does withhold from
any cash dividend or other cash distribution in respect of the
Preferred Stock an amount on account of taxes, the amount made
available for distribution or distributed on the Depositary Re-
ceipts issued in respect of such Preferred Stock shall be reduced
accordingly. The Rights Agent shall distribute or make available
for distribution, as the case may be, only such amount, however,
as can be distributed without attributing to any record holder of
a Depositary Receipt a fraction of one cent and any balance not
so distributable shall be held by the Rights Agent (without
liability for interest thereon) and shall be added to and be
treated as part of the next sum received by the Rights Agent for
distribution to record holders of Depositary Receipts then
outstanding.
(b) Whenever the Rights Agent shall receive any
distribution other than cash upon the Preferred Stock, the Rights
Agent shall cause such securities or property received by it to
be distributed to the record holders of Depositary Receipts on
the record date fixed pursuant to Section 17 hereof in proportion
to the number of Depositary Receipts held by them, in any manner
that the Rights Agent may deem equitable and practicable for
accomplishing such distribution. If in the opinion of the Rights
Agent such distribution cannot be made proportionately among the
record holders of Depositary Receipts entitled thereto, or if for
any other reason (including any requirement that the Company or
the Rights Agent withhold an amount on account of taxes) the
Rights Agent deems such distribution not to be feasible, the
Rights Agent may adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution,
including the public or private sale of the securities or
property thus received, or any part thereof, at such place or
places and upon such terms as it may deem proper. The net
proceeds of any such sale shall be distributed or made available
for distribution, as the case may be, by the Rights Agent to the
holders of Depositary Receipts entitled thereto as in the case of
a distribution received in cash.
(c) Whenever the Company shall offer or cause to be
offered to the holders of the Preferred Stock any rights,
preferences or privileges to subscribe for or to purchase any
securities or any rights, preferences or privileges of any other
nature, such rights, preferences or privileges shall be made
available by the Rights Agent to the holders of Depositary
Receipts in such manner as the Rights Agent may determine, either
by the issue to the record holders of Depositary Receipts on the
record date fixed pursuant to Section 17 hereof of warrants
representing such rights, preferences or privileges or by such
other methods as may be approved by the Rights Agent in its
discretion; provided, however, that if at the time of issue or
offer of any such rights, preferences or privileges, the Rights
Agent determines that it is not lawful or feasible to make such
rights, preferences or privileges available to holders of
Depositary Receipts by the issue of warrants or otherwise, or if
and to the extent so instructed by holders of Depositary Receipts
who do not desire to exercise such rights, preferences or
privileges, the Rights Agent, in its discretion, may, if
applicable law permits transfer, sell such rights, preferences or
privileges at public or private sale, at such place or places and
upon such terms as it may deem proper. The net proceeds of any
such sale shall be distributed by the Rights Agent to the record
holders of Depositary Receipts entitled thereto as in the case of
a distribution received in cash.
(d) If registration under the Securities Act of the
securities to which any rights, preferences or privileges relate
is required in order for holders of Depositary Receipts to be
offered or sold the securities to which such rights, preferences
or privileges relate, the Company agrees with the Rights Agent
that it will file promptly a registration statement pursuant to
the Securities Act with respect to such rights, preferences or
privileges and securities and use its best efforts and take all
steps available to it to cause such registration statement to
become effective within a reasonable period of time before such
rights, preferences or privileges shall expire. In no event shall
the Rights Agent make available to the holders of Depositary
Receipts any right, preference or privilege to subscribe for or
to purchase any securities unless and until such a registration
statement is in effect, or unless the offering and sale of such
securities to the holders of such Depositary Receipts are exempt
from registration under the provisions of the Securities Act.
(e) If any other action under the laws of any
jurisdiction or any governmental or administrative authorization,
consent or permit is required in order for such rights,
preferences or privileges to be made available to holders of
Depositary Receipts, the Company agrees with the Rights Agent
that the Company will use its best efforts to take such action to
obtain such authorization, consent or permit sufficiently in
advance of the expiration of the rights, preferences or
privileges to enable holders of Depositary Receipts to exercise
such rights, preferences or privileges.
Section 17. Notice of Dividends, Fixing of Record Date for
Receipt-Holders. Whenever any cash dividend or other cash
distribution shall become payable or any distribution other than
cash shall be made, or whenever rights, preferences or privileges
shall be offered, with respect to the Preferred Stock, or
whenever the Rights Agent shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which
holders of Preferred Stock are entitled to notice, the Rights
Agent shall fix a record date (which shall be the record date
fixed by the Company with respect to the Preferred Stock) for the
determination of the holders of Depositary Receipts who shall be
entitled to receive such dividend, distribution, rights,
preferences or privileges or the net proceeds of the sale
thereof, to give instructions for the exercise of voting rights
at any such meeting or who shall be entitled to notice of such
meeting, and, not less than 10 days prior to such record date,
the Rights Agent shall mail notice of such record date to the
holders of record of Depositary Receipts as of the date notice of
such record date is received by the Rights Agent from the
Company; provided, however, that the Company shall have given the
Rights Agent not less than 15 days' prior written notice of such
record date.
Section 18. Voting Rights. Upon receipt of notice of any
meeting at which the holders of Preferred Stock are entitled to
vote, the Rights Agent shall include in the notice required to be
mailed to the record holders of Depositary Receipts pursuant to
Section 17: (a) such information as is contained in the notice of
meeting received from the Company; (b) a statement that the
holders of Depositary Receipts at the close of business on the
record date specified therein will be entitled, subject to any
applicable provisions of law and of the Charter of the Company,
to instruct the Rights Agent as to the exercise of the voting
rights pertaining to the amount of Preferred Stock represented by
their respective shares of Depositary Preferred Stock; and (c) a
brief statement as to the manner in which such instructions may
be given. Upon the written request of a holder of a Depositary
Receipt on such record date, the Rights Agent
shall endeavor insofar as practicable to vote or cause to be
voted the amount of Preferred Stock represented by such
Depositary Receipt in accordance with the instructions set forth
in such request. The Company hereby agrees to take all action
which may be deemed necessary by the Rights Agent in order to
enable the Rights Agent to vote such Preferred Stock or cause
such Preferred Stock to be voted. In the absence of specific
instructions from the holder of a Depositary Receipt, the Rights
Agent will abstain from voting to the extent of the Preferred
Stock underlying such Depositary Receipt.
Section 19. Changes Affecting Deposited Securities and
Reclassifications,
Recapitalizations, etc. Upon any change in par or stated value,
split-up, consolidation or any other reclassification of the
Preferred Stock, or upon any recapitalization, reorganization,
merger, consolidation or sale of assets affecting the Company or
to which it is a party, the Rights Agent shall, with the approval
of the Company and in such manner as the Rights Agent may deem
equitable, treat any securities into which the Preferred Stock
shall be changed or which shall be received in respect of the
Preferred Stock shall be changed or which shall be received by
the Rights Agent in exchange for or in respect of the Preferred
Stock as new deposited securities under this Agreement, and
Depositary Receipts then outstanding shall thereafter be
exchangeable for the new securities into which the Preferred
Stock shall be changed or which are so received in exchange or
conversion. In any such case the Rights Agent may in its
discretion, with the approval of the Company, execute and deliver
additional Depositary Receipts, or may call for the surrender of
all outstanding Depositary Receipts to be exchanged for new
receipts specifically describing such new deposited securities,
or, if appropriate, and-at the direction of the Company, shall
call for the surrender of all outstanding Depositary Receipts in
exchange for the new deposited securities.
Section 20. Reports. The Rights Agent shall make available
for inspection by holders of Depositary Receipts at its office
designated for such purpose, and at such other places as it may
from time to time deem advisable, any reports and communications
received from the Company which are both (a) received by the
Rights Agent as the depositary for the Preferred Stock and (b)
made generally available to the holders of such Preferred Stock
by the Company.
Section 21. Lists of Depositary Receipt Holders. Promptly
upon request by the Company, the Rights Agent shall furnish to it
a list, as of the most recent date practicable, of the names,
addresses and holding as of shares of Depositary Preferred Stock
by all persons in whose names Depositary Receipts are registered
on the depositary books of the Rights Agent.
Section 22. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause
to be reserved and kept available out of its authorized and
unissued shares of Preferred Stock (and, following the occurrence
of a Triggering Event, out of its authorized and unissued shares
of Common Stock and/or other securities or out of its authorized
and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering
Event, Common Stock and/or other securities) that provided in
this Agreement including Section 24(a)(iii) hereof, will be
sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock
and/or other securities) issuable and deliverable upon the
exercise of the Rights may be listed on any national securities
exchange, the Company shall use its best efforts to cause, from
and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file,
as soon as practicable following the earliest date after the
first occurrence of a Section 24(a)(ii) Event on which the
consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with Section 24(a)(iii)
hereof, a registration statement under the Securities Act of 1933
(the "Act"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable
after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of
which the Rights are no longer exercisable for such securities or
(B) the date of the expiration of the Rights. The Company will
also take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time not to
exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 22(c), the exercisability of
the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the
suspension is no longer in effect. In addition, if the Company
shall determine that a registration statement is required fol-
lowing the Distribution Date, the Company may temporarily suspend
the exercisability of the Rights until such time as a
registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been
obtained, the exercise thereof shall not be permitted under
applicable law or a registration statement shall not have been
declared effective.
(d) The Company covenants and agrees that it will take
all such action as ma be necessary to ensure that all Depositary
Receipts (and, following the occurrence of a Triggering Event,
Common Stock and/or other securities) delivered upon exercise of
Rights shall, at the time of delivery of the certificates for
such shares (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it
will pay when due and payable any and all federal and state
transfer taxes and charges which may be payable in respect of the
issuance or delivery of the Rights Certificates and of any
certificates for a number of Depositary Receipts (or Common Stock
and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a Person other than, or the
issuance or delivery of a number of Depositary Receipts (or
Common Stock and/or other securities, as the case may be) in
respect of a name other than that of, the registered holder of
the Rights Certificates evidencing Rights surrendered for
exercise or to issue or deliver any certificates for a number of
Depositary Receipts (or Common Stock and/or other securities, as
the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have
been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is
due.
Section 23. Preferred Stock Record Date. Each person in
whose name any certificate for a number-of Depositary Receipts
(or Common Stock and/or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of such fractional
shares of Preferred Stock (or Common Stock and/or other
securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and all applicable transfer taxes)
was made; provided, however, that if the date of such surrender
and payment is a date upon which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books
of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise)
on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Stock (or Common Stock and/or
other securities, as the case may be) transfer books of the
Company are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Rights Certificate shall not be entitled
to any rights of a stockholder of the Company with respect to
shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or
other distributions or to exercise any preemptive rights, and
shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 24. Adjustment of Purchase Price Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and
kind of Depositary Receipts covered by each Right and the number
of Rights outstanding are subject to adjustment from time to time
as provided in this Section 24.
(a)(i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the
Preferred Stock payable in shares of Preferred Stock, (B) subdi-
vide the outstanding Preferred Stock, (C) combine the outstanding
Preferred Stock into a smaller number of shares, or (D) issue any
shares of its capital stock in a reclassification of the
Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing or surviving corporation), except as otherwise
provided in this Section 24(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of
shares of Preferred Stock or capital stock, as the case may be,
issuable on such date, shall be proportionately adjusted so that
the holder of any Right exercised after such time shall be
entitled to receive, upon payment of the Purchase Price then in
effect, the aggregate number and kind of Depositary Receipts or
capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time when the
Depositary Receipt transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an ad-
justment under both this Section 24(a)(i) and Section 24(a)(ii)
hereof, the adjustment provided for in this Section 24(a)(1)
shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 24(a)(ii) hereof.
(ii) In the event: (A) any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), alone or together with
its Affiliates and Associates, shall, at any time after the
Rights Dividend Declaration Date, become the Beneficial Owner of
20% or more of the shares of Common Stock then outstanding,
unless the event causing the 20% threshold to be crossed is a
transaction set forth in Section 26(a) hereof, or is an
acquisition of shares of Common Stock pursuant to a tender offer
or an exchange offer for all outstanding shares of Common Stock
at a price and on terms determined by at least a majority of the
members of the Board of Directors who are not officers of the
Company and who are not representatives, nominees, Affiliates or
Associates of an Acquiring Person, after receiving advice from
one or more investment banking firms, to be (a) at a price which
is fair to shareholders (taking into account all factors which
such members of the Board deem relevant including, without
limitation prices which could reasonably be achieved if the
Company or its assets were sold on an orderly basis designed to
realize maximum value) and (b) otherwise in the best interests of
the Company and its shareholders, or (B) the Board of Directors
shall declare any Person to be an Adverse Person, upon a
determination that such Person, alone or together with its
Affiliates and Associates, has, at any time after the Rights
Dividend Declaration Date, become the Beneficial Owner of an
amount of Common Stock which the Board of Directors determines to
be substantial (which amount shall in no event be less than 10%
of the shares of Common Stock then outstanding) and a
determination by the Board of Directors of the Company, after
reasonable inquiry and investigation, including consultation with
such persons as such directors shall deem appropriate, that (a)
such Beneficial Ownership by such Person is intended to cause the
Company to repurchase the Common Stock beneficially owned by such
Person or to cause pressure on the Company to take action or
enter into a transaction or series of transactions intended to
provide such Person with short-term financial gain under
circumstances where the Board of Directors determines that the
best long-term interests of the Company and its shareholders
would not be served by taking such action or entering into such
transaction or series of transactions at that time or (b) such
Beneficial Ownership is causing or reasonably likely to cause a
material adverse impact (including, but not limited to, by
jeopardizing the Company's licenses or authorizations from, or
relationships with, state insurance regulators, or by impairing
relationships with customers or the Company's ability to maintain
its competitive position) on the business or prospects of the
Company to the detriment of the Company's shareholders, then
promptly following the occurrence of a Section 24(a)(ii) Event,
proper, provision shall be made so that each holder of a Right
(except as provided below and in Section 7(e) hereof) shall
thereafter have the right to receive, upon exercise thereof at
the then current Purchase Price in accordance with the terms of
this Agreement, in lieu of a number of Depositary Receipts, such
number of shares of Common Stock of the Company as shall equal
the result obtained by (x) multiplying the then current Purchase
Price by the then number of one two hundredths of a share of
Preferred Stock for which a Depositary Receipt was exercisable
immediately prior to the first occurrence of a Section 24(a)(ii)
Event, and (y) dividing that product (which, following such first
occurrence, shall thereafter be referred to as the "Purchase
Price" for each Right and for all purposes of this Agreement) by
50% of the current market price (determined pursuant to Section
24(d) hereof) per share of Common Stock on the date of such first
occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common
Stock which are authorized by the Company's Charter but not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights are not sufficient to permit the exercise
in full of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 24(a), the Company shall: (A)
determine the excess of (1) the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value") over
(2) the Purchase Price (such excess, the "Spread"), and (B) with
respect to each Right, make adequate provision to substitute for
the Adjustment Shares, u on payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Common Stock or other equity securities of the Company
(including, without limitation, shares, or units of shares, of
preferred stock which the Board of Directors of the Company has
deemed to have the same value as shares of Common Stock (such
shares of referred stock,, "common stock equivalents"), (4) debt
securities of the Company, (5) other assets or (6) any combina-
tion of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by
the Board of Directors of the Company based upon the advice of a
nationally recognized investment banking firm selected by the
Board of Directors of the Company; provided, however, if the
Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following
the later of (x) the first occurrence of a Section 24(a)(ii)
Event and (y) the date on which the Company' s right of
redemption pursuant to Section 36(a) expires (the later of (x)
and (y) being referred to herein as the "Section 24(a)(ii)
Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring
payment of the Purchase Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the
Board of Directors of the Company shall determine in good faith
that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in
full of the Rights, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety
(90) days after the Section 24(a)(ii) Trigger Date, in order that
the Company may seek shareholder approval for the authorization
of such additional shares (such period, as it may be extended,
the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the first
and/or second sentences of this Section 24(a)(iii), the Company
(x) shall provide, subject to Section 7(e) hereof, that such
action shall apply uniformly to all outstanding Rights, and (y)
may suspend the exercisability of the Rights until the expiration
of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is
no longer in effect. For purposes of this Section 24(a)(iii), the
value of the Common Stock shall be the current market price (as
determined pursuant to Section 24(d) hereof) per share of the
Common Stock on the Section 24(a)(ii) Trigger Date and the value
of any "common stock equivalent" shall be deemed to have the same
value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of
Preferred Stock entitling them to subscribe for or purchase (for
a period expiring within forty-five (45 calendar days after such
record date)
Preferred Stock (or shares having the same rights, privileges and
preferences as the shares of Preferred Stock (equivalent
preferred stock") or securities convertible into Preferred Stock
or equivalent preferred stock at a price per share of Preferred
Stock or per share of equivalent preferred stock (or having a
conversion price per share, if a security convertible into
Preferred Stock or equivalent preferred stock) less than the
current market price (as determined pursuant to Section 24(d)
hereof) per share of Preferred Stock on such record date, the
Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares
of Preferred Stock which the aggregate offering price of the
total number of shares of Preferred Stock and/or equivalent
preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered)
would purchase at such current market price, and the denominator
of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of additional
shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the
convertible securities so to be offered are initially
convertible). In case such subscription price may be paid by
delivery of consideration part or all of which may be in a form
other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights
Agent and the holders of the Rights. Shares of Preferred Stock
owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date
is fixed, and in the event that such rights or warrants are not
so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date
had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any
such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of
evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earning of the
Company), assets (other than a dividend payable in Preferred
Stock, but including and dividend payable in stock other than
Preferred Stock or subscription rights or warrants (excluding
those referred to in Section 24(b) hereof), the Purchase Price to
be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be
the current market price (as determined pursuant to Section 24(d)
hereof) per share of Preferred Stock on such record date, less
the fair market value (as determined in good faith by the Board
of Directors of the Company, whose determination shall be de-
scribed in a statement filed with the Rights Agent) of the
portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable
to a share of Preferred Stock and the denominator of which shall
be such current market price (as determined pursuant to Section
24(d) hereof) per share of Preferred Stock. Such adjustments
shall be made successively whenever such a record date is fixed,
and in the event that such distribution is not so made, the
Purchase Price shall be adjusted to be the Purchase Price which
would have been in effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder,
other than computations made pursuant to Section 24(a)(iii)
hereof, the "current market price" per share of Common Stock on
any date shall be deemed to be the average of the daily closing
prices per share of such Common Stock for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for purposes of computations
made pursuant to Section 24(a )(iii ) hereof, the "current
market price" per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of
such Common Stock for the ten (10) consecutive Trading Days
immediately following such date; provided, however, that in the
event that the current market price per share of the Common Stock
is determined during a period following the announcement by the
issuer of such Common Stock of (A) a dividend or distribution on
such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other
than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and prior to the
expiration of the requisite thirty (30) Trading Day or ten (10)
Trading Day period, as set forth above, after the ex-dividend
date for such dividend or distribution, or the record date for
such subdivision combination or reclassification, then, and in
each such case, the "current market price" shall be properly
adjusted to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the shares of Common Stock
are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the
principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the shares
of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System
("NASDAQ*") or such other system then in use, or, if on any such
date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company.
If on any such date no market maker is making a market in the
Common Stock, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company
shall be used. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock are not
listed or admitted to trading on any national securities
Exchange, a Business Day. If the Common Stock is not publicly
held or not so listed or traded, "current market price" per share
shall mean the fair value per share as determined in good faith
by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
"current market price" per share of Preferred Stock shall be
determined in the same manner as set forth above for the Common
Stock in clause (i) of this Section 24(d) (other than the last
sentence thereof). If the current market price per share of
Preferred Stock cannot be determined in the manner provided above
or if the Preferred Stock is not publicly held or listed or
traded in a manner described in clause (i) of this Section 24(d),
the "current market price" per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 200 (as such number
may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations with respect to the Common
Stock occurring after the date of this Agreement) multiplied by
the current market price per share of the Common Stock. If
neither the Common Stock nor the Preferred Stock is publicly held
or so listed or traded, "current market price" per share of the
Preferred Stock shall mean the fair value per share as determined
in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes. For all
purposes of this Agreement, the "current market price" of one
two-hundredth of a share of Preferred Stock shall be equal to the
"current market price" of one share of Preferred Stock divided by
200.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one
percent 1%) in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 24(e) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Section 24 shall be made to the nearest cent or to the nearest
ten-thousandth of a share of Common Stock or other share or
one-millionth of a share of Preferred Stock, as the case may be.
Notwithstanding the first sentence of this Section 24(e), any
adjustment required by this Section 24 shall be made no later
than the earlier of (i) three (3) years from the date of the
transaction which mandates such adjustment or (ii) the Expiration
Date.
(f) If as a result of an adjustment made pursuant to
Section 24(a)(ii) or Section 26(a) hereof, the holder of any
Right thereafter exercised shall become entitled to receive any
shares of capital stock other than Preferred Stock, thereafter
the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Stock contained in Sections 24(a), (b), (c), (e), (g),
(h), (i), (j), (k) and (m), and the provisions of Sections 7. 22,
239 26 and 27 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder
shall evidence the right to purchase, at the adjusted Purchase
Price, the number of Depositary Receipts purchasable from time to
time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 24(i), upon each adjustment of the
Purchase Price as a result of the calculations made in Sections
24(b) and (c), each Right outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of
Depositary Receipts (calculated to the nearest one-millionth) ob-
tained by (i) multiplying (x) the number of Depositary Receipts
covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately after such adjustment of
the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of
the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights,
in lieu of any adjustment in the number of Depositary Receipts
purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of Depositary Receipts for which a
Right was exercisable immediately prior to such adjustment. Each
Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at
the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or
any day thereafter, but, if the Rights Certificates have been
issued, shall be at least ten (10) days later than the date of
the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this
Section 24(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing,
subject to Section 27 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at
the option of the Company, shall cause to be distributed to such
holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment.
Rights Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and
may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of
record of Rights Certificates on the record date specified in the
public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of Depositary Receipts issuable upon
the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price
per Depositary Receipt and the number of Depositary Receipts
which were expressed in the initial Rights Certificates issued
hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated
value, if any, of the Depositary Preferred Stock issuable upon
exercise of the Depositary Receipts, the Company shall take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Preferred Stock at such
adjusted Purchase Price.
(l) In any case in which this Section 24 shall require
that an adjustment in the Purchase Price be made effective as of
a record date for a specified event, the Company may elect to
defer until the occurrence of such event the issuance to the
holder of any Right exercised after such record date the number
of Depositary Receipts and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above
the number of Depositary Receipts and other capital stock or
securities of the Company, if any, issuable upon such exercise on
the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares (fractional
or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 24 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 24, as and to the
extent that in their good faith judgment the Board of Directors
of the Company shall determine to be advisable in order that any
(i) consolidation or subdivision of the Preferred Stock, (ii)
issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, (iii) issuance wholly for cash of
shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock,
(iv) stock dividends or (v) issuance of rights, options or
warrants referred to in this Section 24 hereafter made by the
Company to holders of its Preferred Stock shall not be taxable to
such shareholders.
(n) The Company covenants and agrees that it shall not,
at any time after the Distribution Date, (i) consolidate with any
other Person (other than a Subsidiary of the Company in a
transaction which complies into any with Section 24(o)-hereof),
(ii) merge with or other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 24(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to
sell or transfer), in one transaction, or a series of related
transactions, assets, cash flow or earning power aggregating more
than 50% of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Company and/or any of its Subsidiaries in
one or more transactions each of which complies with Section
24(o) hereof), if (x) at the time of or immediately after such
consolidation, merger or sale there are any rights, warrants or
other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights or (y) prior
to, simultaneously with or immediately after such consolidation,
merger or sale, the shareholders of the Person who constitutes,
or would constitute, the "Principal Party" for purposes of
Section 26(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and
Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 36
or Section 39 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding in the event that the Company shall at any time
after the Rights Dividend Declaration Date and prior to the
Distribution Date (i) declare a dividend on the outstanding
shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock or (iii) combine
the outstanding shares of Common Stock into a smaller number of
shares, the number of Rights associated with each share of Common
Stock then outstanding, or issued or delivered thereafter but
prior to the Distribution Date, shall be proportionately adjusted
so that the number of Rights thereafter associated with each
share of Common Stock following any such event shall equal the
result obtained by multiplying the number of Rights associated
with each share of Common Stock immediately prior to such event
by a fraction the numerator which shall be the total number of
shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(q) The failure by the Board of Directors to declare a
Person to be an Adverse Person following such Person becoming the
Beneficial Owner of 10% or more of the outstanding Common Stock
shall not imply that such Person is not an Adverse Person or
limit the Board of Directors' right at any time in the future to
declare such Person to be an Adverse Person. In considering
whether to declare a Person to be an Adverse Person,, the Board
of Directors may consider the actions or findings of one or more
state insurance regulators with respect to any required approvals
by such regulators of such Person's actions with respect to the
Company. Notwithstanding the foregoing, the approval by any one
or more state insurance regulators of any action of any Person
shall not be deemed to prohibit or restrict the ability of the
Board of Directors to declare that such Person is an Adverse
Person upon determination that the criteria set forth in Section
24(a)(ii)(B) apply to such Person.
Section 25. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section
24 and Section 26 hereof, the Company shall (a) promptly prepare
a certificate setting forth such adjustment and a brief statement
of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Rights
Certificate (or, if prior to the Distribution Date, to each
holder of a certificate representing shares of Common Stock) in
accordance with Section 38 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have
knowledge of any such adjustment unless and until it shall have
received such certificate.
Section 26. Consolidation, Merger, or Sale or Transfer of
Assets, Cash Flow or Earning Power.
(a) In the event that, following the Stock Acquisition
Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person (other than a
Subsidiary of the Company in a transaction which complies with
Section 24(o) hereof), and the Company shall not be the
continuing or surviving corporation of such consolidation or
merger, (y) any Person (other than a Subsidiary of the Company in
a transaction which complies with Section 24(o) hereof) shall
consolidate with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of
Common Stock shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other
property or (z) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related
transactions, assets, cash flow or earning power aggregating more
than 50% of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole) to any Person or Persons
(other than the Company or any Subsidiary of the Company in one
or more transactions each of which complies with Section 24(o)
hereof), then, and in each such case (except as may be
contemplated by Section 26(d) hereof), proper provision shall be
made so that:
(i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price in accordance
with the terms of this Agreement, such number of validly
authorized and issued, fully paid, non-assessable and freely
tradable shares of Common Stock of the Principal Party (as such
term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of Depositary Receipts for
which a Right is exercisable immediately prior to the first
occurrence of a Section 26 Event (or, if a Section 24(a)(ii)
Event has occurred prior to the first occurrence of a Section 26
Event, multiplying the number of such Depositary Receipts for
which a Right was exercisable immediately prior to the first
occurrence of a Section 24(a)(ii) Event by the Purchase Price in
effect immediately prior to such first occurrence), and dividing
that product (which, following the first occurrence of a Section
26 Event, shall be referred to as the "Purchase Price" for each
Right and for all purposes of this Agreement) by (2) 50% of the
current market price (determined pursuant to Section 24(d)(i)
hereof) per share of the Common Stock of such Principal Party on
the date of consummation of such Section 26 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume,
by virtue of such Section 26 Event, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of
Section 24 hereof shall apply only to such Principal Party
following the first occurrence of a Section 26 Event; (iv) such
Principal Party shall take such steps (including, but not limited
to, the reservation of a sufficient number of shares of its
Common Stock) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; and (v) the
provisions of Section 24(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 26 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x)
or (y) of the first sentence of Section 26(a), the Person that is
the issuer of any securities into which shares of Common Stock of
the Company are converted in such merger or consolidation, and if
no securities are so issued, the Person that is the other party
to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z)
of the first sentence of Section 26(a), the Person that is the
party receiving the greatest portion of the assets, cash flow or
earning power transferred pursuant to such transaction or
transactions;
provided, however, that in any such case, (1) if the Common Stock
of such Person is not at such time and has not been continuously
over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the Common Stock of which
is and has been so registered "Principal Party" shall refer to
such other Person; and (2) in case such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common
Stocks of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market
value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which
have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 26
and unless prior thereto the Company and such Principal Party
shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in
paragraphs(a) and (b) of this Section 26 and further providing
that, as soon as practicable after the date of any consolidation,
merger or sale of assets mentioned in paragraph (a) of this
Section 26, the Principal Party will
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form and will use its
best efforts to cause such registration statement to (A) become
effective as soon as practicable after such filing and (B) remain
effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
The provisions of this Section 26 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
In the event that a Section 26 Event shall occur at any time
after the occurrence of a Section 24(a)(ii) Event, the Rights
which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 26(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 26 shall not be applicable to a transaction
described in subparagraphs (x) and (y) of Section 26(a) if (i)
such transaction is consummated with a Person or Persons who
acquired shares of Common Stock pursuant to a tender offer or
exchange offer for all outstanding shares of Common Stock which
complies with the provisions of Section 24(a)(ii)(A) hereof (or a
wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is
not less than the price per share of Common Stock paid to all
holders of shares of Common Stock whose shares were purchased
pursuant to such tender offer or exchange offer and (iii) the
form of consideration being offered to the remaining holders of
shares of Common Stock pursuant to such transaction is the same
as the form of consideration paid pursuant to such tender offer
or exchange offer. Upon consummation of any such transaction
contemplated by this Section 26(d), all Rights hereunder shall
expire.
Section 27. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights, except prior to the Distribution Date as
provided in Section 24(p) hereof, or to distribute Rights
Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right.
For purposes of this Section 27(a), the current market value of a
whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing
price of the Rights for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices regular way, in
either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted
to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by
NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected
by the Board of Directors of the Company. If on any such date no
such market maker is making a market in the Rights the fair value
of the Rights on such date as determined in good faith by the
Board of Directors of the Company shall be used.
(b) The Company shall not issue fractions of shares of
Preferred Stock upon exercise of the Depositary Receipts or
distribute certificates which evidence fractional shares of
Preferred Stock. In lieu of fractional shares of Preferred Stock,
the Company shall pay to the registered holders of Depositary
Receipts at the time such Depositary Receipts are exercised as
herein provided an amount in cash equal to the same fraction of
the current market value of one two-hundredth of a share of
Preferred Stock. For purposes of this Section 27(b), the current
market value of one two-hundredth of a share of Preferred Stock
shall be one two-hundredth of the closing price of one share of
Preferred Stock (as determined pursuant to Section 24(d)(ii)
hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which
evidence fractional shares of Common Stock. In lieu of fractional
shares of Common Stock, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) share of Common
Stock. For purposes of this Section 27(c), the current market
value of one share of Common Stock shall be the closing price of
one share of Common Stock (as determined pursuant to Section
24(d)(i) hereof) for the Trading Day immediately prior to the
date of such exercise.
(d) The holder of a Right by the acceptance of such
Right expressly waives his right to receive any fractional Rights
or any fractional shares upon exercise of a Right, except as
permitted by this Section 27.
Section 28. Rights of Action. All rights of action in
respect or this Agreement, except those rights of action vested
in the Rights Agent pursuant to Sections 31 or 33 hereof, are
vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any
Rights Certificate (or, prior to the Distribution Date, of the
Common Stock), without the consent of the Rights Agent or of the
holder of any other Rights Certificate (or prior to the
Distribution Date, of the Common Stock), may, in his own behalf
and for his own benefit, enforce, and may institute and maintain
any suit action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in
such Rights Certificate and in this Agreement. Without limiting
the foregoing or any remedies available to the holders of Rights,
it is specifically acknowledged that the holders of Rights would
not have an adequate remedy at law for any breach of this
Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person
subject to this Agreement.
Section 29. Agreement of Rights Holders. Every holder of a
Right by accepting the same consents and agrees with the Company
and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common
Stock;
(b) after the Distribution Date, the Rights
Certificates are transferable only on the registry books of the
Rights Agent if surrendered at the principal office or offices of
the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof,
the Company and the Rights Agent may deem and treat the person in
whose name a Rights Certificate (or, prior to the Distribution
Date, the associated Common Stock certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights
Agent, subject to the last sentence of Section 7(e) hereof, shall
be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or other Person as a result of
its inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative
agency or commission or any statute, rule, regulation or
executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of
such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
Section 30. Rights Certificate Holder Not Deemed a
Shareholder. No holder as such, of any Rights Certificate shall
be entitled to vote, receive dividends or be deemed for any
purpose the holder of the number of shares of Preferred Stock or
any other securities of the Company which may at any time be
issuable on the exchange of the Depositary Receipts issuable on
the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as
provided in Section 37 hereof), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 31. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and disbursements and other
disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability or
expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the
premises. The indemnification provided for hereunder shall
survive the expiration of the Rights and the termination of this
Agreement.
(b) The Rights Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this
Agreement in reliance upon any Rights Certificate or certificate
for Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorse-
ment, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified
or acknowledged, by the proper Person or Persons.
Section 32. Merger or Consolidation or Change of Name of
Right Agents.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties hereto;
provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of
Section 34 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any
of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name
of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Rights Certificates
shall have been countersigned but not delivered, the Rights Agent
may adopt the countersignature under its prior name and deliver
Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned,
the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases
such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
Section 33. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the
Company and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
(who may be legal counsel for the Company), and the opinion of
such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken or omitted
by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under
this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter (including, without limitation,
the identity of any Acquiring Person or Adverse Person and the
determination of it current market price") be proved or
established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed
to be conclusively proved and established by a certificate signed
by the Chairman of the Board, the President, any Vice President,
the Treasurer, any Assistant Treasurer, the Corporate Secretary
or any Assistant Secretary of the Company and delivered to the
Rights. Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder only for
its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in
this Agreement or in the Rights Certificates or be required to
verify the same (except as to its countersignature on such Rights
Certificates), but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or
the execution and delivery hereof (except the due execution
hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement
or in any Rights Certificate; nor shall it be responsible for any
adjustment required under the provisions of Section 24 or Section
26 hereof or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts
that would require any such adjustment (except with respect to
the exercise of Rights evidenced by Rights Certificates after
receipt of the certificate described in Section 25 hereof); nor
shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation
of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to
whether any shares of Common Stock or Preferred Stock will, when
so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its
duties hereunder from the Chairman of the Board, the President,
any Vice President, the Corporate Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions
in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officer. Any application
by the Rights Agent for written instructions from the Company
may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under
this Agreement and the date on and/or after which such action
shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission
of, the Rights Agent in accordance with a proposal included in
such application on or after the dated specified in such
application (which date shall not be less than five Business Days
after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in
writing to an earlier date) unless prior to taking any such
action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response
to such application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in
any of the Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to the Company
or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or
for any other legal entity.
(i) The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents,
and the Rights Agent shall not be answerable or accountable for
any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; Provided, however,
reasonable care was exercised in the selection and continued
employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder or in the exercise of its rights if there shall be
reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the
certificate attached to the form of assignment or form of
election to purchase, as the case may be, has either not been
completed or indicates an affirmative response to clause 1 and/or
2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise of transfer without first
consulting with the Company.
(l) The Rights Agent shall not be required to take
notice or be deemed to have notice of any fact, event or
determination (including the occurrence of a section 24(a)(ii)
Event) under this Agreement unless and until the Rights Agent
shall be specifically notified in writing by the Company of such
fact, event or determination.
Section 34. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its
duties under this Agreement upon thirty (30) days' notice in
writing mailed to the Company, and to each transfer agent of the
Common Stock and Preferred Stock, by registered or certified
mail, and to the holders of the Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the
Rights Agent. if the Company shall fail to make such appointment
within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall,
with such notice, submit his Rights Certificate for inspection by
the Company), then any registered holder of any Rights Certifi-
cate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent,
whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the
United States or of the State of New York or the Commonwealth of
Massachusetts (or of any other state of the United States so long
as such corporation is authorized to do business as a banking
institution in the State of New York or the Commonwealth of
Massachusetts), in good standing, having a principal office in
the State of New York or the Common laws to exercise corporate
trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate of a corpora-
tion described in clause (a) of this sentence. After appointment,
the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the
successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than
the effective date of any such Appointment, the Company shall
file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred
Stock, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice
provided for in this Section 34, however, or any defect therein,
shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 35. Issuance of New Rights Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by
its Board of Directors to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates
made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of
Common Stock following the Distribution Date and prior to the
redemption or expiration of the Rights, the Company (a) shall,
with respect to shares of Common Stock so issued or sold pursuant
to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or
upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other
case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant
risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in
lieu of the issuance thereof.
Section 36. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at
any time prior
of (i) the close of business on the tenth day following the Stock
Acquisition Date (or, if the Stock Acquisition Date shall have
occurred prior to the Record Date, the close of business on the
tenth day following the Record Date) or (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, as such amount
may be appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the
"Redemption Price"). Notwithstanding the foregoing, the Board of
Directors may not redeem any Rights following a determination
pursuant to Section 24(a (ii)(B) that any Person is an Adverse
Person. Notwithstanding anything contained in this Agreement to
the contrary, the Rights shall not be exercisable after the first
occurrence of a Section 24(a)(ii) Event until such time as the
Company's right of redemption hereunder has expired. The Company
may, at its option, pay the Redemption Price in cash, shares of
Common Stock (based on the "current market price", as defined in
Section 24(d)(i) hereof, of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate
by the Board of Directors.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights,
evidence of which shall have been filed with the Rights Agent and
without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter
of the holders of Rights shall be to receive the Redemption Price
for each Right so held. Promptly after the action of the Board of
Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to
all such holders at each holder s last address as it appears upon
the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent
for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be
made.
Section 37. Notice of Certain Events.
(a) In case the Company shall propose, at any time
after the Distribution Date, (i) to pay any dividend payable in
stock of any class to the holders of Preferred Stock or to make
any other distribution to the holders of Preferred Stock (other
than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the
holders of Preferred Stock rights or warrants to subscribe for or
to purchase any additional shares of Preferred Stock or shares of
stock of any class or any other securities, rights or options, or
(iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any
consolidation or merger into or with any other Person (other than
a Subsidiary of the Company in a transaction which complies with
Section 24(o) hereof), or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 24(o) hereof), or (v) to effect
the liquidation, dissolution or winding up of the Company, then,
in each such case, the Company shall give to each holder of a
Rights Certificate, to the extent feasible and in accordance with
Section 38 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend,
distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the shares of
Preferred Stock, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i)
or (-ii) above at least twenty (20) days prior to the record date
for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other
action, at least twenty (20) days prior to the date of the taking
of such proposed action or the date of participation therein by
the holders of the shares of Preferred Stock whichever shall be
the earlier.
(b) In case any of the events set forth in Section
24(a)(ii) hereof shall occur, then, in any such case, (i) the
Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, to the extent feasible and in
accordance with Section 38 hereof, a notice of the occurrence of
such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 24 a)(ii) hereof,
and (ii) all references in the preceding paragraph to Preferred
Stock shall be deemed thereafter to refer to Common Stock and/or,
if appropriate, other securities.
Section 38. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the
holder of any Rights Certificate to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
Hartford, Connecticut 06102
Attention: Corporate Secretary
Subject to the provisions of Section 34, any notice or demand
authorized by this Agreement to be given or made by the Company
or by the holder of any Rights Certificate to or on the Rights
Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed
in writing with the Company) as follows:
The First National Bank of Boston
P.O. Box 1865
Boston, Massachusetts 02105
Attention: Shareholder Services Division
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any
Rights Certificate (or, if prior to the Distribution Date, to the
holder of certificates representing shares of Common Stock) shall
be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 39. Supplements and Amendments. Prior to the
Distribution Date and subject to the penultimate sentence of this
Section 39, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend any provision of this
Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the
Distribution Date and subject to the penultimate sentence of this
Section 39, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without
the approval of any holders of Rights Certificates in order (i)
to cure any ambiguity, (ii) to correct or supplement
any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten
or lengthen any time period hereunder or (iv) to change or
supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Rights
Certificates (other than an Acquiring Person, an Adverse Person
or an Affiliate or Associate of an Acquiring Person or an Adverse
Person); provided, this Agreement may not be supplemented or
amended to lengthen, pursuant to clause (iii) of this sentence,
(A) a time period relating to when the Rights may be redeemed at
such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance
with the terms of this Section 39, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything contained
in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price, the Final
Expiration Date, the Purchase Price or the number of Depositary
Receipts for which a Right is exercisable. Prior to the
Distribution Date, the interests of the holders of Rights shall
be deemed coincident with the interests of the holders of Common
Stock.
Section 40. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights
Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 41. Determinations and Actions by the Board of
Directors, etc. For all purposes of this agreement, any
calculation of the number of shares of Common Stock outstanding
at any particular time, including for purposes of determining the
particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act. The Board
of Directors of the Company (or, as set forth herein, certain
specified members thereof) shall have the exclusive power and
authority to administer this Agreement and to exercise all rights
and powers specifically granted to the Board (or, as set forth
herein, certain specified members thereof) or to the Company, or
as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to
(i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to
redeem or not redeem the Rights or to amend the Agreement). All
such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board (or
as set forth herein certain specified members thereof) in good
faith shall (x) be final, conclusive and binding on the Company,
the Rights Agent, the holders of the Rights and all other parties
and (y) not subject the Board to any liability to the holders of
the Rights.
Section 42. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the
Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Rights Certifi-
cates (and, prior to the Distribution Date, registered holders of
the Common Stock).
Section 43. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant
or restriction is held by such court or authority to be invalid,
void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid
language from this Agreement would adversely affect the purpose
or effect of this Agreement, the right of redemption set forth in
Section 36 hereof shall be reinstated and shall not expire until
the close of business on the tenth day following the date of such
determination by the Board of Directors.
Section 44. Governing Law. This Agreement, each Right and
each Rights Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Connecticut and for
all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts made and to
be performed entirely within such State.
Section 45. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
Section 46. Descriptive Headings. Descriptive headings of
the several Sections of this Agreement are inserted for
convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
[ Seal ]
Attest: THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE
COMPANY
By /s/ Roberta A. O'Brien By /s/ John J. Kelley
Name: Roberta A. O'Brien Name: John J. Kelley
Title: Assistant Secretary Title: Corporate Secretary
[ Seal]
Attest:
THE FIRST NATIONAL
BANK OF BOSTON, as Rights Agent
By /s/ Kenyon Bissell By /s/ Darlene M. DioDato
Name: Kenyon Bissell Name: Darlene M. DioDato
Title: Assistant Vice President Title: Vice President
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
Pursuant to Section 33-340 of the Connecticut Stock
Corporation Act
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, a
corporation organized and existing under and by virtue of the
laws of Connecticut (hereinafter called the "Corporation"),
pursuant to the provisions of Section 33-340 of the Connecticut
Stock Corporation Act, does by Wilson Wilde, its President, and
John J. Kelley, its Corporate Secretary, hereby certify that,
pursuant to authority expressly vested in the Board of Directors
of the Corporation by the provisions of its Charter, said Board
of Directors at a meeting duly called and held on November 28,
1988, duly adopted resolutions providing for the issuance of a
series of Preferred Stock, without par value, of the Corporation
and setting forth the voting powers, designation, preferences and
relative, participating, optional and other special rights of
such series and the qualifications, limitations and restrictions
of such rights, to the extent that the foregoing are not set
forth in the Charter of the Corporation, which resolutions are as
follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions
of its Charter, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred
Stock" and the number of shares constituting such series shall be
250,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Junior Participating Preferred
Stock with respect to dividends, the holders of shares of Series
A Junior Participating Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends
payable in cash on the last business day of January, April, July
and October in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date ), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $12.00 or (b) subject to the
provision for adjustment hereinafter set forth, 200 times the
aggregate per share amount of all cash dividends, and 200 times
the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise), declared on
the Common Stock, without par value, of the Corporation (the
"Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date,, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after
November 28, 1988 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in
Paragraph (A) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable
in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $12.00 per share on the Series A Junior Participating
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred
Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series A Junior Participating
Preferred stock unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date,
in which case dividends on such shares shall begin to accrue from
the date of issue of such shares or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A
Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment
Date in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series
A Junior Participating Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which
record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to 200 votes on all
matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number
by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one
class on all matters submitted to a vote of shareholders of the
Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount
equal to six (6) quarterly dividends thereon, the occurrence' of
such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on
all shares of Series A Junior Participating Preferred Stock then
outstanding shall have been declared and paid or set apart for
payment. During each default period, all holders of Preferred
Stock (including holders of the Series A Junior Participating
Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two (2)
Directors.
(ii) During any default period, such voting right of the holders
of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph
(iii) of this Section 3(C) or at any annual meeting of
shareholders, and thereafter at annual meetings of shareholders,
provided that neither such voting right nor the right of the
holders of any other series of Preferred Stock, if any, to
increase, in certain cases, the authorized number of Directors
shall be exercised unless the holders of ten percent (10%) in
number of shares of Preferred Stock outstanding shall be present
in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the
right, voting as a class, to elect Directors to fill such
vacancies, if any in the Board of Directors as may then exist up
to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be
so elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right
to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised
their right to elect Directors in any default period and during
the continuance of such period, the number of Directors shall not
be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of
any equity securities ranking senior to or pari passu with the
Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred
Stock outstanding, irrespective of series, may request, the
calling of special meeting of the holders of Preferred Stock,
which meeting shall thereupon be called by the President, a
Vice-President or the Secretary of the Corporation. Notice of
such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last address
as the same appears on the books of the Corporation. Such meeting
shall be called for a time not earlier than 20 days and not later
than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this
paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the shareholders.
(iv) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their
right to elect two (2) Directors voting as a class, after the
exercise of which right (x) the Directors so elected by the hold-
ers of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period and (y) any vacancy in the Board
of Directors may (except as provided in paragraph (C)(ii) of this
Section 3.5)be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of
stock which elected the Director whose office shall have become
vacant. References in this paragraph (C) to Directors elected by
the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,(x) the
right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate and (z)
the number of Directors shall be such number as may be provided
for in the certificate of incorporation or by-laws irrespective
of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to
change thereafter in any manner provided by law or in the
certificate of incorporation or by-laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and
(z) in the preceding sentence may be filled by a majority of the
remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating
Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been
paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, except
dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series A
Junior Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any shares
of stock ranking on a parity with the Series A Junior
Participating-Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up
of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall
have received $200 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the
Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A Junior Par-
ticipating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share
(the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 200 (as
appropriately adjusted as set forth in paragraph (C) below to
reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number
in clause (ii), the "Adjustment Number"). Following the payment
of the full amount of the Series A Liquidation Preference and the
Common Adjustment in respect of all outstanding shares of Series
A Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series A Junior Participating Preferred
Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with
respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) In the event, however that there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
preferred stocks if any, which rank on a parity with the Series A
Junior Participating Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares
in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to
permit payment in full of the Common Adjustment then such
remaining assets shall be distributed ratably to the holders of
Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger. etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series A Junior
Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 200
times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common
Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or
change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. Optional Redemption. (A) The Corporation shall have
the option to redeem the whole or any part of the Series A Junior
Participating Preferred Stock at any time at a redemption price
equal to, subject to the provision for adjustment hereinafter set
forth, 200 times the "current per share market price" of the
Common Stock on the date of the mailing of the notice of
redemption, together with unpaid accumulated dividends to the
date of such redemption. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares or (iv)
issue any shares by reclassification of its shares of Common
Stock, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock shall be
otherwise entitled immediately prior to such event under the
immediately preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding immediately after
such event and the denominator of which shall be the number of
shares of Common Stock that shall have been outstanding
immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the
closing prices per share of such Common Stock for the 10
consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date. The closing price for each day
shall be the last sale price, regular way, or, in case no such
sale shall take place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock
Exchange or, if the Common Stock shall not be listed or admitted
to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal
national securities exchange on which the Common Stock shall not
be listed or admitted to trading or, if the Common Stock shall
not be listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted the average
of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use or, if on any such date the Common Stock shall
not be quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on such date no such
market maker shall be making a market in the Common Stock, the
fair value of the Common Stock on such date as determined in good
faith by the Board of Directors of the Corporation shall be used.
The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Common Stock shall be
listed or admitted to trading shall be open for the transaction
of business or, if the Common Stock shall not be listed or
admitted to trading on any national securities exchange, a
Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the State of New York shall not be authorized or
obligated by law or executive order to close.
(B) Notice of any such redemption shall be given by mailing to
the holders of the Series A Junior Participating Preferred Stock
a notice of such redemption, first class postage prepaid, not
later than the thirtieth day and not earlier than the
sixtieth-day before the date fixed for redemption, at their last
address as the same shall appear upon the books of the Corpora-
tion. Any notice which shall be mailed in the manner herein
provided shall be conclusively presumed to have been duly given,
whether or not the stockholder shall have received such notice,
and failure duly to give such notice by mail, or any defect in
such notice, to any holder of Series A Junior Participating
Preferred Stock shall not affect the validity of the proceedings
for the redemption of such Series A Junior Participating Pre-
ferred Stock.
(C) If less than all the outstanding shares of the Series A
Junior Participating Preferred Stock are to be redeemed by the
Corporation, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be
redeemed shall be determined by lot or pro rata or in such fair
and equitable other manner as may be prescribed by resolution of
the Board of Directors.
(D) The notice of redemption to each holder of Series A Junior
Participating Preferred Stock shall specify (a) the number of
shares of Series A Junior Participating Preferred Stock of such
holder to be redeemed, (b) the date fixed for redemption, (c) the
redemption price and (d) the place of payment of the redemption
price.
(E) If any such notice of redemption shall have been duly given
or if the corporation shall have given to the bank or trust
company hereinafter referred to irrevocable written authorization
promptly to give or complete such notice, and if on or before the
redemption date specified therein the funds necessary for such
redemption shall have been deposited by the Corporation. with the
bank or trust company designated in such notice, doing business
in the United States of America and having a capital, surplus and
undivided profits aggregating at least $25,000,000 according to
its last published statement of condition, in trust for the
benefit of the holders of Series A Junior Participating Preferred
Stock called for redemption, then, notwithstanding that any
certificate for such shares so called for redemption shall not
have been surrendered for cancellation, from and after the time
of such deposit all such shares called for redemption shall no
longer be deemed outstanding, all rights with respect to such
shares shall no longer be deemed outstanding and all rights with
respect to such shares shall forthwith cease and terminate,
except the right of the holders thereof to receive from such bank
or trust company at any time after the time of such deposit the
funds so deposited, without interest, the right to exercise, up
to the close of business on the fifth day before the date fixed
for redemption, all privileges of conversion or exchange if any.
In case less than all the shares represented by any surrendered
certificate shall be redeemed, a new certificate shall be issued
representing the unredeemed shares Any interest accrued on such
funds so deposited shall be paid to the Corporation from time to
time. Any funds so deposited and unclaimed at the end of six
years from such redemption date shall be repaid to the
Corporation, after which the holders of shares of Series A Junior
Participating Preferred Stock called for redemption shall look
only to the Corporation for payment thereof; provided, however,
that any funds so deposited which shall not be required for
redemption because of the exercise of any privilege of conversion
or exchange subsequent to the date of deposit shall be repaid to
the Corporation forthwith.
Section 9. Ranking. The Series A Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's
Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall
provide otherwise.
Section 10. Amendment. The Charter of the Corporation shall not
be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A
Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least
a majority of the outstanding shares of Series A Junior
Participating Preferred Stock, voting separately as a class.
RESOLVED, FURTHER, that the proper officers of the Corporation be
and they are hereby authorized and directed,jointly and
severally, to prepare, execute and file a certificate setting
forth a copy of the foregoing resolutions and to execute any and
all other documents and take any and all other steps necessary or
appropriate in order to comply with the laws of the State of
Connecticut and effectuate the purposes of said resolutions.
IN WITNESS WHEREOF, HARTFORD STEAM BOILER INSPECTION AND
INSURANCE COMPANY has caused this Certificate to be signed in its
name by Wilson Wilde, its President, and John J. Kelley, its
Corporate Secretary, and its corporate seal to be hereunto
affixed, as of this 28th day of November, 1988.
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
[CORPORATE SEAL]
/s/ Wilson Wilde
Name: Wilson Wilde
Title: President
Attest:
/s/ John J. Kelley
Name: John J. Kelley
Title: Corporate Secretary
STATE OF CONNECTICUT)
) ss,:
COUNTY OF HARTFORD )
On this 28th day of November, 1988, before me, , a
Notary Public in and for said County and State, residing therein,
duly commissioned and sworn, personally appeared Wilson Wilde and
John J. Kelley known to me or proved to me on the basis of
satisfactory evidence to be the President and the Assistant
Secretary, respectively, of THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY, a Connecticut corporation, the Corporation
that executed the foregoing Certificate of Designation and
Preferences, and upon oath did severally depose and say, each for
himself and not for the other, that he is the officer of said
Corporation as above designated; that he is acquainted with the
seal of said Corporation and that the seal affixed to said
instrument is the corporate seal of said Corporation; that the
signatures to said instrument were made by said officers of said
Corporation as indicated after said signatures; and that the said
Corporation executed the said instrument freely and voluntarily
and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my official seal at my office in the County of Hartford,
State of Connecticut, on the day and year in this certificate
first above written.
Notary Public in and for the
County of Hartford State of Connecticut
(SEAL)
My Commission Expires:
EXHIBIT B
[FORM OF FACE OF DEPOSITARY RECEIPT]
DEPOSITARY RECEIPT FOR SERIES A JUNIOR PARTICIPATING PREFERRED
STOCK
of
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Certificate No ...........
Depositary Preferred Shares
(Each such share being exchangeable for one two-hundredth of a
share of Series A Junior Participating Preferred Stock)
This certifies that or registered assigns, is the
registered owner of Depositary Preferred Shares, each of
which is exchangeable for one two-hundredth of a share of Series
A Junior Participating Preferred Stock (the "Preferred Stock") of
The Hartford Steam Boiler Inspection and Insurance Company, a
Connecticut corporation (the "Company"), upon presentation and
surrender of this Depositary Receipt with the Form of Election to
Exercise duly executed. Certificates representing the shares of
Preferred Stock have been deposited by the Company at the office
of The First National Bank of Boston (the "Rights Agent")
designated for such purpose. The Depositary Receipts, of which
this Depositary
Receipt is one ("Depositary Receipts"), are issued upon the
terms and conditions set forth in the Rights Agreement, dated as
of November 28, 1988 (the "Rights Agreement"), by and between the
Company and the Rights Agent.
This Depositary Receipt is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement
reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the
Depositary Receipts. Copies of the Rights Agreement are on file
at the office of the Company and are also available upon written
request to the Company.
This Depositary Receipt shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights
Agent.
WITNESS the facsimile signature of the proper
officers of the Company and its corporate seal.
Dated as of 19
ATTEST:
Secretary
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON, as Rights Agent
By
Authorized Signature
By
Title:
[FORM OF REVERSE OF DEPOSITARY RECEIPT]
The following summary of certain provisions of the Rights
Agreement is subject to the detailed provisions thereof, to which
reference is hereby made.
1. Surrender of Depositary Receipts and Withdrawal of Stock. Upon
surrender of this Depositary Receipt to the Rights Agent at its
office designated for such purpose, and subject to the provisions
of the Rights Agreement, the holder hereof is entitled to
delivery to him, or upon his order, of the Preferred Stock and
any money and other property at the time represented thereby;
provided, however, that in the event fractional shares of
Preferred Stock would be created, the Rights Agent shall deliver
the maximum number of whole shares of Preferred Stock, if any,
and a new Depositary Receipt evidencing the Preferred Stock which
shall be exchangeable for the Preferred Stock not so withdrawn.
Upon the happening of any event referred to in paragraph 10 below
and the surrender of this Depositary Receipt to the Rights Agent,
the holder hereof is entitled to delivery to him, or upon his
order, of the new securities into which the Preferred Stock has
been changed or which have been received by the Rights Agent in
exchange for the Preferred Stock.
2. Transfers, Split-ups, Combinations. This
Depositary Receipt is transferable on the books of the Rights
Agent upon surrender of this Depositary Receipt to the Rights
Agent, properly endorsed or accompanied by a properly executed
instrument of transfer, and upon such transfer the Rights Agent
shall sign and deliver a Depositary Receipt to or upon the order
of the person entitled thereto, as provided in the Rights
Agreement. This Depositary Receipt may be split into other
Depositary Receipts or combined with other Depositary Receipts
into one Depositary Receipt, representing the same aggregate
number of shares of Depositary Preferred Stock as the Depositary
Receipt or Depositary Receipts surrendered.
3. Suspension of Delivery, Transfer, etc. The delivery of this
Depositary Receipt in exchange for Preferred Stock or the
transfer, surrender or exchange of this Depositary Receipt, may
be suspended during any period when the register of stockholders
of the Company is closed or if any such action is deemed
necessary or advisable by the Rights Agent or the Company at any
time or from time to time because of any requirement of law or of
any government or governmental body or commission or stock
exchange, or under any provision of the Rights Agreement.
4. Payment of Taxes or Other Governmental
Charges. If any tax or other governmental charge shall become
payable by or on behalf of the Rights Agent with respect to this
Depositary Receipt, such tax (including transfer taxes, if any)
or governmental charge shall be payable by the holder hereof.
Transfer of this Depositary Receipt, or any delivery of Preferred
Stock exchangeable for this Depositary Receipt, may be refused
until such payment is made, and any dividends or other
distributions may be withheld, or any part or all of the
Preferred Stock exchangeable for this Depositary Receipt and not
theretofore sold may be sold for the account of the holder
hereof, and such dividends or other distributions or the proceeds
of any such sale may be applied in any payment of such tax or
other governmental charge holder of this Depositary Receipt
remaining liable for any deficiency.
5. Amendment. The form of the Depositary Receipt and any
provisions of the Rights Agreement may be amended as provided in
the Rights Agreement.
6. Title to Receipts. It is a condition of this Depositary
Receipt, and every successive holder hereof by accepting or
holding the same consents and agrees, that this Depositary
Receipt (and the Depositary Preferred Shares evidenced hereby),
when properly endorsed or accompanied by a properly executed
instrument of transfer, is transferable by delivery with the same
effect as in the case of a negotiable instrument; provided,
however, that until this Depositary Receipt shall be transferred
on the books of the Rights Agent the Rights Agent may,
notwithstanding any notice to the contrary, treat the record
holder hereof at such time as the absolute owner hereof for the
purpose of determining the person entitled to distribution of
dividends or other distributions or to any notice provided for
the Rights Agreement, and for all other purposes.
7. Dividends and Distributions. Whenever the Rights Agent
receives any cash dividend or other cash distribution on the
Preferred Stock, the Rights Agent will, subject to the provisions
of the Rights Agreement, make such distribution to the Depositary
Receipt holders as nearly as practicable in proportion to the
number of shares of Depositary Preferred Stock held by them;
provided, however, that the amount distributed will be reduced by
any amounts required to be withheld by the Company or the Rights
Agent on account of taxes. Other distributions received on the
Preferred Stock may be distributed to holders of Depositary
Receipts as provided in the Rights Agreement.
8. Fixing of Record Date. Whenever any cash dividend or other
cash distribution shall become payable or any distribution other
than cash shall be made, or whenever rights, preferences or
privileges shall be offered, with respect to the Preferred Stock,
or whenever the Rights Agent shall receive notice of any meeting
at which holders of Preferred Stock are entitled to vote or of
which holders of Preferred Stock are entitled to notice, the
Rights Agent shall fix a record date, which shall be the record
date fixed by the Company with respect to the Preferred Stock,
and, in accordance with the Rights Agreement, shall send notice
of such record date to the record holders of Depositary Receipts.
9. Voting Rights. Upon receipt of notice of any meeting at which
the holders of Preferred Stock are entitled to vote, the Rights
Agent shall include in the notice to the record holders of
Depositary Receipts referred to in the immediately preceding
paragraph: (a) such information as is contained in the notice of
meeting received by the Rights Agent; (b) a statement that the
holders of Depositary Receipts at the close of business on the
record date specified therein will be entitled, subject to any
applicable provisions of law and of the Company's Charter, to
instruct the Rights Agent as to the
exercise of the voting rights pertaining to the amount of
Preferred Stock represented by their respective shares of
Depositary Preferred Stock; and (c) a brief statement as to the
manner in which such instructions may be given. Upon the written
request of a holder of a Depositary Receipt on such record date,
the Rights Agent shall endeavor insofar as practicable to vote or
cause to be voted the amount of Preferred Stock exchangeable for
such Depositary Receipt in accordance with the instructions set
forth in such request. In the absence of specific instructions
from the holder of a Depositary Receipt, the Rights Agent will
abstain from voting to the extent of the Preferred Stock
underlying such Depositary Receipt.
10. Changes Affecting Deposited Securities.
Upon any change in par or stated value, split-up, consolidation
or any other reclassification of the Preferred Stock or upon any
recapitalization, reorganization, merger, consolidation or sale
of assets affecting the Company or to which it is a party, the
Rights Agent shall, with the approval of the Company and in such
manner as the Rights Agent may deem equitable, treat any
securities into which the Preferred Stock shall be changed or
which shall be received by the Rights Agent in exchange for or in
conversion of or in respect of the Preferred Stock as new
deposited securities under the Rights Agreement, and Depositary
Receipts then outstanding shall thenceforth be exchangeable for
the new securities into which the Preferred Stock shall be
changed or which are so received in exchange or conversion. In
any such case, the Rights Agent may in its discretion, with the
approval of the Company, execute and deliver additional
Depositary Receipts or may call for the surrender of outstanding
Depositary Receipts to be exchanged for new Depositary Receipts
specifically describing such new deposited securities.
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Depositary Receipt.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Depositary Receipt, together with all right, title and
interest therein, and does hereby irrevocably constitute and
appoint Attorney, to transfer the within
Depositary Receipt on the books of the withinnamed Company, with
full power of substitution.
Date: , 19
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment must correspond to the
name as written upon the face of this Depositary Receipt in every
particular, without alteration or enlargement or any change
whatsoever.
FORM OF ELECTION TO EXERCISE
(To be executed if holder desires to exercise Depositary
Preferred Shares represented by the Depositary Receipt.)
To: THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
The undersigned hereby irrevocably elects to exercise
Depositary Receipts represented by this Depositary Receipt
Certificate to receive the shares of Depositary Preferred Stock
issuable upon the exercise of the Depositary Receipt (or such
other securities of the Company or of any other person which may
be issuable upon the exercise of Depositary Receipt) and requests
that certificate for such shares be issued in the name of:
Please insert social security or other identifying number
(Please print name and address
If such number of Depositary Receipts shall not be all the
Depositary Receipts evidenced by this Depositary Receipt
Certificate, a new Depositary Receipt Certificate for the balance
of such Depositary Receipts shall be registered in the name of
and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated: , 19
signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Exercise must
correspond to the name as written upon the face of this
Depositary Receipt Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Exhibit C
[Form of Rights Certificate]
Certificate No. R- Rights
NOT EXERCISABLE AFTER NOVEMBER 28, 1998 OR EARLIER IF REDEEMED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION
OF THE COMPANY AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE PERSON
(AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE
RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN ADVERSE PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE
AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS
AGREEMENT.*
*The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
Rights Certificate
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
This certifies that or registered assigns, is the
registered owner of the number of Rights set forth above, each of
which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of
November 28, 1988 (the "Rights Agreement") between The Hartford
Steam Boiler Inspection and Insurance Company, a Connecticut
corporation (the "Company"), and The First National Bank of
Boston, a national banking association (the "Rights Agent"), to
purchase from the Company at any time prior to 5:00 P.M. (Boston
time) on November 28, 1998 at the office or offices of the Rights
Agent designated for such purpose, or its successors as Rights
Agent, one Depositary Receipt (a "Depositary Receipt") which is
exchangeable into one two-hundredth of a fully paid,
nonassessable share of Series A Junior Participating Preferred
Stock, without par value (the "Preferred Stock"), of the Company
at a purchase price of $110.00 per Depositary Receipt (the
"Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this
Rights Certificate (and the number of Depositary Receipts which
may be purchased upon exercise thereof) set forth above, and the
Purchase Price per Depositary Receipt set forth above, are the
number and Purchase Price as of November 28, 1988. All terms used
and not defined herein shall have the meaning set forth in the
Rights Agreement.
Upon the occurrence of a Section 24(a)(ii) Event if the Rights
evidenced by this Rights Certificate are beneficially owned by
(i) an Acquiring Person, an Adverse Person or an Affiliate or
Associate of any such Person (as such terms are defined in the
Rights Agreement), (ii) a transferee of any such Acquiring
Person, Adverse Person, Associate or Affiliate or (iii) under
certain circumstances specified in the Rights Agreement, a
transferee of a person who, after such transfer, became an
Acquiring Person, an Adverse Person or an Affiliate or Associate
of an Acquiring Person or an Adverse Person, such Rights shall
become null and void and no holder hereof shall have any right
with respect to such Rights from and after the occurrence of such
Section 24(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities
which may be purchased upon the exercise of the Rights evidenced
by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events, including
Triggering Events (as hereinafter defined).
This Rights Certificate is subject to all of the terms provisions
and conditions of the Rights Agreement, which terms provisions
and conditions are hereby incorporated herein by reference and
made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the
specific circumstances set forth in the Rights Agreement. Copies
of the Rights Agreement are on file at the above-mentioned office
of the Rights Agent and are also available upon written request
to the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices
of the Rights Agent designated for such purpose, may be exchanged
for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase
a like aggregate number of Depositary Receipts as the Rights
evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at
its option at a redemption price of $.01 per Right at any time
prior to the earlier of the close of business on (i) the tenth
Business Day following the Stock Acquisition Date (as such time
period may be extended pursuant to the Rights Agreement), and
(ii) the Final Expiration Date. After the expiration of the
redemption period, the Company's right of redemption may be
reinstated if an Acquiring Person reduces his beneficial
ownership to 10% or less of the outstanding shares of Common
Stock in a transaction or series of transactions not involving
the Company.
No holder of this Rights Certificate, as such, shall be entitled
to vote or receive dividends or be deemed for any purpose the
holder of Depositary Receipts or shares of Preferred Stock or of
any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to
receive dividends or subscription rights, or otherwise, until the
Right or Rights evidenced by this Rights Certificate shall have
been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights
Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of , 19
ATTEST:
Secretary
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
By
Title:
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON, as Rights Agent
By
Authorized Signature
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and
appoint Attorney, to transfer the within Rights
Certificate on the books of the within-named Company, with full
power of substitution.
Dated: 19-
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the
appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or
was an Acquiring Person, an Adverse Person or an Affiliate or
Associate of any such Person (as such terms are defined pursuant
to the Rights Agreement);
(2) after due inquiry and to the best knowledge
of the undersigned, it [ ] did [ ] did not acquire the Rights
evidenced by this Rights Certificate from any Person who is, was
or subsequently became an Acquiring Person, an Adverse Person or
an Affiliate or Associate of any such Person.
Dated: 19-
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or
enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented
by the Rights Certificate)
To: HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY:
The undersigned hereby irrevocably elects to exercise
Rights represented by this Rights Certificate to purchase the
Depositary Receipts issuable upon the exercise of the Rights (or
such other securities of the Company or of any other person which
may be issuable upon the exercise of the Rights) and requests
that certificates for such shares be issued in the name of and
delivered to:
Please insert social security or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance
of such Rights shall be registered in the name of and delivered
to:
Please insert social security or other identifying number
(Please print name and address)
Dated: 19-
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was
an Acquiring Person, an Adverse Person or an Affiliate or
Associate of any such Person (as such terms are defined pursuant
to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced
by this Rights Certificate from any Person who is, was or became
an Acquiring Person, an Adverse Person or an Affiliate or
Associate of any such Person.
Dated: 19-
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face
of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Exhibit D
SUMMARY OF SHAREHOLDER RIGHTS PLAN
On November 28, 1988, the Board of Directors of The Hartford
Steam Boiler Inspection and Insurance Company (the "Company")
declared a dividend distribution of one Right for each
outstanding share of Company Common Stock to shareholders of
record at the close of business on December 8, 1988. Each Right
entitles the registered holder to purchase from the Company a
Depositary Receipt exercisable for one two-hundredth of a share
(a "Unit") of Series A Junior Participating Preferred Stock,
without par value (the "Preferred Stock"), at a Purchase Price
of $110.00 per Depositary Receipt subject to adjustment. The
description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and The
First National Bank of Boston, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no
separate Rights Certificates will be distributed. The Rights will
separate from the Common Stock and a Distribution Date will occur
upon the earliest of (i) 10 business days following a public
announcement that a person or group of affiliated or associated
persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common Stock (the "Stock Acquisition
Date"), (ii) 10 business days following the commencement of a
tender offer or exchange offer that would result in a person or
group beneficially owning 20% or more of such outstanding shares
of Common Stock or (iii) 10 business days after the Board of
Directors of the Company determines any person, alone or together
with its affiliates and associates has become the Beneficial
Owner of an amount of Common Stock which the Board of Directors
determines to be substantial (which amount shall in no event be
less than 10% of the shares of Common Stock outstanding) and
determines after reasonable inquiry and investigation, including
consultation with such persons as such directors shall deem
appropriate, that (a) such beneficial ownership by such person is
intended to cause the Company to repurchase the Common Stock
beneficially owned by such person or to cause pressure on the
Company to take action or enter into a transaction or series of
transactions intended to provide such person with short-term
financial gain under circumstances where the Board of Directors
determines that the best long-term interests of the Company and
its stockholders would not be served by taking such action or
entering into such transactions or series of transactions at that
time or (b) such beneficial ownership is causing or reasonably
likely to cause a material adverse impact (including, but not
limited to, by jeopardizing the Company's licenses or
authorizations from, or relationships with, state insurance
regulators, or by impairing relationships with customers or the
Company's ability to maintain its competitive position) on the
business or prospects of the Company to the detriment of the
Company's shareholders (any such person being referred to herein
and in the Rights Agreement as an "Adverse Person").
Until the Distribution Date, (i) the Rights will be evidenced by
the Common Stock certificates and will be transferred with and
only with such Common Stock certificates, (ii) new Common Stock
certificates issued after December 8, 1988 will contain a
notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on November 28, 1998, unless
earlier redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common
Stock as of the close of business on the Distribution Date and,
thereafter, the separate Rights Certificates alone will represent
the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that the Board of Directors determines that a person
is an Adverse Person or, at any time following the Distribution
Date, a Person becomes the beneficial owner of more than 20% of
the then outstanding shares of Common Stock (except pursuant to
an offer for all outstanding shares of Common Stock which the
independent directors determine to be fair to and otherwise in
the best interests of the Company and its shareholders), each
holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal
to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of any of the events
set forth in this paragraph, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or Adverse Person will
be null and void. However, Rights are not exercisable following
the occurrence of either of the events set forth above until such
time as the Rights are no longer redeemable by the Company as set
forth below.
For example, at an exercise price of $110.00 per Right, each
Right not owned by an Acquiring Person or an Adverse Person by
certain related parties) following an event set forth in the
preceding paragraph would entitle its holder to purchase $220.00
worth of Common Stock (or other consideration, as noted above)
for $110.00. Assuming that the Common Stock had a per share value
of [current market] at such time, the holder of each valid Right
would be entitled to purchase shares of Common Stock for $110.00.
In the event that, at any time following the Stock Acquisition
Date,(i) the Company is acquired in a merger or other business
combination transaction in which the Company is not the surviving
corporation (other than a merger which follows an offer described
in the second preceding paragraph or a merger which follows an
offer described in the second preceding paragraph), (ii) the
Company engages in a merger or other business combination with
another person in which the Company is the surviving corporation,
but in which its Common Stock is changed or exchanged, or (iii)
50% or more of the Company's assets, cash flow or earning power
is sold or transferred, each holder of a Right (except Rights
which previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the
exercise price of the Right. The events set forth in this
paragraph and in the second preceding paragraph are referred to
as the "Triggering Events".
The Purchase Price payable, and the number of Depositary Receipts
or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrants to subscribe for Preferred Stock or
convertible securities at less than the current market price of
the Preferred Stock or (iii) upon the distribution to holders of
the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription
rights or warrants (other than those referred to above).
With certain exceptions no adjustment in the Purchase Price will
be required until cumulative adjustments amount to at least 1% of
the Purchase Price. No fractional Units will be issued and, in
lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Stock on the last trading date
prior to the date of exercise.
In general, the Company may redeem the Rights in whole, but not
in part, at a price of $.01 per Right (payable in cash, Common
Stock or other consideration deemed appropriate by the Board of
Directors), at any time until ten days following the Stock
Acquisition Date. The Company may not redeem the Rights if the
Board of Directors has previously declared a person to be an
Adverse Person. After the redemption period has expired, the
Company's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of
transactions not involving the Company. Immediately upon the
action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Company, including,
without limitation, the right to vote or to receive dividends.
While the distribution of the Rights will not be taxable to
shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock (or other
consideration) of the Company or for common stock of the
acquiring company as set forth above.
Other than those provisions relating to the principal economic
terms of the Rights, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company
prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Board in
order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person), or to shorten or lengthen
any time period under the Rights Agreement; provided, however,
that no amendment to adjust the time period governing redemption
shall be made at such time as the Rights are not redeemable.
A copy of the Rights Agreement is being filed with the Securities
and Exchange Commission as an Exhibit to a Current Report on Form
8-K. A copy of the Rights Agreement is available free of charge
from the Rights Agent. This summary description of the Rights
does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is incorporated
herein by reference.
Exhibit (10)(iii)(c)
As amended and restated 2/26/96
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
SHORT-TERM INCENTIVE PLAN
1. Purpose of Plan
The purposes of this Plan are: (a) to provide an additional
incentive for officers of the Company to make significant contributions
to the performance and growth of the Company, and (b) to attract and
retain in the employ of the Company employees of exceptional ability.
2. Administration
The Plan shall be administered by the Human Resource Committee (the
"Committee") of the Board of Directors. The Committee is authorized to
interpret the Plan and may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem appropriate.
Decisions of the Committee will be final, conclusive and binding upon all
parties concerned, unless otherwise determined by uninterested members
of the Board of Directors.
3. Eligibility
Those employees who are Officers of the Company (other than any
individual expressly excluded by the Committee) on or prior to December
31 of each Plan Year are eligible to participate in the Plan and receive
Incentive Awards pursuant to Section 5 except as provided in Section 7.
The Committee may in its discretion designate other key employees to
participate in the Plan. Eligibility will be determined at the close of each
Plan Year. (Plan years will be based on calendar years.)
4. Basis of Incentive Awards
(a) The basis for determining awards will be the actual
percentage of Annual Budgeted Net Income Per Share (cited in
the Business Plan of the Company) achieved in a given year.
("Net Income" is defined as after-tax income per share, consolidating
all subsidiaries, inclusive of realized capital gains and losses.)
(b) The Committee reserves the right to modify the basis
of the incentive awards for each Plan Year as it deems equitable
in recognition of extraordinary or non-recurring events experienced
by the Company during the year or in the event of changes in
applicable accounting rules, principles or methods employed by
the Company.
5. Incentive Awards
(a) At the end of each Plan Year the Committee will determine
the incentive award percentages for Senior Officers (defined as
President, Executive Vice President, Senior Vice President,
Corporate Secretary and Treasurer) and Non-Senior Officers for the
Incentive Award Pool from the range of awards provided in subsection
(b) below. The award percentages selected from within the applicable
range for each group will be based upon the performance of the Company
for the Plan Year 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. The applicable
incentive award percentage for Senior Officers shall be multiplied by
the sum of all of the Senior Officers' (with the exception of the
President's) Base Earnings and the applicable award percentage for
Non-Senior Officers shall be multiplied by the sum of all other eligible
participants' Base Earnings and the aggregate of these two amounts
will be the Incentive Award Pool. ("Base Earnings" shall mean the
base annual salary of the participant in effect on December 31st of
the Plan Year for which the award is being determined, and shall not
include amounts payable under Company benefit, incentive or bonus
plans or overseas premiums.) The Incentive Award Pool will be the
maximum amount of awards available under the plan for participants,
other than the President, for the Plan Year. Awards shall be payable
in cash in accordance with Section 6 hereof. A Senior Officer's, other
than the President's, individual award shall be a percentage between
0 and 100% of his or her Base Earnings. An Officer's (other than a
Senior Officer's) or any other participant's individual award shall be a
percentage between 0 and 60% of his or her Base Earnings. The
amount of any award hereunder, other than the President's award,
shall be determined by, and shall be entirely within the discretion of,
the President and shall be based on the participant's contributions to
the Company during the Plan Year. Under no circumstances shall a
participant who receives a performance rating that is lower than
"Meets Requirements" on his or her last performance appraisal be
considered for an award hereunder. The President's award shall be
determined by the Committee and shall not exceed 100% of his Base
Earnings.
(b) For each Plan Year the incentive award percentage to be used for
determining the Incentive Award Pool shall be based on the following
table:
% of Budgeted Net Income per Share Achieved*
* (rounded up to the next whole percentage point)
121+ 110-120 100-109% 90-99% 75-89%
------------------------------------------------
Senior Officer
Award % 70-100% 60-80% 40-60% 20-40% 0-20%
Non-Senior
Officer
Award % 40-60% 40-60% 30-50% 20-40% 0-20%
(c) Any Participant newly elected by the Board of Directors during the
Plan Year shall receive an Incentive Award calculated in accordance
with Paragraph (a) but such award will be reduced by any bonuses
paid to such officer during the Plan Year except for bonuses paid
during the Plan Year that relate to services performed during a prior
Plan Year.
6. Method and Time of Awards
(a) Distributions of incentive awards, net of amounts withheld for
income tax or other purposes, will be made in January of the year
immediately following the close of the current Plan Year. The
withholding and deduction requirements will be determined in
accordance with the then applicable practices of the Company as
well as reasonable instructions by the participants.
(b) Any participant may, with permission of the Committee, elect to
defer all or a specified part of each incentive award. The election of the
participant must be in writing and submitted to the Secretary of the
Company at least one month prior to the beginning of the Plan Year.
Payment of the award will be deferred to such future time, not
otherwise inconsistent with the Plan, as the participant will have
specified in such notice. The election of the participant will be
irrevocable. Interest shall be computed on June 30th and December
31st of each year on the balance in each participant's deferred cash
account at a rate equal to the rate of interest which is in effect on
such dates for 13 week U.S. Treasury Bills.
(c) 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 and the President
as provided under Section 5 hereof. No award and no rights of
ownership thereunder will be transferable otherwise than pursuant to
Section 8.
7. Rights on Termination of Employment
(a)If a participant in this Plan dies, becomes disabled or retires
under a retirement plan of the Company or otherwise terminates his or her
employment with the written consent of the Company prior to the end
of any Plan Year in respect of which he or she may be eligible for an
award, the amount of the award, if any, payable to the participant or
his or her beneficiary, shall be at the sole discretion of the President
(or the Committee with respect to the President).
(b) A participant whose employment terminates by dismissal with or
without cause, or who voluntarily terminates his or her employment
without consent prior to the expiration of a Plan Year, will not be
entitled to receive an award under the Plan.
(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 Plan Year (i) by
dismissal (other than dismissal on account of defalcation) or (ii) by
voluntary termination of his or her 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 such Plan Year and based upon the
incentive award percentage selected by the Committee from the table
in Section 5(b) times the Base Earnings of the Participant in effect
prior to his or her termination.
(d) In no event shall an award or a portion thereof, the payment of
which has been deferred pursuant to Section 6(b) be subject to forfeiture.
8. Death of a Participant
A participant may file with the Secretary of the Company a designation of a
beneficiary or beneficiaries on a form to be provided by him or her, which
designation may be changed or revoked by the participant's sole action,
provided that the change or revocation is filed with the Secretary on a form
provided by him or her. In case of the death of the participant, before or
after termination of employment, any 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, will be
delivered to, or in accordance with the directions of, the executor or
administrator of such participant's estate.
9. Effective Date
This Plan will become effective as of January 1, 1982.
10. 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 cancelling the award of a participant that has been declared
but not received 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 stockholders 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 of the Company (or
such surviving entity) outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation affected 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's assets.
11. Unfunded Obligations; Trust Agreement
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.
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.
12. 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 beneficiary,
spouse, children, other dependents or any of such individuals, in such
proportion as the Committee may deem proper.
Exhibit (10)(iii)(h)
October 2, 1995
Mr. Saul L. Basch
25 Mcintosh Drive
Wilbraham, MA 01095
Dear Mr. Basch:
The purpose of this letter agreement is to set out the
understanding that you and The Hartford Steam Boiler Inspection
and Insurance Company (the "Company") have reached with respect
to certain obligations you and the Company may have in the event
of your cessation of employment. The agreement to provide the
payments described below has been made in order to induce you to
enter employment with the Company and in consideration of your
entering and remaining in such employment. However, other than
satisfaction of the obligations described in this agreement,
nothing stated herein shall affect the Company's or your right to
terminate your employment at any time.
1. Term of Agreement
This Agreement will commence on the date of this letter and
will continue for a period of three years and will
automatically be extended for successive additional three-
year terms on each three year anniversary date, unless 180
days prior to such date, the Company has given you notice of
its election not to renew this Agreement. The non-renewal
of this Agreement will not in any way affect payments due
hereunder which remain outstanding.
Notwithstanding the foregoing, this Agreement shall not
terminate unless the Company has furnished you with an
irrevocable written agreement, on terms reasonably
acceptable to you, assuring that if your employment with the
Company is terminated at any time prior to your 65th
birthday other than on account of i) your death, Disability
or Retirement; ii) dismissal by the Company for Cause; or
iii) voluntary termination by you other than for Good
Reason, you will be entitled to a severance benefit
identical in amount and payment terms to that described in
Section 3 of this Agreement.
If a "Change in Control" (as defined under Section 2(A) of
this Agreement) occurs during the original or any renewal
term of this Agreement, this Agreement shall continue in
effect for a period of forty-eight (48) months beyond the
month in which such Change in Control occurred.
If you retire, become disabled or die during the term of
this Agreement, this Agreement will automatically be
terminated as of the date of your Retirement, Disability or
death, provided that a Change in Control has not occurred,
without any act on the Company's part.
2. Definitions
(A) "Cause" shall mean:
1) the willful and continued failure by you to perform
your properly assigned duties after a notice of non-
performance is delivered to you by the President of the
Company, which specifically identifies the manner in
which you have failed to perform your duties, and your
failure within 10 days after receiving such notice to
cure, or to diligently commence reasonable measures to
cure if cure within 10 days is not practical, the non-
performance specified in such notice.
2) the willful engaging by you in misconduct which is
materially injurious to the Company, monetarily or
otherwise; or
3) the conviction or plea of guilty or nolo contendere
to conduct constituting a felony.
(B) A "Change in Control" as referred to under this
Agreement shall be deemed to have occurred if:
(1) 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;
(2) 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
(3) the stockholders of the Company approve a merger
or consolidation of the Company with any other
corporation, other than (a) a merger or
consolidation which would result in the voting
securities of the Company outstanding immediately
prior 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 of the Company (or such
surviving entity) outstanding immediately after
such merger or consolidation or (b) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove
defined) becomes the "beneficial owner" (as
hereinabove defined) of more than 25% of the
combined voting power of the Company's then
outstanding securities; or
(4) the shareholders of the Company approve (a) a plan
of complete liquidation of the Company or (b) the
sale or other disposition of all or substantially
all the Company assets.
(C) "Disability" as referred to in this Agreement shall
mean a determination by the Company's Disability
Committee that you are totally disabled for the
purposes of Long-Term Disability, in accordance with
the Employees' Disability Plan, effective 1/1/76, and
as amended from time to time thereafter or any
successor plan adopted in the future.
(D) "Good Reason" shall mean, without your express written
consent:
1) a significant change in your position, duties,
authority or reporting responsibilities as were in
effect prior to such change;
2) the Company's requiring you to maintain your
principal office or conduct your principal duties
in a location other than the current headquarters
of the Company or any future headquarters of the
Company provided that it is located within a
thirty mile radius of its current location; or
3) a reduction by the Company in your base salary or
the discontinuance (without replacing with
substantially equivalent plans) of the Company's
Long-Term Incentive Plan, Short-Term Incentive
Plan or 1995 Stock Option Plan or any modification
of such plans which would have the effect of
materially reducing your benefits thereunder.
(E) "Retirement" as referred to in this Agreement shall
mean the date, either the Early Retirement Date or
Normal Retirement Date, upon which you begin to receive
benefits in accordance with the Employees' Retirement
Plan effective 12/15/59, as now and hereafter from time
to time amended; or any successor plan adopted in the
future.
3. Severance Benefit upon Termination of Employment Other Than
Following a Change in Control
In the event of termination of your employment during the
term of this agreement (and prior to any Change in Control)
other than on account of i) your death, Disability, or
Retirement; ii) dismissal by the Company for Cause; or iii)
voluntary termination by you other than for Good Reason,
then the Company shall pay to you a severance benefit of two
times your annual salary in effect prior to such
termination, payable in 52 bi-weekly payments. Any amounts
payable under this Section 3 will be offset by any amounts
payable under The Hartford Steam Boiler Inspection and
Insurance Company Severance Plan.
4. Termination Following Change in Control
(A) In consideration of this Agreement and subject to its
terms and conditions, you agree to remain in the employ
of the Company for a period of six months subsequent to
a Change in Control of the Company.
(B) If a Change in Control of the Company has occurred, you
will be entitled to the severance payment described in
Section 5 at the time specified therein if any of the
following events described below occur:
(1) if within six months of the Change in Control you
are dismissed from the Company for any reason
other than Retirement, Disability or for Cause; or
(2) if after six months you voluntarily leave or are
dismissed from the Company for any reason other
than Retirement, Disability, or for Cause.
5. Severance Payment for Termination Following a Change in
Control
(A) In lieu of any further salary payments to you for
periods subsequent to the date of termination of your
employment, the Company shall pay as severance pay to
you a lump sum severance payment (the "Severance
Payment") equal to 2.99 times your "base amount", as
defined in section 280G of the Internal Revenue Code of
1986, as amended (the "Code"). Such base amount shall
be determined in accordance with temporary or final
regulations, if any, promulgated under section 280G of
the Code and based upon the advice of the tax counsel
referred to in paragraph (B) below.
(B) The Severance Payment shall be reduced by the amount of
any other payment or the value of any benefit received
or to be received by you in connection with a Change in
Control of the Company or your termination of
employment (whether pursuant to the terms of this
Agreement or any other plan, agreement or arrangement
with the Company, any person whose actions result in a
Change of Control, or any person affiliated with the
Company or such person) unless:
(1) you shall have effectively waived your
receipt or enjoyment of such payment or
benefit prior to the date of payment of the
Severance Payment;
(2) in the opinion of tax counsel selected by the
Company's independent auditors and acceptable
to you, such other payment or benefit does
not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the
Code; or
(3) in the opinion of such tax counsel, the
Severance Payment (in its full amount or as
partially reduced under this paragraph (B),
as the case may be) plus all other payments
or benefits which constitute "parachute
payments" within the meaning of section
280G(b)(2) of the Code are reasonable
compensation for services actually rendered,
within the meaning of section 280G(b)(2) of
the Code or are otherwise not subject to
disallowance as a deduction by reason of
Section 280G of the Code. The value of any
non-cash benefit or any deferred payment or
benefit shall be determined by the Company's
independent auditors in accordance with the
principles of section 280G(d)(3) and (4) of
the Code.
(C) Except to the extent that such payments would result
(or, if paid after the Severance Payment, would have
resulted) under paragraph (B) above, in a reduction in
the Severance Payment, the Company shall also pay to
you all legal fees and expenses incurred by you as a
result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing
any such termination) or in seeking to obtain or
enforce any right or benefit provided by this Agreement
or in connection with any tax audit or proceeding to
the extent attributable to the application of section
4999 of the Code to any payment or benefit provided in
paragraph (D), below, or within five (5) days after
your request for payment accompanied with such evidence
of fees and expenses incurred as the Company reasonably
may require.
(D) The payments provided for in paragraphs (A) and (C),
above, shall (except as otherwise provided therein) be
made not later than the fifth day following the date of
termination of your employment, provided, however, that
if the amounts of such payments, and the limitations on
such payments set forth in paragraph (B) above, cannot
be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of
such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event
later than the thirtieth day after the date of your
termination of employment. In the event that the
amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess
shall constitute a loan by the Company to you, payable
on the fifth day after demand by the Company (together
with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(E) In addition to all other amounts payable to you under
this Section 5, you shall be entitled to receive all
benefits payable to you under The Hartford Steam Boiler
Inspection and Insurance Company Employees' Retirement
Plan, Thrift Incentive Plan, Employee Stock Ownership
Plan and any other plan or agreement relating to
retirement benefits the payments under which are exempt
from treatment as "parachute payments" pursuant to
Section 280G(b)(6) of the Code.
6. No Duty to Mitigate
You shall not be required to mitigate the amount of any
payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment
or benefit provided for under this Agreement be reduced by
any compensation earned by you as the result of employment
by another employer, by retirement benefits, by offset
against any amount claimed to be owed by you to the Company,
or otherwise except as specifically provided under Sections
3, 4 and 5 hereof.
7. Arbitration
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by
arbitration in Hartford, Connecticut in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction.
8. Validity
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in
full force and effect.
9. Successors; Binding Agreement
(A) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and
to the same extent that the Company would be required
to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in
the same amount and on the same terms as you would be
entitled to hereunder if any of the events described
under Section 3 or Section 4 (B)(1) or (2) had
occurred. As used in this Agreement "Company" shall
mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(B) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives,
executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die
while any amount would still be payable to you
hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
your devisee, legatee or other designee or if there is
no such designee, to your estate.
10. Notice
For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be
directed to the attention of the Board with a copy to the
Corporate Secretary of the Company, or to such other address
as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Confidentiality
During the term of this Agreement and thereafter, you agree
that you will not, without the express written consent of
the Company, make use of or divulge to any person, firm or
corporation, any trade or business secret or other
confidential information which may be disclosed to you by
the Company or any of its subsidiaries or as a result of
your employment with the Company excepting only such
information which shall be made public without any fault on
your part and such information as you are obligated to
disclose pursuant to legal process. In addition, the
foregoing provision shall not impair your ability to
exercise your good faith judgment as to disclosures in
connection with your duties hereunder.
12. Miscellaneous
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as
may be specifically designated by the Board. No waiver by
either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations oral or
otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not
expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Connecticut. All references to sections of the Exchange Act
or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations
of the Company under Section 3, 4 and 5 shall survive the
expiration of the term of this Agreement.
13. Unfunded Obligations; Trust Agreement
The Company will pay from its general assets all payments 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.
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 your
favor and your rights under this Agreement and under any
such arrangement shall be those of a general unsecured
creditor of the Company.
14. Assignment and Alienation
Benefits under this Agreement 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 you become bankrupt or
attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefits under this
Agreement, such benefit shall, in the discretion of the
Company, cease and terminate, in which event the Company may
hold or apply the same or any part thereof for your benefit,
your beneficiary, your spouse, children, other dependents or
any of such individuals, in such manner and in such
proportion as the Company may deem proper.
If you understand and are in agreement with the aforementioned
terms and conditions, please sign and date this Agreement in the
spaces indicated and return one copy to the Company.
Very truly yours,
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
BY /s/ Gordon W. Kreh
Gordon W. Kreh, President
Accepted this ____ day of
___________________, 1995
By
/s/ Saul L. Basch
Exhibit (10)(iii)(o)
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement, effective as of the
Closing under the Contribution Agreement among The Dow Chemical
Company, The Hartford Steam Boiler Inspection and Insurance
Company, Dow Environmental Inc., and Radian Corporation (the
"Effective Date"), is by and between Radian International LLC
(the "Company") and Donald M. Carlton (the "Executive").
WHEREAS, the parties desire to enter into this Agreement
pertaining to the employment of the Executive by the Company;
NOW THEREFORE, the Company and the Executive agree as follows:
1. Term of Employment
1.1 Term of Employment. "Term of Employment" for purposes of
this Agreement is the period of time beginning on the
Effective Date and ending on the third anniversary of the
Effective Date (unless sooner terminated pursuant to this
Agreement).
2. Employment
2.1 Offer and Acceptance of Employment. Subject to the terms and
conditions of this Agreement, the Company agrees to employ
Executive during the Term of Employment and Executive agrees
to accept such employment and to provide services during the
Term of Employment in accordance with this Agreement.
2.2 Position. At the commencement of the Term of Employment,
Executive shall be employed as a senior executive.
Executive's position, authority and responsibilities and the
type of work Executive is asked to perform, however, shall
be determined by the Company in its sole discretion subject
to the direction of the Members Committee of the Company
(the "Members Committee"); provided that, nothing in this
paragraph shall in any way override Executive's right to
terminate this Agreement for "Good Reason" as set forth in
Paragraph 5.5.
2.3 Performance of Duties. Executive agrees to devote such
attention and time to the business and affairs of the
Company as is customary for the type of position held by
Executive and, to the extent necessary to discharge the
responsibilities and duties assigned to Executive under this
Agreement, to use Executive's reasonable best efforts to
perform such responsibilities faithfully and efficiently.
2.4 Sharing Duties. Nothing in this Agreement shall preclude the
Company from designating another person or persons to share
the responsibilities and the duties of the Executive and,
except as specified by the Company, no such designation
shall be considered a termination of the Executive's
employment with the Company or a basis for Termination by
Executive for Good Reason pursuant to Paragraph 5.5,
provided Executive's continuing responsibilities and duties
are consistent with senior executive status.
3. Base Compensation and Benefits
3.1 Base Salary. During the Term of Employment, Executive shall
receive a base salary at a monthly rate of $30,850. The base
salary shall be reviewed at least annually by the Members
Committee. Base salary may be adjusted upwardly but shall
not be reduced except to the extent that reductions of the
same percentage are being made at the same time to the
salaries of all other Company officers at or above the vice-
president level, and such base salary shall be restored to
its prior level when, and to the same extent as, the
restoration that applies to the other officers.
3.2 Savings and Retirement Plans. During the Term of Employment,
Executive shall be entitled to participate in all savings
and retirement plans and programs applicable to other key
executives of the Company.
3.3 Employee Welfare Benefit Plans. During the Term of
Employment, Executive and/or Executive's family, as the case
may be, shall be eligible for participation in, and shall
receive all benefits under, welfare benefit plans provided
by the Company to its employees.
3.4 Expenses. During the Term of Employment, Executive shall be
entitled to receive prompt reimbursement for all reasonable
expenses for entertainment, travel, meals, lodging and
similar business expenses which are authorized by the
Company and actually incurred by the Executive in the
performance of his employment by the Company in accordance
with the policies and procedures of the Company.
3.5 Vacation. During the Term of Employment, Executive shall be
entitled to paid vacation in accordance with the vacation
policy of the Company.
4. Other Compensation and Benefits
4.1 Short-Term Incentive. Executive will be eligible to
participate in a Company short-term incentive compensation
program covering the one year period beginning on the
Effective Date ("the 1996 Short-Term Plan"). The maximum
amount to be awarded to Executive under the 1996 Short-term
Plan is fifty percent of executive's initial annual base
salary for 1996. The performance criteria used to determine
the actual payout amount shall be determined by the Members
Committee. The rules for the 1996 Short-term Plan, regarding
Method and Time of Award, Rights on Termination of
Employment, and Death of a Participant, shall be the same as
the 1995 Radian Officers' Short-Term Incentive Compensation
Plan, except that payment, if any, under the 1996 Short-Term
Plan will be paid as soon as possible after the first
anniversary of the Effective Date.
4.2 Long-Term Incentive. The Members Committee will adopt an
incentive compensation plan for the period beginning on the
Effective Date and continuing through 1998 ("the Long-term
Plan"). Under the Long-term Plan, Executive will receive a
minimum payment consisting of a share of a pool of
$1,200,000, which will be established by the Company and
distributed among Executive, [intentionally deleted], with
Executive's share of such pool to be determined by the
Members Committee in its sole discretion. Executive will
also be eligible to receive an additional payment under the
Long-term Plan, contingent upon Company performance. Within
three months of the Effective Date, the Members Committee
will establish financial/business goals under the Long-term
Plan. If the Company achieves the goals set out in the
Long-term Plan established by the Members Committee,
Executive will receive, in addition to the minimum payment
set forth above, a share of a pool of $2,400,000, which will
be established by the Company and distributed among
Executive, [intentionally deleted], with Executive's share of such
pool to be determined by the Members Committee in it sole
discretion. Performance results above or below the Long-term
Plan goal(s) will increase or reduce the amount of this
additional pool, according to the Long-term Plan formula.
Payout to Executive under the Long-term Plan will be made in
the first quarter of 1999. If Executive dies, becomes
totally disabled (as defined in Paragraph 5.2), or retires
with the written consent of the Company, on or before
December 31, 1998, the payment to Executive or his
beneficiary under the Long-term Plan shall be prorated
according to the number of months of employment in the
period beginning on the Effective Date and ending on
December 31, 1998. If Executive's employment with the
Company is terminated on or before December 31, 1998, for
reasons other than Cause (as defined in Paragraph 5.4) or is
terminated on or before December 31, 1998, by Executive for
Good Reason (as defined in Paragraph 5.5) unless in either
case Executive elects under either Paragraph 5.3 or 5.5, as
the case may be, to compete without regard to the Provisions
of Paragraph 8. 1, Executive shall be entitled to receive in
the first quarter of 1999 a payment under the Long-term Plan
as if Executive had remained employed with the Company
through December 31, 1998. If Executive is terminated by the
Company for Cause on or before December 31, 1998, Executive
shall lose any right to receive any payment under the
Long-term Plan. If one or more of the participants in the
Long-term Plan terminates employment with the Company on or
before December 31, 1998, for reasons making them ineligible
for any payout under the Long-term Plan or eligible for only
a prorated payment under the Long-term Plan, the Members
Committee may reduce the size of either or both pools by an
amount or amounts to be determined by the Members Committee
in its sole discretion.
4.3 Radian Corporation Supplemental Executive Retirement Plan.
During the Term of Employment of Executive by the Company,
Company shall maintain the Radian Corporation Supplemental
Executive Retirement Plan, effective January 1, 1991, as
modified and in effect on January 1, 1995, or the
substantial equivalent thereof, in effect for the benefit of
Executive.
4.4 Salary Continuation Agreement. During the Term of Employment
of Executive by the Company, Company shall maintain the
Executive's January 1, 1986, and April 4, 1989, Salary
Continuation Agreements with Radian, or the substantial
equivalent thereof, in effect for the benefit of Executive.
4.5 Post-employment Medical Coverage. In the event of
termination of employment of Executive during the Term of
Employment for reasons other than death, disability, "Cause"
(defined in Paragraph 5.4), or voluntary termination other
than for "Good Reason" (defined in Paragraph 5.5), prior to
the time Executive is eligible for Medicare benefits, then
medical insurance coverage comparable to coverage provided
to officers of the Company on the date of Executive's
termination shall be provided by Company for Executive,
Executive's spouse and dependents, the full cost of which
shall be paid by Executive, until Executive is eligible for
coverage under Medicare or another group plan.
5. Termination of Employment
5.1 Death. This Agreement shall terminate automatically upon
Executive's death during the Term of Employment. In the
event of such termination, the Company shall pay to
Executive's estate within 60 days after the date of
Executive's death, all benefits and compensation accrued
under this Agreement prior to the date of Executive's death,
but will have no further obligation under this Agreement to
pay any additional base salary.
5.2 Disability. This Agreement shall terminate
automatically upon Executive's permanent total disability
during the Term of Employment. In the event of such
termination, the Company shall pay to Executive within 60
days after the date of termination under this Paragraph 5.2
all benefits and compensation accrued hereunder prior to the
date of such termination but will have no further obligation
under this Agreement to pay any additional base salary. For
the purposes of this Agreement, "total disability" means
physical or mental incapacity that qualifies Executive to
receive disability benefits under the Federal Social
Security Act and prevents Executive from engaging in any
employment with the Company or in any other employment or
occupation for remuneration or profit consistent with
Executive's qualifications and experience.
5.3 Termination by the Company without Cause. The Company may
terminate this Agreement and Executive's employment under
this Agreement without Cause at any time upon written notice
to Executive. Company shall pay Executive his base salary
accrued through the date of such termination. In the event
of termination of Executive's employment pursuant to this
Paragraph 5.3, Executive shall be relieved of his
obligations under Article 2 of this Agreement, and shall be
free to seek other employment and shall have the option
either to (i) compete without regard to the provisions of
Paragraph 8.1 or (ii) to comply with Paragraph 8.1 and
receive from the Company all payments and all benefits under
this Agreement which would have been made to him or accrued
to him in the absence of termination by the Company without
Cause. Executive shall exercise such option by a written
notice to the Company within thirty (30) days following
termination pursuant to this Paragraph 5.3. If Executive
fails to provide written notice to the Company, Executive
will be deemed to have elected to compete without regard to
the provisions of Paragraph 8. 1. In the event that
Executive elects (by notice or by default) to compete
without regard to the provisions of Paragraph 8.1, such
notice shall be accompanied by any payments made by the
Company to Executive which accrued after the date of such
termination and the Company will be relieved from any
further obligations under this Agreement.
5.4 Termination by the Company for Cause. The Company may
terminate Executive's employment for "Cause". For the
purpose of this Agreement, "Cause" for termination of
Executive means (i) the repetitive failure by the Executive
to substantially perform the Executive's duties as requested
by the Members Committee provided that the duties requested
by the Members Committee are consistent with senior
executive status in the Company and with continued residence
in Austin, Texas, (ii) any act or failure to act by
Executive which constitutes gross negligence or willful
misfeasance or malfeasance in the performance of his duties,
(iii) the conviction of Executive of a felony, (iv) conduct
by the Executive that involves theft, fraud or dishonesty,
or (v) the Executive's violation of the provisions of
Articles 7 or 8 of this Agreement. "Cause" does not include
an isolated, insubstantial and inadvertent action taken, or
failure not occurring in bad faith, and which is remedied by
Executive promptly after receipt of written notice thereof
given by the Company. If Executive's employment is
terminated for Cause or if Executive resigns voluntarily,
Company shall pay Executive his base salary accrued through
the date of such termination or resignation, whereupon
Company shall have no further obligations to Executive under
this Agreement.
5.5 Termination by Executive for Good Reason. Executive's
employment may be terminated by Executive for "Good Reason".
For purposes of this Agreement, "Good Reason" means (i) the
assignment to Executive of any duties inconsistent in a
material respect with senior executive status in the
Company; (ii) any material failure by Company to comply with
the provisions of Articles 3 and 4 of this Agreement or
(iii) any requirement by the Company that Executive relocate
to a city other than Austin, Texas, or the assignment of job
duties or responsibilities which are inconsistent with
Executive's continued residence in Austin, Texas (except for
travel reasonably required in the performance of the
Executive's job duties or responsibilities). Executive shall
not be entitled to terminate for Good Reason by reason of an
isolated, insubstantial and inadvertent action taken or
failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of written notice thereof
given by Executive. The parties to this Agreement understand
that although Company has the right pursuant to Article 2 of
this Agreement to change the position, authority,
responsibilities and type of work Executive is asked to
perform, any material change which is inconsistent with
senior executive status shall entitle Executive to exercise
the termination right set out in this Paragraph 5.5.
Executive shall have a period of thirty (30) days from the
date of any event which constitutes "Good Reason" under this
Paragraph 5.5 to exercise his termination right under this
Paragraph 5.5. At the expiration of the thirty (30) day
period, the termination right under this Paragraph 5.5 is
waived with respect to that particular change but not with
respect to any additional change in position, authority,
responsibilities or type of work required by the Company. In
the event of termination of Executive's employment by
Executive for Good Reason pursuant to this Paragraph 5.5,
Executive shall be relieved of his obligations under Article
2 and shall be free to seek other employment and shall have
the option either to (i) compete without regard to the
provisions of Paragraph 8.1 (in which case Company shall be
relieved of all obligations to Executive under this
Agreement, including but not limited to the payments under
the 1996 Short-term Plan set forth in Paragraph 4.1 and the
Long-term Plan set forth in Paragraph 4.2) or (ii) receive
benefits hereunder which would have been made to him or
accrued to him in the absence of termination of this
Agreement by Executive for Good Reason. Executive shall
exercise such option by a written notice to the Company
within 30 days following termination pursuant to this
Paragraph 5.5. If Executive fails to provide written notice
to the Company, Executive will be deemed to have elected to
compete without regard to the provisions of Paragraph 8.l.
If Executive elects (by notice or by default) to compete
without regard to the provisions of Paragraph 8.1, such
notice shall be accompanied by any payments made by the
Company to Executive which accrued after the date of such
termination and the Company will be relieved from any
further obligations under this Agreement.
6. Set-Off
6.1 Set-Off. The Company shall be entitled to set off against
the amounts payable to the Executive under this Agreement,
any amounts owed to the Company by the Executive.
7. Confidential Information
7.1 Non-disclosure of Confidential Information. The Executive
agrees to hold in a fiduciary capacity for the benefit of
the Company all proprietary or confidential information,
knowledge or data relating to the Company which shall have
been obtained by Executive during Executive's employment by
the Company as well as all proprietary and confidential
information of a third party to which Executive has access
during Executive's employment by the Company, provided the
Company is under an obligation of confidence to said third
party regarding such information. During and after the end
of the Term of Employment, except as may be required by the
lawful order of a court or government agency of competent
jurisdiction, Executive shall not, without the prior written
consent of the Company, communicate or divulge any such
information, knowledge or data to anyone not bound by an
obligation of confidence to the Company, or utilize such
information, knowledge or data for any purpose other than
for the Company's benefit and, where applicable, not
communicate or divulge any third party information without
said third party's prior written permission. The Executive's
obligations under this Paragraph 7.1 shall continue for five
years following Executive's termination of employment. For
purposes of this Agreement proprietary or confidential
information does not include information which is or becomes
public knowledge through no fault of the Company or
Executive, or information that is or becomes known to others
as a result of disclosure by a person or entity other than
Executive who is not in breach of a confidentiality
obligation to the Company or, where appropriate, to a third
party in making such disclosure.
7.2 Return of Company Property. Upon the termination of
Executive's employment or at the Company's earlier request,
the Executive will promptly return to the Company any and
all records, documents, physical property, information,
computer disks or other materials relating to the business
of the Company developed or obtained by the Executive during
the Executive's course of employment with the Company.
7.3 Inventions. The Executive shall keep the Company informed
of, and shall execute such assignments as may be necessary
to transfer to the Company the benefits of, any copyrights,
inventions, discoveries, improvements, trade secrets,
developments, processes, and procedures made by the
Executive, in whole or in part, or conceived by the
Executive either alone or with others, which result from any
work which the Executive may do for or at the request of the
Company, whether or not conceived by the Executive while at
work, on holiday, on vacation, or off the premises of the
Company including such of the foregoing items that are
conceived during the course of employment and developed or
perfected after the Executive's termination of employment.
The Executive shall, without additional compensation, assist
the Company or any other person or entity nominated by it,
in an effort to obtain copyrights, patents, trademarks and
service marks and the Executive agrees to execute all
documents and to take all other actions which are necessary
or appropriate to secure to the Company the benefits
thereof. Such copyrights, patents, trademarks and service
marks shall become the property of the Company. The
Executive shall deliver to the Company all sketches,
drawings, models, figures, plans, outlines, descriptions or
other information with respect thereto.
7.4 Disclosure to Court or Agency. To the extent that any court
or government agency seeks to have the Executive disclose
proprietary or confidential information, the Executive shall
promptly inform the Company, and the Executive shall take
all reasonable steps to prevent disclosure of confidential
information until the Company has been informed of such
requested disclosure, and the Company has an opportunity to
respond to such court or government agency. To the extent
that the Executive obtains information on behalf of the
Company that may be subject to attorney-client privilege as
to the Company's attorneys, the Executive shall take all
reasonable steps to maintain the confidentiality of such
information and to preserve such privilege.
8. Covenant Not to Compete
8.1 Covenant Not to Compete. If Executive's employment
terminates during the Term of Employment for any reason,
then for the longer of one year following termination or the
unexpired portion of the Term of Employment, Executive shall
not participate in the management of, or act as a consultant
for or an employee of, or directly or indirectly perform
services (as an employee, manager, consultant, independent
contractor, advisor or otherwise) for, or invest in any
business operation, enterprise or organization which engages
in significant competition with any line of business at the
time actively conducted by the Company in any geographic
area where such business is then conducted. This Paragraph
8.1 shall not apply if Executive is terminated without Cause
under Paragraph 5.3 and provides notice under such paragraph
to have this covenant not apply. This Paragraph 8.1 shall
not apply if Executive terminates for Good Reason under
Paragraph 5.5 and provides notice under such paragraph.
9. Equitable Remedies
9.1 Remedy in the Event of Breach. Executive acknowledges that
damages are an inadequate remedy for breach of Articles 7 or
8 because of the difficulty of ascertaining the amount of
damages that would be suffered by the Company in the event
Articles 7 or 8 are breached, and Executive therefore agrees
that the Company may seek injunctive or other equitable
relief against any breach of this Agreement without bond or
any other security being required.
10. Notices and Communications
10.1 All notices and other communications under this Agreement
shall be in writing and shall be effective when hand
delivered to the other party or when sent by facsimile or
when mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed to the parties at the
addresses set forth below or such other address as either
party shall have furnished to the other in writing in
accordance herewith:
In the case of the Company:
Chairman, Members Committee
c/o Radian International LLC
8501 North Mopac Boulevard
Austin, Texas 78759
FAX: (517) 636-0278
with a copy to:
The Dow Chemical Company
Attn.: Human Resources Legal
Employee Development Center
Midland, Michigan 48674
FAX: (517) 638-9793
In the case of the Executive:
Donald M. Carlton
c/o Radian International LLC
8501 North Mopac Boulevard
Austin, Texas 78759
FAX: (512) 419-6282
11. Miscellaneous
11.1 Non-assignability. The rights and obligations extended by
the Company to Executive under this Agreement are personal
to Executive and shall not be assignable by Executive
without the prior written consent of the Company.
11.2 Withholding. All compensation payable under this Agreement
shall be subject to customary withholding taxes and other
employment taxes as required with respect to compensation
paid by a corporation to an employee and the amount of
compensation payable under this Agreement shall be reduced
appropriately to reflect the amount of any required
withholding. The Company shall have no obligation to make
any payments to the Executive or to make the Executive whole
for the amount of any required taxes.
11.3 Nonalienation. The interests of the Executive under this
Agreement are not subject to the claims of the Executive's
creditors, other than the Company, and may not otherwise be
voluntarily or involuntarily assigned, alienated or
encumbered.
11.4 Waiver of Breach. The waiver by either the Company or the
Executive of a breach of any provision of this Agreement
shall not operate as or be deemed a waiver of any subsequent
breach by either the Company or the Executive. Continuation
of payments under this Agreement by the Company following a
breach by the Executive of any provision of this Agreement
shall not preclude the Company from thereafter terminating
said payments based upon the same violation.
11.5 Enforceability . This Agreement shall inure to the benefit
of and be enforceable by the parties, and their respective
heirs, personal representatives, successors and assigns.
11.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the
State of Delaware.
11.7 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
11.8 Captions. The captions contained in this Agreement are not
part of the provisions of this Agreement and shall have no
force or effect.
11.9 Amendments. This Agreement may not be amended or modified
other than by written agreement executed by the parties, nor
may any provision be waived except by a writing signed by
the party waiving such provision.
11.10 Execution of Agreement. This Agreement may be executed in
duplicate originals.
11.11 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject
matter of this Agreement.
IN WITNESS WHEREOF, Company and Executive have caused this
Agreement to be executed.
RADIAN INTERNATIONAL LLC EXECUTIVE
By: /s/ P.E. Hudson /s/ Donald M. Carlton
Name: P. E. Hudson Donald M. Carlton
Title: Treasurer (Interim)
Date: January 30, 1996 Date:
Exhibit (10)(iii)(n)
EXECUTIVE EMPLOYMENT BONUS AGREEMENT
This Executive Employment Bonus Agreement, effective as of the 1st day of
January, 1996 (the "Effective Date"), is by and between The Hartford
Steam Boiler Inspection and Insurance Company ("HSB") and Donald M. Carlton
(the "Executive").
WHEREAS, HSB is a party to a Contribution Agreement dated as of January 30,
1996 under which the businesses of Radian Corporation are to be contributed to
a newly formed joint venture company, Radian International LLC, owned in part
by HSB and in part by The Dow Chemical Company; and
WHEREAS, HSB desires that Executive accept employment with Radian International
LLC and remain in the employ of Radian International LLC for a period of three
(3) years immediately following the date of the Contribution Agreement
NOW THEREFORE, HSB and the Executive agree as follows:
1. Term of Employment
1.1 "Term of Employment" for purposes of this Agreement is the period of time
beginning on the Effective Date and ending on the third anniversary of the
Effective Date.
2. Employment
2.1 Subject to the terms and conditions of this Agreement, Executive agrees to
accept employment with Radian International LLC and to remain in the employ
of Radian International LLC for the Term of Employment.
3. Employment Bonus
3.1 HSB agrees, upon the occurrence of all of the conditions set forth in 3.1.1
through 3.1.3 below, to pay to Executive an employment bonus of Two Hundred
Thousand Dollars ($200,000.00).
3.1.1 Executive accepts employment with Radian International LLC as
of the Effective Date under the terms and conditions of an
Executive Employment Agreement entered into by Executive with
Radian International LLC (the form of which is attached hereto).
3.1.2 Executive remains continuously in the employ of Radian
International LLC during the Term of Employment set forth in
Paragraph 1.1.
3.1.3 Executive has performed duties and responsibilities in connection
with such employment in accordance with the terms and
conditions of the aforementioned Executive Employment
Agreement.
3.2 In the event that Executive has otherwise met the requirements for payment
of the sum set forth in Paragraph 3.1 but Executive's employment is
terminated by Radian International LLC "Without Cause" or by Executive "for
Good Reason" under terms of the aforementioned Executive Employment
Agreement, payment shall be made to Executive under this agreement at
such time of payment as would have occurred had Executive remained employed.
3.3 In the event that Executive has otherwise met the requirements for payment
of the sum set forth in Paragraph 3.1, but dies during the Term of Employment,
such payment shall be made to Executive's estate, in a lump sum, sixty (60)
days after Executive's death. The executor of Executive's estate may request
such payment be made in a reasonable number of installments over a period
not to exceed five (5) years. HSB in its sole discretion may deny this
request.
3.4 In the event that Executive has otherwise met the requirement for
payment of the sum set forth in Paragraph 3.1, but becomes permanently and
totally disabled during the Term of Employment, such payment shall be made to
Executive in a lump sum sixty (60) days following permanent total disablement.
For purposes of this Agreement, "total disability" means physical or mental
incapacity which qualifies Executive to receive disability benefits under the
Federal Social Security Act and prevents Executive from engaging in any
employment with Radian International LLC, or in any other employment or
occupation for remuneration or profit consistent with Executive's
qualifications and experience.
4. Notices and Communications
4.1 All notices and other communications hereunder shall be in writing and
shall be given when hand delivered to the other party or when mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the parties at the addresses set forth below or such other
address as either party shall have furnished to the other in writing
in accordance herewith:
In the case of HSB:
The Hartford Steam Boiler Inspection and Insurance Co.
One State Street, P. O. Box 5024
Hartford, CT 06102-5024
Attention: Robert C. Walker
Senior Vice President and General Counsel
In the case of the Executive
Donald M. Carlton
1355 The High Road
Austin, TX 78746
5. Miscellaneous
5.1 Non-assignability. The rights and obligations extended by HSB to Executive
under this Agreement are personal to Executive and shall not be assignable by
Executive without the prior written consent of HSB.
5.2 Withholding. All compensation payable under this Agreement shall be
subject to customary withholding taxes and other employment taxes as required
with respect to compensation paid by a corporation to an employee and the
amount of compensation payable hereunder shall be reduced appropriately to
reflect the amount of any required withholding. HSB shall have no obligation
to make any payments to the Executive or to make the Executive whole for the
amount of any required taxes.
5.3 Nonalienation. The interests of the Executive under this Agreement are not
subject to the claims of the Executive's creditors, other than HSB, and may not
otherwise be voluntarily or involuntarily assigned, alienated or encumbered.
5.4 Waiver of Breach. The waiver by either HSB or the Executive of a breach of
any provision of this Agreement shall not operate as or be deemed a waiver of
any subsequent breach by either HSB or the Executive. Continuation of
payments under this Agreement by HSB following a breach by the Executive of
any provision of this Agreement shall not preclude HSB from thereafter
terminating said payments based upon the same violation.
5.5 Enforceability. This Agreement shall inure to the benefit of and be
enforceable by the parties hereto, and their respective heirs, personal
representatives, successors and assigns.
5.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Delaware.
5.7 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
5.8 Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
5.9 Amendments. This Agreement may not be amended or modified other than by
written agreement executed by the parties hereto, nor may any provision hereof
be waived except by a writing signed by the party waiving such provision.
5.10 Execution of Agreement. This Agreement may be executed in duplicate
originals.
5.11 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, HSB and Executive have caused this Agreement to be
executed as of the date set forth above.
THE HARTFORD STEAM BOILER EXECUTIVE
INSPECTION AND INSURANCE COMPANY
By /s/ Robert C. Walker /s/ Donald M. Carlton
Robert C. Walker Donald M. Carlton
Senior Vice President and
General Counsel
Exhibit (21)
LIST OF SUBSIDIARIES OF THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY*
STATE/JURISDICTION OF
NAME OF COMPANY INCORPORATION/FORMATION
The Allen Insurance Company Bermuda
The Boiler Inspection and Insurance
Company of Canada (wholly owned by
HSB Engineering Insurance Limited) Canada
EIG Co. Delaware
The Hartford Steam Boiler Inspection
and Insurance Company of Connecticut Connecticut
The Hartford Steam Boiler Inspection and
Insurance Company of Texas Texas
Hartford Steam Boiler Inspection
Technologies California
Hartford Steam Boiler International GmbH Germany
Hartford Steam Boiler (Singapore) PTE Ltd. Singapore
HSB Associates, Inc. New York
HSB Club, Inc. Connecticut
HSB Engineering Insurance Limited
(wholly-owned by EIG Co.) England
HSB Investment Corporation Connecticut
HSB Professional Loss Control, Inc. Tennessee
HSB Reliability Technologies Corp. Florida
Hemisphere Consulting Corp.
(wholly-owned by HSB Reliability
Technologies Corp.) Florida
One State Street Intermediaries
(wholly-owned by HSB Associates, Inc.) Connecticut
The Polytechnic Club, Inc. Connecticut
Radian Corporation Texas
Ra-Hart Investment Company Texas
Radian International LLC Delaware
(40% owned by Radian Corporation)
* This list omits certain subsidiaries which considered in the aggregate
as a single subsidiary, would not constitute a significant subsidiary.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Hartford Steam Boiler Inspection and Insurance Company on Forms S-8
(File Nos. 33-4397 and 33-36519) of our report dated January 22, 1996, on our
audits of the consolidated financial statement schedules of The Hartford Steam
Boiler Inspection and Insurance Company and its subsidiaries as of December
31, 1995 and 1994, and for the three years in the period ended December 31,
1995, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 28, 1996
POWER OF ATTORNEY Exhibit (24)
We, the undersigned directors of The Hartford Steam Boiler
Inspection and Insurance Company, hereby individually appoint
Robert C. Walker and Roberta A. O'Brien, and each of them singly,
with full power of substitution to each, our true and lawful
attorneys with full power to them and each of them singly, to
sign for us in our names in the capacities stated below the Form
10-K, Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1995 for The Hartford Steam Boiler Inspection and
Insurance Company, and any and all amendments to said Form 10-K,
and generally to do all such things in our name and on our behalf
in our capacities as directors that will enable the Company to
comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and
Exchange Commission, which relate to said Form 10-K and the
filing thereof, hereby ratifying and confirming our signatures as
they may be signed by our said attorneys or any one of them to
said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Power of Attorney has been signed by the following
persons in the capacities and on the date indicated.
(Signature) (Title) (Date)
/s/ Gordon W. Kreh
Gordon W. Kreh President, Chief March 25, 1996
Executive Officer
and Director
/s/ Joel B. Alvord
Joel B. Alvord Director March 25, 1996
/s/ Colin G. Campbell
Colin G. Campbell Director March 25, 1996
/s/ Richard G. Dooley
Richard G. Dooley Director March 25, 1996
/s/ William B. Ellis
William B. Ellis Director March 25, 1996
/s/ E. James Ferland
E. James Ferland Director March 25, 1996
/s/ John A. Powers
John A. Powers Director March 25, 1996
/s/ Lois Dickson Rice
Lois Dickson Rice Director March 25, 1996
/s/ John M. Washburn, Jr.
John M. Washburn, Jr. Director March 25, 1996
/s/ Wilson Wilde Director March 25, 1996
Wilson Wilde
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